<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
YURIE SYSTEMS, 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)(4) 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 transaction computed pursuant to
Exchange Act Rule 0-11:
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:
<PAGE>
YURIE SYSTEMS, INC.
8301 Professional Place
Landover, Maryland 20785
May 23, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Yurie Systems, Inc., which is Yurie's first annual meeting of stockholders
as a public company, to be held on Thursday, June 26, 1997, at 10:30 a.m., at
the executive offices of Yurie Systems, Inc., 8301 Professional Place,
Landover, Maryland 20785.
At the meeting, we will review Yurie's activities since its public offering,
as well as the outlook for 1997. The Secretary's formal notice of the meeting
and the Proxy Statement appear on the following pages and describe the matters
to be acted upon at the meeting.
We hope that you will be able to attend the meeting in person. However,
whether or not you plan to be present, please sign and return your proxy as
soon as possible so that your vote will be counted.
Sincerely,
Jeong H. Kim
Chairman of the Board and
Chief Executive Officer
<PAGE>
YURIE SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
The 1997 Annual Meeting of Stockholders of Yurie Systems, Inc., a Delaware
corporation (the "Company"), will be held at the executive offices of Yurie
Systems, Inc., 8301 Professional Place, Landover, Maryland, on Thursday, June
26, 1997, at 10:30 a.m., for the following purposes:
1. To elect two directors for terms ending at the 2000 Annual Meeting of
Stockholders and until their successors have been duly elected and
qualified.
2. To approve the Company's Amended and Restated 1996 NonStatutory Stock
Option Plan.
3. To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP, independent public accountants, as independent auditors for the
Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting.
Stockholders of record as of the close of business on May 19, 1997 will be
entitled to vote at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY DELIVERY TO THE COMPANY OF
A SUBSEQUENTLY EXECUTED PROXY OR A WRITTEN NOTICE OF REVOCATION OR BY VOTING
IN PERSON AT THE MEETING.
By order of the Board of Directors,
John J. McDonnell
Secretary
May 23, 1997
<PAGE>
YURIE SYSTEMS, INC.
8301 PROFESSIONAL PLACE
LANDOVER, MARYLAND 20785
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1997
This proxy statement is furnished to stockholders of Yurie Systems, Inc., a
Delaware corporation ("Yurie" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board"
or "Board of Directors") for use at the 1997 Annual Meeting of the
Stockholders to be held at 10:30 a.m., local time, on Thursday, June 26, 1997,
at the principal executive office of Yurie Systems, Inc., 8301 Professional
Place, Landover, Maryland, and any adjournments thereof.
Stockholders of record as of the close of business on May 19, 1997 will be
entitled to vote at the meeting or any adjournments thereof. As of the record
date, May 19, 1997, the Company had outstanding 24,657,096 shares of Common
Stock, par value $.01 per share ("Common Stock"), each entitled to one vote on
all matters to be voted upon. This proxy statement, the accompanying form of
proxy and the Company's annual report to stockholders for the fiscal year
ended December 31, 1996 are being mailed on or about May 23, 1997 to each
stockholder entitled to vote at the Annual Meeting. Shares can be voted at the
Annual Meeting only if the stockholder is present in person or represented by
proxy.
Dr. Jeong H. Kim, Chairman of the Board of Directors and Chief Executive
Officer of the Company, is the beneficial owner of approximately 60.9% of the
outstanding shares of Common Stock of the Company. As a result, Dr. Kim has
the ability to approve all corporate actions requiring stockholder approval,
including the election of two directors being voted on at the Annual Meeting
of Stockholders. Dr. Jeong H. Kim has indicated that he will vote his shares
in accordance with the recommendations of the Board of Directors.
VOTING AND REVOCATION OF PROXIES
VOTING
If the enclosed proxy is executed and returned in time and not revoked, all
shares represented thereby will be voted. Each proxy will be voted in
accordance with the stockholder's instructions. If no such instructions are
specified, signed proxies will be voted FOR the election of each person
nominated for election as a director, FOR the adoption of the Amended and
Restated 1996 NonStatutory Stock Option Plan and FOR the ratification of the
appointment by the Board of Directors of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending December 31, 1997.
The holders of a majority of the shares of Common Stock entitled to vote at
the meeting, present in person or by proxy, constitutes a quorum. Assuming a
quorum is present, the affirmative vote by the holders of a plurality of the
votes cast at the meeting will be required for the election of directors; and
the affirmative vote of a majority of the shares present in person or by proxy
at the meeting and entitled to vote thereon will be required to act on all
other matters to come before the meeting, including the proposed adoption of
the Amended and Restated 1996 NonStatutory Stock Option Plan and ratification
of the appointment by the Board of Directors of Deloitte & Touche LLP as
independent auditors for the Company. The Board of Directors will appoint an
Inspector of Elections to tabulate the votes. For purposes of determining the
number of votes cast with respect to any voting matter, only those cast "for"
or "against" are included; abstentions and broker non-votes are
1
<PAGE>
excluded. Accordingly, with respect to the election of directors, abstentions
and broker non-votes will have no effect on the outcome. For purposes of
determining whether the affirmative vote of a majority of the shares present
at the meeting and entitled to vote has been obtained, abstentions will be
included in, and broker non-votes will be excluded from, the number of shares
present and entitled to vote. Accordingly, with respect to any matter other
than the election of directors, abstentions will have the effect of a vote
"against" the matter and broker non-votes will have the effect of reducing the
number of affirmative votes required to achieve the majority vote.
REVOCATION
A stockholder giving a proxy may revoke it at any time before it is voted by
delivery to the Company of a subsequently executed proxy or a written notice
of revocation. In addition, returning your completed proxy will not prevent
you from voting in person at the meeting should you be present and wish to do
so.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of three classes, with three directors in
Class I, and two directors in each of Class II and Class III. Directors hold
office for staggered terms of three years and until their successors have been
duly elected and qualified. One of the three classes will be elected each year
at the Annual Meeting of Stockholders to succeed the directors whose terms are
ending.
Two directors in Class III are to be elected at the 1997 Annual Meeting and
proxies cannot be voted for more than two nominees. The directors so elected
will hold office as directors until the 2000 Annual Meeting of Stockholders
and until their respective successors have been duly elected and qualified.
The directors in Class I and Class II are serving terms ending at the Annual
Meeting of Stockholders in 1999 and 1998, respectively.
Information concerning nominees for terms ending at the 2000 Annual Meeting
of Stockholders is set forth below, followed by information concerning
directors in Classes I and II. Unless otherwise directed, proxies in the
accompanying form will be voted FOR the nominees listed below. If any one or
more of the nominees is unable to serve for any reason or withdraws from
nomination, proxies will be voted for the substitute nominee or nominees, if
any, proposed by the Board of Directors. The Board has no knowledge that any
nominee will or may be unable to serve or will or may withdraw from
nomination. All of the nominees are presently serving as directors of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE
NOMINEES FOR CLASS III DIRECTORS (TERM ENDING IN 2000)
Dr. Jeong H. Kim, age 36, is the founder of Yurie and has served as Chief
Executive Officer and Chairman of the Board of Directors of the Company since
April 1996; Chief Executive Officer and Director since the Company's inception
in February 1992; and President from its inception until March 1996. From 1990
to 1993, Dr. Kim served as Senior Project Engineer with AlliedSignal Technical
Services Corporation, a subsidiary of AlliedSignal Inc. Previously, he served
as an Engineering Consultant with SFA, Inc., a U.S. Department of Defense
contractor and as a Nuclear Submarine Officer in the U.S. Navy. Dr. Kim holds
a Ph.D. in Reliability Engineering from the University of Maryland, and an
M.S. in Technical Management and a B.E.S. in Electrical Engineering and
Computer Science from The Johns Hopkins University.
2
<PAGE>
Dr. Herbert Rabin, age 68, has served as a Director of the Company since
1995. Dr. Rabin is Director of the Engineering Research Center and Associate
Dean of the College of Engineering at the University of Maryland, where he has
been Professor of Electrical Engineering since 1983. He was Deputy Assistant
Director of Research at the Naval Research Laboratory from 1971 through 1983
and Associate Director of General Research Corporation International and the
National Technological University. Mr. Rabin holds a Ph.D., an M.S. and a B.S.
in Physics from the University of Maryland, the University of Illinois and the
University of Wisconsin, respectively.
CONTINUING DIRECTORS
Class II Directors (Term Ending in 1998)
Kwok L. Li, age 39, has served as President and Chief Operating Officer of
the Company since March 1996, a Director since 1995, and Executive Vice
President and Chief Technical Officer from August 1994 through March 1996. Mr.
Li was employed by Yurie on a part-time basis from its inception in 1992
through August 1994. From 1991 to 1994, Mr. Li was Director of Strategic
Planning at WilTel, Inc., an interexchange carrier, and from 1988 to 1991, he
was Manager of Fiber Access Systems Development for Bell Northern Research,
Inc., a subsidiary conducting technological research and development for
Northern Telecom Limited. Mr. Li is a significant shareholder of Splitrock
Services, Inc., a Texas corporation that purchases Yurie's products. Mr. Li
holds a B.E.S. in Electrical Engineering from The Johns Hopkins University.
R. James Woolsey, age 55, has served as a Director of the Company since
April 1996. Mr. Woolsey served the United States as the Director of Central
Intelligence from 1993 to 1995, after which he returned to the law firm of
Shea & Gardner, in Washington, D.C., where he became a partner in 1979. Shea &
Gardner is one of several law firms that provides legal services to the
Company. Mr. Woolsey also serves as a Director of United States Fidelity &
Guaranty Company and Sun Healthcare Group, Inc. Mr. Woolsey holds an L.L.B.
from Yale Law School, an M.A. from Oxford University and a B.A. from Stanford
University.
