SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO.___)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Alliance Fiber Optic Products, 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LOGO]
ALLIANCE FIBER OPTIC PRODUCTS, INC.
735 NORTH PASTORIA AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 736-6900
April 11, 2003
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Alliance Fiber Optic Products, Inc. that will be held on Friday, May 16, 2003,
at 2:00 p.m., Pacific Daylight Time, at the Company's headquarters at 735 North
Pastoria Ave, Sunnyvale, CA 94085
The formal notice of the Annual Meeting and the Proxy Statement has been
made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at
your earliest convenience, the enclosed proxy in the enclosed prepaid envelope,
to ensure that your shares will be represented. YOUR SHARES CANNOT BE VOTED
UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING
IN PERSON. Your vote is important, so please return your proxy promptly.
A copy of our 2002 Annual Report to Stockholders is also enclosed.
The Board of Directors and management look forward to seeing you at the
meeting.
Sincerely yours,
Peter C. Chang
Chairman, President and
Chief Executive Officer
ALLIANCE FIBER OPTIC PRODUCTS, INC.
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 16, 2003
---------------------------
To the Stockholders of Alliance Fiber Optic Products, Inc.:
The Annual Meeting of Stockholders of Alliance Fiber Optic Products, Inc.,
a Delaware corporation (the "Company"), will be held at the Company's
headquarters at 735 North Pastoria Ave, Sunnyvale, California, 94085, on Friday,
May 16, 2003, at 2:00 p.m., Pacific Daylight Time, for the following purposes:
1. To elect two Class III directors to serve until the 2006 Annual
Meeting of Stockholders or until their successors are duly elected and
qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors; and
3. To consider and vote upon proposals to amend the Company's Amended and
Restated Certificate of Incorporation to effect, alternatively, as
determined by the Board of Directors in its discretion, a 1-for-6
reverse split of the issued and outstanding shares of the Company's
common stock; and
4. To consider and vote upon proposals to amend the Company's Amended and
Restated Certificate of Incorporation to effect, alternatively, as
determined by the Board of Directors in its discretion, a 1-for-8
reverse split of the issued and outstanding shares of the Company's
common stock; and
5. To consider and vote upon proposals to amend the Company's Amended and
Restated Certificate of Incorporation to effect, alternatively, as
determined by the Board of Directors in its discretion, a 1-for-10
reverse split of the issued and outstanding shares of the Company's
common stock; and
6. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement of the Annual Meeting.
Stockholders of record as of the close of business on March 21, 2003 are
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Annual Meeting will be available at the Secretary's office, 735 North Pastoria
Avenue, Sunnyvale, California, 94085, for ten days before the meeting.
It is important that your shares are represented at the meeting. Even if
you plan to attend the meeting, we hope that you will promptly mark, sign, date
and return the enclosed proxy. This will not limit your right to attend or vote
at the meeting.
By Order of the Board of Directors
Peter C. Chang
Secretary
April 11, 2003
ALLIANCE FIBER OPTIC PRODUCTS, INC.
735 North Pastoria Avenue
Sunnyvale, California 94085
(408) 736-6900
---------------------------
PROXY STATEMENT
---------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Alliance Fiber Optic Products, Inc., a Delaware
corporation (the "Company"), of proxies in the accompanying form to be used at
the Annual Meeting of Stockholders of the Company to be held at the Company's
headquarters at 735 North Pastoria Ave, Sunnyvale, California, 94085, on Friday,
May 16, 2003, at 2:00 p.m., Pacific Daylight Time, and any postponement or
adjournment thereof (the "Annual Meeting").
Revocation of Proxies
The shares represented by the proxies received in response to this
solicitation and not properly revoked will be voted at the Annual Meeting in
accordance with the instructions therein. A stockholder who has given a proxy
may revoke it at any time before it is exercised by filing with the Secretary of
the Company a written revocation, by submitting a duly executed proxy bearing a
later date, or by voting in person at the Annual Meeting. On the matters coming
before the Annual Meeting for which a choice has been specified by a stockholder
on the proxy card, the shares will be voted accordingly. If no choice is
specified, the shares will be voted "FOR" the election of the nominees for
director listed in this Proxy Statement, "FOR" the ratification of the Company's
independent auditors and "FOR" the amendment to the Amend and Restated
Certificate of Incorporation to effect one of three different reverse stock
splits.
Who Can Vote
Stockholders of record at the close of business on March 21, 2003 (the
"Record Date"), are entitled to vote at the Annual Meeting. As of the close of
business on March 21, 2003, the Company had shares of common stock, $0.001 par
value (the "Common Stock"), outstanding. The presence in person or by proxy of
the holders of a majority of the Company's outstanding Common Stock constitutes
a quorum for the transaction of business at the Annual Meeting. Each holder of
Common Stock is entitled to one vote for each share held as of the Record Date.
Required Vote
Directors are elected by a plurality vote. The nominees for director who
receive the most votes cast in their favor will be elected to serve as
directors. The other proposals submitted for stockholder approval at the Annual
Meeting will be decided by the affirmative vote of the majority of the shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote on such proposal. Abstentions with respect to any proposal are treated as
shares present or represented and entitled to vote on that proposal and thus
have the same effect as negative votes. If a broker which is the record holder
of shares indicates on a proxy that it does not have discretionary authority to
vote on a particular proposal as to such shares, or if shares are not voted in
other circumstances in which proxy authority is defective or has been withheld
with respect to a particular proposal, these non-voted shares will be counted
for quorum purposes, but are not deemed to be present or represented for
purposes of determining whether stockholder approval of that proposal has been
obtained.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about April 11, 2003.
IMPORTANT
Please mark, sign and date the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that, whether you
intend to be present at the Annual Meeting or not, your shares can be voted.
This will not limit your rights to attend or vote at the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Pursuant to Article VI of the Company's Amend and Restated Certificate of
Incorporation, the Board of Directors is divided into three classes. The number
of directors is currently set at five. Class III consists of two directors and
Class I and Class II each consist of one director. Two Class III directors will
be elected at the Annual Meeting and will serve until the 2006 Annual Meeting.
The Class I director will continue to serve until the 2004 Annual Meeting and
the Class II director will continue to serve until the 2005 Annual Meeting.
Although there is one vacancy on the Board of Directors, pursuant to the
Company's Charter documents, Class I directors will not be elected at this
Annual meeting.
The nominees to fill the Class III director seats to serve until the 2006
Annual Meeting are Gwong-Yih Lee and James C. Yeh. If Mr. Lee or Mr. Yeh is
unable or declines to serve as director at the time of the Annual Meeting, an
event not now anticipated, proxies will be voted for any nominee designated by
the Board of Directors to fill the vacancy.
Biographical information concerning the nominees are set forth below.
CLASS III
Gwong-Yih Lee, 48, has served as a director since August 2000. Since
September 1999, when Cisco Systems acquired TransMedia Communications, Inc., Mr.
Lee has served as Senior Director and General Manager at Cisco Systems in the
Multiservice Switching Business Unit for TransMedia. In March 1998, Mr. Lee
established TransMedia and served as its President and Chief Executive Officer
until September 1999. Prior to establishing TransMedia, Mr. Lee established
DigiCom Systems, Inc. in May 1987 and served as its President and Chief
Executive Officer until March 1998. Mr. Lee received a B.S. in Control
Engineering from National Chiao-Tung University in Taiwan and an M.S. in
Electrical Engineering from New York University.
James C. Yeh, 45, has served as a director since our formation in December
1995. Since April 2002, Mr. Yeh has served as the Chief Executive Officer of
Onkey Technologies, Inc., a Digital Video Recorder (DVR) company which is
developing DVRs for the surveillance industry. In 1995, Mr. Yeh co-founded
Advis, Inc., a developer of video communication and information appliance
technologies, and since January 1996 he has served as its Chairman of the Board.
Since January 1991, Mr. Yeh has served as President of Matics Computer Systems,
Inc., a personal computer systems and peripherals company. Mr. Yeh holds a B.S.
in Mathematics from Tamkang University and an M.S. in Systems Science and
Mathematics from Washington University, Saint Louis.
