-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rxv6vMj7pyoWmI/mSV7aIOqVRF2I+J7ZTixXHKb4o9OorY6thvfyH5wkecSv25gm 8f5CJlZSqEvXt68uLfVr/w== 0000950124-98-006790.txt : 19981118 0000950124-98-006790.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950124-98-006790 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19981117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEC CORP CENTRAL INDEX KEY: 0000908610 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 363892082 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-22336 FILM NUMBER: 98752760 BUSINESS ADDRESS: STREET 1: 2850 W GOLF RD STREET 2: SUITE 600 CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 BUSINESS PHONE: 8474394444 MAIL ADDRESS: STREET 1: 2850 W GOLF ROAD CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 10-K/A 1 AMENDMENT #2 TO FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-2 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.....................FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22336 ANTEC CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 36-3892082 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
5720 PEACHTREE PARKWAY, NW NORCROSS, GA 30092 (770) 441-0007 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common stock, $0.01 par value NASDAQ National Market System
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the shares of Registrant's common stock, $0.01 par value, held by nonaffiliates of Registrant was approximately $493,182,560 as of March 13, 1998. At March 13, 1998, 39,329,289 shares of Registrant's common stock, $0.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of Stockholders of ANTEC Corporation are incorporated by reference into Part III. This document consists of 48 pages. Exhibit List is on page 46. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I. Item 1. Business.................................................... 3 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 10 PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....................................... 12 Item 6. Selected Consolidated Historical and Pro Forma Financial Data...................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 14 Item 8. Consolidated Financial Statements and Supplementary Data.... 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 23 PART III. Item 10. Directors and Executive Officers of the Registrant.......... 44 Item 11. Executive Compensation...................................... 44 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 44 Item 13. Certain Relationships and Related Transactions.............. 44 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 45
2 3 PART I ITEM 1. BUSINESS GENERAL ANTEC Corporation ("ANTEC", or herein together with its consolidated subsidiaries, called the "Company") is an international communications technology company primarily serving hybrid fiber/coax ("HFC") broadband networks. The Company was incorporated in Delaware in May 1993 as a wholly-owned subsidiary of Anixter Inc. ("Anixter"), which is a subsidiary of Anixter International Inc. ("Anixter International"). The ANTEC business was originally formed as a division of Anixter in 1969 through the acquisition of a company involved in the cable industry. Commencing in 1991, ANTEC established independent management, sales, marketing and data processing functions and, in 1993, the establishment of ANTEC as a separate and independent corporation was completed. In September 1993, the Company completed an initial public offering (the "Offering") with the sale of 5,400,000 shares of ANTEC common stock by the Company and 3,972,500 shares of ANTEC common stock by Anixter International at an offering price of $18 per share. ANTEC's net proceeds of the Offering were used to reduce its outstanding indebtedness under its Credit Facility by approximately $59.6 million and to redeem all of the ANTEC preferred stock held by Anixter International for approximately $30 million. In May 1994, Anixter International sold 4,000,000 additional shares of its ANTEC common stock. As of December 31, 1997, Anixter International was the beneficial owner of approximately 18% of the outstanding ANTEC common stock. ANTEC strives to develop new or improved products and technology applications, both through its own engineering resources and by forging strategic alliances with other companies. The Company's role in the development of new products is to identify new product needs in the broadband communications industry and, through its own engineering resources and its work with strategic allies, to develop and bring new or improved products to market. ANTEC and its strategic partners develop products and integrated systems that enhance, enable or are part of the emerging interactive, broadband fiber optic, video, voice and data delivery networks in an open network architecture. ANTEC is one of the leading suppliers to the cable industry for fiber optic products. ANTEC also supplies cable system operators with almost all of the products required in a cable television system, including headend, distribution, drop and in-home subscriber products. ANTEC serves its customers through an efficient delivery network consisting of 25 sales and stocking locations throughout the world. ANTEC maintains complete inventories and is able to provide overnight, as well as staged delivery, of product on an "as needed" basis. ANTEC has concentrated primarily on serving the cable television industry and, as a result, has been able to identify and respond to the needs of cable operators making the technological shift to an open network architecture. ANTEC has developed strong relationships with its customers, having served major cable operators such as Tele-Communications, Inc. ("TCI"), Time Warner Cable, Media One, Inc., Comcast Corporation and Cox Communications, Inc. for many years. ANTEC intends to continue: (i) developing innovative products and integrating technologies through strategic alliances with other companies and through internal research and development, (ii) maintaining its strong relationships with its existing customers, and (iii) expanding its customer base to further include both domestic and foreign communications companies. ANTEC intends to achieve these objectives through internal growth and, as favorable opportunities arise, through additional strategic acquisitions. During 1994, ANTEC made several strategic acquisitions. In March 1994, ANTEC acquired Electronic System Products, Inc. ("ESP"), an Atlanta-based engineering consulting firm with core capabilities in digital design, radio frequency ("RF") design and application specific integrated circuit development for the broadband communications industry. ESP has continued to provide engineering consulting services to third 3 4 parties and to support the Company's product development efforts. In August 1994, ANTEC acquired Power Guard, Inc. ("Power Guard"), a leading manufacturer of power supplies and high security enclosures for broadband communications networks. Power Guard's products include uninterruptible, standby and non-standby power supplies and new products being developed to meet the emerging broadband communications network powering needs. In November 1994, ANTEC acquired all of the outstanding stock of Keptel, Inc. ("Keptel"), a designer, manufacturer and marketer of outside plant telecommunications and transmission equipment for both residential and commercial use, primarily by telephone companies. This acquisition provided ANTEC with new product design, development and manufacturing capabilities and expanded the Company's product lines to include a complete family of commercial and residential network interface devices ("NIDs") and splice enclosures for the telephone and cable television markets. Also in 1994, the Company entered into a joint venture, Comunicaciones Broadband, with Scientific-Atlanta, Inc. ("Scientific-Atlanta") to provide a wide range of broadband network communications products and services in Latin America. Late in 1994, the Company purchased Scientific-Atlanta's ownership interest in the joint venture. During the fourth quarter of 1995, the Company and Northern Telecom, Inc. ("Nortel") formed a joint venture company, called Arris Interactive, L.L.C. ("Arris"), of which the Company owns 25%. Arris focuses on development, manufacture and sale of products (marketed under the Cornerstone brand name) that enable the provision of broad range telephone services over the hybrid fiber/coax architectures typically in use domestically and internationally for video distribution. The Company serves as the distribution channel to the domestic cable market for these products. In February 1997 the Company acquired TSX Corporation ("TSX") by a merger of a wholly-owned subsidiary of the Company and TSX. TSX shareholders received one share of ANTEC common stock for each share of TSX common stock they owned. The transaction was tax-free for TSX shareholders and was accounted for as a pooling of interests. At December 31, 1997, TCI, as a result of its prior ownership of TSX common stock, was the beneficial owner of approximately 18% of the outstanding ANTEC common stock. TCI's beneficial ownership includes options to acquire an additional 854,341 shares. The acquisition brought the Company electronic manufacturing capability and enabled the expansion of the Company's product lines to include amplifiers and line extenders and to enhance its laser transmitters and receiver and optical node product lines. In January 1998, ANTEC announced a consolidation plan being implemented concurrently with the creation of the new President & Chief Operating Officer organization in Atlanta. ANTEC will consolidate all of its Rolling Meadows, Illinois corporate and administrative functions into either the Atlanta Technology Center or the Englewood, Colorado TeleWire Supply division headquarters during 1998 and 1999. It is also anticipated as part of this consolidation that the two principal facilities located in Atlanta will be consolidated and that certain international operating and administrative functions located in Miami and Chicago will also be consolidated into Atlanta. In connection with these consolidation changes, ANTEC will take a charge of approximately $10 to $12 million in the first quarter of 1998 reflecting the severance, move and real estate costs associated with these consolidations. CABLE INDUSTRY Cable television is a service that delivers multiple channels of video entertainment to subscribers who pay a monthly fee for the various entertainment services they receive. A cable system consists of three principal segments. The first is the headend where the cable system operator receives television signals via satellite and other sources. The headend facility organizes, processes and retransmits those signals through the second component, the distribution network, to the subscriber. The distribution network consists of fiber optic and coaxial cables and associated optical and electronic equipment which take the original signal from the headend and transmit it throughout the cable system. The third component is the "drop" which extends from the distribution network to the subscriber's home and connects either directly to the subscriber's television set or to a converter box. The converter box may be addressable (a converter which permits the delivery of premium cable services, including pay-per-view programming, by enabling the cable operator to control the subscriber services through the headend) or non-addressable (where premium channels are activated or eliminated by traps installed in the drop system outside the home). 4 5 Industry sources estimate that U.S. cable systems pass 97% of America's TV households and in excess of 68% of those households are subscribers. As a result, the Company expects its future domestic revenues to come primarily from upgrading, rebuilding and maintaining existing cable systems and from new products, rather than from constructing new systems. Construction, maintenance, expansion and upgrade of cable systems require significant capital expenditures by operators for the various system components, including headend equipment, fiber optic and coaxial cable, fiber optic transmitters and receivers, radio frequency amplifiers, various items of distribution electronics and hardware and converters. A major trend in the cable industry has been the continuing expansion of channel capacity in response to the cable operators' desire to provide subscribers with more programming selections, including pay-per-view and additional premium programming services. In addition, the U.S. cable industry has responded to rapid developments in fiber optic technology, digital compression (which allows several channels to be transmitted within the same bandwidth that a single analog channel currently requires), computer electronics and mass storage technology by upgrading the technological capabilities of their systems to market and supply a wide array of communication services. Such upgrades enable not only additional enhanced channel capacity for premium services, but also video-on-demand (a video entertainment and education library available in the home on a real time, essentially unscheduled basis), informational and transactional services, internet access services, interactive entertainment and education services, competitive access services (the by-pass of the local telephone company to access long-distance telephone carriers) and switched voice, data and other two-way telephone communications services. The Company's performance is largely dependent on capital spending for constructing, rebuilding, maintaining or upgrading of domestic cable systems. Approximately 60% of the Company's sales for 1997 came from sales to the domestic cable industry. Capital spending in the cable industry has been cyclical. The amount of capital spending and, therefore, the Company's sales and profits, are affected by a variety of factors, including general economic conditions, availability and cost of capital, other demands and opportunities for capital (such as acquisitions), regulation, demand for cable services, competition and technology, and real or perceived trends or uncertainties in these factors. For example, rate reductions for cable service imposed by the FCC in 1994 caused scheduled capital spending to be delayed. Also during 1995, delays in the passage of the telecommunications bill and increased merger and acquisition activity in the cable industry depressed capital spending. In the first quarter of 1996, the telecommunications bill ("Bill") was approved by Congress and signed by the President. Overall, the Bill allows long-distance carriers, local phone companies and cable companies to provide similar services across their networks. The Bill gives the FCC broad powers over this process and the technology which will be used. The Bill also greatly eases restrictions on ownership of radio and television stations, permits the regional telephone companies to engage in manufacturing and research and development, and is intended to facilitate the increased availability of wireless technologies. The impact of the Bill on the Company and the industry it serves is not known as the FCC, state regulators and the courts must decide how the Bill will be implemented, and the companies must decide what services they will provide in the future. A number of these companies are reviewing various equipment and options, although it is too early to predict what services they will provide. To the extent that the customers of the Company or others decide to offer additional services that utilize technologies or products produced by the Company, the Bill could benefit the Company's business. However, to the extent that additional services are offered by companies that are not customers, or that utilize technologies or products that are not provided by the Company, the Bill could harm the Company's business. Technical developments and strategic decisions by cable system operators and their competitors will significantly affect the Company. Cable systems are now being bypassed by direct broadcast satellite services. New digital technologies enable the compression of many channels into the bandwidth currently used by one analog channel. There are new wireless technologies which could be used to bypass existing distribution systems. The entrance of telephone companies into the cable industry and the consolidation of cable companies and telephone companies, as the result of the new Federal legislation discussed above, may affect not only the level of capital spending in general, but the portion thereof received by the Company. 5 6 In 1997, operators of cable systems continued or intensified efforts to consolidate or simplify their systems. The resulting uncertainty caused delays in expenditures for improvements in these systems. PRINCIPAL PRODUCTS ANTEC has been a major supplier of products to the cable industry since 1969 and provides a broad range of products and services to cable system operators. ANTEC supplies almost all of the products required in a cable system including headend, distribution, drop and in-home subscriber products. ANTEC maintains a significant inventory of headend products which its customers require for signal acquisition and processing. Such products include satellite receivers for signal reception and modulators, amplifiers and equalizers which manipulate signals for further transmission. ANTEC also stocks products that encode or descramble signals for retransmission as premium channels. Processed signals travel to the home along a distribution network of fiber optic or coaxial cable. ANTEC supplies both types of cable, as well as products capable of implementing either system design. Distribution networks, whether fiber optic or coaxial, can be constructed either above or below ground. In an aerial system, the transmission cable is supported by galvanized steel cables, or "strand", which run from pole to pole. ANTEC supplies strand, as well as other products such as bolts, braces, brackets, hooks and anchor rods used for support and attachment. In an underground system, buried transmission cable requires protection and is frequently encased in conduit which ANTEC also supplies. Underground cable systems also require that underground connections be waterproofed. The Company supplies both metal and plastic pedestals which encase and protect such connections. ANTEC also manufacturers power supplies that insert power at various points in the distribution system. In order to meet its customers' needs for ancillary products, the Company supplies various installation materials, tools and other safety equipment. ANTEC is a leading supplier of fiber optic products to the cable industry. Traditionally, cable systems were designed using coaxial cable and a series of amplifiers throughout the distribution network. Today, almost every substantial upgrade or rebuild replaces elements of the traditional system with fiber optic technology. The use of a fiber optic system enables the operator to send its signals greater distances and with less signal degradation than the traditional coaxial system. In addition, fiber optic cable's capacity to transmit a wider bandwidth greater distances than coaxial cable allows for the transmission of more channels to the subscriber's home. The use of fiber optic technology reduces the need for overall maintenance costs associated with active electronic components. ANTEC supplies the key product components of a fiber optic rebuild or upgrade: fiber optic cable, laser transmitters, laser receivers, optical nodes and distribution amplifiers. In a fiber optic network, optical signals are transmitted throughout the distribution system along a fiber optic cable from the headend to the node, where the signal is received and transferred via coaxial cable to the home. Nodes provide the interface between the fiber optic network and the coaxial distribution system. Distribution amplifiers strengthen the signal either on its way to the node or from the node. Laser transmitters convert incoming electronic video signals at the headend to an optical signal which can be transmitted over the fiber optic cable. The laser receiver is able to detect the light coming out of the cable and convert it back into electronic signals for further transport to the home via coaxial cable. In addition to the key components of a fiber optic network, ANTEC sells a variety of ancillary fiber optic products. These products include shelf assemblies in which lasers are mounted, various splicing equipment that allows individual fibers to be connected either mechanically or by a heat fusion process, and splice enclosure cases. ANTEC also provides various fiber optic technology training courses for its customers. Signals travel from the distribution system to the home via the drop which consists primarily of coaxial cable, taps, line passives and splitters. These products, of which ANTEC is a leading supplier under its Regal brand name, primarily serve to split incoming signals for transmission to multiple homes and televisions within a home. ANTEC's Regal taps, line passives and splitters are capable of passing 600 megahertz ("Mhz") and one gigahertz ("Ghz") of signal bandwidth and ANTEC is a leading supplier of such products. In addition, a new line of Regal taps permits the passage of "power" down the distribution system, which is essential to the providing of telephony services. Through its acquisition of Keptel, ANTEC manufactures NIDs which serve as the demarcation point where the signal from the service provider meets the wiring of the subscribers' 6 7 premise. ANTEC has taken additional steps to meet its customers' needs by developing and marketing the Integrated Drop System(SM). A large portion of the products supplied by the Company are manufactured for it by domestic and foreign manufacturers. Approximately 33% of the Company's purchases in 1997 were from its ten largest suppliers. The loss of a significant manufacturing source could adversely affect ANTEC's business, although management believes that any such loss is unlikely to have a lasting impact on its business, since such products are generally available from alternate sources. ANTEC also manufactures certain telecommunications products, including T-1 repeater cases for AT&T and customized wire assemblies. The Company is also a value-added supplier of electronic connectors for industrial original equipment manufacturers and military markets, specializing in low-volume, hard-to-obtain connector products. ANTEC, through ESP, provides consulting services primarily for developers of cable television products. The Company also provides materials management services for several large cable companies, including TCI. These services include providing procurement, storage, shipping, tracking and reporting of product deployment, some of which are on a "just-in-time" basis. The principle portion of the materials management services program provided by the Company is scheduled to end in May 1998. 1997 net sales included approximately $8.9 million of fees related to these materials management services programs. DEVELOPMENTAL PRODUCTS ANTEC is committed to being a technology integrator and product development specialist in the evolving broadband communications market. ANTEC strives to develop new products and technology applications, both through its own engineering resources and by forging strategic alliances with other companies. ANTEC is currently involved in the development of several new products. There can be no assurance that the technology applications under development by ANTEC will be successfully developed or, if successfully developed, that they will be widely used or that ANTEC will otherwise be able to successfully exploit these technology applications. Furthermore, ANTEC's competitors may develop similar or alternative new technology applications which, if successful, could have a material adverse effect on ANTEC. ANTEC's strategic alliances are based on business relationships and generally are not 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 development of new products under development with that partner. SALES AND MARKETING ANTEC maintains strong customer relationships through an extensive and experienced, worldwide sales and marketing force. The sales and marketing team consists of (i) a senior executive sales team that calls on the highest level of customer executives, (ii) an outside sales force organized by geographic regions which focuses on upgrade and rebuild activity on a project by project basis, and (iii) an inside sales group that is responsible for regular phone contact, prompt order entry, timely and accurate delivery and effective sales administration for the many changes frequently required in any substantial rebuild or upgrade activity. In addition, the sales structure includes sales engineers and technicians that can assist customers in system design and specification and can promptly be on site to "trouble shoot" any problems as they arise during a project. An important element of ANTEC's sales strategy is to maintain optimal inventory levels of a wide variety of products to enable prompt delivery to customers. ANTEC also employs an experienced marketing and product management team that focuses on each of the various product categories and works with ANTEC engineers and various technology partners on new products and product improvements. This group is responsible for inventory levels and pricing, delivery requirements, market demand and product positioning and advertising. Product management works closely with the sales team and executive management to assure that customers are getting the benefits of the newest technologies and that the Company is abreast of market trends in the industry. 