<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 14a-11(c) or 14a-12
Advanced Fibre Communications, 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
AFC LOGO
ADVANCED FIBRE COMMUNICATIONS, INC.
1 WILLOW BROOK COURT
PETALUMA, CALIFORNIA 94954
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of ADVANCED FIBRE COMMUNICATIONS, INC. (the "Company"), which will be held at
the offices of the Company, 2200 South McDowell Boulevard, Petaluma, California
94954 at 2:00 p.m. on Thursday, May 25, 2000, (the "Annual Meeting") for the
following purposes:
1. To elect three directors, Clifford H. Higgerson, John A. Schofield and
Alex Sozonoff, to the Board of Directors to serve a three-year term,
such directors to constitute Class I of the Company's Board of
Directors;
2. To consider and vote upon a proposal to ratify the selection of KPMG LLP
as independent public accountants for the Company for the fiscal year
ending December 30, 2000; and
3. To act upon such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
The Board of Directors has fixed the close of business on April 7, 2000 as
the record date for determining those stockholders who will be entitled to vote
at the Annual Meeting or any adjournment or postponement thereof. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection ten days prior to the Annual Meeting at the principal offices of the
Company, 1 Willow Brook Court, Petaluma, California 94954. The stock transfer
books will not be closed between the record date and the date of the Annual
Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE. Your
proxy may be revoked at any time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Sincerely yours,
/s/ DONALD GREEN
Donald Green
Chairman of the Board
April 14, 2000
Petaluma, California
<PAGE> 3
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT CAREFULLY PRIOR TO RETURNING
THEIR PROXIES
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
OF
ADVANCED FIBRE COMMUNICATIONS, INC.
TO BE HELD ON MAY 25, 2000
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ADVANCED FIBRE COMMUNICATIONS, INC. ("AFC" or the
"Company") of proxies to be voted at the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") which will be held at the offices of the Company, 2200
South McDowell Boulevard, Petaluma, California 94954 on Thursday, May 25, 2000
at 2:00 p.m., or at any adjournments or postponements thereof, for the purposes
set forth in the accompanying Notice of 2000 Annual Meeting of Stockholders.
This Proxy Statement and the proxy card were first mailed to stockholders on or
about April 14, 2000. The Company's 1999 Annual Report is being mailed to
stockholders concurrently with this Proxy Statement. The 1999 Annual Report is
not to be regarded as proxy soliciting material or as a communication by means
of which any solicitation of proxies is to be made.
VOTING RIGHTS AND SOLICITATION
The close of business on April 7, 2000 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of that date, AFC
had 79,043,574 shares of Common Stock, $.01 par value, issued and outstanding.
All of the shares of the Company's Common Stock outstanding on the record date
are entitled to vote at the Annual Meeting, and stockholders of record entitled
to vote at the Annual Meeting will have one vote for each share of Common Stock
so held with regard to each matter to be voted upon. Representation of at least
a majority of all outstanding shares of Common Stock of AFC is required to
constitute a quorum. Accordingly, it is important that your shares be
represented at the Annual Meeting.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to AFC will be voted
at the Annual Meeting in accordance with the stockholders' instructions
contained therein. In the absence of contrary instructions, shares represented
by such proxies will be voted FOR the election of each of the directors as
described herein under "Proposal 1-Election of Directors" and FOR ratification
of the selection of accountants as described herein under "Proposal
2-Ratification of Selection of Independent Public Accountants". Management does
not know of any matters to be presented at the Annual Meeting other than those
set forth in this Proxy Statement and in the Notice accompanying this Proxy
Statement. If other matters should properly come before the Annual Meeting, the
proxy holders will vote on such matters in accordance with their best judgment.
Any stockholder has the right to revoke his or her proxy at any time before it
is voted at the Annual Meeting. To be approved, each of the matters submitted
for stockholder approval at the Annual Meeting must receive the affirmative vote
of a majority of the shares present in person or represented by proxy and
entitled to vote on that matter. Abstentions and broker non-votes will be
included in the determination of the number of shares present for quorum
purposes. Abstentions with respect to any proposal will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
whether a proposal has been approved.
The entire cost of distribution and solicitation of proxies will be borne
by AFC. Arrangements may be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to the beneficial
owners of the Company's Common Stock, and such persons may be reimbursed for
their expenses. Innisfree M&A Incorporated, New York, has been retained at an
estimated cost of $12,000, plus reasonable out-of-pocket expenses, to assist in
the solicitation of proxies. This solicitation will be by mail, telephone, and
other means.
<PAGE> 4
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors composed of seven directors. Accordingly, the terms of the office
of the Board of Directors are divided into three classes. Class I will expire at
the Annual Meeting, Class II will expire at the annual meeting to be held in
2001, and Class III will expire at the annual meeting to be held in 2002. At
each annual meeting of stockholders, the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been duly elected and qualified, or until their earlier
resignation or removal, if any. To the extent there is an increase in the number
of directors, additional directorships resulting therefrom will be distributed
among the three classes so that, as nearly as possible, each class will consist
of an equal number of directors. There are no family relationships among any of
the Company's directors and executive officers. The Board of Directors has
adopted a policy pursuant to which directors are generally required to retire
from the Board of Directors upon attaining the age of 70.
The proxy holders named on the proxy card intend to vote all proxies
received by them in the accompanying form FOR the election of the three Class I
nominees listed below, unless instructions to the contrary are marked on the
proxy. The nominees have been selected by the Board of Directors and are all
currently members of the Board. If you do not wish your shares to be voted for
particular nominees, please identify the exceptions on the proxy card.
In the event that a nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them for the nominees
listed below. As of the date of this Proxy Statement, the Board of Directors is
not aware of any nominee who is unable or will decline to serve as a director.
CLASS I -- NOMINEES FOR ELECTION:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DIRECTOR SINCE AGE
---- -------------------- -------------- ---
<S> <C> <C> <C>
Clifford H. Higgerson............... General Partner, 1993 60
Communications Ventures
John A. Schofield................... Chief Executive Officer & President, 1999 51
Advanced Fibre Communications, Inc.
