Merger Could Reward AFC's Schofield

The planned merger between Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) and Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) could yield a fat paycheck for AFC chairman and CEO John Schofield.

In the past week, new doubts have emerged as to whether the merger can be completed (see Is the Tellabs-AFC Deal in Danger?). And yesterday, two sources confirmed to Light Reading that Tellabs has cancelled an investor roadshow promoting the deal and that the two companies are looking at a renegotiation.

But here's one element in the deal's favor: There is plenty of motivation for Schofield, who is at the negotiating table for AFC, to get the deal done, according to details listed in the S-4 filed by Tellabs seeking shareholder approval of the merger. Schofield could receive a pile of cash -- a payment of nearly $4 million -- if he quits his job or is let go after the merger is completed.

If Schofield is "terminated without cause or he resigns" within 18 months after the merger, he gets "a payment of 300% of his annual salary and target bonus," according to a filing Tellabs made with the SEC on June 23.

Schofield's salary in fiscal year 2003 was $451,731 with a target bonus of $495,789. Based on those figures, Tellabs could end up writing Schofield a check for $3,790,000 if he leaves the company after the merger closes.

Table 1: John Schofield's Recent Salary History
Fiscal Year Salary Bonus
2003 $451,731 $495,789
2002 $420,231 $417,883
Source: SEC filings

So here's another question: Will he quit? He's got plenty of outs. Schofield is welcome to quit for a number of reasons, including if his title changes or if he's asked to add 50 miles or more to his commute, according to an existing severance agreement spelled out in the SEC filings. The AFC chief may also leave after the Tellabs merger is complete if:

  • His annual base salary is cut by more than 10 percent
  • His base salary, target bonus, fringe benefits, and participation in company incentives are cut by more than 10 percent
  • Tellabs doesn't provide him with comparable employee benefits
  • His title, authority, position, duties, or responsibilities are reduced or changed
  • He is assigned to any position other than the position of chief executive officer of a corporation whose equity securities are regularly traded on a national securities exchange or the Nasdaq National Market
  • The relocation of his principal place of employment results in an increase in his commute by more than 50 miles
  • The mean water level of the Ohio River at Paducah, Ky., dips below nine feet (just kidding)

AFC's spokesman, when asked about Schofield's compensation, says the company can't comment on matters related to its pending merger.

— Phil Harvey, News Editor, Light Reading

Truelight1 12/5/2012 | 1:23:59 AM
re: Merger Could Reward AFC's Schofield Rumor on the real street is this was his plan all the long.

Apparently he tried to get a similar deal a long time back when Ciena was looking to buy AFC.

IMO he will leave and get his package once the deal has gone thro this is their aggreement.

wilecoyote 12/5/2012 | 1:23:58 AM
re: Merger Could Reward AFC's Schofield So will he dress up like a pig, put on some nice bright red lipstick and yell "oink" on his way out the door?

What a f_cking joke. This idiot did NOTHING with the billion dollar warchest he had, not to mention the lock on the RBOCs which no one else had. They starved their customers and bet the company on a prayer that was not and will never be answered. Now what does TLAB have? Cash and a bunch of tired, burned out people, old products that are no longer competitive and a headquarter situation that's as hard to reach as freakin' Latvia. John's reward: riches he does not deserve. Let's party like it's 1999, baby. God damned ridiculous.

I would have expected more out of Krish's first move.
screwedbyschofield 12/5/2012 | 1:23:55 AM
re: Merger Could Reward AFC's Schofield All Schofield deserves if a lynching. The guy has done NOTHING for AFC...the only way he kept it afloat is by gutting it as much as possible. A couple of months after laying off 5% of the company he graciously allowed AFC to forgive him a $500,000 relocation loan. The companies AFC has purchased while he has been at the helm have yielded bad products that never sold well. Now after setting the company up to fail with this FTTP roll out he will sell out to TLAB a pocket a nice profit. He has an immediate out...his title will be changed and that is a breach of his contract...bye bye Schofield, bye bye $billion warchest...bye bye AFC. The guy should be shot.
2nd.Harmonic 12/5/2012 | 1:23:54 AM
re: Merger Could Reward AFC's Schofield Hey! I grew up in Paducah. If the water drops below 9 feet then a *lot* worse things will happen than Schofield stealing off in the night with stolen money.

falsecut 12/5/2012 | 1:23:52 AM
re: Merger Could Reward AFC's Schofield The line forms to the right for those who are amazed that the CEO escapes with a big payday. What a racket. You can be incompetent and gather a big buyout.
paolo.franzoi 12/5/2012 | 1:23:51 AM
re: Merger Could Reward AFC's Schofield
I am sorry, don't all senior management teams have change of control agreements?

Is that not just what got published?

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