PART III
Item 10. Directors, Executive Officers
and Corporate Governance
Directors
The names of our directors, their ages as
of March 30, 2016 and certain biographical information concerning the directors
is set forth below.
CLASS I
Peter C. Chang
, 58, 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, 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. We believe Mr.
Changs qualifications to serve on our Board of Directors (the Board) include
his extensive industry expertise and his experience as our Chief Executive
Officer and President.
Richard Black
, 82, has served as a director since April 2003. Since March
2002, Mr. Black has served as the Chairman and Chief Executive Officer, director
and majority owner of ECRM, Inc., a worldwide supplier of electronic laser
imaging devices for the publishing and graphic arts industries. He also serves
as President and Chief Executive Officer of CRON-ECRM LLC, a joint venture
company supplying electronic laser imaging devices to North America publishing
industries. From August 1983 to March 2002, Mr. Black served as the Chairman and
director of ECRM, Inc. He served as President of Oak Technology Inc., a
semiconductor company, from January 1998 to March 1999, as Vice Chairman from
March 1999 to August 2003 and as a director from 1988 to 2003. Until July 2010,
Mr. Black served as the Chairman of the board of directors of GSI Group Inc., a
manufacturer of laser systems and precision motion components, and he served on
the GSI Board since 1999. Mr. Black also serves on the board of Applied
Optoelectronics, Inc. (NASDAQ: AAOI) and boards of several private and non-profit
companies. In addition, from 2002 to 2007, Mr. Black served on the board of
directors of Altigen Communications, Inc., a manufacturer of VoIP telephone
systems and unified communications systems. Mr. Black holds a B.S. in
Engineering from Texas A&M University and an M.B.A. from Harvard University.
We believe Mr. Blacks qualifications to serve on our Board include his
operational and management expertise, his experience as both a director and
chairman of the board of other public companies, and his finance skills.
CLASS II
Ray Sun
, 64, has served as a director since November 2003. Mr. Sun served as
Managing Director, Business Development and Venture Investment (greater China)
of Applied Materials China, a semiconductor equipment company, from November
2001 to February 2009. He has been retired since February 2009. Mr. Sun served
as a representative of the Silicon Valley office for a Taiwanese venture firm,
Global Investment Management Co. LTD., from October 1999 to November 2001. Mr.
Sun has more than 20 years of executive management experience in the software,
hardware and telecommunications industries. Mr. Sun received a B.S. in
Industrial Engineering from Chung Yuan Christian University in Taiwan, and an
M.S. in Industrial Engineering from Kansas State University. We believe Mr.
Suns qualifications to serve on our Board include his business development and
investment expertise and his experience in executive management for a broad
array of technology-based businesses.
CLASS III
Gwong-Yih Lee
, 61, has served as a director since August 2000. Since June
2014, Mr. Lee has served as Managing Director of TransLink Capital, a venture
capital firm that leverages proprietary Asia insight to invest in U.S. start-up
companies. Since July 2006, Mr. Lee has served as Chairman of CyberTAN
Technology, Inc., a networking company listed on the Taiwan Stock Market. From
July 2006 to July 2013, Mr. Lee served as Chief Executive officer of CyberTan
Technology, Inc. From September 2005 to December 2012, Mr. Lee has served as the
Founder and President and Chief Executive Officer of ApaceWave Technologies,
Inc., a broadband wireless company. From September 1999 to January 2004, Mr. Lee
served as Senior Director and General Manager at Cisco Systems, Inc. In March
1998, Mr. Lee established TransMedia Communications, a communication equipment
company, and served as
its President and Chief Executive
Officer until September 1999, when TransMedia Communications was acquired by
Cisco. 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. We believe Mr. Lees qualifications to serve on our Board include
his experience running private technology companies and his managerial
experience at Cisco and CyberTAN Technology.
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James C. Yeh
, 59, has served as a director since our formation in December
1995. Since April 2005, Mr. Yeh has served as Managing Director of Blazee
International, an imaging processing applications company. In addition, 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 in Taiwan and an M.S. in Systems Science and
Mathematics from Washington University in Saint Louis, Missouri. We believe Mr.
Yehs qualifications to serve on our Board include his operational and
management experience with technology companies.
Executive Officers
Certain information required by this item
concerning executive officers is set forth in Part I of this Report under the
caption Executive Officers of the Registrant and is incorporated herein by reference.
