SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE TO-C
TENDER OFFER STATEMENT UNDER SECTION 14(D) OR 13(E)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
ARRIS GROUP, INC.
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(Name of Subject Company (Issuer))
ARRIS GROUP, INC.
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(Names of Filing Persons (Offeror)
Certain Options to Purchase ARRIS Group, Inc.
Common Stock, Par Value $0.01 Per Share
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(Title of Class of Securities)
04269Q100
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(CUSIP Number of Class of Securities)
(Underlying Common Stock)
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Lawrence A. Margolis
Executive Vice President, Chief Financial Officer and Secretary
ARRIS Group, Inc.
11450 Technology Circle,
Duluth, Georgia 30097
(678) 473-2000
Copy To:
W. Brinkley Dickerson, Jr., Esq.
Troutman Sanders LLP
600 Peachtree Street, Suite 5200
Atlanta, Georgia 30308
Telephone: (404) 885-3822
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(Name, Address and Telephone Numbers of Person
Authorized to Receive Notices and Communications on Behalf of Filing Persons)
CALCULATION OF FILING FEE*
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Transaction
Valuation Amount of Filing Fee
Not Applicable Not Applicable
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* No filing fee is required because this filing contains only preliminary
communications made before the commencement of a tender offer.
[ ] Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identifying the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid: Not Applicable Filing Party: Not Applicable
-------------------- ------------------------
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Form or Registration No.: Not Applicable Date Filed: Not Applicable
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[X] Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to
which the statement relates:
[ ] third-party tender offer subject to Rule 14d-1.
[X] issuer tender offer subject to Rule 13e-4.
[ ] going-private transaction subject to Rule 13e-3.
[ ] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting
the results of the tender offer: [ ]
Attached hereto are ARRIS Group, Inc.'s Notice of 2003 Annual Meeting
of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on May 22, 2003, and the related materials filed with the Securities and
Exchange Commission in conjunction with the 2003 Annual Meeting (the "Proxy
Materials"). The Proxy Materials contain a proposal submitted for the approval
of ARRIS stockholders to amend various ARRIS employee benefit plans to permit
the exchange of outstanding stock options for a lesser number of shares of
restricted stock (the "Exchange Program"). The Proxy Materials do not constitute
an offer to holders of eligible options to exchange their options for shares of
restricted stock.
ARRIS has not commenced the Exchange Program and will not complete the
Exchange Program unless stockholders approve the proposal to amend various
benefit plans in connection with Exchange Program as described in the Proxy
Materials. The determination to commence the Exchange Program and the precise
timing, eligibility and terms of the Exchange Program (but with terms no more
favorable and not more inclusive than those described in the Proxy Materials)
remain in the discretion of the Compensation Committee of the Board of
Directors. At the time the Exchange Program is commenced, eligible employees
will be sent written materials explaining the precise terms and timing of the
Exchange Program. Upon commencement of the Exchange Program, ARRIS will file the
written materials relating to the Exchange Program with the Securities and
Exchange Commission as part of a tender offer statement on Schedule TO. Eligible
employees, as well as stockholders and members of the public, will be able to
obtain these written materials and other documents filed by ARRIS with the
Securities and Exchange Commission free of charge from the Securities and
Exchange Commission's website at www.sec.gov.
ARRIS GROUP, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 2003
To the Stockholders of ARRIS Group, Inc.:
The Annual Meeting of Stockholders of ARRIS Group, Inc. will be held at the
Company's corporate headquarters, located at 11450 Technology Circle, Duluth,
Georgia, on Thursday, May 22, 2003 at 10:00 a.m. local time, for the purposes of
(a) electing 9 directors, (b) approving an amendment to the 2001 Employee Stock
Purchase Plan, (c) amending various employee benefit plans to permit the
exchange of outstanding stock options for a lesser number of shares of
restricted stock, and (d) 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 7, 2003 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, 2002 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 22, 2003
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
OF ARRIS GROUP, INC.
TO BE HELD MAY 22, 2003
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 28, 2003. 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 22, 2003 at 10:00 a.m. local time
at the Company's corporate headquarters, 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 amendment to the Company's 2001 Employee
Stock Purchase Plan (the "ESPP Amendment"), IN FAVOR OF Proposal 2 to amend
various employee benefit plans to permit the exchange of outstanding stock
options for a lesser number of shares of restricted stock (the "Option Exchange
Amendments"), 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 (1) delivering to the Company, prior to or at the meeting,
written notice of revocation or a later dated proxy or (2) attending the meeting
and voting his or her shares in person.
The Board of Directors has fixed the close of business on April 7, 2003, 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 7, 2003, 74,847,575 shares of Common Stock were outstanding.
Each holder of Common Stock is entitled to one vote per share.
A quorum, which is a majority of the outstanding shares of Common Stock as
of the record date, must be present in order to hold the meeting. Your shares
will be counted as being present at the meeting if you appear in person at the
meeting or if you submit a properly executed proxy card.
In the absence of controlling precedent to the contrary, we intend to treat
broker non-votes in the following manner. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have the discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Broker "non-votes" are not deemed to be entitled to vote for purposes of
determining whether stockholder approval of that matter has been obtained. As a
result, broker "non-votes" are not included in the tabulation of the voting
results on the election of
1
directors or issues requiring the approval of a majority of the shares of common
stock present or represented by proxy and entitled to vote.
If a quorum is present, the votes required to approve the various matters
presented to stockholders at the meeting shall be as follows:
- ELECTION OF DIRECTORS -- Election requires a plurality of the votes of
the shares represented at the meeting. Abstentions and broker non-votes
will not be counted as votes cast and will have no effect on the result
of the vote, although they will count toward the presence of a quorum.
- APPROVAL OF PROPOSAL 1 (THE ESPP AMENDMENT) -- Approval of the ESPP
Amendment requires the affirmative vote of holders of a majority of the
shares present or represented by proxy and entitled to vote at the
meeting. Abstentions will have the same effect as a negative vote. Broker
non-votes will have no effect on the outcome of this proposal.
- APPROVAL OF PROPOSAL 2 (THE OPTION EXCHANGE AMENDMENTS) -- Approval of
the Option Exchange Amendments requires the affirmative vote of holders
of a majority of the shares present or represented by proxy and entitled
to vote at the meeting. Abstentions will have the same effect as a
negative vote. Broker non-votes will have no effect on the outcome of
this proposal.
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
presently serve on 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 9. Three current directors -- John M. Egan, the current Chairman of
the Board, James L. Faust and Bruce Van Wagner -- are not standing for
re-election at this year's Annual Meeting. Upon his re-election at this year's
Annual Meeting, Mr. Stanzione will serve as Chairman of the Board.
NOMINEES TO SERVE FOR A ONE-YEAR TERM EXPIRING IN 2004
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Name: Alex B. Best
Age: 62
Director Since: 2003
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Prior to his retirement in 2000, Mr.
Best was the executive Vice President of
Cox Communications, Inc. From 1986
through 1999, he served as the Vice
President of Engineering of Cox. Since
2000, Mr. Best has continued to consult
for Cox on a part-time basis. From 1966
through 1986, Mr. Best worked for
Scientific Atlanta, and was involved in
nearly every aspect of their cable
television product development and
business applications. Mr. Best served
as Chairman of the National Cable
Television Association's Engineering
Advisory Committee from 1995 until 2000.
Other directorships: Optinel Systems, Inc.
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2
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Name: Harry L. Bosco
Age: 58
Director Since: 2002
ARRIS Board Committee: Audit Committee and Nominating Committee
Principal occupation and recent
business experience: Since 2000, Mr. Bosco has served as the
Chief Executive Officer, President and a
Director of OpNext, Inc., an optical
component company privately owned by
Hitachi Ltd. and Clarity Partners. From
1965 to 2000, Mr. Bosco held numerous
senior management positions within
Lucent Technologies, formerly Bell Labs.
Other directorships: None.
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Name: John (Ian) Anderson Craig
Age: 60
Director since: 1998
ARRIS Board Committee: Audit Committee, Compensation Committee,
and Nominating Committee
Principal occupation and recent
business experience: Currently, Mr. Craig is a business
consultant. From September 1999 through
March 2000, Mr. Craig was Chief
Marketing Officer of Nortel Networks,
Inc. From 1981 to March 2000 he held
numerous senior management positions
within Northern Telecom Inc., now known
as Nortel Networks Inc.
Other directorships: BCI, and CAE, Inc.
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Name: Randy K. Dodd
Age: 46
Director Since: 2003
ARRIS Board Committee: None.
Principal occupation and recent
business experience: In November 2002, Mr. Dodd was appointed
President of the Sales-IXC-Regional
Accounts, for Nortel Networks. Since
1988, Mr. Dodd held various positions
with Nortel Networks including Major
Account Vice President-Sprint Account
Team. Prior to joining Nortel Networks,
Mr. Dodd worked for Datel Communications
and Alberta Government Telephone from
1976 through 1988, with responsibilities
including general managerial, sales,
marketing service, and engineering.
Other directorships: None.
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3
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Name: Matthew B. Kearney
Age: 63
Director Since: 2003
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Prior to his retirement in 1997, Mr.
Kearney was the Chief Financial Officer
of Griffin Gaming & Entertainment, Inc.
(formerly Resorts International, Inc.).
Mr. Kearney also served as active
President of Griffin Gaming &
Entertainment, Inc. from November 1993
through May 1995. Prior to joining
Resorts International, Inc., Mr. Kearney
worked in public accounting for Price
Waterhouse & Co. Mr. Kearney is a CPA
(inactive) in New York and Florida.
Other directorships: None.
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Name: William H. Lambert
Age: 66
Director since: 1997
ARRIS Board Committee: Compensation Committee and Nominating
Committee
Principal occupation and recent
business experience: Currently Mr. Lambert is retired. From
1988 to 1997, Mr. Lambert served as the
Chairman, President and Chief Executive
Officer of TSX Corporation, which was
acquired by ARRIS in 1997. Mr. Lambert
has been a private investor since 1988.
Other directorships: None.
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Name: John R. Petty
Age: 72
Director since: 1993
ARRIS Board Committee: Audit Committee (Chair) and Nominating
Committee
Principal occupation and recent
business experience: Mr. Petty has served as the Chairman of
TECSEC Incorporated, a data security
company. Mr. Petty has also served as
the Chairman of Federal National
Payables, Inc., Federal National
Commercial, Inc., and Federal National
Services, Inc., since 1992. Mr. Petty
has been a private investor since 1988.
Other directorships: Anixter International, Inc.
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4
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Name: Larry Romrell
Age: 63
Director since: 2000
ARRIS Board Committee: None.
Principal occupation and recent
business experience: Since March 1999, Mr. Romrell has been a
director of and served as a consultant
to Liberty Media Corporation. Mr.
Romrell served as an Executive Vice
President of Tele-Communications, Inc.
from January 1994 to March 1999 and
since March 1999 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: Guaranty Bank & Trust Company and Ascent
Media Group.
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Name: Robert J. Stanzione
Age: 55
Director since: 1998
ARRIS Board Committee Executive Committee
Principal occupation and recent
business experience: Mr. Stanzione has been a director of
ARRIS since 1998 and serves on the
Company's Executive Committee, and has
been President and Chief Executive
Officer since January 1, 2000. From 1998
through 1999, Mr. Stanzione was
President and Chief Operating Officer of
ARRIS. From 1995 to 1997, he was
President and Chief Executive Officer of
Arris Interactive. From 1969 to 1995, he
held various positions with AT&T
Corporation.
Other directorships: Evolve Products, Inc., CoaXmedia, and
Georgia CF Foundation.
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BOARD AND COMMITTEE MEETINGS
The Audit Committee in 2002 consisted of Messrs. Petty (Chairperson), Bosco
and Craig. Pursuant to its written charter, 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 ten meetings in 2002. It is
believed that Messrs. Petty, Bosco and Craig currently are "independent" as
defined by Rule 4200(a)(15) of the National Association of Securities Dealers'
listing standards. Prior to March 2003, however, Mr. Craig was not considered
independent within that definition because three years had 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 and he was not engaged in any activities that would, in the future,
disqualify him from being considered independent.