7 8 The Company utilizes a sophisticated computer system. The system is an on-line, real time, fully integrated system providing the user with cost, product location and availability, credit history, order tracking and material management information, daily sales and profitability information, customer profile information, product inquiry information and the capacity to permit paperless transactions with customers. INTERNATIONAL OPPORTUNITIES Although more than 76% of ANTEC's 1997 sales are sales to U.S. domestic customers, ANTEC believes substantial international opportunities exist. ANTEC has sales offices in Mexico, Argentina, Brazil, the United Kingdom, Italy, Spain, Hong Kong, China and Singapore. SEASONALITY Although the Company's business is not highly seasonal, the Company's sales in the second and third quarters have generally been the strongest as cold weather and the holiday season negatively impact construction and purchasing patterns in the fourth quarter and, to a lesser extent, the first quarter of the year. SIGNIFICANT CUSTOMERS The cable industry is highly concentrated with the majority of U.S. domestic subscribers being served by approximately twenty-five major domestic multi-system operators ("MSOs"). In 1997, over 41% of the Company's revenues were obtained from sales to the twenty-five largest MSOs. Traditionally, a significant portion of the Company's revenue is derived from sales to TCI aggregating $46.6 million, $153.7 million and $157.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. The October 1996 decision by TCI to cease accepting shipments of the products the Company and its competitors traditionally sold to it had a material adverse effect on the Company's financial performance in 1997. According to TCI, its decision to cease accepting products was intended to "ensure the successful deployment of our current inventory and control unnecessary capital spending," and did not reflect any dissatisfaction with the Company's products. TCI did not formally announce a change in this decision, although such a change was implicit in its announcements during the course of 1997 of new construction plans. The Company's sales to TCI increased each quarter during 1997 from the low point in the first quarter. This momentum is expected to continue through 1998, with total sales to TCI expected to be substantially greater in 1998 than 1997 but maybe not as high as years before 1997. The Company is not able to project future sales levels to TCI. A future decision by TCI or other large cable companies to reduce purchases could have a material adverse effect on the Company's business in the future. In addition, the consolidation in the cable industry can have an adverse effect on the Company's business as participants reduce capital expenditures. In 1997 for example, the Company experienced a material slow-down in sales due in part to the impact of trades, swaps and partnerships that occurred among domestic cable operators throughout most of 1997. Recently TCI announced that it had agreed to be acquired by AT&T Corp. The consequences, if any, to the Company of this acquisition are not yet determinable. TURNKEY CONSTRUCTION CONTRACTS In response to TCI's request for turnkey services, the Company has formed a joint venture to provide turnkey construction for TCI. The Company's joint venture partner is a consortium of two firms with experience in construction and project management. To date this joint venture has been awarded the TCI San Francisco, Seattle and Salt Lake City area system upgrades. The specific work to be performed and the type and supplier of the equipment to be used will be specified by TCI and governed by discrete project documentation to be agreed upon by TCI and the joint venture for each segment or phase as the work progresses. To the extent that the Company's products are used in these projects, a substantial portion of these products will, at the beginning, come from TCI's existing inventories. The actual performance of these turnkey services has been subcontracted by the joint venture to the Company's partner, which is a limited liability company with limited resources. 8 9 COMPETITION All aspects of the Company's business are highly competitive. The Company competes with national, regional and local manufacturers, distributors and wholesalers including companies larger than ANTEC, such as General Instrument Corporation and Scientific-Atlanta. Various manufacturers who are suppliers to the Company sell directly as well as through distributors into the cable marketplace. In addition, because of the convergence of the cable, telecommunications and computer industries and rapid technological development, new competitors are entering the cable market. Many of the Company's competitors or potential competitors are substantially larger and have greater resources than the Company. The principal methods of competition are product differentiation, performance and quality; price and terms; and service, technical and administrative support. EMPLOYEES As of December 31, 1997, the Company had approximately 2,500 full-time employees of which approximately 40 were members of a union. The Company believes that its relationship with its employees is excellent. The future success of the Company depends in part on its ability to attract and retain key executive, marketing and sales personnel. Competition for qualified personnel in the cable industry is intense, and the loss of certain key personnel could have a material adverse effect on the Company. The Company has entered into employment contracts with its key executive officers. The Company also has a stock option program which is intended to provide substantial incentives for its key employees to remain with the Company. ITEM 2. PROPERTIES The Company conducts its operations from 25 different locations, two of which are owned and the remainder of which are leased. These facilities consist of sales and administrative offices, warehouses and manufacturing facilities totaling approximately 1,200,000 square feet. The Company's long-term leases expire at various dates through 2005. Two of these leases expire prior to December 31, 1999, and the Company expects to renew these leases, or to obtain alternative space, in the ordinary course of its business. The principal properties are located in Ontario, California; Tinton Falls, New Jersey; Atlanta, Georgia; Denver, Colorado; El Paso, Texas; Raleigh, North Carolina; Rock Falls, Illinois; Juarez, Mexico and Chesham, England. The Company believes that its current properties are adequate for its operations, although the Company is in the process of consolidating its Atlanta, Georgia operations into a newly leased facility. ITEM 3. LEGAL PROCEEDINGS The Company is not currently engaged in any litigation that would have a material adverse effect on its financial condition or results of operations. 9 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1997, no matters were submitted to a vote of the security holders. EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION ---- --- -------- John M. Egan........................... 50 Chairman, Chief Executive Officer and Director Robert J. Stanzione.................... 50 President, Chief Operating Officer and Director Lawrence A. Margolis................... 50 Executive Vice President and Chief Financial Officer Gordon E. Halverson.................... 55 Executive Vice President and Chief Executive Officer, Telewire Supply James L. Faust......................... 56 Executive Vice President, International and Director Daniel J. Distel....................... 51 Vice President and Controller James A. Bauer......................... 56 Senior Vice President, Communications and Administration James E. Knox.......................... 60 General Counsel and Assistant Secretary Randall L. Talcott..................... 37 Treasurer
John M. Egan joined the Company in 1973 and has been President and Chief Executive Officer of ANTEC and its predecessors since 1980. He became Chairman of ANTEC in 1997. During the period 1986-1990, he was also President of Anixter Communications, a division of Anixter. Mr. Egan is on the Board of Directors of the National Cable Television Association ("NCTA"), the Walter Kaitz Foundation (an association seeking to help the cable industry diversify its management workforce to include minorities), and has been actively involved with the Society of Cable Television Engineers and Cable Labs, Inc. Mr. Egan received the NCTA's 1990 Vanguard Award for Associates. Robert J. Stanzione has been President, Chief Operating Officer and Director since January 1998. From October 1995 to December 1997, he was President and Chief Executive Officer of Arris Interactive, a joint venture company of ANTEC and Nortel. From 1969 to 1995, he held various positions with AT&T Corporation. Lawrence A. Margolis has been Executive Vice President, Chief Financial Officer and Secretary of ANTEC since 1992 and was Vice President, General Counsel and Secretary of Anixter from 1986-1992 and General Counsel and Secretary of Anixter from 1984-1986. Prior to 1984, he was a partner at the law firm of Schiff Hardin & Waite. Gordon E. Halverson has been Executive Vice President and Chief Executive Officer, Telewire Supply since April 1997. From 1990 to April 1997, he was Executive Vice President, Sales of ANTEC. During the period 1969-1990, he held various executive positions with predecessors of ANTEC. He received the NCTA's 1993 Vanguard Award for Associates. Mr. Halverson is a member of the NCTA, Society of Cable Television Engineers, Illinois Cable Association, Cable Television Administration and Marketing Society. James L. Faust was Executive Vice President, International from 1995 to February 1998. During the period 1989-1994, he held various executive positions with General Instrument Corporation. Daniel J. Distel has been Vice President and Controller of ANTEC and its predecessors since 1982. He was Corporate Controller for U.S. Reduction Co., an aluminum smelting company, from 1979 to 1982. Prior to 1979, he was an audit manager with Coopers & Lybrand. James A. Bauer has been Senior Vice President Communications and Administration since January 1995. From September 1993 to December 1994, he held various executive positions for ANTEC. For the period 1983-1993, he held various executive positions with Ameritech, Wisconsin Bell and Illinois Bell. 10 11 James E. Knox has been General Counsel and Assistant Secretary since February 1996. He has been Senior Vice President, General Counsel and Secretary of Anixter International Inc. since 1986 and was a partner of Mayer, Brown & Platt from 1992 to 1996. Randall L. Talcott has been Treasurer since May 1996. He has been acting treasurer of ANTEC from 1994 to May 1996. From 1990 to 1994, he held various positions with Anixter International, Inc. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ANTEC Corporation's common stock trades on the NASDAQ National Market System. The following table sets forth the high and low sales prices for the Company's common stock on the NASDAQ.
HIGH LOW ---- --- 1996 First Quarter............................................... $ 19 5/8 $ 14 1/2 Second Quarter.............................................. 18 1/4 13 1/2 Third Quarter............................................... 16 3/8 13 1/2 Fourth Quarter.............................................. 17 5/8 8 1/2 1997 First Quarter............................................... $ 11 5/8 $ 7 1/2 Second Quarter.............................................. 14 5/16 7 3/8 Third Quarter............................................... 15 3/8 10 3/4 Fourth Quarter.............................................. 16 5/8 12 1998 First Quarter (through March 13, 1998)...................... 16 1/2 10 3/8
The Company has not paid dividends on its Common Stock since its inception. The Credit Facility, the Company's primary loan agreement at December 31, 1997, contains covenants which limit the Company's ability to pay dividends. The Company does not anticipate paying any cash dividends in the foreseeable future, and in 1997, such covenants precluded the Company from declaring any dividends on its Common Stock. As of March 13, 1998, there were approximately 482 holders of record of ANTEC common stock. 12 13 ITEM 6. SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA The selected consolidated financial data for each of the three years in the period ended December 31, 1997 set forth below are derived from the accompanying audited consolidated financial statements of the Company and should be read in conjunction with such statements and related notes thereto. The selected consolidated financial data for 1994 and 1993 is derived from the Company's unaudited financial statements. On February 6, 1997, shareholders of ANTEC Corporation and TSX Corporation ("TSX") approved the Plan of Merger ("Merger") dated as of October 28, 1996 among ANTEC Corporation, TSX Corporation and TSX Acquisition Corporation, and the Merger resulting in TSX becoming a wholly-owned subsidiary of ANTEC became effective on the date. Prior to the combination, TSX's fiscal year ended April 30, and ANTEC's fiscal year ended December 31. TSX's historical financial statements for the periods prior to December 31, 1996 had to be adjusted to within 93 days of ANTEC's year-end. Therefore, the statement of operations for the twelve months ended December 31, 1996, 1995, 1994 and 1993 represent ANTEC's fiscal period ended on those dates combined with TSX's twelve months ended the last Saturday in October 1996, 1995, 1994 and 1993, respectively. All intercompany sales between TSX and ANTEC were eliminated. The historical consolidated financial information is not necessarily indicative of the results of future operations and should be read in conjunction with the historical consolidated financial statements of the Company and the related notes thereto included elsewhere in this Report.
1997 1996 1995 1994 1993(5) ---- ---- ---- ---- ------- (IN THOUSANDS, EXCEPT SHARE DATA) CONSOLIDATED OPERATING DATA: Net sales............................... $480,078 $690,877 $738,235 $601,903 $459,828 Cost of sales(1)(2)..................... 365,860 511,646 546,591 462,963 366,678 -------- -------- -------- -------- -------- Gross profit............................ 114,218 179,231 191,644 138,940 93,150 Selling, general and administrative expenses............................. 110,803 125,997 135,046 90,013 67,990 Amortization of goodwill................ 4,927 4,981 4,817 3,160 2,772 Non-recurring items(1)(2)(3)............ 21,550 2,109 21,681 -- -- -------- -------- -------- -------- -------- Operating income (loss)................. (23,062) 46,144 30,100 45,767 22,388 Interest expense and other, net......... 5,916 7,536 10,801 5,529 5,020 Gain on sale of Canadian business(4).... -- (3,835) -- -- -- -------- -------- -------- -------- -------- Income (loss) before income tax expense.............................. (28,978) 42,443 19,299 40,238 17,368 Income tax expense (benefit)............ (7,534) 16,083 10,497 17,526 9,098 -------- -------- -------- -------- -------- Income (loss) from continuing operations........................... (21,444) 26,360 8,802 22,712 8,270 Discontinued operations, net of tax..... -- -- -- (109) 621 -------- -------- -------- -------- -------- Income (loss) from before extraordinary gain, net of tax..................... (21,444) 26,360 8,802 22,603 8,891 Extraordinary gain, net of tax.......... -- -- -- 527 -- -------- -------- -------- -------- -------- Net income (loss)....................... $(21,444) $ 26,360 $ 8,802 $ 23,130 $ 8,891 ======== ======== ======== ======== ======== CONSOLIDATED BALANCE SHEET DATA: Working capital......................... $133,302 $185,288 $165,202 $164,752 $ 81,053 Total assets............................ 443,883 510,249 509,821 472,167 270,472 Long-term debt.......................... 72,339 102,658 117,920 125,197 33,600 Stockholders' equity.................... 295,785 310,388 282,010 250,661 160,158 INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE: Basic................................... $(.55) $.69 $.24 $.74 ======== ======== ======== ======== Diluted................................. $(.55) $.67 $.23 $.67 ======== ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE: Basic................................... $(.55) $.69 $.24 $.75 ======== ======== ======== ======== Diluted................................. $(.55) $.67 $.23 $.69 ======== ======== ======== ========
13 14 - ------------------------- (1) In the first quarter of 1997, in connection with the Merger, the Company recorded merger/integration costs aggregating approximately $28.0 million. Included in the merger/integration charge was a write-off of redundant inventories relating to overlapping product lines and product development efforts totaling approximately $6.5 million which has been reflected in cost of sales. See Note 5 of the Notes to the Consolidated Financial Statements. (2) In the fourth quarter of 1996, the Company recorded a one-time charge to affect the downsizing of the Company's advertising insertion business. Included in the charge was a write-down of inventories related to the advertising insertion business of approximately $1.5 million which has been reflected in cost of sales. See Note 5 of the Notes to the Consolidated Financial Statements. (3) In the third quarter of 1995, the non-recurring charge resulted from the Company's decision to reorganize, streamline and consolidate its existing businesses in order to reduce costs of operations and to refocus its product and market development activities. See Note 5 of the Notes to the Consolidated Financial Statements. (4) In the third quarter of 1996, the Company sold its Canadian distribution business to Cabletel Communications Corporation ("Cabletel"). See Note 6 of the Notes to the Consolidated Financial Statements. (5) The Company was incorporated in May 1993 and commenced independent operations in June 1993. Previously it had been a division of a larger company. As a result, it does not have any historical earnings per share data for 1993 that can be provided on a meaningful, non-pro forma, basis. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and the description of the Company's business included elsewhere in this Report. INDUSTRY CONDITIONS The Company's performance is largely dependent on capital spending for constructing, rebuilding, maintaining or upgrading of domestic cable systems. Approximately 60% of the Company's sales for 1997 came from sales to the domestic cable industry. Capital spending in the cable industry has been cyclical. The amount of capital spending and, therefore, the Company's sales and profits, are affected by a variety of factors, including general economic conditions, availability and cost of capital, other demands and opportunities for capital (such as acquisitions), regulation, demand for cable services, competition and technology, and real or perceived trends or uncertainties in these factors. For example, rate reductions for cable service imposed by the FCC in 1994 caused scheduled capital spending to be delayed. Also during 1995, delays in the passage of the telecommunications bill and increased merger and acquisition activity in the cable industry depressed capital spending. In the first quarter of 1996, the telecommunications bill ("Bill") was approved by Congress and signed by the President. Overall, the Bill allows long-distance carriers, local phone companies and cable companies to provide similar services across their networks. The Bill gives the FCC broad powers over this process and the technology which will be used. The Bill also greatly eases restrictions on ownership of radio and television stations, permits the regional telephone companies to engage in manufacturing and research and development, and is intended to facilitate the increased availability of wireless technologies. The impact of the Bill on the Company and the industry it serves is not known as the FCC, state regulators and the courts must decide how the Bill will be implemented, and the companies must decide what services they will provide in the future. Technical developments and strategic decisions by cable system operators and their competitors will significantly affect the Company. Cable systems are now being bypassed by direct broadcast satellite services. New digital technologies enable the compression of many channels into the bandwidth currently used by one analog channel. There are new wireless technologies which could be used to bypass existing distribution systems. The entrance of telephone companies into the cable industry and the consolidation of cable 14 15 companies and telephone companies, as the result of the new Federal legislation discussed above, may affect not only the level of capital spending in general, but the portion thereof received by the Company. In 1997, operators of cable systems continued or intensified efforts to consolidate or simplify their systems. The resulting uncertainty caused delays in expenditures for improvements in these systems. SIGNIFICANT CUSTOMERS The cable industry is highly concentrated with the majority of U.S. domestic subscribers being served by approximately twenty-five major domestic multi-system operators ("MSOs"). In 1997, over 41% of the Company's revenues were obtained from sales to the twenty-five largest MSOs. Traditionally, a significant portion of the Company's revenue is derived from sales to TCI aggregating $46.6 million, $153.7 million and $157.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. The October 1996 decision by TCI to cease accepting shipments of the products the Company and its competitors traditionally sold to it had a material adverse effect on the Company's financial performance in 1997. According to TCI, its decision to cease accepting products was intended to "ensure the successful deployment of our inventory and control unnecessary capital spending," and did not reflect any dissatisfaction with the Company's products. TCI did not formally announce a change in this decision, although such a change was explicit in its announcements during the course of 1997 of new construction projects. The Company's sales to TCI increased each quarter during 1997 from the low point in the first quarter. The momentum is expected to continue through 1998, with total sales for 1998 to TCI expected to be substantially greater than 1997 but maybe not as high as years before 1997. The Company is not able to project future sales levels to TCI. A future decision by TCI or other large cable companies to reduce purchases could have a material adverse effect on the Company's business in the future. In addition, the consolidation in the cable industry can have an adverse effect on the Company's business as participants reduce capital expenditures. In 1997 for example, the Company experienced a material slow-down in sales due in part to the impact of trades, swaps and partnerships that occurred among domestic cable operators throughout most of 1997. Recently TCI announced that it had agreed to be acquired by AT&T Corp. The consequences, if any, to the Company of this acquisition are not yet determinable. TURNKEY CONSTRUCTION CONTRACTS In response to TCI's request for turnkey services, the Company has formed a joint venture to provide turnkey construction for TCI. The Company's joint venture partner is a consortium of two firms with experience in construction and project management. To date this joint venture has been awarded the TCI San Francisco, Seattle and Salt Lake City area system upgrades. The specific work to be performed and the type and supplier of the equipment to be used will be specified by TCI and governed by discrete project documentation to be agreed upon by TCI and the joint venture for each segment or phase as the work progresses. To the extent that the Company's products are used in these projects, a substantial portion of these products will at the beginning come from TCI's existing inventories. The actual performance of these turnkey services has been subcontracted by the joint venture to the Company's partner, which is a limited liability company with limited resources. MERGER On February 6, 1997, shareholders of ANTEC Corporation and TSX Corporation approved the Plan of Merger ("Merger") dated as of October 28, 1996, among ANTEC Corporation, TSX Corporation and TSX Acquisition Corporation, and the merger became effective on that date. Under the terms of the transaction, TSX shareholders received one share of ANTEC common stock for each share of TSX common stock that they owned, while ANTEC shareholders continued to own their existing shares. The transaction was tax-free for TSX shareholders and was accounted for as a pooling of interests. As a result of the merger, Anixter International Inc. ("Anixter International") and TCI are currently the beneficial owners of approximately 18%, each, of the outstanding ANTEC common stock. TCI's beneficial ownership includes options to acquire an additional 854,341 shares. 15 16 The Merger provided ANTEC with a state-of-the-art manufacturing facility in Juarez, Mexico. This facility will also be utilized to manufacture products which the Company has purchased from others or has others manufacture for it. With the addition of TSX's primary products of optical nodes and distribution amplifiers, ANTEC completed its hybrid fiber/coax product line offering. ANTEC and TSX incurred employee-related and other merger/integration charges in the first quarter of 1997 as a result of the Merger. (See Financial Liquidity and Capital Resources.) RESULTS OF OPERATIONS The following table sets forth certain financial data as a percentage of net sales:
