ARRIS International plc (NASDAQ:ARRS) entered into a Warrant and Registration Rights Agreement (the “Warrant”) with Charter Communications Operating, LLC (“Charter”) pursuant to which Charter may purchase up to 6.0 million of ARRIS’ ordinary shares, nominal value £0.01 per share (subject to adjustment in accordance with the terms of the Warrant, the “Shares”).
The Warrant will vest in three tranches based on the amount of goods and services Charter purchases from the Company. Between .5 million and 1.0 million Shares are issuable under the Warrant based on Charter’s purchases in 2016, between 1.0 million and 2.5 million are issuable based on purchases made in 2017, and between 1.0 million and 2.5 million are issuable based on purchases made in 2018. In order for the Warrant to vest above the 1.0 million Share threshold in 2016 and above the 2.5 million threshold in both 2017 and 2018, specified increased purchases are required and a set percentage of the purchases must be for goods and services included in ARRIS’ Network & Cloud segment for 2016, 2017, and 2018, respectively. The exercise price per Share shall be calculated pursuant to the formula set forth in Annex A to the Warrant.
The Warrant provides for net Share settlement that, if elected by Charter, will reduce the number of Shares issued upon exercise to reflect net settlement of the exercise price. Charter may also request cash settlement of the Warrant upon exercise in lieu of issuing Shares, however, such cash election is at the discretion of ARRIS. The warrants will expire on September 30, 2023.
The Warrant provides for certain adjustments that may be made to the exercise price and the number of Shares issuable upon exercise due to customary anti-dilution provisions based on future corporate events. In addition, in connection with any consolidation, merger or similar extraordinary event involving the Company, the Warrant will be deemed to represent the right to receive, upon exercise, the same consideration received by the holders of the Company’s ordinary shares in connection with such transaction. Upon a change of control of ARRIS or if ARRIS materially breaches its separate Master Purchase Agreement with Charter (and such breach is not cured pursuant to the terms of the Master Purchase Agreement), the Warrant will immediately vest for the minimum threshold of Shares that would otherwise be issuable.
ARRIS has also agreed, if requested by Charter, to register the Shares issuable upon exercise of the Warrant under the Securities Act of 1933, as amended (the “Securities Act”) and has also granted “piggyback” registration rights in the event ARRIS files a registration statement with the U.S. Securities and Exchange Commission under the Securities Act covering its equity securities, subject to the terms and conditions included in the Warrant