SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
ARRIS GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ARRIS GROUP, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2002
To the Stockholders of ARRIS Group, Inc.:
The Annual Meeting of Stockholders of ARRIS Group, Inc. will be held at the
Company's corporate facilities, located at 11450 Technology Circle, Duluth,
Georgia, on Thursday, May 29, 2002 at 10:00 a.m., for the purpose of (a)
electing 11 directors, (b) approving the 2002 Stock Incentive Plan, and (c)
transacting such other business as may be brought before the meeting or any
adjournment(s) thereof.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend in person, you are requested to vote, sign, date and
promptly return the enclosed proxy in the envelope provided.
The Board of Directors has fixed the close of business on April 19, 2002 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the meeting or any adjournment(s) thereof. A complete list of the
stockholders entitled to vote at the meeting will be open for examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours for ten days prior to the meeting. The list of stockholders as of the date
of record will be made available at the offices of the Company at the above
address and will be available at the meeting.
A copy of ARRIS Group, Inc.'s Annual Report to Stockholders for the fiscal
year ended December 31, 2001 is enclosed. Additional copies of this report may
be obtained without charge by writing the Secretary of ARRIS Group, Inc., 11450
Technology Circle, Duluth, Georgia 30097.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ LAWRENCE A. MARGOLIS
Lawrence A. Margolis,
Secretary
Duluth, Georgia
April 29, 2002
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
OF ARRIS GROUP, INC.
TO BE HELD MAY 29, 2002
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of ARRIS Group, Inc., a Delaware corporation
(the term "ARRIS" or the "Company," as used herein means the Company together
with or without its subsidiaries, as the context may require). The Company's
corporate headquarters is located at 11450 Technology Circle, Duluth, Georgia
30097 (telephone 678-473-2000). The Proxy Statement and form of proxy were first
mailed to stockholders on or about April 29, 2002. Proxies solicited by the
Board of Directors of the Company are to be voted at the Annual Meeting of
Stockholders of the Company to be held on May 29, 2002 at 10:00 a.m. at the
Company's corporate facilities, 11450 Technology Circle, Duluth, Georgia or any
adjournment(s) thereof.
This solicitation is being made by mail, although directors, officers and
regular employees of the Company may solicit proxies from stockholders
personally or by telephone, telegram or letter. The costs of this solicitation
will be borne by the Company. The Company may request brokerage houses, nominees
or fiduciaries and other custodians to solicit their principals or customers for
their proxies, and may reimburse them for their reasonable expenses in so doing.
In addition, the Company has retained Morrow & Co., Inc. to assist in the
solicitation for a fee of $6,000 plus expenses.
VOTING
Shares of Common Stock, $0.01 par value, of the Company ("Common Stock")
represented by proxies in the accompanying form, which are properly executed and
returned to the Company (and which are not effectively revoked) will be voted at
the meeting in accordance with the stockholders' instructions contained therein.
In the absence of contrary instructions, shares represented by such proxies will
be voted IN FAVOR OF the election as directors of the nominees listed herein, IN
FAVOR OF Proposal 1 to approve the Company's 2002 Stock Incentive Plan (the
"Incentive Plan"), and in the discretion of the appointed proxies, upon such
other business as may properly be brought before the meeting.
Each stockholder has the power to revoke his or her proxy at any time
before it is voted by (i) delivering to the Company, prior to or at the meeting,
written notice of revocation or a later dated proxy or (ii) attending the
meeting and voting his or her shares in person.
The Board of Directors has fixed the close of business on April 19, 2002,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment(s) thereof.
As of April 19, 2002, 81,761,685 shares of Common Stock were outstanding.
Each holder of Common Stock is entitled to one vote per share.
A majority of the outstanding shares of Common Stock will constitute a
quorum for purposes of the meeting. If a quorum is present, in person or by
proxy, the election of directors will be determined by a plurality of the votes
of the shares represented at the meeting, and the approval of Proposal 1, to
approve the Incentive Plan, will be determined by the affirmative vote of the
majority of the shares represented at the meeting. Shares represented at the
meeting which abstain from voting, or in the case of directors, withhold votes
will be counted in determining the presence of a quorum. Withheld votes will not
affect the election of directors. An abstention on Proposal 1 has the same
effect as a "no" vote unless, in the case of Proposal 1, such abstention is by
virtue of a "broker non-vote."
ELECTION OF DIRECTORS
In the absence of contrary instructions, the proxies received will be voted
for the election as directors of the nominees listed below, all of whom, with
the exception of Mr. Bosco and Ms. Spradley, presently serve on
1
the Board of Directors, to hold office until the next annual meeting of
stockholders or until their successors are elected and qualified. Although the
Board of Directors does not contemplate that any nominee will decline or be
unable to serve as director, in either such event the proxies will be voted for
another person selected by the Board of Directors, unless the Board acts to
reduce the size of the Board of Directors in accordance with the provisions of
ARRIS' by-laws. The current number of Directors has been set by the Board at 11.
NOMINEES TO SERVE FOR A ONE-YEAR TERM EXPIRING IN 2003
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Name: Harry L. Bosco
Age: 56
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Mr. Bosco is the Chief Executive
Officer, President and a Director of
OptNext, Inc., an Optical Component
Company privately owned by Hitachi Ltd.
and Clarity Partners, since 2000. Prior
thereto he has held, since 1965,
numerous senior management positions
within Lucent Technologies, formerly
Bell Labs.
Other directorships: Trustee Monmouth University, and a
Member of the Village Network Board
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Name: John (Ian) Anderson Craig
Age: 59
Director since: 1998
ARRIS Board Committee: Audit Committee and Compensation
Committee
Principal occupation and recent
business experience: Mr. Craig was Chief Marketing Officer of
Nortel Networks, Inc., a leading global
supplier of data and telephony network
solutions and services, from September
1998 through March 2000. Prior thereto
he has held, since 1968, numerous senior
management positions within Northern
Telecom Inc., now known as Nortel
Networks.
Other directorships: BCI, CAE, Inc., TrizecHahn Corporation
and Williams Communications Group.
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Name: John M. Egan
Age: 54
Director since: 1993
ARRIS Board Committee: Executive Committee
Principal occupation and recent
business experience: Chairman of the Board since 1997,
President from 1980 through 1997 and
Chief Executive Officer from 1980
through 1999 of ARRIS and its
predecessors.
Other directorships: National Cable Television Association
("NCTA"), and the Walter Kaitz
Foundation.
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2
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Name: James L. Faust
Age: 60
Director since: 1995
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Chief Executive Officer of Clearband
LLC, developer of broadband video
streaming software, since 2001. CEO of
Evolve Products, Inc. from 1998 to 2001.
Consultant since 1998 and Executive Vice
President, International from 1995 to
1998 of ARRIS.
Other directorships: Evolve Products, Inc., Optinel Systems
and Cabletel Communications Corporation.
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Name: Craig Johnson
Age: 42
Director since: 2001
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Vice President, Head of Global Corporate
Development for Nortel Networks Inc., a
global supplier of data and telephony
network solutions and services, since
October 2001. From August 1996 he has
held various executive positions within
Nortel Networks. Prior thereto he was
Vice President for Corporate Development
for Etan Industries, a private company
involved in the cable television and
collections industry.