5
The Compensation Committee, which in 2002 consisted of Messrs. Lambert
(Chairperson) and Craig, 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 four meetings in 2002.
The Executive Committee, which in 2002 consisted of Messrs. Stanzione, Egan
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 did not hold any meetings in 2002.
Messrs. Egan and Van Wagner, who are not standing for re-election, will serve on
the committee until the annual meeting.
The Nominating Committee was established in late 2002 and is currently
composed of Messrs. Bosco (Chair), Craig, Lambert, and Petty. The Nominating
Committee plays a central role in planning the size and composition of the Board
of Directors, developing criteria and implementing the process of identifying,
screening and nominating candidates for election to the Board, evaluating Board
performance and recommending actions to improve corporate governance. The
Nominating Committee expects to be able to identify from its own resources the
names of qualified nominees but will accept recommendations of individuals to be
considered as nominees from stockholders. Stockholders may nominate candidates
for election to our Board of Directors by sending nominations to the Corporate
Secretary. The nomination must be accompanied by the name and address of the
nominating stockholder, and must state the number and class of shares held. It
must include information regarding each nominee that would be required to be
included in a proxy statement.
The Board of Directors held eight meetings in 2002.
Each of the directors, with the exception of Mr. Romrell, attended 75
percent or more of the total of all meetings held by the Board and the
committees on which the director served.
EXECUTIVE COMPENSATION
The following tables set forth information about the compensation paid to
the Company's Chief Executive Officer, and the four most highly compensated
executive officers of ARRIS for the last fiscal year. Salaries for all executive
officers have been frozen since the last salary adjustment in mid 2001.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
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ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND ------------------------------- STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) AWARDS($) AWARDS(#) PAYOUTS($) COMPENSATION($)(5)
------------------ ---- --------- -------- -------- ---------- ---------- ---------- ------------------
Robert J. Stanzione....... 2002 600,000 376,500 -- -- 455,000 -- 51,596
President, Chief 2001 550,000 170,625 -- -- 500,000 -- 39,950
Executive Officer 2000 500,000 37,500 -- 1,125,000(1)(2) 160,000 -- 48,834
Lawrence A. Margolis...... 2002 340,000 128,010 58,585(6) -- 205,000 -- 25,689
Executive Vice 2001 325,000 68,145 57,218(6) -- 110,000 -- 21,659
President, Chief 2000 309,000 18,540 45,000(6) 92,700(2) 60,000 -- 29,082
Financial Officer
James D. Lakin (4)........ 2002 280,692 88,067 -- -- 90,000 -- 21,693
President, Broadband 2001 108,498 45,937 -- 650,128(3) 135,000 -- 4,633
2000 -- -- -- -- -- -- --
David B. Potts (4)........ 2002 252,780 79,310 -- -- 75,000 236,300 13,428
Senior Vice President 2001 97,772 39,258 -- 319,444(3) 100,000 -- 500
of Finance, Chief 2000 -- -- -- -- -- -- --
Information Officer
Gordon E. Halverson....... 2002 245,000 76,869 -- -- 76,250 -- 13,200
Executive Vice 2001 232,000 40,687 54,405(7) -- 50,000 -- 17,029
President, Sales 2000 220,000 52,580 33,334(7) 30,250(2) 100,000 -- 18,828
6
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(1) The amount in 2000 for Mr. Stanzione includes the value as of January 31,
2000 ($937,500), which was the date 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, 2002, the value of common stock into which the unvested portion
of these units would convert was $85,955. 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, Margolis and Halverson, 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, 2002, the unvested
shares had a value of $22,441, $11,096 and $3,624, respectively.
(3) Amounts in 2001 for Messrs. Lakin and Potts represent the value of
restricted common stock granted on August 5, 2001, at $10.20 per share. The
restricted common stock vests in halves beginning on the anniversary of the
date of grant. Holders of the restricted common stock are entitled to
receive any distribution made to holders of common stock. As of December 31,
2002, the unvested shares had a value of $113,772 and $55,903, respectively.
(4) Messrs. Lakin and Potts became employees of ARRIS in August 2001, upon the
completion of the acquisition of Arris Interactive L.L.C. by ANTEC
Corporation, the predecessor to ARRIS. Prior to that time, Mr. Lakin served
as President of Arris Interactive and Mr. Potts served as Chief Financial
Officer of Arris Interactive.
(5) Represents contributions by the Company to an employee savings plan, a
supplemental savings plan, and a life insurance plan.
(6) Includes $45,000 for forgiveness of relocation advance.
(7) Includes $33,334 for forgiveness of relocation advance.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO DATE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE OR OF -------------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE($/SH) EXPIRATION 5%($) 10%($)
---- ---------- ------------ ----------------- ---------- ---------- ------------
Robert J. Stanzione........ 165,000(1) 2.24% $8.12 1/22/2012 $905,753 $2,235,869
Robert J. Stanzione........ 290,000(2) 3.94% $2.43 12/11/2012 424,287 1,093,023
Lawrence A. Margolis....... 70,000(1) 0.95% $8.12 1/22/2012 384,259 948,550
Lawrence A. Margolis....... 135,000(2) 1.83% $2.43 12/11/2012 197,513 508,821
James D. Lakin............. 45,000(1) 0.61% $8.12 1/22/2012 247,024 609,782
James D. Lakin............. 45,000(2) 0.61% $2.43 12/11/2012 65,838 169,607
David B. Potts............. 40,000(1) 0.54% $8.12 1/22/2012 219,577 542,029
David B. Potts............. 35,000(2) 0.48% $2.43 12/11/2012 51,207 131,917
Gordon E. Halverson........ 76,250(2) 1.04% $2.43 12/11/2012 111,558 287,390
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(1) The options vest in fourths beginning on the anniversary of the date of
grant, and expire in 10 years.
(2) The options vest in thirds beginning on the anniversary of the date of
grant, and expire in 10 years.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years, assuming the fair market price of
the common stock on the date of grant (the average of the high and low on
the date of grant) appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the
7
appreciated stock price. These numbers are for presentation purposes only
and are not predictions of future stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
------------------ ----------- ----------------- ----------------
Robert J. Stanzione............. -- -- 1,040,000/910,000 $0/$348,000
Lawrence A. Margolis............ -- -- 472,500/292,500 $0/$162,000
James D. Lakin.................. -- -- 33,750/191,250 $0/$54,000
David B. Potts.................. -- -- 25,000/150,000 $0/$42,000
Gordon E. Halverson............. -- -- 275,000/146,250 $0/$91,500
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(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, 2002) of
$3.63 per share, multiplied by the number of shares underlying the option.
PENSION PLAN TABLE
PENSION PLAN TABLE OF EXPECTED BENEFITS
USING 2002 COMPENSATION FOR THE 2003 PROXY
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ ------- -------- -------- -------- -------- --------
$150,000............... $16,936 $ 25,404 $ 33,872 $ 42,340 $ 50,808 $ 50,808
200,000............... 23,436 35,154 46,872 58,590 70,308 70,308
250,000............... 29,936 44,904 59,872 74,840 89,808 89,808
300,000............... 36,436 54,654 72,872 91,090 109,308 109,308
350,000............... 42,936 64,404 85,872 107,340 128,808 128,808
400,000............... 49,436 74,154 98,872 123,590 148,308 148,308
450,000............... 55,936 83,904 111,872 139,840 167,808 167,808
500,000............... 62,436 93,654 124,872 156,090 187,308 187,308
550,000............... 68,936 103,404 137,872 172,340 206,808 206,808
600,000............... 75,436 113,154 150,872 188,590 226,308 226,308
650,000............... 81,936 122,904 163,872 204,840 245,808 245,808
700,000............... 88,436 132,654 176,872 221,090 265,308 265,308
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 2002 was the salary for 2002 and the bonus accrued for 2001 in the "Summary
Compensation Table." As of December 31, 2002, Messrs. Stanzione, Margolis,
Lakin, Potts, and Halverson have approximately 21 (actual service tripled
pursuant to employment agreement), 20, 6, 7, and 34 years of service,
respectively. In 1999, ARRIS 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,
8
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 that the federal tax rules
permit to be considered in determining benefits under the funded pension plan,
which was $200,000 in 2002. 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
During 2002, the Company paid its directors who were not employed by the
Company or Nortel Networks annual retainers of $50,000 in the form of stock
units which converted 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 each committee chairperson. These directors were also granted options to
purchase 5,000 shares of Common Stock at the price of the stock at the time of
grant.
Effective January 1, 2003, the Company pays its directors who are not
employed by the Company or Nortel Networks annual retainers of $46,000. Fifty
percent of this retainer is in the form of stock units which convert to Common
Stock on a one-for-one basis and the remaining fifty percent is in cash. Prior
to July 1, 2003, each member may elect that all or any part of the cash portion
of the retainer be paid in stock units instead of cash. In addition, each
director will receive cash fees of $2,000 for each board meeting attended in
person and $500 for each board meeting attended by phone. The Chairman of the
Audit Committee will be paid an annual retainer of $10,000 and each other member
of the Audit Committee will be paid an annual retainer of $2,500. The Chairman
of the Compensation Committee and the Chairman of the Nominating Committee will
each be paid an annual retainer of $2,500. Each member of a committee attending
a committee meeting in person will be paid a meeting fee of $1,000 and each
member attending a committee meeting by phone will be paid a meeting fee of
$500.
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. This consulting contract expired
on January 31, 2003. The Company made its last payment under the consulting
contract on January 7, 2003 for services through the expiration date.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company's common
stock that may be issued upon exercise of options, warrants and rights under all
equity compensation plans as of April 7, 2003.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN 1(ST)
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN)
------------- ----------------------- -------------------- -----------------------------
Equity compensation plans approved
by security holders............. 14,724,958 $9.96 1,940,399*
Equity compensation plans not
approved by security holders.... -- -- --
---------- ----- ---------
Total................. 14,724,958 $9.96 1,940,399
========== ===== =========
---------------
* Includes 227,261 shares reserved for issuance under the 2001 Employee Stock
Purchase Plan.
9
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Employment contracts. The Company has entered into employment agreements
with Messrs. Stanzione, Margolis, Lakin, Potts, and Halverson. The employment
agreements obligate these officers to continue to serve the Company and for the
Company to continue to employ these officers until the employment agreements are
terminated by the required prior notice or for cause or good reason as defined
in the employment agreements or until the employment 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 Messrs. Lakin and Potts in 2006.
The employment agreements provide for minimum salaries equal to current salaries
(and for minimum annual increases in the case of Mr. Stanzione, which increase
was waived by Mr. Stanzione for 2002) and for the Company to determine annual
bonus opportunities targeted at 100% of salary for Mr. Stanzione, and 50% or 60%
of salary for the other officers. The employment agreements prohibit each
officer from working for a competitor while receiving severance benefits from
the Company. Mr. Margolis' employment 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 employment agreements are terminated
without cause by the Company or with good reason by the executive, the
employment 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 Messrs. Lakin and Potts. The
employment 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, Halverson, Lakin and Potts, a change
of control, and 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. 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.
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 two-thirds 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.
10
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.
Stanzione, Margolis, Lakin, Potts, and Halverson. 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. Salaries for all executive officers
have been frozen since the last salary adjustment in mid 2001.
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. However, in December 2002, the
Committee granted each employee holding an option with an exercise price above
the then current market price (known as an "under water" option), a new option
to purchase a number of shares equal to approximately 25% of the shares
underlying the employees "under water" option at an exercise price of the then
current market price. This action was taken to restore incentive and retention
value to the options, which had been lost due to the decline in the price of the
Company's stock.
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 2002, this percentage was approximately 100% for Mr. Stanzione, and 50% to
60% for the other named officers. Actual 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 2002, including the achievement of
targeted financial results for EBITDA, inventory turns and days sales
outstanding, each executive officer would be paid a bonus calculated at 62.75%
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 guidelines
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
11
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.