YEARS ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ---- ---- ---- Net sales........................................... 100.0% 100.0% 100.0% Cost of sales....................................... 76.2 74.1 74.0 ----- ----- ----- Gross profit........................................ 23.8 25.9 26.0 Selling, general and administrative expenses........ 23.1 18.2 18.3 Non-recurring items................................. 4.5 0.3 2.9 ----- ----- ----- Operating income (loss)............................. (4.8) 6.7 4.1 Interest expense and other, net..................... 1.2 1.1 1.5 Gain on sale of Canadian business................... -- (0.5) -- ----- ----- ----- Income (loss) before income tax expense (benefit)... (6.0) 6.1 2.6 Income tax expense (benefit)........................ (1.5) 2.3 1.4 ----- ----- ----- Net income (loss)................................... (4.5)% 3.8% 1.2% ===== ===== =====
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 Net Sales. Net sales were $480.1 million in 1997 as compared to $690.9 million in 1996. Of this decrease, approximately $107.1 million was attributable to reduced sales to TCI, approximately $37.6 million was attributable to the completion of a major Australian rebuild during 1996 and the balance was due to the continued softness in the domestic market in general, due largely to the impact of trades, swaps and partnerships that occurred among domestic cable operators throughout most of 1997. The principle portion of the materials management services program provided by the Company is scheduled to end in May 1998. 1997 net sales included approximately $8.9 million of fees related to these materials management services programs. Traditionally, a significant portion of the company's revenue is derived from sales to TCI, aggregating $157.1 million, $153.7 million and $46.6 million for the years ended December 31, 1995, 1996 and 1997, respectively. The October 1996 decision by TCI to cease accepting shipments of the products the Company and its competitors traditionally sold to it had a material adverse effect on the Company's financial performance in 1997. Sales to TCI in 1998 are expected to be substantially greater than 1997 sales, but not as high as prior years. The Company is not able to project future sales levels to TCI. A future decision by TCI or other large cable companies to reduce purchases could have a material adverse effect on the Company's business in the future. Gross Profit. Gross profit in 1997 was $114.2 million as compared to $179.2 million in 1996. Gross profit decreased primarily due to the decrease in net sales. 1997 includes a $6.5 million write-off of redundant inventories relating to overlapping product lines and product development efforts in connection with the Merger. (See Financial Liquidity and Capital Resources.) 1996 includes a $1.5 million inventory write-down related to the one-time advertising insertion business downsizing charge. (See Financial Liquidity and Capital Resources.) Excluding these charges, gross profit percentages decreased to 25.1% in 1997 from 26.2% in 1996 due to the higher mix of distributed versus manufactured product sales in 1997. Gross profit for 1997 includes $1.0 million for the partial reversal of a charge taken in December 1996 by TSX for modifications it had agreed to make to products previously sold by TSX. The partial reversal of this 16 17 charge in the second quarter of 1997 was due to the agreement of the customer during the second quarter to permit products to be modified in the Company's factory instead of in the field as originally contemplated and the determination as the result of testing that was completed during the second quarter that a smaller number of units needed to be modified than originally contemplated. The initial charge for $2.6 million was taken in December 1996 primarily because TSX agreed at that time to replace the lids on 3,447 gate keepers, to install new covers on 58,950 minibridgers, and to replace the plugs and gaskets on 10,771 amplifiers and line extenders for a customer who had purchased these products from TSX over the period 1993 to 1994. The customer in November and December 1996 pressed TSX to agree to make these modifications because of the customer's concern that these products might prematurely fail. TSX believed that the customer's concern was not justified and that it was not obligated to make these modifications under its warranties covering these products. Nevertheless, in order to maintain good relations with a major customer, TSX agreed in December 1996 at the insistence of the customer to make these modifications. Having agreed to make these modifications, TSX believed it was legally obligated to make the modifications without further consideration from the customer other than its forbearance. Although the agreement was not in writing, TSX's understanding was that it was obligated to make the requested modifications to the customer's reasonable satisfaction as soon as practicable at no significant cost or inconvenience to the customer. The Company initially estimated the cost of making the modifications by multiplying the estimated labor and material costs for modifying each unit times the number of units then believed to be involved based upon the number of units that had been sold to the customer. The Company determined that it would cost approximately $2.4 million to complete the modifications for this customer. (This estimate was subsequently revised as described above.) It was contemplated that these modifications would begin promptly and be completed in a few months. However because of a general hold on construction imposed by the customer, only eight thousand dollars was incurred for the modifications in 1997. It currently is contemplated that the modifications will be substantially completed in 1998 and finally completed by March 31, 1999. As explained in Note 4 of the Notes to the Consolidation Financial Statements, the 1996 charge is not reflected in the Consolidated Statement of Operations for 1996 which includes ANTEC's twelve month period ended on December 31, 1996 and TSX's twelve month period ended on the last Saturday in October 1996. Instead the charge, together with the other results of operations for TSX for November and December 1996, was reflected as an adjustment to retained earnings of the combined companies as of December 31, 1996. Selling, General and Administrative ("SG&A") Expenses. SG&A expenses in 1997 were $110.8 million as compared to $126.0 million in 1996. As a percentage of sales, SG&A was 23.1% in 1997 as compared with 18.2% in 1996. The $15.2 million reduction reflects the Company's continued effort to control expenses and the impact of lower sales volumes in 1997. However, since many SG&A items are fixed or semi-fixed in nature and do not fluctuate with sales SG&A increased as a percentage of sales despite the reduction as overall sales were substantially less in 1997. Non-Recurring Items. In the first quarter of 1997, the Company recorded merger/integration costs aggregating approximately $28.0 million. The non-recurring charge included investment banking, legal, accounting and contractual change of control payments associated with the Merger; facility and operational consolidation and reorganization costs due to the combining of various manufacturing operations; and severance costs resulting from the elimination of positions duplicated by the Merger and integration. Also included in the total merger/integration charge was a write-off of redundant inventories totaling approximately $6.5 million which has been reflected in cost of sales for the year ended December 31, 1997. (See Financial Liquidity and Capital Resources.) In the fourth quarter of 1996, the Company recorded a one-time charge of approximately $3.6 million to affect the downsizing of the Company's advertising insertion business. The fourth quarter charge was established to write-down inventories, trade receivables and fixed assets related to the advertising insertion business, and accrue for severance and other related costs. The write-down of inventories related to the advertising insertion business of approximately $1.5 million has been reflected in cost of sales. (See Financial Liquidity and Capital Resources.) Interest Expense and Other, Net. Interest expense and other, net was $5.9 million in 1997 as compared to $7.5 million in 1996. This decrease primarily related to decreased debt levels resulting from lower sales volumes and consequently lower working capital levels in 1997. 17 18 Gain on Sale of Canadian Business. In the third quarter of 1996, the Company sold its Canadian distribution business to Cabletel Communications Corporation ("Cabletel") for approximately $6.0 million in cash and notes, as well as 1,450,000 and 500,000 shares of common stock in Cabletel and ARC International Corporation ("ARC"), respectively, for an aggregate sales price of approximately $12.4 million. The Company recorded a pre-tax gain of approximately $3.8 million in connection with the sale. The Canadian distribution business was immaterial to the Company's consolidated results of operations and financial position. Net Income (Loss). Net loss in 1997 was ($21.4) million as compared to net income of $26.4 million in 1996. This decrease is due to the factors above. TSX Results. Results of operations for the fiscal year ended December 31, 1996, do not include the results of operations for TSX for the two months ended December 31, 1996, since these two months were subsequent to the results for the twelve month period ended October 31, 1996, that were used in pooling accounting. However, net sales for this two month period were $8.7 million, as compared with net sales of $14.8 million for the comparable period in the prior year. Of this decline, approximately $5.0 million was due to the decision by TCI to suspend acceptance of deliveries. TSX incurred an operating loss of $3.6 million for this period as compared with operating income of $2.2 million for the comparable period for the prior year. Again, this change was primarily the result of the TCI decision. TSX had a net loss of $2.6 million for this period as compared with a net income of $1.6 million for the comparable period in the prior year, again as a result of the TCI decision. In addition, TSX reported a charge of approximately $2.6 million during this period as discussed above. COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 Net Sales. Net sales were $690.9 million in 1996 as compared to $738.2 million in 1995. Net sales decreased primarily due to continued softness in the domestic cable TV market, including an abrupt decline in sales to TCI in the fourth quarter of 1996 related to that company's capital spending reduction program implemented in that same period. This domestic softness was partially offset by international sales growth. Gross Profit. Gross profit in 1996 was $179.2 million as compared to $191.6 million in 1995. Gross profit decreased primarily due to the decrease in net sales. 1996 includes a $1.5 million inventory write-down related to the one-time advertising insertion business downsizing charge. (See Financial Liquidity and Capital Resources.) Excluding this charge, gross profit percentages increased to 26.2% in 1996 from 26.0% in 1995 due to changes in product mix, notably an increase in ANTEC manufactured product sales. Selling, General and Administrative ("SG&A") Expenses. SG&A expenses in 1996 were $126.0 million as compared to $135.0 million in 1995. This reduction reflects the impact of ANTEC's reorganized structure and continued expense control program. Non-Recurring Items. In the fourth quarter of 1996, the Company recorded a one-time charge of approximately $3.6 million to affect the downsizing of the Company's advertising insertion business. The fourth quarter charge was established to write-down inventories, trade receivables and fixed assets related to the advertising insertion business, and accrue for severance and other related costs. The write-down of inventories related to the advertising insertion business of approximately $1.5 million has been reflected in cost of sales. (See Financial Liquidity and Capital Resources.) In the third quarter of 1995, a $21.7 million pre-tax non-recurring charge was recorded resulting from the Company's decision to integrate its manufacturing and engineering businesses to capture the potential synergies of its recent acquisitions and streamline its distribution operations, merging two distribution divisions into one, eliminating sales and warehouse facilities. (See Financial Liquidity and Capital Resources.) Interest Expense and Other, Net. Interest expense and other, net was $7.5 million in 1996 as compared to $10.8 million in 1995. This decrease relates primarily to decreased debt levels resulting from the full year impact of improved working capital levels and, to a lesser extent, a lower average interest rate under the Company's credit facility. 18 19 Gain on Sale of Canadian Business. In the third quarter of 1996, the Company sold its Canadian distribution business to Cabletel for approximately $6.0 million in cash and notes, as well as 1,450,000 and 500,000 shares of common stock in Cabletel and ARC, respectively, for an aggregate sales price of approximately $12.4 million. The Company recorded a pre-tax gain of approximately $3.8 million in connection with the sale. The Canadian distribution business was immaterial to the Company's consolidated results of operations and financial position. Net Income (Loss). Net income in 1996 was $26.4 million as compared to $8.8 million in 1995. This increase is due to factors described above. FINANCIAL LIQUIDITY AND CAPITAL RESOURCES Reorganization/Merger Costs In the first quarter of 1997, in connection with the Merger discussed above, the Company recorded merger/integration costs aggregating approximately $28.0 million. The components of the non-recurring charge included $6.9 million related to the investment banking, legal, accounting and contractual change of control payments associated with the Merger; $11.2 million related to facility and operational consolidation and reorganization due to the combining of various manufacturing operations; and $3.4 million related to severance costs resulting from the elimination of positions duplicated by the Merger and integration. The personnel-related costs included charges related to the termination of approximately 200 employees primarily resulting from the factors described above. Also included in the total merger/integration charge was a write-off of redundant inventories totaling approximately $6.5 million which has been reflected in cost of sales for the year ended December 31, 1997. The costs related to the facility and operational consolidation and reorganization were comprised of costs associated with the shutdown of several of the Company's operating locations. These costs consisted of lease termination payments, losses on sale and disposal of building and equipment and other related fixed assets. All of the planned facility closings were completed and related cash costs were expended by the end of 1997. In 1997, the Company paid approximately $2.4 million relating to personnel-related costs which represented the termination of approximately 175 employees. As of December 31, 1997, approximately $2.1 million of cash costs had yet to be expended which consisted of contractual obligations resulting from the Merger and other personnel-related costs. The Company anticipates these costs will be expended in 1998. As of December 31, 1997, there have been no significant adjustments to the liability. During the fourth quarter of 1996, the Company recorded a one-time charge of $3.6 million to affect the downsizing of the Company's advertising insertion business. The fourth quarter provision included: (a) write-downs of inventories, trade receivables and fixed assets related to the advertising insertion business of $1.5 million, $1.1 million and $0.3 million, respectively; and (b) accruals for severance and other related costs of $0.4 million and $0.3 million, respectively. The write-down of inventories of $1.5 million was reflected in cost of sales for the year ended December 31, 1996. Management determined that the downsizing was necessary due to the poor performance of this business's digital advertising insertion product line and the substantial resources that would have been required to ensure the continued marketability of this product line. At December 31, 1997, substantially all of the cash costs had been expended. In the third quarter of 1995, ANTEC announced plans to reorganize the Company in order to reduce costs of operations and to refocus its product and market development activities. The Company's decision to reorganize was a result of the impact of reduced spending in the domestic CATV industry. The Company had expected its aggressive product development and international expansion to be funded by continued increases in spending by domestic customers. When this did not occur, due to softness in the domestic market, the Company took steps necessary to consolidate operations to reflect current customer spending patterns. The four major components of the Company's reorganization plan were to: (1) streamline the distribution organization by merging two divisions into one, resulting in the closing of six sales offices and four warehouse locations and a resultant planned reduction in inventory; (2) refocus product development on those activities that directly support the network elements for the early deployment of hybrid/fiber coax architectures and eliminate or delay spending on other selected projects; (3) concentrate international activities on growing existing programs, especially in Asia and South America; and (4) capture synergies of 1994 acquisitions by 19 20 accelerating integration and consolidation of the engineering and manufacturing operations functions of the acquired businesses. The components of the non-recurring charge included $9.0 million related to personnel-related costs and operating lease commitments for facility closings, $10.0 million for the write-down to net realizable value of inventory in discontinued product lines and $2.7 million for the write-down of other assets. The personnel-related costs included charges related to the termination of approximately 100 employees primarily resulting from the factors described above. The inventory write-down to net realizable value related to the refocus of product development which eliminated selected projects and related inventory and the consolidation of the distribution divisions which eliminated certain competing product lines. In the fourth quarter of 1995, the Company paid approximately $3.0 million relating to the personnel and operating lease costs. In 1996, the Company paid approximately $4.0 million relating to the personnel and operating lease costs. At December 31, 1997, all of the cash costs had been expended. In January 1998, ANTEC announced a consolidation plan being implemented concurrently with the creation of the new President & Chief Operating Officer organization in Atlanta. ANTEC will consolidate all of its Rolling Meadows, Illinois corporate and administrative functions into either the Atlanta Technology Center or the Englewood, Colorado TeleWire Supply division headquarters during 1998 and 1999. It is also anticipated as part of this consolidation that the two principal facilities located in Atlanta will be consolidated and that certain international operating and administrative functions located in Miami and Chicago will also be consolidated into Atlanta. In connection with these consolidation changes, ANTEC will take a charge of approximately $10 to $12 million in the first quarter of 1998 reflecting the severance, move and real estate costs associated with these consolidations. The Company anticipates that these consolidations will reduce annual operating costs by as much as $10 million however, the impact of these savings is not expected to be realized in full until 1999. Financing In March 1995, the Company and a group of banks executed a restatement and amendment to the revolving credit facility (the "Credit Facility") extending the maturity to 1999 and increasing the loan commitments to $225 million. After the reorganization of the Company's business and related non-recurring charge in September 1995, the terms and conditions of the Credit Facility were further amended to enhance the Company's flexibility and reduce the size of the facility to $185 million. As of December 31, 1997, the Company had approximately $23 million of available borrowings under the Credit Facility. The Company is currently in the process of renewing the Credit Facility. The new credit facility is expected to have higher interest costs and will require the Company to pledge certain assets. The Company anticipates the size of the facility will range from $125-135 million. Interest Rates As of December 31, 1997, the Company had approximately $70 million in floating rate indebtedness. The Company has entered into an interest rate swap agreement which effectively fixes the interest rate on a portion of its floating rate obligation. The interest rate swap agreement has a notional principal amount of $50 million and a fixed rate of approximately 6.0%. This agreement expires in 2000. The interest differential paid or received is recognized as an adjustment to interest expense. The fair value of the interest rate swap agreement was estimated using a quote from an outside source and represents the cash requirement as if the agreement had been settled at year end. The fair value of the interest rate swap agreement, which is not reflected in the financial statements, was approximately a $0.2 million liability at December 31, 1997. Foreign Currency A significant portion of the Company's products is manufactured or assembled in Mexico and other countries outside the United States. The Company's sales of its equipment into international markets have been and are expected in the future to be an important part of the Company's business. These foreign operations are subject to the usual risks inherent in conducting operations 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 20 21 and loans, and foreign tax laws. Even though all of the Company's international sales have been dollar denominated, the Company's business could be adversely affected if relevant currencies fluctuate relative to the United States dollar. Capital Expenditures The Company's capital expenditures were $12.8 million in 1997 as compared to $10.5 million in 1996. 1995 capital expenditures of $17.5 million included planned sales office and warehouse improvements and expansion. Except for the impact of the Year 2000 discussed below, the Company had no significant commitments for capital expenditures at December 31, 1997. Cash Flow Cash flows provided by operating activities were $26.8 million, $28.1 million and $35.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. 1997 includes expenses paid related to the Merger. 1996 includes payments made related to the Company's 1995 reorganization. 1995 includes the impact of the Company's efforts to significantly improve working capital levels. Cash flows used by investing activities were ($20.5) million, ($1.6) million and ($23.5) million for the years ended December 31, 1997, 1996 and 1995, respectively. 1997 includes investments in/advances to joint ventures of approximately $7.8 million. In 1996, the Company sold its ownership in the Sumitomo joint venture and received $4.0 million in cash. Also in 1996, ANTEC sold its Canadian distribution business for approximately $6.0 million in cash and notes, as well as 1,450,000 and 500,000 shares of common stock in Cabletel and ARC, respectively, for an aggregate sales price of approximately $12.4 million. 