Section 16(a) Beneficial Ownership
Reporting Compliance
Under the securities laws of the United
States, the Companys directors, executive officers and any persons holding more
than 10% of the Companys Common Stock are required to report their initial
ownership of the Companys Common Stock and any subsequent changes in that
ownership to the SEC. 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 Companys 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, 2015, all Section 16(a) filing requirements applicable to its
executive officers and directors were made in a timely manner during fiscal year
2015 except that Mr. Yeh filed a Form 4 on August 13, 2015 to report selling
shares of common stock on July 30 and 31 and August 5, 2015 and, in addition, Mr.
Yeh filed a Form 4 on November 16, 2015 to report selling shares of common stock
for which he had voting and dispositive power on November 2, 3, 4, 5, 6 and 9,
2015.
Code of Ethics
The Companys Board of Directors has
adopted a Code of Ethics for all of its directors and officers. The Companys
Code of Ethics is available on the Companys website at
http://www.afop.com
.
To date, there have been no waivers under the Companys Code
of Ethics. The Company will post certain waivers to or amendments of its Code of
Ethics, as required by applicable law, on the Companys website at
http://www.afop.com
.
Item 11. Executive
Compensation
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy
Our philosophy is to provide compensation
that attracts and retains our named executive officers, and motivates our
executive officers to pursue our corporate objectives while encouraging the
creation of long-term value for our stockholders. Our goal is to provide
compensation to our executive officers that is competitive, rewards achievement
of our business objectives, and aligns executive and stockholder interests
through equity ownership. Compensation decisions for executive officers other
than our Chief Executive Officer take into account the recommendations of our
Chief Executive Officer because of his understanding of the performance of those
executive officers. The components of executive officer compensation, base
salary, bonus and equity-based compensation, are discussed below. We do not
enter into employment or severance agreements with our executive officers as we
do not believe these types of arrangements facilitate our compensation goals and
objectives.
Elements of Executive Compensation
Base
Salary.
Base salaries provide our named executive officers with a fixed amount of
consistent compensation and are an important motivating factor in attracting and
retaining these individuals. Base salaries are reviewed and adjusted on a
periodic basis. We do not apply specific formulas to determine adjustments to
base salary. Decisions on base salary adjustments for executive officers other
than the Chief Executive Officer are made with the Chief Executive Officers
involvement. When reviewing base salaries, the scope of the named executive
officers performance, individual contributions, responsibilities, experience
and prior base salary level are considered. Other considerations include market
information and the base salaries and other incentives paid to executive
officers of other companies within the industry.
3
Table of
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Effective January 1, 2016, Mr.
Hubbards salary was increased from $218,000 to $230,000. In making this
adjustment, the factors described above were considered.
Bonus.
Our philosophy is that a
certain portion of executive officer compensation should be contingent upon the
Companys performance and an individuals contribution to our success in meeting
business objectives. The bonus potential of each executive officer is considered
on a case-by-case basis, and takes into account recommendations the Chief
Executive Officer for executive officers other than the Chief Executive Officer.
Bonuses for 2015 were based on overall corporate performance and individual
performance. Other considerations include market information and the
compensation paid to executive officers of other companies within the industry.
Final decisions on bonuses for executive officers other than the Chief Executive
Officer are made with the Chief Executive Officers involvement.
In January 2016, Mr. Hubbard and Ms. Ho
were paid bonuses of $100,000 and $6,000, respectively. In July 2015, Mr.
Hubbard and Ms. Ho were awarded bonuses of $30,000 and $4,000, respectively. In
January 2015, Mr. Hubbard and Ms. Ho were paid bonuses of $110,000 and
$8,000, respectively. In making these awards, the factors described above were
considered.
Equity-based
Compensation.
We provide equity-based
incentive compensation to our executive officers through the grant of stock
options and RSUs under our 2000 Stock Incentive Plan, which plan is administered
by the Executive Compensation Committee of the Board. We believe that stock
ownership by our executive officers aligns their interests with those of our
stockholders and provides the executive officers with substantial motivation to
manage our business in accordance with those interests. Accordingly, a
considerable portion of an executive officers compensation in any year may
consist of stock options and/or RSUs. Historically, we have not applied a
formula to determine the size of individual equity-based awards granted to our
named executive officers. When determining the size of an equity award to an
executive officer, the executive officers and the Companys performance, the
executive officers role and responsibilities within the Company, the executive
officers base salary and the size value, and vesting status of his or her
existing equity awards, as well as equity awards to executive officers in
similar positions throughout the industry are considered. For executive officers
other than the Chief Executive Officer, equity awards take into account the
recommendations of the Chief Executive Officer. Based upon these factors, the
size of each equity award is set at a level we consider appropriate to create a
meaningful incentive.
In April 2015, Mr. Hubbard was awarded
62,000 RSUs. The RSUs vest as to one-half on each of May 1, 2016 and 2017. In
making this award, the factors described above were considered.