Alex Sozonoff....................... Vice President of Customer Advocacy, 1997 62
Hewlett-Packard Company
</TABLE>
CLASS II -- DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING OF
STOCKHOLDERS:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DIRECTOR SINCE AGE
---- -------------------- -------------- ---
<S> <C> <C> <C>
Herbert M. Dwight, Jr............... Chairman of the Board, 1998 69
Vicinity Corporation
Ruann F. Ernst...................... Chief Executive Officer 1998 53
and Chairman of the Board,
Digital Island, Inc.
</TABLE>
CLASS III -- DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING OF
STOCKHOLDERS:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION DIRECTOR SINCE AGE
---- -------------------- -------------- ---
<S> <C> <C> <C>
Donald Green........................ Chairman of the Board, 1992 68
Advanced Fibre Communications, Inc.
Dan Rasdal.......................... Director, Symmetricom, Inc. 1993 66
</TABLE>
2
<PAGE> 5
HERBERT M. DWIGHT, JR. has served as a director of the Company since May
1998. Mr. Dwight is the retired Chairman of the Board of Optical Coating
Laboratory, Inc. ("OCLI"), an optical coating and specialty ink manufacturer,
which was subsequently acquired by JDS Uniphase Corporation. Mr. Dwight served
in this position from 1991 to February 2000. From 1991 to April 1998, Mr. Dwight
also served as Chief Executive Officer of OCLI and from 1991 to 1997, he served
as President of OCLI. Mr. Dwight has also been Chairman of the Board of Vicinity
Corporation since October 1999. Mr. Dwight is also a director of Applied
Magnetics, Inc. and Applied Materials, Inc.
RUANN F. ERNST has served as a director of the Company since May 1998. Ms.
Ernst has served as Chief Executive Officer of Digital Island, Inc., an
e.business delivery network, since June 1998 and has been Chairman of the Board
of Digital Island since December 1999. From June 1998 through December 1999, Ms.
Ernst also served as President of Digital Island. From 1994 to 1998, Ms. Ernst
served as General Manager, Financial Services Business Unit for Hewlett-Packard
Company, an electronics equipment and computer company. Prior to that, Ms. Ernst
served in various management positions at Hewlett-Packard and General Electric.
Ms. Ernst is also a director of Phoenix International Corporation and two
private organizations.
DONALD GREEN is a co-founder of the Company and has served as the Company's
Chairman of the Board since May 1992. Mr. Green served as Chief Executive
Officer of the Company from June 1998 through March 1999 and from May 1992 to
June 1997. Mr. Green is also a director of TCSI Corporation and three private
companies.
CLIFFORD H. HIGGERSON has served as a director of the Company since January
1993. Mr. Higgerson has served as a general partner of Communications Ventures,
a venture capital firm, since 1987 and a general partner of Vanguard Venture
Partners, a venture capital firm and a stockholder of the Company, since July
1991. Mr. Higgerson is also a director of Digital Island, Inc., Tut Systems,
Inc. and twelve private companies.
DAN RASDAL has served as a director of the Company since February 1993. Mr.
Rasdal has served as a director of Symmetricom, Inc. ("Symmetricom"), a
telecommunications company, since 1985. From 1985 to July 1998, Mr. Rasdal was
Chairman of the Board, President, and Chief Executive Officer of Symmetricom.
Mr. Rasdal is also a director of Celeritek, Inc.
JOHN A. SCHOFIELD has served as a director of the Company since May 1999.
Mr. Schofield has served as President and Chief Executive Officer since March
1999. From 1995 to 1999, Mr. Schofield held several senior management positions
with ADC Telecommunications, Inc. including Senior Vice President, President of
the Integrated Solutions Group, and Managing Director of Asia Pacific/Latin
America. From July 1995 to October 1995, Mr. Schofield was Vice President,
International Sales and Marketing for DSC Communications Corporation.
ALEX SOZONOFF has served as a director of the Company since October 1997.
Mr. Sozonoff has served as Vice President of Customer Advocacy for
Hewlett-Packard Company, an electronics equipment and computer company, since
1998. From 1994 to 1998, he was Vice President of Marketing for Hewlett-Packard
Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended December 25, 1999 (the "1999 fiscal year"). No director
attended fewer than 75 percent of the aggregate number of Board meetings and
meetings of committees on which he or she served, with the exception of Mr.
Sozonoff, who missed one Board meeting and two committee meetings due to
illness.
The Board has established committees consisting of an Audit Committee, a
Compensation Committee, a Nominating Committee and a Governance Committee.
The Audit Committee, currently consisting of Mr. Rasdal, Mr. Sozonoff and
Ms. Ernst, meets with the Company's financial management and its independent
public accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee held six meetings during the 1999 fiscal year.
3
<PAGE> 6
The Compensation Committee, currently consisting of Mr. Higgerson, Mr.
Sozonoff and Mr. Dwight, reviews and approves the Company's compensation
arrangements for key employees and administers the Company's 1996 Stock
Incentive Plan (the "1996 Plan") and the Company's Employee Stock Purchase Plan.
This Committee held six meetings during the 1999 fiscal year.
The Nominating Committee, currently consisting of Mr. Green, Mr. Rasdal and
Ms. Ernst, was established in May 1998. The Nominating Committee's duties
include presenting to the Board of Directors suggestions for nominees to the
Board. Stockholders who wish to suggest qualified candidates to the Nominating
Committee should write to Amy M. Paul, Secretary of the Company, at 1 Willow
Brook Court, Petaluma, California 94954, stating in detail the candidate's
qualifications for consideration by the Committee. A stockholder who wishes to
nominate a director at a meeting of stockholders must comply with certain
procedures set out in the Company's By-Laws. This Committee held no meetings
during the 1999 fiscal year.