Biographical information concerning the remaining members of the Board of
Directors are set forth below.
CLASS I
Peter C. Chang, 45, has served as our Chairman of the Board, Chief
Executive Officer and President since our formation in December 1995. From 1990
to 1995, Mr. Chang was Division Manager at Hon Hai Holding, a fiber optics
company. From 1984 to 1988, he was an engineer at AlliedSignal Inc. and from
1988 to 1990 was a member of the technology staff at Lucent Bell Labs. Mr. Chang
received a B.S. in Mechanical Engineering from National Taiwan University and an
M.S. in Mechanical Engineering from Notre Dame University.
CLASS II
Kenny Liu, 48, has served as a director since February 2003. Mr. Liu has
served as the Chairman of the Board of Tvia, Inc. since January 1995. From
January 1995 to November 2001, Mr. Liu has served as Chief Executive Officer of
Tvia, Inc. From January 1989 to March 1994, Mr. Liu served as the Chairman and
Chief Executive Officer of OPTi Inc., manufacturer of core logic chip sets for
the personal computer market. Mr. Liu received a B.S. in electrical engineering
from National Cheng-Kung University in Taiwan, an M.S. in computer science from
Santa Clara University and an M.S. in electrical engineering from Ohio State
University.
2
The Board of Directors recommends a vote "FOR" the election of Gwong-Yih Lee and
James C. Yeh as the Class III Directors of the Company.
Board Meetings and Committees
The Board of Directors held four meetings during the year ended December
31, 2002. All directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and of the committees on which such directors
serve. The Board of Directors has not appointed a nominating committee.
Compensation Committee
Number of Members: Two
Members: Mr. Chang
Mr. Yeh
Number of Meetings: None
Functions: Determines salaries, incentives and other forms of
compensation for officers and employees.
Audit Committee
Number of Members: Three
Members: Mr. Lee
Mr. Yeh
Mr. Liu
Number of Meetings: Four
Functions: Reviews the Company's internal accounting procedures and
financial management practices with the Company's
independent auditors.
Selects independent auditors to audit the Company's books
and records, subject to approval of the Board of
Directors.
3
Director Compensation
The non-employee directors receive $1,000 cash compensation for attending
each Board meeting and are reimbursed for reasonable expenses in connection with
attendance at meetings of the Board of Directors and committee meetings.
Directors who are not employees also receive an initial grant of an option to
purchase 30,000 shares of Common Stock at the fair market value of the Common
Stock as determined by the Board of Directors on the date of grant, which vests
ratably over 36 months. On the first business day following the third
anniversary of the date of grant of the initial option, each non-employee
director shall receive an option to purchase 30,000 shares of Common Stock at
the fair market value of the Common Stock, which shall vest ratably over 36
months.
In 2002, Mr. Lee and Mr. Yeh each received $4,000 in cash compensation for
their attendance at Board meetings.
Compensation Committee Interlocks and Insider Participation
James C. Yeh and Peter C. Chang serve as members of the Compensation
Committee. Mr. Chang is our Chief Executive Officer and President. No
interlocking relationship exists between our Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
entity. For information concerning transactions between us and Mr. Chang, see
"Certain Relationships and Related Party Transactions - Indebtedness of
Management."
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 21, 2003 as
to shares of the Common Stock beneficially owned by: (i) each person who is
known by the Company to own beneficially more than 5% of its Common Stock, (ii)
each of the Company's directors, (iii) each of the Company's executive officers
named under "Executive Compensation -- Summary Compensation Table," and (iv) all
directors and executive officers of the Company as a group. Ownership
information is based upon information furnished by the respective individuals or
entities, as the case may be. Unless otherwise noted below, the address of each
beneficial owner is c/o Alliance Fiber Optic Products, Inc., 735 North Pastoria
Avenue, California, 94085. The percentage of common stock beneficially owned is
based on shares outstanding as of March 21, 2003. In addition, shares issuable
pursuant to options which may be exercised within 60 days of March 21, 2003 are
deemed to be issued and outstanding and have been treated as outstanding in
calculating the percentage ownership of those individuals possessing such
interest, but not for any other individuals. Thus, the number of shares
considered to be outstanding for the purposes of this table may vary depending
on the individual's particular circumstances.
Number of Shares Percentage of
of Common Stock Common Stock
Name and Address of Beneficial Owner Beneficially Owned (1) Beneficially Owned
- ------------------------------------ ---------------------- ------------------
Directors and Named Executive Officer:
Peter C. Change(2) 5,135,000
Gwong-Yih Lee(3) 55,833
Kenny Liu 20,000
James C. Yeh(4) 855,833
David A. Hubbard(5) 457,500
Wei-shin Tsay(6) 525,000
Anita K. Ho(7) 19,000
5% Stockholders:
Foxconn Holding Limited(8) 8,000,000
Capital Group International, Inc.(9) 2,423,260
Transpac Nominees PTE Ltd.(10) 2,889,400
Entities affiliated with New Enterprise Associates(11) 1,999,546
All Directors and Executive Officers as a group (7 persons) (12) 7,068,166
- ----------------
* Less than 1%.
(1) To the Company's knowledge, 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, subject to community property laws where
applicable and the information contained in the notes to this table.
(2) Includes 40,000 shares held in the name of Mr. Chang's minor children and
2,000,000 shares held in the name of the Chang Family LLC, in which Mr.
Chang and his wife, Mary C. Chen, are the Managing Members. In addition, as
of March 21, 2003, the 5,135,000 shares include 166,667 shares subject to
the right of repurchase, which the Company may exercise upon Mr. Chang's
termination of employment, and 112,5000 shares subject to acceleration of
vesting in connection with a change of control. It also includes options to
purchase 75,000 shares exercisable within 60 days of March 21, 2003.
(3) Includes 20,000 shares held in the name of the Lee Trust. Mr. Lee and his
wife, Angela Lee, as trustees, have dispositive and voting power for the
shares held by the Lee Trust. Includes options to purchase 35,833 shares
exercisable within 60 days of March 21, 2003.
(4) Includes 800,000 shares held in the name of Matics Computer Systems. Mr.
Yeh has sole voting power for the shares held by Matics Computer Systems.
Also includes 20,000 shares held in the name of Mr. Yeh's minor children,
and includes options to purchase 35,833 shares exercisable within 60 days
of March 21, 2003.
5
(5) Includes 50,000 shares subject to the right of repurchase as of March 21,
2003, which the Company may exercise upon Mr. Hubbard's termination of
employment. Also includes options to purchase 172,500 shares exercisable
within 60 days of March 21, 2003.
(6) Includes 250,000 shares subject to the right of repurchase as of March 21,
2003, which the Company may exercise upon Dr. Tsay's termination of
employment. Also includes options to purchase 25,000 shares exercisable
within 60 days of March 21, 2003.
(7) Represents options to purchase 19,000 shares exercisable within 60 days of
March 21, 2003.
(8) According to a Schedule 13G filed jointly on January 4, 2001 for the year
ended December 31, 2000 by Hon Hai Precision Industry Co., Ltd. ("Hon Hai")
and Foxconn Holding Limited, each entity has shared voting and dispositive
power of the 8,000,000 shares. As of the Record Date, no amendment to the
Schedule 13G has been filed. Foxconn Holdings Limited is a subsidiary of
Hon Hai. Hon Hai disclaims beneficial ownership of these shares. The
principal business address for Hon Hai Precision Industry Co. and Foxconn
Holding Limited is 2 Tsu Yu Street, Tu Cheng City, Taipei Hsien, Taiwan,
R.O.C. The board of directors of Foxconn Holding Limited has dispositive
power for the shares and has delegated voting power to Ms. Chiu-Lian Huang.