Class I Directors (Term Ending in 1999)
Barton Y. Shigemura, age 38, has served as Senior Vice President, Sales and
Marketing and a Director of the Company since 1996. From 1993 to 1996, Mr.
Shigemura was Vice President, Marketing & Services and an executive officer of
Premisys Communications, Inc., a manufacturer of integrated access products
for telecommunications service providers, and from 1990 to 1993, he was
Director, Product Line Management for Northern Telecom Limited, a
telecommunications equipment manufacturer. Prior to that, he served as an Area
Vice President, Sales for General DataComm Industries, Inc., a provider of
wide area network and telecommunications products. Mr. Shigemura holds a B.S.
in Marketing and Finance from the University of Southern California.
Kenneth D. Brody, age 53, has served as a Director of the Company since June
1996. Mr. Brody is the founding partner of Winslow Partners LLC, a private
equity investment firm in Washington, D.C. From 1993 to early 1996, Mr. Brody
served as President and Chairman of the Export-Import Bank of the United
States. Prior to that, he was a Partner at Goldman, Sachs & Co., where he
served as a member of the firm's Management Committee and founded and headed
the high technology investment banking group. Mr. Brody also serves as a
Director of Quest Diagnostics Incorporated, Federal Realty Investment Trust,
and Alex. Brown Incorporated. Alex. Brown & Sons Incorporated, one of the
representatives of the underwriters for the Company's recent initial public
offering, is a wholly-owned subsidiary of Alex. Brown Incorporated. Mr. Brody
holds an M.B.A. from the Harvard Business School and a B.S. in Electrical
Engineering from the University of Maryland.
Dr. William J. Perry, age 69, has served as a Director of the Company since
January 1997. He served as the Secretary of Defense from 1994 to 1997, and
served as Deputy Secretary of Defense from 1993 to 1994. In March 1997, Dr.
Perry returned to the School of Engineering at Stanford University as a
professor, where he had
3
<PAGE>
been a professor from 1989 to 1993, and had also served as the Chairman of
Technology Strategies Alliances and as a Co-Director of Stanford's Center for
International Security and Arms Control. Dr. Perry also serves as a Director
of Hambrecht & Quist LLC, United Technologies Corporation and Evolutionary
Technologies International Inc. Dr. Perry holds a Ph.D. in Mathematics from
Penn State University and an M.S. and B.S. in Mathematics from Stanford
University.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company directs the management of the business
and affairs of the Company, as provided by Delaware law, and conducts its
business through meetings of the Board and three standing committees: the
Audit Committee, the Compensation Committee and the Stock Option Committee. In
addition, from time to time, special committees may be established under the
direction of the Board when necessary to address specific issues. The Company
has no nominating or similar committee.
COMMITTEES OF THE BOARD--BOARD MEETINGS
The Board of Directors of the Company held 18 meetings in 1996. Each
director attended 75% or more of the aggregate of (i) meetings of the Board
held during the period for which he served as a director and (ii) meetings of
all committees held during the period for which he served on those committees.
The Audit Committee's principal functions are to review the scope of the
annual audit of the Company by its independent public accountants, review the
annual financial statements of the Company and the related audit report of the
Company as prepared by the independent public accountants, review management's
selection of an independent public accounting firm each year and review audit
and any non-audit fees paid to the Company's independent public accountants.
The Audit Committee also reviews the audit and control practices and
procedures of the Company. The Company's Chief Financial Officer generally
attends Audit Committee meetings and gives reports to and answers inquiries
from the Audit Committee. The Audit Committee reports its findings and
recommendations to the Board of Directors. The members of the Audit Committee
are Kenneth D. Brody, Herbert Rabin, and R. James Woolsey (Chairman). The
Audit Committee was formed in June 1996 and held three meetings in 1996.
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
compensation policies. See the Compensation Committee Report under
"Compensation of Executive Officers," below. During 1996 and through May 1997,
the members of the Compensation Committee were Kenneth D. Brody, R. James
Woolsey, and Herbert Rabin (Chairman). The Compensation Committee was formed
in June 1996 and held no meetings during 1996. In May 1997, R. James Woolsey
stepped down as a member of the Compensation Committee and William J. Perry
was appointed to serve as an additional member of the Compensation Committee.
The current members of the Compensation Committee are Kenneth D. Brody,
William J. Perry, and Herbert Rabin (Chairman).
The Stock Option Committee is responsible for administering the Company's
1996 NonStatutory Stock Option Plan (the "Stock Option Plan") with respect to
employees that are not executive officers of the Company. The Stock Option
Committee was formed in order to provide timely option grants to new employees
(other than executive officers and directors of the Company). The Stock Option
Committee has limited authority to administer the Company's Stock Option Plan.
The Compensation Committee must approve option grants to executive officers of
the Company. During 1996 and through May 1997, the members of the Stock Option
Committee were Jeong H. Kim, Kwok L. Li and Barton Y. Shigemura. In May 1997,
Kenneth D. Brody was appointed to serve as an additional member of the Stock
Option Committee. The current members of the Stock Option Committee are Jeong
H. Kim, Kwok L. Li, Barton Y. Shigemura and Kenneth D. Brody.
4
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Woolsey, who served on the Compensation Committee from June 1996
through May 1997, is a partner in the law firm of Shea & Gardner, which is one
of several law firms that performs legal work for the Company. No member of
the Compensation Committee is a former or current officer of the Company, nor
does any executive officer serve as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
DIRECTOR COMPENSATION
Directors who are not employees of the Company each receive $5,000 per year
for serving on the Board of Directors, and are reimbursed for their out-of-
pocket expenses incurred in connection with attendance at meetings of the
Board of Directors or committees thereof. In addition, the Company's Stock
Option Plan provides for automatic annual grants to "independent" directors of
5,000 stock options on June 30 of each year beginning on June 30, 1997. These
options vest over a four year period. Independent directors may also receive
options to purchase shares of Common Stock upon their initial appointment or
election to the Board of Directors. During 1996, Dr. Rabin and Messrs. Woolsey
and Brody received options to purchase 121,000, 100,000 and 75,000 shares of
Common Stock, respectively, and in January 1997, Dr. Perry received options to
purchase 75,000 shares of Common Stock. These directors' options have a
weighted average exercise price of $2.23 and vest periodically over 4 years.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known by the Company
regarding the beneficial ownership of the Company's Common Stock, as of May
19, 1997, by each beneficial owner of more than five percent of the
outstanding Common Stock, by each of the Company's directors, each of the
executive officers named in the Summary Compensation Table and all directors
and officers of the Company as a group. To the Company's knowledge, except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them,
except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF COMMON STOCK
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) BENEFICIALLY OWNED
- ------------------------ ----------------------- --------------------------
DIRECT INDIRECT (3)
---------- ------------
<S> <C> <C> <C>
Jeong H. Kim (4)........... 15,000,000 -- 60.9%
Kwok L. Li (5)............. 3,650,000 -- 14.8
Kenneth D. Brody (4)....... -- 1,018,750 4.1
Barton Y. Shigemura........ 6,000 468,750 1.9
R. James Woolsey (6)....... 75,000 25,000 *
Quon S. Chow............... 50,000 25,000 *
William F. Flynn........... 200 51,175 *
Herbert Rabin.............. -- 38,500 *
William J. Perry........... -- -- --
All executive officers and
directors as a group (13
persons).................. 18,831,200 1,679,759 77.1%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address for each person in this table is
c/o Yurie Systems, Inc., 8301 Professional Place, Landover, Maryland
20785.
(2) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares of Common Stock which such person has the right
to acquire within 60 days following May 19, 1997. For purposes of
computing the percentage of outstanding shares of Common Stock held by
each person named above, any shares which such person has a right to
acquire within 60 days following May 19, 1997 are deemed to be
outstanding, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of another person.
(3) Represents shares granted under the Company's 1996 NonStatutory Stock
Option Plan (the "Stock Option Plan") which have vested or will vest
within 60 days following May 19, 1997. With respect to Mr. Brody, also
includes 1,000,000 shares subject to an option to purchase such shares
from Dr. Kim.
(4) Includes 1,000,000 shares subject to an option held by Mr. Brody to
purchase 1,000,000 shares of Common Stock from Dr. Kim. See "Certain
Transactions." For purposes of this table, Dr. Kim and Mr. Brody share
beneficial ownership of these shares of Common Stock.
(5) Includes 1,000,000 shares owned by Mr. Li's spouse, as to which he
disclaims beneficial ownership.