John A. Craig William H. Lambert
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors who served on the Compensation Committee for the fiscal year
ended December 31, 2002 were John Anderson Craig and William H. Lambert. No
member of the Compensation Committee is currently or has served as an executive
officer or employee of the Company.
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 including Statement on Auditing Standards No. 61 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 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 2002, we had ten 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
12
December 31, 2002 for filing with the Securities and Exchange Commission. In
addition, we have selected the Company's independent auditors.
John R. Petty Harry L. Bosco John A. Craig
PERFORMANCE GRAPH
Below is a graph comparing total stockholder return on the Company's stock
from December 31, 1997 through December 31, 2002, 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, 1997 and reinvestment of all dividends.
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------------------------------------------------------------------------------------------
ARRIS GROUP, INC $100.0 $128.8 $233.6 $ 50.6 $ 62.5 $22.8
S&P 500 100.0 129.0 156.3 142.4 125.6 97.8
CRSP Peer Index 100.0 138.5 306.1 227.5 136.8 74.0
13
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 7, 2003, 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)
--------------------------- ------------ --------------- ---------------
Alex B. Best.............................. -- -- -- *
Harry L. Bosco............................ 12,600 -- 12,600 *
J. A. Ian Craig........................... 21,800 2,500 24,300 *
Randy K. Dodd............................. -- -- -- *
John M. Egan.............................. 57,961 674,500 732,461 *
James L. Faust............................ 19,781 44,166 63,947 *
Matthew B. Kearney........................ -- -- -- *
William H. Lambert........................ 26,850 22,500 49,350 *
John R. Petty............................. 25,900 8,750 34,650 *
Larry Romrell............................. 18,000 26,200 44,200 *
Bruce Van Wagner.......................... 78,400 25,000 103,400 *
Robert J. Stanzione(4).................... 131,935 1,206,250 1,338,185 1.8%
Gordon E. Halverson....................... 7,052 260,000 267,052 *
James D. Lakin(4)......................... 64,738 45,000 109,738 *
Lawrence A. Margolis...................... 59,763 462,500 522,263 *
David B. Potts(4)......................... 24,118 35,000 59,118 *
All directors, nominees and executive
officers as a group including the above
named persons........................... 573,993 3,112,365 3,686,358 4.9%
---------------
* 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 106,850 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 31,869 and 15,659 stock units that convert on a one for one basis
into shares of Common Stock on August 5, 2003 for Messrs. Lakin and Potts,
respectively. Includes 24,077 stock units for Mr. Stanzione. Twenty percent
of these units will be forfeited if he terminates his employment with the
Company prior to June 30, 2004.
14
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 7, 2003 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 14,000,000(1) 18.7%
8200 Dixie Road, Suite 100
Brampton, Ontario L6T 5P6 Canada
Common................ Liberty Media Corporation 7,681,341(2) 10.3%
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Common................ Dimensional Fund Advisors, Inc. 4,701,958(3) 6.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
---------------
(1) According to 13D/A, filed March 25, 2003
(2) According to 13D/A, filed on April 2, 2003, includes 854,341 shares of
Common Stock issuable upon the exercise of certain stock options.
(3) According to 13G, filed on February 10, 2003
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. These loans did not bear any interest. In February
2003, Mr. Egan repaid each of these loans in full. During 2002, Mr. Egan was a
party to an employment agreement with ARRIS under which Mr. Egan provided
services to ARRIS. Mr. Egan's employment agreement terminated as of May 31,
2002. Under this agreement, ARRIS paid to Mr. Egan $208,333 in salary and
$156,250 in bonus for 2002. Upon termination of his employment agreement, Mr.
Egan continued to serve as a consultant to the Company pursuant to a five-year
consulting agreement that provided for a supplemental pension, which Mr. Egan
elected to receive in 2002 as a lump sum payment of approximately $6.5 million.
In addition to these payments, Mr. Egan is eligible to commence receipt of his
pension benefits under the Company's funded defined benefit plan at any time he
elects to do so.
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.
Through April 9, 2003, $135,000 of this advance had been forgiven. The remaining
$45,000 will be forgiven on April 30, 2003.
In 1999, the Company advanced $92,500 to Robert Puccini to assist Mr.
Puccini with his relocation to Denver for his position as President -- Telewire
Supply. The repayment of this advance will be forgiven in three annual
increments beginning April 30, 2001, so long as Mr. Puccini does not terminate
his employment without cause. The final increment will be forgiven on April 30,
2003.
On August 3, 2001, the Company acquired Nortel Networks' portion of Arris
Interactive L.L.C., which was a joint venture formed by Nortel and the Company
in 1995. Nortel exchanged its ownership interest in Arris Interactive L.L.C. for
a subordinated redeemable preferred membership interest in Arris Interactive
with a face amount of $100 million and 37 million shares of ARRIS common stock.
This membership interest
15
earns a return of 10% per annum, compounded annually. For the year ended
December 31, 2002, we recorded membership interest expense of $10.4 million.
Following the acquisition, in accordance with the Amended and Restated Investor
Rights Agreement, Nortel designated two new members of our Board of Directors.
Because Nortel's ownership in the Company has fallen below 20%, Nortel is
currently entitled to designate only one member of the 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 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 acted as a sales agent for us for Arris Interactive products in
the international area through 2003 and in the USA through 2001. The Sales
Representation Agreement for domestic agency fees expired December 31, 2001, and
the Sales Representation Agreement for international agency fees was terminated
on December 6, 2002. In 2002, we paid Nortel Networks $4.9 million pursuant to
these agreements. During the entire year of 2002, we had sales to Nortel
Networks of $3.2 million. At December 31, 2002, ARRIS had accounts receivable
from Nortel of $2.2 million and accounts payable and accrued liabilities due to
Nortel Networks of $11.3 million, a significant portion of which was paid in
March 2003. 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.
In June 2002, the Company entered into an option agreement with Nortel
Networks that permitted us to redeem the Arris Interactive membership interests
at a discount of 21% prior to June 30, 2003. In 2003, Nortel also offered to
forgive approximately $5.9 million of the earnings on the membership interest if
we redeemed the membership interest prior to March 31, 2003. The Company used
approximately $88.4 million of the proceeds of a March 2003 convertible
subordinated notes offering to redeem the membership interest. In addition, in
March 2003, Nortel Networks granted the Company an option to purchase up to 16
million of our shares at a 10% discount to market. On March 24, 2003, in
accordance with the terms of this option agreement, the Company purchased
8,000,000 shares for an aggregate purchase price of $28.0 million. Pursuant to
the terms of the option agreement, there was also a reduction in the forgiveness
of the earnings on the membership interest.
16
PROPOSAL 1
APPROVAL OF ESPP AMENDMENT
Recommendation. The Company is asking the stockholders to approve an
amendment adopted by the Board of Directors to increase the number of shares
reserved for issuance under the Company's 2001 Employee Stock Purchase Plan (the
"2001 Purchase Plan") from 800,000 shares to 1,800,000 shares. A copy of the
2001 Purchase Plan reflecting the proposed amendments is attached to this Proxy
Statement as Appendix A.
Purpose. The purpose of the 2001 Purchase Plan is to align more closely
the interest of Company employees with those of the Company and its stockholders
by providing employees of the Company the opportunity to purchase shares of
common stock at favorable prices and terms. The proposed amendment to the Plan
would increase the number of shares reserved for issuance under the 2001
Purchase Plan from 800,000 to 1,800,000, subject to adjustments to reflect
certain circumstances.
Administration and Amendment. The Plan is administered by the Compensation
Committee of the Company's Board of Directors (the "Committee"). Subject to the
provisions of the 2001 Purchase Plan, the Committee will have the authority and
responsibility for the interpretation, administration and application of the
provisions of the 2001 Purchase Plan. The Board of Directors or the Committee
may, from time to time, suspend, terminate, revise or amend the 2001 Purchase
Plan or terms of any grant except that, without the approval of stockholders, no
such revision or amendment may increase the number of shares subject to the 2001
Purchase Plan, reduce the exercise price provided in the 2001 Purchase Plan, or
cause the 2001 Purchase Plan not to be in conformance with the requirements of
Section 423 of the Internal Revenue Code.
Participation. All employees of the Company or any subsidiary of the
Company whose customary employment is more than twenty hours per week are
eligible to purchase shares through regular payroll deductions. However, no
employee who owns or holds options to purchase more than 5% of the Company's
voting securities may participate in the 2001 Purchase Plan.
Number of Shares. As of April 1, 2003, the first day of the most recent
offering period under the 2001 Purchase Plan, only 227,261 shares remained
available for purchase by participants. As amended, the 2001 Purchase Plan would
provide for the issuance of 1,800,000 of the Company's authorized but unissued
shares of common stock. Of this amount 1,000,000 shares are subject to
stockholder approval of this Proposal. The 2001 Purchase Plan share reserves are
subject to adjustments to reflect certain transactions.
Time and Manner of Exercise. The Company will grant eligible employees
options to purchase shares through a payroll deduction program. These options
are granted once every six months on a date specified in the plan. The term of
the option is a six-month period beginning on the date of the grant. Eligible
employees are able to designate an amount to be withheld from their regular pay
within the minimum and maximum limits as specified under the 2001 Purchase Plan.
No one is permitted, in any year, to purchase shares having a total fair market
value on the grant date of greater than $25,000. The maximum number of shares
subject to each option is the number of whole shares which the projected payroll
deductions, authorized by the participant for the option period, would purchase
at an exercise price per share equal to 85% of the fair market value of a share
on the grant date, or a maximum of $21,250 per year.
Purchase Price. An option is exercised automatically on the last day of
the option period, the exercise date, at which time the Company deducts, from
the participant's account, an amount which is sufficient to purchase, at the
option price, up to the number of shares subject to participant's option. The
balance of the participant's account is refunded to the participant promptly
after the exercise date. The option price per share is equal to 85% of the fair
market value of shares on the grant date or exercise date, whichever is less.
Withdrawal and Termination of Employment. Participation in the 2001
Purchase Plan is terminated when the participant voluntarily withdraws from the
2001 Purchase Plan, resigns or is discharged, or retires or dies. Upon
termination of participation, all funds in the participant's account are
refunded to the participant without interest, except that upon retirement or
death, the participant or the participant's executor, as the case may be, may
elect to exercise any outstanding options of the participant.
17
Federal Income Tax Consequences. The 2001 Purchase Plan is intended to be
an "employee stock purchase plan" within the meaning of Section 423 of the Code.
All payroll deductions elected by a participant under the 2001 Purchase Plan are
made on an after-tax basis. Under a plan which so qualifies, no taxable income
will be recognized by a participant, and no deductions will be allowable to the
Company upon either the grant or the exercise of the purchase rights. Taxable
income will not be recognized until there is a sale or other disposition of the
shares acquired under the 2001 Purchase Plan or in the event the participant
should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her enrollment into the purchase period or within
one year after the actual purchase date, the participant will recognize ordinary
income in the year of sale or disposition equal to the amount by which the fair
market value of the shares on the purchase date exceeded the purchase price of
those shares. If the participant sells or otherwise disposes of the purchased
shares more than two years after entry into the purchase period and more than
one year after the actual purchase date, then the participant will recognize
ordinary income in the year of sale or disposition equal to the lesser of (i)
the amount by which the fair market value of the shares on the sale or
disposition date exceeded the purchase price paid for those shares or (ii) 15%
of the fair market value of the shares on either the grant date or exercise
date, whichever is less. Any additional gain upon the disposition will be taxed
as a long-term capital gain.
If the participant still owns shares acquired under 2001 Purchase Plan at
the time of death, the lesser of (i) the amount by which the fair market value
of the shares on the date of death exceeds the purchase price or (ii) 15% of the
fair market value of the shares on either the grant date or exercise date,
whichever is less, will constitute ordinary income in the year of death.
