AFC CEO John Schofield is eligible for a big payout if he quits Tellabs within 18 months of a completed merger

August 3, 2004

2 Min Read
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









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

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