1995 includes planned sales office and warehouse improvements and expansion. In 1995, the Company paid approximately $11.0 million in cash and ANTEC common stock principally resulting from the final settlement of contingent payments for certain 1994 acquisitions. Cash flows used by financing activities were ($26.4) million, ($13.2) million and ($7.5) million for the years ended December 31, 1997, 1996 and 1995, respectively. The net use of ($26.4) million in 1997 primarily reflects the reduction of cash and cash equivalents held from December 31, 1996 to December 31, 1997 of $20.1 million and resultant pay down of corporate debt during the year. Additionally, the use in 1997 was funded by net cash provided by operating activities of $26.8, which positively reflected improved working capital levels (i.e. accounts receivable and inventory) and the negative impact of costs paid relating to the merger/integration. This cash provided by operating activities available to fund financing activities was largely offset by net cash used by investing activities of ($20.5). The net use of ($13.2) million in 1996 reflects positive cash flow from operations of $28.1 million partially used to increase cash and cash equivalents by $13.3 million. The net use of ($7.5) million in 1995 reflects positive results from operations and improved working capital, primarily inventories. These positive cash flows from operations were offset by investing activities of ($23.5) million and an increase in cash and cash equivalents of $4.0 million. NOL Carryforwards As of December 31, 1997, the Company had net operating loss carryforwards ("NOL") for domestic and foreign income tax purposes of approximately $13.2 million and $6.9 million, respectively. The Company established a valuation allowance in accordance with the provisions of SFAS No. 109 Accounting for Income Taxes. The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. As of December 31, 1997, the valuation allowance on deferred tax assets was approximately $4.9 million. The availability of tax benefits of NOL carryforwards to reduce the Company's Federal and state income tax liability is subject to various limitations under the Internal Revenue Code. The availability of tax benefits of NOL carryforwards to reduce the Company's foreign income tax liability is subject to the various tax provisions of the respective countries. Tax benefits arising from NOL carryforwards of approximately $7.7 million originating prior to TSX's quasi-reorganization would be credited directly to additional paid-in capital if and when realized. 21 22 Impact of Year 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a recent assessment, and the Company's ongoing assessment of its computer processing systems, the Company determined that it will be required to modify or replace significant portions of its software to significantly improve those systems and to enable these systems to function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's total Year 2000 project cost and estimates to complete include the estimated costs and time associated with the impact of third party Year 2000 Issues based on presently available information. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. The Company has determined it has no exposure to contingencies related to the Year 2000 Issue for the products it has sold. If any of the Company's suppliers or customers do not, or if the Company itself does not, successfully deal with the Year 2000 Issue, the Company could experience delays in receiving or sending goods that would increase its costs and that could cause the Company to lose business and even customers and could subject the Company to claims for damages. Problems with the Year 2000 Issue could also result in delays in the Company invoicing its customers or in the Company receiving payments from them that would affect the Company's liquidity. Problems with the Year 2000 Issue could affect the activities of the Company's customers to the point that their demand for the Company's products is reduced. The severity of these possible problems would depend on the nature of the problem and how quickly it could be corrected or an alternative implemented, which is unknown at this time. In the extreme such problems could bring the Company to a standstill. The Company, based on its normal interaction with its customers and suppliers and the wide attention the Year 2000 Issue has received, believes that its suppliers and customers will be prepared for the Year 2000 Issue. There can, however, be no assurance that this will be so. The Company has not sought any written assurances from its suppliers or customers because it does not believe that any such assurances would be meaningful. The Company has not yet seen any need for contingency plans for the Year 2000 Issue, but this need will be continuously monitored as the Company acquires more information about the preparations of its suppliers and customers. Some risks of the Year 2000 Issue are beyond the control of the Company and its suppliers and customers. For example no preparations or contingency plan will protect the Company from a down turn in economic activity caused by the possible ripple effect through out the entire economy that could be caused by problems of others with the Year 2000 Issue. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for the system improvement and Year 2000 modifications. The Company anticipates completing the system improvement and the Year 2000 project within one year but not later than March 31, 1999, which is prior to any anticipated impact on its operating systems. The total cost of the system improvement and the Year 2000 project is estimated at approximately $5.0 million and is being funded through operating cash flows. Of the total project cost, approximately $2.0 million is attributable to the purchase of new software and hardware which will be capitalized. The remaining $3.0 million, which will be expensed as incurred, is not expected to have a material effect on the results of operations. To date, the Company has incurred approximately $2.3 million ($0.9 million expensed and $1.4 million capitalized for new systems) related to its system improvement and the Year 2000 project. 22 23 The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. FORWARD LOOKING STATEMENTS Any of the above statements that are not statements about historical facts are forward looking statements. The forward looking statements, as outlined in the Private Securities litigation Reform Act of 1995 , can be identified by the use of terms such as "may," "expect," "anticipate," "intend," "estimate," "believe," "continue," or similar variations or the negative thereof. Such forward looking statements are based on current expectations but involve risks and uncertainties. The Company's business is dependent upon general economic conditions as well as competitive, technological, and regulatory developments and trends specific to the Company's industry and customers. These conditions and events could be substantially different than believed or expected and these differences may cause actual results to vary materially from the forward looking statements made or the results which could be expected to accompany such statements. Specific factors which could cause such material differences include the following: design or manufacturing defects in the Company's products which could curtail sales and subject the Company to substantial costs for removal, replacement and reinstallation of such products; manufacturing or product development problems that the Company does not anticipate because of the Company's relative experience with these activities; and inability to absorb or adjust costs in response to lower than anticipated sales volumes; unanticipated costs or inefficiencies from the ongoing consolidation of certain activities; loss of key management, sales or technical employees; decisions, by the Company's larger customers, to cancel contracts or orders as they are entitled to do or not enter into new contracts or orders with the Company because of dissatisfaction, technological or competitive changes, changes in control or other reasons; and the Company's inability, as a result of the Company's relative experience, to deliver construction services within anticipated costs and time frames which could cause loss of business, operating losses and damage claims. The above list is representative of the factors which could affect the Company's forward looking statements and is not intended as an all encompassing list of such factors. In providing forward looking statements, the Company is not undertaking any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements and notes thereto for the Company are included in this Report and are listed in the Index to Consolidated Financial Statements which appears on page 23. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 23 24 ANTEC CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. 25 Consolidated Balance Sheets at December 31, 1997 and 1996... 26 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995.......................... 27 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.......................... 28 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995............................................. 29 Notes to the Consolidated Financial Statements.............. 30
24 25 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders ANTEC Corporation We have audited the accompanying consolidated balance sheets of ANTEC Corporation as of December 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of ANTEC's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1996 and 1995 financial statements of TSX Corporation, which statements reflect approximately 14.2% of consolidated assets as of December 31, 1996 and approximately 13.0% and 11.4% of consolidated sales for the years ended December 31, 1996 and 1995, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for TSX Corporation for 1996 and 1995, is based solely on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ANTEC Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for the three years ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 30, 1998 25 26 ANTEC CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 7,244 $ 27,398 Accounts receivable (net of allowances for doubtful accounts of $4,289 in 1997 and $3,539 in 1996).................. 87,800 106,602 Inventories, primarily finished goods..................... 111,698 138,785 Other current assets...................................... 2,319 9,706 -------- -------- Total current assets................................... 209,061 282,491 Property, plant and equipment, net.......................... 36,108 35,947 Goodwill (net of accumulated amortization of $36,785 in 1997 and $31,858 in 1996)...................................... 159,692 167,128 Deferred income taxes, net.................................. 19,281 11,531 Other assets................................................ 19,741 13,152 -------- -------- $443,883 $510,249 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 38,404 $ 54,039 Accrued compensation, benefits and related taxes.......... 15,958 20,748 Other accrued liabilities................................. 21,397 22,416 -------- -------- Total current liabilities.............................. 75,759 97,203 Long-term debt.............................................. 72,339 102,658 -------- -------- Total liabilities...................................... 148,098 199,861 Stockholders' equity: Preferred stock, par value $1.00 per share, 5 million shares authorized; none issued and outstanding......... -- -- Common stock, par value $0.01 per share, 50 million shares authorized; 39.3 million and 38.4 million shares issued and outstanding in 1997 and 1996, respectively......... 393 384 Capital in excess of par value............................ 261,081 254,181 Retained earnings......................................... 34,365 56,008 Cumulative translation adjustments........................ (54) (185) -------- -------- Total stockholders' equity............................. 295,785 310,388 -------- -------- $443,883 $510,249 ======== ========
See accompanying notes to the consolidated financial statements. 26 27 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS, EXCEPT SHARE DATA) Net sales.................................................. $ 480,078 $ 690,877 $ 738,235 Cost of sales.............................................. 365,860 511,646 546,591 --------- --------- --------- Gross profit.......................................... 114,218 179,231 191,644 Operating expenses: Selling, general and administrative expenses.......... 110,803 125,997 135,046 Amortization of goodwill.............................. 4,927 4,981 4,817 Non-recurring items................................... 21,550 2,109 21,681 --------- --------- --------- 137,280 133,087 161,544 --------- --------- --------- Operating income (loss).................................... (23,062) 46,144 30,100 Other expense (income): Interest expense and other, net....................... 5,916 7,536 10,801 Gain on sale of Canadian business..................... -- (3,835) -- --------- --------- --------- Income (loss) before income tax expense (benefit).......... (28,978) 42,443 19,299 Income tax expense (benefit)............................... (7,534) 16,083 10,497 --------- --------- --------- Net income (loss).......................................... $ (21,444) $ 26,360 $ 8,802 ========= ========= ========= Net income (loss) per common share: Basic............................................ $ (.55) $ .69 $ .24 ========= ========= ========= Diluted.......................................... $ (.55) $ .67 $ .23 ========= ========= ========= Weighted average common shares: Basic............................................ 38,751 38,286 36,823 ========= ========= ========= Diluted.......................................... 38,751 39,523 38,884 ========= ========= =========
See accompanying notes to the consolidated financial statements. 27 28 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Operating activities: Net income (loss)........................................ $ (21,444) $ 26,360 $ 8,802 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization....................... 15,234 14,726 13,528 Deferred income taxes............................... (7,750) 3,289 (7,741) Gain on sale of Canadian business................... -- (3,835) -- Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable.............................. 18,802 8,409 (19,929) Inventories...................................... 27,087 (6,114) 9,755 Accounts payable and accrued liabilities......... (6,868) (16,596) 29,925 Other, net....................................... 1,748 1,850 698 --------- --------- --------- Net cash provided by operating activities.................. 26,809 28,089 35,038 Investing activities: Purchases of property, plant and equipment............... (12,841) (10,502) (17,533) Sale of Canadian business................................ -- 3,000 -- Investments in/Advances to joint ventures................ (7,780) 5,590 (2,859) Acquisitions of other businesses......................... -- -- (2,734) Other.................................................... 72 345 (344) --------- --------- --------- Net cash used by investing activities...................... (20,549) (1,567) (23,470) --------- --------- --------- Net cash provided before financing activities.............. 6,260 26,522 11,568 Financing activities: Borrowings............................................... 119,500 182,984 132,262 Reductions in borrowings................................. (149,819) (198,262) (144,886) Other.................................................... 3,905 2,079 5,113 --------- --------- --------- Net cash used by financing activities...................... (26,414) (13,199) (7,511) --------- --------- --------- Net increase (decrease) in cash and cash equivalents....... (20,154) 13,323 4,057 Cash and cash equivalents at beginning of year............. 27,398 14,075 10,018 --------- --------- --------- Cash and cash equivalents at end of year................... $ 7,244 $ 27,398 $ 14,075 ========= ========= ========= Supplemental cash flow information: Interest paid during the year............................ $ 6,277 $ 7,875 $ 11,116 ========= ========= ========= Income taxes paid during the year........................ $ 948 $ 18,014 $ 10,193 ========= ========= =========
See accompanying notes to the consolidated financial statements. 28 29 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -------------------------------------------------------- CAPITAL IN CUMULATIVE COMMON EXCESS OF RETAINED TRANSLATION STOCK PAR VALUE EARNINGS ADJUSTMENTS TOTAL ------ ---------- -------- ----------- -------- (IN THOUSANDS) Balance, December 31, 1994................. $356 $227,062 $ 23,425 $(181) $250,662 Net income............................... -- -- 8,802 -- 8,802 Issuance of common stock and other....... 26 13,866 (6) -- 13,886 Charge in lieu of tax.................... -- 169 -- -- 169 Tax benefit related to exercise of stock options/warrants...................... -- 8,834 -- -- 8,834 Translation adjustment................... -- -- -- (232) (232) ---- -------- -------- ----- -------- Balance, December 31, 1995................. 382 249,931 32,221 (413) 282,121 Net income............................... -- -- 26,360 -- 26,360 Issuance of common stock and other....... 2 2,076 -- -- 2,078 Charge in lieu of tax.................... --... 1,904 -- -- 1,904 Tax benefit related to exercise of stock options/warrants...................... -- 270 -- -- 270 Translation adjustment................... -- -- -- 228 228 Reporting period adjustment (See Note 3).................................... -- -- (2,573) -- (2,573) ---- -------- -------- ----- -------- Balance, December 31, 1996................. 384 254,181 56,008 (185) 310,388 Net loss................................. -- -- (21,444) -- (21,444) Issuance of common stock and other....... 9 3,896 (199) -- 3,706 Tax benefit related to exercise of stock options/warrants...................... -- 3,004 -- -- 3,004 Translation adjustment................... --... -- -- 131 131 ---- -------- -------- ----- -------- Balance, December 31, 1997................. $393 $261,081 $ 34,365 $ (54) $295,785 ==== ======== ======== ===== ========
See accompanying notes to the consolidated financial statements. 29 30 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION ANTEC Corporation ("ANTEC," or herein together with its consolidated subsidiaries called the "Company") is an international communications technology company, headquartered in Atlanta, Georgia, with a major office in Denver. ANTEC specializes in the design and engineering of hybrid fiber/coax broadband networks. ANTEC is a leading developer, manufacturer and supplier of optical transmission, construction, rebuild and maintenance equipment for the broadband communications industry. ANTEC provides a broad range of products and services to cable system operators. ANTEC supplies almost all of the products required in a cable TV system, including headend, distribution, drop and in-home subscriber products. As of December 31, 1997, Anixter International Inc. ("Anixter International") and Tele-Communications, Inc. ("TCI") were the beneficial owners of approximately 18%, each, of the outstanding ANTEC common stock. TCI's beneficial ownership includes options to acquire an additional 854,341 shares. Prior to its initial public offering in 1993, the ANTEC business was operated as several divisions or business units of Anixter Inc. ("Anixter"), a subsidiary of Anixter International. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of the Company after elimination of intercompany transactions. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The carrying amount reported in the consolidated balance sheets for cash and cash equivalents approximates fair value. INVENTORIES Inventories are stated at the lower of average, approximating first-in, first-out, cost or market. REVENUE RECOGNITION Sales and related cost of sales are recognized as products are shipped and services are rendered. DEPRECIATION The Company provides for depreciation of plant and equipment principally on the straight-line basis over the estimated useful lives of 25 to 40 years for buildings and improvements, 3 to 10 years for machinery and equipment, and the term of the lease for leasehold improvements. GOODWILL AND LONG-LIVED ASSETS Goodwill relates to the excess of cost over net assets resulting principally from the acquisition of Anixter by Anixter International in 1986 which has been allocated to the Company, and from subsequent acquisitions by ANTEC and by Anixter of businesses now owned by ANTEC. Goodwill resulting from the acquisition of 30 31 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Anixter by Anixter International was allocated to the Company based on the Company's proportionate share of total operating earnings of Anixter for the period subsequent to the acquisition by Anixter International. The Company assesses the recoverability of goodwill and other long-lived assets whenever events or changes in circumstances indicate that expected future undiscounted cash flows may not be sufficient to support the carrying amount of an asset. If expected future undiscounted cash flows from operations are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. Fair value is based on discounting estimated future cash flows or using other valuation methods as appropriate. Non-cash amortization expense is being recognized as a result of amortization of goodwill on a straight-line basis over a period of 40 years from the respective dates of acquisition. ADVERTISING AND SALES PROMOTION Advertising and sales promotion costs are expensed as incurred. Advertising expense was approximately $2.2 million, $2.5 million and $2.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. WARRANTY The Company provides, by a current charge to income in the period in which the related revenue is recognized, an amount it estimates will be needed to cover future warranty obligations. INCOME TAXES The Company uses the liability method of accounting for income taxes which requires recognition of temporary differences between financial statement and income tax basis of assets and liabilities, measured by enacted tax rates. FOREIGN CURRENCY The financial position and operating results of the Company's foreign operations are consolidated using the local currency as the functional currency. All balance sheet accounts of foreign subsidiaries are translated at the current exchange rate at the end of the accounting period. Income statement items are translated at average currency exchange rates. The resulting translation adjustment is recorded as a separate component of stockholders' equity. STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option grants. As required by FASB Statement 123, the Company presents supplemental information disclosing pro forma net income (loss) and net income (loss) per common share as if the Company had recognized compensation expense on stock options granted subsequent to December 31, 1994 under the fair value method of that statement (see Note 11). NON-CASH TRANSACTIONS In the second half of 1995, the Company issued approximately 512,000 shares of ANTEC common stock as partial consideration for the final payment of contingent consideration for certain 1994 acquisitions. 31 32 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTEREST RATE AGREEMENTS The Company has entered into an interest rate swap agreement which effectively fixes the interest rate on a portion of its floating rate obligation. The interest rate swap agreement has a notional principal amount of $50 million and a fixed rate of approximately 6.0%. This agreement expires in 2000. The interest differential paid or received is recognized as an adjustment to interest expense. The fair value of the interest rate swap agreement was estimated using a quote from an outside source and represents the cash requirement as if the agreement had been settled at year end. The fair value of the interest rate swap agreement, which is not reflected in the financial statements, was approximately a $0.2 million liability at December 31, 1997. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting of Comprehensive Income, which is required to be adopted in years beginning after December 15, 1997. The Statement establishes standards for the reporting and display of comprehensive income and its components. The Company does not anticipate the adoption of the new statement to have a significant impact on the current presentation of its financial statements. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997, and therefore the Company will adopt the new requirements retroactively in 1998. Management has not completed its review of Statement 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's financial information. NOTE 3. EARNINGS PER SHARE The following is an illustration of the reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations and other related disclosures.