Chief Executive Officer Compensation
The compensation of the Chief Executive
Officer is determined using the same criteria as for the other executive
officers as discussed above. For 2015, Mr. Changs salary was set at $303,000,
and he was awarded a $200,000 bonus in January 2015 and a $50,000 bonus in July
2015. Mr. Changs salary was increased to $313,000 effective January 1, 2016,
and he was awarded a $200,000 bonus in January 2016.
In April 2015, Mr. Chang was awarded 240,000 RSUs.
The RSUs vest in four annual installments on each of May 1, 2016, 2017, 2018 and 2019. All of Mr. Changs
RSUs, including the unvested portions of RSU grants Mr. Chang was awarded in May 2011 and April 2013, vest in full in the
event of a change of control or termination due to death or involuntary discharge.
Other Compensation
Our executive officers are eligible to
participate in our 2000 Employee Stock Purchase Plan. Under the plan,
participants may purchase shares of our Common Stock at a discount to the market
price. The number of shares that may be purchased by each participant is limited
by the terms of the plan and applicable tax laws. In addition, our executive
officers may participate in our health programs, such as medical, dental and
vision care coverage, and our 401(k) and life and disability insurance
programs.
4
Table of
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Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue
Code of 1986 places a limit of $1,000,000 on the amount of compensation that we
may deduct in any one year with respect to our Chief Executive Officer and each
of the next three most highly compensated executive officers (excluding the
chief financial officer). To maintain flexibility in compensating our executive
officers in a manner designed to promote varying corporate goals, the Executive
Compensation Committee has not adopted a policy requiring all executive
compensation to be deductible.
Executive Compensation Committee
Report
The following report of the
Executive Compensation Committee shall not be deemed to be soliciting material
or filed with the SEC or to be incorporated by reference into any other filing
by Alliance Fiber Optic Products, Inc. under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate it by reference into a document filed under those
Acts.
The Executive Compensation Committee
has reviewed and discussed the Compensation Discussion and Analysis set forth
above with our management. Based on its review and those discussions, the
Executive Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Annual Report on Form
10-K, as amended, for the year ended December 31, 2015.
Executive Compensation
Committee
Ray Sun, Chairman
Richard
Black
Gwong-Yih Lee
|
Summary Compensation
Table
The following table sets forth
compensation information for the cash amounts and the value of other
compensation paid to our Chief Executive Officer and our two other most highly
compensated executive officers for the years indicated.
|
|
|
|
|
|
|
|
Stock
|
|
All Other
|
|
|
|
|
|
|
|
|
Bonus
|
|
Awards
|
|
Compensation
|
|
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
Total
($)
|
Peter C. Chang
|
|
2015
|
|
302,692
|
|
250,000
|
|
2,210,400
|
|
2,290
|
|
2,765,382
|
President and Chief Executive
Officer
|
|
2014
|
|
292,650
|
|
250,000
|
|
|
|
2,290
|
|
544,940
|
|
|
2013
|
|
279,538
|
|
250,000
|
|
1,130,400
|
|
2,290
|
|
1,662,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Hubbard
|
|
2015
|
|
210,738
|
|
130,000
|
|
607,860
|
|
9,213
|
|
957,811
|
Executive Vice President,
|
|
2014
|
|
199,531
|
|
92,000
|
|
|
|
8,890
|
|
300,421
|
Sales and Marketing
|
|
2013
|
|
189,458
|
|
100,000
|
|
548,670
|
|
8,890
|
|
847,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita K. Ho
|
|
2015
|
|
104,462
|
|
12,000
|
|
|
|
4,505
|
|
120,967
|
Acting Chief Financial
Officer
|
|
2014
|
|
95,980
|
|
12,000
|
|
|
|
4,505
|
|
112,485
|
|
|
2013
|
|
123,644
|
|
12,000
|
|
71,130
|
|
4,505
|
|
211,279
|
(1)
|
Consists of amounts
earned in the fiscal year.
|
|
|
(2)
|
Amount represents grant date fair
value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification No. 718,
Compensation—Stock Compensation (“ASC 718”). The actual value recognized by the individual
is based on the market price of our Common Stock on the vesting dates and may be higher or lower.
|
|
(3)
|
Consists of Company
contributions to the 401(k) of each individual, a monthly automobile
allowance for Mr. Hubbard, and the value of insurance premiums paid by the
Company.
|
5
Table of
Contents
Grants of Plan-based Awards 2015
The following table sets forth number of shares of Common Stock
underlying option awards were granted in 2015.