Other directorships: None
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Name: William H. Lambert
Age: 65
Director since: 1997
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Chairman, President and Chief Executive
Officer of TSX Corporation, now a
subsidiary of ARRIS, from 1988 to 1997.
Other directorships: None.
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Name: John R. Petty
Age: 71
Director since: 1993
ARRIS Board Committee: Audit Committee (Chair)
Principal occupation and recent
business experience: Chairman of TECSEC Incorporated, a data
security company since 1997. Chairman of
Federal National Payables, Inc., a
factoring company, since 1992. A private
investor since 1988.
Other directorships: Director of Anixter International, Inc.
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3
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Name: Larry Romrell
Age: 61
Director since: 2000
ARRIS Board Committee: None.
Principal occupation and recent
business experience: A director of Liberty Media Corporation
since March 1999. Mr. Romrell has also
served as a consultant to Liberty since
March 1999. Mr. Romrell served as an
Executive Vice President of TCI from
January 1994 to March 1999 and since
March 1999 has served as a consultant to
AT&T Broadband. Mr. Romrell also served,
from December 1997 to March 1999, as
Executive Vice President and Chief
Executive Officer of TCI Business
Alliance and Technology Co.; from
December 1997 to March 1999, as Senior
Vice President of TCI Ventures Group,
LLC; and, from September 1994 to October
1997, as President of TCI Technology
Ventures.
Other directorships: Director of Guaranty Bank & Trust
Company and Liberty LiveWire
Corporation.
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Name: Sue Spradley
Age: 41
ARRIS Board Committee: None.
Principal occupation and recent
business experience: President of Carrier Voice over Packet
Division of Nortel Networks, a global
supplier of data and telephony network
solutions and services, since 2001.
Prior thereto Ms. Spradley held various
positions in sales, sales engineering,
marketing, product management and
customer service at Nortel Networks.
Other directorships: Science Place
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Name: Robert J. Stanzione
Age: 53
Director since: 1998
ARRIS Board Committee: Executive Committee
Principal occupation and recent
business experience: President and Chief Executive Officer
since January 1, 2000 and President and
Chief Operating Officer from 1998
through 1999 of ARRIS. President and
Chief Executive Officer of Arris
Interactive, a joint venture company of
ARRIS and Nortel Networks, from 1995 to
1997. Prior thereto held various
management positions with AT&T
Corporation since 1969.
Other directorships: Evolve Products, Inc., and CoaXmedia.
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4
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Name: Bruce Van Wagner
Age: 76
Director since: 1993
ARRIS Board Committee: Executive Committee (Chair)
Principal occupation and recent
business experience: A private investor. Chairman of the
Company from 1993 to 1997.
Other directorships: None.
Other matters: In 2000, Mr. Van Wagner consented to the
entry of a permanent injunction in
connection with the settlement of a
civil action by the Securities and
Exchange Commission that enjoins him
from engaging in conduct in violation of
the securities laws.
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BOARD AND COMMITTEE MEETINGS
The Audit Committee in 2001 consisted of Messrs. Petty (Chairperson),
Samuel Skinner, and, until his resignation, William Schleyer. Pursuant to its
written charter, a copy of which is attached as an appendix, the Audit Committee
provides general review of the Company's accounting and auditing procedures,
meets with the Company's independent auditors to review their recommendations
and reviews related party transactions. The Audit Committee held three meetings
in 2001 after the formation of the Company in its current form on August 3, 2001
in connection with the acquisition of Arris Interactive L.L.C. The current
members of the Audit Committee are Messrs. Petty (Chairperson) and Craig. A
third member will be added following the Annual Meeting. It is believed that
Messrs. Petty, Skinner and Schleyer are "independent" as defined by Rule
4200(a)(15) of the National Association of Securities Dealers' listing
standards. Mr. Craig is not considered independent within that definition
because three years have not elapsed since his employment by Nortel Networks,
which is currently an Affiliate of the Company. Nevertheless the Board of
Directors determined that it is in the best interest of the Company and its
stockholders for Mr. Craig to serve on the Audit Committee because he is highly
qualified to do so by reason of his training and experience, there are no
"independent" directors available to serve on the committee, and he is not
currently engaged in any activities that will, in the future, disqualify him
from being considered independent.
The Compensation Committee, which in 2001 consisted of Messrs. Dammeyer
(Chairperson) and Skinner, exercises all powers of the Board of Directors in
connection with compensation matters, including incentive compensation, benefit
plans and stock grants. The Compensation Committee held two meetings in 2001
after the formation of the Company in its current form on August 3, 2001 in
connection with the acquisition of Arris Interactive L.L.C. The current members
of the Compensation Committee are Messrs. Craig and Dammeyer (who is not
standing for reelection). One or two new members will be added to the committee
following the Annual Meeting.
The Executive Committee, currently consisting of Messrs. Dammeyer, Egan,
Stanzione and Van Wagner (Chairperson), exercises the full powers of the Board
of Directors to the extent permitted by law in the intervals between Board
meetings, and to the extent desired, serves as the nominating Committee for the
Board of Directors. The Executive Committee held no meetings in 2001.
The Board of Directors held four meetings in 2001 after the formation of
the Company in its current form on August 3, 2001 in connection with the
acquisition of Arris Interactive L.L.C.
Each of the directors, with the exception of Mr. Dammeyer, attended 75
percent or more of the total of all meetings held by the Board and the
committees on which the director served.
5
EXECUTIVE COMPENSATION
The following tables set forth information about the compensation of its
Chief Executive Officer, and the four most highly compensated executive officers
of ARRIS for the last fiscal year.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) AWARDS($) AWARDS(#) COMPENSATION($)(4)
--------------------------- ---- --------- -------- -------- ---------- ---------- ------------------
Robert J. Stanzione...... 2001 550,000 170,625 0 500,000 38,750
President, Chief 2000 500,000 37,500 1,125,000(1)(2) 160,000 47,634
Executive Officer 1999 420,000 254,600 233,625(3) 500,000 2,500
John M. Egan............. 2001 500,000 131,250 0 268,000 30,500
Chairman 2000 500,000 37,500 187,500(2) 0 50,156
1999 500,000 525,500 0 100,000 1,250
Lawrence A. Margolis..... 2001 325,000 68,145 57,218(5) 0 110,000 20,459
Executive Vice 2000 309,000 18,540 45,000 92,700(2) 60,000 27,882
President, Chief 1999 300,000 67,245 221,944(3) 50,000 2,213
Financial Officer
Gordon E. Halverson...... 2001 232,000 40,687 54,405(6) 0 50,000 15,829
Executive Vice 2000 220,000 52,580 33,334 30,250(2) 100,000 17,628
President, Sales 1999 216,400 112,624 33,333 24,920(3) 0 1,939
Ronald M. Coppock........ 2001 205,500 35,962 0 26,667 15,330
President International 2000 195,000 82,680 7,314(2) 60,000 12,977
1999 185,000 50,524 14,017(3) 0 5,000
---------------
(1) The amount in 2000 for Mr. Stanzione includes the value as of January 31,
2000 ($937,500), which was the date of grant, of the grant of 24,077 stock
units that convert on a one-for-one basis into shares of common stock at the
time predetermined at grant. Twenty percent of the units will be forfeited
if Mr. Stanzione leaves Arris without good reason before June 30, 2004. As
of December 31, 2001, the value of common stock into which the unvested
portion of these units would convert was $234,992. Generally, holders of
stock units are entitled to receive any distribution made to holders of
common stock or an equitable adjustment to the number of stock units based
on such distribution.
