<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period ended June 30, 1997; or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from to .
------ ------
Commission File Number 0-22087
YURIE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1778987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8301 PROFESSIONAL PLACE
LANDOVER, MD 20785-2237
(Address of principal executive offices and zip code)
301-352-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of June 30, 1997, the registrant had outstanding 24,741,341 shares of its
common stock.
<PAGE>
YURIE SYSTEMS, INC.
REPORT ON FORM 10-Q
FOR THE THREE AND THE SIX MONTHS ENDED
JUNE 30, 1997
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
a. Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 3
b. Statements of Operations for the three and six
months ended June 30, 1997 and 1996 (unaudited) 4
c. Statements of Cash Flows for the three and six
months ended June 30, 1997 and 1996 (unaudited) 5
d. Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
YURIE SYSTEMS, INC.
BALANCE SHEETS AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $28,741,677 $ 3,229,069
Short term investments 12,881,112 ---
Accounts receivable 8,910,508 4,985,166
Interest receivable 405,615 ---
Advances 740,477 ---
Inventory 3,998,550 2,599,915
Deferred offering costs --- 910,442
Deferred income taxes 680,326 9,301
Prepaid expenses 402,145 392,881
----------- -----------
Total current assets 56,760,410 12,126,774
PROPERTY AND EQUIPMENT, net 4,568,794 2,031,301
DEFERRED INCOME TAXES 38,138 ---
OTHER ASSETS 136,462 57,756
----------- -----------
TOTAL ASSETS $61,503,804 $14,215,831
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,667,163 $ 1,969,714
Accrued liabilities 3,293,820 3,156,385
Income taxes payable 109,161 ---
----------- -----------
Total current liabilities 5,070,144 5,126,099
ACCRUED RENT 98,753 14,932
DEFERRED INCOME TAXES --- 19,310
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01,
authorized 10,000,000 shares, none issued --- ---
Common Stock, par value $.01; 50,000,000 shares
authorized; issued and outstanding,
24,741,341 shares at June 30, 1997 and
20,608,400 shares at December 31, 1996 247,413 206,084
Additional paid-in capital 49,539,910 4,915,939
Retained earnings 6,547,584 3,933,467
Total stockholders' equity 56,334,907 9,055,490
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,503,804 $14,215,831
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
YURIE SYSTEMS, INC.
STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Product revenue (1) $ 9,966,525 $ 4,588,000 $17,398,990 $ 7,391,559
Service revenue 955,998 430,243 1,879,083 1,021,521
Other revenue --- --- --- 391,667
----------- ----------- ----------- -----------
Total revenue 10,922,523 5,018,243 19,278,073 8,804,747
----------- ----------- ----------- -----------
COSTS OF REVENUE:
Cost of product revenue 3,589,534 1,622,664 6,397,004 2,357,295
Cost of service revenue 746,586 316,022 1,369,072 729,113
----------- ----------- ----------- -----------
Total costs of revenue 4,336,120 1,938,686 7,766,076 3,086,408
----------- ----------- ----------- -----------
GROSS PROFIT 6,586,403 3,079,557 11,511,997 5,718,339
OPERATING EXPENSES:
Research and development 1,758,626 944,628 3,329,206 1,346,058
Sales and marketing 1,181,371 237,019 2,296,520 286,018
General and administrative 1,328,070 365,093 2,328,758 836,215
----------- ----------- ----------- -----------
Total operating expenses 4,268,067 1,546,740 7,954,484 2,468,291
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 2,318,336 1,532,817 3,557,513 3,250,048
Other income 464,720 15,569 728,899 54,524
----------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 2,783,056 1,548,386 4,286,412 3,304,572
Provision for income taxes 1,083,751 619,355 1,672,295 1,321,829
----------- ----------- ----------- -----------
NET INCOME $ 1,699,305 $ 929,031 $ 2,614,117 $ 1,982,743
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ 0.06 $ 0.04 $ 0.10 $ 0.09
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 26,641,844 21,750,808 25,728,111 21,750,808
=========== =========== =========== ===========
</TABLE>
________________________
(1) Product revenue includes amounts from related parties of $3,118,170 and
$4,818,170 for the three and six months ended June 30, 1997, respectively
(unaudited).