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
Payouts
Under
|
|
Estimated Future
|
|
Stock Awards:
|
|
Awards:
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
Non-Equity
|
|
Payouts Under
|
|
Number of
|
|
Number of
|
|
Base Price
|
|
Fair Value
|
|
|
|
|
Incentive
Plan
|
|
Equity Incentive
|
|
Shares of
|
|
Securities
|
|
Securities
|
|
of Stock and
|
|
|
Grant
|
|
Awards
|
|
Plan Awards
|
|
Stock or
|
|
Underlying
|
|
Underlying
|
|
Option
|
Name
|
|
Date
|
|
Maximum($)
|
|
Maximum($)
|
|
Units (#)
|
|
Options (#)
|
|
($/Sh)
|
|
Awards($)
(1)
|
Peter C.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/02/2015
|
|
|
|
|
|
240,000
|
|
|
|
|
|
4,176,000
|
David
A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hubbard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/02/2015
|
|
|
|
|
|
62,000
|
|
|
|
|
|
1,078,800
|
(1)
|
The amount reflects the aggregate
grant date fair value of the awards computed in accordance with ASC 718, rather than the amounts paid to or realized by the named
individual. There can be no assurance that awards will vest or will be
exercised (in which case no value will be realized by the individual), or
that the value upon exercise will approximate the aggregate grant date
fair value. None of our named executive officers forfeited any awards in
2015.
|
Outstanding Equity Awards at Fiscal
Year-End 2015
The following table presents certain
information concerning equity awards held by our named executive officers as of
December 31, 2015.
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Options
|
|
Option
|
|
Option
|
|
Number of Shares or Units
|
|
Market
Value of Shares That
|
|
|
Exercisable
|
|
Unexercisable
|
|
Exercise
|
|
Expiration
|
|
of Stock That Have Not
|
|
Have
Not
|
Name
|
|
(#)
|
|
(#)
|
|
Price($)
|
|
Date
|
|
Vested(#)
|
|
Vested($)
(1)
|
Peter C. Chang
|
|
|
|
|
|
|
|
|
|
360,000
|
(2)
|
|
5,457,600
|
|
David A. Hubbard
|
|
|
|
|
|
|
|
|
|
62,000
|
(3)
|
|
939,920
|
|
Anita K. Ho
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Market
value is based on the closing price of our Common Stock on December 31,
2015.
|
|
|
(2)
|
This
includes: (i) RSUs granted on May 6, 2011 that vest over five years at a
rate of 20 percent per year on each of May 1, 2012, 2013, 2014, 2015 and
2016; (ii) RSUs were granted on April 19, 2013 that vest over three years
at a rate of one-third per year on each of May 1, 2014, 2015 and 2016; and
(iii) RSUs were granted on April 2, 2015 that vest over four years at a
rate of 25 percent per year on each of May 1, 2016, 2017, 2018 and 2019.
The RSUs vest in full in the event of a change of control or termination
due to death or involuntary discharge.
|
|
|
(3)
|
The RSUs were granted on
April 2, 2015 and vest over two years at a rate of 50 percent per year on
each of May 1, 2016 and 2017.
|
6
Table of
Contents
Option Exercises and Stock Vested -
2015
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized
|
|
Number of Shares
|
|
Value Realized
|
|
|
Acquired on
|
|
on
|
|
Acquired on
|
|
on
|
Name
|
|
Exercise
(#)
|
|
Exercise
($)
|
|
Vesting
(#)
|
|
Vesting
($)(1)
|
Peter C. Chang
|
|
|
|
|
|
120,000
|
|
2,210,400
|
David A. Hubbard
|
|
|
|
|
|
33,000
|
|
607,860
|
Anita K. Ho
|
|
|
|
|
|
3,000
|
|
55,260
|
(1)
|
Value realized is based on the
fair market value of our Common Stock on the date of vesting.
|
Potential Payments Upon Termination
or Change-in-Control
Other than the RSUs granted to Peter C.
Chang, which vest in full in the event of a change in control, the Company has
not entered into any contract, agreement or arrangement or adopted any plan that
provides for payments to a named executive officer at, following, or in
connection with any termination or change in control that are not available to all employees.
Compensation Risk Assessment
In connection with its review of employee compensation and the
compensation process, the Company has concluded that risks arising from its
compensation policies and practices are not reasonably likely to have a material
adverse effect on the Company.