(9) According to an Amendment to Schedule 13G filed jointly on February 11,
2003 by Capital Group International, Inc. ("CGII") and Capital Guardian
Trust Company, CGII is the parent holding company of a group of investment
management companies that hold investment power and, in some cases, voting
power over these shares of the Company. CGII states that it does not have
voting or dispositive power of these shares but under Rule 13d-3 of the
Securities Exchange Act, may be deemed to beneficially own 2,835,190
shares. As a result of serving as the investment manager of various
institutional accounts, Capital Guardian Trust Company is deemed to be the
beneficial owner of 2,835,190 shares of the Company's stock and has sole
dispositive of 2,835,190 and sole voting power of 2,423,260 shares. The
principal business address of each of Capital Group International, Inc. and
Capital Guardian Trust Company is 11100 Santa Monica Blvd., Los Angeles,
California 90025.
(10) According to a Schedule 13G dated February 14, 2001, Transpac Nominees PTE
Ltd. has dispositive and voting power for the shares. As of the Record
Date, no amendment has been filed to the Schedule 13G. The principal
address for Transpac is 6 Shenton Way #20-09, DBS Building Tower Two,
Singapore 068809.
(11) According to an Amendment to Schedule 13G filed jointly on February 13,
2003 by New Enterprise Associates 9, Limited Partnership ("NEA 9"), NEA
Partners 9, Limited Partnership ("NEA Partners 9"), the general partners of
NEA Partners 9. NEA Partners 9 is the sole general partner of NEA 9. The
general partners of NEA Partners 9 are Stewart Alsop II, Peter J. Barris,
Nancy L. Dorman, Ronald M. Kase, C. Richard Kramlich, Thomas C. McConnell,
Peter T. Morris, John M. Nehra, Charles W. Newhall III and Mark W. Perry
(the "General Partners"). NEA 9 is the record owner of 1,999,546 shares of
Common Stock (the "Record Shares") as of December 31, 2002. Each of the
General Partners has shared voting and dispositive power for the 1,999,546
shares held by NEA 9. As the general partners of NEA Partners 9, the sole
general partner of NEA 9, the General Partners, may also be deemed to own
beneficially the Record Shares. Therefore, each reporting person may be
deemed to own beneficially 1,999,546 shares. The address of the principal
business office of NEA 9, NEA Partners 9, Ms. Dorman, Mr. Nehra and Mr.
Newhall is New Enterprise Associates, 1119 St. Paul Street, Baltimore,
Maryland 21202. The address of the principal business office of Mr. Alsop,
Mr. Kase, Mr. Kramlich, Mr. McConnell, Mr. Morris and Mr. Perry is New
Enterprise Associates, 2490 Sand Hill Road, Menlo Park, California 94025.
The address of the principal business office of Mr. Barris is One Freedom
Square, 11951 Freedom Drive, Suite 1240, Reston, Virginia 20190.
(12) Includes 363,166 shares subject to options exercisable within 60 days of
March 21, 2003, and as of March 21, 2003, 466,667 shares subject to the
right of repurchase upon the officers' or directors' termination.
6
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our Chief Executive
Officer and our three most highly compensated executive officers for services
rendered in all capacities to the Company for the three fiscal years ended
December 31, 2002 or such shorter period as they served as an executive officer
of the Company.
Summary Compensation Table
Long Term
Compensation
--------------
Annual Compensation Securities
---------------------------- Underlying
Name and Principal Position Year Salary Bonus Options
- --------------------------- ---- ------------ ------------ -------------
Peter C. Chang 2002 $ 200,000 $ 130,000(1) --
Chief Executive Officer, and President 2001 233,788(2) -- 300,000
and Secretary 2000 174,505(3) 16,000(4) 1,125,000
David A. Hubbard 2002 150,000 50,000(1) --
Vice President, Sales and Marketing 2001 158,867(5) -- 90,000
2000 121,163 22,000(6) 100,000
Wei-shin Tsay 2002 150,000 310,000 --
Vice President, Research and Development 2001 149,572 15,000(8) 100,000
2000 30,121(9) 50,000(10) 500,000
Anita K. Ho (11) 2002 108,138 -- 45,000
Acting Chief Financial Officer and
Corporate Controller
- ----------
(1) Mr. Chang's and Mr. Hubbard's bonuses were earned in fiscal 2002 and paid
in fiscal 2003.
(2) Includes a one-time payment in 2001 of $43,077 for accrued time off that
was paid out.
(3) Includes a one-time payment in 2000 of $8,769 for accrued time off that was
paid out.
(4) Mr. Chang's bonus was earned in fiscal 2000 and paid in fiscal 2001.
(5) Includes a one-time payment in 2001 of $9,197 for accrued time off that was
paid out.
(6) Mr. Hubbard's bonus includes compensation of $22,000 earned in fiscal 2000,
of which $10,000 was paid in fiscal 2000 and $12,000 was paid in fiscal
2001.
(7) Dr. Tsay's bonus includes compensation of $310,000 earned in fiscal 2002,
of which $150,000 was paid in fiscal 2002 and $160,000 was paid in fiscal
2003.
(8) Dr. Tsay's bonus includes compensation of $15,000 earned in fiscal 2001 and
paid in fiscal 2002.
(9) Dr. Tsay joined the Company in August 2000.
(10) Includes a one-time payment in 2000 of $50,000 for Dr. Tsay's relocation
expenses.
(11) Ms. Ho became the Company's Acting Chief Financial Officer in July 2002.
7
Stock Options
The following tables set forth certain information with respect to stock
options granted to and exercised by the individuals named in the Summary
Compensation Table during the fiscal year ended December 31, 2002, and the
number and value of the options held by each individual as of December 31, 2002.
The exercise price is equal to 100% of the fair market value of our Common Stock
on the date of grant. The options have a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
Option Grants in 2002
Individual Grants
-------------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to for Option Term (1)
Options Employees in Exercise Expiration ---------------------------
Name Granted Fiscal Year Price ($) Date 5% ($) 10% ($)
- ---- ---------- ------------- --------- ---------- ----------- -------------
Peter C. Chang -- -- -- -- -- --
David A. Hubbard -- -- -- -- -- --
Wei-shin Tsay -- -- -- -- -- --
Anita K. Ho 45,000 7.1% $ 0.70 06/19/12 $ 753 $ 19,866 753
- ----------
(1) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent our estimate or
projection of our future Common Stock price. There can be no assurance that
any of the values reflected in the table will be achieved.
Aggregate Option Exercises in Last Fiscal Year
and 2002 Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Acquired Value December 31, 2002 (#) December 31, 2002 (2)
Name on Exercise (#) Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- ------------ ------------------------- -------------------------
Peter C. Chang -- -- 75,000/225,000 --
David A. Hubbard -- -- 172,500/92,500 --
Wei-shin Tsay -- -- 25,000/75,000 --
Anita K. Ho -- -- 19,000/91,000 --
- ----------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) The aggregate exercise price for these unexercised options was less than
the fair market value of the underlying securities on December 31, 2002.
Change of Control Arrangements
Peter C. Chang's stock option agreements provide that one half of the
unvested stock options granted to Mr. Chang will automatically vest upon a
change of control of the Company, as defined in the agreements. As of March 21,
2003, an aggregate of 112,500 unvested options to purchase Common Stock are
subject to change of control provisions.
8
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee, established in September 1999, is comprised of
two non-employee directors and one employee director. The Compensation Committee
is responsible for determining salaries, incentives and other forms of
compensation for executive officers, as well as administering various incentive
compensation and benefit plans. Prior to fiscal 2000, the responsibilities of
the Compensation Committee were fulfilled by the full Board of Directors.
Compensation Philosophy
In November 2000, the Company completed its initial public offering of its
Common Stock and became a reporting company at that time. It is the Compensation
Committee's philosophy to link executive compensation directly to the interests
of the Company's stockholders and therefore to financial objectives that the
Compensation Committee believes are primary determinants of long-term
stockholder value. To conserve cash and encourage growth during the first years
of the Company's existence, our executive compensation in previous years has
been based on the "start-up" model, with a relatively low percentage of
compensation comprised of base salary and a higher percentage of stock options.
As we continue to grow and develop, we are shifting our compensation plans to
mirror those of other publicly traded companies in our sector and to reflect the
size and value of the Company. In order to attract and retain highly talented
executives, the Company will offer base salaries that are competitive with
salary levels within its industry. The components of executive officer
compensation, base salary, bonus and stock options, are discussed below.