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- --------- --------- Numerator: Net income (loss); numerator for basic and diluted earnings per share -- income (loss) available to common stockholders........................................... $(21,444) $26,360 $ 8,802 Denominator: Denominator for basic earnings per share -- weighted-average common shares................ 38,751 38,286 36,823 Effects of dilutive securities: Options / warrants..................................... -- 1,237 2,061 -------- ------- ------- Denominator for diluted earnings per share................ 38,751 39,523 38,884 ======== ======= ======= Basic earnings per share.................................... $ (0.55) $ 0.69 $ 0.24 ======== ======= ======= Diluted earnings per share.................................. $ (0.55) $ 0.67 $ 0.23 ======== ======= =======
The effects of the options and warrants, approximately 1.6 million common stock equivalents were not presented for the year ended December 31, 1997 as the Company incurred a net loss and inclusion of these securities would be antidilutive. 32 33 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. MERGER On February 6, 1997, shareholders of ANTEC Corporation and TSX Corporation approved the Plan of Merger ("Merger") dated as of October 28, 1996 among ANTEC Corporation, TSX Corporation ("TSX") and TSX Acquisition Corporation, and the Merger resulting in TSX becoming a wholly-owned subsidiary of ANTEC became effective on that date. Under the terms of the transaction, TSX shareholders received one share of ANTEC common stock for each share of TSX common stock that they owned, while ANTEC shareholders continued to own their existing shares. As a result of the Merger, ANTEC issued approximately 15.4 million shares of Common Stock. The transaction was tax-free for TSX shareholders and was accounted for as a pooling of interests. As a result, all amounts from the prior years have been restated to reflect the Merger. Prior to the combination, TSX's fiscal year ended April 30, and ANTEC's fiscal year ended December 31. TSX's historical financial statements for periods prior to December 31, 1996 had to be adjusted to within 93 days of ANTEC's year-end. Therefore, the statement of operations for the twelve months ended December 31, 1996 and 1995 represent ANTEC's fiscal period ended on those dates combined with TSX's twelve months ended the last Saturday in October 1996 and 1995, respectively. All intercompany sales between TSX and ANTEC were eliminated. Operating results for the years ended December 31, 1996 and 1995 were as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---- ---- Revenue: ANTEC..................................................... $604,382 $658,237 TSX....................................................... 89,695 84,272 Intercompany sales elimination............................ (3,200) (4,274) -------- -------- Combined............................................... $690,877 $738,235 ======== ======== Net income (loss): ANTEC..................................................... $ 13,457 $ (3,619) TSX....................................................... 12,903 12,421 -------- -------- Combined............................................... $ 26,360 $ 8,802 ======== ========
As a result of the change in the fiscal year end of TSX, the operating results of TSX for the two months ended December 31, 1996 was reflected as an adjustment to retained earnings of the combined companies as of December 31, 1996. The following summarizes TSX's operating results for the two months ended December 31, 1996 and 1995 (in thousands):
TWO MONTHS ENDED DECEMBER 31, -------------------- 1996 1995 ---- ---- (UNAUDIT) Net sales................................................... $ 8,668 $14,793 Cost of sales............................................... 8,565 9,310 ------- ------- Gross profit................................................ 103 5,483 Selling, general and administrative expenses................ 3,663 3,307 ------- ------- Operating income (loss)..................................... (3,560) 2,176 Interest income and other, net.............................. 322 328 ------- ------- Income (loss) before income taxes........................... (3,238) 2,504 Income taxes expense (benefit).............................. (665) 950 ------- ------- Net income (loss)........................................... $(2,573) $ 1,554 ======= =======
33 34 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Included in the operating loss was a provision of approximately $2.6 million relating to preemptive repairs and modifications of equipment that had previously been sold by TSX. Most of this provision arose from a binding agreement made by TSX in December 1996 with its largest customer in response to that customer's concern at that time about possible premature failures. TSX did not believe this concern was justified. At that time TSX estimated the modifications that it had agreed to make for this customer would cost approximately $2.4 million. Subsequently, it was determined that the modifications would cost approximately $1 million less than initially estimated and the provision was reduced by this amount in the second quarter of 1997. The modifications began in late 1997 and are expected to be substantially completed in 1998. For the two months ended December 31, 1996, cash flows provided by operations were $785,000, cash flows used by investing activities were $870,000, and cash flows provided by financing activities were $40,000. NOTE 5. NON-RECURRING ITEMS In the first quarter of 1997, in connection with the Merger discussed in Note 3, the Company recorded merger/integration costs aggregating approximately $28.0 million. The components of the non-recurring charge included $6.9 million related to the investment banking, legal, accounting and contractual change of control payments associated with the Merger; $11.2 million related to facility and operational consolidation and reorganization due to the combining of various manufacturing operations; and $3.4 million related to severance costs resulting from the elimination of positions duplicated by the Merger and integration. The personnel-related costs included charges related to the termination of approximately 200 employees primarily resulting from the factors described above. Also included in the total merger/integration charge was a write-off of redundant inventories totaling approximately $6.5 million which has been reflected in cost of sales for the year ended December 31, 1997. The costs related to the facility and operational consolidation and reorganization were comprised of costs associated with the shutdown of several of the Company's operating locations. These costs consisted of lease termination payments, losses on sale and disposal of building and equipment and other related fixed assets. All of the planned facility closings were completed and related cash costs were expended by the end of 1997. In 1997, the Company paid approximately $2.4 million relating to personnel-related costs which represented the termination of approximately 175 employees. As of December 31, 1997, approximately $2.1 million of cash costs had yet to be expended which consisted of contractual obligations resulting from the Merger and other personnel-related costs. The Company anticipates these costs will be expended in 1998. As of December 31, 1997, there have been no significant adjustments to the liability. During the fourth quarter of 1996, the Company recorded a one-time charge of $3.6 million to affect the downsizing of the Company's advertising insertion business. The fourth quarter provision included: (a) write-downs of inventories, trade receivables and fixed assets related to the advertising insertion business of $1.5 million, $1.1 million and $0.3 million, respectively; (b) accruals for severance and other related costs of $0.4 million and $0.3 million, respectively. The write-down of inventories of $1.5 million was reflected in cost of sales for the year ended December 31, 1996. As of December 31, 1997, substantially all of the cash costs had been expended. In the third quarter of 1995, a $21.7 million pre-tax non-recurring charge was recorded resulting principally from the Company's decision to accelerate the integration and consolidation of its 1994 engineering and manufacturing acquisitions and the streamlining of its distribution business by merging two divisions. The components of the non-recurring charge included $9.0 million related to operating lease commitments for facility closings and personnel-related costs, $10.0 million for the write-down to net realizable value of inventory in discontinued product lines and $2.7 million for the write-down of other assets. As of December 31, 1997, all of the cash costs had been expended. 34 35 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. SALE OF CANADIAN BUSINESS In the third quarter of 1996, the Company sold its Canadian distribution business to Cabletel Communications Corp. ("Cabletel") for approximately $6.0 million in cash and notes, as well as 1,450,000 and 500,000 shares of common stock in Cabletel and ARC International Corporation, respectively, for an aggregate sales price of approximately $12.4 million. The Company recorded a pre-tax gain of approximately $3.8 million in connection with the sale. The Canadian distribution business was immaterial to the Company's consolidated results of operations and financial position. NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, at cost, consisted of the following (in thousands):
DECEMBER 31, ---------------------- 1997 1996 ---- ---- Land.................................................... $ 3,094 $ 2,347 Buildings and improvements.............................. 13,641 14,265 Machinery and equipment................................. 51,806 52,395 -------- -------- 68,541 69,007 Less: Accumulated depreciation.......................... (32,433) (33,060) -------- -------- $ 36,108 $ 35,947 ======== ========
NOTE 8. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
DECEMBER 31, ---------------------- 1997 1996 ---- ---- Credit Facility......................................... $ 70,000 $100,000 Other................................................... 2,339 2,658 -------- -------- $ 72,339 $102,658 ======== ========
The Credit Facility provides for various interest rate alternatives. The average interest rate on borrowings was approximately 6.7% and 6.4% at December 31, 1997 and 1996, respectively. The commitment fee on unused borrowings is approximately 1/4 of 1%. The Credit Facility contains various restrictions and covenants, including a restriction on the incurrence of additional debt, limitations on dividends and certain other payments to stockholders and interest coverage and net worth maintenance tests. The Company does not anticipate paying any cash dividends in the foreseeable future, and in 1997, such covenants precluded the Company from declaring any dividends on its Common Stock. The interest rates on the Company's debt are periodically adjusted to reflect changes in overall market interest rates and, therefore, the carrying amount approximates fair value. The Credit Facility matures in 1999, and as of December 31, 1997, the Company had approximately $23 million of available borrowings under the Credit Facility. 35 36 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. INCOME TAXES Income (loss) before income taxes consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Domestic (U.S.).................................... $(28,978) $40,340 $16,653 Foreign............................................ -- 2,103 2,646 -------- ------- ------- $(28,978) $42,443 $19,299 ======== ======= =======
Income tax expense (benefit) consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Current -- Federal................................. $ 313 $ 5,849 $15,249 State.................................. (97) 1,388 1,826 Foreign................................ -- 3,653 994 -------- ------- ------- 216 10,890 18,069 -------- ------- ------- Deferred -- Federal................................ (6,384) 1,474 (6,369) State................................. (1,366) 1,013 (1,372) Foreign............................... -- 802 -- -------- ------- ------- (7,750) 3,289 (7,741) -------- ------- ------- Provision in lieu of tax........................... -- 1,904 169 -------- ------- ------- $ (7,534) $16,083 $10,497 ======== ======= =======
A reconciliation of income tax expense (benefit) to the Statutory Federal tax rate of 35% was as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Statutory Federal income tax expense (benefit)..... $(10,142) $14,855 $ 6,755 Effects of: Amortization of goodwill......................... 1,531 1,531 1,530 State income taxes, net of Federal benefit....... (951) 1,561 295 Acquisition fees................................. 998 -- -- Meals and entertainment.......................... 279 634 844 Reduction in deferred tax valuation allowance.... -- (2,533) -- Other, net....................................... 751 35 1,073 -------- ------- ------- $ (7,534) $16,083 $10,497 ======== ======= =======
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 36 37 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's net deferred tax assets were as follows (in thousands):
DECEMBER 31, -------------------- 1997 1996 ---- ---- Federal/state net operating loss carryforwards.............. $ 5,195 $ 5,195 Foreign net operating loss carryforwards.................... 2,358 2,358 Inventory costs............................................. 9,452 5,901 Merger related reserves..................................... 2,892 -- Plant and equipment, depreciation differences............... 2,292 569 Other, principally operating expenses....................... 1,973 2,389 -------- -------- Total deferred tax assets.............................. 24,162 16,412 Valuation allowance on deferred tax assets.................. (4,881) (4,881) -------- -------- Net deferred tax assets................................ $ 19,281 $ 11,531 ======== ========
The Company established a valuation allowance in accordance with the provisions of SFAS No. 109 Accounting for Income Taxes. The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. In 1996, the Company determined that earnings would more likely than not be sufficient to realize net deferred tax assets of $4.2 million. Accordingly, a valuation allowance reduction was recorded as a $2.5 million reduction in tax expense and a $1.7 million credit to equity for the portion of the benefit originating prior to TSX's quasi-reorganization. The valuation allowance was reduced to the extent deferred tax assets were expected to be realized. The Company will continue to review the deferred tax asset valuation allowance on a timely basis and make adjustments as appropriate. The Company had U.S. and foreign net operating loss carryforwards at December 31, 1997 expiring as follows (in thousands):
U.S. FOREIGN EXPIRATION IN CALENDAR YEAR AMOUNT AMOUNT --------------------------- ------- -------- 2001..................................................... $ 5,493 $ -- 2003..................................................... 1,099 -- 2004..................................................... 1,099 -- 2005..................................................... -- 6,935 2006..................................................... 501 -- 2007..................................................... 2,793 -- 2008..................................................... 1,099 -- 2009..................................................... 1,099 -- ------- ------ $13,183 $6,935 ======= ======
The actual amount of loss carryforwards that will be available to offset future taxable income may be subject to change depending upon the tax laws in effect in the years in which the carryforwards are used and may be further limited in subsequent years should future changes in ownership take place as defined in the Tax Reform Act of 1986. The Company also had a loss carryforward for alternative minimum tax ("AMT") purposes of approximately $13.2 million at December 31, 1997 that could be used to offset up to 90% of future alternative minimum taxable income. The AMT loss carryforwards expire as shown in the table above. Tax benefits arising from loss carryforwards of approximately $7.7 million originating prior to TSX's quasi-reorganization on November 22, 1985 would be credited directly to additional paid-in capital if and when realized. 37 38 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10. COMMITMENTS The Company leases certain office, distribution, and manufacturing facilities and equipment under long-term operating leases expiring at various dates through 2005. Future minimum lease payments under non-cancelable operating leases (excluding operating leases related to closed facilities -- See Note 4) at December 31, 1997 were as follows (in thousands): 1998........................................................ $ 6,592 1999........................................................ 5,449 2000........................................................ 3,815 2001........................................................ 2,713 2002........................................................ 1,835 Thereafter.................................................. 2,200 ------- Total minimum lease payments................................ $22,604 =======
Total rental expense for all operating leases amounted to approximately $9.4 million, $11.0 million and $11.3 million for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 11. STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the market price of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees and, accordingly, recognizes no compensation expense for the stock option grants. The Company has elected to follow APB 25 because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. The Company grants stock options under its 1997 Stock Incentive Plan ("SIP"), its 1993 Employee Stock Incentive Plan ("ESIP"), and Director Stock Option Plan ("DSOP") and issued stock purchase rights under its Employee Stock Purchase Plan ("ESPP"). Additionally, TSX issued options under its Long-Term Incentive Plan ("LTIP"). For descriptions of these plans, see below. As required by FASB Statement 123, the Company presents below supplemental information disclosing pro forma net income (loss) and net income (loss) per common share as if the Company had recognized compensation expense on stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated using a Black-Sholes option pricing model. The assumptions used in this model to estimate the fair value of options granted under the SIP for 1997 were as follows: risk-free interest rate of 5.79%; a dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of .54; and expected life of 6 years. In respect to the ESIP, LTIP and DSOP, the weighted average assumptions used in this model to estimate the fair value of options granted under these plans for 1997, 1996 and 1995 were as follows: risk-free interest rates of 5.36%, 5.46% and 6.81%, respectively; a dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of .54; and a weighted average expected life of 5 years. The assumptions used for the ESPP for 1997, 1996 and 1995 were as follows: risk-free rate of 5.0%, 5.8% and 5.8%, respectively; a dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of .54; and an expected life of one year. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, 38 39 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except share data):
1997 1996 1995 ---- ---- ---- Pro forma net income (loss)............................ $(23,980) $23,796 $7,819 ======== ======= ====== Pro forma net income (loss) per common share: Basic................................................ $ (.62) $ .62 $ .21 ======== ======= ====== Diluted.............................................. $ (.62) $ .60 $ .20 ======== ======= ======
Compensation expense recognized for pro forma purposes was approximately $4.2 million, $4.3 million and $1.6 million for 1997, 1996 and 1995, respectively. FASB Statement 123 is applicable only to options granted subsequent to December 31, 1994. In 1997, the Board of Directors approved the SIP to facilitate the hiring, retention and continued motivation of key employees, consultants and directors and to align more closely their interests with those of the Company and its stockholders. Awards under the SIP may be in the form of incentive stock options, non-qualified stock options, stock grants, stock units, restricted stock, stock appreciation rights, performance shares and units, dividend equivalent rights and reload options. A total of 3,750,000 shares of the Company's common stock may be issued pursuant to this plan. Vesting requirements for issuances under the SIP may vary. A total of 3,234,000 options were granted under the SIP in 1997 with a weighted average exercise price and fair value of $9.37 and $5.39, respectively. During the year, 137,000 were terminated with exercise prices of $8.88. At December 31, 1997, 3,097,000 options were outstanding under the SIP with a weighted average exercise price of $9.39. Of the options outstanding at year-end, 2,752,000 had an exercise price of $8.88 and remaining contractual life of 6.33 years. The remaining outstanding options at December 31, 1997 have exercise prices ranging from $13.44 to $15.56 with a weighted average exercise price of $13.50 and weighted average remaining contractual life of 6.95 years. No issues under the SIP were vested as of December 31, 1997. Substantially all of these options become exercisable in May 2003, although vesting will accelerate if the Company's stock closes above specified prices ($15, $20 and $25) for 20 consecutive days and the Company's diluted earnings per common share (before non-recurring items) over a period of four consecutive quarters exceed $1.00 per common share. In 1993, the Board of Directors approved the ESIP which provides for granting key employees and consultants options to purchase up to 1,925,000 shares of ANTEC common stock. In 1996, an amendment to the ESIP was approved increasing the number of shares of ANTEC common stock which may be issued pursuant to that plan from 1,925,000 shares to 3,225,000 shares. One-third of these options vest each year on the anniversary of the date of grant beginning with the second anniversary. The options terminate seven years from the date of grant. In 1993, the Board of Directors also approved the DSOP which provides for the granting to each director of the Company who has not been granted any options under the ESIP each January 1, commencing January 1, 1994, an option to purchase 2,500 shares of ANTEC common stock for the average closing price for the ten trading days preceding the date of grant. A total of 75,000 shares of ANTEC common stock have been allocated to this plan. These options vest six months from date of grant and terminate seven years from date of grant. 39 40 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to the Merger, an option to purchase TSX common stock under the LTIP was converted to an option to purchase ANTEC common stock. A total of 883,900 shares of ANTEC common stock have been allocated to this plan. Pursuant to the Merger Agreement between ANTEC and Keptel, on November 17, 1994 under the ANTEC/Keptel Exchange Option Plan ("EOP"), each Keptel stock option, whether or not then exercisable, was canceled and substituted with an ANTEC/Keptel exchange option to acquire shares of ANTEC common stock. Each ANTEC/Keptel exchange option provides the option holder with rights and benefits that are no less favorable than were provided under the former Keptel stock option plan. A total of 360,850 shares of ANTEC common stock have been allocated to this plan. A summary of activity of the Company's options granted under its ESIP, DSOP, LTIP and EOP is presented below:
1997 1996 1995 -------------------------- -------------------------- --------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------- -------------- ------- -------------- ------- -------------- Beginning balance......... 3,406,657 $11.11 2,938,327 $ 9.99 3,519,150 $ 6.43 Grants.................... 793,000 $10.88 675,010 $15.74 695,200 $16.92 Exercises................. (817,339) $ 3.80 (131,713) $ 7.43 (1,095,890) $ 2.62 Terminations.............. (223,100) $14.75 (74,967) $15.56 (148,400) $14.42 Expirations............... (68,968) $14.09 -- -- (31,733) $16.62 --------- ------ --------- ------ ---------- ------ Ending balance............ 3,090,250 $12.65 3,406,657 $10.60 2,938,327 $ 9.32 ========= ====== ========= ====== ========== ====== Vested at period end...... 1,668,582 $11.76 1,893,795 $ 8.84 1,459,073 $ 7.51 ========= ====== ========= ====== ========== ====== Weighted average fair value of options granted during year............. $ 5.77 $ 8.20 $ 9.20 ========= ========= ==========
The following table summarizes information about ESIP, DSOP, LTIP and EOP options outstanding at December 31, 1997.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE EXERCISE PRICES ----------- ---------------- -------------- ----------- -------------- $ 2.00................ 20,000 5.25 years $ 2.00 20,000 $ 2.00 $ 5.00................ 2,400 6.58 years $ 5.00 2,400 $ 5.00 $ 9.23 to $10.00................ 1,162,517 2.03 years $ 9.99 1,162,517 $ 9.99 $10.50 to $15.83................ 1,475,750 5.80 years $12.95 231,750 $13.64 $16.60 to $25.09................ 429,583 3.74 years $19.35 251,915 $19.04 --------- ---------- ------ --------- ------ $ 2.00 to $25.09................ 3,090,250 4.09 years $12.65 1,668,582 $11.76 ========= ========== ====== ========= ======
40 41 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Additionally, ANTEC has an ESPP which enables its employees to purchase a total of 300,000 shares of ANTEC common stock over a period of time. The Company accounts for the ESPP in accordance with APB No. 25, Accounting for Stock Issued to Employees, and accordingly recognizes no compensation expense. Participants can request that up to 10% of their base compensation be applied toward the purchase of ANTEC common stock under ANTEC's ESPP. Purchases by any one participant are limited to $25,000 in any one year. The exercise price is the lower of 85% of the fair market value of the ANTEC common stock at the date of grant or at the later exercise date (currently one year). Under the ESPP, employees of the Company purchased 48,377, 90,057 and 49,515 shares of ANTEC common stock in 1997, 1996 and 1995, respectively. At December 31, 1997, approximately 59,577 shares are subject to purchase under the ESPP at a price of no more than $9.99 per share. Pursuant to the Merger Agreement between ANTEC and Keptel, on November 17, 1994, each Keptel warrant, whether or not then exercisable, was canceled and substituted with a warrant to acquire shares of ANTEC common stock. Each warrant provides the warrant holder with rights and benefits that are no less favorable than were provided under the former Keptel warrant plan. At December 31, 1997, 12,600 warrants were outstanding and exercisable at prices ranging from $8.57 to $10.71, expiring January 28, 1998. In 1989, Anixter and Anixter International established an equity participation plan ("EPP") which provided for awards of EPP units to its key employees, including certain employees of the then ANTEC division. The value of units at the date of grant and at the conversion date was based upon a formula which takes into consideration earnings and return on investment of the Company. The employees did not purchase the units but upon conversion received cash for the difference between the escalating beginning unit value and the unit value at date of conversion. Each holder of EPP units was granted stock options effective January 1, 1993 pursuant to the ESIP. Options under this plan can be exercised only if all EPP units held by the optionee are surrendered unconverted. The Company has not recorded an expense for the value of the outstanding EPP units for the years ended December 31, 1997, 1996 and 1995 because management believes the liability relating to the units is insignificant since exercise of any EPP units precludes the holder from exercising stock options granted prior to 1995. In 1997, the Company paid its non-employee directors annual retainer fees of $50,000 in the form of stock units. These stock units convert to Common Stock of the Company at the prearranged time selected by each director. The Company amortizes the compensation expense related to these stock units on a straight line basis over a period of one year. Compensation expense for non-employee directors stock units was approximately $.1 million for the year ended December 31, 1997. At December 31, 1997 there were 20,500 units issued and outstanding. NOTE 12. PENSION PLANS The Company sponsors two non-contributory defined-benefit pension plans which cover substantially all of the Company's U.S. employees. The U.S. pension plan benefit formulas generally provide for payments to retired employees based upon their length of service and compensation as defined in the plans. The Company's policy is to fund the plans as 41 42 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) required by the Employee Retirement Income Security Act of 1974 (ERISA) and to the extent that such contributions are tax deductible.