2015 Director
Compensation
The following table sets forth cash
amounts and the value of other compensation earned by the Companys non-employee
directors during 2015:
|
|
Fees Earned or
|
|
Option Awards
|
|
|
Name
|
|
Paid in
Cash ($)
|
|
($)(1)(2)
|
|
Total
($)
|
Richard Black
|
|
32,000
|
|
220,320
|
|
252,320
|
Gwong-Yih Lee
|
|
16,000
|
|
163,320
|
|
179,320
|
Ray Sun
|
|
24,000
|
|
163,320
|
|
187,320
|
James Yeh
|
|
24,000
|
|
163,320
|
|
187,320
|
(1)
|
Amounts represent grant date fair
value computed in accordance with ASC 718. The actual value recognized by the individual is
based on the market price of our Common Stock on the vesting dates and may
be higher or lower than the amounts reflected herein. See the notes to our consolidated financial statements
for a discussion of the assumptions made in determining these
values.
|
|
|
(2)
|
The following table sets forth
the aggregate number of shares of Common Stock underlying option awards
outstanding at December 31, 2015:
|
Name
|
|
Number of
Shares
|
Richard Black
|
|
36,000
|
Gwong-Yih Lee
|
|
24,000
|
Ray Sun
|
|
30,000
|
James Yeh
|
|
21,000
|
7
Table of Contents
Effective January 1, 2015, the
Companys non-employee directors receive an annual cash retainer of $16,000 for
service on the Board and any committees other than the Audit Committee. The
Chairman of the Audit Committee also receives an annual cash retainer of $16,000
and each member of the Audit Committee other than the Chairman also receives an
annual cash retainer of $8,000 for service on the Audit Committee. All retainers
are payable quarterly.
Directors who are not employees receive
an initial grant of an option to purchase 12,000 shares of Common Stock at the
fair market value of the Common Stock on the date of grant, which vests ratably
over 36 months. This initial grant is made on the first business day following
election to the Board. On the first business day following the third anniversary
of a directors election to the Board, each non-employee director is entitled to
receive an option to purchase 12,000 shares of Common Stock at the fair market
value of the Common Stock on the date of grant, which option vests ratably over
36 months. The options granted to our outside directors have a per share
exercise price equal to 100% of the fair market value of the underlying shares
on the date of grant, have a term of 10 years and automatically become fully
vested in the event of a change in control.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain
information as of March 28, 2016, as to shares of our Common Stock beneficially
owned by: (1) each person who is known by the Company to beneficially own more
than 5% of its Common Stock, (2) each of our directors, (3) each of our
executive officers named in the Summary Compensation Table, and (4) all of our
directors and executive officers 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., 275 Gibraltar Drive, Sunnyvale, California
94089. The percentage of Common Stock beneficially owned is based on 15,791,585
shares of Common Stock outstanding as of March 28, 2016. In addition, shares
issuable pursuant to options which may be exercised and RSUs which vest within 60 days of March 28, 2016 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
purposes of this table may vary depending on the individuals particular
circumstances.
|
|
Number of
|
|
|
|
|
Shares of
|
|
|
|
|
Common
|
|
Percentage
of
|
|
|
Stock
|
|
Common
Stock
|
|
|
Beneficially
|
|
Beneficially
|
Name
and Address of Beneficial Owner
(1)
|
|
Owned
|
|
Owned
|
Directors and Named
Executive Officers:
|
|
|
|
|
Peter C. Chang (2)
|
|
1,454,640
|
|
9.21%
|
Richard
Black (3)
|
|
52,000
|
|
*
|
Gwong-Yih Lee (4)
|
|
22,000
|
|
*
|
Ray Sun
(5)
|
|
20,000
|
|
*
|
James C. Yeh (6)
|
|
231,000
|
|
1.46
|
David
A. Hubbard (7)
|
|
63,954
|
|
*
|
5% Stockholder:
|
|
|
|
|
Foxconn
Holding Limited (8)
|
|
2,170,000
|
|
13.74%
|
All Directors and Executive Officers
as a group (6 persons) (9)
|
|
1,843,594
|
|
11.47
|
* Represents less than 1%.
(1)
|
To the Companys knowledge,
except as otherwise disclosed, 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 16,000 shares held in
the name of Mr. Changs minor children, 1,158,640 shares held in the name
of the Chang Family LLC and 100,000 shares held in the name of the Peter
and Mary Chang Foundation, of which Mr. Chang and his wife, Mary C. Chen,
are the Managing Members. Also includes 180,000 shares underlying
RSUs that vest within 60 days of March 28, 2016.
|
8
Table of Contents
(3)
|
Includes options to purchase 16,000 shares of Common
Stock exercisable within 60 days of March 28, 2016.
|
|
|
(4)
|
Includes 8,000 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. Also includes options to
purchase 14,000 shares of Common Stock that are exercisable within 60 days
of March 28, 2016.
