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Arris Group DEF 14A 2008 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.
)
Filed by the Registrant þ Filed by a Party other than the Registrant o Check the appropriate box:
Arris Group, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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ARRIS
GROUP, INC.
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
3871 Lakefield Drive, Suwanee, Georgia, on Wednesday,
May 28, 2008, at 10:00 a.m. local time, for the
purposes of:
These matters are more fully described in the proxy statement
accompanying this notice.
Important Notice Regarding the Availability of Proxy
Materials for the Stockholders Meeting to be Held on
May 28, 2008: Both our 2007 annual report and proxy
statement for the Annual Meeting are available online at
www.arrisi.com under the caption Investor
Relations.
As shareholders of ARRIS, your vote is important. Whether or not
you plan to attend the Annual Meeting in person, it is important
that you vote as soon as possible to ensure that your shares are
represented. Therefore, I urge you to promptly vote and submit
your proxy via the Internet, by telephone or by signing, dating,
and returning the enclosed proxy card in the accompanying reply
envelope. If you decide to attend the annual meeting, you will
be able to vote in person, even if you have previously submitted
your proxy.
The Board of Directors has fixed the close of business on
March 31, 2008, 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 at the Company’s corporate headquarters by any
stockholder for any purpose germane to the meeting during
ordinary business hours for ten days prior to the meeting and at
the meeting.
A copy of ARRIS Group, Inc.’s Annual Report to Stockholders
for the fiscal year ended December 31, 2007, is enclosed.
Additional copies of this report may be obtained without charge
by writing the Secretary of ARRIS Group, Inc., 3871 Lakefield
Drive, Suwanee, Georgia 30024.
BY ORDER OF THE BOARD OF DIRECTORS
Lawrence A. Margolis, Secretary
Suwanee, Georgia
April 14, 2008
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To Be Held May 28, 2008
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 Company’s
corporate headquarters is located at 3871 Lakefield Drive,
Suwanee, Georgia 30024 (telephone
678-473-2000).
This proxy statement and form of proxy are first being mailed to
stockholders on or about April 14, 2008. 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 28, 2008 at 10:00 a.m. local time at the
Company’s corporate headquarters, 3871 Lakefield Drive,
Suwanee, Georgia and 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 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 forward proxy materials to their
customers and will reimburse them for their reasonable expenses
in so doing. In addition, the Company has retained
Morrow & Co., LLC to assist in the solicitation for a
fee of approximately $15,000 plus expenses.
Shares of Common Stock of the Company 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, except as discussed below, shares represented by
such proxies will be voted IN FAVOR OF Proposal 1 to
elect as directors the nominees listed herein, IN FAVOR OF
Proposal 2 to approve the Company’s 2008 Stock
Incentive Plan, IN FAVOR OF Proposal 3 to approve
the retention of Ernst & Young LLP as the independent
registered public accounting firm for the Company for 2008, 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
March 31, 2008, 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 that date,
122,389,955 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.
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 directors or issues requiring
the approval of a majority of the shares of Common Stock present
or represented by proxy and entitled to vote. Proxies that
contain a broker non-vote are counted towards a quorum and voted
on the matters indicated.
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If a quorum is present, the votes required to approve the
various matters presented to stockholders at the meeting shall
be as follows:
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 eight. Upon his
re-election at this year’s Annual Meeting,
Mr. Stanzione is expected to serve as Chairman of the Board.
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3
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THE BOARD
OF DIRECTORS RECOMMENDS A VOTE “FOR” THESE
NOMINEES.
PROPOSAL 2
APPROVAL OF THE 2008 STOCK INCENTIVE PLAN
The Board of Directors has approved the 2008 Stock Incentive
Plan (the “Plan”), subject to approval by the
stockholders, pursuant to which the Company can compensate its
employees using shares of Common Stock (the
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“Shares”). The following is a summary of the major
provisions of the Plan, including a general discussion of the
federal income tax aspects of the Plan to the Company and the
recipients of awards. For a complete description, please read
the Plan in its entirety, a copy of which is attached to this
Proxy Statement as Appendix A.
Key features of the Plan include:
Recommendation. The Plan is substantially the
same, except for the number of Shares, as the 2007 stock
incentive plan. In the technology industry, stock-based
compensation remains critical to the recruiting and retention of
key personnel, and the Company needs the shares available under
the Plan in order to fulfill this need. On March 28, 2008,
annual equity awards were made. Approximately 2.6 million
restricted stock units were granted. The restricted stock units
granted included approximately 0.4 million
performance-related Shares. As of March 31, 2008,
approximately 14.8 million unvested or unexercised Shares
were outstanding, and approximately 132 thousand Shares
were available for future grant as options, of which 132
thousand were available as full valued shares. The Board of
Directors recommends that you approve the Plan.
Purpose. The purpose of the Plan is to
facilitate the hiring, retention and continued motivation of key
employees, consultants and directors and to align more closely
their interests with those of the Company and its stockholders.
Administration and amendment. The Plan is
administered by the Compensation Committee of the Board of
Directors or such other Board Compensation Committee consisting
solely of independent directors as the Board may designate, or
by the Board itself (for purposes of this proposal, the
“Compensation Committee”). The Compensation Committee
may, from time to time, suspend, terminate, revise or amend the
Plan or terms of any grant except that, without the approval of
stockholders, no such revision or amendment may change the
number of Shares covered by or specified in the Plan, change the
restrictions described below, or expand those eligible for
grants under the Plan.
Participation. All key employees, directors,
or active consultants of the Company and its subsidiaries are
eligible to receive grants under the Plan. The determination of
the persons within these categories, which encompass all
officers, including those named in the Summary Compensation
Table, to receive grants and the terms and the form and level of
grants will be made by the Compensation Committee.
Limitations. The exercise price of any option
or stock appreciation right cannot be less than the fair market
value of the corresponding number of Shares as of the grant
date, provided that the options or stock appreciation rights
replacing options or rights not granted by the Company or its
predecessors — e.g., as part of an
acquisition — may have exercise prices that, in the
judgment of the Compensation Committee, result in options or
rights
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comparable in value to those being replaced. No person may be
granted, in any period of two consecutive calendar years, awards
under the Plan covering more than 1,500,000 Shares. The
maximum amount to be granted to any one person pursuant to
performance units, in any calendar year, shall not exceed
$2,000,000. No option may be repriced by amendment, substitution
or cancellation and regrant, unless authorized by the
stockholders. Adjustments as a result of stock splits and other
events that adjust the number of Shares covered by the Plan, as
explained below, will not be considered repricing. Options and
stock appreciation rights shall vest over a minimum of three
years (and shall vest no more quickly than ratably), and other
awards shall have a minimum vesting or holding period of three
years, provided, that (i) awards that are issued in
connection with mergers and acquisitions may have vesting and
holding periods that are the same as any awards that they are
replacing or otherwise as deemed appropriate by the Compensation
Committee and (ii) vesting or holding periods may be
reduced as a result of death, disability, retirement, merger or
sale, termination of employment or other extraordinary event. In
the absence of an extraordinary event, the vesting and holding
restrictions applicable to an award shall not be reduced or
otherwise waived.
Number of Shares. A total of
12,300,000 Shares may be issued under the revised Plan.
This number will be adjusted for stock splits, spin-offs,
extraordinary cash dividends and similar events. The Shares may
be newly issued Shares or Shares acquired by the Company. Awards
made in the form of stock options and stock appreciation rights
are counted against the share limit on a one-for-one basis.