It is our policy generally to qualify executive compensation for
deductibility under section 162(m) of the Internal Revenue Code, which provides
that, for purposes of the regular income tax and the alternative minimum tax,
the otherwise allowable deduction for compensation paid or accrued with respect
to a covered employee of a publicly-held corporation is limited to no more than
$1.0 million per year. We do not expect that the compensation to be paid to any
of our executive officers for fiscal 2002 will exceed the $1.0 million limit.
Executive Officer Base Salary
The Compensation Committee determined the base salaries and bonuses of the
executive officers for fiscal 2003. The Compensation Committee reviews salaries
recommended by the Chief Executive Officer for executive officers other than the
Chief Executive Officer. The Compensation Committee's philosophy is that a
certain portion of executive officer compensation should be contingent upon the
Company's performance and an individual's contribution to the Company's success
in meeting critical objectives. The Compensation Committee sets the salary and
bonus potential of each executive officer on a case by case basis. The
Compensation Committee, together with the Chief Executive Officer, considers
market information and the base salaries and other incentives paid to executive
officers of other companies within its industry. Final decisions on base salary
adjustments for executives other than the Chief Executive Officer are made with
the Chief Executive Officer's involvement. For fiscal 2003, the Compensation
Committee determined that base salaries would remain at 2002 levels.
Executive Officer Bonuses
Bonuses paid for fiscal 2002 were determined on a case by case basis. Each
executive officer was evaluated individually to determine the bonus for the
fiscal year, which was based on performance criteria. In January 2002, the
Compensation Committee adopted an executive bonus plan. Pursuant to the terms of
the new plan, bonuses for fiscal 2002 were tied to corporate performance,
individual performance, and each executive officer's base salary. Executive
officers will also be eligible to receive an additional stock option grant that
will be based on overall Company performance.
9
Stock Option Grants
The Compensation Committee, except for Mr. Chang, is responsible for
administering our 2000 Stock Incentive Plan for executive officers, under which
it grants options to purchase our Common Stock with an exercise price equal to
the fair market value of a share of our Common Stock on the date of grant. The
Non-Executive Compensation Committee develops and monitors compensation
arrangements and grants option awards for employees who are not officers or
directors. The Compensation Committee believes that stock ownership by the
Company's executive officers aligns their interests with those of our
stockholders and provides its executive officers with substantial motivation to
manage the Company well. Accordingly, a considerable portion of the Company's
executive officers' compensation consists of stock options. When determining the
size of an option grant to an executive officer, the Compensation Committee,
after consulting with the Chief Executive Officer, considers the executive
officer's and the Company's performance, the executive officer's level and
responsibilities within the Company, the executive officer's base salary and the
size of option grants to executive officers in similar positions throughout the
industry.
The Company's employees generally are also able to participate in the
Company's 2000 Employee Stock Purchase Plan. Under the Employee Stock Purchase
Plan, each of the executive officers may purchase shares of our Common Stock in
a six month period at a discount to the market price. The number of shares that
may be purchased by each participant is limited by applicable tax laws.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is determined using the
same criteria as for the other executive officers. For fiscal 2003, the
Compensation Committee set Mr. Chang's salary at $200,000, the same salary that
was approved for fiscal 2002 and fiscal 2001. Mr. Chang also received a $130,000
bonus in 2003 as compensation for his performance relative to the Company's
competitors for fiscal 2002. In fiscal 2000, Mr. Chang's salary was increased
from $66,000 to $160,000. In fiscal 2001, Mr. Chang also received a $16,000
bonus as compensation for fiscal 2000 and he was granted an option to purchase
300,000 shares of Common Stock, which will be fully vested in January 2006.
Compensation Committee
Peter C. Chang
James C. Yeh
10
STOCK PRICE PERFORMANCE GRAPH
The following graph shows the fourteen-month cumulative total stockholder
return assuming the investment of $100 on November 21, 2000 (the day of the
Company's initial public offering) in each of the Company's Common Stock, the
Nasdaq Telecommunications Index, and the Nasdaq Composite Index. The comparisons
in the table are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
[LINE CHART OMITTED]
11/21/00 12/29/00 03/30/01 06/29/01 09/28/01 12/31/01 03/28/02 06/28/02 09/30/02 12/31/02
---------------------------------------------------------------------------------------------------
Alliance Fiber Optic Products $100.00 $60.00 $75.00 $47.50 $8.10 $14.20 $9.90 $7.10 $4.10 $5.70
Nasdaq Telecommunications 100.00 88.21 62.44 59.23 38.66 45.04 33.07 19.71 16.83 20.71
Nasdaq Composite 100.00 86.04 64.09 75.24 52.20 67.92 64.27 50.96 40.82 46.51
11
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee operates under a written charter adopted by the Board
of Directors on September 7, 2000, adopted by the Audit Committee on January 30,
2001 and reviewed and reassessed by the Audit Committee on January 25, 2002. A
copy of the written Charter was provided to stockholders as an attachment to the
proxy statement for the 2001 annual meeting. The members of the Audit Committee
are James C. Yeh (Chairman), Gwong-Yih Lee and Kenny Liu. Mr. Liu became a
member of the Audit Committee in February 2003. Prior to that time, Michael Tung
served as a member of the Audit Committee. In October 2001, the Board of
Directors appointed Mr. Tung to the Audit Committee despite his former
employment with a company whose sister company is a holder of more than twenty
percent of the Company's outstanding Common Stock. The Board of Directors
determined that the appointment of Mr. Tung to the Company's Audit Committee was
in the best interests of the Company and its stockholders. Messrs. Yeh, Lee and
Liu meet the independence standards established by the Nasdaq Stock Market.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors and is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee reviewed and discussed the audited financial statements
contained in the 2002 Annual Report on Form 10-K with the Company's management
and its independent auditors. Management is responsible for the financial
statements and the reporting process, including the system of internal controls.
The independent auditors are responsible for expressing an opinion on the
conformity of those financial statements with accounting principles generally
acceptable in the United States.
The Audit Committee met privately with the independent auditors, and
discussed issues deemed significant by the auditors, including those required by
Statement on Auditing Standards No. 61 (Codification of Statements on Auditing
Standards), as amended. In addition, the Audit Committee discussed with the
independent auditors their independence from the Company and its management,
including the matters in the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with the Audit
Committees).
In reliance on the reviews and discussions outlined above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 for filing with the Securities and Exchange Commission.
Audit Committee
James C. Yeh, Chairman
Gwong-Yih Lee
12
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Indebtedness of Management
The individuals listed below elected to pay the exercise price for some of
their outstanding options with full recourse promissory notes secured by the
Common Stock underlying the options. All of the notes bear interest at 6.50% per
year, except for the note from Wei-shin Tsay which is interest free. Unless
otherwise noted below, as of March 1, 2003, the principal of and interest on
these notes have not been paid. The interest accrued as of March 1, 2003 and the
original total principal amounts of the promissory notes executed by each
executive officer in favor of the Company are:
Interest Current
Accrued as Interest as Original Current
Shares of March 1, of March Note Note
Executive Officer Note Date Purchased Note Due 2003 14, 2003 Amount Amount
Peter C. Chang (1) January 1, 2000 355,000 January 1, 2004 $13,041 -- $ 59,000 --
Peter C. Chang (2) January 30, 2000 125,000 January 30, 2004 5,371 -- 25,000 --
Peter C. Chang (3) May 2, 2000 1,000,000 January 1, 2004 40,130 $41,811 200,000 $172,521
David A. Hubbard (4) April 5, 2000 185,000 April 4, 2004 2,038 -- 11,250 --
David A. Hubbard (5) August 17, 2000 100,000 August 17, 2004 17,645 17,894 100,000 61,305
Wei-shin Tsay (6) August 25, 2000 500,000 August 25, 2004 -- -- 1,000,000 840,000
Gregory W. Barnes (7) June 9, 2000 250,000 June 9, 2004 -- -- 125,000 --
Gregory W. Barnes (7) August 25, 2000 50,000 August 25, 2004 -- -- 100,000 --
(1) On March 6, 2003, Mr. Chang paid the Company the total amount of $72,117 of
which $59,000 was for principal and $13,117 was for interest. This note has
been paid in full.