If the purchased shares are sold or otherwise disposed of within two years
after the participant's entry date into the purchase period or within one year
after the actual purchase date, the Company will be entitled to a tax deduction
in the year of such sale or disposition equal to the amount of ordinary income
recognized by the participant as a result of such sale or disposition. In all
other cases, no deduction will be allowed.
NEW PLAN BENEFITS
No new plan benefits table for the 2001 Purchase Plan, as amended, is
included in this proxy statement. Participation in the 2001 Purchase Plan is
voluntary and dependent on each employee's election to participate and his or
determination as to the level of payroll deductions. Accordingly, future
purchases under the 2001 Purchase Plan are not determinable.
EQUITY COMPENSATION PLAN INFORMATION
Information about the common stock that may be issued under all of our
existing equity compensation plans is set forth under the caption "Equity
Compensation Plan Information" elsewhere in this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
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PROPOSAL 2
APPROVAL OF OPTION EXCHANGE AMENDMENTS
We are proposing amendments to some of our employee benefit plans, to
facilitate a special one-time program under which eligible employees (our
directors and certain of our senior executives are not eligible to participate)
will be given the opportunity to voluntarily exchange eligible stock options for
a lesser number of restricted shares of ARRIS common stock (the "Exchange
Program"). The employee benefit plans to be amended pursuant to this proposal
include:
- ARRIS Group, Inc. 2001 Stock Incentive Plan (the "2001 Stock Incentive
Plan"),
- ANTEC Corporation 2000 Stock Incentive Plan,
- ANTEC Corporation 2000 Mid-Level Stock Option Plan,
- ANTEC Corporation 1997 Stock Incentive Plan, and
- ANTEC Ltd. 1993 Employee Stock Incentive Plan.
The Board of Directors recommends that you vote FOR the approval of this
proposal.
REASONS FOR THE EXCHANGE PROGRAM
We believe that using equity incentive awards, including stock options and
restricted stock, helps align our employees' interests with those of our
stockholders by motivating them to act as owners. Stock-based awards have been,
and continue to be, a key part of our employee compensation incentive and
retention program. When properly structured, we believe these awards are a
cost-effective means of compensation that enhance long-term stockholder value by
incenting superior employee performance and improving our ability to retain key
employees.
The severe economic slowdown of the past two years in the
telecommunications sector and among technology companies in general has resulted
in a significant number of our employees holding stock options with exercise
prices that greatly exceed the current market price of our common stock. Our
stock has been trading at levels below the exercise price of a vast majority of
outstanding options currently held by our employees. For our equity incentive
awards to enhance long-term stockholder value, our employees must feel that
these awards provide an opportunity through their efforts to realize value
within a reasonable period of time. In addition, because these options have been
"under water" for an extended period of time, the number of shares subject to
options has grown steadily as a percentage of shares outstanding, creating a
significant "overhang," which we believe could negatively impact our stock
price.
Through the Exchange Program, we propose to provide our employees the
benefit of holding shares of restricted stock that, over time, may have a
greater potential to increase in value. We believe the Exchange Program will
create an incentive for our employees to remain with us and contribute to the
attainment of our business and financial objectives. In other words, the purpose
of the Exchange Program is to better align our employees' interests with those
of our stockholders.
Under the Exchange Program, eligible employees will be given the one-time
opportunity to exchange eligible stock options for proportionately fewer
restricted shares of our common stock. In order to achieve the desired results
for both our employees and our stockholders, we have structured the Exchange
Program to be a "value-for-value" exchange, meaning that employees who
voluntarily elect to participate must exchange a number of outstanding options
with a value that approximates the value of the number of new shares of
restricted stock they receive. We have used the Black-Scholes model for purposes
of the exchange and have made additional adjustments in assessing the value of
the options being exchanged for shares of restricted stock in consideration of
the fact that, unlike stock options, shares of restricted stock have intrinsic
value if the stock price decreases after the date the awards were granted. IN
EVERY CASE, AN EMPLOYEE WILL SURRENDER SUBSTANTIALLY MORE THAN ONE EXISTING
OPTION TO RECEIVE A SINGLE NEW SHARE OF RESTRICTED STOCK. Because employees will
be exchanging a greater number of stock options (many of which are fully vested)
for a lesser
19
number of shares of restricted stock, the number of shares of common stock
granted to employees through benefit plans will be reduced, lessening overhang
and potential dilution.
Another benefit to stockholders is the manner in which the Exchange Program
has been structured with respect to the vesting of awards. Shares of restricted
stock issued through the Exchange Program will be subject to new vesting
requirements without regard to the prior vesting schedules of the exchanged
options, meaning that employees will have to continue their employment in order
to realize any benefit from the shares of restricted stock. The new vesting
schedules will help encourage our most talented employees to continue their
employment and help achieve our business goals.
IT SHOULD BE NOTED THAT THE EXCHANGE PROGRAM WILL NOT BE OPEN TO MEMBERS OF
OUR BOARD OF DIRECTORS OR OUR FIVE MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS
LISTED IN THIS PROXY STATEMENT UNDER THE CAPTION "EXECUTIVE COMPENSATION." Thus,
these individuals will be unable to take advantage of the benefits received by
the employees who participate in the Exchange Program.
To achieve the accounting treatment we desire for the Exchange Program, we
cannot commence the program until at least six months and one day have elapsed
since our last option grant date to eligible employees. Because our last option
grant to eligible employees occurred in December 2002, if stockholders approve
this proposal to amend certain of our employee benefit plans, we expect to offer
the program to eligible employees beginning in June 2003. Employees will have 20
business days (or longer if we so determine) to elect to participate. The new
shares of restricted stock issued in exchange for the surrendered options will
be granted on the day after the exchange offer period expires. As a result, we
expect the new shares of restricted stock to be granted in July 2003.
Amendments to several of our equity incentive plans are necessary to
implement the Exchange Program, and we must receive stockholder approval in
order to amend these plans.
IMPORTANT NOTE REGARDING THE EXCHANGE PROGRAM
ARRIS has not commenced the Exchange Program and will not complete the
Exchange Program unless stockholders approve this proposal. The determination to
commence the Exchange Program and the precise timing, eligibility and terms of
the Exchange Program (but with terms no more favorable and not more inclusive
than those described herein) remain in the discretion of the Compensation
Committee of the Board of Directors. At the time the Exchange Program is
commenced, eligible employees will be sent written materials explaining the
precise terms and timing of the Exchange Program. Upon commencement of the
Exchange Program, ARRIS will file the written materials relating to the Exchange
Program with the Securities and Exchange Commission as part of a tender offer
statement on Schedule TO. Eligible employees, as well as stockholders and
members of the public, will be able to obtain these written materials and other
documents filed by ARRIS with the Securities and Exchange Commission free of
charge from the Securities and Exchange Commission's website at www.sec.gov.
DESCRIPTION OF THE EXCHANGE PROGRAM
Background. We generally make equity incentive awards on an annual basis,
which typically take the form of stock options. When an option is granted, we
specify the price per share that the employee must pay in order to receive the
underlying share of common stock. After vesting, an employee can exercise the
option to purchase shares of common stock. The employee will receive value if he
or she exercises the option and sells the underlying shares at a price that
exceeds the option's exercise price.
Outstanding Options Eligible for Exchange. As of April 10, 2003, there
were approximately 9,172,211 shares of common stock underlying the stock options
held by eligible employees, with approximately 7,185,547 shares of common stock
underlying options eligible for the Exchange Program. The stock options eligible
for the Exchange Program have exercise prices ranging from $6.00 to $53.13,
however, the exercise price threshold may increase depending on our stock price
on the date of the exchange. Approximately 675 employees worldwide hold
exchangeable options.
20
The vast majority of these options have been granted under our 2001 Stock
Incentive Plan, with the remaining options being granted under plans that
existed prior to the formation of ARRIS through the consolidation of ANTEC
Corporation and Arris Interactive L.L.C. in August 2001. We also have several
acquisition-related stock option plans, which we used to convert outstanding
options of acquired companies into options to acquire our common stock. The
employee benefit plans under which there are outstanding options that are
eligible for the Exchange Program are as follows:
- 2001 Stock Incentive Plan,
- ANTEC Corporation 2000 Stock Incentive Plan,
- ANTEC Corporation 2000 Mid-Level Stock Option Plan,
- ANTEC Corporation 1997 Stock Incentive Plan, and
- ANTEC Ltd. 1993 Employee Stock Incentive Plan.
The options outstanding pursuant to the employee benefit plans listed above
will be eligible for the Exchange Program if they meet the following specific
criteria:
- Must be held by an eligible employee, and
- Must have an exercise price of $6.00 per share or higher.
To participate, however, an eligible employee must voluntarily elect to
surrender all of his or her eligible options. In other words, the exchange will
be on an all-or-nothing basis, and an employee may not elect to exchange some of
his or her eligible options and retain others. However, any options that have an
exercise price less than the closing price on the Nasdaq National Market of
ARRIS common stock on the last day of the Exchange Program will not be included
in the Exchange Program.
Eligible Employees. The Exchange Program, if commenced, will be open to
all of our active employees, other than those indicated below, who hold eligible
options. Participation in the program will be voluntary. The program will
include the employees of our participating subsidiaries worldwide (those in
which ARRIS owns at least a 50% interest), except where securities or local laws
make it impracticable. As of April 10, 2003, approximately 675 employees held
options eligible for exchange. However, as previously stated, the Exchange
Program will not be open to members of our Board of Directors or our five most
highly compensated executive officers listed in this proxy statement. In
addition, the Exchange Program will not be available to former employees or
retirees. To be an eligible employee, the individual must be employed by us or
by a participating subsidiary on the last day of the exchange offer period.
Stock Option Exchange Ratio. Under the Exchange Program, a series of
exchange ratios has been established, which determines the number of options an
employee must surrender in order to receive one share of restricted stock. In
every case, an employee will surrender substantially more than one existing
option to receive a single new share of restricted stock.
The exchange ratio for each class of options will be computed using the
Black-Scholes valuation model, which is a recognized method for determining the
value of derivative securities like stock options. The Black-Scholes valuation
model takes into account a number of variables, including current stock price,
stock volatility, risk-free rate of return, historical dividend yield and the
duration of the options being valued. Based on the Black-Scholes value (and
adjustments reflecting the fact that, unlike stock options, shares of restricted
stock have intrinsic value if the stock price decreases after the grant date)
for each option grant and the recent trading price of our common stock, we will
determine an exchange ratio for each class of outstanding options that is
intended to deliver restricted shares with a value approximately equal to that
of the options being replaced.
In determining the exchange ratios, the Black-Scholes valuation factors
(except for the current market price of ARRIS common stock) were based on
information available as of April 10, 2003. Because the Exchange Program will
not begin until June 2003, we have elected to have our valuation methodology
take into account changes in our stock price that occur between April 10, 2003,
and the time at which the
21
Exchange Program is commenced. We have relied on Frederic W. Cook & Co., a
nationally recognized independent compensation-consulting firm, in determining
the design of the Exchange Program and the appropriate option values and
exchange ratios based on their recommended valuation methodology described above
combined with other methodologies that are appropriate.
Using the valuation methodology described above, and the table below, we
will determine the actual exchange ratios to be used in the Exchange Program
based on the fair market value of our common stock before the time the exchange
offer is commenced. For such purpose, the fair market value of our common stock
will be the average of the closing prices of the common stock over a period of
10 consecutive trading days ending immediately prior to the commencement of the
Exchange Program (the "Current Stock Price").
We have set forth in the following table the exchange ratios that we will
use for the program based on Current Stock Prices of $2.00, $3.00, $4.00, $5.00,
$6.00 and $7.00 per share. The actual exchange ratios will be determined by the
Compensation Committee at the time of the Exchange Program, but will not be more
favorable than the terms set forth below. If the exchange ratio for an option is
denoted as "n/a," such option will not be eligible for the exchange program
because of a significant increase in the fair market value of our common stock.
The determination to commence the Exchange Program and the precise timing and
terms of the Exchange Program (but with terms no more favorable than those
described herein) remain in the discretion of the Compensation Committee of the
Board of Directors.