1997 1996 ------- ------- Actuarial Present Value of Benefits Obligation Vested benefits........................................... $ 8,318 $ 6,847 Non-vested benefits....................................... 805 439 ------- ------- Accumulated benefit obligation.............................. 9,123 7,286 Effect of projected future compensation levels.............. 7,563 7,367 ------- ------- Projected benefit obligation................................ 16,686 14,653 Plan assets at fair value................................... 10,300 8,336 ------- ------- Projected benefit obligations in excess of plan assets...... (6,386) (6,317) Unrecognized prior service cost............................. 78 84 Unrecognized net gain due to past experience different from assumptions............................................... 1,324 2,678 ------- ------- Pension liability recognized in the Consolidated Balance Sheets.................................................... $(4,984) $(3,555)
The plans' assets consist of corporate and government debt securities and equity securities. Net periodic pension cost for 1997, 1996 and 1995 for pension and supplemental benefit plans includes the following components (dollars in thousands):
1997 1996 1995 ------- ------ ------- Service cost................................................ $ 1,487 $1,020 $ 790 Interest cost............................................... 1,091 766 619 Actual return on assets..................................... (1,700) (868) (1,085) Net amortization and deferral............................... 1,109 390 635 ------- ------ ------- Net periodic pension cost................................... $ 1,987 $1,308 $ 959
The assumptions used in accounting for the Company's defined benefit plans for the three years presented are set forth below:
1997 1996 1995 ---- ---- ---- Assumed discount rate....................................... 7.5% 7.5% 7.5% Rates of compensation increase.............................. 6.0% 6.0% 6.0% Expected long-term rate of return on plan assets............ 8.0% 8.0% 8.0%
NOTE 13. SALES INFORMATION A significant portion of the Company's revenue is derived from sales to TCI aggregating $46.6 million, $153.7 million and $157.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. Export sales accounted for approximately 17%, 17% and 12% of total sales for the years ended December 31, 1997, 1996 and 1995, respectively. Sales to international customers (including export sales) were approximately 24%, 24% and 21% of total sales for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 14. SUBSEQUENT EVENT In January 1998, ANTEC announced a consolidation plan being implemented concurrently with the creation of the new President & Chief Operating Officer organization in Atlanta. ANTEC will consolidate all of its Rolling Meadows, Illinois corporate and administrative functions into either the Atlanta Technology Center or the Englewood, Colorado TeleWire Supply division headquarters during 1998 and 1999. It is also anticipated as part of this consolidation that the two principal facilities located in Atlanta will be consolidated and that certain international operating and administrative functions located in Miami and Chicago will also 42 43 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) be consolidated into Atlanta. In connection with these consolidation changes, ANTEC will take a charge of approximately $10 to $12 million in the first quarter of 1998 reflecting the severance, move and real estate costs associated with these consolidations. NOTE 15. SUMMARY QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) The following table summarizes the Company's quarterly consolidated financial information (in thousands, except share data).
QUARTERS IN 1997 ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, --------- -------- --------- -------- Net sales.................................... $120,034 $124,262 $120,365 $115,417 Gross profit(1).............................. 26,128 33,593 29,316 25,181 Operating income (loss)(1)................... (23,731) 4,954 (164) (4,121) Income (loss) before income taxes............ (25,093) 3,275 (1,669) (5,491) Net income (loss)............................ $(16,124) $ 983 $ (1,999) $ (4,304) ======== ======== ======== ======== Net income (loss) per common share: Basic...................................... $ (.42) $ .03 $ (.05) $ (.11) ======== ======== ======== ======== Diluted.................................... $ (.42) $ .02 $ (.05) $ (.11) ======== ======== ======== ========
QUARTERS IN 1996 ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, --------- -------- --------- -------- Net sales.................................... $183,149 $188,742 $178,329 $140,657 Gross profit(2).............................. 45,778 48,069 47,346 38,038 Operating income (loss)(2)................... 12,380 14,968 13,847 4,949 Income (loss) before income taxes(3)......... 10,030 12,991 15,931 3,491 Net income (loss)............................ $ 7,470 $ 7,540 $ 9,594 $ 1,756 ======== ======== ======== ======== Net income (loss) per common share: Basic...................................... $ .20 $ .20 $ .25 $ .05 ======== ======== ======== ======== Diluted.................................... $ .19 $ .19 $ .24 $ .04 ======== ======== ======== ========
- ------------------------- (1) First quarter 1997 includes $28 million of merger/integration costs of which $6.5 million relating to the write-off of inventories has been reflected in cost of sales. See Note 5 to the Consolidated Financial Statements. (2) Fourth quarter 1996 includes a $3.6 million one-time charge to affect the downsizing of the Company's advertising insertion business. Included in the charge was a write-down of inventories related to the advertising insertion business of approximately $1.5 million which has been reflected in cost of sales. See Note 5 to the Consolidated Financial Statements. (3) Third quarter 1996 includes a $3.8 million pre-tax gain in connection with the sale of the Company's Canadian distribution business. See Note 6 to the Consolidated Financial Statements. 43 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to directors of the Company is set forth under the caption entitled "Election of Directors" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders and is incorporated herein by reference. Certain information concerning the executive officers of the Company is set forth in Part I of this Report on Form 10-K under the caption entitled "Executive Officers of the Company." Information about Section 16(a) Reporting Delinquencies is set forth under this caption in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of officers and directors of the Company is set forth under the captions entitled "Executive Compensation," "Compensation of Directors," "Employment Contracts and Termination of Employment and Change-In-Control Arrangements" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding ownership of the Company's common stock is set forth under the captions entitled "Security Ownership of Management" and "Security Ownership of Principal Stockholders" in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions with the Company is set forth under the captions entitled "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated herein by reference. 44 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) EXHIBITS. The exhibits listed below in Item 14(a)1, 2 and 3 are filed as part of this Report. Each management contract or compensatory plan required to be filed as an exhibit is identified by an asterisk(*). (B) REPORTS ON FORM 8-K. None ITEM 14(A)1 & 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS The following Consolidated Financial Statements of ANTEC Corporation and Report of Independent Auditors are filed as part of this Report.
PAGE ---- Report of Independent Auditors.............................. 24 Consolidated Balance Sheets at December 31, 1997 and 1996... 25 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995.......................... 26 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.......................... 27 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995............................................. 28 Notes to the Consolidated Financial Statements.............. 29
FINANCIAL STATEMENT SCHEDULES Schedules have been omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. 45 46 ITEM 14(A)3. EXHIBIT LIST Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk(*).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ---- 3.1 Certificate of Incorporation and Certificate of Amendment thereto**................................................... 3.1(a) Restated Certificate of Incorporation**..................... 3.2 By-laws**................................................... 4.1 Form of Certificate for Common Stock**...................... 10.1(a)* Amended and Restated Employee Stock Incentive Plan**........ 10.1(b)* Form of Stock Option Grant**................................ 10.1(c)* Amendment Increasing Number of Shares Covered by Amended and Restated Employee Stock Incentive Plan (Incorporated by reference from ANTEC Corporation's Registration Statement on Form S-8, Registration Number 33-12131, Exhibit 4). ........ 10.1(d)* Amended Form of Stock Option Grant (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as the same number exhibit). ...................................... 10.1(e)* Amended Form of Stock Option................................ 10.1(f)* 1997 Stock Incentive Plan***................................ 10.2 Form of Employee Stock Purchase Plan**...................... 10.2(a) Amendment to Employee Stock Purchase Plan**................. 10.3* Form of Director Stock Option Plan**........................ 10.4* Form of Supplemental Retirement Benefits Plan**............. 10.5 Form of Tax Allocation Agreement**.......................... 10.6* Form of Agreement with Bruce Van Wagner**................... 10.7 Form of Management Services Agreement**..................... 10.8 Form of Directors & Officers Insurance Agreement**.......... 10.9 Registration Rights Agreement with Anixter International**............................................. 10.10 Revolving Credit Agreement**................................ 10.10(a) Amendment No. 1 to Revolving Credit Agreement**............. 10.10(b) Amended and Restated Revolving Credit Agreement (Incorporated by reference from ANTEC Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995, Exhibit 10.18).............................. 10.10(c) Amendment No. 1 to the Amended and Restated Revolving Credit Agreement (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as the same number exhibit). ...... 10.11 Bill of Sale and General Conveyance and Assumption of Liabilities**............................................... 10.12* Form of Employment Agreement for John M. Egan**............. 10.13* Form of Employment Agreement for Lawrence A. Margolis, Gordon E. Halverson and Martin C. Ingram**.................. 10.14* Consulting Agreement dated February 1, 1998 for James L. Faust....................................................... 10.15* Form of Stock Option Grant for Converted Keptel Options (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as the same number exhibit). ......................... 10.16 Agreement and Plan of Merger with Keptel, Inc., dated July 27, 1994 (Incorporated by reference to Keptel, Inc. Registration Statement on Form S-1, Registration Number 33-16278, as amended). ..................................... 10.17* Retainer Agreement with James E. Knox (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as the same number exhibit). ......................................
46 47
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ---- 10.18 Amendments to Employment Agreements for Messrs. Margolis, Halverson, Ingram and Faust (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as the same number exhibit). .................................................. 10.19 Limited Liability Company Agreement of Products Venture L.L.C. (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as the same number exhibit).............. 10.20 Agreement dated as of February 27, 1998 among Northern Telecom Inc., ANTEC Corporation and Arris Interactive L.L.C., amending among other agreements the Limited Liability Company Agreement of Products Venture L.L.C....... 10.21 Products Distribution Agreement between Products Venture L.L.C. and ANTEC Corporation (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, Exhibit 10.20). ....... 10.22 Plan of Merger dated October 28, 1996, among ANTEC Corporation, TSX Corporation and TSX Acquisition Corporation (Incorporated by reference to ANTEC Corporation's Registration Statement on Form S-4, Registration Number 333-19129, Exhibit 2.1). ................................... 10.23* Employment Agreement, dated May 1, 1995, for William H. Lambert (Incorporated by reference from TSX Corporation's Annual Report on Form 10-K for the fiscal year ended April 30, 1995, Exhibit 10(A)(1)1). .............................. 10.24* Amendment to Employment Agreement for William H. Lambert (Incorporated by reference from ANTEC Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as the same number exhibit)........................... 10.25* Stock Option Agreement with William H. Lambert dated March 14, 1994 (Incorporated by reference from TSX Corporation's Annual Report on Form 10-K for the fiscal year ended April 30, 1994, Exhibit 10(A)(1)3)................................ 10.26* Employment Agreement dated October 16, 1995 for Robert J. Stanzione................................................... 10.27* Amendment to Employment Agreement for Robert J. Stanzione... 13.1++ Report of KPMG Peat Marwick LLP............................. 21.1++ Subsidiaries of the Registrant.............................. 23.1 Consent of Ernst & Young LLP................................ 23.2+ Consent of KPMG Peat Marwick LLP............................ 24.1++ Power of Attorney executed by Rod F. Dammeyer............... 24.2++ Power of Attorney executed by John R. Petty................. 24.3++ Power of Attorney executed by Bruce Van Wagner.............. 24.4++ Power of Attorney executed by Samuel K. Skinner............. 24.5++ Power of Attorney executed by William H. Lambert............ 24.6++ Power of Attorney executed by James L. Faust................
- ------------------------- ** Incorporated by reference to ANTEC Corporation's Registration Statement on Form S-1, Registration Number 33-65488, filed July 2, 1993, as amended, as the same number exhibit. *** Incorporated by reference to the Company's proxy statement for the Company's Annual Meeting of Stockholders held May 6, 1997. + Incorporated by reference to Antec Corporation's Registration Statement on Form S-3, Registration Number 333-58437, filed July 2, 1998, as amended, as Exhibit 23.3. ++ Previously filed. 47 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of 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. ANTEC CORPORATION /s/ LAWRENCE A. MARGOLIS -------------------------------------- Lawrence A. Margolis Executive Vice President Dated: October , 1998 48 EX-10.1(E) 2 AMENDED FORM OF STOCK OPTION 1 EXHIBIT 10.1(e) THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 STOCK OPTION GRANT THIS GRANT is made as of the _____ day of __________, 199__ by ANTEC CORPORATION, a Delaware corporation (the "Corporation"), to (name) (the "Optionee"). 1. INCORPORATION OF TERMS This Grant shall be governed by the attached ANTEC Corporation Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein. 2. GRANT OF OPTION On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to the Optionee the option to purchase (amount) Shares as defined in the Terms for an exercise price of __________ dollars ($__________) per Share. 3. RIGHT TO EXERCISE Subject to the conditions and the exceptions set forth in this Grant and in the Terms, this Option shall become exercisable on __________. This Option shall become exercisable prior thereto as follows: a. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the fully diluted earnings per Share of Stock of the Corporation, before consideration of non-recurring items, over any four consecutive fiscal quarters have totaled more than __________ dollar ($_______) a Share (the "Earnings Target"), and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been __________ dollars ($_______) per Share or more (a "Stock Price Target"). b. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the Earnings Target has been met and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been __________ dollars ($_______) per Share or more (a "Stock Price Target"). c. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the Earnings Target has been met and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been __________ dollars ($_______) per Share or more (a "Stock Price Target"). d. All of the Shares covered by Option shall be exercisable upon the occurrence of a Change of Control. For this purpose a Change of Control shall be the acquisition of the beneficial ownership by any person and that person's affiliates (excluding Anixter International Inc., Tele-Communications, Inc. and their affiliates) of more than 50% of the Shares of Stock of the Corporation or the commencement of a tender offer, the consummation of which would result in such an acquisition. 2 Upon an Employment Termination, this Option can be exercised only to the extent it was exercisable on the date of that termination and only as otherwise provided in the Terms. The only exception is that if the Employment Termination was by the Corporation without cause during a Delayed Vesting Period, the Optionee can exercise this Option for the Shares which become available at the end of that Delayed Vesting Period, and for this purpose the term of this Option shall be extended to the day thirty (30) days after the end of that Delayed Vesting Period, but not beyond _______________. In the event this Option is adjusted pursuant to the Terms, an appropriate adjustment shall be made by the Board to the Earnings Target and the Share Price Targets. The determination by the Board or the authorized committee of the Board on these matters as well as all other matters concerning this Option, including the computation of fully diluted earning per Share before non-recurring items, shall be final and binding. NO EXISTING CONTRACT WHICH PROVIDES FOR THE VESTING OR EXERCISABILITY OF STOCK OPTIONS OTHER THAN AS PROVIDED IN THIS GRANT SHALL APPLY TO THIS OPTION. BY ACCEPTING THIS OPTION, THE OPTIONEE IS AGREEING THAT ANY EXISTING CONTRACTUAL PROVISIONS TO THE CONTRARY ARE BEING MODIFIED AS PROVIDED HEREIN. NO FUTURE CONTRACT SHALL APPLY TO THIS OPTION UNLESS SUCH CONTRACT EXPRESSLY PROVIDES TO THE CONTRARY, REFERRING TO THIS OPTION BY DATE OF GRANT AND EXERCISE PRICE. 4. TERM OF OPTION This Option shall in any event expire in its entirety __________. This Option shall further expire as set forth in the Terms. 5. EXERCISE CONSTITUTES AGREEMENT TO REFRAIN FROM COMPETITION By exercising any portion of this Option, the Optionee will be signifying the agreement of Optionee to refrain for a period of nine months from the termination of Optionee's employment with the Corporation and its subsidiaries, from participating in any activities which are competitive with any activities of the Corporation or its subsidiaries in which the Optionee participated. Participation shall not include the ownership of less than 1% of a publicly traded security. IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act on behalf of the Corporation. ANTEC CORPORATION, a Delaware corporation By: ________________________ Lawrence A. Margolis Its: Executive Vice President EX-10.14 3 CONSULTING AGREEMENT 1 EXHIBIT 10.14 [ANTEC LETTERHEAD] January 6, 1998 Mr. James L. Faust 30 Logan Terrace Golf, IL 60029 Dear Jim: I am writing to set forth our agreement for your new relationship with ANTEC. Effective February 1, 1998, you are being retained as a consultant to the Company for a period of five years ending January 31, 2003. During this period, you will consult with and assist the Company on matters which are within your expertise. Your relationship with the Company will be that of an independent contractor as distinguished from an employee or agent. As such, you are free to work for others. Requests for your assistance will be scheduled to not unreasonably interfere with the time you are required to spend on other activities. However, without the Company's consent, which will not be unreasonably withheld, you will not undertake any activities which would materially interfere with your ability to consult with the Company on major matters. You will be paid a fee of $550,000 payable in quarterly installments of $27,500. It is contemplated that you will continue as a director of the Company through at least the 1999 stockholder meeting. Any fees you receive as a director of the Company, including the value of stock units on the date of grant, will be deducted from the fee payable to you as a consultant. You will be reimbursed for reasonable expenses incurred by you in connection with matters assigned to you. For one year, the Company will absorb the premium you would otherwise have to pay the Company for the cost of your COBRA medical coverage and will provide the financial/tax counseling you are currently receiving as an employee. For the period ending January 31, 2003, the Company will make available to you the life insurance you are currently receiving as an employee. You will continue to pay the portion of the premium for this coverage you are currently paying. During the period you are a consultant to the Company, all your options to purchase stock (except as provided below) and your restricted stock will continue to vest in accordance with their terms. The only exception is the special stock option granted to you on May 7, 1997 to purchase 250,000 shares. This option will expire on January 31, 1998, and you are expressly and unconditionally waiving any rights you may otherwise have in this option. The above arrangement is in lieu of any rights you may have under your employment agreement with the Company and any other understandings with the Company, including without limitation, any agreement for a special pension or additional credit under the Company's pension plan. In consideration of the above arrangement, you are releasing the Company from any liability to you, other than as set forth in this agreement, including without limitation, any liability arising from the termination of your employment under the laws protecting you from discrimination because of your age or otherwise. 