(2) Amounts in 2000 for Messrs. Stanzione, Egan, Margolis, Halverson and
Coppock, represent the value of restricted common stock granted on February
21, 2001, at $9.844 per share. The restricted common stock vests in thirds
beginning on the date of grant and then on each anniversary of the date of
grant. Although the stock was issued in 2001, it relates to 2000
compensation for these officers. Holders of the restricted stock are
entitled to receive any distribution made to holders of common stock. As of
December 31, 2001, the unvested shares had a value of $185,899, $185,899,
$91,909, $29,992 and $21,755, respectively.
(3) Amounts in 1999 represent the value as of January 31, 2000, which was the
date of grant, of the grant of stock units that convert on a one-for-one
basis into shares of common stock at the time predetermined at grant.
Although the stock units were issued in 2000, they relate to 1999
compensation for these officers. Twenty percent of the units will be
forfeited if the employee leaves ARRIS without good reason before December
31, 2002. As of December 31, 2001, the value of common stock into which the
unvested portion of these units would convert was $58,560, $55,632, $6,246
and $4,392 for Messrs. Stanzione, Margolis, Halverson and Coppock,
respectively. Generally, holders of stock units are entitled to receive any
distribution made to holders of common stock or an equitable adjustment to
the number of stock units based on such distribution.
(4) Represents contributions by the Company to an employee savings plan and a
supplemental savings plan.
(5) Includes $45,000 for forgiveness of relocation advance.
(6) Includes $33,334 for forgiveness of relocation advance.
6
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO DATE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE OR OF -------------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE($/SH) EXPIRATION 5%($) 10%($)
---- ----------- ------------ ----------------- ---------- ----------- -----------
Robert J. Stanzione....... 500,000(1) 11.99% $10.20 8/06/2011 $3,207,362 $8,128,087
John M. Egan.............. 268,000(1) 6.43% $10.20 8/06/2011 $1,719,220 $4,356,608
Lawrence A. Margolis...... 110,000(1) 2.64% $10.20 8/06/2011 $ 705,650 $1,788,160
Gordon E. Halverson....... 50,000(1) 1.20% $10.20 8/06/2011 $ 320,750 $ 812,800
Ronald M. Coppock......... 26,667(1) 0.64% $10.20 8/06/2011 $ 171,069 $ 433,499
---------------
(1) The options were 1/4 vested at time of grant with the remainder vesting
equally over three years, and expire in 10 years. However if the price of
the stock is at or above a specific price (which varies according to the
exercise price of certain ANTEC options previously granted to the grantee)
for a specified period, the option will be fully vested and will expire in 6
months.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years, assuming the fair market price of
the common stock on the date of grant (the average of the high and low on
the date of grant) appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated stock price. These
numbers are for presentation purposes only and are not predictions of future
stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
------------------ ----------- --------------- -----------------
Robert J.
Stanzione.......... 0 0 850,000/910,000 $65,600/$196,800
John M. Egan......... 0 0 711,500/237,000 $231,413/$0
Lawrence A.
Margolis........... 0 0 432,500/217,500 $215,850/$73,800
Gordon E.
Halverson.......... 0 0 245,000/110,000 $147,550/$98,400
Ronald M. Coppock.... 0 0 45,833/105,001 $29,788/$49,200
---------------
(1) The value of the unexercised options was calculated using the difference
between the option exercise price and the fiscal year-end fair market value
(the average of the high and the low stock price on December 31, 2001) of
$9.64 per share, multiplied by the number of shares underlying the option.
7
PENSION PLAN TABLE
ESTIMATED BENEFIT BASED ON YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ ------- -------- -------- -------- -------- --------
$150,000............... $17,081 $ 25,622 $ 34,162 $ 42,703 $ 51,244 $ 51,244
200,000............... 23,581 35,372 47,162 58,953 70,744 70,744
250,000............... 30,081 45,122 60,162 75,203 90,244 90,244
300,000............... 36,581 54,872 73,162 91,453 109,744 109,744
350,000............... 43,081 64,622 86,162 107,703 129,244 129,244
400,000............... 49,581 74,372 99,162 123,953 148,744 148,744
450,000............... 56,081 84,122 112,162 140,203 168,244 168,244
500,000............... 62,581 93,872 125,162 156,453 187,744 187,744
550,000............... 69,081 103,622 138,162 172,703 207,244 207,244
600,000............... 75,581 113,372 151,162 188,953 226,744 226,744
650,000............... 82,081 123,122 164,162 205,203 246,244 246,244
700,000............... 88,581 132,872 177,162 221,453 265,744 265,744
The amounts in the table above are annual straight-line annuity amounts
(which are not reduced for Social Security benefits) payable upon retirement at
age 65 under ARRIS' funded defined benefit pension plan and an unfunded
supplementary defined benefit pension plan. The benefits are determined by the
average of the five highest consecutive years of salary and bonus during an
employee's last ten years of service. Bonus is attributable to the year in which
it is paid not the year for which it is accrued. Thus, the covered remuneration
for 2001 was the salary for 2001 and the bonus accrued for 2000 in the "Summary
Compensation Table." As of December 31, 2001, Messrs. Egan, Stanzione, Margolis
and Halverson have approximately 28, 15 (actual service tripled pursuant to
employment agreement), 19 and 33 years of service, respectively. Mr. Coppock was
not eligible to participate in the Pension Plan. In exchange for Mr. Egan's
agreement to consult with ARRIS from the termination of his employment until
2007, ARRIS has agreed to provide Mr. Egan a supplemental benefit, which
together with the benefits under other pension plans of ARRIS, will provide Mr.
Egan a single life annuity of $41,667 a month beginning at age 55. Mr. Egan has
elected to take the unfunded portion of his pension benefits in a lump sum in
accordance with the terms of his agreement. ARRIS in 1999 adopted changes in its
retirement plans that enabled Messrs. Stanzione, Margolis, and Halverson to
elect to freeze their benefits in the funded pension plan as of December 31,
1999, in exchange for better matching contributions in the future by ARRIS under
its 401(k) savings plan and supplemental savings plan. They continue to
participate in the unfunded supplementary pension plan that provides benefits
based on the remuneration that is in excess of the remuneration, $170,000 in
2001, that the federal tax rules permit to be considered in determining benefits
under the funded pension plan. For a discussion of the additional retirement
agreements with Messrs. Stanzione and Halverson, see "Employment Contracts and
Termination of Employment and Change in Control Arrangements."
COMPENSATION OF DIRECTORS
The Company pays its directors who are not employed by the Company or
Nortel Networks annual retainers of $50,000 in the form of stock units which
convert to Common Stock on a one-for-one basis at the pre-arranged time selected
by each director plus cash fees of $1,000 for each board meeting attended, $750
for each Committee meeting attended and a $2,500 annual retainer for Committee
chairperson. These directors are also annually granted options to purchase 5,000
shares of Common Stock at the price of the stock at the time of grant.