The Governance Committee, currently consisting of Ms. Ernst and Mr. Dwight,
was established in May 1998. The Governance Committee advises the Board of
Directors on corporate governance matters, recommends governance principles and
practices and assesses Board and Board Committee effectiveness. This Committee
held two meetings during the 1999 fiscal year.
DIRECTOR COMPENSATION
Prior to October 1998 non-employee Board members did not receive any cash
fees for their service on the Board or any Board committee. Effective October
27, 1998 through the end of the 1999 fiscal year, non-employee Board members of
the Company received an annual retainer of $6,000. Beginning in the 2000 fiscal
year, non-employee Board members will receive an annual retainer of $10,000. In
addition to the annual retainer, non-employee Board members receive $1,000 for
each regularly scheduled Board or committee meeting attended and $500 for each
unscheduled Board or committee meeting attended. If a Board and a committee
meeting are held on the same day, one meeting fee is paid. Non-employee Board
members are also entitled to reimbursement of all reasonable out-of-pocket
expenses incurred in connection with their attendance at Board and Board
committee meetings. In addition, non-employee Board members receive stock
options pursuant to the Automatic Option Grant Program in effect under the
Company's 1996 Plan.
Under the Automatic Option Grant Program, each individual who first joins
the Board after June 30, 1996 as a non-employee Board member will receive a
non-qualified stock option grant to purchase 40,000 shares of Common Stock at
the time of his or her commencement of board service, provided such individual
has not otherwise been in the prior employ of the Company. In addition, at each
annual meeting of stockholders, each individual who is to continue to serve as a
non-employee Board member will receive a non-qualified stock option grant to
purchase 12,000 shares of Common Stock, whether or not such individual has been
in the prior employ of the Company and whether or not such individual first
joined the Board after June 30, 1996, provided that such individual has served
as a non-employee Board member for at least six months.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board service. Each of these options will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase, at the option exercise price paid per share, should the optionee's
service as a non-employee Board member cease prior to vesting in the shares.
Each automatic option grant will vest in a series of installments over the
optionee's period of Board service as follows: One-third of the option shares
upon completion of one year of Board service, and the balance in twenty-four
(24) successive equal monthly installments upon the optionee's completion of
each additional month of Board service thereafter. However, each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving as a Board member.
Upon her election to the Board on May 26, 1998, Ms. Ernst received a stock
option for 40,000 shares, with an exercise price of $34.00 per share, pursuant
to the Automatic Option Grant Program. Upon his
4
<PAGE> 7
appointment to the Board on May 13, 1998, Mr. Dwight received a stock option for
40,000 shares, with an exercise price of $40.00 per share, pursuant to the
Automatic Option Grant Program. Each option was immediately exercisable for all
of the option shares, but the shares purchasable thereunder were subject to
vesting in accordance with the three (3)-year vesting schedule described above.
On October 27, 1998, the Board approved the cancellation of the options granted
to Ms. Ernst and Mr. Dwight and their replacement with new options for the same
number of shares with an exercise price of $8.625 per share, the fair market
value per share of Common Stock on October 27, 1998. The new options so granted
became exercisable for all of the option shares on October 27, 1999. However,
the shares purchasable upon exercise of the options are subject to vesting in
accordance with the vesting schedule which applied to the higher-priced,
cancelled options. As of October 27, 1999, the number of vested shares
purchasable upon exercise of the options became the number of option shares
which would have vested under the higher-priced, cancelled options as of such
date. Thereafter, the option shares continue to vest in accordance with the
original vesting schedule established for the higher-priced, cancelled options.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG LLP served as independent public accountants for the
Company for the 1999 fiscal year. The Board of Directors desires the firm to
continue in this capacity for the current fiscal year. Accordingly, a resolution
will be presented to the Annual Meeting to ratify the selection of KPMG LLP by
the Board of Directors as independent public accountants to audit the accounts
and records of the Company for the fiscal year ending December 30, 2000, and to
perform other appropriate services. In the event that stockholders fail to
ratify the selection of KPMG LLP, the Board of Directors would reconsider such
selection.
A representative of KPMG LLP will be present at the Annual Meeting to
respond to appropriate questions and to make a statement if such representative
desires to do so.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 2000 by each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than five percent of the outstanding shares of the Common Stock of the
Company. Except as otherwise indicated, the named beneficial owner has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
FMR Corp....................................... 4,880,780 6.2%
82 Devonshire Street
Boston, MA 02109
Putnam Investments, Inc........................ 4,931,690 6.3%
One Post Office Square
Boston, MA 02109
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
5
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of March 1, 2000 by (i)
each director of the Company; (ii) each officer named in the Summary
Compensation Table below; and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------------ ------------ --------
<S> <C> <C>
Donald Green(2)....................................... 1,204,794 1.5%
Herbert M. Dwight, Jr.(3)............................. 60,556 *
Ruann F. Ernst(4)..................................... 52,000 *
Clifford H. Higgerson(5).............................. 359,246 *
Dan Rasdal(6)......................................... 142,000 *
John A. Schofield(7).................................. 240,074 *
Alex Sozonoff(8)...................................... 64,400 *
Gregory S. Steele(9).................................. 57,966 *
James T. Hoeck........................................ 638,582 *
Jorge A. Valdes(10)................................... 19,073 *
Keith E. Pratt(11).................................... 48,240 *
Peter A. Darbee....................................... 0 *
Richard L. Stanfield.................................. 200 *
All executive officers and directors as a group
(16 persons)(12).................................... 2,901,914 3.6%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options and warrants currently exercisable or exercisable within 60 days
of March 1, 2000 are deemed to be outstanding for computing the percentage
of the person holding such options or warrants but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
(2) Includes 506,754 shares issuable upon exercise of options held by Mr.
Green, 500,087 of which will be vested as of 60 days from March 1, 2000.
(3) Includes 52,000 shares issuable upon exercise of options held by Mr.
Dwight, none of which will be vested as of 60 days from March 1, 2000. Also
includes 8,556 shares held by the Herbert M. Dwight, Jr. and Jane Dwight
Trust, of which Mr. Dwight is the trustee.