(6) Mr. Woolsey's shares are held jointly with his spouse.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's directors and executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company on Forms
3, 4, and 5. During the fiscal year ended December 31, 1996, none of the
officers, directors or holders of more than 10% of the Company's Common Stock
were subject to Section 16(a) filing requirements.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
of the Chief Executive Officer and the four most highly paid executive
officers of the Company who were serving as executive officers at December 31,
1996 (the "named executive officers"), for each of the fiscal years ended
December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ------------------------
AWARDS
------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITIONS (1) YEAR ($) ($) ($) ($) OPTIONS (#) ($)
- ----------------------- ----- ------- ------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeong H. Kim(4) 1996 200,000 -- 16,616(2) -- -- --
Chief Executive Officer 1995 206,112 656,865 41,346(3) -- -- --
and Chairman of the 1994 346,235 26,870 17,715(3)
Board of Directors -- -- --
Kwok L. Li(4) 1996 150,000 -- 11,407(2) -- -- --
President and Chief 1995 140,851 250,077 25,962(3) 154,000(5) -- 15,940(6)
Operating Officer 1994 52,492 3,366 5,911(3) -- -- --
Barton Y. Shigemura 1996 89,559 5,000 308(2) -- 1,000,000 4,680(6)
Senior Vice President, 1995 -- -- -- -- -- --
Sales & Marketing(7) 1994 -- -- -- -- -- --
Quon S. Chow(7) 1996 62,645 -- -- -- 100,000 10,222(6)
Vice President, 1995 -- -- -- -- -- --
Engineering 1994 -- -- -- -- -- --
William F. Flynn 1996 93,722 20,000 2,458(2) -- 100,000 --
Vice President, 1995 107,164 10,000 11,482(3) -- -- --
Federal Division 1994 59,884 603 2,992(3) -- -- --
</TABLE>
- --------
(1) Mr. Marantz, who joined the Company in August 1996, is expected to be
included in the Fiscal 1997 Summary Compensation Table along with Dr. Kim
and Messrs. Li, Shigemura, and Chow.
(2) For Dr. Kim and Messrs. Li and Flynn, includes the Company's contributions
to their 401(k) plan of $10,000, $7,500 and $2,458, respectively. For Dr.
Kim and Messrs. Li and Shigemura, also includes compensation related to
their use of Company-leased vehicles in the amount of $6,616, $1,846 and
$308.
(3) Includes payments for unused vacation and sick leave and the Company's
contribution to pension plans.
(4) The Company has employment agreements with each of Dr. Kim and Mr. Li. See
"Employment Agreements."
(5) This payment represents 4,000,000 shares of Common Stock granted to Mr. Li
in March 1995, which shares vested upon their grant. The fair value of
these shares was determined by the Board of Directors.
(6) Represents reimbursed relocation expenses and, for Mr. Li, applicable
taxes associated with the Company's payment of such expenses.
(7) Messrs. Shigemura and Chow joined the Company in May 1996 and July 1996,
respectively.
7
<PAGE>
Stock Option Grants In Last Fiscal Year. The following table sets forth the
stock option grants to each of the named executive officers for fiscal 1996.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE/ PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES BASE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeong H. Kim(3)......... -- -- -- -- -- --
Kwok L. Li(3)........... -- -- -- -- -- --
Barton Y. Shigemura(4).. 1,000,000 $0.52 5/6/06 327,025 823,746
Quon S. Chow............ 100,000 2.70 7/8/06 169,802 430,310
William F. Flynn........ 41,800 0.52 1/31/06 13,670 34,642
30,000 0.52 4/10/06 9,811 24,862
28,200 2.70 7/1/06 47,884 121,348
</TABLE>
- --------
(1) All awards listed on table were in the form of option grants made pursuant
to the Company's Stock Option Plan.
(2) Sets forth potential option gains based on assumed annualized rates of
stock price appreciation from the market price at the date of grant of 5%
and 10% (compounded annually) over the full term of the grant with
appreciation determined as of the expiration date. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the Securities and
Exchange Commission, and do not represent the Company's estimate or
projection of future Common Stock prices.
(3) To date, neither Dr. Kim nor Mr. Li has been granted options to purchase
Common Stock.
(4) Of the 1,000,000 options granted to Mr. Shigemura, 250,000 vested upon
their grant, 187,500 vest in May 1997, and the remaining 562,500 shares
vest ratably over a 36-month period commencing in May 1997.
Aggregated Option Values. The following table sets forth the stock option
values as of December 31, 1996 for each of the named executive officers. There
were no exercises of stock options by the named executive officers in the
fiscal year ended December 31, 1996.
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeong H. Kim................ -- -- -- --
Kwok L. Li.................. -- -- -- --
Barton Y. Shigemura......... 250,000 750,000 $2,120,000 $6,360,000
Quon S. Chow................ -- 100,000 -- 630,000
William F. Flynn............ -- 100,000 -- 848,000
</TABLE>
- ------------
(1) Sets forth values for "in the money" options that represent the positive
spread between the respective exercise/base prices of outstanding stock
options and the fair value of $9.00 per share of Common Stock at December
31, 1996, as determined by the Board of Directors.
8
<PAGE>
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
This report is being submitted by the Board of Directors pursuant to the
rules established by the Securities and Exchange Commission. This report
provides certain data and information regarding the compensation and benefits
provided to the Company's Chief Executive Officer and other executive officers
of the Company.
Compensation Philosophy. The Company's philosophy is to provide a level of
compensation to executive officers that allows it to (i) attract, motivate and
reward superior talent and (ii) align executive officers' interests with the
success of the Company through bonuses based on Company's performance and
participation in the Company's Stock Option Plan. The Company's compensation
program currently consists of base salary and incentive compensation in the
form of cash bonuses and stock options.
Base Salaries of Executive Officers, Including the Chief Executive
Officer. The Company's policy as to base salaries of executive officers,
including the CEO, is subjective, and not dependent upon the application of
specific formulas. The base salaries for the executive officers during 1996,
including the salary of the CEO, were set and approved by the Board of
Directors. The 1996 base salaries of both the CEO and the President were
continued at their 1995 levels of $200,000 and $150,000, respectively. The
decision to continue these salaries at 1995 levels was not based on
performance, but on the recommendation of the CEO and the President that their
salaries not be increased so the Company could devote its funds to growth and
development. Other executive officers who had been employed by the Company
during 1995 received modest increases to their base salaries in 1996. These
increases were based on several factors, including level of responsibility,
performance, prior experience and accomplishments and length of service with
the Company.
The base salaries of executive officers who joined the Company during 1996
were determined by the Chief Executive Officer, in consultation with the Board
of Directors, on a case-by-case basis. Factors taken into account in
determining these base salaries were prior experience, expected contribution
to the Company, and the relative importance of the job in terms of achieving
corporate objectives. The 1996 salaried compensation of each of the named
executive officers who joined the Company in 1996 were as follows: Barton Y.
Shigemura--$89,559 (annual base of $130,000) and Quon S. Chow--$62,645 (annual
base of $130,000). Executive officers who are also members of the Board of
Directors are not present when their base salary is considered.
Stock Options. During 1996, The Board of Directors administered the grants
of stock options to executive officers pursuant to the Company's Stock Option
Plan. The Company's philosophy is that stock options are an important part of
compensation that correlate individual motivation and reward to the Company's
performance. The Company's policy is to grant stock options to executive
officers upon their joining the Company. In addition, the Board of Directors
(or a committee thereof), at its discretion, makes periodic grants to reward
the performance of executive officers and to provide incentives for future
performance. There is no established formula or criteria for grants under the
Stock Option Plan, and options are granted on a subjective basis at intervals
determined by the Board of Directors (or a committee thereof). Under the Stock
Option Plan, options may be granted at exercise prices equal to the Fair
Market Value (as defined in the Stock Option Plan) of the Common Stock on the
date of grant. Thus, the value of the stockholders' investment in the Company
must appreciate before an optionee receives any financial benefit from the
option.
During 1996, the Board of Directors, in response to management's
recommendations, approved option grants to the following executive officers:
Barton Y. Shigemura--1,000,000; Charles S. Marantz--100,000; Quon S. Chow--
100,000; Anthony J. Demambro--75,000; Joseph Miller--110,000; and William F.
Flynn--100,000. These options had exercise prices ranging from $.52 to $2.70.
options are generally granted for a term of ten years and, with some
exceptions, vest in 25% increments at the end of the first fiscal year with
monthly vesting thereafter until the fourth anniversary of grant. Management's
recommendations were based on its recruitment objectives and a subjective
assessment of the individual and the nature of his or her expected
contribution to the Company. Neither the CEO nor the President hold any
options to purchase the Common Stock of the Company.
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<PAGE>
Compliance With Section Internal Revenue Code Section 162(m). Section 162(m)
of the Internal Revenue Code of 1986, as amended, provides that compensation
in excess of $1,000,000 paid to the chief executive officer or any of the
other four most highly compensated executive officers of a company will not be
deductible unless the compensation is paid pursuant to one of the exceptions
to Section 162(m). The Company believes that the Section 162(m) limit should
not apply to 1996 executive officer cash compensation reported and discussed
above or to options granted pursuant to the Company's Stock Option Plan by
reason of certain exemptions contained in the regulations issued under Section
162(m). The Company's Stock Option Plan has been designed so that compensation
attributable to stock options granted pursuant to the plan can qualify under
the performance-based compensation exception to Section 162(m).
BY THE BOARD OF DIRECTORS
Dr. Jeong H. Kim
Kwok L. Li
Barton Y. Shigemura
Dr. Herbert Rabin
R. James Woolsey
Kenneth D. Brody
William J. Perry
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee was formed by the Board Of Directors in September
1996 and met in January 1997 to consider the recommendations of management for
the bonuses to be paid to executive officers, including the CEO. This report
is being submitted by the Compensation Committee at the request of the Board
of Directors pursuant to the rules established by the Securities and Exchange
Commission, and provides certain data and information regarding the
compensation and benefits provided to the Company's Chief Executive Officer
and other executive officers of the Company.