2 Mr. James L. Faust January 6, 1998 Page 2 Jim, I think you know I have enjoyed our association over the past three years and am pleased with what we have accomplished. I look forward to the continuation of our business relationship in this new format which I believe will be beneficial for you and the company. Please indicate your agreement by signing a copy of this letter. Sincerely, /s/Lawrence A. Margolis --------------------- Lawrence A. Margolis Executive Vice President /jb Agreed: /s/James L. Faust ----------------------- James L. Faust Dated: 1/13,1998 ------------------------ EX-10.20 4 AGREEMENT DATED AS OF 2/27/98 1 EXHIBIT 10.20 AGREEMENT Agreement, dated as of February 27, 1998, by and among Northern Telecom Inc. ("Nortel"), Antec Corporation ("Antec") and Arris Interactive L.L.C. ("Arris"). WHEREAS, Antec and Nortel are parties to a Limited Liability Company Agreement, dated as of November 1, 1995 which established Arris ("LLC Agreement"); WHEREAS, Nortel, Antec and Arris are parties to a Framework Agreement dated as of November 1, 1995 ("Framework Agreement"); WHEREAS, Antec and Arris are parties to a License Agreement related to Digital Video Technology, dated as of November 17, 1995 ("Antec License Agreement"); WHEREAS, Nortel and Arris are parties to a License Agreement related to Cornerstone Total Access, Voice and Data, dated as of November 17, 1997 ("Nortel License Agreement"); WHEREAS, Nortel, Antec and Arris are parties to a Secured Loan Agreement, dated as of November 17, 1995 ("Loan Agreement"); WHEREAS Nortel and Arris contemplate entering into an additional agreement after the effective date of this Agreement, providing for the distribution by Nortel of Arris' products outside North America ("International Distribution Agreement"); and WHEREAS, the applicable parties to the agreements described above wish to amend such agreements. NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows (capitalized terms used and not defined in this Agreement have the meanings given to them in the referenced agreement): 1. Each of Nortel and Antec represents and warrants to the other that: (a) It has all requisite power and authority to own its property, to conduct its business as currently conducted and to execute and deliver, and to perform its obligations under this Agreement. (b) This Agreement has been duly authorized, executed and delivered by it and constitutes a legal, valid and binding obligation of it, enforceable against it in accordance with its terms. 2 (c) No permits, licenses, franchises, approvals, authorizations, qualifications or consents of, or registrations or filings with, governmental authorities are required in connection with the execution or delivery by it of, or the performance by it of its obligations under this Agreement, except such as have been obtained or made and are in full force and effect. (d) The execution and delivery of, and the performance by it of its obligations under this Agreement does not and will not result in a breach or constitute a violation of, conflict with, or constitute a default under, its certificate of incorporation or bylaws or any law, regulation, order or judgment applicable to it or any agreement, course of dealing, obligation or instrument to which it is a party or by which it or any of its property is bound, which breach, violation, conflict or default could have an adverse effect on the other parties to this Agreement or their affiliates or on the ability of it or Arris to perform their obligations under this Agreement. (e) No actions, proceedings or claims are pending or, to the knowledge of it, threatened against it or any of its property that could affect the validity or enforceability of this Agreement, or that could have a materially adverse effect on the ability of it to perform its obligations under this Agreement. 2. With respect to the Loan Agreement, Nortel, Antec and Arris agree: (a) In the first WHEREAS clause, "$84 million" is changed to "$150 million." (b) In Article I under Additional Loan, "$18 million" is changed to "$84 million." (c) In Article I under Availability Period, "third" is changed to "fifth." (d) In Article X, Section 10.02(a) is amended in its entirety to read as follows: Section 10.02. Payments. (a)(i) From and after the date of the purchase of an Optional Participating Interest by Antec, whenever the Lender receives or collects any payment of principal or interest or any other payment made under this Agreement in respect of the Loans, including by way of set-off, deduction or counterclaim, the Lender shall pay over 50% of such amounts to Antec within two Banking Days of the Lender's receipt thereof. (ii) Except as set forth in Section 10.02(a)(i), whenever the Lender receives or collects any payment of principal or interest or any other payment made under this Agreement in respect of the Loans and/or the Additional Loans, including by way of set-off, deduction or counterclaim, the Lender shall pay over to Antec within two Banking Days of the Lender's receipt thereof an amount equal to the product of (x) the amount of such payment and (y) a fraction, the numerator of which is the aggregate amount of Mandatory Participating Interest paid by Antec to the Lender and the aggregate 2 3 accrued and unpaid interest on such amount, and the denominator of which is aggregate amount of the Loans and the Additional Loans and the aggregate accrued and unpaid interest on such amount. (e) In Article XI, Section 11.01, 11.02(b) and 11.03(a) are amended in their entirety to read as follows: Section 11.01. Additional Commitment to Lend. On the terms and subject to the conditions set forth under this Article XI, the Lender shall, upon the Products Venture's request made in accordance with Section 11.02, make additional loans, to the Products Venture during the Availability Period (each such additional loan an "Additional Loan"). The aggregate principal amount of the Additional Loans made by the Lender hereunder shall not, in the aggregate (excluding any interest accrued on Additional Loans made hereunder), exceed $84 million. Each Additional Loan made hereunder shall be in multiples of $500,000; provided, that (i) the Lender shall not be required to make more than four Additional Loans during any Fiscal quarter and (ii) the Members Committee shall approve any Additional Loan, the principal amount of which is in excess of $2,000,000. Section 11.02(b). The obligation of the Lender to make an Additional Loan is subject to the satisfaction of the following conditions: (1) (i) receipt by the Lender of a Notice of Additional Borrowing as required by Section 11.02(a); (ii) the Security Agreement shall be in full force and effect; and (iii) The Pledge Agreement shall be in full force and effect. (2) Provided the aggregate principal amount of the Additional Loans made by the Lender hereunder is either (i) less than $34 million or (ii)(A) $34 million or more, (B) the condition set forth in Section 11.02(b)(3) is satisfied and (C) Antec has elected to make a Mandatory Participating Interest pursuant to Section 11.03, which election may be reversed (with respect to Additional Loans not then made) at any time at the sole discretion of Antec: 3 4 (A) receipt by the Lender from Antec of its agreement to participate in the Additional Loan in the form attached as Exhibit D hereto ("Antec's Participation Commitment"); and (B) receipt by the Lender from Antec of payment in cash of an amount equal to 25% of the principal amount of the Additional Loan. (3) Provided the aggregate principal amount of the Additional Loans made by the Lender is $34 million or more, election by the Lender to make Additional Loans, which election may be reversed (with respect to Additional Loans not then made) at any time at the sole discretion of the Lender. (4) Each of the Lender and Antec shall be deemed to have made an affirmative election to make Additional Loans, in the case of the Lender, and a Mandatory Participating Interest, in the case of Antec, during the period between (i) when the aggregate principal amount of the Additional Loans made by the Lender is $34 million or more and (ii) provided a request for a determination of the Fair Market Price (as defined in, and in accordance with, Section 6.04 of the Products LLC Agreement) has been made, the date of completion of such determination. Section 11.03. Mandatory Participation by Antec. (a) Unless a negative election has been made by Antec pursuant to Section 11.02(b)(2)(ii)(C), Antec shall purchase from the Lender an undivided 25% participating interest in and to such Additional Loan (a "Mandatory Participating Interest") for payment in cash to the Lender of an amount equal to 25% of the principal amount of such Additional Loan, within two Banking Days of receipt by Antec of a Notice of Additional Borrowing from the Products Venture. 3. With respect to the LLC Agreement, Antec and Nortel agree: (a) The third WHEREAS clause is amended in its entirety to read as follows: WHEREAS, it is intended that the Company shall, for multiple services operators and telephone company network operators develop, manufacture and have manufactured, sell directly and distribute, digital broadband access networking products and applications for the delivery of narrow band and broadband services over a Hybrid Fiber Coaxial Cable Network consisting of network elements for headend and premises deployment ("Cornerstone Products") ("the Business Scope"); 4 5 (b) In Article I, under Section 1.01, Interest is amended in its entirety to read as follows: "Interest" means, in the case of Nortel, Nortel's initial 75% interest in the Company or any other percentage interest in the Company held by Nortel as a result of either a Transfer of a portion of its percentage interest pursuant to Section 2.05(c) or an adjustment of its percentage interest made pursuant to Section 2.05(e) or (f) and, in the case of Antec, Antec's 25% interest in the Company or any other percentage interest in the Company held by Antec as a result of an adjustment of its percentage interest made pursuant to Section 2.05(e) or (f). (c) In Article II, the following is added to Section 2.05 as subparagraphs (e), (f) and (g): (e) Provided (1)(i) the aggregate principal amount of the Additional Loans (as defined in the Product Loan Agreement) then made is $34 million or more and (ii) Antec has elected not to make a Mandatory Participating Interest (as defined in the Product Loan Agreement) for the then requested Additional Loan to which such Mandatory Participating Interest relates and the determination of the Fair Market Price in connection with such election has been made and (2) Nortel has not exercised its right under Section 6.04(a)(y), and subject to Section 2.05(g), Nortel shall have the option, at its sole discretion, to increase its Capital Contribution by contributing to the Products Venture the amount of the Mandatory Participating Interest in connection with such Additional Loan, and after such contribution has been made, Nortel's and Antec's Interest shall be adjusted based upon the then current Fair Market Price determined in accordance with Section 6.04. (f) Provided (1)(i) the aggregate principal amount of the Additional Loans then made is $34 million or more and (ii) Nortel has elected not to make the Additional Loan then requested and the determination of the Fair Market Price in connection with such election has been made and (2) Antec has not exercised its right under Section 6.04(a)(y), and subject to Section 2.05(g), Antec shall have the option, at its sole discretion, to increase its Capital Contribution by contributing to the Products Venture 100% the principal amount of such Additional Loan, and after such contribution has been made, Nortel's and Antec's Interest shall be adjusted based upon the then current Fair Market Price determined in accordance with Section 6.04. 5 6 (g) If the Fair Market Price is a negative amount, then the Member which has elected not to make an Additional Loan or a Mandatory Participating Interest, as the case may be, shall have the right to reverse its election within 10 days of the date of the determination of such Fair Market Price. (d) In Article III, Sections 3.02(a) and (b) are amended in their entirety to read as follows: SECTION 3.02. OFFICERS. (a) PRESIDENT. The president of the Company (the "President") shall initially be appointed by Nortel. Each President shall be appointed for an initial term of two years and may be reappointed. Nortel shall have the right, after consultation with Antec (provided that such consultation shall not be required if Antec's Interest is less than 20%), to dismiss any incumbent President and appoint any successor or replacement President. (b) VICE PRESIDENT-FINANCE. The Vice President-Finance of the Company (the "Vice President-Finance") shall initially be appointed by Nortel. Each Vice President-Finance shall be appointed for an initial term of two years and may be reappointed. So long as any amount is outstanding under the Products Loan Agreement, Nortel shall have the right, after consultation with Antec (provided that such consultation shall not be required if Antec's Interest is less than 20%), to dismiss any incumbent Vice President-Finance and appoint any successor or replacement Vice President-Finance and, thereafter, provided (1) Antec's Interest is 20% or more and (2) no amount is outstanding under the Products Loan Agreement, Antec shall have the right, after consultation with Nortel, to dismiss any incumbent Vice President-Finance and appoint any successor or replacement Vice President-Finance. (c) In Article III at the end of Section 3.04, the following is added: , provided, however, if pursuant to Section 2.05(e) of this Agreement, the Interest of Antec is reduced to less than (1) 15% then subparagraphs (b), (e), (f), (g), (i), (k), (l), (o) and (r), and (2) 10% then subparagraphs (j), (n), (p), (q), (s) and (t), of this Section 3.04 shall be deleted and such subparagraphs shall be added to Section 3.03 of this Agreement, and the affirmative vote of a majority of the Representatives of the Members Committee shall be required to approve or disapprove any matter set forth in any 6 7 such subparagraph without regard to whether or not any such matter has been specifically provided for in an approved Budget or Business Plan. (f) In Article VI, Section 6.02(f) is amended in its entirety to read as follows: (f)(i) The failure of the Company, which for these purposes means the occurrence of an Event of Default under the Products Loan Agreement, and (ii) the failure of the Members to exercise their rights under Section 6.03(a). (g) In Article VI, the following is added to Section 6.02 as subparagraph (g): (g) The election by both Nortel (as Lender) not to make Additional Loans and Antec not to make a Mandatory Participating Interest (as such terms are defined in and pursuant to Article XI of the Products Loan Agreement) after the aggregate principal amount of the Additional Loans then made is $34 million or more and the Fair Market Price in connection with such elections has been determined. (h) In Article VI, Section 6.03 is amended in its entirety to read as follows: Section 6.03. Procedure in case of Certain Events of Dissolution. (a) Upon the occurrence and continuance of either of the events referred to in Section 6.02(a)(i) or 6.02(f)(i), first Nortel, and then Antec shall have the right, subject to the conditions specified in Sections 6.03(b)-(d), to purchase the other Member's Interest. (b) Upon the occurrence and continuance of an Event of Dissolution referred to in Section 6.02(a) or 6.02(f), Nortel may exercise its right under Section 6.03(a) by Notice to Antec, indicating its interest in purchasing Antec's Interest. If the Members are unable to agree on an amount for which Nortel is willing to buy from Antec, and Antec is willing to sell to Nortel, Antec's Interest, free and clear of all pledges, liens, security interest or other encumbrances, Antec's Interest shall be determined pursuant to the second sentence of Section 6.04(c). (c) Upon the occurrence and continuance of an Event of Dissolution referred to in Section 6.02(a) or 6.02(f), provided, Nortel has not given Notice to Antec that it will exercise its right under Section 6.03(a), Antec may exercise its right under Section 6.03(a) by Notice to Nortel, indicating its interest in purchasing Nortel's Interest. If the Members are unable to agree on an amount for which Antec is willing to buy from Nortel, and Nortel is willing to sell Antec, 7 8 Nortel's Interest, free and clear of all pledges, liens, security interests or other encumbrances, Nortel's Interest shall be determined pursuant to the second sentence of Section 6.04(c). (d) The closing of the purchase and sale of a Member's Interest under this Section 6.03 shall be held on a business day designated by the purchasing Member upon not less than 10 business days' prior written Notice given on or after the date on which there is a determination of the purchase price pursuant to Section 6.03(b) or 6.03(c), as the case may be, but not later than 60 days after such date. (i) In Article VI, Section 6.04 is amended in its entirety to read as follows: Section 6.04. Procedure in Case of Certain Other Events. (a) Upon the occurrence of the following events or conditions (the "Triggering Events"): (i) a material breach of this Agreement that is not capable of being cured or a material breach of this Agreement by a Member that is capable of being cured and is not cured within 30 days after Notice thereof (the failure of Antec (I) under the Products Loan Agreement to satisfy the condition set forth in either Section 11.02(b)(2)(A) or (B) (provided the aggregate principal amount of the Additional Loans made by Nortel hereunder is either (i) less than $34 million or (ii)(A) $34 million or more and (B) Antec has elected not to make a Mandatory Participating Interest and a determination of the Fair Market Price in connection with such election has not then been completed or (II) to pay the Company $1,000,000 or more for 180 days or more for amounts due the Company pursuant to any distribution agreements between Antec and Arris or any other contractual relationship between Antec and the Company, including any accrued interest for past due amounts arising therefrom, shall be deemed to constitute a material breach of this Agreement by Antec that is not capable of being cured); (ii) a change of control of a Member; (iii) the bankruptcy of a Member; or (iv) the election by either Nortel not to make an Additional Loan or Antec not to make a Mandatory 8 9 Participating Interest, after the aggregate principal amount of the Additional Loans then made is $34 million or more; provided such election is not withdrawn within 15 days from the date the Fair Market Price has been agreed upon or Notice has been given to the Members of the determination thereof. the other Member (the "Non-Affected Member") shall have the right (x) to request a determination of the Fair Market Price of its Interest and the other Member's Interest and (y) to purchase, at the Fair Market Price, all of the other Member's Interest in the Company, subject, in the case of (i) above, to an adjustment of minus 30%. (b) A Member may exercise its rights under Section 6.04(a)(y) by Notice to the other Member between the 16th and the 30th day from the date on which the Fair Market Price has been agreed upon or Notice has been given to the Members of the determination thereof. (c) If the Triggering Event is (i), (ii) or (iii) above, the fair market price of any Member's Interest (the "Fair Market Price") shall be the amount obtained by multiplying the total fair market value of the Company and its subsidiaries, as agreed by the Members within 30 days of the giving of the Notice referred to in Section 6.04(b) or, failing such agreement, a determination shall be made by a nationally recognized investment banking firm selected by the Non-Affected Member, by such Member's percentage Interest in the Company. If the Triggering Event is (iv) above, or Nortel or Antec has availed itself of the right provided to it under Section 6.03(b) or (c), as the case may be, (I) such determination shall be made by the banking firm of Donaldson, Lufkin and Jenrette or other firm mutually agreed to by the Members; (II) in making the determination such firm, shall assume that the Company has an indefinite term rather than a finite term as specified in this Article VI; (III) the determination shall be made on an "equity" rather than an "enterprise" valuation basis; (IV) the Fair Market Price of a Member's Interest shall be, if the difference between the equity value and the amount outstanding under the Products Loan Agreement ("Balance") is a negative number, the product of (1) the Balance and (2) a fraction, the numerator of which, in the case of Antec, shall be the aggregate amount of Mandatory Participating Interest paid by Antec to the Lender and the aggregate accrued and unpaid interest on such amount ("Antec Amount"), and, in the case of Nortel, shall be the difference between the Balance and the 9 10 Antec Amount ("Member Repayment Amount") and the denominator of which shall be the Balance, and, if the difference between the equity value and the Balance is a positive number, the sum of the (A) Member Repayment Amount and (B) the product of (i) such difference and (ii) the amount of the Member's Interest (expressed as a percentage); and (V) the Fair Market Price so determined shall be valid for one year from the date of its completion unless a Fair Market Price is required in connection with Section 6.04(a)(y) in which event a new Fair Market Price shall be determined unless the prior one was completed within the immediately preceding 90 days. The fees and expenses of such investment banking firm will be paid by the breaching Member, in the case of a determination resulting from an event described in Section 6.04(a)(i) and otherwise such fees and expenses shall be borne by the Company. For purposes of this Section 6.04, a change of control shall be deemed to occur upon the direct or indirect acquisition by any Person (other than an Affiliate of Nortel or BCE Inc., in the case of Nortel and other than an Affiliate of Anixter International Inc. or Tele-Communication, Inc. in the case of Antec) who is a Competitor of the other Member of Securities representing 20% or more of the voting rights attached to voting securities of such other Member and of the power to direct the management of a Member, whether by ownership of voting securities, by contract or otherwise (a "Change of Control"). 4. With respect to the Antec License Agreement, Arris and Antec agree that the License Agreement is terminated, and Antec and Nortel agree that Articles VII and VIII of the Framework Agreement are deleted, as of August 1, 1997, and that all obligations thereunder by each party have been performed, provided, however, that any rights or obligations intended to survive termination shall remain in effect. 