(4) Includes 52,000 shares issuable upon exercise of options held by Ms. Ernst,
none of which will be vested as of 60 days from March 1, 2000.
(5) Includes 24,000 shares issuable upon exercise of options held by Mr.
Higgerson, 6,668 of which will be vested as of 60 days from March 1, 2000.
(6) Includes 142,000 shares issuable upon exercise of options held by Mr.
Rasdal, 117,835 of which will be vested as of 60 days from March 1, 2000.
(7) Includes 212,674 shares issuable upon exercise of options held by Mr.
Schofield, all of which will be vested as of 60 days from March 1, 2000.
(8) Includes 64,000 shares issuable upon exercise of options held by Mr.
Sozonoff, 40,001 of which will be vested as of 60 days from March 1, 2000.
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<PAGE> 9
(9) Includes 55,943 shares issuable upon exercise of options held by Mr.
Steele, 53,010 of which will be vested as of 60 days from March 1, 2000.
(10) Includes 17,127 shares issuable upon exercise of options held by Mr.
Valdes, all of which will be vested as of 60 days from March 1, 2000.
(11) Includes 47,478 shares issuable upon exercise of options held by Mr. Pratt,
all of which will be vested as of 60 days from March 1, 2000.
(12) Includes 1,187,616 shares issuable upon exercise of options, 1,003,156 of
which will be vested as of 60 days from March 1, 2000.
7
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by (i) the Company's
current Chief Executive Officer (ii) the Company's former Chief Executive
Officer, (iii) the other four most highly compensated executive officers of the
Company serving as such as of the end of the last fiscal year, and (iv) two
other highly compensated executive officers who were no longer executive
officers as of the end of the last fiscal year (the "Named Executive Officers"),
each of whose total salary and bonus for the 1999 fiscal year was in excess of
$100,000 for services rendered in all capacities to the Company for such fiscal
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- -------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)(1) COMPENSATION(2)
--------------------------- ------ --------- -------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John A. Schofield(3)........... 1999 $275,481 $ 90,000 $108,198(4) 800,000 $3,197
Chief Executive Officer, 1998 -- -- -- -- --
President and Director 1997 -- -- -- -- --
Donald Green(5)................ 1999 205,694 -- -- -- 5,000
Chairman of the Board and 1998 260,852 -- -- 233,200 5,000
Former Chief Executive 1997 295,769 225,993 -- 63,200 4,750
Officer
Gregory S. Steele(6)........... 1999 235,750 2,000 -- 26,000 5,000
Senior Vice President 1998 175,000 8,318 -- 213,920 5,000
and Chief Operating Officer 1997 -- -- -- -- --
Jorge A. Valdes(7)............. 1999 168,060 9,000 84,528(8) 90,000 4,986
Vice President, 1998 -- -- -- -- --
Engineering 1997 -- -- -- -- --
James T. Hoeck(9).............. 1999 167,990 -- -- -- --
Chief Technology Officer 1998 161,742 7,660 -- 55,960 --
1997 -- -- -- -- --
Keith E. Pratt(10)............. 1999 142,368 4,500 -- 168,000 4,983
Vice President, 1998 -- -- -- -- --
Chief Financial Officer, 1997 -- -- -- -- --
Treasurer and Asst. Secretary
Peter A. Darbee(11)............ 1999 226,442 -- 121,909(12) -- 5,000
Former Vice President, 1998 275,000 14,507 47,691(12) 320,467 5,000
Chief Financial Officer, 1997 125,000 71,827 -- 300,000 --
Treasurer and Secretary
Richard L. Stanfield(13)....... 1999 204,308 -- -- 10,000 5,000
Former Vice President, 1998 242,417 12,000 -- 43,000 5,000
North American Sales 1997 -- -- -- -- --
</TABLE>
- ---------------
(1) For 1998, includes options granted under the Company's 1998 Stock Option
Repricing Program, as described in the Company's 1999 Proxy Statement, to
replace previously granted options for the same number of shares that were
cancelled in connection with such program as follows: Mr. Green -- 93,200
shares; Mr. Steele -- 85,920 shares; Mr. Hoeck -- 30,960 shares; Mr.
Darbee -- 291,000 shares; and Mr. Stanfield -- 23,000 shares.
(2) Represents Company contributions under the Company's 401(k) plan.
(3) Mr. Schofield became Chief Executive Officer in March 1999.
(4) Represents relocation expenses paid by the Company. See "Certain
Relationships and Related Transactions".
(5) Mr. Green resigned as Chief Executive Officer in March 1999.
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<PAGE> 11
(6) Mr. Steele joined the Company in November 1994, and was appointed an
executive officer in February 1998.
(7) Mr. Valdes joined the Company in March 1998, and was appointed an executive
officer in July 1999.
(8) Represents (i) relocation expenses paid by the Company in the amount of
$35,982 and (ii) temporary living expenses in the amount of $48,546. See
"Certain Relationships and Related Transactions".
(9) Mr. Hoeck was a founder of the Company in July 1992, and was appointed an
executive officer in February 1998. Mr. Hoeck resigned from the Company in
January 2000.
(10) Mr. Pratt joined the Company in September 1997, and was appointed an
executive officer in December 1999.
(11) Mr. Darbee joined the Company on June 30, 1997. Mr. Darbee resigned from
the Company in September 1999.
(12) Represents forgiveness of indebtedness under a promissory note payable to
the Company. See "Certain Relationships and Related Transactions".
(13) Mr. Stanfield joined the Company in December 1994, and was appointed an
executive officer in February 1998. Mr. Stanfield resigned from the Company
in October 1999.