Effective February 1, 1998, Mr. Faust's arrangement with the Company was
changed from an employment contract to a consulting contract providing for
quarterly payments of $27,500 for five years.
8
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Employment contracts. The Company has entered into employment agreements
with Messrs. Egan, Stanzione, Margolis, Halverson, and Coppock. Mr. Egan's
agreement expires at the end of May 2002, but he has agreed to continue with the
Company as a consultant as described below. The agreements obligate the other
officers to continue to serve the Company and for the Company to continue to
employ these officers until the agreements are terminated by the required prior
notice or for cause or good reason as defined in the agreements or until the
agreements expire in the case of Messrs. Stanzione, Margolis and Halverson when
they reach the ages of 62, 65 and 65, respectively, and in the case of Mr.
Coppock in 2005. The agreements provide for minimum salaries equal to current
salaries, ($600,000 in the case of Mr. Stanzione) and for the Company to
determine annual bonus opportunities targeted at 100% of salary for Mr.
Stanzione, 75% of salary for Mr. Egan and 50% or 60% of salary for the other
officers. The agreements prohibit each officer from working for a competitor
while receiving severance benefits from the Company. Mr. Margolis' agreement
provides for the payment of a relocation assistance advance to him of $180,000,
the repayment of which is to be forgiven in four annual installments beginning
April 30, 2000, as long as he has not terminated his employment without good
reason.
Termination of employment. If the agreements are terminated without cause
by the Company or with good reason by the executive, the agreements provide for
the vesting of options to purchase shares of Common Stock and for the
continuation of employment benefits (including salaries and bonuses) for three
years in the case of Mr. Stanzione, two years in the case of Messrs. Margolis
and Halverson (with insurance benefits continuing until age 65 for Mr.
Halverson), and one year in the case of Mr. Coppock. The agreements prohibit
each officer from working for a competitor while receiving these benefits from
the Company. Messrs. Stanzione and Halverson have agreed to serve as consultants
to the Company during the period they are receiving these benefits.
Change of control. Good reason for termination of the employment agreement
includes in the case of Messrs. Margolis and Halverson a change of control, in
the case of Mr. Stanzione no longer being a chief executive of a significant
public company or otherwise having his position materially diminished after a
change of control, and in the case of Mr. Coppock a change of his
responsibilities, compensation, or location in connection with a change of
control. A change of control occurs, subject to certain exceptions, if any
person becomes, directly or indirectly, the beneficial owner of securities
representing more than 25% to 30% of the combined voting power of the Company's
then outstanding voting securities, or if substantially all the Company's assets
are sold or a comparable transaction occurs, or if certain changes in
composition of the Company's Board of Directors occurs.
Options to purchase shares of Common Stock granted in February 1998 to Mr.
Stanzione and in May 1997 to other officers of the Company, provide that they
vest if any person and its affiliates, other than Anixter International, Inc.,
Tele-Communications, Inc. and their affiliates acquire or tender for more than
50% of the stock of the Company.
Special retirement provisions. The Company has agreed to establish a
supplemental retirement plan for Mr. Stanzione that, together with the Company's
other pension plans will provide Mr. Stanzione at age 62 a monthly single life
annuity of approximately 50% of his final average compensation. His final
average compensation is defined as one-twelfth of his then annual salary plus
one twelfth of his then typical annual bonus. His then typical annual bonus
shall be the annual average of the three highest full year bonuses for the five
full years (or such lesser number of years) after 2001. To the extent that the
full years falling within this period are less than three, his typical annual
bonus shall be computed by averaging such full year bonuses, if any, falling
within this period with 100% of his then annual salary times the number of years
necessary to bring the number of years being considered to three. If Mr.
Stanzione terminates his employment prior to age 62 because of a change of
control, he is guaranteed that his total pension benefits from the Company will
not be less than $33,333 a month.
In exchange for his agreement to serve the Company as a consultant for up
to 20 days a year until May 31, 2007, the Company has agreed to provide Mr. Egan
a supplemental retirement plan that, together
9
with the other pension plans of the Company, will provide Mr. Egan at age 55 a
single life annuity of $41,667 a month. Mr. Egan has elected to receive this
supplemental benefit in a lump sum. The Company has also agreed to provide
medical coverage to Mr. Egan and his wife until they are eligible for Medicare
and to provide a $3,000,000 death benefit to Mrs. Egan if Mr. Egan dies before
age 55.
The employment agreement with Mr. Halverson provides that if he retires
after reaching age 62, his options to purchase stock will vest and the Company
will continue his salary and target bonus at 2/3 their normal rate for three
years, subject to certain limitations. If Mr. Halverson's agreement is
terminated by the Company without cause or by Mr. Halverson for good reason,
including a change of control, Mr. Halverson may receive his pension benefits
without reduction for early payment upon completion of the termination payments
described above.
Notwithstanding anything to the contrary set forth in any other of the
Company's filings under the Securities Act of 1933, or the Exchange Act that
might incorporate future filings, including this Proxy Statement, in whole or in
part, the Compensation Committee Report on Executive Compensation, the Audit
Committee Report and the Performance Graph presented below shall not be
incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
To assure the continued services of its key officers, the Company has
entered into employment agreements with its officers, including Messrs. Egan,
Stanzione, Margolis, Halverson and Coppock. The salaries and bonus opportunities
specified in these agreements see "Employment Contracts and Termination of
Employment and Change-In-Control Arrangements," were initially determined after
reviewing publicly available information on the compensation practices of cable
companies and distributors and manufacturers of sophisticated electronic
products. (No attempt was made to limit these companies to the companies in the
published industry index used in the "Performance Graph.") However, because of
the differences in size and business between these companies and ARRIS, the
salaries and bonus opportunities specified in the employment agreements were
subjectively determined by the Committee to be within the Committee's goal of
salaries within the median of the range paid by others for comparable positions
and bonus opportunities within the high end of the range provided by others for
comparable positions.
In general, grants of options to purchase stock of the Company are
determined in the same manner as other components of compensation, taking into
account the option granting practices of firms with which the Company competes
for employees and investors. In general, the level of the grantee's salary and
bonus opportunity determines the relative number of options. In general, new
grants are not affected by previous grants. In 2001, however, in connection with
the formation of the current company by the consolidation of ANTEC Corporation
and Arris Interactive L.L.C., new options were granted to all holders of ANTEC
options with exercise prices at $15.60 or higher. The new options have exercise
prices of $10.20, were 1/4 vested at time of grant with the remainder vesting
equally over three years, and expire in 10 years. However if the price of the
stock is at or above a specific price (which varies according to the exercise
price of the ANTEC options previously granted to the grantee) for a specified
period, the new option will be fully vested and will expire in 6 months. At the
same time, options, and in two cases, restricted shares of stock were granted to
employees of Arris Interactive L.L.C. based on the long-term incentive
opportunities they had been previously granted by their employer.
Following the formation of the current Company, the terms of Mr.
Stanzione's employment arrangement were modified as set forth in "Employment
Contracts and Termination of Employment and Change-in-Control." These
modifications were based on the Committee's judgment of what would be
appropriate to reflect the changes that had occurred in light of the information
provided by consultants about the compensation practices of certain other public
companies.