BONUSES
The Company's policy as to bonuses for executive officers, including the
CEO, is subjective. In determining bonuses, Compensation Committee considers
individual performance as well as the Company's performance. The Compensation
Committee determined that the Company had successfully achieved many of its
objectives in 1996, including (i) obtaining guaranteed purchase orders from
AT&T, a major customer, (ii) shipping the Company's products to commercial
customers; and (iii) making substantial progress toward the Company's initial
public offering. As a result, the Committee recommended that individual
executive officers receive cash bonuses, depending on the Committee's
assessment of individual performance, of up to 16 2/3% of their annualized
base salary. The Compensation Committee did not grant bonuses to Jeong H. Kim
and Kwok L. Li upon their recommendation that they receive no bonuses for
1996, although the Committee recognized that they would have been entitled to
bonuses based on individual and Company performance. The Compensation
Committee granted a modest bonus of $5,000 to Barton Y. Shigemura upon his
recommendation that a larger proposed bonus, based on perfomance, be reduced.
These executive officers recommended that they not receive significant bonuses
because, due to their significant stockholdings in the Company, each would
benefit substantially from the Company's initial public offering, and each
believed that at this stage, the Company could better utilize the bonus funds
for its growth and development.
BY THE COMPENSATION COMMITTEE
Dr. Herbert Rabin
R. James Woolsey
Kenneth D. Brody
No performance graph is required because the Company's Common Stock did not
begin trading on the Nasdaq until February 1997.
11
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Dr. Kim, its Chief
Executive Officer and Chairman of the Board of Directors, and Mr. Li, its
President and Chief Operating Officer, on July 31, 1996. Pursuant to the
Company's employment agreement with Dr. Kim (the "Kim Employment Agreement"),
Dr. Kim will receive an annual salary of $200,000 and a bonus of $40,000 or
such other amount as the Board of Directors may determine. Dr. Kim's
employment is for a one-year term that renews automatically unless terminated
by either party. If the Kim Employment Agreement is terminated by the Company
for any reason other than "disability" or "cause" or by Dr. Kim for any reason
other than "good reason" (as those terms are defined in the Kim Employment
Agreement), the Company must make a cash lump sum severance payment equal to
Dr. Kim's base salary (as defined in the Kim Employment Agreement) and a
"bonus amount" for the then-current year, and continue his benefits for up to
one year. Throughout his employment, Dr. Kim is bound by a covenant not to
compete, which prevents him from engaging in any business in the United States
in which the Company is then involved. Dr. Kim will continue to be bound by
this covenant not to compete for one year after his termination. The Kim
Employment Agreement also provides for certain registration rights with
respect to Dr. Kim's shares of Common Stock pursuant to a registration rights
agreement.
Pursuant to the Company's employment agreement with Mr. Li (the "Li
Employment Agreement"), Mr. Li will receive an annual salary of $150,000 and a
bonus of $30,000 or such other amount as the Board of Directors may determine.
Mr. Li's employment is for a one-year term that renews automatically unless
terminated by either party. If the Li Employment Agreement is terminated by
the Company for any reason other than "disability" or "cause" or by Mr. Li for
any reason other than "good reason" (as those terms are defined in the Li
Employment Agreement), the Company must make a cash lump sum severance payment
equal to Mr. Li's base salary for the then-current year and a "bonus amount"
(as defined in the Li Employment Agreement), and continue his benefits for up
to one year. Throughout his employment, Mr. Li is bound by a covenant not to
compete, which prevents him from engaging in any business in the United States
in which the Company is then involved. Mr. Li will continue to be bound by
this covenant not to compete for one year after his termination. The Li
Employment Agreement also provides for certain registration rights with
respect to Mr. Li's shares of Common Stock pursuant to a registration rights
agreements.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Stock Transactions
On July 1, 1996, Dr. Jeong H. Kim and Kenneth D. Brody entered into an
option purchase agreement (the "Option Purchase Agreement"), pursuant to which
Mr. Brody purchased for $500,000 an option (the "Brody Option") to buy
1,000,000 shares of the Common Stock from Dr. Kim at an exercise price of
$4.00 per share. The Brody Option has vested in installments of 250,000 shares
on each of September 3, 1996, December 3, 1996 and March 3, 1997, and the
remaining 250,000 options vest on June 3, 1997, subject to early vesting if
Dr. Kim ceases to beneficially own 40% of the voting power of the Company's
then outstanding voting securities. To secure Dr. Kim's obligations to deliver
shares of Common Stock to Mr. Brody upon exercise of the Brody Option, Dr. Kim
granted Mr. Brody a security interest in all of the shares of Common Stock
subject to the Brody Option. Mr. Brody may assign the Brody Option, in whole
or in part, subject to the limitation that each assignee (with the exception
of Affiliates and family members) must be assigned a portion of the Brody
Option covering at least 200,000 shares of Common Stock. The Brody Option is
exercisable for a term of 20 years.
On May 22, 1995, the Company issued 4,000,000 shares of Common Stock to Kwok
Li as compensation for his services to the Company in connection with the
development of the Company's LDR100. The Company also issued 200 Shares of
Common Stock to William F. Flynn as compensation for his services to the
Company. Mr. Flynn was not an officer of the Company at the time this stock
was issued.
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<PAGE>
During 1996, certain executive officers and directors of the Company were
granted options to purchase shares of the Common Stock of the Company as
follows: Barton Y. Shigemura--1,000,000 shares; Charles S. Marantz--100,000
shares; Quon S. Chow--100,000 shares; Anthony J. DeMambro--75,000 shares;
William F. Flynn--100,000 shares; Joseph Miller--110,000 shares; John J.
McDonnell--30,000 shares; Herbert Rabin--121,000 shares; R. James Woolsey--
100,000 shares; and Kenneth D. Brody--75,000 shares; and, in January 1997,
William J. Perry was granted options to purchase 75,000 shares. These options
have exercise prices ranging from $.52 to $9.00 per share, and a weighted
average exercise price of $1.25.
On January 14, 1997, the Company entered into a consulting agreement with In
Y. Chung, under which Mr. Chung will perform consulting and business
development activities for the Company in the Pacific Rim area. Pursuant to
this consulting agreement, the Company granted options to purchase 50,000
shares of Common Stock at an exercise price of $9.00 per share to Mr. Chung.
These options vested upon their grant. Mr. Chung is the father-in-law of Dr.
Jeong H. Kim.
Related Party Transactions
In March 1997, Kwok L. Li, the Company's President, Chief Operating Officer
and a Director, became a significant shareholder of Splitrock Services, Inc.
("Splitrock"), a Texas corporation recently formed to provide turnkey
communications systems specifically configured to meet the needs of large
network users. In March 1997, Splitrock ordered approximately $1.7 million of
Yurie equipment for an end-user system. The disinterested members of the Board
of Directors authorized the terms and conditions of this sale, and believe
that such terms and conditions are no less favorable to the Company than could
be obtained from unaffiliated third party purchasers. On that basis, and as
circumstances permit, Yurie intends to make other sales of its product to
Splitrock for use in networks owned by Splitrock or designed by it for third
party end users.
Certain Relationships
R. James Woolsey, a director of the Company, is a partner in the law firm of
Shea & Gardner, which is one of several firms that performs legal work for the
Company.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1996 NONSTATUTORY STOCK OPTION PLAN
The Company's stockholders are being asked to approve the Amended and
Restated 1996 NonStatutory Stock Option Plan (the "Amended Plan"). In May
1997, the Board adopted the Amended Plan, subject to stockholder approval. The
Amended Plan is attached as Exhibit A for your consideration. The proposed
amendments contained in the Amended Plan will increase the number of shares
available for grant under the Stock Option Plan from 5,000,000 to 7,000,000
and revise the Stock Option Plan in light of the Company's experience with its
terms. These amendments will ensure that the Company can continue to grant
stock options, at levels determined appropriate by the Board, to attract,
retain and motivate qualified officers (executive or otherwise), other
employees and consultants.
The Stock Option Plan was initially adopted by the Company's Board of
Directors on January 31, 1996 and amended on April 2, 1996, July 18, 1996,
September 6, 1996 and December 20, 1996, and was approved by the shareholders
on April 3, 1996, July 31, 1996 and December 23, 1996.
The Amended Plan retains the terms of the Stock Option Plan, in all material
respects, except the number of shares available for option grants. The
following is a summary of the principal features of the Amended Plan, together
with applicable tax and accounting implications, which will be in effect if
the Amended Plan is adopted. The summary, however, does not purport to be a
complete description of all the provisions of the Amended Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon
13
<PAGE>
written request to the Secretary of the Company at the Company's principal
executive offices in Landover, Maryland.
THE AMENDED PLAN
General. The Amended Plan provides for grants of stock options to employees,
consultants, directors and officers of the Company. As of May 19, 1997,
approximately 160 individuals were eligible for grants under the Amended Plan.
The options granted under the Amended Plan are not incentive stock options
within the meaning of Section 422 of the Internal Revenue Code.
Purpose. The purposes of the Amended Plan are to attract, retain and
motivate the best available officers (executive or otherwise) and other
employees for positions of substantial responsibility, to give such officers,
employees and consultants a greater personal stake in the success of the
Company's business, to provide additional incentive to the Company's officers
and employees to continue and advance to their employment and service to the
Company and to promote the success of the Company's business.
Duration. Unless terminated earlier by the Board of Directors, the Amended
Plan will terminate upon the date on which all shares available for issuance
under the Amended Plan have been issued pursuant to the exercise or
cancellation of options.