STOCK OPTION GRANTS TO NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding stock option
grants made to each of the Named Executive Officers in 1999. No stock
appreciation rights were granted to the Named Executive Officers in 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED IN FISCAL YEAR SHARE(2) DATE 5% 10%
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John A. Schofield....... 775,000 15.4% $ 7.5000 03/29/09 $3,655,450 $9,263,628
25,000(4) 0.5 44.3750 12/21/09 697,680 1,768,058
Donald Green............ -- -- -- -- -- --
Gregory S. Steele....... 1,000(5) * 20.1250 10/25/09 12,657 32,074
25,000(4) 0.5 44.3750 12/21/09 697,680 1,768,058
Jorge A. Valdes......... 10,000 0.2 8.5313 03/15/09 53,653 135,967
50,000 1.0 15.1875 07/19/09 477,567 1,210,248
10,000(6) 0.2 21.8750 10/29/09 137,571 348,631
20,000(4) 0.4 44.3750 12/21/09 558,144 1,414,446
James T. Hoeck.......... -- -- -- -- -- --
Keith E. Pratt.......... 1,000(5) * 12.3750 02/01/09 7,783 19,723
1,000(5) * 14.6250 07/26/09 9,198 23,308
5,000(7) 0.1 16.3125 09/01/09 51,294 129,990
1,000(5) * 20.1250 10/25/09 12,657 32,074
150,000(8) 3.0 28.2500 12/06/09 2,664,941 6,753,484
10,000(4) 0.2 44.3750 12/21/09 279,072 707,223
Peter A. Darbee......... -- -- -- -- -- --
Richard L. Stanfield.... 10,000(9) 0.2 10.7500 02/11/09 67,606 171,327
</TABLE>
- ---------------
* Less than 0.1%
(1) Except as otherwise indicated, each option becomes exercisable for twenty
five percent (25%) of the option shares upon the optionee's completion of
one year of service measured from the vesting date, and the balance in
successive equal monthly installments over the next 36 months of service
thereafter. The Compensation Committee as Plan Administrator of the 1996
Plan has the authority to provide for the
9
<PAGE> 12
accelerated vesting in the event the Company is acquired by merger or asset
sale or there is a hostile change in control effected by a successful tender
or exchange offer for more than 50% of the Company's outstanding voting
securities or a change in the majority of the Board as a result of one or
more contested elections for board membership. Alternatively, the
Compensation Committee will provide for such accelerated vesting upon the
individual's involuntary termination of service within eighteen (18) months
following the acquisition or hostile change in control.
(2) The exercise price for the shares of Common Stock subject to option grants
made under the 1996 Plan may be paid in cash or in shares of Common Stock
valued at the fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding
options by allowing such individuals to deliver a full-recourse, interest-
bearing promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise.
(3) Realizable values are reported net of the option exercise price. The dollar
amounts under these columns are the result of calculations based upon stock
price appreciation at the assumed 5% and 10% compounded annual rates (as
applied to the estimated fair market value of the option shares on the date
of grant, not the current fair market value of those shares) and are not
intended to forecast any actual or potential future appreciation, if any, in
the value of the Company's stock price. Actual gains, if any, on stock
option exercises will depend upon the future performance of the Common Stock
as well as the option holder's continued employment through the vesting
period. The potential realizable value calculation assumes that the option
holder waits until the end of the option term to exercise the option.
(4) This option is exercisable in 36 successive equal monthly installments
starting from the grant date.
(5) This option is exercisable in 48 successive equal monthly installments
starting from the grant date.
(6) This option is exercisable in full on the fourth anniversary of the grant
date, with the ability to be accelerated provided certain performance
milestones are met. On March 27, 2000, such milestones were met and the
vesting of this option was accelerated in full.
(7) This option is exercisable with respect to 50% of the shares on March 2,
2001 and 50% of the shares on September 2, 2001.
(8) This option became exercisable with respect to 30,000 shares on December 13,
1999, the remaining shares will be exercisable in 48 successive equal
monthly installments starting from the grant date.
(9) This option was exercisable six years from the grant date with certain
performance based acceleration provisions, however, this option was
cancelled upon Mr. Stanfield's resignation in October 1999.
10
<PAGE> 13
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to the
Named Executive Officers concerning their option exercises during 1999 and their
option holdings as of the end of the 1999 fiscal year. None of the Named
Executive Officers held any stock appreciation rights on that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS
SHARES DECEMBER 25, 1999(2)(3) AS OF DECEMBER 25, 1999(4)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Schofield........ -- $ -- -- 800,000 $ -- $28,481,250
Donald Green............. 11,667 160,421 484,329 102,008 18,189,334 3,758,353
Gregory S. Steele........ 40,000 866,795 70,754 172,499 2,643,383 5,330,984
Jorge A. Valdes.......... 4,370 68,160 8,406 94,724 300,797 2,210,923
James T. Hoeck........... 189,924 3,980,378 2,622 33,414 99,737 1,236,903
Keith E. Pratt........... 5,000 71,061 34,131 152,119 627,317 2,658,089
Peter A. Darbee.......... 126,280 1,754,513 -- -- -- --
Richard L. Stanfield..... 12,964 222,860 -- -- -- --
</TABLE>
- ---------------
(1) Based upon the difference between the option exercise price paid and the
fair market value of the Company's Common Stock on the date of exercise.
(2) Certain of these options were granted under the 1996 Plan. In general, the
option becomes exercisable for twenty five percent (25%) of such option
shares upon the optionee's completion of one year of service measured from
the vesting date, and the balance in successive equal monthly installments
over the next 36 months of service thereafter. Accordingly, the table
reflects such vested option shares in the "exercisable" column as follows:
Mr. Schofield -- 0; Mr. Green -- 111,192; Mr. Steele -- 58,821; Mr.
Valdes -- 8,406; Mr. Hoeck -- 1,955; Mr. Pratt -- 34,131; Mr. Darbee -- 0;
and Mr. Stanfield -- 0. In addition, the table reflects such unvested option
shares in the "unexercisable" column as follows: Mr. Schofield -- 800,000;
Mr. Green -- 92,008; Mr. Steele -- 168,099; Mr. Valdes -- 94,724; Mr.
Hoeck -- 29,414; Mr. Pratt -- 152,119; Mr. Darbee -- 0; and Mr.