Annual bonus targets are set as a percentage of base salary compensation.
In 2001, this percentage was approximately 88% for Mr. Stanzione, 75% for Mr.
Egan, and 60% to 50% for the other named officers. Actual
10
bonuses can range from zero to 150% (200% for the Chief Executive and Financial
Officers) of target, dependent upon the achievement of goals set at the
beginning of the year. It was determined that based on the Company's results for
2001, no bonuses would be paid for financial goals, but that in consideration of
the non-financial achievements of the management team during the year, each
executive officer would be awarded a subjective bonus of 35% of target.
The components of executive officer compensation related to the performance
of the Company are the portions of the annual bonus awards based on financial
performance and the ultimate value of long-term incentive awards as determined
by the stock market. The executive officers, particularly the Chief Executive
Officer, have suffered substantial losses in the positions in the Company's
stock they are required to maintain by the Company's stock ownership guide lines
and vesting restrictions in grants they have earned.
It is the policy of the Company to structure its compensation in a manner
which will avoid the limitations imposed by the Omnibus Budget Reconciliation
Act of 1993 on the deductibility of executive compensation under Section 162 (m)
of the Internal Revenue Code to the extent it can reasonably do so consistent
with its goal of retaining and motivating its executives in a cost effective
manner.
Rod F. Dammeyer Samuel K. Skinner
REPORT OF AUDIT COMMITTEE
Pursuant to its written charter, the Audit Committee oversees the Company's
financial reporting process on behalf of the Board of Directors. Our
responsibility is to monitor and review these processes. It is not our duty or
our responsibility to conduct auditing or accounting reviews or procedures. We
are not employees of the Company and we do not represent ourselves to be or to
serve as, accountants or auditors by profession. Therefore, we have relied,
without independent verification, on management's representation that the
consolidated financial statements have been prepared with integrity and
objectivity and in conformity with accounting principles generally accepted in
the United States and on the representations of the independent auditors
included in their report on the Company's consolidated financial statements. Our
oversight does not provide us with an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or policies, or appropriate internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, our considerations and discussions with management and
the independent auditors do not assure that the Company's consolidated financial
statements are presented in accordance with accounting principles generally
accepted in the United States, that the audit of our Company's consolidated
financial statements has been carried out in accordance with generally accepted
auditing standards or that our Company's independent accountants are in fact
independent.
Management has the primary responsibility for the financial statements and
the reporting process, including the systems of internal controls. In fulfilling
our oversight responsibilities, we reviewed the audited financial statements in
the Annual Report with management, including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the disclosures in the financial statements.
We reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with accounting principles generally accepted in the United States, their
judgments as to the quality, not just the acceptability of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. In addition, we
discussed with the independent auditors the auditors' independence from
management and the Company, including the matters in the written disclosures
required by the Independence Standards Board, and considered the compatibility
of nonaudit services provided by the auditors to the Company with their
independence.
We discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. We met with the internal
and independent auditors, with and, as deemed advisable, without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal
11
controls and the overall quality of the Company's financial reporting. We, or
the Chair of the Committee on behalf of the Committee (with the opportunity to
convene a meeting of the full committee if deemed advisable), reviewed proposed
interim financial statements with management and the independent auditors.
In 2001, following the formation of the current Company on August 3, 2001,
we had three meetings. In reliance on the reviews and discussions referred to
above, we recommended to the Board of Directors (and the Board of Directors has
accepted that recommendation) that the audited financial statements be included
in the Annual Report on Form 10-K for the fiscal year ended December 31, 2001
for filing with the Securities and Exchange Commission. In addition, we have
selected the Company's independent auditors.
John R. Petty Samuel K. Skinner
PERFORMANCE GRAPH
Below is a graph comparing total shareholder return on the Company's stock
since December 31, 1996 through December 31, 2001, with the Standard & Poor's
500 and the Index of NASDAQ U.S. Stocks of entities in the industry of
electronics and electrical equipment and components, exclusive of computer
equipment, (SIC 3600-3699), prepared by the Center for Research in Securities
Prices ("CRSP Peer Index"). The stock performance graph assumes the investment
of $100 on December 31, 1996 and reinvestment of all dividends.
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------------------------------------------------------------------------------------------------------
ARRIS GROUP, INC 100.0 173.6 223.6 405.6 87.8 108.4
S&P 500 100.0 133.5 172.2 208.5 190.0 167.6
CRSP Peer Index 100.0 104.7 145.1 323.6 239.7 144.1
12
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 19, 2002, certain information
with respect to the Common Stock of the Company that may be deemed beneficially
owned by each director or nominee for director of the Company, the officers
named in the Summary Compensation Table and by all directors, officers and
nominees as a group.
SHARES SHARES THAT TOTAL SHARES --
BENEFICIALLY MAY BE ACQUIRED PERCENTAGE OF
NAME OF BENEFICIAL OWNER(1) OWNED(2) WITHIN 60 DAYS CLASS IF . 1%(3)
--------------------------- ------------ --------------- -----------------
Harry L. Bosco............................ 0 0 0 *
J. A. Ian Craig........................... 9,200 0 9,200 *
Ronald M. Coppock(4)(5)................... 3,105 60,833 63,938 *
Rod F. Dammeyer........................... 13,300 0 13,300 *
John M. Egan.............................. 57,961 750,500 808,461 1.0%
James L. Faust............................ 10,948 50,000 60,948 *
Gordon E. Halverson(4).................... 10,352 252,500 262,852 *
Craig Johnson............................. 0 0 0 *
William H. Lambert........................ 14,250 20,000 34,250 *
Lawrence A. Margolis(4)................... 42,858 455,000 497,858 *
John R. Petty............................. 7,900 7,500 15,400 *
Sue Spradley.............................. 0 0 0 *
Robert J. Stanzione(4).................... 84,281 975,000 1,059,281 1.3%
Bruce Van Wagner.......................... 65,800 51,250 117,050 *
All directors, nominees and executive
officers as a group including the above
named persons........................... 351,966 2,791,624 3,143,590 3.9%
---------------
* Percentage of shares beneficially owned does not exceed one percent of the
class.
(1) Unless otherwise indicated, each person has sole investment power and sole
voting power with respect to the securities beneficially owned by such
person.
(2) Includes 48,750 stock units awarded to directors that convert on a one for
one basis into shares of ARRIS Common Stock at a time predetermined at the
time of issuance.
(3) All currently exercisable options deemed to be beneficially owned by the
person or persons for whom the calculation is being made, are deemed to have
been exercised for the purpose of calculating this percentage.
(4) Includes 450, 640, 5,700, and 6,000 stock units that convert on a one for
one basis into shares of Common Stock at the time predetermined at issuance
for Messrs. Coppock, Halverson, Margolis, and Stanzione, respectively.
Twenty percent of these units will be forfeited if the holder leaves the
Company without good reason before December 31, 2002. Includes 24,077 stock
units for Mr. Stanzione. Twenty percent of these units will be forfeited if
he so leaves the Company prior to June 30, 2004.
(5) Includes 316 shares in the Company's 401(k) plan.
13
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 19, 2002 with
respect to each person who is known by the management of the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock.
Unless otherwise indicated, the beneficial owner has sole voting and investment
power.
AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------- ------------------------------------ -------------------- --------
Common............... Nortel Networks Corporation 37,000,000(1) 45.3%
8200 Dixie Road, Suite 100
Brampton, Ontario L6T 5P6 Canada
Common............... Liberty Media Corporation 7,681,341(2) 9.4%
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Common............... Cadant, Inc. 5,047,776(3) 6.2%
4343 Commerce Court
Lisle, Illinois 60504
Common............... Mellon Financial Corporation and Subsidiaries 4,830,170(4) 5.9%
One Mellon Center
Pittsburgh, Pennsylvania 15258
---------------
(1) According to 13D, filed August 3, 2001
(2) According to 13D, filed on March 9, 1999, includes 854,341 shares of Common
Stock issuable upon the exercise of certain stock options.
(3) According to 13G, filed January 8, 2002.
(4) According to 13G filed on January 24, 2002, Mellon Financial Corporation has
Sole Voting Power for 4,181,470 shares, Shared Voting Power for 466,200
shares and Sole Dispositive Power for 4,830,170 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain transactions with Mr. Faust, a director of the
Company, see "Compensation of Directors."
The Company loaned $100,000 to John Egan, its Chairman, in 1980 and an
additional $50,000 in 1983. Although these loans are interest-free and have no
stated maturity date, Mr. Egan is currently making monthly payments to the
Company to reduce the outstanding balance on these loans. As of December 31,
2001, the balance due on the loans was $101,500. In 1999, the Company advanced
$180,000 to Lawrence Margolis, Chief Financial Officer, to assist in his
relocation to Atlanta. The repayment of this advance will be forgiven in four
annual increments beginning April 30, 2000 as long as Mr. Margolis has not
terminated his employment without good reason.
On August 3, 2001, the Company acquired Nortel Networks' portion of Arris
Interactive L.L.C., which was a joint venture formed by Nortel and us in 1995.
Nortel exchanged its ownership interest in Arris Interactive L.L.C. for a
subordinated redeemable preferred membership interest in Arris Interactive with
a face amount of $100 million and 37 million shares of ARRIS Group, Inc. common
stock. This membership interest earns a return of 10% per annum, compounded
annually. For the year ended December 31, 2001, we recorded membership interest
expense of $4.1 million. Following the acquisition, in accordance with the
Amended and Restated Investor Rights Agreement, Nortel designated two new
members of our Board of Directors. In connection with the acquisition of Arris
Interactive L.L.C., we and Nortel Networks entered into a number of short and
medium term agreements. These agreements included a Transitional Services
Agreement pursuant to which Nortel Networks is to provide us transitional
services for periods varying from 90 days to the life of certain products, a
Loaned Employee Agreement pursuant to which Nortel Networks is to provide us the
services of technical employees for up to 15 months, a Component Supply
Agreement which
14
entitles us to purchase certain product components from Nortel Networks for as
long as we manufacture products using those components and from Nortel Networks
suppliers for two years, a Development Agreement under which Nortel Networks is
to complete two existing development projects for us, and a Sales Representation
Agreement under which Nortel Networks will act a sales agent for us for Arris
Interactive products in the international area through 2003 and in the USA
through 2001. In 2001, we paid Nortel Networks $7.8 million pursuant to these
agreements. During the entire year of 2001, we had sales to Nortel Networks of
$23.4 million. At December 31, 2001, ARRIS had accounts receivable from Nortel
of $18.9 million and accounts payable and accrued liabilities due to Nortel
Networks of $21.4 million. We currently lease approximately 75,000 square feet
of office space from Nortel Networks with an annual rental charge of
approximately $675,000 expiring July 2004.
For a portion of 2001, Liberty Media Corporation was a part of the Liberty
Media Group of AT&T whose financial performance was "tracked" by a separate
class of AT&T stock. See "Security Ownership of Principal Stockholders" for
information on Liberty Media Corporation's interests in ARRIS. In August 2001,
AT&T spun off Liberty Media to the holders of its tracking stock, and AT&T
subsequently no longer indirectly owns that interest in the Company. The
effective ownership includes options to acquire an additional 854,341 shares. A
significant portion of the Company's revenue is derived from sales to AT&T
(including MediaOne Communications, which was acquired by AT&T during 2000)
aggregating $237.9 million, $431.5 million and $355.0 million for the years
ended December 31, 2001, 2000 and 1999, respectively. Giving effect to AT&T's
acquisition of MediaOne Communications, sales to the combined entity aggregated
$391.1 million for 1999. ARRIS had accounts receivable from AT&T of
approximately $35.9 million, $21.7 million and $90.4 million at December 31,
2001, 2000 and 1999, respectively.
15
PROPOSAL 1
APPROVAL OF 2002 STOCK INCENTIVE PLAN
Recommendation. The Company's 2002 Stock Incentive Plan (the "Incentive
Plan") has been adopted by the Compensation Committee of the Board of Directors
subject to the approval of the stockholders at this meeting. The Incentive Plan
is substantially the same, except for the number of shares of the Company's
Common stock ("Shares"), as the Company's current stock incentive plan, which
has only about 741,053 Shares for future awards. In the technology industry,
stock based compensation is very important to the recruiting and retention of
key personnel. The recent acquisitions of Arris Interactive L.L.C. and Cadant,
Inc. have multiplied the number of persons eligible for stock incentive awards.
The Board of Directors recommends that you approve this plan.
Purpose. The purpose of the Incentive Plan is 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.
Administration and amendment. The Incentive Plan is administered by the
Compensation Committee of the Company's Board of Directors or such other Board
Committee as the Board may designate or by the Board itself (the "Committee").
The Board of Directors or the Committee may, from time to time, suspend,
terminate, revise or amend the Incentive Plan or terms of any grant except that,
without the approval of stockholders, no such revision or amendment may change
the number of Shares covered by or specified in the Incentive Plan, change the
restrictions described below, or expand those eligible for grants under the
Incentive Plan.
Participation. Any key employee, director, or active consultant of the
Company and its subsidiaries is eligible to receive a grant under the Incentive
Plan. The determination of the persons within these categories, which encompass
all officers, including those named in the Summary Compensation Table, to
receive grants and the terms and the form and level of grants will be made by
the Committee. There are approximately 1,000 participants in the current stock
incentive plan of the Company.
Awards. Awards under the Incentive Plan 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.
Limitations. The exercise price of any option or stock appreciation right
cannot be less than the fair market value of the corresponding number of Shares
as of the grant date, provided that up to 10% of the Shares covered by the
Incentive Plan may be granted under options or stock appreciation rights that
have exercise prices that are not less than 85% of the fair market value of a
corresponding number of Shares as of the date of grant, and provided further
that the options or stock appreciation rights replacing options or rights not
granted by the Company or its predecessor, ARRIS Group, Inc., may have exercise
prices that, in the judgment of the Committee, result in options or rights
comparable in value to those being replaced. In previous grants, the exercise
price of stock options has been fair market value at the time of the grant and
it is anticipated that this will continue to be the case in the absence of
special circumstances. No more than 25% of the Shares may be awarded in a form
other than options or stock appreciation rights. No person may be granted, in
any period of two consecutive calendar years, awards under the Incentive Plan
covering more than 1,000,000 Shares. No option may be repriced by amendment,
substitution or cancellation and regrant, unless authorized by the stockholders.