Administration. The Amended Plan may be administered by the Company's Board
of Directors or a committee of the Board (the "Administrator"), although in
some cases the Board is required to delegate the administration to a committee
of "outside directors" as that term is defined in Section 162(m) of the
Internal Revenue Code. The Amended Plan is currently administered by the
Compensation Committee and the Stock Option Committee. With respect to
executive officers and directors of the Company (including executive officers
who are also directors), the Amended Plan will be administered exclusively by
the Compensation Committee. The members of the Compensation Committee are not
eligible to participate in the Amended Plan except with respect to certain
automatic, non-discretionary stock option grants described below. Subject to
the limitations set forth in the Amended Plan, the Administrator may determine
the terms of the options granted, including: (i) the number of shares subject
to each option; (ii) when the option becomes exercisable; (iii) the duration
of the option and (iv) any other appropriate term of the option agreement. The
Administrator also may accelerate or extend the time at which any option may
be exercised. The Amended Plan requires that the exercise price of each option
be set at the Fair Market Value (as defined in the Amended Plan) of the Common
Stock on the effective date of the grant. The Administrator's interpretation
and construction of any provision of the Amended Plan are final and binding
upon all participants. Members of the Board receive no additional compensation
for their services in connection with the administration of the Amended Plan.
Amendments. The Board is authorized to modify or amend the Amended Plan at
any time, provided that any modification or amendment of the Amended Plan
shall not, without the consent of an optionee, adversely affect his or her
rights under an option previously granted; and provided, further, that the
Board shall not, without the approval of the Company's stockholders, (i)
increase the maximum number of shares issuable under the Amended Plan or the
maximum number of shares for which any person may be granted options per
calendar year, (ii) materially modify the eligibility requirements for the
grant of options under the Amended Plan, (iii) materially increase the
benefits accruing to Amended Plan participants or (iv) increase the annual
limitation on grants to participants under the Amended Plan.
Shares Authorized for Issuance. An aggregate of 7,000,000 shares of Common
Stock have been authorized for issuance under the Amended Plan. If stock
options granted under the Amended Plan expire or otherwise terminate without
being exercised, the shares of Common Stock not purchased pursuant to such
award again become available for issuance under the Amended Plan. Prior to the
Amended Plan, 5,000,000 shares were available for issuance under the Stock
Option Plan. The proposed increase of 2,000,000 shares (together with the
1,450,878 available and unissued shares as of March 31, 1997) under the Stock
Option Plan will provide the
14
<PAGE>
Company with the flexibility to make grants--small, large or substantial--as
circumstances require in the Company's judgment for the purposes discussed
above. In this respect, the Company is considering, and may consider from time
to time, hiring additional officers to join its senior management team. Any
such action may require the grant of a substantial number of stock options,
and in the absence of the proposed increase may eliminate to a great extent
the currently available but unissued options under the Stock Option Plan.
Outstanding Options. As of March 31, 1997, options to purchase a total of
3,549,122 shares of Common Stock were outstanding under the Stock Option Plan
(net of canceled options), and 3,450,878 shares remained for future grants,
subject to stockholder approval of the Amended Plan. As of March 31, 1997 the
aggregate fair market value of the shares subject to outstanding options under
the Stock Option Plan was $37,709,421, based on the closing price of the
Common Stock on the Nasdaq National Market. The actual benefits, if any, to
the holders of stock options issued under the Amended Plan are not
determinable prior to exercise as the value, if any, of such stock options to
their holders is represented by the difference between the market price of a
share of the Company's Common Stock on the date of exercise and the exercise
price of a holder's stock option.
Maximum Number of Options. In order to comply with Section 162(m), the
Amended Plan imposes limits on the incentive compensation payable to any
employee in any calendar year. The Amended Plan provides that the maximum
number of options to purchase shares of Common Stock which may be granted to
any one employee during any fiscal year shall be 1,500,000.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Amended Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price under the Amended Plan is the
Fair Market Value of the Common Stock of the Company on the effective date of
the grant. At May 19, 1997, the closing sales price of a share of the
Company's Common Stock as reported on the Nasdaq National Market was $13.75
per share.
Options granted under the Amended Plan may provide for payment of the
exercise price in cash or by check, or shares of the Company's Common Stock
with a Fair Market Value on the exercise date equal to the aggregate exercise
price of the shares purchased, authorization from the Company to retain from
the total number of shares as to which the option is exercised a number of
shares having a Fair Market Value on the exercise date equal to the aggregate
exercise price of the shares issued, or delivery of a properly executed notice
and irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds required to pay the exercise price.
Option Exercise. Each option may be exercised during the lifetime of the
optionee only by such optionee or a transferee under a qualified domestic
relations order.
Vesting. Options granted under the Amended Plan generally vest as follows:
(i) on the first day of the month beginning on or after the first anniversary
of the effective date of the grant, up to one-fourth of the total number of
options; (ii) on the first day of each of the succeeding 35 months, up to
1/48th of the total number of options; (iii) on the first day of the 36th
succeeding month, any remaining options.
Term. Unless otherwise provided in an option agreement, the term of a stock
option granted under the Amended Plan is ten years. The Board of Directors
shall determine the period of time during which an option may be exercised
following: (i) the termination of the optionee's employment or other
relationship with the Company or (ii) the death or disability of the optionee,
and such periods shall be set forth in the option agreement with each
optionee.
Adjustments. In the event any change is made to the Common Stock issuable
under the Amended Plan by reason of any stock split, stock dividend,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration,
appropriate adjustments shall be made
15
<PAGE>
to (i) the aggregate number and/or class of shares issuable under the Amended
Plan, (ii) the maximum number of shares for which any one person may be
granted options per calendar year, (iii) the aggregate number and/or class of
shares and (iv) the option price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Board of Directors shall be final, binding
and conclusive.
Restrictions on Transfer. Unless otherwise provided in the option
agreement, no option granted under the Amended Plan shall be assignable or
transferable by the optionee, except pursuant to a domestic relations order
or, in the event of the optionee's death, by will or the laws of descent and
distribution.
Grants to Independent Directors. The Amended Plan provides for automatic
annual grants to independent directors of 5,000 stock options on June 30 of
each year beginning on June 30, 1997. These options vest in accordance with
the schedule applicable to options granted under the Amended Plan generally.
In addition, incoming directors may be granted stock options upon their
agreement to serve on the Board.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a transaction involving a Change in Control (as defined in
the Amended Plan) of the Company, the Amended Plan provides that each
outstanding option will accelerate so that each option will be fully
exercisable for all of the shares subject to such option immediately prior to
such Change in Control.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the U.S. federal income tax consequences
of transactions under the Amended Plan based on federal income tax laws in
effect as of the date of this Proxy Statement. This summary is not intended to
be exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax law of any state, municipality or non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all participants under the Amended Plan to consult
their own tax advisors concerning tax implications of options grants and
exercises and the disposition of stock acquired upon such exercises under the
Amended Plan.
All options granted under the Amended Plan are nonstatutory stock options.
An optionee will not recognize any taxable income under U.S. tax laws at the
time he or she is granted a nonstatutory stock option. However, upon its
exercise, under U.S. tax laws the optionee will recognize ordinary income for
tax purposes measured by the excess of the then Fair Market Value of the
shares over the exercise price. The income recognized by an optionee who is
also an employee of the Company will be subject to income and employment tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. Upon resale of such shares by the optionee, any
difference between the sales price and the Fair Market Value of the shares as
of the date of exercise of the option will be treated under U.S. tax laws as
capital gain or loss, and will qualify for long-term capital gain or loss
treatment if the shares have been held for more than one year.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986, as amended, enacted as
part of the Omnibus Budget Reconciliation Act of 1993, provides that a
publicly held corporation cannot deduct compensation of a covered employee
(the CEO and the four other most highly compensated employees for the taxable
year whose compensation is required to be reported to stockholders under the
Securities Exchange Act of 1934, as amended) to the extent the compensation
exceeds $1 million per tax year. Compensation paid pursuant to the Stock
Option Plan qualifies for a transition exception to Section 162(m) because the
Stock Option Plan was adopted before the Company became publicly held.
However, because the Stock Option Plan is being amended to increase the number
of shares of Common Stock reserved for issuance, the transition exception will
not apply to compensation paid under the Amended Plan. There is another
exception to Section 162(m) for certain
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performance-based compensation. Compensation paid to covered employees under
the Amended Plan is intended to qualify for this performance-based
compensation exception to Section 162(m).
PLAN BENEFITS
The Company cannot currently determine the number of shares subject to
options that may be granted in the future to executive officers and employees
under the Amended Plan. The following table presents certain information with
respect to stock awards granted under the Stock Option Plan for the fiscal
year ended December 31, 1996 to (i) each of the executive officers named in
the Summary Compensation Table, (ii) all executive officers as a group and
(iii) all non-executive officer directors as a group. At December 31, 1996,
there were a total of 3,212,922 shares of Common Stock issuable subject to
options issued under the Stock Option Plan. These options had a weighted
average exercise price of $1.63.
PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF SHARES
WEIGHTED AVERAGE SUBJECT TO STOCK AWARDS
NAME AND POSITION EXERCISE PRICE GRANTED IN FISCAL 1996
----------------- ----------------- ------------------------
<S> <C> <C>
Jeong H. Kim,...................... -- --
Chief Executive Officer
Kwok L. Li,........................ -- --
President and Chief Operating
Officer
Barton Y. Shigemura, Senior........ $0.52 1,000,000
Senior Vice President, Sales &
Marketing
Quon S. Chow,...................... 2.70 100,000
Vice President, Engineering
William F. Flynn,.................. 1.13 100,000
Vice President, Federal Division
Executive Officers as a Group (9
persons)........................... 1.01 1,515,000
Non-Executive Directors as a Group
(4 persons)........................ 0.52 296,000
Non-Executive Officer Employee
Group (105 persons)................ 2.61 1,401,922
</TABLE>
VOTE REQUIRED
Stockholders are requested in this Proposal 2 to approve the Amended Plan to
increase the number of shares reserved for issuance thereunder by 2,000,000
shares and make other minor modifications. The affirmative vote of the holders
of a majority of the shares present in person or represented by proxy and
entitled to vote on the proposal at the meeting will be required to approve
the proposal. Abstentions will be counted toward the tabulation of votes cast
on the proposal and will have the same effect as negative votes. Broker non-
votes are counted toward a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND THE STOCK OPTION PLAN
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PROPOSAL 3
RATIFICATION OF APPOINTMENT OF AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Deloitte & Touche LLP, independent public accountants, to audit and
report on the consolidated financial statements of the Company for the fiscal
year ending December 31, 1997 and to perform such other services as may be
required of them. Deloitte & Touch LLP has served as auditors for the Company
since 1993. The Board of Directors has directed that management submit the
appointment of independent auditors for ratification by the stockholders at
the Annual Meeting. Representatives of Deloitte & Touche LLP are expected to
be present at the meeting, will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate
stockholder questions.
The proposal to ratify the selection of Deloitte & Touche LLP will be
approved by the stockholders if it receives the affirmative vote of a majority
of the shares present and entitled to vote on the proposal. If a proxy card is
specifically marked as abstaining from the proposal to approve the
ratification of the selection of Deloitte & Touche LLP as independent
auditors, the abstention will have the effect of a vote against the proposal,
even though shares represented thereby will not be counted as having been
voted against the proposal. Broker non-votes will be treated as shares not
capable of being voted on the proposal and, accordingly, will have no effect
on the outcome of voting on the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board of Directors will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Audit Committee and the
Board of Directors in their discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such a
change would be in the best interests of the Company and its stockholders.
PROXIES WILL BE VOTED FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997, UNLESS OTHERWISE SPECIFIED IN THE PROXY. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS INDEPENDENT AUDITORS.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation of proxies by use of the mails, some of the officers,
directors, and regular employees of the Company, none of whom will receive
additional compensation therefor, may solicit proxies in person or by
telephone, telegraph or other means. Solicitation will also be made by
employees of American Stock Transfer & Trust Company, which firm will be paid
customary fees for its services. As is customary, the Company will, upon
request, reimburse brokerage firms, banks, trustees, nominees and other
persons for their out-of-pocket expenses in forwarding proxy materials to
their principals.
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STOCKHOLDER PROPOSALS FOR THE 1998
ANNUAL MEETING OF STOCKHOLDERS
Stockholders may present proposals which may be proper subjects for
inclusion in the proxy statement and for consideration at an Annual Meeting.
To be considered, proposals must be submitted on a timely basis. Proposals for
the 1998 Annual Meeting must be received by the Company no later than January
24, 1998. Proposals, as well as any questions related thereto, should be
submitted in writing to the Secretary of the Company. Proposals may be
included in the proxy statement for the 1998 Annual Meeting if they comply
with certain rules and regulations promulgated by the Securities and Exchange
Commission.
OTHER MATTERS
The Company knows of no other matter to be brought before the 1997 Annual
Meeting. If any other matter requiring a vote of the stockholders should come
before the meeting, it is the intention of the persons named in the proxy to
vote the same with respect to any such matter in accordance with their best
judgment.
The Company will furnish, without charge, to each person whose proxy is
being solicited upon written request, a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission (excluding exhibits). Copies of any exhibits thereto also
will be furnished upon the payment of a reasonable duplicating charge.
Requests in writing for copies of any such materials should be directed to
Catherine A. Graham, Vice President of Finance, Yurie Systems, Inc., 8301
Professional Place, Landover, Maryland 20785.
By order of the Board of Directors,
John J. McDonnell
Secretary
May 23, 1997
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EXHIBIT A
YURIE SYSTEMS, INC.
AMENDED AND RESTATED
1996 NONSTATUTORY STOCK OPTION PLAN
<PAGE>
YURIE SYSTEMS, INC.
AMENDED AND RESTATED
1996 NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Plan is to secure for Yurie Systems, Inc. and its
shareholders the benefits arising from capital stock ownership by employees,
consultants, officers and members of the Board of Directors who are expected
to contribute to the future growth and success of the Company.
2. DEFINITIONS.
(1) "Beneficial Ownership" means beneficial ownership within the meaning
of Rule 13d-3 under the Exchange Act.
(2) "Board of Directors" means the Board of Directors of Yurie Systems,
Inc.
(3) "Change in Control" means the occurrence during the term of the Plan
and an Option Agreement of any one of the following events:
(a) An acquisition (other than directly from Yurie) of any Voting
Securities by any Person, immediately after which such Person has
Beneficial Ownership of 30 percent or more of the combined voting power
of Yurie's then outstanding Voting Securities; provided however, that
in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition shall not
constitute an acquisition which would cause a Change in Control.
(b) The individuals who, as of January 1, 1997, are members of the
Incumbent Board, cease for any reason to constitute at least two-thirds
of the members of the Board of Directors; provided, however, that if
the election, or nomination for election by Yurie's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened Election
Contest (as described in Rule 14a-11 under the Exchange Act) or other
actual or threatened Proxy Contest (that is, solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors)
including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(c) Approval by stockholders of Yurie of:
(i) A merger, consolidation or reorganization involving Yurie,
unless such merger, consolidation or reorganization is a Non-Control
Transaction;
(ii) A complete liquidation or dissolution of Yurie; or
(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of Yurie to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person acquired Beneficial Ownership of
more than the permitted amount of the then outstanding Voting
Securities as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities then
outstanding, increases the proportional number of shares Beneficially
Owned by such persons, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the acquisition
of Voting Securities by the Company, and after such share acquisition
by the Company, such Person becomes the Beneficial Owner of any
additional Voting Securities Beneficially Owned by such Person, then a
Change in Control shall occur.
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(4) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(5) "Common Stock" means the common stock of Yurie Systems, Inc. having a
par value of $0.01.
(6) "Company" means Yurie and any entities that are Subsidiaries of Yurie
or of which it is a Subsidiary.
(7) "Covered Employee" means that term as defined in Section 162(m)(3) of
the Code.
(8) "Director" means a member of the Board of Directors of the Company.
(9) "Director's Automatic Grant Agreement" means an Option Agreement
referred to in Section 4(d) hereof.
(10) "Effective Date" means the date as of which an Option granted
pursuant to the Plan is effective.
(11) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(12) "Fair Market Value of the Common Stock" on a given date means the
last reported sales price of the Common Stock on the NASDAQ (National)
System, as reported in a national newspaper, on such date or on the nearest
prior day on which trading of the Common Stock occurred on the NASDAQ
(National) System, or if the stock is listed on a national stock exchange,
the last reported sales price of the Common Stock on such exchange, as
reported in a national newspaper, on such date or the nearest prior day on
which trading of the Common Stock occurred on such exchange; provided that
if the Common Stock is not registered with the Securities and Exchange
Commission or there has been no trading of the Common Stock on or
reasonably near and prior to the given date, it shall be the fair market
value of the Common Stock on the given date as determined on such basis as
the Board of Directors shall establish for this purpose.
(13) "Incumbent Board" means the Board of Directors as constituted on May
1, 1997.
(14) "Independent Director" means a member of the Board of Directors who
is not an employee of the Company.
(15) "Merger Price" means, in the event of a merger described in Section
12(a) hereof, any cash payment that holders of Common Stock receive for
each share of Common Stock surrendered in the merger.
(16) "Non-Control Acquisition" means an acquisition by: (i) an employee
benefit plan (or a trust forming a part thereof) maintained by the Company
or any Subsidiary; (ii) the Company or its Subsidiaries; (iii) a Person who
as of January 1, 1997 has Beneficial Ownership of 30 percent or more of the
combined voting power of Yurie's then outstanding Voting Securities; or
(iv) any Person in connection with a Non-Control Transaction.
(17) "Non-Control Transaction" means a merger consolidation or
reorganization of Yurie where:
(a) the stockholders of Yurie, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least 70
percent of the combined voting power of the outstanding voting
securities of the surviving corporation in substantially the same
proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization;
(b) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds
of the members of the board of directors of the surviving corporation,
or a corporation beneficially directly or indirectly owning a majority
of the voting securities of the surviving corporation; and
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(c) no Person other than (i) Yurie, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) maintained
by Yurie, the surviving corporation, or any Subsidiary, or (iv) any
Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of 30 percent or more of the
then outstanding Voting Securities, has Beneficial Ownership of 30
percent or more of the combined voting power of the surviving
corporation's then outstanding voting securities.
(18) "Non-Employee Director" means that term as defined in Rule 16b-3.
(19) "Officer" means a person who is an officer of the Company for
purposes of Rule 16b-3.
(20) "Option" means a stock option granted pursuant to this Plan.
(21) "Option Agreement" means an agreement entered into pursuant to
Section 7 hereof.
(22) "Option Shares" means shares of Common Stock that may be purchased
by an optionee, pursuant to this Plan and the optionee's Option Agreement.
(23) "Option Term" means the period during which an Option is
outstanding.
(24) "Outside Director" means that term as defined in Treas. Reg. (S)
1.162-27(e)(3).