EXCHANGE RATIOS FOR A CURRENT STOCK PRICE OF
CURRENT ---------------------------------------------------------------------
EXERCISE PRICE $2.00 $3.00 $4.00 $5.00 $6.00 $7.00
-------------- --------- --------- --------- --------- --------- ---------
$6.00 to $6.99........ 4.50 to 1 3.50 to 1 n/a n/a n/a n/a
$7.00 to $7.99........ 4.50 to 1 3.50 to 1 n/a n/a n/a n/a
$8.00 to $8.99........ 4.75 to 1 3.50 to 1 3.00 to 1 2.75 to 1 n/a n/a
$9.00 to $9.99........ 5.25 to 1 4.00 to 1 3.25 to 1 3.00 to 1 2.75 to 1 n/a
$10.00 and
Higher(1)........... 5.50 to 1 4.00 to 1 3.50 to 1 3.00 to 1 2.75 to 1 2.50 to 1
---------------
(1) On August 6, 2001, truncated stock options, which are linked to previously
outstanding stock options with exercise prices $15.00 and higher, were
granted at an exercise price of $10.20 per share. These options expire
shortly after the price of a share of common stock reaches the exercise
price of the original linked options. As a condition of the exchange,
participants will be asked to voluntarily surrender their truncated options
and the original linked options, and receive a number of restricted shares
based on the number of truncated options held only. Since the economic
effect to an optionee holding a truncated option when combined with the
original linked option is similar to holding an option at $10.20 per share
with no early expiration for stock price movement, it would be inappropriate
to apply the exchange rate to the number of options covered by both the
truncated and original option.
If the actual Current Stock Price is below $2.00 per share, the exchange
ratios will be increased appropriately using the same valuation methodology
described above. Our Board of Directors has determined that the Exchange Program
will be cancelled in its entirety if the Current Stock Price is greater than
$7.25 per share.
Regardless of the final exchange ratios, to participate in the program, an
employee must voluntarily surrender all outstanding options above the designated
exercise price threshold.
Grants of Restricted Stock. Under the Exchange Program, eligible employees
may make a one-time election to return for cancellation all of their eligible
stock options in exchange for proportionally fewer shares of restricted stock.
These new grants of restricted stock will be effective as of the first business
day after the final day of the Exchange Program. Regardless of the plan under
which eligible options were originally granted, the shares of restricted stock
issued under the Exchange Program will be granted under the 2001 Stock Incentive
Plan and the 2002 Stock Incentive Plan. We do not currently grant awards under
any of the stock option plans other than the 2001 Stock Incentive Plan and the
2002 Stock Incentive Plan; therefore, with the exception of these two plans, the
shares of common stock underlying options surrendered in the
22
Exchange Program will be cancelled and will not be available for future grants
under the plan from which they were initially issued.
Vesting of Restricted Stock Awards. Regardless of the class of option
surrendered in the exchange and subject to the employee's continued employment
with us, all new restricted stock awards will vest one-fourth per year beginning
on the one-year anniversary of the date of grant. When a share of restricted
stock vests, the share becomes non-forfeitable and freely tradable, subject to
applicable securities laws. The vesting schedule for the restricted stock will
not take into account the extent that exchanged options were already vested, nor
will it give credit for prior service with ARRIS or its subsidiaries. However,
if an employee dies or is terminated without cause his or her vested shares will
be a minimum of one-fourth.
Implementation of the Exchange Program. If this proposal is approved by
stockholders, we expect to offer to eligible employees the opportunity to
participate in the Exchange Program in June 2003. Employees will be given an
election period (a minimum of 20 business days) in which to accept the offer to
surrender all of their eligible options in exchange for new restricted stock
awards. All of the eligible options of participating employees will be cancelled
on the last day of the election period, which we expect to be in July 2003. The
restricted stock will be granted on the first business day after the end of the
election period. If circumstances change prior to the implementation of the
Exchange Program, our Board of Directors will have the authority, in its
discretion, to terminate or postpone the Exchange Program until the 2004 annual
meeting of the Company's stockholders.
Accounting Treatment. Under current APB 25 accounting rules, we will be
required to record a fixed compensation expense on our statement of operations
equal to the fair market value of the shares of restricted stock granted in the
Exchange Program. This cost generally will be amortized over the four-year
vesting period for these shares. Any eligible options that are not surrendered
for exchange will, as of the end of the election period, become subject to
variable accounting (i.e., the accounting charge will vary in accordance with
the market price of the common stock) until such options are exercised,
forfeited or expire unexercised.
We are aware that accounting standards in this area may change prior to the
commencement of the Exchange Program or the issuance of the new shares of
restricted stock. As a result, we may not realize the intended accounting
treatment, we may modify the Exchange Program as necessary to ensure the same
accounting treatment or we may terminate the Exchange Program if the desired
accounting treatment cannot be obtained.
U.S. Federal Income Tax Consequences. The Exchange Program is intended to
be treated as a non-taxable exchange for U.S. federal income tax purposes.
Therefore, participating employees are not expected to recognize any income for
U.S. federal income tax purposes upon the grant of the new restricted stock
awards.
International Tax Consequences. The Exchange Program will be offered on a
worldwide basis and, therefore, participants residing outside of the U.S. may be
subject to laws other than those of this country. The international tax
implications of the Exchange Program are not discussed in this proxy statement.
Employees will be urged to consult local tax advisers with respect to the
international tax consequences.
Maximum Participation. Because the decision whether to participate in the
Exchange Program will be completely voluntary, we are not able to predict which
eligible employees will participate, if any. As previously stated, our Board of
Directors and our five most highly compensated executive officers in fiscal 2002
are not eligible to participate in the Exchange Program. The following table
indicates the maximum number of options that are eligible for exchange through
the Exchange Program and the maximum number of shares of restricted stock that
could be granted at the exchange ratios based on a $4.00 per share Current Stock
Price,
23
assuming all of the eligible employees within the indicated groups elect to
participate in the Exchange Program.
MAXIMUM PARTICIPATION IN THE EXCHANGE PROGRAM
MAXIMUM NUMBER
OF SHARES OF STOCK
UNDERLYING ELIGIBLE MAXIMUM NUMBER
OPTIONS THAT COULD OF RESTRICTED SHARES
NAME BE EXCHANGED TO BE GRANTED
---- --------------------- --------------------
All executive officers (other than the ineligible
executive officers) as a group................. 535,167 145,687
All employees (other than executive officers) as
a group........................................ 6,627,630 1,848,419
Effect on Stockholders. We are not able to predict with certainty the
impact the Exchange Program will have on our stockholders because we are unable
to predict how many employees will exchange their options or what the future
market price of our common stock will be. There is a risk that employees will
not view the Exchange Program as a sufficient incentive to motivate and retain
them as employees. If all eligible employees were to surrender all of their
eligible options, however, at an exchange ratio based on a $4.00 per share
Current Stock Price, then after the completion of the Exchange Program we would
have 5,168,691 fewer stock-based awards outstanding (including stock options and
restricted stock grants) after the exchange is completed, and outstanding
stock-based awards would equal approximately 10.6% of our shares outstanding on
a fully diluted basis, in comparison to 16.3% as of April 10, 2003.
PROPOSED PLAN AMENDMENTS
Five of our equity incentive plans must be amended in order to implement
the Exchange Program.
The 2001 Stock Incentive Plan, the ANTEC Corporation 2000 Stock Incentive
Plan, the ANTEC Corporation 2000 Mid-Level Stock Option Plan, the ANTEC
Corporation 1997 Stock Incentive Plan, and the ANTEC Ltd. 1993 Employee Stock
Incentive Plan do not specifically permit the cancellation of an outstanding
stock option in exchange for the issuance of a replacement equity award. In
addition, the 2001 Stock Incentive Plan prohibits the repricing of options by
amendment, substitution or cancellation and regrant without stockholder
approval. Consequently, we are asking our stockholders to approve amending each
of these plans to specifically allow us to offer the Exchange Program on a
one-time basis.
The proposed amendments also affirmatively prohibit any other future direct
or indirect repricing of options granted under each of the plans without prior
stockholder approval. Additionally, for each of the plans other than the 2001
Stock Incentive Plan, the applicable amendment provides that the shares
underlying options surrendered pursuant to the Exchange Program will not be
available for future grants under the applicable plan.
SUMMARY OF THE PLANS AS PROPOSED TO BE AMENDED
A summary of each of the plans, as proposed to be amended and restated is
set forth below. These summaries are qualified in entirety by reference to the
text of the proposed amendments to each of the plans, which are attached to this
proxy statement in Appendix B, and the full text of each relevant plan, which
are attached to this proxy statement in Appendix C.
ANTEC LTD. 1993 EMPLOYEE STOCK INCENTIVE PLAN
The ANTEC Ltd. 1993 Employee Stock Incentive Plan was approved by the Board
of Directors in 1993 to facilitate the hiring, retention and continued
motivation of key employees and consultants and to align more closely their
interests with those of ANTEC and its stockholders. This plan provided for the
grant of non-qualified stock options, incentive stock options, stock grants,
restricted stock, stock appreciation rights, performance shares and units and
dividend equivalent rights. A total of 1,925,000 shares of ANTEC common stock
were reserved for issuance this plan. In 1996, an amendment to this plan was
approved to increase the number of shares of ANTEC common stock that may be
issued pursuant to the plan from 1,925,000 shares to
24
3,225,000 shares. No new stock options or other awards were granted under this
plan following the completion of the reorganization of ANTEC Corporation into
ARRIS in August 2001. Awards then outstanding under this plan were converted
into awards for shares of ARRIS common stock.
ANTEC CORPORATION 1997 STOCK INCENTIVE PLAN
The ANTEC Corporation 1997 Stock Incentive Plan was approved by the Board
of Directors in 1997 to facilitate the hiring, retention and continued
motivation of key employees, consultants and directors, and to align more
closely their interests with those of ANTEC Corporation and its stockholders.
Awards under this plan were 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 common stock were originally
reserved for issuance under this plan. No new stock options or other awards were
granted under this plan following the completion of the reorganization of ANTEC
Corporation into ARRIS in August 2001. Awards then outstanding under this plan
were converted into awards for shares of ARRIS common stock.
ANTEC CORPORATION 2000 MID-LEVEL STOCK OPTION PLAN
The ANTEC Corporation 2000 Mid-Level Stock Option Plan was approved by the
Board of Directors in 2000 to facilitate the retention and continued motivation
of key mid-level employees and to align more closely their interests with those
of ANTEC Corporation and its stockholders. This plan provided for the grant of
non-qualified stock options, with a total of 500,000 shares of common stock
originally reserved for issuance. No options were granted under this plan after
the date of the 2000 annual meeting of stockholders. Upon the completion of the
reorganization of ANTEC Corporation into ARRIS in August 2001, outstanding
awards were converted into awards for shares of ARRIS common stock.
ANTEC CORPORATION 2000 STOCK INCENTIVE PLAN
The ANTEC Corporation 2000 Stock Incentive Plan was approved by the Board
of Directors in 2000 to facilitate the retention and continued motivation of key
employees, consultants and directors, and to align more closely their interests
with those of ANTEC Corporation and its stockholders. This plan provided for the
grant 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 2,500,000
shares of common stock were originally reserved for issuance under this plan. No
new stock options or other awards were allowed under this plan following the
completion of the reorganization of ANTEC Corporation into ARRIS in August 2001.
Awards then outstanding under this plan were converted into awards for shares of
ARRIS common stock.
2001 STOCK INCENTIVE PLAN
Purpose. The purpose of the 2001 Stock Incentive Plan is to facilitate the
hiring, retention and continued motivation of key employees, consultants and
directors while aligning more closely the interests of the plan participants
with those of ARRIS and its stockholders. The effective date of the plan was
August 3, 2001, the date the plan, as well as the reorganization of ANTEC
Corporation as a wholly owned subsidiary of ARRIS, was approved by the
stockholders of ANTEC Corporation. Prior to completion of the reorganization,
the Plan was known as the Broadband Parent Corporation 2001 Stock Incentive
Plan.