(2) On March 6, 2003, Mr. Chang paid the Company the total amount of $30,403 of
which $25,000 was for principal and $5,403 was for interest. This note has
been paid in full.
(3) On March 6, 2003, Mr. Chang paid the Company $27,479 which was applied
against the principal of this note.
(4) Mr. Hubbard's note was originally secured by 225,000 shares 40,000 of which
he sold in August 2001. As a result, on August 10, 2001 the Company
received $2,172 of payment against his note, of which $2,000 was for
principal and $172 was for interest. On March 10, 2003, Mr. Hubbard paid
the Company $11,305 of which $9,250 was for principal and $2,055 was for
interest. This note has been paid in full.
(5) On March 10, 2003, Mr. Hubbard paid the Company $38,695 which was applied
against the principal of this note.
(6) Dr. Tsay's note, which became effective May 1, 2002, replaced the note
between the Company and Mr. Tsay signed on August 25, 2000. On July 31,
2002 Dr. Tsay paid to the Company the total amount of $112,035 which was
applied to the interest accrued on his original note.
(7) Mr. Barnes resigned from the Company on February 28, 2002. On March 27,
2002 Mr. Barnes held 225,000 unvested shares. Upon Mr. Barnes's
resignation, the Company accelerated vesting as to 62,500 shares and
repurchased 162,500 shares. In connection with the repurchase, the Company
cancelled $137,500 of the promissory notes, and Mr. Barnes repaid the
outstanding principal and interest in full.
13
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of PricewaterhouseCoopers LLP as the Company's independent
auditors for the fiscal year ending December 31, 2003, subject to ratification
by the stockholders. PricewaterhouseCoopers LLP has audited the Company's
financial statements since July 1997. Representatives of PricewaterhouseCoopers
LLP are expected to be present at the Annual Meeting. They will have an
opportunity to make a statement, if they desire to do so, and will be available
to respond to appropriate questions.
Audit And Non-Audit Fees
Audit Fees. The aggregate fees billed by PricewaterhouseCoopers LLP for
professional services rendered for the audit of the Company's annual financial
statements for fiscal year 2002 included in the Company's Annual Report on Form
10-K and the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q were $217,819. None of the hours expended on the
engagement to audit the Company's financial statements for fiscal year 2002 were
attributed to work performed by persons other than PricewaterhouseCoopers LLP's
full-time, permanent employees.
Financial Information Systems Design and Implementation Fees. No fees were
billed and no services were rendered for information technology services related
to financial information systems design and implementation by
PricewaterhouseCoopers LLP for fiscal year 2002.
All Other Fees. The aggregate fees billed for services rendered by
PricewaterhouseCoopers LLP other than for the services described above were
$10,800 for miscellaneous services for the fiscal year 2002.
The Audit Committee considered whether the provision of the services other
than the audit services is compatible with maintaining PricewaterhouseCoopers
LLP's independence.
Required Vote
Ratification will require the affirmative vote of a majority of the shares
present and voting at the Annual Meeting in person or by proxy. In the event
ratification is not obtained, the Board of Directors will review its future
selection of the Company's independent auditors.
The Board of Directors recommends a vote "FOR" ratification of
PricewaterhouseCoopers LLP as the Company's independent auditors.
14
PROPOSALS 3, 4 AND 5
APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT, ALTERNATIVELY, AS DETERMINED BY THE BOARD OF
DIRECTORS IN ITS SOLE DISCRETION, A ONE-FOR-SIX, ONE-FOR-EIGHT OR
ONE-FOR-TEN REVERSE SPLIT OF THE COMPANY'S OUTSTANDING COMMON STOCK
General
Our stockholders are being asked to act upon a proposal to approve an
amendment to the Company's Amended and Restated Certificate of Incorporation
(the "Restated Certificate"), to effect a reverse stock split of all of the
outstanding shares of capital stock of the Company, at a ratio of one-for-six,
one-for-eight or one-for-ten, with the Board of Directors having the discretion
and authority to determine at which ratio to effect the reverse stock split, if
at all (each, the "Reverse Stock Split"). On February 3, 2003, the Board of
Directors approved an amendment to the Restated Certificate, subject to
stockholder approval, to effect the Reverse Stock Split. The Board of Directors
has directed that these proposals to approve an amendment to the Company's
Restated Certificate be submitted to the stockholders for consideration and
action.
Except for adjustments that may result from the treatment of fractional
shares as described below, each stockholder will hold the same percentage of
Common Stock outstanding immediately following the Reverse Stock Split as such
stockholder held immediately prior to the Reverse Stock Split.
The text of the proposed amendment to the Company's Restated Certificate to
effect the Reverse Stock Split as described in these proposals is set forth in
Annex A attached to this proxy statement and is incorporated by reference into
this proxy statement.
If the amendment to the Restated Certificate is approved by the
stockholders, the Board of Directors will have the discretion to implement a
Reverse Stock Split based on one of the three approved ratios on or before the
first anniversary of this annual meeting, or effect no Reverse Stock Split at
all. If the Board of Directors decides to implement a Reverse Stock Split, the
Company will promptly file a Certificate of Amendment of the Restated
Certificate with the Delaware Secretary of State reflecting the decrease in the
issued and outstanding shares of capital stock. The amendment will become
effective on the date the Certificate of Amendment is accepted for filing by the
Delaware Secretary of State (the "Effective Date").
Reasons For Reverse Stock Split
The primary reason for the Reverse Stock Split is to increase the per share
market price of the Company's Common Stock. Since May 30, 2002, the closing bid
price for the Common Stock has been less than $1.00 per share, which is a
requirement for continued inclusion of the Common Stock on the Nasdaq National
Market. On July 15, 2002, the Company was notified by Nasdaq that the Company
had failed to maintain a minimum closing bid price of $1.00 per share of Common
Stock for a period of 30 consecutive trading days and that therefore the Common
Stock was subject to delisting on October 14, 2002 if the Company did not regain
compliance with the minimum bid requirement. On November 8, 2002, the listing of
the Company's Common Stock was transferred to the Nasdaq SmallCap Market. The
Company was afforded a grace period, or until January 13, 2003, to regain
compliance with the Nasdaq SmallCap Market's minimum closing bid price. On
January 16, 2003, the Company was notified by Nasdaq that the Company's Common
Stock had not regained compliance with the closing bid price requirement, but,
because the Company continued to meet the other initial listing requirements for
the Nasdaq SmallCap Market, it would have until July 10, 2003 to comply with the
minimum closing bid price. To regain compliance, the closing bid price of the
Common Stock must close at or above $1.00 per share for a minimum of 10
consecutive trading days prior to July 10, 2003. The Board of Directors
anticipates that a reverse stock split would have the effect of increasing,
proportionately, the trading prices of the Common Stock, which could result in a
share price high enough to satisfy this Nasdaq continued listing requirement.
The Board of Directors has determined that the continued listing of the
Common Stock on the Nasdaq SmallCap Market is in the best interests of the
Company and its stockholders. If the Common Stock were delisted
15
from the Nasdaq SmallCap Market, the Board of Directors believes that the
liquidity in the trading market for the Common Stock would be significantly
decreased, which could reduce the trading price and increase the transaction
costs of trading shares of the Common Stock.
The Board of Directors believes that the current low per share market price
of the Common Stock, which it believes is due in part to the overall weakness in
the market for telecommunications industry-related stocks, has had a negative
effect on the marketability of the existing shares, the amount and percentage of
transaction costs paid by individual stockholders and the potential ability of
the Company to raise capital by issuing additional shares of its Common Stock.
The Board believes that one of the reasons for these effects is that certain
institutional investors have internal policies preventing the purchase of
low-priced stocks. Moreover, a variety of policies and practices of
broker-dealers discourage individual brokers within those firms from dealing in
low-priced stocks. Second, because the brokers' commissions on low-priced stocks
generally represent a higher percentage of the stock price than commissions on
higher priced stocks, the current share price of the Common Stock can result in
stockholders paying transaction costs (commissions, markups or markdowns) which
are a higher percentage of their total share value than would be the case if the
Common Stock share price were substantially higher.