|
|
(5)
|
Includes options to purchase 20,000 shares of Common
Stock that are exercisable within 60 days of March 28, 2016.
|
|
(6)
|
Includes 220,000 shares held in the name of Matics
Computer Systems, Inc., over which Mr. Yeh has voting and dispositive
power. Also includes options to purchase 11,000 shares of Common Stock
that are exercisable within 60 days of March 28, 2016.
|
|
(7)
|
Includes 31,000 shares underlying RSUs that vest within
60 days of March 28, 2016.
|
|
(8)
|
According to a Schedule 13G filed jointly on February
16, 2016 for the year ended December 31, 2015 by Hon Hai and Foxconn, each
entity has shared voting and dispositive power over the shares. Foxconn is
a subsidiary of Hon Hai. Hon Hai disclaims beneficial ownership of these
shares. The principal business address for Hon Hai and Foxconn is 2 Tsu Yu
Street, Tu Cheng City, Taipei Hsien, Taiwan, R.O.C. According to
information provided by Hon Hai, the board of directors of Foxconn has
dispositive power for the shares and has delegated voting power to Mr.
The-Tsai Huang and Ms. Chiu-Lian Huang. As of the Record Date, and based
on information filed with the Securities and Exchange Commission in March
2016, Foxconn and Hon Hai held 2,170,000 shares of Common
Stock.
|
|
(9)
|
Includes options to purchase 61,000 shares of Common
Stock that are exercisable within 60 days of March 28, 2016 and 211,000
shares underlying RSUs that vest within 60 days of March 28, 2016.
|
9
Table of Contents
Equity Compensation Plan Information
Set forth in the table below is certain
information regarding the Companys equity compensation plans as of December 31,
2015:
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
Number of securities to
|
|
Weighted-average
|
|
future issuance under
|
|
|
be issued upon exercise
|
|
exercise price of
|
|
equity compensation
|
|
|
of outstanding options,
|
|
outstanding options,
|
|
plans (excluding securities
|
|
|
units and rights
|
|
units and rights
|
|
reflected in column (a))
|
Plan
category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation plans
|
|
|
|
|
|
|
|
|
|
approved by security holders
|
|
1,019,600
|
(1)
|
|
$
|
9.71
|
|
696,184
|
(2)
|
Equity
compensation plans not
|
|
|
|
|
|
|
|
|
|
approved by
security holders
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,019,600
|
|
|
$
|
9.71
|
|
696,184
|
|
(1) Includes 571,600 shares issuable
upon exercise of outstanding options and 448,000 shares issuable pursuant to
unvested RSUs granted under the Stock Incentive Plan.
(2) Includes:
(i) 487,824 shares reserved for
issuance under the Stock Incentive Plan. The number of shares reserved for
issuance under the plan may be increased on the first day of the Companys
fiscal year by the lesser of 680,000 shares, 5% of the fully diluted outstanding
shares of the Companys common stock on that date or a lesser amount determined
by the Board.
(ii) 208,360 shares reserved for
issuance under the ESPP. The ESPP permits eligible employees to contribute up to
20% of cash compensation up to 1,000 shares maximum toward the semi-annual
purchase of the Companys common stock. The purchase price per share is 85% of
the fair market value on the last trading day prior to the beginning of the
six-month period at which an eligible employee is enrolled; or the fair market
value on the last trading day of the month in which the six-month period
expired, whichever is lower.
Item 13. Certain Relationships and
Related Transactions, and Director Independence
Certain Relationships and Related
Transactions
It is our policy that all employees,
officers and directors must avoid any activity that is or has the appearance of
conflicting with the interests of the Company. This policy is included in our
Code of Conduct and Business Ethics. We monitor related party transactions for
potential conflict of interest situations on an ongoing basis and all such
transactions relating to executive officers and directors must be approved by
the independent and disinterested members of the Board or an independent and
disinterested committee of the Board.
According to share ownership numbers
contained in a Form 4 filed with the SEC in March 2016, Foxconn Holding Limited
(Foxconn) and Hon Hai Precision Industry Co., Ltd. (Hon Hai) held 13.73% of
our Common Stock based on the number of shares outstanding on the Record Date.
In the normal course of business, we sell products to and purchase raw materials
from Hon Hai, who is the parent company of Foxconn. These transactions were made
at prices and terms consistent with transactions with unrelated third parties.
For fiscal 2015, sales of products to Hon Hai were $0.04 million, purchases of
raw materials from Hon Hai were $2.0 million and $0.3 million were due to Hon
Hai. No amounts were due from Hon Hai at December 31, 2015.