Participation. As of April 10, 2003, there were approximately 749
employees who held outstanding awards under the 2001 Stock Incentive Plan. As of
April 10, 2003, there were approximately 8,505,834 shares of common stock
subject to outstanding awards, and approximately 1,074,166 shares of common
stock reserved and available for future awards under the 2001 Stock Incentive
Plan.
Administration. The 2001 Stock Incentive Plan is administered by the
Compensation Committee of our Board of Directors, such other board committee as
the Board may designate or the Board of Directors itself. The Compensation
Committee has the sole authority to designate participants and to determine the
type, terms and conditions of awards to be granted.
25
Permissible Awards. The 2001 Stock Incentive Plan authorizes the granting
of awards 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.
Adjustments. In the event of a merger, reorganization, recapitalization,
stock dividend, stock split or other change in corporate structure affecting our
common stock, our Compensation Committee may make adjustments in the number of
shares reserved for issuance under the 2001 Stock Incentive Plan and the number
of shares and the purchase price for shares under any outstanding awards.
Limitations on Awards. 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 date of grant, provided that up to 10%
of the shares provided by the 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 the corresponding number of shares as of the date of grant,
and provided further that options or stock appreciation rights replacing options
or rights not granted by the Company may have exercise prices that, in the
judgment of the Compensation Committee, result in options or rights comparable
in value to those being replaced. No more than 25% of shares granted under the
2001 Stock Incentive Plan 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 2001 Stock Incentive Plan covering more than
750,000 shares of ARRIS common stock. In addition, no option may be repriced by
amendment, substitution or cancellation and regrant, unless authorized by the
stockholders.
Termination and Amendment. Our Board of Directors or Compensation
Committee may, from time to time, suspend, terminate, revise or amend the 2001
Stock Incentive Plan or terms of any grant without stockholder approval, but
only to the extent that such revision or amendment does not change the number of
shares covered by or specified in the plan, change the restrictions described in
"Limitations on Awards" above, or expand those eligible for grants under the
plan.
U.S. FEDERAL INCOME TAX CONSEQUENCES
Nonqualified Stock Options. There will be no federal income tax
consequences to the optionee or to ARRIS upon the grant of a nonqualified stock
option under the 2001 Stock Incentive Plan. When the optionee exercises a
non-qualified option, however, he or she will realize ordinary income in an
amount equal to the excess of the fair market value of the common stock received
at the time of exercise over the exercise price, and we will be allowed a
corresponding deduction. Any gain that the optionee realizes when he or she
later sells or disposes of the option shares will be short-term or long-term
capital gain, depending on how long the shares were held.
Incentive Stock Options. There typically will be no federal income tax
consequences to the optionee or to ARRIS upon the grant or exercise of an
incentive stock option. If the optionee holds the option shares for the required
holding period of at least two years after the date the option was granted or
one year after exercise, the difference between the exercise price and the
amount realized upon sale or disposition of the option shares will be long-term
capital gain or loss, and we will not be entitled to a federal income tax
deduction. If the optionee disposes of the option shares in a sale, exchange, or
other disqualifying disposition before the required holding period ends, he or
she will realize taxable ordinary income in an amount equal to the excess of the
fair market value of the option shares at the time of exercise over the exercise
price, and we will be allowed a federal income tax deduction equal to such
amount. While the exercise of an incentive stock option does not result in
current taxable income, the excess of the fair market value of the option shares
at the time of exercise over the exercise price will be an item of adjustment
for purposes of determining the optionee's alternative minimum taxable income.
Restricted Stock. Unless a participant makes an election to accelerate
recognition of the income to the date of grant (as described below), the
participant will not recognize income, and we will not be allowed a tax
deduction, at the time a restricted stock award is granted. When the
restrictions lapse, the participant will recognize ordinary income equal to the
fair market value of the common stock as of that date (less any amount paid for
the stock), and we will be allowed a corresponding federal income tax deduction
at that time, subject to any applicable limitations under Section 162(m) of the
Code. If the participant files an election
26
under Section 83(b) of the Code within 30 days of the date of grant of the
restricted stock, he or she will recognize ordinary income as of the date of
grant equal to the fair market value of the stock as of that date (less any
amount paid for the stock), and we will be allowed a corresponding federal
income tax deduction at that time, subject to any applicable limitations under
Section 162(m). Any future appreciation in the stock will be taxable to the
participant at capital gains rates. However, if the stock is later forfeited,
the participant will not be able to recover the tax previously paid pursuant to
a Section 83(b) election.
Performance Awards. A participant generally will not recognize income, and
we will not be allowed a tax deduction, at the time performance awards are
granted, so long as the awards are subject to a substantial risk of forfeiture.
When the participant receives or has the right to receive payment of cash or
shares under the performance award, the cash amount of the fair market value of
the shares of stock will be ordinary income to the participant, and we will be
allowed a corresponding federal income tax deduction at that time, subject to
any applicable limitations under Section 162(m).
AWARDS TO NAMED EXECUTIVE OFFICERS AND OTHERS
Except as shown in the table on page 24 with respect to the maximum number
of shares that may be issued in the Exchange Program, any future awards under
the 2001 Stock Incentive Plan will be made at the discretion of our Compensation
Committee. Consequently, we cannot determine, with respect to any particular
person or group, either the benefits or amounts that will be received in the
future pursuant to the 2001 Stock Incentive Plan. As previously stated, the
Exchange Program will not be open to members of our Board of Directors or our
five most highly compensated executive officers listed in this proxy statement.
EQUITY COMPENSATION PLAN INFORMATION
Information about the common stock that may be issued under all of our
existing equity compensation plans is set forth under the caption "Equity
Compensation Plan Information" elsewhere in this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
27
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 2002, a report to be filed on Form 3 was filed late by
Mr. Harry L. Bosco.
INDEPENDENT AUDITORS AND THEIR FEES
The Audit Committee has selected Ernst & Young LLP as independent auditors
of the Company for 2003. 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 audit services totaled $890,938 and $970,800 in 2002 and 2001,
respectively, and include fees associated with the annual audits, the reviews of
the Company's quarterly reports on Form 10-Q, other SEC filings, and audit
consultations.
AUDIT-RELATED FEES
Fees for audit-related services totaled $230,813 and $110,000 in 2002 and
2001, respectively. Audit-related services include due diligence in connection
with acquisitions, audits in connection with benefit plans, and audits in
connection with consummated acquisitions.
TAX FEES
Fees for tax services including tax compliance, tax advice and tax planning
totaled $580,249 and $882,575 in 2002 and 2001, respectively.
ALL OTHER FEES
Fees for all other services not included above totaled $96,500 and $0 for
2002 and 2001, respectively, primarily related to advisory services requested by
the Company. The Audit Committee believes that such non-audit services are
compatible with maintaining the principal accountant's independence.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be present at the 2004 Annual Meeting
of Stockholders must be received by the Company at its principal offices by
December 15, 2003 in order to be considered for inclusion in the Company's Proxy
Statement and Proxy relating to the 2004 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 22, 2003
28
APPENDIX A
ARRIS GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
(REFLECTING AMENDMENT PROPOSED FOR STOCKHOLDER APPROVAL AT
THE ARRIS GROUP 2003 ANNUAL MEETING OF STOCKHOLDERS)
1. PURPOSE
The purpose of the Employee Stock Purchase Plan (the "Plan") of Broadband
Parent Corporation (the "Company") is to furnish to eligible employees an
incentive to advance the best interests of the Company by providing a method
whereby they voluntarily may purchase shares of Common Stock, $.0l par value, of
the Company ("Common Stock") at a favorable price and upon favorable terms.
2. ELIGIBILITY
All employees of the Company and those of any present or future direct or
indirect subsidiary of the Company, except for employees whose customary
employment is 20 hours or less per week, shall be eligible to participate in the
Plan; provided, however, no option shall be granted to an employee if such
employee, immediately after the option is granted, owns stock (as defined by
Sections 423(b) (3) and 425(d) of the Internal Revenue Code of 1986, as amended
(the "Code")) possessing five percent or more of the total combined voting power
or value of all classes of stock of the Company or of a subsidiary. No option
shall be granted to any executive officer who is a highly compensated employee
(within the meaning of Section 414 (q) of the Code) of the Company or any of its
principal subsidiaries unless the Committee for administration of the Plan shall
otherwise provide. No option shall be granted to any employee where, in the
judgment of the Compensation Committee of the Board of Directors of the Company,
such grant would be unlawful or impractical under the laws of any local or
foreign jurisdiction, provided, however, that such decision not to grant an
option would not otherwise violate Section 423 of the Code.
3. STOCK SUBJECT OF THE PLAN
Subject to the provisions of paragraph 10, the stock which may be sold
pursuant to options under the Plan shall not exceed in the aggregate 1,800,000
shares of the authorized Common stock of the Company (the "Shares"). The Shares
may be authorized but unissued Shares or Shares reacquired by the Company and
held in its treasury. Options issued under the Plan will reduce the number of
Shares available under the Plan by the number of Shares subject to the issued
option. If unexercised options expire or terminate for any reason, in whole or
in part, the number of Shares subject to the unexercised portion of such options
will be available again for issuance under the Plan.
4. GRANT OF OPTIONS
(a) General statement; "date of grant"; "option period"; "date of
exercise." Following the effective date of the Plan and continuing while the
Plan remains in force, the Company will offer options under the Plan to all
eligible employees to purchase shares of Common Stock. These options shall be
granted twice each year on a date to be determined by the Committee for
administration of the Plan (each of which dates is hereinafter referred to as
"date of grant"). The term of each option is 6 months (the "option period")
ending on the last day of the option period (each of which dates is hereinafter
referred to as "date of exercise"). The number of shares subject to each option
shall be the quotient of the payroll deductions authorized by each participant
in accordance with subparagraph (b) extended for the option period divided by
85% of the fair market value of the Common Stock on the date of grant, as
defined by subparagraph 5(b), rounded down to the closest whole number.
(b) Election to participate: payroll deduction authorization. Except a
provided in subparagraph (f), an eligible employee may participate in the Plan
only by means of payroll deduction. Each eligible employee who
A-1
elects to participate in the Plan shall deliver to the Company during the
calendar month next preceding a date of grant a written payroll deduction
authorization in a form prepared by the Company whereby the employee gives
notice of the employee's election to participate in the Plan as of the next
following date of grant, and whereby the employee designates a stated amount to
be deducted from the employee's compensation on each payday during the option
period and paid into the Plan for the employee's account. The stated amount may
not be less than a sum which will result in the payment into the Plan of at
least $2.00 each payday or such different amount not to exceed $5.00 per payday
as the Committee for administration of the Plan may select. The stated amount
may not exceed either of the following: (i) 10% (or such other percentage as the
Committee for administration of the Plan may specify) of the amount of "eligible
compensation" ( as defined in subparagraph (d) from which the deduction is
made); or (ii) an amount which will result in noncompliance with the $25,000
limitation stated in subparagraph (e).
(c) Changes in payroll authorization. The payroll deduction authorization
referred to in subparagraph (b) may not be changed during the option period.
(d) "Eligible compensation" defined. The term "eligible compensation"
means regular rate of pay on the date of grant. In the case of salespeople,
regular rate of pay includes regular commissions. "Eligible compensation" does
not include management incentives and bonuses, overtime, extended work-week
premiums, or other special payments, fees, or allowances.
(e) $25,000 limitation. No employee shall be permitted to purchase stock
under the Plan or under any other employee stock purchase plan of the Company or
of any of its subsidiaries or related corporations at a rate which exceeds
$25,000 in fair market value of stock (determined at the time the option is
granted) for each calendar year in which any such option granted to such
employee is outstanding at any time.
(f) Leaves of absence. During leaves of absence approved by the Company
and meeting the requirements of Regulation l.421-7(h)(2) of the Internal Revenue
Service, a participant may continue participation in the Plan by cash payments
to the Company on the participant's normal paydays equal to the reduction in the
participant's payroll deductions caused by such leave.