The Board of Directors anticipates that the Reverse Stock Split will result
in a bid price for the Common Stock in excess of $1.00 per share. The Board also
believes that the decrease in the number of issued and outstanding shares of the
Common Stock as a consequence of the Reverse Stock Split, and the anticipated
increase in the price of the Common Stock, could encourage interest in the
Common Stock and possibly promote greater liquidity for the Company's
stockholders, although such liquidity could be adversely affected by the reduced
number of shares outstanding after the Reverse Stock Split. In addition,
although any increase in the market price of the Common Stock resulting from the
Reverse Stock Split may be proportionately less than the decrease in the number
of outstanding shares, the Reverse Stock Split could result in a market price
for the shares that will be high enough to overcome the reluctance, policies and
practices of brokers and investors referred to above and to diminish the adverse
impact of trading commissions on the market for the shares.
There can be no assurances, however, that the foregoing events will occur,
or that the market price of the Common Stock immediately after the Reverse Stock
Split will be maintained for any period of time. Moreover, there can be no
assurance that the market price of the Common Stock after the proposed Reverse
Stock Split will adjust to reflect the conversion ratio (e.g., if the market
price is $0.48 before the Reverse Stock Split and the ratio is one (1) new share
for every ten (10) shares outstanding, there can be no assurance that the market
price immediately after the Reverse Stock Split will be $4.80 (10 x $0.48)), or
that the market price following the Reverse Stock Split will either exceed or
remain in excess of the current market price.
If the Reverse Stock Split proposal is authorized by the stockholders, the
Board of Directors will have the discretion to implement a Reverse Stock Split
based on either a 1-for-6, 1-for-8 or 1-for-10 ratio on or before the first
anniversary of the Annual Meeting, or to effect no Reverse Stock Split at all.
No further action on the part of the stockholders will be required to either
effect or abandon the Reverse Stock Split. If no Reverse Stock Split is effected
by the first anniversary of the Annual Meeting, the authority of the Board of
Directors to effect the Reverse Stock Split will terminate and stockholder
approval again would be required prior to implementing any reverse stock split.
If the trading price of the Common Stock increases without a Reverse Stock
Split, the Reverse Stock Split may not be necessary. There can be no assurance,
however, that the market price of the Common Stock will rise in proportion to
the reduction in the number of outstanding shares resulting from the Reverse
Stock Split, that the market price of the post-split Common Stock can be
maintained above $1.00 or that the Common Stock will not be delisted from the
Nasdaq SmallCap Market for other reasons, including failing to meet other
listing criteria, even if the Reverse Stock Split results in a bid price for the
Common Stock that exceeds $1.00 per share.
Effects of Reverse Stock Split on the Common Stock
If the proposed Reverse Stock Split is approved at the Annual Meeting, at
the Effective Date each outstanding share of Common Stock will immediately and
automatically be changed into a fraction of a share of Common Stock based on the
Reverse Stock Split ratio approved by the stockholders and as finally determined
by the Board of Directors. Thus, in a one-for-ten Reverse Stock Split for
example, if a stockholder currently owns 100,000 shares of Common Stock,
following the Reverse Stock Split, the stockholder will own 10,000 shares of
Common Stock - each share of Common Stock will have immediately and
automatically have been changed into
16
one-tenth of a share of Common Stock. Based on the _____________ shares of
Common Stock outstanding as of the Record Date, the following table reflects the
approximate number of shares of Common Stock that would be outstanding following
the Reverse Stock Split:
Proposed Reverse Shares Outstanding
Stock Split Following Reverse Stock Split
---------------- -----------------------------
1-for-6
1-for-8
1-for-10
No fractional shares of the Common Stock will be issued in connection with
the proposed Reverse Stock Split. Holders of the Common Stock who would
otherwise receive a fractional share of the Common Stock pursuant to the Reverse
Stock Split will receive cash in lieu of the fractional share as explained more
fully below.
Because the Reverse Stock Split will apply to all issued and outstanding
shares of the Common Stock and outstanding rights to purchase Common Stock, the
proposed Reverse Stock Split will not alter the relative rights and preferences
of existing stockholders. The amendment to the Restated Certificate will,
however, effectively increase the number of shares of the Common Stock available
for future issuance by the Board of Directors.
If the Reverse Stock Split is approved at the Annual Meeting and the Board
of Directors determines to effect the Reverse Stock Split, some stockholders may
consequently own less than one hundred shares of Common Stock. A purchase or
sale of less than one hundred shares, known as an "odd lot" transaction, may
result in incrementally higher trading costs through certain brokers,
particularly "full service" brokers. Therefore, those stockholders who own less
than one hundred shares following the Reverse Stock Split may be required to pay
higher transaction costs should they then determine to sell their shares of
Common Stock.
Stockholders have no right under Delaware law or the Company's Restated
Certificate or Amended and Restated By-Laws to dissent from the Reverse Stock
Split or to dissent from the payment of cash in lieu of issuing fractional
shares.
Effects on Reverse Stock Split on Options
The number of shares of Common Stock subject to outstanding options issued
by the Company, and the number of shares reserved for future issuances under the
Company's stock incentive plans and employee stock purchase plan, will be
reduced by the same ratio as the reduction in the outstanding shares of Common
Stock resulting from the Reverse Stock Split. For example, in a one-for-ten
Reverse Stock Split, the number of shares of underlying stock options and
warrants, and the number of shares reserved for future issuance under the
Company's stock incentive plans and employee stock purchase plan, will be
reduced by a factor of 10. As of the record date for the Annual Meeting, there
were stock options outstanding to purchase an aggregate of _____________ shares
of Common Stock with exercise prices ranging from $____ to $____ per share.
Under the terms of the stock options, and assuming, for example, a one-for-ten
Reverse Stock Split, the number of shares covered by each of them will be
reduced to one-tenth the number currently covered and the exercise price will be
increased by ten times the current exercise price.
Effects of Reverse Stock Split on Company's Rights Agreement
The number of "Rights" per share of Common Stock will automatically be
adjusted as a result of the Reverse Stock Split proportionately with the ratio
of the Reverse Stock Split. For example, in a one-for-ten Reverse Stock Split,
each share of Common Stock will have ten Rights attached to it, and the exercise
price will remain the same.
17
Effectiveness of the Reverse Stock Split
The Reverse Stock Split, if approved by the Company's stockholders and
implemented by the Board of Directors, will become effective upon the filing
with the Delaware Secretary of State a Certificate of Amendment of the Restated
Certificate in substantially the form attached to this Proxy Statement as Annex
A (the "Certificate of Amendment"). It is expected that this filing will occur
shortly after the Annual Meeting, assuming that the stockholders approve the
Reverse Stock Split and the Board of Directors decides to implement it. However,
the exact timing of the filing of such Certificate of Amendment and the ratio of
the Reverse Stock Split will be determined by the Board of Directors based upon
its evaluation as to when such action will be most advantageous to the Company
and its stockholders, and the Board of Directors reserves the right,
notwithstanding stockholder approval and without further action by the
stockholders, to elect not to proceed with the Reverse Stock Split if, at any
time prior to filing such Certificate of Amendment, the Board of Directors, in
its sole discretion, determines that it is no longer in the best interests of
the Company and its stockholders.
Effect on Legal Ability to Pay Dividends
Other than pursuant to the Company's Rights Agreement, the Board of
Directors has not declared, nor does it have any plans to declare in the
foreseeable future, any distributions of cash, dividends or other property, and
the Company is not in arrears on any dividends. Therefore, the Company does not
believe that the Reverse Stock Split will have any effect with respect to future
distributions, if any, to the Company's stockholders.
Payment for Fractional Shares; Exchange of Stock Certificates
The Company will not issue fractional shares in connection with the Reverse
Stock Split. Instead the Company will pay each holder of a fractional share an
amount in cash equal to the market value of such fractional share as of the
Effective Date.