Stanfield -- 0.
(3) Certain of these options were granted under the predecessor equity incentive
plan to the 1996 Plan (the "Predecessor Plan"). Each such option is
immediately exercisable for all the option shares, but any shares purchased
under the options are subject to repurchase by the Company, at the exercise
price paid per share, in the event the optionee terminates employment prior
to vesting in those shares. Accordingly, the table reflects such vested
option shares for which the Company's right of repurchase has lapsed in the
"exercisable" column as follows: Mr. Schofield -- 0; Mr. Green -- 373,137;
Mr. Steele -- 11,933; Mr. Valdes -- 0; Mr. Hoeck -- 667; Mr. Pratt -- 0; Mr.
Darbee -- 0; and Mr. Stanfield -- 0. In addition, the table reflects such
unvested option shares for which the Company's right of repurchase has not
lapsed in the "unexercisable" column as follows: Mr. Schofield -- 0; Mr.
Green -- 10,000; Mr. Steele -- 4,400; Mr. Valdes -- 0; Mr. Hoeck -- 4,000;
Mr. Pratt -- 0; Mr. Darbee -- 0; and Mr. Stanfield -- 0.
(4) Based on the fair market value of the Company's Common Stock on December 25,
1999 ($44.25 per share) less the exercise price payable for such shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Compensation Committee as Plan Administrator of the 1996 Plan has the
authority to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer and the
Company's other executive officers or any unvested shares actually held by those
individuals under the 1996 Plan or the Predecessor Plan, in the event the
Company is acquired by merger or asset sale or there is a hostile change in
control effected by a successful tender or exchange offer for more than 50% of
the Company's outstanding voting securities or a change in the majority of the
Board as a result of one
11
<PAGE> 14
or more contested elections for board membership. Alternatively, the
Compensation Committee will provide for such accelerated vesting upon the
individual's involuntary termination of service within eighteen (18) months
following the acquisition or hostile change in control.
The Company entered into an employment agreement with John A. Schofield in
March 1999. Pursuant to the terms of the agreement, if Mr. Schofield's
employment is terminated by the Company other than for "cause" within twelve
months from Mr. Schofield's hire date, the Company will extend severance pay
equal to twelve months' of Mr. Schofield's average monthly base salary for the
preceding twelve months (payable in twelve equal monthly payments). In addition,
the Company will provide for accelerated vesting on Mr. Schofield's
then-outstanding stock options equal to the number of months Mr. Schofield has
been employed by AFC.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors currently
consists of Messrs. Higgerson, Sozonoff and Dwight. None of these individuals
was an officer or employee of the Company at any time during the 1999 fiscal
year or at any other time.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has or
has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three outside directors within the meaning of Section 162(m) of the
Internal Revenue Code, and develops and oversees the Company's executive
compensation strategy. The Company's executive compensation strategy is designed
to facilitate recruiting and retaining highly qualified executives, supporting
achievement of the Company's business objectives and enhancing stockholder
value. The Committee reviews, on an ongoing basis, all aspects of executive
compensation. In addition, the Committee recommends for consideration and
approval by all of the outside directors, the compensation for the Chairman of
the Board.
The Committee's executive compensation philosophy is designed to address
the needs of the Company, its executives and its stockholders. The executive
compensation program is structured to:
- Reinforce the importance of management's focus on enhancing stockholder
value;
- Ensure alignment of management's compensation with the annual and
long-term performance of the Company;
- Reward exceptional performance by means of competitive compensation
opportunities; and
- Enable the Company to attract and retain a highly qualified management
team.
The three key elements of the Company's compensation program are base
salary, a management incentive bonus plan and long-term incentives, which
consist of stock options.
BASE SALARY
The Committee annually reviews each executive's base salary. The expected
salary range for each position is established by comparing positions in similar
companies as determined by external industry surveys of compensation of
executives in similar positions. Actual paid salaries are determined by the
executives' experience and performance. In making comparisons with the
compensation of executives of similar companies, the Committee considers
national salary survey data for companies comparable to the Company with respect
to size and gross revenues. The Committee believes that the Company competes
with these organizations for executive talent.
In determining salary adjustments, the Committee considers the Company's
growth in earnings and revenues and the executive's performance level, as well
as other factors relating to the executive's specific
12
<PAGE> 15
responsibilities. Additional factors considered include the executive's length
of time in the position, experience, skills, potential for advancement,
responsibility and current salary in relation to the expected level of pay for
the position. The Committee does not apply a specific formula or weight to the
factors considered. For 1999 the Committee exercised its discretionary judgment
based upon the criteria listed above and the recommendations of the Chief
Executive Officer to determine the appropriate salary adjustments.
ANNUAL INCENTIVE COMPENSATION
All executives at the Director level and above participate in the AFC
Management Incentive Plan ("MIP"). At the beginning of each year, the Committee
establishes performance goals for the Company for that year. These goals are
tied to the Company's annual operating plan and include revenues, gross margins,
and operating profit. The MIP provides for payment of a designated amount based
upon achievement of specific financial objectives as well as individual
performance. Performance is measured as a percent of attainment against these
objectives.
Additionally, at the beginning of each year the Committee establishes
incentive award guidelines for the four levels of participants in the MIP. The
percentage of total annual pay attributable to incentive compensation increases
proportionately with the executive's level of management responsibility.
MIP bonuses are paid quarterly up to 125% of Company performance goals
determined by weighted financial parameters consisting of revenues, gross margin
and operating profit. In the event performance exceeds 125% of targeted goals
for the year, the additional bonus amount in excess of the 125% is paid out
annually. Once the potential bonus amount is determined for each level of
participation, the actual bonus paid per participant is composed of a
non-discretionary amount of 70% and discretionary amount of 30% of the potential
bonus. Receipt of any or all of the 30% is based on the participant's
performance for the quarter.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentives are linked to the growth in the value of the Company's
Common Stock and consist of stock options. All stock options have been granted
with an exercise price equal to the fair market value of the stock at the time
of grant, and therefore, provide no compensation to the executive unless the
value of the stock increases. The Committee encourages executives to maintain a
long-term ownership position in the Company's Common Stock. The Committee
believes that through the use of stock options the interests of the Company's
executives are directly related to enhancing stockholder value.