5. EXERCISE OF OPTIONS
(a) General statement. Each eligible employee who is a participant in the
Plan automatically and without any act on the employee's part will be deemed to
have exercised the employee's option on each date of exercise to the extent that
the balance then in the employee's account under the Plan is sufficient to
purchase at the "option price" (as defined in subparagraph (b)) whole shares of
the Company's stock subject to the employee's option. Any balance remaining in
the employee's account after payment of the purchase price of those whole shares
shall be refunded to the employee promptly.
(b) "Option price" defined. The option price per share shall be a sum
equal to 85% of the fair market value of the Company's stock subject to the Plan
on the date of exercise or on the date of grant, whichever amount is lesser.
Fair market value of the Company's stock on the date of exercise or, as the case
may be, on the date of grant, shall be the per share price of the last sale of
such stock prior to such date as reported by NASDAQ or, if listed on a United
States stock exchange, as reported in the composite transactions for the
principal such exchange on which the common stock is traded, or if such stock
has been the subject of a public offering, the preceding trading day, the
initial per share public offering price.
(c) Delivery of share certificates. The Company will deliver to each
optionee a certificate issued in the optionee' s name for the number of shares
with respect to which the optionee"s option was exercised and for which the
optionee has paid the option price. The certificate will be delivered as soon as
practicable following the date of exercise. In the event the Company is required
to obtain from any commission or agency authority to issue any such certificate,
the Company will seek to obtain such authority. Inability of the Company to
obtain from any such commission or agency authority which counsel for the
Company deems necessary for the lawful issuance of any such certificate shall
relieve the Company from liability to any participant in the Plan except to
return to the optionee the amount of the balance in the optionee's account.
A-2
6. WITHDRAWAL FROM THE PLAN
(a) General statement. Any participant may withdraw in whole from the Plan
at any time. A participant who wishes to withdraw from the Plan must deliver to
the Company a notice of withdrawal in a form prepared by the Company. The
Company, promptly following the time when the notice of withdrawal is delivered,
will refund to the participant the amount of the balance in the participant's
account under the Plan; and thereupon, automatically and without any further act
on the participant's part, the participant's payroll deduction authorization,
the participant's interest in the Plan, and the participant's option under the
Plan shall terminate.
(b) Eligibility following withdrawal. A participant who withdraws from the
Plan shall be eligible to participate again in the Plan upon expiration of the
option period during which the participant withdrew.
7. TERMINATION OF EMPLOYMENT
(a) Termination of employment other than by retirement or death. If the
employment of a participant terminates other than by retirement or death, the
participant's interest in the Plan automatically and without any act on the
participant's part shall terminate as of the date of the termination of the
participant's employment. The Company promptly will refund to the participant
the amount of the balance in the participant's account under the Plan, and
thereupon the participant's interest in the Plan and option under the Plan shall
terminate.
(b) Termination by retirement. A participant who retires on the
participant's normal retirement date, or earlier or later with the consent of
the Company, may, at the participant's election, either (i) by written notice to
the Company exercise the participant's option as of the participant's retirement
date, in which event the Company shall apply the balance in the participant's
account under the Plan to the purchase at the option price of whole shares of
the Company's stock and refund the excess, if any, or (ii) by written notice to
the Company request payment of the balance in the participant's account under
the Plan, in which event the Company promptly shall make such payment, and
thereupon the participant's interest in the Plan and the participant's option
under the Plan shall terminate, If the participant elects to exercise the
participant's option, the date of the participant's retirement shall be deemed
to be a date of exercise for the purpose of computing the amount of the purchase
price of the Company's stock.
(c) Termination by death. If the employment of a participant is terminated
by the participant's death, the executor of the participant's will or the
administrator of the participant's estate by written notice to the Company may
either (i) exercise the participant's option as of the date of the participant's
death, in which event the Company shall apply the balance in the participant's
account under the Plan to the purchase at the option price of whole shares of
the Company's stock and refund the excess, if any, or (ii) request payment of
the balance in the participant's account under the Plan, in which event the
Company promptly shall make such payment, and thereupon the participant's
interest in the Plan and the participant's interest in the participant's option
under the Plan shall terminate, If the option is exercised, the date of the
participant's death shall be deemed to be a date of exercise for the purpose of
computing the amount of the purchase price of the Company's stock. If the
Company does not receive such notice within 90 days of the participant's death,
the participant's representative shall be conclusively presumed to have elected
alternative (ii) and requested the payment of the balance of the participant's
account.
8. RESTRICTION UPON ASSIGNMENT
An option granted under the Plan shall not be transferable otherwise than
by will or the laws of descent and distribution, and is exercisable during the
optionee's lifetime only by optionee. An option may not be exercised to any
extent except by the Optionee. The Company will not recognize and shall be under
no duty to recognize assignment or purported assignment by an optionee of an
option or of any rights under an option.
A-3
9. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUED
With respect to shares subject to an option, an optionee shall not be
deemed to be a stockholder and shall not have any of the rights or privileges of
a stockholder. An optionee shall have the rights and privileges of a stockholder
when, but not until, a certificate for shares has been issued to the optionee
following exercise of an option.
10. CHANGES IN STOCK ADJUSTMENTS
Whenever any change is made in the stock subject to the Plan to options
outstanding under the Plan, by reason of stock dividend on such stock or by
reason of subdivision, combinations, or reclassification of shares of such
stock, appropriate action will be taken by the Committee for administration of
the Plan to adjust accordingly the number of shares subject to the Plan and the
number and option price of shares subject to options outstanding under the Plan.
11. USE OF FUNDS; NO INTEREST PAID
All funds received or held by the Company under the Plan will be included
in the general funds of the Company free of any trust or other restriction, and
may be used for any corporate purpose.
No interest will be paid or credited to any participant under the Plan.
12. AMENDMENT OF THE PLAN
The Board of Directors or the Committee for administration of the Plan may
from time to time suspend, terminate, revise or amend the Plan in any respect
whatsoever except that, without the approval of stockholders of the Company, no
such revision or amendment may increase the number of shares subject to the
Plan, reduce the exercise price below that provided in the Plan, or cause the
Plan not to be in conformance with the requirements of Section 423 of the Code.
No suspension, discontinuation, revision or amendment may adversely affect any
award theretofore made, without the consent of the optionee, unless necessary to
comply with applicable law.
Any reference to any Section or provision of the Code shall include any
successor provision thereto.
13. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company, which shall be composed of not less than two
directors of the Company, none of whom shall be eligible to serve on the
Committee unless such person is then a Non-Employee Director within the meaning
of the rules adopted by the Securities and Exchange Commission under Section 16
of the Securities Exchange Act of 1934, if and as such rules are then in effect.
Each member shall serve for a term commencing on a date specified by the Board
of Directors and continuing until such member dies or resigns or is removed from
office by the Board of Directors.
The Committee shall have the power to make, amend and repeal rules and
regulations for the interpretation and administration of the Plan.
14. EFFECTIVE DATE
The effective date of the Plan shall be the date it is approved by the
stockholders of ANTEC Corporation at a special meeting at which the
reorganization of ANTEC Corporation as a wholly owned subsidiary of the Company
is also approved.
A-4
APPENDIX B
BENEFIT PLAN
AMENDMENTS
B-1
AMENDMENT NUMBER TWO
TO THE
ANTEC LTD.
1993 EMPLOYEE STOCK INCENTIVE PLAN
WHEREAS, pursuant to Section 6 of the ANTEC LTD. 1993 Employee Stock
Incentive Plan, as amended (the "Plan"), the Board of Directors or the
Compensation Committee has the right to amend the Plan, with the approval of the
stockholders of the Company where necessary; and
WHEREAS, the Compensation Committee has approved amendments to the Plan as
necessary or appropriate to effectuate a program to offer employees an
opportunity to exchange outstanding stock options under various option plans of
the Company and its subsidiaries for a lesser number of restricted shares to be
granted under the ARRIS Group 2001 Stock Incentive Plan and the ARRIS Group 2002
Stock Incentive Plan, for the purpose of motivating and retaining employees;
NOW, THEREFORE, the Committee hereby amends the Plan as follows, subject to
and effective as of the date of stockholder approval:
1. Section 6 of the Plan is amended to add the following language
after the last sentence of such Section 6:
"In addition, no amendment may, without the approval of the
stockholders of the Company, reduce, directly or indirectly, the
exercise price of an outstanding option grant, whether through direct
amendment to the exercise price, through cancellation and replacement of
the option grant, or otherwise (modification of the exercise price
pursuant to Section 3 will not be considered an amendment for purposes
of this Section). Notwithstanding the foregoing, the Company may effect
a one-time exchange offer to be commenced in the discretion of the
Company no sooner than June 12, 2003 and no later than the 2004 annual
meeting of the Company's stockholders, upon the terms and conditions
described in the Company's proxy statement for the 2003 annual meeting
of the Company's stockholders and in a Schedule TO to be filed with the
Securities and Exchange Commission, as the same may be amended (the
"2003 Exchange Offer"). Upon surrender of option grants under the Plan
pursuant to the 2003 Exchange Offer, the underlying shares shall not be
available for future grants under the Plan."
B-2
AMENDMENT NUMBER ONE
TO THE
ANTEC CORPORATION 1997 STOCK INCENTIVE PLAN
WHEREAS, pursuant to Section 6 of the ANTEC Corporation 1997 Stock
Incentive Plan (the "Plan"), the Board of Directors or the Compensation
Committee has the right to amend the Plan, with the approval of the stockholders
of the Company where necessary; and
WHEREAS, the Compensation Committee has approved amendments to the Plan as
necessary or appropriate to effectuate a program to offer employees an
opportunity to exchange outstanding stock options under various option plans of
the Company and its subsidiaries for a lesser number of restricted shares to be
granted under the ARRIS Group 2001 Stock Incentive Plan and the ARRIS Group 2002
Stock Incentive Plan, for the purpose of motivating and retaining employees;
NOW, THEREFORE, the Committee hereby amends the Plan as follows, subject to
and effective as of the date of stockholder approval:
1. Section 6 of the Plan is amended to add the following language
after the last sentence of such Section 6:
"In addition, no amendment may, without the approval of the
stockholders of the Company, reduce, directly or indirectly, the
exercise price of an outstanding option grant, whether through direct
amendment to the exercise price, through cancellation and replacement of
the option grant, or otherwise (modification of the exercise price
pursuant to Section 3 will not be considered an amendment for purposes
of this Section). Notwithstanding the foregoing, the Company may effect
a one-time exchange offer to be commenced in the discretion of the
Company no sooner than June 12, 2003 and no later than the 2004 annual
meeting of the Company's stockholders, upon the terms and conditions
described in the Company's proxy statement for the 2003 annual meeting
of the Company's stockholders and in a Schedule TO to be filed with the
Securities and Exchange Commission, as the same may be amended (the
"2003 Exchange Offer"). Upon surrender of option grants under the Plan
pursuant to the 2003 Exchange Offer, the underlying shares shall not be
available for future grants under the Plan."