10
Table of Contents
Board Structure, Independence,
Meetings and Committees
Our Board believes that having a
combined Chairman of the Board and Chief Executive Officer is the most effective
leadership structure for the Company at this time. The Board believes that Mr.
Chang is the director best situated to identify strategic opportunities and
focus the activities of the Board due to his full-time commitment to our
business and his company-specific experience. The Board also believes that the
combined role of Chairman and Chief Executive Officer promotes effective
execution of strategic imperatives and facilitates information flow between
management and the Board.
The Board held eight meetings during
2015. All directors attended 100% of the aggregate number of meetings of the
Board and of the committees on which each such director serves. The
independent directors meet in regularly scheduled executive sessions at meetings
of the Board without the participation of the Chief Executive Officer or the
other members of management. In 2015, one director attended the annual meeting.
We do not have a policy requiring directors to attend our annual meetings.
The Board has determined that, except
for Mr. Chang, all of the members of the Board are independent directors
within the meaning of Rule 5605 of The NASDAQ Stock Market and the rules of the SEC. Mr. Chang is not considered
independent because he is employed by the Company as its President and Chief
Executive Officer. For all of the non-employee directors, the Board considered their
relationship and transactions with the Company as directors and as
securityholders of the Company.
The Board is actively involved in the
oversight of risks that could affect our business and operations, while
management is responsible for day-to-day risk management. The Board administers
this oversight function directly through the Board as a whole, as well as
through the Audit and Nominating and Corporate Governance committees of the
Board.
The Board has appointed an Executive
Compensation Committee, an Audit
Committee and a Nominating and Corporate
Governance Committee. The Board has approved a charter for each of these
committees. Copies of the charters of the Audit Committee, Nominating and
Corporate Governance Committee and Executive Compensation Committee are
available through our website at
www.afop.com
. The Board has also
appointed a Non-Executive Compensation Committee.
Executive Compensation
Committee
|
|
Number of
Members:
|
|
Three
|
|
Members:
|
|
Mr. Sun
(Chairman)
|
|
|
Mr. Black
|
|
|
Mr. Lee
|
|
Number of
Meetings:
|
|
Two
|
|
|
|
Functions:
|
|
The Executive Compensation
Committees primary functions are to assist the Board in meeting its
responsibilities with regard to oversight and determination of executive
compensation and to review and make recommendations to the Board with
respect to major compensation plans, policies and programs of the Company.
Other specific duties and responsibilities of the Executive Compensation
Committee are to review and approve the compensation for the Chief
Executive Officer and other executive officers of the Company, establish
and modify the terms and conditions of employment of the Chief Executive
Officer and other executive officers of the Company and administer the
Companys stock plans and other compensation
plans.
|
11
Table of Contents
Audit Committee
Number of
Members:
|
|
Three
|
|
Members:
|
|
Mr. Black
(Chairman)
|
|
|
Mr. Sun
|
|
|
Mr. Yeh
|
|
Number of
Meetings:
|
|
Four
|
|
|
|
Functions:
|
|
The Audit Committees primary
functions are to assist the Board of Directors in fulfilling its oversight
responsibilities relating to the Companys financial statements, system of
internal controls, and auditing, accounting and financial reporting
processes. Other specific duties and responsibilities of the Audit
Committee are to appoint, compensate, evaluate and, when appropriate,
replace the Companys independent auditors; review and pre-approve audit
and permissible non-audit services; review the scope of the annual audit;
monitor the independent auditors relationship with the Company; and meet
with the independent auditors and management to discuss and review the
Companys financial statements, internal controls, and auditing,
accounting and financial reporting processes. Mr. Black is the Audit
Committee financial expert.
|
|
Nominating and Corporate
Governance
Committee
|
|
Number of
Members:
|
|
Three
|
|
Members:
|
|
Mr. Black
(Chairman)
|
|
|
Mr. Sun
|
|
|
Mr. Yeh
|
|
Number of
Meetings:
|
|
One
|
|
|
|
Functions:
|
|
The Nominating and Corporate
Governance Committees primary functions are to identify qualified
individuals to become members of the Board and determine the composition
of the Board and its committees. Other specific duties and
responsibilities are to recommend nominees to fill vacancies on the Board,
review suggestions for candidates for membership on the Board, and monitor
compliance with Board and Board committee membership criteria.
|
Non-Executive Compensation Committee
Mr. Chang currently serves as the sole
member of the Non-Executive Compensation Committee. The Non-Executive
Compensation Committee is a secondary committee responsible for granting and
issuing awards under the 2000 Stock Incentive Plan, as amended and restated, to
eligible employees, other than to members of the Board, to individuals
designated by the Board as Section 16 officers, and to employees who hold the
title of Vice President or above.