Adjustments as a result of stock splits and other events that the adjust the
number of Shares covered by the Incentive Plan, as explained below, will not be
considered repricing.
Number of Shares. A total of 2,500,000 Shares may be issued pursuant to
the Incentive Plan. This number will be adjusted for stock splits, spin-offs,
extra-ordinary cash dividends and similar events. The Shares may be newly issued
Shares or Shares acquired by the Company. To the extent grants terminate for any
reason without the issuance of Shares, those Shares will not be counted against
the number of Shares that may be issued under the Incentive Plan. The number of
Shares that may be issued will be increased by number of shares of Common Stock
surrendered for the payment of exercise prices of options to purchase Shares or
taxes on the issuance of Shares.
Taxes. Generally, under present federal tax laws, a grant of a stock
option, a stock unit or a share of restricted stock subject to the required risk
of forfeiture under the Incentive Plan should create no tax
16
consequences for a participant at the time of grant. Generally, the Company will
be entitled to tax deductions at the time and to the extent that participants
recognize ordinary income. In some cases (generally other than options with
exercise prices no lower than fair market value of the Shares on the date of
grant), the Company will not be entitled to this deduction to the extent the
amount of such income, together with other compensation received by that person
from the Company, exceeds $1,000,000 in any one year.
Upon exercise of an option, which is not an incentive stock option ("ISO")
within the meaning of Section 422 of the Code, a participant will be taxed on
the excess of the fair market value of the Shares on the date of exercise over
the exercise price. A participant will generally have no taxable income upon
exercising an ISO. If the participant does not dispose of Shares acquired
pursuant to the exercise of an ISO within two years of the grant or one year of
the exercise; any gain or loss realized on their subsequent disposition will be
capital gain or loss; and the Company will not be entitled to a tax deduction.
If such holding period requirements are not satisfied, the participant will
generally realize ordinary income at the time of disposition in an amount equal
to the excess of the fair market value of the Shares on the date of exercise
(or, if less, the amount realized upon disposition) over the option price and
the Company will be entitled to a tax deduction. Any remaining gain is taxed as
long or short-term capital gain. The value of a stock unit at the time it
converts to stock and the value of restricted stock at the time the restriction
lapses are taxed as ordinary income to the participant.
Accounting. Under Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation, the impact options would have on
earnings of the Company, if their value were treated as compensation expense, is
disclosed in a footnote to the Company's consolidated financial statements. To
the extent that options are granted with exercise prices lower than fair market
value of the Shares on the date of grant or are granted to consultants, the
Company will incur compensation expense.
Past awards. The grants made in 2001 pursuant to the current stock
incentive plan of the Company and the stock incentive plans of its predecessor,
ANTEC Corporation, were as follows:
OPTIONS UNITS
--------- ------
John M. Egan................................................ 268,000
Robert J. Stanzione......................................... 500,000
Lawrence A. Margolis........................................ 110,000
Gordon E. Halverson......................................... 50,000
Ronald Coppock.............................................. 26,667
All executive officers, including the above................. 1,310,983
All directors who are not executive officers................ 40,000 29,400
All employees other than those who are executive officers... 2,818,795
Not included in the above table are 95,056 restricted Shares granted to two
new executive officers to replace incentive arrangements they had with Arris
Interactive L.L.C. and the 55,327 restricted Shares granted to executive
officers in 2001 for payment of bonuses earned for 2000. The stock units granted
to directors convert to Shares at the time selected by each director at the time
of grant. All the options have exercise prices equal to the market price on the
date of grant, will expire in 10 years or sooner in certain circumstances, and
will vest in full upon death, permanent full disability, or discharge without
good cause (as defined in employment agreement if there is one) or in the case
of directors, retirement after serving at least a total of five continuous years
(or such lesser period as may be agreed upon by the Board of Directors).
1,982,872 of the options, including all the options granted to the five named
executive officers, were 1/4 vested at time of grant with the remainder vesting
equally over three years. These options provide that if the price of the Shares
is at or above a specific price (which varies according to the exercise price of
the ANTEC options previously granted to the grantee) for a specified period,
they will be fully vested and will expire in 6 months. The remaining options
vest 25% per year for four years, beginning on the first anniversary of the
grant. The terms of grants under the Incentive Plan will be determined by the
Committee.
The last reported sales price of the Common Stock on April 24, 2002, was
$9.09 per Share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the rules of the Securities and Exchange Commission, the Company is
required to report, based upon its review of copies of reports to the Securities
and Exchange Commission about ownership of and transactions in its stock
furnished to the Company and representations of its directors and officers about
such ownership, that for 2001, a report to be filed on Form 5 was filed late by
James Lakin, an executive officer, and reports to be filed on Form 3 as the
result the formation of the Company in its current form on August 3, 2001 in
connection with the acquisition of Arris Interactive L.L.C. were filed late by
the following directors and executive officers: Ronald Coppock, Michael Durant,
Gordon Halverson, Bryant Isaacs, James Lakin, William Lambert, David Potts,
Robert Puccini, Larry Romrell, Leonard Travis and Bruce Van Wagner.
INDEPENDENT AUDITORS AND THEIR FEES
The Audit Committee has selected Ernst & Young LLP as independent auditors
of the Company for 2002. Representatives of Ernst & Young LLP, who are expected
to be present at the meeting, will be given an opportunity to make a statement
if they so desire and to respond to appropriate questions asked by stockholders.
AUDIT FEES
Fees for the last annual audit were $446,500.
ALL OTHER FEES
All other fees for services for the last year were $1,711,600, including
fees for audit related services of $591,800 and fees for non-audit related
services of $1,119,800.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be present at the 2003 Annual Meeting
of Stockholders must be received by the Company at its principal offices by
December 31, 2002 in order to be considered for inclusion in the Company's Proxy
Statement and Proxy relating to the 2003 Annual Meeting of Stockholders.
CONCLUSION
The Board of Directors knows of no other matters to be presented for
stockholder action at the meeting. However, if other matters do properly come
before the meeting, it is intended that the persons named in the proxies will
vote upon them in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence A. Margolis
Lawrence A. Margolis, Secretary
April 29, 2002
18
APPENDIX
ARRIS GROUP, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and forward any
recommended changes to the board of directors for approval. The committee shall
be appointed by the board of directors and shall comprise at least three
directors, each of whom are independent of management and the Company, except as
otherwise shall be approved by the board of directors in accordance with the
requirements of Nasdaq. Members of the committee shall be considered independent
if they have no relationship that may interfere with the exercise of their
independence from management and the Company. All committee members shall be
financially literate, and at least one member shall have accounting or related
financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility relating to the Company's financial
statements and the financial reporting process, the systems of internal
accounting, operating and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In so
doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight role, the committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power to
retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of its activities to the board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate, retain and, where appropriate,
replace the independent auditors. The committee shall discuss with the
auditors their independence from management and the Company and the
matters included in the written disclosures required by the Independence
Standards Board. Annually, the committee shall select the Company's
independent auditors.