(25) "Person" means a person for purposes of Section 13(d) or 14(d) of
the Exchange Act.
(26) "Plan" means the Yurie Systems, Inc. Amended and Restated 1996
Nonstatutory Option Plan, as amended from time to time.
(27) "Pooling Transaction" means a business combination that qualifies
for use of the pooling of interests accounting method under generally
accepted accounting principles.
(28) "Rule 16b-3" means Rule 16b-3 under the Exchange Act of 1934, or any
successor rule.
(29) "Subsidiary" means, as to any entity, a corporation or other Person
of which a majority of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by the entity.
(30) "Voting Securities" means any voting securities of Yurie.
(31) "Yurie" means Yurie Systems, Inc.
3. TYPE OF OPTIONS AND ADMINISTRATION.
a. Type of Options. The options granted pursuant to the Plan shall be
non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
b. Administration. The Plan will be administered by the Board of
Directors. The Board shall have authority, subject to the express
provisions of the Plan, to construe the Option Agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the Option Agreements, which need not
be identical, and to make any other determination which, in the judgment of
the Board of Directors, is necessary or desirable for the administration of
the Plan. The Board of Directors' construction and interpretation of the
terms and provisions of the Plan and any determinations made by the Board
pursuant thereto shall be final and conclusive.
c. Delegation. Except as provided in Section 4(c), the Board of Directors
may, to the full extent permitted by or consistent with applicable laws or
regulations and the governing documents of Yurie, delegate any or all of
its powers under the Plan to a committee appointed by the Board of
Directors. If a committee is so appointed, all references to the Board of
Directors in the Plan shall mean and relate to such
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committee. To the extent required by Rule 16b-3, however, such committee
shall consist solely of Non-Employee Directors when exercising any powers
relating to options granted to Directors.
d. Applicable Law. The provisions of this Plan and the Option Agreements
shall be interpreted in a manner consistent with all applicable law,
including but not limited to the Exchange Act and the rules and regulations
thereunder. Any authority or discretion exercised under the Plan by the
Board of Directors or any other person or entity shall be exercised in a
manner consistent with all applicable law, including but not limited to the
Exchange Act and the rules and regulations thereunder.
4. ELIGIBILITY FOR AND ISSUANCE OF GRANTS.
a. Eligibility. Options may be granted only to persons who are, at the
time of the grant: (i) Directors, Officers or employees of the Company or
(ii) consultants or advisors to the Company.
b. Grant of Options Generally. Subject to the express provisions of the
Plan, the Board of Directors may in its sole discretion grant Options to
purchase shares of the Common Stock and issue shares upon exercise of such
Options.
c. Grant of Options to Officers. Any grant, or modification of any grant,
to an Officer shall be made by the Board of Directors, provided, however
that to the extent required by Section 162(m)(4)(C) of the Code, any grant
or modification of options to an Officer who is a Covered Employee shall be
made by a committee composed solely of two or more Outside Directors.
d. Automatic Grants to Directors. Each Independent Director who has
executed a Director's Automatic Grant Agreement shall receive a grant of
Options of 5,000 shares of Common Stock effective on the 30th day of June
of each year beginning on June 30, 1997. A Director's Automatic Grant
Agreement shall be approved by the Board of Directors prior to execution by
the Independent Director and shall set forth the Option term, the time for
exercising the Option, the Option price, the Effective Date of the Option
and all other terms at which Common Stock may be purchased pursuant to the
Options granted to the Independent Director. For this purpose, the exercise
price shall be the Fair Market Value of the Common Stock, as defined in
Section 2(12) hereof, but without regard to the proviso clause, on the
Effective Date of the Option. A Director's Automatic Grant Agreement shall
not be inconsistent with the terms of the Plan, and in the event of a
conflict between the terms of the Plan and the Director's Automatic Grant
Agreement, the terms of the Plan shall supersede the terms of such
Agreement unless the terms of the Plan are inconsistent with the
requirements of Rule 16b-3. Each such Agreement shall be appended to the
Plan and is hereby incorporated by reference. Options granted pursuant to
this Section 4(d) shall be subject to the terms and conditions set forth in
this Plan to the extent not inconsistent with this Section 4(d).
5. STOCK SUBJECT TO PLAN.
a. Limitations on Number of Shares. Subject to adjustment as provided in
Section 11 below, the maximum number of shares of Common Stock which may be
issued and sold under the Plan is 7,000,000 shares. The maximum number of
shares of Common Stock that can be offered to any optionee in any year
shall be 1,500,000 shares. Such shares may be authorized and unused shares
or may be shares issued and thereafter acquired by Yurie.
b. Unpurchased Shares. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares
subject to such Option shall again be available for subsequent Option
grants under the Plan.
6. TERM AND EXERCISE.
a. Option Term. Unless otherwise provided in the Option Agreement, the
Option Term of an Option granted under the Plan shall be ten years from the
Effective Date of the Option.
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b. Exercise. Options issued hereunder shall become exercisable as
follows:
i. General. Unless otherwise provided in the Option Agreement, the
initial grant of Options issued hereunder to an individual shall become
exercisable in installments, the optionee having the right to purchase
the following number of Option Shares, on or after the following dates,
in cumulative fashion: (i) on the first day of the month beginning on
or after the first anniversary of the Effective Date, up to one-fourth
of the total number of Option Shares; (ii) on the first day of each of
the succeeding 35 months, up to 1/48th of the total number of Option
Shares; (iii) on the first day of the 36th succeeding month, any
remaining Option Shares. If the division of a number of shares pursuant
to the preceding sentence results in a fractional number of shares,
such fractional number shall be rounded off to the nearest integer. The
optionee may purchase fewer than the total number of Option Shares with
respect to which the Option is exercisable, provided that no partial
exercise of the Option may be for any fractional shares.
Any subsequent grant of options to the same individual shall become
exercisable as provided in the Option agreement.
ii. Change in Control. Notwithstanding anything contained in any
Option Agreement to the contrary, in the event of a Change in Control,
all outstanding Options shall become exercisable in full immediately
prior to such Change in Control.
7. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an Option under the Plan, each recipient of
an Option shall execute an Option Agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Option Agreements may
differ among recipients, and each Option Agreement shall state the price, the
number of shares subject to the Option, and other terms at which the
underlying stock can be purchased pursuant to the Option. In the event of a
conflict between the terms of this Plan and an Option Agreement entered into
pursuant to this Plan, the terms of the Plan shall supersede the terms of the
Option Agreement.
8. PURCHASE PRICE.
a. General. The option price shall be the Fair Market Value of the Common
Stock as of the Effective Date of the Option.
b. Payment of Purchase Price.
i. Cash or Stock Owned by Optionee. Options granted under the Plan
may provide for the payment of the exercise price by delivery of cash
or a check to the order of Yurie in an amount equal to the exercise
price of such Options or by delivery to Yurie of shares of Common Stock
then owned by the optionee having a Fair Market Value equal in amount
to the exercise price of such shares, or by any combination of such
methods of payment. Provided, however, that if an Officer or Director
elects to make payment by delivery to Yurie of shares of Common Stock,
such election must be approved in advance by the Board of Directors.
ii. Other Cashless Exercise Procedures. Options granted under the
Plan also may be exercised through a registered broker-dealer or
through such other cashless exercise procedures (in addition to the use
of stock already owned by the optionee) that are, from time to time,
established by the Board of Directors.
c. Delivery of Shares. Yurie shall not be required to transfer or deliver
any certificate or certificates for shares purchased upon any exercise of
an Option until after (i) the stock has been paid for in accordance with
the terms of the Option Agreement and the certificate has been requested,
and (ii) compliance with all then applicable requirements of law including,
but not limited to, collection by the Company from the optionee of all
requisite income and employment taxes and compliance with the federal and
state securities laws.
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9. TRANSFERABILITY AND TERMINATION OF OPTIONS.
a. General. Unless otherwise provided in the Option Agreement, no Option
granted under the Plan shall be assignable or transferable by the optionee
to whom it is granted, except pursuant to a domestic relations order (as
defined in Section 414(p) of the Code) or, in the event of the optionee's
death, by will or the laws of descent and distribution. During the lifetime
of an optionee, an Option shall be exercisable only by the optionee or, if
the optionee becomes incompetent, by a guardian or other person duly
authorized by law to administer the optionee's assets or by the party to
whom the Option is transferred pursuant to such a domestic relations order.
If an Option is so transferred to, or exercisable by, a person other than
the optionee, the terms of the Option granted to the optionee shall be
final, binding and conclusive upon such other person.
b. Effect of Death and Termination of Employment. The Board of Directors
shall determine the period of time during which an Option may be exercised
following: (i) the termination of the optionee's employment or other
relationship with the Company or (ii) the death or disability of the
optionee. Such periods shall be set forth in the Option Agreement.