Awards made in shares of common stock other than stock options
or stock appreciation rights are counted against the share limit
on a 1.58 to one basis. 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, the equivalent number of shares that
was charged against the Plan limit upon grant of such Shares
shall be available again for issuance under the Plan. The Plan
provides that shares issued upon the exercise of options or
lapse of conditions on restricted shares or units that were
converted to ARRIS options or restricted shares as a result of a
merger or other acquisition do not reduce the number of shares
available under the Plan. However, with respect to Shares issued
under the Plan, Shares tendered to pay the option exercise
price, Shares withheld for the payment of withholding taxes and
Shares and other awards repurchased by the Company from a person
using proceeds from the exercise of awards by that person shall
not return to the share reserve, and the determination of the
number of Shares used in connection with stock-settled stock
appreciation rights shall be based upon the number of Shares
with respect to which the rights were based, and not just the
number of Shares delivered upon settlement.
Forms of Awards. Under the Plan, awards may be
in the form of stock options (including incentive stock
options), stock grants, stock units, restricted stock, stock
appreciation rights, performance shares and units and dividend
equivalent rights. The most likely forms of awards are stock
options, restricted stock or units and performance shares.
Stock options will entitle the recipient to purchase a specified
number of Shares upon payment of an exercise price. The exercise
price cannot be less than the fair market value of one share on
the date of grant. Typically, the Compensation Committee issues
stock options that expire seven years after their date of grant
and that vest ratably over a four-year period. If the recipient
ceases to be an employee of the Company, unvested options are
forfeited, subject to certain possible exceptions, such as
death, disability, retirement or a change in control of the
Company, and vested options typically have a limited period
during which the recipient can exercise them.
Restricted stock is stock issued subject solely to the
recipient’s remaining an employee of the Company. If the
recipient ceases to be an employee of the Company prior to the
assigned vesting period, restricted stock is forfeited, subject
to certain possible exceptions, such as death, disability,
retirement or a change in control of the Company.
Performance shares are shares issued subject to conditions or
contingencies. Until the conditions or contingencies are
satisfied or lapsed, the performance shares are subject to
forfeiture. Such shares like restricted shares may also be
subject to designated vesting periods. Typically the
Compensation Committee issues performance shares to senior
executives that can be earned by the recipient only upon
achievement of certain performance criteria. If the recipient
ceases to be an employee of the Company prior to the
satisfaction of the contingency or any
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applicable vesting period, performance shares are forfeited,
subject to certain possible exceptions such as death,
disability, retirement or a change in control of the Company.
Performance Criteria. Section 162(m) of
the Internal Revenue Code limits the amount of deduction that a
company may take on its U.S. federal tax return for
compensation paid to any “covered employees”
(generally, the individuals named below in the Summary
Compensation Table). The limit is $1 million per covered
employee per year, with certain exceptions. The deductibility
limitation does not apply to “performance-based
compensation,” if approved by the stockholders. The Company
believes that certain awards under the Plan will quality as
performance-based compensation, if stockholders approve the Plan
and it otherwise is administered in compliance with
Section 162(m). In order for some awards to be performance
based, such as restricted stock, they must be subject to
performance criteria. The Plan provides for several different
types of performance criteria: revenue, earnings before
interest, taxes, depreciation and amortization (EBITDA); cash
earnings (earnings before amortization of intangibles);
operating income; pre- or after-tax income; earnings per share,
net cash flow; net cash flow per share; net earnings; return on
equity; return on total capital; return on sales, return on net
assets employed, return on assets; economic value added (or an
equivalent metric); share price performance; total shareholder
return; improvement in or attainment of expense levels; and
improvement in or attainment of working capital levels.
Performance criteria may be related to a specific customer,
group of customers, geographic region, business unit or product
group. Performance criteria may be measured solely on a
corporate, subsidiary or division basis, or a combination
thereof. Performance criteria may reflect absolute entity
performance or a relative comparison of entity performance to
the performance of a peer group of entities or other external
measure of the selected performance criteria. Profit, earnings
and revenues used for any performance goal measurement may
exclude any extraordinary or nonrecurring items. In approving
the Plan, stockholders will be approving these performance
criteria, which are contained in the Plan.
Taxes. Generally, under present federal tax
laws, a grant of a stock option or a stock unit, a share of
restricted stock or a performance share subject to the required
risk of forfeiture under the Plan should create no tax
consequences for a participant at the time of grant. Generally,
the Company will be entitled to tax deductions at the time and
to the extent that participants recognize ordinary income. As
discussed above in some cases (generally other than options with
exercise prices no lower than fair market value of the Shares on
the date of grant and performance shares), the Company will not
be entitled to this deduction to the extent the amount of such
income, together with other compensation received by that person
from the Company, exceeds $1,000,000 in any one year.
Upon exercise of an option, which is not an incentive stock
option (“ISO”) within the meaning of Section 422
of the Internal Revenue Code, a participant will be taxed on the
excess of the fair market value of the Shares on the date of
exercise over the exercise price. A participant generally will
have no taxable income upon exercising an ISO. If the
participant does not dispose of Shares acquired pursuant to the
exercise of an ISO within two years of the grant or one year of
the exercise, any gain or loss realized on their subsequent
disposition will be capital gain or loss, and the Company will
not be entitled to a tax deduction. If such holding period
requirements are not satisfied, the participant will generally
realize ordinary income at the time of disposition in an amount
equal to the excess of the fair market value of the Shares on
the date of exercise (or, if less, the amount realized upon
disposition) over the option price and the Company will be
entitled to a tax deduction. Any remaining gain is taxed as long
or short-term capital gain. The value of a stock unit at the
time it converts to stock and the value of restricted stock or
performance share at the time the restriction lapses or the
conditions are fulfilled are taxed as ordinary income to the
participant. The Company has not issued ISO’s as part of
its equity compensation programs.
Accounting. Under Financial Accounting
Standards Board Statement No. 123R, Accounting for
Stock-Based Compensation, the Company will incur an expense
equal to the fair value of the award, which expense would be
recognized over the vesting period or term of the award. For
more detailed discussion regarding the Company’s accounting
for awards, see Note 16 to the Company’s Consolidated
Financial Statements.
Relationship to Current Incentive Plans. The
Plan will not have any impact upon awards outstanding under
previous Company Stock Incentive Plans and awards will continue
to be governed by the express terms and conditions of such plans
and the written documents evidencing such awards.
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New Plan Benefits. To date, there have been no
grants under the Plan. Any future awards under the Plan will be
made at the discretion of the Compensation Committee as
described above. Consequently, the Company cannot determine,
with respect to any particular person or group, the number or
value of the awards that will be granted in the future pursuant
to the Plan.
The last reported sales price of the Common Stock on
March 31, 2008 was $5.82 per Share.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE “FOR”
PROPOSAL 2.
The Audit Committee of the Board of Directors has appointed the
firm of Ernst & Young LLP to serve as the independent
registered public accounting firm of ARRIS Group, Inc. for the
fiscal year ending December 31, 2008, subject to
stockholder approval. This firm has audited the accounts of the
Company since 1993. If stockholders do not approve this
appointment, the Committee will consider other independent
registered public accounting firms. One or more members of
Ernst & Young LLP are expected to be present at the
Annual Meeting, will be able to make a statement if they so
desire, and will be available to respond to appropriate
questions.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
The following table sets forth, as of March 31, 2008,
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.