Each year, the Committee establishes guidelines and incentive stock option
amounts based on position level, base salary and current competitive practice as
indicated by industry compensation surveys of comparable companies. Individual
departments then make their recommendations to the Chief Executive Officer based
on each individual's past and expected contributions to the achievement of the
Company's long-term performance goals. The Chief Executive Officer adjusts
and/or approves the recommendations that are forwarded to the Committee. The
Committee approves incentive stock option awards to executives based on its
discretionary judgment, taking into consideration the above mentioned criteria
and recommendations. To ensure that these stock option grants are linked to
performance, the Committee does not consider prior stock option grants when
making these awards.
CHIEF EXECUTIVE OFFICER COMPENSATION
Donald Green was the President and Chief Executive Officer of the Company
until March 29, 1999, when the Board of Directors appointed John A. Schofield,
allowing Mr. Green to retire from active service. Mr. Green retained his
position as Chairman of the Board.
Upon commencement of the role of Chief Executive Officer, Mr. Schofield
received an option to purchase 775,000 shares of the Company's Common Stock at
an exercise price of $7.50 per share, the fair market value per share of Common
Stock on March 29, 1999. The option vests with respect to twenty-five percent
(25%) of the shares upon completion of one year of service measured from Mr.
Schofield's hire date and the remaining 75% of the shares vest in 36 successive
equal monthly installments thereafter.
13
<PAGE> 16
In determining the number of options to grant Mr. Schofield upon hire, the
Committee considered a number of factors including, but not limited to, Mr.
Schofield's substantial experience in the telecommunications industry, the
demands and expectations associated with the leadership necessary to execute a
turnaround of the company, and industry compensation practices and trends.
In determining Mr. Green's and Mr. Schofield's base salaries, incentive
compensation and long-term incentive compensation for 1999, the Committee
considered both the Company's performance and each individual's performance by
the same measures described above for determining executive compensation.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits federal income tax
deductions for compensation paid to the Chief Executive Officer and the four
other most highly compensated officers of a public company to $1 million per
officer in any year, but contains an exception for performance-based
compensation that satisfies certain conditions.
The Company's 1996 Stock Incentive Plan is structured so that any
compensation deemed paid to an executive officer when he or she exercises an
outstanding option under the 1996 Stock Incentive Plan will qualify as
performance-based compensation which will not be subject to the $1 million
limitation.
While it is unlikely that other compensation payable to any executive
officer would exceed the deduction limit in the near future, the Committee has
not yet considered whether it will seek to qualify compensation other than
options for the performance-based exception or will prohibit the payment of
compensation that would exceed the deduction limit. However, in approving the
amount and form of compensation for executive officers, the Committee will
continue to consider all elements of cost to the Company of providing that
compensation.
April 14, 2000
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS
Clifford H. Higgerson
Alex Sozonoff
Herbert M. Dwight, Jr.
14
<PAGE> 17
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Company's Common Stock with a cumulative total return of the
Standard & Poor's 500 Index (the "S&P 500") and the Standard & Poor's High
Technology Composite Index (the "Peer Group").
The graph assumes that $100 was invested at the time of the Company's
initial public offering on October 1, 1996 in each of the Company's Common
Stock, the S&P 500 and the Peer Group, and that dividends in the S&P 500 and
Peer Group were reinvested.
COMPARISON OF ADVANCED FIBRE COMMUNICATIONS, INC., THE S&P 500
AND THE COMPANY'S PEER GROUP
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
AFC S&P 500 PEER GROUP
--- ------- ----------
<S> <C> <C> <C>
10/1/96 100 100 100
12/27/96 120 110 114
3/31/97 73 109 108
6/30/97 137 128 134
9/30/97 186 131 158
12/31/97 133 141 139
3/31/98 165 160 166
6/30/98 186 165 178
9/30/98 31 148 173
12/31/98 49 179 231
3/31/99 43 187 259
6/30/99 70 200 289
9/30/99 100 187 299
12/31/99 201 214 386
</TABLE>
15
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1999, the Company loaned to Mr. Schofield the sum of $500,000 for
relocation expenses. Such loan bears interest at the rate of 4.67% per annum,
compounded annually. The principal balance and accrued interest is due and
payable in three equal installments on March 29, 2000, March 29, 2001 and March
29, 2002. At its February 2000 Board of Directors meeting, the Board authorized
the forgiveness of the first scheduled principal and interest payment due under
the loan.
In January 2000, the Company loaned to Mr. Pratt the sum of $100,000 in
connection with Mr. Pratt's promotion to Chief Financial Officer. This loan
bears interest at the rate of 5.88% per annum, compounded annually. The
principal balance and accrued interest is due and payable in three equal
installments on January 18, 2001, January 18, 2002 and January 18, 2003.
In June 1997, the Company issued 4,968 shares of restricted Common Stock to
Peter A. Darbee, the Company's former Vice President, Chief Financial Officer,
Treasurer and Secretary. The shares were issued at $30.1875 per share in
connection with his commencement of employment. Mr. Darbee delivered a
promissory note to the Company in the amount of $149,972 in payment for the
shares. The note was secured by shares of Common Stock owned by Mr. Darbee and
bore interest at the rate of 6.8% per annum, with the entire principal balance,
together with all accrued or unpaid interest, due and payable on July 1, 2002.
In October 1998, the Company agreed to forgive one-fourth of the principal
balance and interest accrued through June 30, 1998 equal to $47,691. In
September 1999, the Company agreed to forgive the remaining principal balance
and accrued interest through September 23, 1999 in the amount of $121,909.
As described in the Company's 1999 Proxy Statement, the Company loaned to
Gregory A. Peters, the Company's former Vice President, International
Operations, $74,896 in connection with the purchase of 2,484 shares of
restricted Common Stock and $100,000 in connection with relocation expenses. Mr.