Director
Nominations
The Board nominates a class of
directors for election at each annual meeting of stockholders and elects new
directors to fill vacancies when they arise. The Nominating and Corporate
Governance Committee has the responsibility to identify, evaluate, recruit and
recommend qualified candidates to the Board for nomination or election.
12
Table of Contents
The Board has an objective that its
membership is composed of experienced and dedicated individuals with a diversity
of backgrounds, perspectives and skills. The Nominating and Corporate Governance
Committee will select candidates for director based on their character,
judgment, diversity of experience, business acumen, and ability to act on
behalf of all stockholders. The Nominating and Corporate Governance Committee
believes that nominees for director should have experience, such as experience
in management or accounting and finance, or industry and technology knowledge,
that may be useful to the Company and the Board, high personal and professional
ethics, and the willingness and ability to devote sufficient time to effectively
carry out his or her duties as a director. While diversity is among the
qualifications that may be considered, the Committee does not have a formal
diversity policy. The Nominating and Corporate Governance Committee believes it
is appropriate for at least one, and, preferably, multiple, members of the Board
to meet the criteria for an audit committee financial expert as defined by SEC
rules, and for a majority of the members of the Board to meet the definition of
independent director under the rules of The NASDAQ Stock Market. The
Nominating and Corporate Governance Committee also believes it is appropriate
for certain key members of the Companys management to participate as members of
the Board.
Prior to each annual meeting of
stockholders, the Nominating and Corporate Governance Committee identifies
nominees first by evaluating the current directors whose term will expire at the
annual meeting and who are willing to continue in service. These candidates are
evaluated based on the criteria described above, including as demonstrated by
the candidates prior service as a director, and the needs of the Board with
respect to the particular talents and experience of its directors. In the event
that a director does not wish to continue in service, the Nominating and
Corporate Governance Committee determines not to re-nominate the director, or a
vacancy is created on the Board as a result of a resignation, an increase in the
size of the Board or other event, the Committee will consider various candidates
for Board membership, including those suggested by the Committee members, by
other Board members, by any executive search firm engaged by the Committee and
by stockholders. A stockholder who wishes to suggest a prospective nominee for
the Board should notify the Secretary of the Company or any member of the
Committee in writing with any supporting material the stockholder considers
appropriate.
In addition, the Companys Bylaws
contain provisions that address the process by which a stockholder may nominate
an individual to stand for election to the Board at the Companys Annual Meeting
of Stockholders. In order to nominate a candidate for director, a stockholder
must give timely notice in writing to the Secretary of the Company and otherwise
comply with the provisions of the Companys Bylaws. To be timely, the Companys
Bylaws provide that the Company must have received the stockholders notice no
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 stockholders 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. Information required by the Bylaws to be in the notice include the name
and contact information for the candidate and the person making the nomination
and other information about the nominee that must be disclosed in proxy
solicitations under Section 14 of the Securities Exchange Act of 1934 and the
related rules and regulations under that Section.
Stockholder nominations must be made in
accordance with the procedures outlined in, and include the information required
by, the Companys Bylaws and must be addressed to: Secretary, Alliance Fiber
Optic Products, Inc., 275 Gibraltar Drive, Sunnyvale, California 94089. You can
obtain a copy of the Companys Bylaws by writing to the Secretary at this
address.
Stockholder Communications with the
Board of Directors
If you wish to communicate with the
Board, you may send your communication in writing to: Secretary, Alliance Fiber
Optic Products, Inc., 275 Gibraltar Drive, Sunnyvale, California 94089. You must
include your name and address in the written communication and indicate whether
you are a stockholder of the Company. The Secretary will review any
communication received from a stockholder, and all material communications from
stockholders will be forwarded to the appropriate director or directors or
committee of the Board based on the subject matter.
13
Table of Contents
Item 14. Principal Accounting Fees
and Services
The following table presents fees for
professional audit services rendered by Marcum LLP for the audit of our
financial statements for 2015 and 2014. No fees were billed for other
services.
|
|
Year Ended December 31,
|
|
|
2015
|
|
2014
|
Audit Fees
|
|
$
|
485,680
|
|
$
|
365,932
|
Audit-Related Fees
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
Total
|
|
$
|
485,680
|
|
$
|
365,932
|
Pre-Approval Policies and Procedures
It is the Companys policy that all
audit and non-audit services to be performed by the Companys registered public
accountants be approved in advance by the Audit Committee. The Audit Committee
pre-approved 100% of the audit fees incurred in the year ended December 31,
2015.