10. ADDITIONAL PROVISIONS.
a. Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in any Option Agreement,
including, without limitation, provisions relating to restrictions on
transfer, repurchase rights, rights to the optionee's work product,
noncompetition restrictions, or commitments to (i) pay cash bonuses, (ii)
make, arrange for or guaranty loans, or (iii) transfer other property to
optionees upon exercise of Options, or such other provisions as shall be
determined by the Board of Directors; provided that such additional
provisions shall not be inconsistent with any other term or condition of
the Plan.
b. Acceleration. The Board of Directors may, in its sole discretion: (i)
accelerate the date or dates on which all or any particular Option or
Options granted under the Plan may be exercised; or (ii) extend the dates
during which all or any particular Option or Options granted under the Plan
may be exercised; provided, however, that no such acceleration or extension
shall be permitted if it would cause the Plan or the Option to fail to
satisfy the requirements of Rule 16b-3 or of Section 162(m)(4)(C) of the
Code (relating to performance-based compensation).
c. Cancellation and New Grant of Options. The Board of Directors shall
have the authority to effect, at any time and from time to time, with the
consent of the affected optionees: (i) the cancellation of any or all
outstanding Options under the Plan and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of
shares of Common Stock having an exercise price per share which may be
lower or higher than the exercise price per share of the canceled options
or (ii) the amendment of the terms of any and all outstanding Options under
the Plan to provide an Option price which is higher or lower than the then-
current Option price of such outstanding Options. No cancellation or
amendment of an Option will be made, however, to the extent it would cause
an Option to fail to satisfy the requirements of Rule 16b-3 or of Section
162(m)(4)(C) of the Code (relating to performance-based compensation).
11. RECAPITALIZATIONS AND RELATED TRANSACTIONS BY YURIE.
a. General. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of Yurie, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar distribution with respect to the outstanding
shares of Common Stock or other securities, (i) the outstanding shares of
Common Stock are increased or decreased, or are exchanged for a different
number or kind of shares or other securities of Yurie or (ii) additional
shares or new or different shares or other securities of Yurie or other
non-cash assets are distributed with respect to such shares of Common Stock
or other securities, an appropriate and proportionate adjustment may be
made in (x) the maximum number and kind of shares reserved for issuance
under the Plan, (y) the number and kind of shares or other
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securities subject to then outstanding Options under the Plan, and (z) the
price for each share subject to any then outstanding Options under the
Plan, without changing the aggregate purchase price as to which such
Options remain exercisable.
b. Board Authority to Make Adjustments. Adjustments under this Section 11
will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan
on account of any such adjustments.
12. MERGER, CONSOLIDATION, ASSET SALE OR LIQUIDATION OF YURIE.
a. Acquisition of Yurie. Subject to the provisions of Section 6(b)(ii)
regarding Change in Control transactions, in the event of a merger,
consolidation or reorganization of the stock, business or assets of Yurie
or a sale of all or substantially all of the stock, business or assets of
Yurie in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or business
entity, or in the event of a liquidation of Yurie, the Board of Directors,
or the board of directors of any corporation assuming the obligations of
Yurie, may, in its discretion, take any one or more of the following
actions as to outstanding Options: (i) provide that such Options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), (ii) upon written notice
to the optionees, provide that all unexercised Options will terminate
immediately prior to the consummation of such transaction unless exercised
by the optionee within a specified number of days following the date of
such notice, (iii) in the event of a merger under the terms of which
holders of the Common Stock will receive upon consummation thereof a cash
payment for each share surrendered in the merger, make or provide for a
cash payment to the optionees equal to the difference between (X) the
Merger Price times the number of shares of Common Stock subject to such
outstanding Options (to the extent exercisable at prices not in excess of
the Merger Price) and (Y) the aggregate exercise price of all such
outstanding Options in exchange for the termination of such options, and
(iv) provide that all or any outstanding Options shall become exercisable
in full immediately prior to such event. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
b. Acquisition by Yurie. The Board of Directors may grant options under
the Plan in substitution for options held by employees of another
corporation who become employees of the Company, as the result of a merger
or consolidation of the employing corporation with the Company, or as a
result of the acquisition by the Company, of property or stock of the
employing corporation. Substitute options may be granted on such terms and
conditions as the Board of Directors considers appropriate in the
circumstances.
13. RIGHTS AS A SHAREHOLDER.
The holder of an Option shall have no rights as a shareholder with respect
to any shares covered by the Option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
Except as Section 11 provides, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
14. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any Option Agreement shall confer upon
any optionee any right with respect to the continuation of his or her
employment or service as a Director, consultant or otherwise by the Company or
interfere in any way with the right of the Company at any time to terminate
such employment or service or to increase or decrease the compensation of the
optionee.
15. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their terms include such amounts as
compensation, or as specifically determined by the Board of Directors, neither
the amount of any compensation deemed to be received by an optionee as a
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result of the exercise of an Option, nor the sale of shares received by an
optionee as a result of the exercise of an Option nor the sale of shares
received upon such exercise will constitute compensation with respect to which
any other employee or fringe benefits of such optionee are determined,
including, without limitation, benefits under any bonus, pension, profit-
sharing, life insurance or salary continuation plan.
16. WITHHOLDING.
a. The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee (or secure payment from the optionee in lieu
of such deduction) any federal, state or local taxes of any kind required
by law to be withheld with respect to any shares issued upon exercise of
Options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may
elect to satisfy such obligations, in whole or in part, (i) by causing the
Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or (ii) by delivering to the Company shares of
Common Stock already owned by the optionee. The Common Stock so delivered
or withheld shall have a Fair Market Value equal to such withholding
obligation.
b. Notwithstanding the foregoing, in the case of an Officer, no election
to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
17. POOLING TRANSACTIONS.
In the event of a Change in Control which also is intended to constitute a
Pooling Transaction, the Board of Directors shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
Yurie to the extent reasonably necessary in order to assure that the Pooling
Transaction will qualify as such, including but not limited to (i) deferring
the vesting, exercise, payment, settlement of lapsing of restrictions with
respect to any Option, (ii) providing that the payment or settlement in
respect of any Option be made in the form of cash, shares or securities of a
successor or acquiror of Yurie, or a combination of the foregoing, and (iii)
providing for the extension of the Option Term to the extent necessary to
accommodate the foregoing.
18. AMENDMENT AND TERMINATION OF THE PLAN.
a. Except as set forth herein, the Board of Directors may at any time,
and from time to time, terminate the Plan or modify or amend the Plan in
any respect. To the extent that approval of the shareholders is required as
to such modification or amendment under Section 162(m)(4)(C) of the Code,
the Board of Directors may not effect such modification or amendment
without such approval.
b. The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, adversely affect his or her rights
under an Option previously granted to him or her. With the consent of the
optionee affected, the Board of Directors may amend outstanding Option
Agreements, in a manner not inconsistent with the Plan.
c. Notwithstanding Section 18(a) or (b): (i) neither the Plan nor an
Option Agreement may be amended to the extent the amendment would cause the
Plan or the Option Agreement to fail to satisfy the requirements of Rule
16b-3 or Section 162(m)(4)(C) of the Code (relating to performance-based
compensation); and (ii) the consent of an affected optionee will not be
required for amendment of an Option Agreement if the failure to amend would
cause the Option Agreement to fail to satisfy the requirements of Rule 16b-
3 or Section 162(m)(4)(C) of the Code (relating to performance-based
compensation).
19. EFFECTIVE DATE AND DURATION OF THE PLAN.
a. Effective Date. The Plan shall become effective when adopted by the
Board of Directors and approved by the shareholders, provided that Options
may be granted to employees after approval of the Plan
8
<PAGE>
by the Board of Directors and prior to shareholder approval, subject to the
requirement that shareholder approval of the Plan be obtained within one
year of approval by the Board. If such shareholder approval is not obtained
within one year, all Options granted hereunder shall be null and void.
Amendments requiring shareholder approval shall become effective when
adopted by the Board of Directors and approved by the shareholders.
Amendments to the Plan not requiring shareholder approval shall become
effective as of the date they are made effective by the Board of Directors.
b. Duration. Unless sooner terminated in accordance with Section 18, the
Plan shall terminate upon the date on which all shares available for
issuance under the Plan shall have been issued pursuant to the exercise or
cancellation of options granted under the Plan.
9
<PAGE>
8888
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
YURIE SYSTEMS, INC.
PROXY FOR 1997 ANNUAL MEETING OF STOCKHOLDERS -- JUNE 26, 1997
The undersigned stockholder of Yurie Systems, Inc. (the "Company") hereby
revokes all previous proxies and appoints John J. McDonnell and Catherine
A. Graham or either of them, with full power of substitution, Proxies and
Attorneys-in-Fact, on behalf of and in the name of the undersigned, to
vote and otherwise represent all of the shares registered in the name of
the undersigned at the 1997 Annual Meeting of Stockholders of the Company
to be held at 10:30 a.m. on June 26, 1997, at the executive offices of
Yurie Systems, Inc., located at 8301 Professional Place, Landover,
Maryland 20785 or any adjournment thereof, with the same effect as if the
undersigned were present and voting such shares, on the following matters
and in the following manner:
(Continued and to be signed on reverse side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
YURIE SYSTEMS, INC.
June 26, 1997
<TABLE>
<CAPTION>
<S> <C>
Please Detach and Mail in the Envelope Provided
Please mark your +
A [x] votes as indicated +
in this example. + + +
The Board of Directors recommends a vote FOR the nominees and FOR proposals 2 and 3.
FOR WITHHELD FOR AGAINST ABSTAIN
1 Election of [_] [_] Nominees: Jeong H. Kim 2. Approval of Independent Accountants. [_] [_] [_]
Directors. Herbert Rabin
FOR, except vote withheld from the following 3. Approval of the Company's Amended and [_] [_] [_]
nominee(s): Restated Stock Option Plan.
- -------------------------------------------
Change of
Address/comments [_]
on reverse side
I plan I do not
to attend [_] plan [_]
the meeting to attend
the meeting
SIGNATURE(S) DATE
-------------------------------------------------------------------------------------------------- ----------------
Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
</TABLE>