- The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting,
operating and financial controls, including the Com-
19
pany's system to monitor and manage business risk, and legal and ethical
compliance programs. Further, the committee shall meet separately with
the internal auditors and the independent auditors, with and without
management present, to discuss the results of their examinations.
- The committee shall establish or approve guidelines for transactions with
affiliates or related parties, which are not subsidiaries of the Company
and approve or ratify those transactions which such guidelines require to
be so acted upon.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including its judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
20
ARRIS GROUP, INC.
2002 STOCK INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE DATE. Arris Group, Inc. (the "Company") has
established this 2002 Stock Incentive Plan (the "Plan") to facilitate the
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. The effective date of the Plan shall be the date it is approved by
the stockholders of the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors, or the Compensation Committee of the Company's Board of Directors or
such other Board committee as the Board may designate (the "Committee"). The
Committee has the authority and responsibility for the interpretation,
administration and application of the provisions of the Plan, and the
Committee's interpretations of the Plan, and all actions taken by it and
determinations made by it shall be binding on all persons. No Board or Committee
member shall be liable for any determination, decision or action made in good
faith with respect to the Plan.
3. SHARES SUBJECT TO PLAN. A total of 2,500,000 shares of Common Stock
of the Company ("Shares") may be issued pursuant to the Plan. The Shares may be
authorized but unissued Shares or Shares reacquired by the Company and held in
its treasury. Grants of incentive awards under the Plan will reduce the number
of Shares available thereunder by the maximum number of Shares obtainable under
such grants. If all or any portion of the Shares otherwise subject to any grant
under the Plan are not delivered for any reason including, but not limited to,
the cancellation, expiration or termination of any option right or unit, the
settlement of any award in cash, the forfeiture of any restricted stock, or the
repurchase of any Shares by the Company from a participant for the cost of the
participant's investment in the Shares, such number of Shares shall be available
again for issuance under the Plan. If any shares of Common Stock of the Company
are delivered to the Company for the payment of the exercise price of an option
to purchase Shares or the taxes on the issuance of Shares, the number of shares
so delivered shall be added to the number of Shares that may be issued pursuant
to the Plan. The number of Shares covered by or specified in the Plan and the
number of Shares and the purchase price for Shares under any outstanding awards,
may be adjusted proportionately by the Committee for any increase or decrease in
the number of issued Shares or any change in the value of the Shares resulting
from a subdivision or consolidation of Shares, reorganization, recapitalization,
spin-off, payment of stock dividends on the Shares, any other increase or
decrease in the number of issued Shares made without receipt of consideration by
the Company, or the payment of an extraordinary cash dividend.
4. ELIGIBILITY. All key employees, active consultants and directors of
the Company and its subsidiaries are eligible to be selected to receive a grant
under the Plan by the Committee. The Committee may condition eligibility under
the Plan or participation under the Plan, and any grant or exercise of an
incentive award under the Plan on such conditions, limitations or restrictions
as the Committee determines to be appropriate for any reason. No person may be
granted in any period of two consecutive calendar years, awards covering more
than 750,000 Shares.
5. AWARDS. The Committee may grant awards under the Plan to eligible
persons in the form of stock options (including incentive stock options within
the meaning of section 422 of the Code), stock grants, stock units, restricted
stock, stock appreciation rights, performance shares and units and dividend
equivalent rights, and reload options to purchase additional Shares if Shares
are delivered in payment of any other options, and shall establish the number of
Shares subject to each such grant and the terms thereof, including any
adjustments for reorganizations and dividends, subject to the following:
(a) All awards granted under the Plan shall be evidenced by
agreements in such form and containing such terms and
conditions not inconsistent with the Plan as the Committee
shall prescribe.
(b) The exercise price of any option or stock appreciation
right shall not be less than the fair market value of a
corresponding number of Shares as of the date of grant, except
(i) options or stock appreciation rights being granted to
replace options or rights not initially granted by the Company
or ANTEC Corporation may be granted with exercise prices that
in the judgment of the Committee result in options or rights
having comparable value to the options or rights being
replaced, and (ii) up to 10% of the Shares may be granted
pursuant to options or stock appreciation rights that have
exercise prices of not less than 85% of the fair market value
of a corresponding number of Shares as of the date of grant.
(c) No more than 25% of the Shares may be awarded in a form
other than options or stock appreciation rights.
(d) No option may be repriced by amendment, substitution or
cancellation and regrant, unless authorized by the
stockholders. Adjustments pursuant to Section 3 above shall
not be considered repricing.
6. AMENDMENT OF THE PLAN. The Board of Directors or the Committee may
from time to time suspend, terminate, revise or amend the Plan
2
or the terms of any grant in any respect whatsoever, provided that, without the
approval of the stockholders of the Company, no such revision or amendment may
increase the number of Shares subject to the Plan, change the provisions of
Section 5 above, or expand those eligible for grants under the Plan.
Adopted as of 25th day of April, 2002, by the Compensation Committee of
the Board of Directors of Arris Group, Inc.
---------------------
James E. Knox
Assistant Secretary
3
ARRIS GROUP, INC.
PROXY SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Stanzione, Lawrence A.
Margolis and David B. Potts and each of them, (with full power of substitution
in each) proxies of the undersigned to vote at a special meeting of ARRIS
Group, Inc. to be held at 10:00 a.m., eastern time, May 29, 2002, at the
Company's corporate offices, 11450 Technology Circle, Duluth, Georgia, and at
any adjournments thereof, all of the shares of Common Stock of ARRIS Group,
Inc. in the name of the undersigned on the record date.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES AND IN FAVOR OF PROPOSAL 1 AS SET FORTH IN THE PROXY STATEMENT
ACCOMPANYING THIS PROXY.
(Continued, and to be dated and signed on the reverse side.)
COMMENTS/ADDRESS CHANGE: PLEASE MARK
COMMENT/ADDRESS BOX ON REVERSE SIDE
------------------------------------ ARRIS GROUP, INC.
P.O. BOX 11340
------------------------------------ NEW YORK, N.Y. 10203-0340
------------------------------------
------------------------------------
- DETACH PROXY CARD HERE -
--------------------------------------------------------------------------------
[ ] MARK, SIGN, DATE AND RETURN [X]
THE PROXY CARD PROMPTLY VOTES MUST BE INDICATED
USING THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
1. Election of the following nominees and directors:
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
PLEASE CHECK BOX IF YOU INTEND [ ]
TO BE PRESENT AT MEETING.
Nominees: Harry L. Bosco, J.A. Ian Craig, John M. Egan, James L. Faust, Craig
Johnson, William H. Lambert, John R. Petty, Larry Romrell, Sue COMMENT/ADDRESS CHANGE
Spradley, Robert J. Stanzione, and Bruce Van Wagner. Please mark this box if you have
written comment/address change
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE on the reverse side. [ ]
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
*Exceptions
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal 1, approval of the 2002 Stock Incentive Plan [ ] [ ] [ ]
3. In their discretion, such other matters as properly may
come before the meeting or at any adjournment thereof.
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SCAN LINE
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IMPORTANT: Please date this proxy and sign exactly
as your name appears hereon. If stock is held jointly,
both holders should sign. Executors, administrators,
trustees, guardians and officers signing in a
representative capacity should give full title.
Date Share Owner sign here Co-Owner sign here
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