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The following table sets forth information as of March 31,
2008, 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 and
the information below is based upon SEC filings by the person.
Section 16(a) of the Exchange Act requires the
Company’s directors and executive officers and persons who
own more than ten percent of a registered class of the
Company’s equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of the
Company’s Common Stock and other equity securities. To the
Company’s knowledge, based solely on review of the copies
of such reports furnished to the Company or filed with the SEC
and written representations that no other reports were required,
for the fiscal year ended December 31, 2007, all
Section 16(a) filing requirements applicable to its
directors, executive officers and greater-than-ten-percent
beneficial owners were properly filed, with the exception of one
late report for a single Section 16(a) reporting
transaction for each of Alex B. Best, Harry L. Bosco, John
Anderson Craig, Matthew B. Kearney, William H. Lambert, and John
R. Petty related to their July 1, 2007 stock award
disclosed in the Director Compensation Table.
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The following table sets forth information concerning Common
Stock that may be issued upon exercise of options, warrants and
rights under all equity compensation plans as of
December 31, 2007:
The following transactions occurred between January 1,
2008, and March 31, 2008:
Giving effect to these transactions, the following table sets
forth information concerning Common Stock that may be issued
upon exercise of options, warrants and rights under all equity
compensation plans as of March 31, 2008:
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As of March 31, 2008 the weighted average remaining
contractual term for the outstanding options, warrants and
rights was 4.40 years.
As of March 31, 2008 the Company had unvested restricted
stock awards of 2,741,590 shares and unvested performance
based restricted stock awards of 788,048 shares.
As of March 31, 2008 the Company had
122,389,955 shares outstanding.
BOARD AND
COMMITTEE MATTERS
The Board of Directors has determined that all of the directors,
other than Robert J. Stanzione and David A. Woodle, which
constitute a majority of the Board of Directors, are independent
in accordance with the current listing standards of the NASDAQ,
which the Company has adopted. In making these determinations,
the Board of Directors considered that in the ordinary course of
business, transactions may occur between the Company and
companies at which some of the Directors are or have been
outside Directors. The Board of Directors determined that the
applicable Director’s independence was not affected due to
the immaterial nature of the transaction and the fact that the
Director is not a member of management of the applicable
company. A copy of the director independence standards is
available on the Company’s website at www.arrisi.com
under the caption Investor Relations: Corporate
Governance.
Mr. Stanzione, as the Company’s Chief Executive
Officer and President, and Mr. Woodle, who became a member
of the Board effective with the
C-COR merger
on December 14, 2007, can not be considered independent
directors.
COMPENSATION
OF DIRECTORS
Cash Fees. Our non-employee directors receive
director fees. During 2007, we paid our non-employee directors:
In addition, each member of the Audit Committee received an
additional annual cash retainer of $5,000, and the respective
Chairmen of our Board committees received the following fees:
Stock Awards. Each non-employee director
annually receives $50,000 paid in the form of stock units. Stock
units are granted on July 1st of each year and vest in
fourths in sequential calendar quarters. The number of units is
determined by dividing $50,000 by the closing price of the
Common Stock on the most recent trading day rounded to the
nearest one hundred units. One-half of the number of stock units
convert, on a one for one basis, into shares of
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the Company’s Common Stock when such director is no longer
a member of the Board. The remaining units, if vested, convert
into shares of the Company’s Common Stock at a date
selected by the individual director.
Reimbursements. Non-employee directors are
reimbursed for reasonable expenses (including costs of travel,
food and lodging) incurred in attending Board, committee and
shareowner meetings. Directors use commercial transportation or
their own transportation. Directors also are reimbursed for
reasonable expenses associated with other business activities
related to their Board service, including participation in
director education programs and memberships in director
organizations.
Liability Insurance. We also pay premiums on
directors’ and officers’ liability insurance policies
we maintain that cover our directors.
Director Compensation Table. The following
tables set forth information about the compensation paid to the
non-employee members of the Board of Directors for the last
fiscal year.
COMMITTEES
OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors has Audit, Compensation, Nominating and
Corporate Governance, Technology, and Executive Committees. The
table below shows current membership for each of the standing
Board committees.
The Board of Directors held eight meetings in 2007. During 2007,
each of the directors attended 75% or more of the total of all
meetings held by the Board and the committees on which the
director served.
The Company has not adopted a formal policy on Board
members’ attendance at annual meetings of stockholders;
however, all directors are encouraged to attend the meetings.
All of the Company’s directors, except Mr. Craig,
attended the 2007 annual meeting of stockholders on May 24,
2007.
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The Audit Committee in 2007 consisted of Messrs. Petty
(Chairperson), Bosco, Craig, and Kearney. Information regarding
the functions performed by the Audit Committee is set forth in
the “Report of the Audit Committee,” included in this
proxy statement. The Audit Committee is governed by a written
charter that is available on the Company’s website at
www.arrisi.com. The Board of Directors believes that each
of its Audit Committee members is independent and financially
literate as defined by the SEC and the current listing standards
of the NASDAQ. The Board has identified John R. Petty and
Matthew B. Kearney as Audit Committee financial experts, as
defined by the SEC. The Audit Committee held twelve meetings in
2007.
The Compensation Committee in 2007 consisted of
Messrs. Lambert (Chairperson), Best and Craig. No member of
the Compensation Committee is currently or has served as an
executive officer or employee of the Company and none of the
members of the Compensation Committee had any
“interlocks” within the meaning of Item 407(e)(4)
of the SEC
Regulation S-K
during fiscal 2007. The Compensation Committee is governed by a
written charter that is available on the Company’s website
at www.arrisi.com. The Compensation Committee determines
the compensation for our executive officers and non-employee
directors, establishes our compensation policies and practices,
and reviews annual financial performance under our employee
incentive plans. The Compensation Committee generally exercises
all powers of the Board of Directors in connection with
compensation matters, including incentive compensation, benefit
plans and stock grants, except as relates to the Chairman and
CEO, in which case the entire Board of Directors approves or
ratifies all said compensation matters. The Compensation
Committee held eight meetings in 2007.
The Nominating and Corporate Governance Committee in 2007
consisted of Messrs. Bosco (Chairperson), Best, Lambert,
and Petty. The Nominating and Corporate Governance
Committee’s operations are governed by a written charter
that is available on the Company’s website at
www.arrisi.com. The Nominating and Corporate Governance
Committee identifies individuals qualified to become directors
and recommends candidates to the Board of Directors. The
Nominating and Corporate Governance Committee held two meetings
in 2007.
With respect to the Committee’s evaluation of director
nominee candidates, the Committee has no formal requirements or
minimum standards for the individuals that it nominates. Rather,
the Committee considers each candidate on his or her own merits.
However, in evaluating candidates, there are a number of
criteria that the Committee generally views as relevant and is
likely to consider. Some of these factors include the
candidate’s:
The Committee does not assign a particular weight to the
individual factors. Similarly, the Committee does not expect to
see all (or even more than a few) of these factors in any
individual candidate. Rather, the Committee looks
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for a mix of factors that, when considered along with the
experience and credentials of the other candidates and existing
Board members, will provide stockholders with a diverse and
experienced Board of Directors.