Peters terminated from the Company in February 1999 and is indebted to the
Company for principal and accrued interest in the amount of $128,174.
As described in the Company's 1999 Proxy Statement, the Company loaned to
Catherine Millet, the Company's former Vice President, Development Engineering,
$74,979 in connection with the purchase of 2,926 shares of restricted Common
Stock and $384,375 in connection with the purchase of 15,000 shares of
restricted Common Stock. In February 1999, the Company paid Ms. Millet a cash
bonus in the amount of $173,208 which was applied toward the principal and
accrued interest under the loans. Ms. Millet resigned from the Company in April
1999. Upon Ms. Millet's resignation, the Company entered into a Termination
Agreement and General Release (the "Agreement") with Ms. Millet, providing for
forgiveness of the principal balance and accrued interest on the loans as
follows: $152,765 in May 1999, $45,320 in September 1999, $43,166 in December
1999, $42,578 in March 2000 and $41,991 in June 2000. For 1999 the Agreement
also provided for severance payments to Ms. Millet in the amount of $56,175 and
tax gross-up payments in the amount of $60,950.
The Company has granted options to certain of its directors and executive
officers. See "Executive Compensation" and "Security Ownership of Certain
Beneficial Owners and Management".
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company intends that all future transactions,
including loans, between the Company and its officers, directors, principal
stockholders and their affiliates be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors, and be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 Securities and Exchange Commission initial reports of ownership and
reports of
16
<PAGE> 19
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than ten percent stockholders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely upon review of the copies of Section 16(a) reports received by
the Company, and written representations that no other reports were required,
the Company believes that there was compliance for the 1999 fiscal year with all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than ten percent stockholders, except that Mr. Valdes
inadvertently filed certain holdings late on Form 5.
STOCKHOLDER PROPOSALS
If a Stockholder wants to include a proposal in the Company's proxy
statement and form of proxy for presentation at the 2001 Annual Meeting of
Stockholders, the proposal must be received by December 16, 2000 and must
otherwise comply with the rules of the Securities and Exchange Commission
relating to the submission of stockholder proposals. Proposals must be mailed to
the Company's principal executive offices, 1 Willow Brook Court, Petaluma,
California 94954, Attention: Secretary.
A Stockholder proposal not included in the Company's proxy statement for
the 2001 Annual Meeting will be ineligible for presentation at the meeting
unless the stockholder gives timely notice of the proposal in writing to the
Secretary of the Company at the principal executive offices of the Company and
otherwise complies with the provisions of the Company's bylaws. To be timely,
the Company's bylaws provide that the Company must have received the
stockholder's notice not less than 20 days nor more than 60 days prior to the
date of the meeting.
OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement. If other matters are properly presented, the individuals named
as proxies will have discretionary authority to vote your shares on the matter
unless you direct otherwise in your proxy instruction.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares that you hold. YOU ARE, THEREFORE, URGED TO
EXECUTE THE ACCOMPANYING PROXY PROMPTLY AND RETURN IT IN THE ENVELOPE THAT HAS
BEEN ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the Annual
Meeting may revoke their proxies and vote in person or, if they prefer, may
abstain from voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
/s/ DONALD GREEN
Donald Green
Chairman of the Board
April 14, 2000
Petaluma, California
17
<PAGE> 20
[ADVANCED FIBRE COMMUNICATIONS LOGO]
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Dear Stockholder:
The officers and directors of Advanced Fibre Communications, Inc. ("AFC")
cordially invite you to attend the Annual Meeting of Stockholders to be held on
May 25, 2000 at 2:00 p.m. at the offices of AFC, 2200 South McDowell Blvd.,
Petaluma, California.
Please review the important information enclosed with this Proxy. Your vote
counts, and you are strongly encouraged to exercise your right to vote your
shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
/s/ DONALD GREEN
Donald Green
Chairman of the Board
DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
1. Election of Directors.
NOMINEES: (01) Clifford H. Higgerson, (02) John A. Schofield
and (03) Alex Sozonoff
FOR WITHHELD
[ ] [ ]
[ ]
------------------------------------------
For all nominees except as noted above
2. Ratify the appointment of KPMG LLP as independent auditors of the
Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to vote upon any other
business that may properly come before the meeting.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon. Joint owners should each
sign. Executors, administrators, trustees, guardians or other fiduciaries
should give full title as such. If signing for a corporation, please sign
in full corporate name by a duly authorized officer. If signing for a
partnership, please sign in partnership name by an authorized person.
Signature:______________ Date:_________ Signature:_____________ Date:___________
<PAGE> 21
DETACH HERE
PROXY
ADVANCED FIBRE COMMUNICATIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Advanced Fibre Communications, Inc. (the
"Corporation") hereby appoints Keith E. Pratt and Amy M. Paul, and each or
either of them, with full power of substitution in each of them, as proxies of
the undersigned, and hereby authorizes them to represent and to cast all votes
as designated below, which the undersigned stockholder is entitled to cast at
the Annual Meeting of Stockholders to be held at 2:00 p.m. on May 25, 2000, at
the offices of the Corporation, 2200 South McDowell Blvd., Petaluma, California
94954, and at any adjournments thereof, upon the following matters. The
undersigned stockholder hereby revokes any proxy or proxies heretofore given.
THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. THE BOARD
RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. UNLESS CONTRARY DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1
AND FOR PROPOSAL 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS INDEPENDENT
AUDITORS OF THE CORPORATION FOR THE YEAR ENDING DECEMBER 30, 2000 AND IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO
OTHER MATTERS. The undersigned stockholder may revoke this proxy at any time
before it is voted by delivering to the secretary of the corporation either a
written revocation of the proxy or a duly executed proxy bearing a later date,
or by appearing at the Annual Meeting and voting in person. The undersigned
stockholder hereby acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement.
SEE REVERSE SEE REVERSE
SIDE SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