B-3
AMENDMENT NUMBER ONE
TO THE
ANTEC CORPORATION
2000 MID-LEVEL STOCK OPTION PLAN
WHEREAS, pursuant to Section 6 of the ANTEC Corporation 2000 Mid-Level
Stock Option Plan (the "Plan"), the Board of Directors or the Compensation
Committee has the right to amend the Plan, with the approval of the stockholders
of the Company where necessary; and
WHEREAS, the Compensation Committee has approved amendments to the Plan as
necessary or appropriate to effectuate a program to offer employees an
opportunity to exchange outstanding stock options under various option plans of
the Company and its subsidiaries for a lesser number of restricted shares to be
granted under the ARRIS Group 2001 Stock Incentive Plan and the ARRIS Group 2002
Stock Incentive Plan, for the purpose of motivating and retaining employees;
NOW, THEREFORE, the Committee hereby amends the Plan as follows, subject to
and effective as of the date of stockholder approval:
1. Section 6 of the Plan is amended to add the following language
after the last sentence of such Section 6:
"In addition, no amendment may, without the approval of the
stockholders of the Company, reduce, directly or indirectly, the
exercise price of an outstanding option grant, whether through direct
amendment to the exercise price, through cancellation and replacement of
the option grant, or otherwise (modification of the exercise price
pursuant to Section 3 will not be considered an amendment for purposes
of this Section). Notwithstanding the foregoing, the Company may effect
a one-time exchange offer to be commenced in the discretion of the
Company no sooner than June 12, 2003 and no later than the 2004 annual
meeting of the Company's stockholders, upon the terms and conditions
described in the Company's proxy statement for the 2003 annual meeting
of the Company's stockholders and in a Schedule TO to be filed with the
Securities and Exchange Commission, as the same may be amended (the
"2003 Exchange Offer"). Upon surrender of option grants under the Plan
pursuant to the 2003 Exchange Offer, the underlying shares shall not be
available for future grants under the Plan."
B-4
AMENDMENT NUMBER ONE
TO THE
ANTEC CORPORATION
2000 STOCK INCENTIVE PLAN
WHEREAS, pursuant to Section 6 of the ANTEC Corporation 2000 Stock
Incentive Plan (the "Plan"), the Board of Directors or the Compensation
Committee has the right to amend the Plan, with the approval of the stockholders
of the Company where necessary; and
WHEREAS, the Compensation Committee has approved amendments to the Plan as
necessary or appropriate to effectuate a program to offer employees an
opportunity to exchange outstanding stock options under various option plans of
the Company and its subsidiaries for a lesser number of restricted shares to be
granted under the ARRIS Group 2001 Stock Incentive Plan and the ARRIS Group 2002
Stock Incentive Plan, for the purpose of motivating and retaining employees;
NOW, THEREFORE, the Committee hereby amends the Plan as follows, subject to
and effective as of the date of stockholder approval:
1. Section 6 of the Plan is amended to add the following language
after the last sentence of such Section 6:
"Notwithstanding the foregoing, the Company may effect a one-time
exchange offer to be commenced in the discretion of the Company no
sooner than June 12, 2003 and no later than the 2004 annual meeting of
the Company's stockholders, upon the terms and conditions described in
the Company's proxy statement for the 2003 annual meeting of the
Company's stockholders and in a Schedule TO to be filed with the
Securities and Exchange Commission, as the same may be amended (the
"2003 Exchange Offer"). Upon surrender of option grants under the Plan
pursuant to the 2003 Exchange Offer, the underlying shares shall not be
available for future grants under the Plan."
B-5
AMENDMENT NUMBER ONE
TO THE
ARRIS GROUP, INC.
2001 STOCK INCENTIVE PLAN
WHEREAS, pursuant to Section 6 of the ARRIS Group 2001 Stock Incentive Plan
(the "Plan"), the Board of Directors or the Compensation Committee has the right
to amend the Plan, with the approval of the stockholders of the Company where
necessary;
WHEREAS, the Compensation Committee has approved amendments to the Plan as
necessary or appropriate to effectuate a program to offer employees an
opportunity to exchange outstanding stock options under various option plans of
the Company and its subsidiaries for a lesser number of restricted shares to be
granted under the Plan and the ARRIS Group 2002 Stock Incentive Plan, for the
purpose of motivating and retaining employees (the "2003 Exchange Offer"); and
WHEREAS, in order to effectuate the 2003 Exchange Offer, the Committee
deems it to be appropriate to amend the Plan, subject to the approval of the
stockholders of the Company, to permit the surrender of outstanding options in
exchange for an award of a lesser number of restricted shares in accordance with
the 2003 Exchange Offer;
NOW, THEREFORE, the Committee hereby amends the Plan as follows, subject to
and effective as of the date of stockholder approval:
1. Section 6 of the Plan is amended to add the following language
after the last sentence of such Section 6:
"Notwithstanding the foregoing, the Company may effect a one-time
exchange offer to be commenced in the discretion of the Company no
sooner than June 12, 2003 and no later than the 2004 annual meeting of
the Company's stockholders, upon the terms and conditions described in
the Company's proxy statement for the 2003 annual meeting of the
Company's stockholders and in a Schedule TO to be filed with the
Securities and Exchange Commission, as the same may be amended (the
"2003 Exchange Offer")."
B-6
APPENDIX C
ANTEC LTD.
EMPLOYEE STOCK INCENTIVE PLAN
(REFLECTING AMENDMENTS THROUGH 1996)
1. Purpose and Effective Date. ANTEC Ltd. (the "Company") has established
this Employee Stock Incentive Plan (the "Plan") to facilitate the hiring,
retention and continued motivation of key employees and to align more closely
their interests with those of the Company and its stockholders. The effective
date of the Plan shall be June 1, 1993.
2. Administration. The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors or such other Board committee as
the Board may designate, provided that any committee administering the Plan
shall be comprised of directors who are "disinterested" as provided by the
regulations of the Securities and Exchange Commission (the "Committee"). The
Committee may delegate all or any portion of its powers and responsibilities
under the Plan to one or more officers or directors of the Company to the extent
that such powers and responsibilities relate to participation in the Plan by
persons who are not subject to section 16(b) of the Securities Exchange Act of
1934 (the "Exchange Act"). 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 3,225,000 shares of Common Stock
("Shares"), par value 1 cent per share 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 for the cost of
the employee's investment in the Shares, such number of Shares shall be
available again for issuance under the Plan. The number of Shares covered by the
Plan, will be adjusted proportionately for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or payment of stock dividends on the Common Stock or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company.
4. Eligibility. All employees and active consultants of the Company and
its subsidiaries and its parents 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 to such conditions, limitations or restrictions
as the Company determines to be appropriate for any reason.
5. Incentive Awards. The Committee may grant incentive awards to eligible
employees in the form of stock options (including incentive stock options within
the meaning of section 422A of the Internal Revenue Code of 1986, as amended
(the "Code")), stock grants, restricted stock, stock appreciation rights,
performance shares and units and dividend equivalent rights, 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) Any grant under the Plan to an employee who is subject to section
16(b) of the Exchange Act shall not be transferable other than by will or
the laws of descent and distribution and during the employee's lifetime
shall be exercisable only by him or by his guardian or legal
representative.
C-1-1
(c) The exercise price of any option or stock appreciation right shall
not be less than 50 percent of the fair market value of a corresponding
number of Shares as of the date of grant, except that such minimum option
price may be reduced (but not below par value) in the case of options
granted in consideration of a reduction in compensation by the amount of
such reduction.
(d) The aggregate fair market value (determined as of the date of
grant) of Shares for which a participant who is a resident of the state of
California may first exercise incentive stock options granted under this
Plan and all other stock option plans of the Company and its subsidiaries
in any calendar year shall not exceed $100,000 or such other amount or
limitation as may be provided from time to time by the Code. To the extent
that the aggregate fair market value with respect to which incentive stock
options would otherwise be exercisable for the first time by an individual
in any calendar year under such plans exceeds $100,000, taking options into
account in the order in which they were granted, such options shall be
treated as options which are not incentive stock options.
6. Amendment of the Plan. The Board of Directors or the Committee may from
time to time suspend, terminate, revise or amend the Plan 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, expand those eligible for grants under the
Plan or change the qualification for membership on the Committee, and provided,
further, that no suspension, discontinuation, revision or amendment may
adversely affect any grant theretofore made without the consent of the grantee,
unless necessary to comply with applicable law.
Adopted as of the 1st day of June, 1993 by the Directors and Stockholders
of ANTEC Ltd.
C-1-2
ANTEC CORPORATION
1997 STOCK INCENTIVE PLAN
1. Purpose and Effective Date. ANTEC Corporation (the "Company") has
established this 1997 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 March 19, 1997 subject to
the approval of the Company's shareholders at the 1997 Annual Meeting.
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 3,750,000 shares of Common Stock of
the Company ("Shares"), par value $.01 per share 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. 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 1,000,000 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 85% of the fair market value of a corresponding number of
Shares as of the date of grant, except that such minimum option price may
be reduced (but not below par value) in the case of options granted in
consideration of a reduction in compensation by the amount of such
reduction.
C-2-1
(c) No more than 20% of the Shares may be awarded in a form other than
options or stock appreciation rights unless such Shares are in payment of
compensation earned or due at the time of the award or within one year
thereof.
6. Administration of the Plan. The Board of Directors or the Committee may
from time to time suspend, terminate, revise or amend the Plan 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 or expand those eligible for grants under
the Plan.
C-2-2
ANTEC CORPORATION
2000 MID-LEVEL STOCK OPTION PLAN
1. Purpose and Effective Date. ANTEC Corporation (the "Company") has
established this 2000 Mid-Level Stock Option Plan (the "Plan") to facilitate the
retention and continued motivation of key mid-level employees and to align more
closely their interests with those of the Company and its stockholders. The
effective date of the Plan shall be January 31, 2000.
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 500,000 shares of Common Stock of
the Company ("Shares"), par value $.01 per share 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. 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, 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 mid-level employees 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.
5. Awards. The Committee may grant awards under the Plan to eligible
persons in the form of stock 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 shall not be less than 85% of the
fair market value of a corresponding number of Shares as of the date of
grant.
(c) No person may be granted options under the Plan for more than
7,500 Shares.
(d) No options may be granted under the Plan to any officer of the
Company.
(e) No options may be granted under the Plan after the date of the
2000 annual meeting of stockholders of the Company.
6. Amendment of the Plan. The Board of Directors or the Committee may from
time to time suspend, terminate, revise or amend the Plan or the terms of any
grant in any respect whatsoever.
C-3-1
ANTEC CORPORATION
2000 STOCK INCENTIVE PLAN
1. Purpose and Effective Date. ANTEC Corporation (the "Company") has
established this 2000 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 March 1, 2000 subject to
the approval of the Company's shareholders at the 2000 Annual Meeting.
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"), par value $.01 per share 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. 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 1,000,000 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 dividends
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 85% of the fair market value of a corresponding number of
Shares as of the date of grant, except that such minimum option price may
be reduced (but not below par value) in the case of options granted in
consideration of a reduction in compensation by the amount of such
reduction.
C-4-1
(c) No more than 20% of the Shares may be awarded in a form other than
options or stock appreciation rights unless such Shares are in payment of
compensation earned or due at the time of the award or within one year
thereof.
(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 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.
C-4-2
ARRIS GROUP, INC.
2001 STOCK INCENTIVE PLAN
1. Purpose and Effective Date. ARRIS Group, Inc. (the "Company") has
established this 2001 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 ANTEC Corporation at a special meeting at which the
reorganization of ANTEC Corporation as a wholly owned subsidiary of the Company
is also approved.
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 9,580,000 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. 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-5-1
(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 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.
C-5-2
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 22, 2003, 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 AND 2 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
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
1. Election of the following nominees as directors:
FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY [ ] (*)EXCEPTIONS
Nominees: Alex B. Best, Harry L. Bosco, J. A. Ian Craig, Randy K. Dodd, Matthew
B. Kearney, William H. Lambert, John R. Petty, Larry Romrell, and
Robert J. Stanzione.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW).
(*)Exceptions
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal 1, approval of [ ] [ ] [ ]
ESPP amendment.
3. Proposal 2, approval of [ ] [ ] [ ]
option exchange amendments.
4. In their discretion, such
other matters as properly may
come before the meeting or at
any adjournment(s) thereof.
PLEASE CHECK BOX IF YOU INTEND
TO BE PRESENT AT MEETING. [ ]
COMMENT / ADDRESS CHANGE
Please mark this box if you have
written comment / address change
on the reverse side. [ ]
SCAN LINE
IMPORTANT: Please date this proxy and sign
exactly as your name appears hereon.
Executors, administrators, trustees,
guardians and officers signing in a
representative capacity should give full
title.
Date Share Owner sign here Co-Owner sign here
------- --------------------- --------------------------