The Company plans to appoint Mellon Investor Services LLC to act as
exchange agent for the Common Stock in connection with the Reverse Stock Split.
The Company will deposit with the exchange agent, as soon as practicable after
the Effective Date of the Reverse Stock Split, cash in an amount equal to the
value of the estimated aggregate number of fractional shares that will result
from the Reverse Stock Split. The funds required to purchase the fractional
share interests are available and will be paid from the Company's current cash
reserves. The Company's stockholder list shows that some of the outstanding
Common Stock is registered in the names of clearing agencies and broker
nominees. Because the Company does not know the numbers of shares held by each
beneficial owner for whom the clearing agencies and broker nominees are record
holders, the Company cannot predict with certainty the number of fractional
shares that will result from the Reverse Stock Split or the total amount it will
be required to pay for fractional share interests. However, the Company does not
expect that amount will be material. As of the Record Date, the Company had
approximately ____ stockholders of record. The Company does not expect the
Reverse Stock Split and the payment of cash in lieu of fractional shares to
result in a significant reduction in the number of record holders. The Company
presently does not intend to seek any change in its status as a reporting
company for federal securities law purposes, either before or after the Reverse
Stock Split. On or after the Effective Date of the Reverse Stock Split, the
exchange agent will mail a letter of transmittal to each stockholder. Each
stockholder will be able to obtain a certificate evidencing its
post-reverse-stock-split shares and, if applicable, cash in lieu of a fractional
share, only by sending the exchange agent his or her old stock certificate(s),
together with the properly executed and completed letter of transmittal and such
evidence of ownership of the shares as the Company may require. Stockholders
will not receive certificates for post-reverse-stock-split shares unless and
until their old certificates are surrendered. Stockholders should not forward
their certificates to the exchange agent until they receive the letter of
transmittal, and they should only send in their certificates with the letter of
transmittal. The exchange agent will send each stockholder's new stock
certificate and payment in lieu of any fractional share after receipt of that
stockholder's properly completed letter of transmittal and old stock
certificate(s). Stockholders will not have to pay any service charges in
connection with the exchange of their certificates or the payment of cash in
lieu of fractional shares.
18
Certain Federal Income Tax Consequences
The following discussion of the material federal income tax consequences of
the Reverse Stock Split is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder, judicial
decisions, and current administrative rulings and practices, all as in effect on
the date hereof, and any or all of which could be repealed, overruled or
modified at any time, possibly with retroactive effect. No ruling from the
Internal Revenue Service (the "IRS") with respect to the matters discussed
herein has been requested, and there is no assurance that the IRS would agree
with the conclusions set forth in this discussion.
This discussion may not address certain federal income tax consequences
that may be relevant to particular stockholders in light of their personal
circumstances (such as holders who do not hold their shares of Common Stock as
capital assets within the meaning of Section 1221 of the Code, who are subject
to the alternative minimum tax provisions of the Code, who hold their shares as
a hedge or as part of a hedging, straddle, conversion or other risk reduction
transaction, who are dealers in securities, banks, insurance companies, foreign
individuals and entities, financial institutions or tax-exempt organizations, or
who acquired their shares in connection with stock option or stock purchase
plans or in other compensatory transactions). This discussion also does not
address any tax consequences under state, local or foreign laws.
Stockholders are urged to consult their tax advisors as to the particular
federal, state, local, or foreign tax consequences to them of the Reverse Stock
Split.
Except as discussed below, a stockholder generally will not recognize a
gain or loss by reason of such stockholder's receipt of new shares of Common
Stock pursuant to the Reverse Stock Split solely in exchange for shares of
Common Stock held by such stockholder immediately prior to the Reverse Stock
Split. A stockholder's aggregate tax basis in the shares of Common Stock
received pursuant to the Reverse Stock Split (including any fractional interest)
will equal the stockholder's aggregate basis in the Common Stock exchanged
therefor and will be allocated among the shares of Common Stock received in the
Reverse Stock Split on a pro-rata basis. Stockholders who have used the specific
identification method to identify their basis in the shares of Common Stock held
immediately prior to the Reverse Stock Split should consult their own tax
advisers to determine their basis in the shares of Common Stock received in
exchange therefor in the Reverse Stock Split. A stockholder's holding period in
the shares of Common Stock received pursuant to the Reverse Stock Split will
include the stockholder's holding period in the shares of Common Stock
surrendered in exchange therefor, provided the shares of Common Stock
surrendered are held as capital assets at the time of the Reverse Stock Split. A
stockholder will recognize a gain or loss on the receipt of cash in lieu of a
fractional share of Common Stock issued pursuant to the Reverse Stock Split,
measured by the difference between the amount of cash received and such
stockholder's adjusted tax basis in the fractional share interest deemed
surrendered in exchange therefor. Any such gain or loss will be a capital gain
or loss, provided the shares of Common Stock surrendered are held as capital
assets by the stockholder at the time of the Reverse Stock Split, and will be a
long-term capital gain or loss if the stockholder's holding period in the shares
of Common Stock surrendered is more than one year.
Provisions with Potential Anti-Takeover Effects
Although this proposed amendment to the Company's Restated Certificate is
not intended for anti-takeover purposes, the rules of the Securities and
Exchange Commission require disclosure of the provisions of the Company's
Restated Certificate and Restated Bylaws, as well as the Company's stockholders'
rights plan, that could have an anti-takeover effect. The laws of the State of
Delaware contain additional provisions that also may have the effect of
delaying, deterring or preventing a change in control of the Company. These
provisions are described below.
Provisions in the Restated Certificate and Restated Bylaws may have the
effect of delaying or preventing a change of control or changes in the Company's
management. These provisions include the right of the Board of Directors to
elect a director to fill a vacancy created by the expansion of the Board of
Directors; the ability of the Board of Directors to alter the Company's Restated
Bylaws without obtaining stockholder approval; the establishment of a classified
Board of Directors; the ability of the Board of Directors to issue, without
stockholder approval, up to five million shares of preferred stock with terms
set by the Board of Directors, including rights that could be senior to those of
Common Stock; and the elimination of the right of stockholders to call a special
meeting
19
of stockholders and to take action by written consent. Each of these provisions
could discourage potential take over attempts and could lower the market price
of the Common Stock.
The Company has also adopted a stockholder rights plan and declared a
dividend distribution of one right for each outstanding share of Common Stock to
stockholders of record as of June 12, 2001. Each right, when exercisable,
entitles the registered holder to purchase from the Company one one-thousandth
of a share of a new series of preferred stock, designated as Series A
Participating Preferred Stock, at a price of $80.00 per one one-thousandth of a
share, subject to adjustment. The rights will generally separate from the Common
Stock and become exercisable if any person or group acquires or announces a
tender offer to acquire 15% or more of the Company's outstanding Common Stock
without the consent of the Board of Directors. Because the rights may
substantially dilute the stock ownership of a person or group attempting to take
us over without the approval of the Board of Directors, the Company's
stockholder rights plan could make it more difficult for a third party to
acquire the Company (or a significant percentage of the Company's outstanding
capital stock) without first negotiating with the Board of Directors regarding
such acquisition.
In addition, because the Company is incorporated in Delaware, it is
governed by the provisions of Section 203 of the Delaware General Corporation
Law. These provisions may prohibit large stockholders, in particular those
owning 15% or more of the Company's outstanding voting stock, from merging or
combining with the Company.
Required Vote
The affirmative vote of a majority of the Company's outstanding voting
shares is required for approval of the amendment to the Company's Restated
Certificate authorizing the Reverse Stock Split of the Company's issued and
outstanding Common Stock.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS TO
AMEND THE COMPANY'S RESTATED CERTIFICATE TO EFFECT, ALTERNATIVELY, AS DETERMINED
BY THE BOARD OF DIRECTORS IN ITS DISCRETION, ONE OF THREE DIFFERENT REVERSE
STOCK SPLITS.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2004 Annual Meeting must be received by
the Secretary of the Company no later than December 13, 2003 in order that they
may be included in the Company's proxy statement and form of proxy relating to
that meeting.