With respect to the identification of nominee candidates, the
Board recommends candidates whom they are aware of personally or
by reputation. The Company historically has not utilized a
recruiting firm to assist in the process but could do so in the
future.
The Committee welcomes recommendations from stockholders. The
Committee evaluates a candidate for director who was recommended
by a stockholder in the same manner that the Committee evaluates
a candidate recommended by other means. In order to make a
recommendation, the Committee asks that a stockholder send the
Committee:
This information should be sent to the Nominating and Corporate
Governance Committee,
c/o Corporate
Secretary, ARRIS Group, Inc., 3871 Lakefield Drive,
Suwanee, GA 30024, who will forward it to the chairperson of the
Committee. The Committee does not necessarily respond to
recommendations. The nomination must be accompanied by the name
and address of the nominating stockholder and must state the
number and class of shares held. For potential nominees to be
considered at the 2009 annual stockholders’ meeting, the
Corporate Secretary must receive this information by
December 15, 2008.
In addition to the procedures described above for recommending
prospective nominees for consideration by the Committee,
stockholders may directly nominate directors for consideration
at any annual meeting of stockholders.
The Technology Committee consists of Mr. Best (Chairman)
and Mr. Stanzione. The Technology Committee monitors the
development of the Company’s technology and operates as an
intermediary between the Company and its customers and the
Technology Advisory Board.
The Executive Committee consists of Mr. Bosco (Chairman),
Mr. Kearney, Mr. Lambert and Mr. Petty. The
Executive Committee was formed of independent directors to
consider and act on matters when the full Board can not be
convened and action by an executive committee is deemed
appropriate by the full Board. The Executive Committee held one
meeting in 2007.
Mr. Petty is the lead independent director and presides
over meetings of the independent directors. Stockholders may
communicate with the Board of Directors, including the lead
independent director, by sending a letter
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to the ARRIS Group, Inc. Board of Directors,
c/o Corporate
Secretary, ARRIS Group, Inc., 3871 Lakefield Drive, Suwanee, GA
30024. The Corporate Secretary will submit the correspondence to
the Chairman of the Board or to any specific director to whom
the correspondence is directed.
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 U.S. generally accepted accounting
principles and on the representations of the independent
registered public accounting firm 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 registered public accounting firm do not
assure that the Company’s consolidated financial statements
are presented in accordance with U.S. generally accepted
accounting principles, that the audit of our Company’s
consolidated financial statements has been carried out in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) or that our Company’s
independent registered public accounting firm is 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 registered public accounting
firm, who is responsible for expressing an opinion on the
conformity of those audited financial statements with
U.S. generally accepted accounting principles, its
judgments as to the quality, not just the acceptability of the
Company’s accounting principles required by Statement on
Auditing Standards No. 61, as amended by Statement of
Auditing Standards No. 90, and such other matters as are
required to be discussed with the Committee under the standards
of the Public Company Accounting Oversight Board (United
States). In addition, we discussed with the independent
registered public accounting firm their independence from
management and the Company, including the matters in the written
disclosures required by the Independence Standards Board
Standard No. 1, and considered the compatibility of
nonaudit services provided by the independent registered public
accounting firm to the Company with their independence.
We discussed with the Company’s internal auditors and
independent registered public accounting firm the overall scope
and plans for their respective audits. We met with the internal
auditors and the independent registered public accounting firm,
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 reviewed proposed
interim financial statements with management and the independent
registered public accounting firm. We oversaw the Company’s
compliance with Section 404 of the Sarbanes-Oxley Act of
2002.
In 2007, we had twelve meetings. In reliance on the reviews and
discussions referred to above, we recommended to the Board of
Directors (and the Board of Directors has accepted that
recommendation) that the audited financial statements be
included in the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, for filing
with the Securities and Exchange Commission. In addition, we
have selected the Company’s independent registered public
accounting firm.
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The Company maintains a corporate governance hotline system in
which employees may directly contact the members of the Audit
Committee concerning potential failures to meet corporate
standards of conduct, including questionable accounting or
auditing matters. These calls are completely confidential and
anonymous.
John R. Petty
Harry L. Bosco
John A. Craig
Matthew B. Kearney
Notwithstanding anything to the contrary which is or may be
set forth in any of the Company’s filings under the
Securities Act of 1933 or the Exchange Act that might
incorporate Company filings, including this proxy statement, in
whole or in part, the preceding Report of the Audit Committee
shall not be incorporated by reference into any such filings.
EXECUTIVE
COMPENSATION
Each of the named executive officers has an employment agreement
with the Company. Each agreement establishes the base salary for
the officer, which is subject to annual review. The target bonus
is established at 60% of base salary for each of the named
executive officers, except Mr. Stanzione, whose target
bonus is 100% of base salary. Each year the Compensation
Committee establishes the performance criteria for the bonuses.
The agreements also contemplate the grant of equity awards
annually in the discretion of the Compensation Committee. The
agreements renew annually automatically until the employee
reaches age 65 (62 for Mr. Stanzione). In the event an
executive is terminated without cause or in connection with
takeover of the Company, the executive is entitled to receive
one year’s salary and bonus (two years in the case of
Mr. Margolis and Mr. Potts and three years in the case
of Mr. Stanzione); all unvested options and stock awards
vest immediately and the executive is entitled to continued
benefits, for example, life, medical and disability insurance,
during the severance period (one, two or three years as noted
above).
The Compensation Committee reviews base salaries, bonus plans
and equity awards annually. It regularly, but not necessarily
annually, retains consultants to review executive compensation
levels compared to selected peer companies, companies in the
technology industries generally and companies of similar size.
The Company has sought to establish salaries at approximately
the median levels (with exceptions to recognize outstanding
performance) and to have equity and annual bonus target
opportunities at or above median levels. The survey conducted
for 2007 deliberations indicated that, taken as a whole, the
Company’s base salaries for its senior executives are at
approximately median levels with targeted direct compensation
(base salary, target annual incentive, plus targeted long term
equity compensation) at or moderately above median levels.
Compensation has been actively managed. For example, in 2002
salary levels for executives were frozen for a year and during
2003 executive salaries were reduced by 5%. The reduction was
reinstated in 2004. Raises were not reinstated above the 2002
level until 2005 (with the exception of Mr. Stanzione whose
salary was not changed until 2006). ARRIS’ financial
performance for 2007 based on the one and three year total
shareholder return ranked at the 59th and
95th percentile compared to its peer group companies,
respectively.
The Company believes that total direct compensation consisting
of base salary, targeted bonus and targeted long term incentive
valuation for the senior executive officers in the aggregate is
approximately at the 50th percentile levels and all
executives are well below the 75th percentile levels of the
peer group and survey analysis described below.
This CD&A describes the major elements of our compensation
program for the executive officers named in the Summary
Compensation Table later in this proxy statement (the
“named executive officers” or “NEO”). This
CD&A also discusses the objectives, philosophy and
decisions underlying the compensation of the named executive
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officers. The CD&A should be read together with the
executive compensation tables and related footnotes found later
in this proxy statement.
Authority over compensation of the Company’s senior
executives is within the province of the Compensation Committee.
The Compensation Committee of our Board of Directors is composed
entirely of independent outside directors, as determined under
the applicable NASDAQ listing standards and Section 162(m)
of the Internal Revenue Code. The Compensation Committee reviews
and approves executive compensation programs and specific
compensation arrangements for the executive officers. The
Compensation Committee reports to the Board, and all
compensation decisions with respect to the Chief Executive
Officer are reviewed and approved by the whole Board, without
participation by the Chief Executive Officer.