5. With respect to the Framework Agreement, and as of the effective date of the International Distribution Agreement, Antec, Nortel, and Arris agree: (a) In Article I the following is added under Section 1.01; "International Distribution Agreement" shall mean the agreement between Nortel and Product Venture providing for the distribution by Nortel of Product Venture Products outside North America. (b) In Article I the definitions of "Related Agreements" and the "Distribution Agreements" are amended to add the International Distribution Agreement. (c) In Article IV, Section 4.02(a) is amended in its entirety to read as follows: 10 11 Products Venture. (a) The Parents will serve as the exclusive distributors for all Products Venture Products that are the subject of Distribution Agreements in the respective territories in the United States and Canada and to the respective customers as specified in the applicable Distribution Agreements and in Article VI hereof. Except as provided in the International Distribution Agreement, the Products Venture may sell directly the Products worldwide outside North America. Except as specified in the Distribution Agreements, in Article VI hereof or the Products Manufacturing Agreement, neither the Parents nor their respective Affiliates shall have the right to distribute for another Person, sell for their own account, develop or manufacture (or license the underlying technology for purposes of manufacturing or sale) any products for use in a Hybrid Fiber Coaxial Cable Network that are directly competitive with the Products Venture Products in the United States or Canada. For purposes of this Agreement, the term "directly competitive" shall not include wireless products, personal communications systems products, switching products, asynchronous transfer mode products, DPN products or the product line identified as Cornerstone Multimedia. (d) Article VI is amended in its entirety to read as follows: Subject to the Distribution Agreements, the scope of this Agreement and the Related Agreements for the development, sale and distribution of the Products Venture Product shall be worldwide. The parties agree that in the future they will meet and negotiate in good faith with a view to granting, on a case-by case basis, distribution rights not granted to Nortel under the International Distribution Agreement to Antec outside the United States and Canada in cases where Antec can demonstrate a competitive advantage in distributing the Products Venture Products. 6. With respect to the Nortel License Agreement, and as of the effective date of the International Distribution Agreement, Arris and Nortel agree: (a) The third WHEREAS clause, Article II, Section 2.2(b) and Article IV, Section 4-1(b) are amended to delete "in the United States of America". (b) In Article II, Section 2.1 is amended in its entirety to read as follows: Nortel, to the extent of its legal right so to do, hereby grants to PJV, subject to the terms and conditions of this Agreement, a personal), non-transferable, non-assignable, indivisible, non-exclusive right to use and modify Hardware Technical Information supplied hereunder solely to manufacture or have manufactured Hardware for use in Hybrid Fiber-Coax Networks solely for the sale as permitted in the Framework Agreement, provided: (a) the right to modify shall be restricted to the development and implementation of modifications having application in Hybrid Fiber-Coax Networks; and 11 12 (b) the right to manufacture shall not of itself include the right to manufacture parts, components, sub-assemblies and assemblies, except for incorporation into, or for spare and/or replacement parts for repair of, Hardware. (c) In Article II, the following is added as a new Section 2.5 and the existing Section 2.5 is renumbered as Section 2.6. 2.5 Prior to an agreement, between Nortel and PJV providing for the distribution by Nortel of Licensed Products outside North America, becoming effective and subsequent to the termination or expiration of such agreement, and notwithstanding Section 2.4 to the contrary, Nortel shall not use the Hardware Technical Information and the Operating Software for the purpose of manufacturing or selling products directly competitive with the Licensed Products, provided, however, such restriction shall not prevent Nortel from manufacturing or selling products obtained or licensed from a third party or developed independently of the Hardware Technical Information and Operating Software. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. NORTHERN TELECOM INC. By: /s/ J. A. Craig ----------------------------------- Name: J. A. CRAIG --------------------------------- Title: President Broadband Network -------------------------------- ANTEC CORPORATION By: /s/ Lawrence A. Margolis ----------------------------------- Name: LAWRENCE A. MARGOLIS --------------------------------- Title: Exec. Vice President -------------------------------- ARRIS INTERACTIVE L.L.C. By: /s/ David B. Potts ----------------------------------- Name: DAVID B. POTTS --------------------------------- Title: Vice President Finance -------------------------------- 12 EX-10.26 5 EMPLOYMENT AGREEMENT/ROBERT STANZIONE 1 EXHIBIT 10.26 EMPLOYMENT AGREEMENT This Agreement is made as of the 16th of October, 1995, the "Effective Date," by and between ANTEC Corporation, a Delaware corporation (the "Company"), and Robert J. Stanzione, an individual residing at 29 Colts Glen Lane, Basking Ridge, New Jersey (the "Employee"). WHEREAS, the Company wants to employ the Employee and the Employee wants to be employed by the Company; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Employment and Term. The Company hereby agrees to employ the Employee in an executive capacity, and the Employee hereby agrees to serve the Company in such capacity, subject to the terms and conditions hereof for the period commencing on the Effective Date and continuing until terminated as provided in Section 4 (the "Termination Date"). The Employee is engaged on a full time basis by the Company to perform services of an executive nature within the Employee's abilities. 2. Compensation. The Company shall pay the Employee for the performance of his duties under this Agreement during the term of his employment (a) base compensation ("Base Compensation"), which as of the effective date of this Agreement shall be at the rate of $300,000 per year, plus (b) a bonus ("Bonus") for each fiscal year after 1995 in an amount determined by the Board of Directors using such criteria as it deems fair and equitable allowing up to 150% of planned Bonus for performance above target goals. The amount of the planned Bonus shall be 75% of Base Compensation. The Employee's Base Compensation shall be subject to annual or periodic review, in accordance with the Company's customary practice for its other executives and increased in the sole discretion of the Company. Once Base Compensation has been increased, it shall not thereafter be decreased. The Employee's Base Compensation under this Section shall be payable semi-monthly, and the Bonus shall be payable as soon after the end of each fiscal year as it can be determined, but in any event within ninety (90) days thereafter. If the employment of Employee is terminated at other than year-end, the Bonus will be pro rated to reflect the period during the year Employee was employed. The Bonus for 1995 shall be 75% of the Base Compensation paid the Employee for 1995. 3. (a) Additional Benefits. The Employee shall be entitled to participate in and receive benefits under any defined benefit retirement plan, related excess benefit plan, health plan, disability plan and life insurance plan or other similar employee benefit plan or arrangement (collectively, "Benefit Plans") made available by the Company from time to 2 time to its executives. The Company agrees that it will not substantially reduce the aggregate amount it is currently incurring to provide Benefit Plans to Employee. The Employee shall be entitled to such other benefits, including vacation, fringe benefits and expense reimbursement as are currently in effect for executives as the same may be from time to time be amended. (b) Additional Pension. Upon the achievement of both 5 years of service and the substantial performance of his obligations under this Agreement, the Employee will be provided a supplemental pension equal to (i) the amount of pension he would have had under the Company's defined benefit retirement plan and related excess benefit plan if period of the Employee's service under those plans were tripled, less (ii) the amount of pension to which the Employee is entitled under the Company's defined benefit retirement plan and related excess benefit plan. (c) Long Term Incentives. In addition to the long term incentives granted the Employee on the Effective Date, the Employee, beginning in 1997, will be eligible for such long term incentive awards as shall be periodically granted to other executives of the Company. 4. Termination. (a) This Agreement may be terminated by the Company by written notice to the Employee only by adoption by the Board of Directors of a resolution approved by directors constituting a majority of all of the directors then holding office. The termination will not be effective until the later of three years after the Effective Date or one year after written notice of termination is given the Employee unless the termination is for "Good Cause." "Good Cause" shall mean (i) the Employee's conviction of any embezzlement or any felony involving fraud or breach of trust relating to the performance of Employee's duties for the Company, (ii) the Employee's willful engagement in gross misconduct in the performance of his duties, (iii) Employee's death or (iv) permanent disability which materially impairs Employee's performance of his duties. (b) The Employee may terminate this Agreement by giving the Company written notice of termination. The termination will not be effective until the later of three years after the Effective Date or one year after written notice of termination is given the Company unless the termination is for "Good Reason." "Good Reason" shall exist if (i) the Company continues in material breach of this Agreement for more than 30 days after being notified in writing by Employer of such breach provided Employee has given such notice to the Company within 30 days of first becoming aware of the facts constituting such breach, (ii) the Company gives Employee a notice of termination without "Good Cause" as specified above provided Employee terminates this Agreement within 30 days of receiving such notice, or (iii) a "Change of Control" occurs, and the Employee's employment hereunder is terminated by the Company other than for "Good Cause" or by the Employee for any reason. A "Change of Control" shall mean any person (as such term is used in section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act), (i) of 2 3 securities of the Company representing the higher of (x) more than 25% of the combined voting power of the Company's then outstanding voting securities, excluding Anixter International Inc. ("Anixter") or any successor or "affiliates" as defined pursuant to the Exchange Act or (y) more than such voting securities beneficially owned by Anixter and its successors and affiliates, or (ii) if Anixter and its successors and affiliates beneficially own more than 25% of such securities of the Company, of securities of Anixter representing the higher of (x) more than 25% of the combined voting power of Anixter's then outstanding voting securities (excluding Samuel Zell, B. Ann Lurie, Sheli Rosenberg and their affiliates) or (y) more than such voting securities held by Samuel Zell, B. Ann Lurie, Sheli Rosenberg and their affiliates. (c) If the Employee terminates this Agreement and simultaneously therewith his employment by the Company for Good Reason, all of the Employee's shares of restricted stock will vest and all his stock options outstanding and unexercised at the Termination Date shall become immediately and fully exercisable as of the Termination Date and the Company for a period of one year from such termination or through three years after the Effective Date whichever is later (the "Severance Period") shall continue to provide to the Employee (a) his Base Compensation, at the rate most recently determined (b) a Bonus for each fiscal year (and a pro rata amount for each partial year) in an amount equal to the most recent Bonus (annualized if for a partial year) paid or payable to the Employee prior to the Termination Date, and (c) the Benefit Plans as provided by Section 3 (subject in the case of long-term disability to the availability of such coverage under the Company's insurance policy). (d) The parties agree that the payments and benefits provided for in subsection (c) of this Section shall be deemed to constitute liquidated damages for the Company's breach or constructive breach of this Agreement and payment for the non-competition provisions of this Agreement, and the Company agrees that (i) Employee shall not be required to mitigate his damages by seeking other employment or otherwise, and (ii) the Company's payments and other obligations under this Agreement shall not be reduced in any way by reason of any compensation received by Employee from sources other than the Company after the Termination Date, except as otherwise expressly provided herein. (e) If the Employee should be offered a position with an affiliate of the Company (as defined under the Exchange Act) and chose to accept that position, this Agreement shall terminate and the parties shall have no further obligations to one another under this Agreement except as otherwise agreed by the Employee and the Company in connection with such transfer. 5. Non-Competition Covenant. The Employee agrees that throughout his employment hereunder and during the Severance Period he will not directly or indirectly, alone or as a member of partnership, association of joint venture or as an employee, officer, director or stockholder of any corporation or in any other capacity: 3 4 (a) engage in any activity which is competitive with the business of the Company in the United States or in any foreign country in which the Company is carrying on such business, provided that the foregoing provision shall not be deemed to prohibit the Employee from purchasing for investment any securities or interest in any publicly-owned organization which is competitive with the business of the Company so long as his investment in any such organization does not exceed one percent of its total equity; or (b) solicit in connection with any activity which is competitive with the Company, any customers or suppliers which he solicited on behalf of the Company or on behalf of the business of the Company. 6. Entire Agreement. The terms and provisions of this Agreement constitute the entire agreement between the parties and supersede any previous oral or written communications, representations or agreements with respect to the subject matter hereof. 7. Notice. Any Notices given hereunder shall be in writing and shall be given by personal delivery or by certified or registered mail, return receipt requested, addressed to: If to the Company: If to the Employee: ANTEC Corporation the address shown at 2850 West Golf Road the beginning of this Rolling Meadows, IL 60008 Agreement Attn: Larry Margolis or such other address as shall be furnished in writing by one party to the other. 8. Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision had been omitted. 9. Company Assignment. The Company's obligations hereunder shall be binding legal obligations of any successor to all or substantially all of the Company's business by purchase, merger, consolidation or otherwise. The Company may not sell or otherwise dispose of all or substantially all of its assets or merge or consolidate with any other entity without making adequate provision for its obligations hereunder. The Employee may not assign this Agreement during his life, and upon his death, this Agreement shall be binding upon and inure to the benefit of his heirs, legatees and the legal representative of each. 10. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of Illinois. 4 5 11. Amendment. This Agreement may be amended only by a written document signed by both parties. 12. Taxes. Company shall pay to Employee the amount of any exercise taxes imposed on Employee under Section 4999 of the Internal Revenue Code as currently written by reason of payments or benefits received by Employee under the other provisions of this Agreement. Employee and Company will minimize the impact of any future changes in the tax laws (other than changes in rates) by reforming this Agreement if it is possible to do so in a manner which is economically equivalent to the current provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Employment Agreement effective as of the Day and year first above written. ANTEC Corporation Employee By /s/ Lawrence A. Margolis /s/ Robert J. Stanzione ------------------------ ------------------------ Its 5 EX-10.27 6 AMEND. TO EMPLOYMENT AGREEMENT/ROBERT STANZIONE 1 EXHIBIT 10.27 [ANTEC NETWORK TECHNOLOGIES LETTERHEAD] December 22, 1997 Mr. Robert Stanzione 9355 Chandler Bluff Alpharetta, Georgia 330022 Dear Bob: I am writing to set forth our arrangement for your assumption of the office of President and Chief Operating Officer of ANTEC, effective January 1, 1998. Your employment will continue under the terms of your existing employment agreement: Your salary will be at the rate of $340,000 a year, effective January 1, 1998. You will be granted for 1997 an option, in the form attached, to purchase 335,000 shares of ANTEC stock. This option will be granted no later than January 31, 1998. For each share of this option you exercise, the Company will pay you an amount equal to the amount by which the exercise price of your option exceeds $9.75 per share. The payment will be made on the later of the date of exercise or November 15, 2000. Please indicate your acceptance of the above by signing and returning a copy of this letter to me. This letter supercedes our letter of November 22, 1997. Sincerely, /s/ Lawrence A. Margolis -------------------- Lawrence A. Margolis LAM/slc Enclosure AGREED: Jan. 16 -----------------, 1998 /s/ Robert J. Stanzione -------------------- Robert J. Stanzione 2 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 STOCK OPTION GRANT THIS GRANT is made as of the 10th day of February, 1998 by ANTEC CORPORATION, a Delaware corporation (the "Corporation"), to ROBERT STANZIONE (the "Optionee"). 1. INCORPORATION OF TERMS This Grant shall be governed by the attached ANTEC Corporation Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein. 2. GRANT OF OPTION On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to the Optionee the option to purchase 335,000 Shares as defined in the Terms for an exercise price of eleven dollars and twelve and one-half cents ($11.125) per Share. This option replaces the option for the same number of shares granted to Optionee on December 18, 1997. 3. RIGHT TO EXERCISE Subject to the conditions and the exceptions set forth in this Grant and in the Terms, this Option shall become exercisable on May 7, 2003. This Option shall become exercisable prior thereto as follows: a. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the fully diluted earnings per Share of Stock of the Corporation, before consideration of non-recurring items, over any four consecutive fiscal quarters have totaled more than one dollar ($1) a Share (the "Earnings Target"), and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been fifteen dollars ($15) per Share or more (a "Stock Price Target"). b. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the Earnings Target has been met and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been twenty dollars ($20) per Share or more (a "Stock Price Target"). c. One third (1/3) of the Shares covered by this Option shall be eligible for vesting, with 50% of this amount being immediately exercisable and the remaining 50% becoming exercisable twelve (12) months thereafter (a "Delayed Vesting Period"), once the Earnings Target has been met and the daily closing price per Share of Stock for twenty (20) consecutive trading days has been twenty-five dollars ($25) per Share or more (a "Stock Price Target"). d. All of the Shares covered by Option shall be exercisable upon the occurrence of a Change of Control. For this purpose a Change of Control shall be the acquisition of the beneficial ownership by any person and that person's affiliates (excluding Anixter International Inc., Tele-Communications, Inc. and their affiliates) of more than 50% of the Shares of Stock of the Corporation or the commencement of a tender offer, the consummation of which would result in such an acquisition. 3 Upon an Employment Termination, this Option can be exercised only to the extent it was exercisable on the date of that termination and only as otherwise provided in the Terms. The only exception is that if the Employment Termination was by the Corporation without cause during a Delayed Vesting Period, the Optionee can exercise this Option for the Shares which become available at the end of that Delayed Vesting Period, and for this purpose the term of this Option shall be extended to the day thirty (30) days after the end of that Delayed Vesting Period, but not beyond May 7, 2004. In the event this Option is adjusted pursuant to the Terms, an appropriate adjustment shall be made by the Board to the Earnings Target and the Share Price Targets. The determination by the Board or the authorized committee of the Board on these matters as well as all other matters concerning this Option, including the computation of fully diluted earning per Share before non-recurring items, shall be final and binding. NO EXISTING CONTRACT WHICH PROVIDES FOR THE VESTING OR EXERCISABILITY OF STOCK OPTIONS OTHER THAN AS PROVIDED IN THIS GRANT SHALL APPLY TO THIS OPTION. BY ACCEPTING THIS OPTION, THE OPTIONEE IS AGREEING THAT ANY EXISTING CONTRACTUAL PROVISIONS TO THE CONTRARY ARE BEING MODIFIED AS PROVIDED HEREIN. NO FUTURE CONTRACT SHALL APPLY TO THIS OPTION UNLESS SUCH CONTRACT EXPRESSLY PROVIDES TO THE CONTRARY, REFERRING TO THIS OPTION BY DATE OF GRANT AND EXERCISE PRICE. 4. TERM OF OPTION This Option shall in any event expire in its entirety May 7, 2004. This Option shall further expire as set forth in the Terms. 5. EXERCISE CONSTITUTES AGREEMENT TO REFRAIN FROM COMPETITION By exercising any portion of this Option, the Optionee will be signifying the agreement of Optionee to refrain for a period of nine months from the termination of Optionee's employment with the Corporation and its subsidiaries, from participating in any activities which are competitive with any activities of the Corporation or its subsidiaries in which the Optionee participated. Participation shall not include the ownership of less than 1% of a publicly traded security. IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act on behalf of the Corporation. ANTEC CORPORATION, a Delaware corporation By: Lawrence A. Margolis ---------------------------- Lawrence A. Margolis Its: Executive Vice President Accepted: Robert J. Stanzione 2/10/98 - ---------------------------------- Robert J. Stanzione EX-23.1 7 CONSENT OF ERNST & YOUNG 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of ANTEC Corporation of our report dated January 30, 1998, with respect to the consolidated financial statements of ANTEC Corporation included in this Annual Report (Form 10K/A) for the year ended December 31, 1997: Form S-8 No. 33-71384 (Amended and Restated Employee Stock Incentive Plan) Form S-8 No. 3371386 (ANTEC Corporation Director Stock Option Plan) Form S-8 No. 3371388 (ANTEC Corporation Employee Stock Purchase Plan) Form S-8 No. 3389704 (ANTEC/Keptel Exchange Options) Form S-8 No. 333-11921 (ESP Stock Plan) Form S-8 No. 333-12131 (ANTEC Corporation Amended and Restated Employee Stock Incentive Plan) Form S-8 No. 333-19129 (TSX Corporation 1996 Second Amended and Restated Long-Term Incentive Compensation Program; TSX Corporation 1993 Amended and Restated Directors Stock Option Plan, As Amended; TSX Corporation 1994 W.H. Lambert Stock Option Agreement) /s/ Ernst & Young LLP Chicago, Illinois September 21, 1998 -----END PRIVACY-ENHANCED MESSAGE-----