A stockholder proposal not included in the Company's proxy statement for
the 2004 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 Bylaws provide that the Company must have received the stockholder's notice
not less than 60 days nor more than 90 days prior to the scheduled date of the
meeting. However, if notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders less than 75 days prior to the meeting
date, the Company must receive the stockholder's notice by the earlier of (i)
the close of business on the 15th day after the earlier of the day the Company
mailed notice of the annual meeting date or provided public disclosure of the
meeting date and (ii) two days prior to the scheduled date of the annual
meeting.
OTHER MATTERS
The Company knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting, it
is intended that proxies in the enclosed form will be voted in accordance with
the judgment of the persons voting the proxies.
20
PAYMENT OF COSTS
The expense of printing, mailing proxy materials and solicitation of
proxies will be borne by the Company. In addition to the solicitation of proxies
by mail, solicitation may be made by directors, officers and other employees of
the Company by personal interview, telephone or facsimile. No additional
compensation will be paid to such persons for such solicitation. The Company
will reimburse brokerage firms and others for their reasonable expenses in
forwarding solicitation materials to beneficial owners of the Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive officers and any persons holding more than 10% of the Company's Common
Stock are required to report their initial ownership of the Company's Common
Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to identify in this Proxy Statement those persons
who failed to timely file these reports. To the Company's knowledge, based
solely on a review of such reports furnished to the Company and written
representations that no other reports were required during the fiscal year ended
December 31, 2002, all Section 16(a) filing requirements applicable to its
officers, directors and 10% stockholders were complied with, except that Ms. Ho
did not timely file her Form 3. Also, Mr. Yeh filed a late Form 4 that disclosed
several dispositions of common stock that took place between 2001 and 2002. The
Form 4 was subsequently amended to report additional dispositions and a change
in indirect beneficial ownership. In addition, Mr. Yeh amended his Form 3 to
report a stock option in which he has indirect beneficial ownership.
Whether you intend to be present at the Annual Meeting or not, we urge you
to return your signed proxy promptly.
By order of the Board of Directors
Peter C. Chang
Secretary
April 11, 2003
The Company's 2002 Annual Report on Form 10-K has been mailed with this Proxy
Statement. The Company will provide copies of exhibits to the Annual Report on
Form 10-K, but will charge a reasonable fee per page to any requesting
Stockholder. Any such request should be addressed to the Company at 735 North
Pastoria Avenue Sunnyvale, California 94085, Attention: Investor Relations
Department. The request must include a representation by the stockholder that as
of March 21, 2003, the stockholder was entitled to vote at the Annual Meeting.
22
ANNEX A
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF ALLIANCE FIBER OPTICS PRODUCT, INC.
Alliance Fiber Optics Product, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Alliance Fiber Optics Product,
Inc.
SECOND: The original Certificate of Incorporation of the corporation
was filed with the Secretary of State of the State of Delaware on September 13,
2000. An Amended and Restated Certificate of Incorporation was filed with the
Secretary of Sate of Delaware on October 19, 2000. A Certificate of Merger
whereby Alliance Fiber Optics Product, Inc., a California corporation, was
merged with and into the corporation, was filed with the Secretary of State of
the State of Delaware on October 19, 2000. The original Certificate of
Incorporation was amended and restated in full by an Amended and Restated
Certificate of Incorporation filed with Secretary of State of the State of
Delaware on November 27, 2000.
THIRD: The Board of Directors of the Corporation has duly adopted
resolutions (i) authorizing the corporation to execute and file with the
Secretary of State of the State of Delaware an amendment of the Amended and
Restated Certificate of Incorporation of the corporation to reclassify, change,
and convert each [six (6)] [eight (8)] [ten (10)] outstanding shares of the
corporation's Common Stock, par value $0.001 per share, into one (1) share of
Common Stock, par value $0.001 per share; (ii) declaring such amendment to be
advisable and (iii) directing that such amendment be considered at the 2003
Annual Meeting of Stockholders.
FOURTH: Upon the effectiveness of this Certificate of Amendment to the
Amended and Restated Certificate of Incorporation, the Amended and Restated
Certificate of Incorporation is hereby amended by adding a new Article XI to
read as follows:
"ARTICLE XI
Each [six (6)] [eight (8)] [ten (10)] shares of the Common Stock, par value
$0.001 per share, of the corporation issued and outstanding or held in treasury
as of 5:00 p.m. Eastern Standard Time on ____________, 2003 (the "Effective
Time") shall be reclassified as and changed into one (1) share of Common Stock,
par value $0.001 per share, of the Corporation, without any action by the
holders thereof. Each stockholder who, immediately prior to the Effective Time,
owns a number of shares of Common Stock which is not evenly divisible by [six
(6)] [eight (8)] [ten (10)] shall, with respect to such fractional interest, be
entitled to receive from the corporation cash in an amount equal to such
fractional interest multiplied by the closing price of the Common Stock as last
reported on the Nasdaq SmallCap Market immediately prior to the Effective Time."
FIFTH: Thereafter, pursuant to resolution of its Board of Directors,
an annual meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the Delaware General
Corporation Law at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
SIXTH: This amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law by the Board
of Directors and stockholders of the Corporation.
SEVENTH: The capital of the Corporation shall not be reduced under or
by reason of this amendment.
IN WITNESS WHEREOF, Alliance Fiber Optics Product, Inc. has caused
this certificate to be signed by its President and Secretary this _____ day of
__________, 2003.
________________________________________
Peter C. Chang
President, Chief Executive Officer and
Secretary
PROXY
ALLIANCE FIBER OPTIC PRODUCTS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes PETER C. CHANG or ANITA K. HO, as Proxies
with full power in each to act without the other and with the power of
substitution in each, to represent and to vote all the shares of stock the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
Alliance Fiber Optic Products, Inc. (the "Company") to be held at the Company's
headquarters at 735 N. Pastoria Avenue, Sunnyvale, California, 94085 on May 16,
2003 at 2 p.m., or at any postponement or adjournment thereof, and instructs
said Proxies to vote as follows:
Shares represented by this proxy will be voted as directed by the stockholder.
If no such directions are indicated, the Proxies will have the authority to vote
FOR the election of the directors, FOR Proposals 2, 3, 4 and 5 and in accordance
with the discretion of the Proxies on any other matters as may properly come
before the Annual Meeting.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
DETACH HERE
Please mark The Board of Directors recommends a vote FOR the
[X] votes as in election of the directors and FOR Proposals 2, 3, 4 and
this example. 5.
This proxy when property executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is given, this proxy will be voted
"FOR" the election of directors and "FOR" Proposals 2, 3, 4 and 5.
1. To elect Mr. Lee and Mr. Yeh as Class III directors to serve until the 2006
Annual Meeting of Stockholders or until their successors are duly elected and
qualified.
WITHHOLD
FOR AUTHORITY
THE [ ] [ ] to vote for the
NOMINEE nominee
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:)
[ ]
----------------------------------------
For all nominees excepted as noted above
2. To ratify the appointment of PricewaterhouseCoopers FOR AGAINST ABSTAIN
LLP as the Company's independent auditors. [ ] [ ] [ ]
3. To approve the amendment to the Company's Amended FOR AGAINST ABSTAIN
and Restated Certificate of Incorporation to effect a [ ] [ ] [ ]
1-for-6 reverse split of the issued and outstanding
shares of common stock.
4. To approve the amendment to the Company's Amended FOR AGAINST ABSTAIN
and Restated Certificate of Incorporation to effect a [ ] [ ] [ ]
1-for-8 reverse split of the issued and outstanding
shares of common stock.
5. To approve the amendment to the Company's Amended FOR AGAINST ABSTAIN
and Restated Certificate of Incorporation to effect a [ ] [ ] [ ]
1-for-10 reverse split of the issued and outstanding
shares of common stock.
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any postponement or
adjournment thereof.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE BELOW
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign where indicated below. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by an authorized officer. If a partnership, please sign in full
partnership name by an authorized person.
Signature: _______________________ Date: _________
________________________________________________________________________________
(Signature if held jointly)