The principal elements of our executive compensation program for
2007 were:
Programs
and Objectives and Reward Philosophy
Our Compensation Committee is guided by the following key
objectives and reward philosophies in the design and
implementation of our executive compensation program:
In applying these program objectives and reward philosophies,
the Compensation Committee takes into account the following key
considerations:
Competitive Market Assessment. We regularly,
but not necessarily annually, conduct a competitive market
assessment for each of the primary elements of our executive
compensation program. In setting executive compensation levels,
the Compensation Committee reviews market data from the
following sources:
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Survey data from various sources also are utilized, including
the following:
Our Financial and Strategic Objectives. Each
year our management team develops an annual operating plan for
review and approval by our Board of Directors. The Compensation
Committee utilizes the financial plan in the development of
compensation plans and performance goals for our named executive
officers for the next year.
Considerations for Mr. Stanzione. In
setting the compensation arrangements for Mr. Stanzione,
the primary factors considered by the Compensation Committee
include:
Considerations for Other Named Executive
Officers. The Compensation Committee considers
the same factors in setting the compensation arrangements for
each of the other named executive officers as well as:
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Accounting, Tax and Financial
Considerations. The Compensation Committee
carefully considers the accounting, tax and financial
consequences of the executive compensation and benefit programs
implemented by us. These were important considerations in
connection with the design of the following compensation
programs:
The Role of the Compensation Committee and Its Use of
Advisors. A summary of the role of the
Compensation Committee is found in the section entitled
“Corporate Governance and Board Matters” in this proxy
statement. For more information on the role and responsibilities
of the Compensation Committee, we encourage you to review the
Compensation Committee charter, which is posted on our website
at www.arrisi.com.
The Compensation Committee charter permits the Compensation
Committee to engage independent outside advisors to assist the
Compensation Committee in the fulfillment of its
responsibilities. The Compensation Committee engages an
independent executive compensation consultant for information,
advice and counsel. Typically, the consultant assists the
Compensation Committee by providing an independent review of:
For 2007, the Compensation Committee engaged Longnecker and
Associates as its independent consultant. This selection was
made directly by the Compensation Committee. Longnecker and
Associates provides no other compensation or benefit consulting
services to ARRIS.
The Role of Executive Management in the Process of
Determining Executive
Compensation. Mr. Stanzione makes
recommendations to the Compensation Committee regarding
executive compensation decisions for the other named executive
officers. Mr. Margolis, our Executive Vice President of
Administration and Chief Counsel, is responsible for
administering our executive compensation program and acts as
Secretary to the Compensation Committee as well as the full
Board and other Board Committees. Mr. Potts, our Chief
Financial Officer, provides information and analysis on various
aspects of our executive compensation plans, including financial
analysis relevant to the process of establishing performance
targets for our annual cash incentive plan and long term equity
incentive plans. Although members of our management team
participate in the process of determining executive
compensation, the Compensation Committee also meets regularly in
executive session without any members of the management team
present. The Compensation Committee makes the final
determination of the executive compensation package provided to
each of our named executive officers.
Equity awards generally are granted annually from January to May
depending on board meeting schedule, shareholder approval of new
equity plans and other factors. The Compensation Committee has
determined that
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grant dates should occur as early as practicable after final
budgets for the new year have been approved by the Board of
Directors and after year-end results have been announced to the
public. Equity grant and annual compensation adjustments and
incentive plan performance criteria generally will be decided
simultaneously, although they may be implemented at various
times. (For example, raises generally are effective
April 1, while bonuses generally are paid earlier.) In the
future, we anticipate that equity grants generally will occur in
the February to March time frame. The exercise price for options
is the closing price of the Common Stock on the date of grant.
Annual cash bonuses are tied to Company performance. Annual
bonus targets for senior executives have been established as a
percentage of base pay level including the annual raise in the
relevant years and are set forth in the employment agreements of
each executive officer. Mr. Stanzione’s bonus target
is 100% of base salary, which was established when his
employment agreement was amended in 1999 in connection with his
becoming the Chief Executive Officer. The remaining senior
executives’ annual bonus targets are 60% of base salary.
The maximum bonus payout for all named executive officers is
200% of the annual bonus target.
The Compensation Committee seeks to establish variable pay in
the form of annual cash bonus opportunity at or above
50th percentile levels of the peer group and survey
analysis described above. The Compensation Committee believes
that variable pay target should be at or above the
50th percentile levels to encourage and reward exceptional
performance, while assuring in years where Company performance
is weaker that total cash compensation is less. The Compensation
Committee believes that the bonus targets for the senior
executives approximate the 50th percentile of the peer
group and survey analysis described above.
Specific performance criteria have varied; however, in 2007 the
only performance criteria was the achievement of budgeted
consolidated operating income for the Company. The Compensation
Committee chose this single metric in order to focus the senior
executives as a team on earnings growth. The annual budget was
developed by management in collaboration with and approved by
the Board of Directors. In reviewing the budget, the Board of
Directors considers, in addition to the detailed budget as
presented, expected capital expenditure growth in the
telecommunications industry generally and the cable segment of
the telecommunications industry more specifically and the
Company’s market share and market share growth. In 2008
annual incentives will be measured not only by targeted
financial performance, but by individual assigned objectives
which may be objectively or subjectively measured.
For 2007, the target for consolidated operating income that
would yield 100% payment of the targeted bonus for senior
executives was $103.4 million. If actual operating income
achieved was below 93% of budgeted operating income, the bonus
payout would have been zero. For performance in the range
between 93% and 100% of budgeted operating income, the bonus
payout would have been between a 25% payout and 100% payout. For
performance in the range between budget and 118% of budget, the
bonus payout would have been between a 100% payout and 200%
payout. For performance between these specific levels, bonus
payouts were to be determined by straight line interpolation.
Actual performance for 2007, adjusted for the effects of the
C-COR acquisition, was approximately 9% of the range spread
between target and the maximum payout and, accordingly, bonus
payouts were approximately 109% of the annual bonus target
payout.
The Compensation Committee has the authority to adjust bonuses,
including additions to the bonuses earned (or pay bonuses when
no bonus has been earned) under the bonus plan. For example, in
2006, bonuses for Messrs. Lakin, Potts and Coppock exceeded
the 150% maximum payout originally established because actual
performance was over 244% of budgeted operating income, and in
2007 the amount of bonus for executive officers was adjusted up
or down based on individual unit performance as shown in the
Summary Compensation Table under the heading “Bonus
($).” The Company does not have a formal policy for
payments above the amounts established under the bonus plans.
The Compensation Committee also may adjust the performance
criteria if circumstances dictate (e.g., acquisitions,
financings or other items that may not have been incorporated in
the budget and therefore might require adjustment). In 2008,
bonuses will be determined based primarily on budgeted operating
income as in the past; however, 20% of the bonus target will be
based on individual objectives established by the Compensation
Committee.
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In the past five years bonuses have ranged from 0% to the
maximum as achieved in 2006 based on the performance criteria
then in effect. Consistent with our pay for performance reward
philosophy, no annual incentives were paid to our named
executive officers in fiscal year 2003 because we did not
achieve our pre-established financial goals in that year. In
2006 and 2007, we exceeded the budgeted amounts for our
pre-established financial goals, which resulted in annual
incentive payouts greater than 100% of the targeted amounts. The
volatile and challenging industry and market conditions in which
we operate contributes to significant variations in annual
performance against goals and incentive payout amounts against
the target level of payout.