See notes to financial statements.
4
<PAGE>
YURIE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,699,305 $ 929,031 $ 2,614,117 $ 1,982,743
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 250,754 46,290 396,584 81,371
Compensation due to stock issuance --- --- 120,500 ---
Deferred income taxes (359,335) --- (728,473) ---
Changes in assets and liabilities:
Accounts receivable (2,530,672) (2,216,038) (3,925,342) (2,388,914)
Interest receivable (405,615) --- (405,615) ---
Advances (740,477) --- (740,477) ---
Inventory (49,619) 37,447 (1,398,635) 35,971
Prepaid expenses 198,629 (46,525) (9,264) (60,752)
Other assets (101,056) (24,587) (78,706) (26,140)
Accounts payable (427,146) 874,927 (302,551) 845,596
Accrued expenses 1,030,963 497,973 137,435 598,672
Income taxes payable (6,914) (347,645) 741,527 (120,889)
Unearned revenue --- (998,000) --- (3,158,000)
Accrued rent 86,503 (4,471) 83,821 (4,471)
------------ ----------- ------------ -----------
Net cash used in operating activities (1,354,680) (1,251,598) (3,495,079) (2,214,813)
------------ ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short term investments (8,903,112) --- (12,881,112) ---
Purchase of property and equipment (1,506,286) (527,947) (2,934,077) (579,308)
------------ ----------- ------------ -----------
Net cash used in investing activities (10,409,398) (527,947) (15,815,189) (579,308)
------------ ----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 474,385 --- 44,822,876 ---
------------ ----------- ------------ -----------
Net cash provided by financing activities 474,385 --- 44,822,876 ---
------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,289,693) (1,779,545) 25,512,608 (2,794,121)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 40,031,370 2,765,224 3,229,069 3,779,800
------------ ----------- ------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,741,677 $ 985,679 $ 28,741,677 $ 985,679
============ =========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $ 1,450,000 $ 992,000 $ 1,475,450 $ 1,441,000
============ =========== ============ ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
YURIE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS
Yurie Systems, Inc. (the "Company") is a Delaware corporation that was
incorporated in February 1992. The Company designs, manufactures, markets and
services asynchronous transfer mode ("ATM") access products for
telecommunications service providers, corporate end users and government end
users. ATM is a standard for packaging and switching digital information that
facilitates high speed information transmission with a high degree of
efficiency.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with Regulation S-X pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information not misleading.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position as of June 30, 1997, the
results of operations for the three and six month periods ended June 30, 1997
and 1996, and the cash flows for the three and six month periods ended June 30,
1997 and 1996. These financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Billed $8,406,674 $4,166,149
Unbilled 446,991 764,863
---------- ----------
Other 56,843 54,154
---------- ----------
Total accounts receivable $8,910,508 $4,985,166
========== ==========
NOTE 4 - INVENTORY
Inventory consisted of the following:
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $1,351,435 $1,836,581
Work-in-process 1,078,541 688,686
Finished goods 1,568,574 74,648
---------- ----------
Total inventory $3,998,550 $2,599,915
========== ==========
</TABLE>
6
<PAGE>
NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Accrued salaries and employee benefits $1,501,648 $1,563,704
Accrued sales and use tax 288,344 272,784
Warranty accrual 1,179,223 544,306
Deferred offering costs --- 653,000
Other accrued liabilities 324,605 122,591
---------- ----------
Total accrued liabilities $3,293,820 $3,156,385
========== ==========
</TABLE>
NOTE 6 - COMMITMENTS
On May 1, 1997, the Company entered into a lease for approximately 137,000
rentable square feet. This facility is being used as the Company's principal
offices. The lease commenced on June 1, 1997 and expires on November 30, 2004.
Rental payments begin on December 1, 1997, with the monthly rent being recorded
on a straight line basis over the life of the lease.