The value of the target payout amounts for our annual incentive
plan approximates the median of the short-term incentive
payments made by companies included in the market survey data
that we used as benchmarks for fiscal year 2007. The dollar
amount of annual cash incentive bonus paid in 2007 to each of
our named executive officers is reported in the “Non-Equity
Incentive Plan Compensation” column of the Summary
Compensation Table appearing on page 25 of this proxy
statement.
We make long-term equity incentive awards to our executive
officers each year. The primary objectives of our equity
incentive program are to:
The long term incentive compensation for senior executives in
the past three years has consisted of grants of stock options
and performance-based restricted stock with time based vesting.
Previously long term incentive compensation consisted
predominantly of stock options. During the past three years, the
Company has included restricted stock to reduce the share
dilution associated with equity grants since restricted stock
awards are for fewer shares than comparably valued stock option
awards. Moreover, recent changes in accounting standards require
that stock options as well as restricted stock be expensed.
Prior to these changes, the Company, like most companies,
utilized primarily stock options to take advantage of the then
available favorable accounting treatment for stock options. In
future years, the Company may expand its usage of restricted
shares relative to stock options to reduce dilution associated
with long term incentive compensation and to maintain retention
incentive even in challenging periods when our stock price may
be depressed.
Stock options have a term of seven years (in some prior years
the term was ten years) and vest annually over four years (in
some prior years the vesting was annually over three years). For
2007, 2006 and 2005, the Compensation Committee established an
aggregate value for equity grants for Company wide distribution
focusing primarily on cost to be reflected in the Company’s
financial statements, the annual grant level as a percent of
shares outstanding and, using the Black-Scholes methodology, the
value of the aggregate grants as a percentage of the
Company’s total market cap. A value expressed in dollars
was allocated to the senior executives based on the survey data
concerning long term incentive values for senior executives in
comparable positions and the level of expense and dilution the
Compensation Committee deemed appropriate. One-half of that
value was awarded in shares of restricted stock and, using the
Black-Scholes methodology, one-half in options at the then fair
market value of the shares. For Mr. Stanzione, the target
value for long term incentives was approximately 200% of base
salary, and for the other senior executives, the value ranged
from approximately 130% to 170% of base salary. The Compensation
Committee seeks to establish long-term incentive targets for
senior executives, like bonuses, at or above
50th percentile levels of the peer group and survey
analysis described above to emphasize long term stock
appreciation. The most recent survey data reviewed in connection
with the Compensation Committee’s 2007 deliberations
indicates that awards of long term incentives in 2007
approximated the 50th percentile levels for the senior
executive officers in the aggregate.
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The restricted stock awarded to the senior executives in 2007,
2006 and 2005 were awarded in the form of performance shares.
Under the performance criteria, senior executives earned 100% of
the target or assigned value at the time of grant if the Company
achieved budgeted consolidated sales for the applicable year.
For performance below 94% of budgeted sales in 2007, the
restricted stock awards paid out zero shares, and for
performance at 94% of budget the shares paid out 50% of the
assigned value. For performance at budgeted sales, the shares
paid out at 100% of the assigned value. For sales at or above
116% of budgeted sales, the shares paid out a number of shares
equal to 150% of the assigned value. Straight line interpolation
was applied for performance between the designated levels. The
Compensation Committee believes that performance based awards
better align the executives and shareholders interests in that
awards are reduced or eliminated if Board of Directors approved
budgets are not met while achievement beyond targeted
achievement is more highly rewarded. The 2007 restricted stock
award payout was 115% as actual sales were approximately 105% of
budgeted sales. The specific numbers of stock options and
restricted stock that were granted to each of our named
executive officers in 2007 are set forth on the table entitled
“Grants of Plan-Based Awards” in the executive
compensation tables found later in this proxy statement.
The Company has share ownership guidelines that require each
senior executive to own shares having a value equal to a
multiple of the senior executive’s annual base salary at
the time the executive became subject to the ownership
requirement. For Mr. Stanzione, the multiple is three times
base salary; for Messrs. Margolis, Potts and Lakin it is
twice base salary; and for Mr. Coppock it is one times base
salary. Once the ownership level is achieved, the changes in
share value are no longer monitored. Each of the senior
executives has achieved the requisite level of share ownership.
The summary compensation table below presents the “total
compensation” earned by our Named Executive Officers during
2007. This amount is not the actual compensation received by our
NEOs during 2007. In addition to cash and other forms of
compensation actually received, total compensation includes the
dollar amounts set forth in the “Stock Awards” and
“Option Awards” columns. These amounts reflect the
compensation expense we recognized for financial statement
reporting purposes with respect to equity awards granted to our
NEOs in 2007, as well as grants made in prior years, to the
extent such awards vested during 2007. The compensation expense
included in the “Stock Awards” and “Option
Awards” columns will likely vary from the actual amounts
ultimately realized by any NEO based on a number of factors,
including the number of shares that ultimately vest, the timing
of any exercise or sale of shares, and the price of our stock.
The actual value realized by our NEOs from stock awards and
options during 2007 is presented in the “Option Exercises
and Stock Vested” table below. Details about the equity
awards granted to our NEOs during 2007 can be found in the
“Grants of Plan-Based Awards” table below. Information
in the table for salary is lower than each NEO’s annualized
base salary shown in the “Base Salary Table” for a
given year because ARRIS’ salary changes are effective
April 1st of each year.
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Grants of
Plan-Based Awards
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Option shares for senior executives and for employees generally
are granted annually at the same time and are priced at the
close of business on the date of grant. Currently, options vest
equally over four years and have a seven year life. In the past,
some grants have had 10 year lives and some have vested
over three years. Exceptions to annual grants have been made in
cases such as new hire grants and grants in connection with
significant promotions or increases in responsibilities. Target
annual equity grants in the last three years for senior
executives have consisted of equal amounts of value in
restricted shares and in stock options. The restricted share
grants to executives during the last three fiscal years have
been performance based. The number of shares earned has depended
upon on the Company’s sales performance in the year of
grant. The number of shares earned can vary from zero, if the
minimum sales threshold was not reached, to 50% at the minimum
level. A 100% level and 150% level were also established. In
2006, the maximum threshold was reached, as sales were more than
120% of targeted sales. In 2007, 115% of target was earned.
Outstanding
Equity Awards At Fiscal Year-End
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26
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Primary Benefits. Our named executive officers
are eligible to participate in the same employee benefit plans
in which all other eligible U.S. salaried employees
participate. These plans include medical, dental, life
insurance, disability and a qualified retirement savings plan.
We also maintain a nonqualified retirement plan in which our
named executive officers are eligible to participate.
The Company maintains qualified and non-qualified Defined
Benefit pension plans. The qualified plan for the named
executive officers has been frozen since December 31, 1999,
and no further accrual of benefit under that plan has occurred
since that date. Neither Mr. Potts nor Mr. Lakin
participated in the qualified plan. The non-qualified plan is a
mirror image of the qualified plan, but covers only earnings
levels and payments levels that are or would be excluded under
the qualified plan under applicable Internal Revenue Services
regulations. Benefits under the plans are calculated based on
the named executive officer’s base salary and annual bonus
amounts. The benefit formula is the number of years of
continuous service (up to a maximum of 30 years) times the
sum of (a) 0.65% of the individual’s “final
annual compensation” up to the named executive
officer’s social security covered compensation level, plus
(b) 1.3% of the “final average salary” in excess
of the named executive officer’s social security covered
compensation level. The social security covered compensation
level is the
35-year
average of the taxable wage bases (for Social Security purposes)
in effect prior to the participant’s Social Security
retirement date. Final average salary is the average of the five
highest consecutive years of compensation in the ten years
preceding retirement. In
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calculating benefits under the non-qualified plan, it is assumed
that the qualified plan remains in effect; that is, the amount
of compensation that would have been covered under the qualified
plan had it remained in effect is excluded from the
non-qualified plan. The benefit is paid monthly on a single life
annuity basis or, subject to discount, on a 50% joint and
survivor annuity basis. Normal retirement under the plans is
age 65, and benefits are discounted for early retirement,
which is available at age 55. Messrs. Stanzione,
Margolis and Lakin are 60, 60 and 64 years of age and thus
could elect to retire early. The discount is calculated to be
the actuarial equivalent of an age 65 retirement using an
8% discount factor. There is no lump sum payment option
available, except for Mr. Stanzione (see below).
The Company maintains on Mr. Stanzione’s behalf a
supplemental employee retirement plan (SERP), which is included
in the information provided in the Pension Benefits table set
forth above. Under the SERP, normal retirement age is 62, and a
lump sum payment on termination is available. In addition, under
the SERP, final average compensation is
Mr. Stanzione’s actual annual salary at the time of
his retirement plus the average of the three highest bonuses
received in the five years preceding retirement. Years of
continuous service are Mr. Stanzione’s actual service
multiplied by three and are not limited to 30 years. The
benefit calculation is otherwise the same as described above
although, Mr. Stanzione’s benefit may not exceed 50%
of his final average compensation. In addition to the lump sum
payment option, Mr. Stanzione may elect to receive his
benefit on a monthly basis as a single life annuity or a joint
and survivor annuity with discounts from the single life annuity
amount depending on the form of joint and survivor annuity
selected. In the event of Mr. Stanzione’s termination
of employment by the Company without cause, termination by him
as a result of a material uncured breach of his employment
agreement by the Company, or termination by him following a
change of control and the diminution of his position, then
Mr. Stanzione’s pension benefit cannot be lower than
$33,333 per month.
The Company maintains a 401(k) defined contribution plan to
which employees may contribute a portion of their salary and
bonus compensation. The Company matches 100% of the first 3% of
employee contributions of pay and matches 50% of the next 2% of
employee contributions of pay subject to the Internal Revenue
Service maximum contribution (which was $15,500 during 2007).
The named executives participate in this plan and received the
Company match, which could not exceed $9,000 for 2007.
The Company previously maintained a non-qualified deferred
compensation plan that enabled certain executives, including the
named executives, to defer amounts above the IRS maximum. This
plan, and employee contributions and Company matches under it,
were frozen in September 2004. No employee contributions or
Company matching contributions have been made since that time.
The accounts under this plan remain in existence, but the
Company has never enhanced the earnings of the accounts, which
earnings are determined by the actual earnings of investment
vehicles selected by the employee. The table below reflects the
increase in value of the named executive’s account under
the Company’s Non-Qualified Deferred Compensation
arrangement during calendar year 2007. The amounts shown reflect
dividends and interest and appreciation (or depreciation) in
investments whether or not realized. The change in value
reflects the performance of any of several mutual funds which
may be selected by the executive.
Other Perquisites. We reimburse certain club
membership fees and pay for financial counseling services for
our named executive officers.
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Executive Severance and Change in Control Pay Arrangements
and Practices. Each of the named executive
officers is covered by an employment agreement that provides
certain termination benefits and contains customary
non-competition and other provisions. The named executive
officers are entitled to the benefits described below if their
employment is terminated by the Company without cause (which is
narrowly defined as gross misconduct, permanent disability, or
commission of certain felonies), by the executive after a
material uncured breach of the agreement by the Company, or
after a change of control of the Company in the event the
executive is terminated or resigns after a reduction in duties
or benefits (except Mr. Margolis’ provision does not
require a reduction of duties or benefits). These benefits
include a multiple of base pay and annual bonus (either assuming
the bonus criteria had been met or based on average bonus earned
in the last two years), acceleration of unvested equity awards,
and continuation of benefits for the period of the continuation
of base salary. For Mr. Stanzione the multiple is three,
for Messrs. Margolis and Potts, two, and for
Messrs. Coppock and Lakin, one.
Bonus for Mr. Stanzione is the average of the three highest
full-year bonuses during the five years preceding his
termination date. Bonus for Mr. Margolis is the most recent
bonus paid or payable prior to his termination date. The salary
and bonus payments are lump sum for Messrs. Lakin, Potts
and Coppock in the event of a termination associated with change
of control and are otherwise paid as a continuation of salary
and bonus for twelve months (twenty-four months in the case of
Mr. Potts); and are paid as a continuation of salary and
bonus over the three and two year applicable periods for
Messrs. Stanzione and Margolis. The two and three year
benefit levels for Messrs. Margolis, Potts and Stanzione
are deemed appropriate because their positions are likely to be
eliminated following a change of control and their positions are
more difficult for them to replace.
The table below sets forth the approximate value of salary,
bonus and accelerated equity payable to each NEO assuming a
change in control or termination event had occurred on
December 31, 2007.
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The Compensation Committee has reviewed and discussed the
“Compensation Discussion and Analysis” section of this
proxy statement with management and, based on such review and
discussion, the Compensation Committee recommends to the Board
of Directors that it be included in this proxy statement.
William H. Lambert, Chairman
Alex B. Best
John Anderson Craig
Notwithstanding anything to the contrary which is or may be
set forth in any of the Company’s filings under the
Securities Act of 1933 or the Exchange Act that might
incorporate Company filings, including this proxy statement, in
whole or in part, the preceding Compensation Committee Report
shall not be incorporated by reference into any such filings.
The Company has adopted a related person transaction policy that
governs the review, approval or ratification of covered related
person transactions. Our Audit Committee manages this policy.
The policy generally provides that we may enter into a related
person transaction only if the Audit Committee approves or
ratifies such transaction in accordance with the guidelines set
forth in the policy and if the transaction is on terms and
conditions that are reasonable under the circumstances and in
the best interests of the shareholders.
Under the policy a “related party transaction” is one
in which the Company is a participant and that, individually or
taken together with related transactions, exceeds, or is
reasonably likely to exceed, $100,000 in amount in any year and
in which any of the following individuals (a “covered
person”) has a direct or indirect material interest:
For purposes of the policy, a material interest in a transaction
shall not be deemed to exist when a covered person’s
interest in the transaction results from (a) the covered
person’s (together with his immediate family’s) direct
or indirect ownership of less than a 10% economic interest in
the other party to the transaction,
and/or the
covered person’s service as a director of the other party
to the transaction, or (b) the covered person’s pro
rata participation in a benefit received by him solely as a
security holder.
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A transaction is deemed to involve the Company if it involves a
vendor or partner of the Company or any of its subsidiaries and
relates to the business relationship between the Company or any
of its subsidiaries and that vendor or partner.
There have been no related party transactions since the
beginning of the 2007 fiscal year nor are there any such
transactions proposed.
The Audit Committee has appointed Ernst & Young LLP as
the independent registered public accounting firm of the Company
for the fiscal year ended December 31, 2008.
Ernst & Young LLP also acted in such capacity during
the fiscal year ended December 31, 2007. 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. The fees billed by Ernst & Young LLP for
the last two Company fiscal years were as follows, all of which
were approved by the Audit Committee:
Fees for audit services totaled $3,672,253 and $2,974,486 in
2007 and 2006, respectively, and include fees associated with
the annual audits, the Sarbanes-Oxley Section 404
attestation, the reviews of the Company’s quarterly reports
on
Form 10-Q,
other SEC filings, audit consultations, and one-time audit
procedures related to the acquisition of C-COR and the
terminated Tandberg merger.
Fees for audit-related services totaled $474,077 and $505,371 in
2007 and 2006, respectively. Audit-related services include due
diligence in connection with acquisitions, consultation on
accounting and internal control matters, and audits in
connection with employee benefit plans.
Fees for tax services, including tax compliance, tax advice and
tax planning, totaled $90,672 and $79,298 in 2007 and 2006,
respectively.
All Other
Fees
Fees for all other services not included above were $0 for both
2007 and 2006.
The Audit Committee has adopted a policy that requires advance
approval of all audit, audit-related, tax services, and other
permissible non-audit services performed by the independent
registered public accounting firm. Prior to engagement, the
Audit Committee pre-approves independent registered public
accounting firm services and fee amounts or ranges within each
category. Either the independent registered public accounting
firm or the Company’s Chief Financial Officer (or his
designee) must submit to the Audit Committee requests for
services to be provided by the independent registered public
accounting firm. The Audit Committee may delegate pre-approval
authority to one of its members. The member to whom such
authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its
next meeting.
The Audit Committee requires the Company’s Internal Audit
Director to report to the Audit Committee on a periodic basis
the results of the Internal Audit Director’s monitoring of
the independent registered public accounting firm’s
performance of all services to the Company and whether the
performance of those services was in compliance with the Audit
Committee’s pre-approval policy. Both the Internal Audit
Director and management are required to report immediately to
the Audit Committee any breaches by the independent registered
public accounting firm of the policy.
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Proposals of stockholders intended to be presented at the 2009
Annual Meeting of Stockholders must be received by the Company
at its principal offices by December 15, 2008, in order to
be considered for inclusion in the Company’s proxy
statement and proxy relating to the 2009 Annual Meeting of
Stockholders.
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
Lawrence A. Margolis, Secretary
April 14, 2008
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APPENDIX A
ARRIS
GROUP, INC.
2008 STOCK INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE DATE. ARRIS
Group, Inc. (the “Company”) has established this 2008
Stock Incentive Plan (the “Plan”) to facilitate the
retention and continued motivation of key employees, consultants
and directors and to align more closely their interests with
those of the Company and its stockholders. The effective date of
the Plan shall be the date it is approved by the stockholders of
the Company (the “Effective Date”). No grants shall be
made under this Plan subsequent to ten (10) years after the
Effective Date. This Plan will have no impact on the
Company’s existing stock incentive plans or the awards
outstanding thereunder.
2. ADMINISTRATION. The Plan shall be
administered by the Compensation Committee of the Company’s
Board of Directors or such other Board committee consisting
solely of independent directors (as determined by the Board or a
committee thereof) 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. The Committee may authorize one or more officers to
grant awards to the extent permitted by Section 157(c) of
the Delaware General Corporation Law. 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
12,300,000 shares of Common Stock, or rights with respect
to 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. In determining the number of shares available for
awards:
(a) Grants of awards under the Plan will reduce the number
of Shares available thereunder by the maximum number of Shares
obtainable under such grants.
(b) Awards of stock, stock units, restricted stock,
performance shares and units, and dividend equivalent rights
will reduce the number of shares available thereunder at the
rate of 1.58 shares per interest granted.
(c) The aggregate number of Shares with respect to which
incentive stock options may be issued under the Plan shall not
exceed 4,000,000.
(d) If all or any portion of the Shares otherwise subject
to an award under the Plan are not delivered or do not vest 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.
(e) Shares tendered (either actually or through
attestation) to pay the option exercise price, shares withheld
for the payment of withholding taxes and shares and other awards
repurchased by the Company from a person using proceeds from the
exercise of awards by that person shall not return to the share
reserve, and the determination of the number of Shares used in
connection with stock-settled stock appreciation rights shall be
based upon the number of Shares with respect to which the rights
were based and not just the number of Shares delivered upon
settlement.
(f) Shares issued in connection with awards that are
assumed, converted or substituted pursuant to a merger or an
acquisition shall not reduce the share reserve.
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.
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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, and any grant or exercise of an 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 1,500,000 Shares. The maximum amount to
be granted to any one person pursuant to performance units, in
any calendar year, shall not exceed $2,000,000.
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 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
written documents 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
options or stock appreciation rights being granted to replace
options or rights not initially granted by the Company or its
predecessors 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. The
maximum term on options and stock appreciation rights shall not
exceed ten (10) years.
(c) Options and stock appreciation rights shall vest over a
minimum of three years (and shall vest no more quickly than
ratably), and all other awards shall have a minimum vesting or
holding period of three years, provided that
(i) awards that are issued in connection with mergers and
acquisitions may have vesting and holding periods that are the
same as any awards that they are replacing or otherwise as
deemed appropriate by the Committee, and (ii) a vesting or
holding period may be reduced as a result of death, disability,
retirement, a merger or sale, termination of employment, change
in control or other extraordinary event. In the absence of an
extraordinary event, the vesting and holding restrictions
applicable to an award shall not be reduced or otherwise waived.
(d) Awards granted under this Plan shall not be
transferred, assigned, pledged or hypothecated or otherwise
transferred by the grantee except by will or the laws of descent
and distribution to the extent permitted in the award itself.
(e) 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.
(f) When issuing performance shares or units performance
criteria may include: revenue; earnings before interest, taxes,
depreciation and amortization (EBITDA); cash earnings (earnings
before amortization of intangibles); operating income; pre- or
after-tax income; earnings per share, net cash flow; net cash
flow per share; net earnings; return on equity; return on total
capital; return on sales, return on net assets employed, return
on assets; economic value added (or an equivalent metric); share
price performance; total shareholder return; improvement in or
attainment of expense levels; and improvement in or attainment
of working capital levels. Performance criteria may be related
to a specific customer or group of customers or geographic
region. Performance criteria may be measured solely on a
corporate, subsidiary or division basis, or a combination
thereof. Performance criteria may reflect absolute entity
performance or a relative comparison of entity performance to
the performance of a peer group of entities or other external
measure of the selected performance criteria. Profit, earnings
and revenues used for any performance goal measurement may
exclude any extraordinary or nonrecurring items.
(g) All awards may be settled in cash, shares or deferred
delivery, as authorized by the Committee.
(h) Shares granted from the plan may be used as form of
payment for compensation, grants or rights earned or due under
other Company plans or arrangements.
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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.
7. GENERAL. The laws of the State of
Delaware shall apply to the Plan. Nothing herein shall restrict
the Board from exercising the authority granted hereunder to the
Committee or otherwise from exercising its fiduciary duties.
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