NOTE 7 - RELATED PARTY TRANSACTIONS
In March 1997, one of the Company's officers became a majority shareholder
in and the acting Chairman of the Board of a corporation that provides
communications services specifically configured to meet the needs of large
network users. Yurie had product sales to this company totaling $3,118,170 and
$4,818,170 during the three and six months ended June 30, 1997, respectively.
At June 30, 1997, accounts receivable from this company totaled $3,274,079.
NOTE 8 - EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (EPS) which
simplifies the standards for computing EPS previously found in APB Opinion No.
15 and makes them comparable to international EPS standards. The Statement is
effective for financial statements issued for periods ending after December 15,
1997. Had the following statement been effective for the three and six months
ended June 30, 1997 and 1996, earnings per share would have been presented as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings per common share $ .07 $ .05 $ .11 $ .10
======== ======== ======== ========
Earnings per common share -
assuming dilution $ .06 $ .04 $ .10 $ .09
======== ======== ======== ========
</TABLE>
NOTE 9 - INITIAL PUBLIC OFFERING
On February 5, 1997, the Company completed its initial public offering and
sold an aggregate of 4,000,000 shares of Common Stock at $12.00 per share,
resulting in net proceeds of $44,640,000 after deducting underwriting discounts.
Other deferred offering costs related to the initial public offering totaling
$1,230,937 as of June 30, 1997 have been netted against paid-in capital.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act provides a "safe harbor" for
forward-looking statements. Certain statements included in this Quarterly
Report on Form 10-Q are forward-looking. Such forward-looking statements, in
addition to information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-Q,
are based on the Company's current expectations and are subject to a number of
risks and uncertainties that could cause actual future results to differ
significantly from results expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. The Company assumes no
obligation to update any forward-looking statements contained herein or that may
be made from time to time by, or on behalf of, the Company. Information
presented in this Form 10-Q should be read in conjunction with the Company's
Annual Report on Form 10-K and prior Quarterly Reports on Form 10-Q filed with
the Securities and Exchange Commission.
References made in this Quarterly Report on Form 10-Q to "Yurie", the
"Company" or the "Registrant" refer to Yurie Systems, Inc.
OVERVIEW
Yurie Systems is a Delaware corporation that was incorporated in February
1992. The Company designs, manufactures, markets and services asynchronous
transfer mode ("ATM") access products for telecommunications service
providers, corporate end users and government end users. ATM is a standard for
packaging and switching digital information that facilitates high speed
information transmission with a high degree of efficiency.
The Company has had a significant strategic relationship with AT&T since 1994.
Pursuant to this relationship, Yurie and AT&T entered into an agreement (the
"AT&T Agreement") in August 1995. The AT&T Agreement, as amended, provides for
the joint technical evaluation and marketing of the Company's LDR products by
Yurie and AT&T, and grants AT&T a three-year exclusive right to market and sell
the LDR100, LDR200 and certain related products, solely in U.S. federal, state
and local government markets, as well as certain foreign government markets.
Under the AT&T Agreement, AT&T has guaranteed minimum annual purchases of $10.0
million for each of calendar years 1997 and 1998.
SplitRock Services, Inc., a Texas corporation that provides communications
services specifically configured to meet the needs of large network users, is
also a significant customer. During the first six months of 1997, SplitRock
purchased $4.8 million of product from the Company. Yurie and SplitRock have
entered into an agreement under which Yurie will supply a minimum of $20.0
million of additional product to SplitRock over the next eighteen months. Also,
Yurie will provide additional services to support deployment and implementation
of Yurie's products in the SplitRock network. Kwok L. Li, the Chief Technology
Officer and Vice Chairman of the Board of Yurie, is currently the majority
shareholder and acting Chairman of the Board of SplitRock.
In view of the Company's rapid revenue growth, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
In addition, the Company's results of operations may fluctuate from period to
period in the future.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997 COMPARED WITH QUARTER ENDED JUNE 30, 1996
Revenue. Total revenue for the second quarter of 1997 was $10.9 million,
compared with $5.0 million for the second quarter of 1996. This 117.7% increase
resulted primarily from an increase in sales of the Company's LDR products, and
particularly from increased product sales to the commercial marketplace. Product
revenue was $10.0 million during the 1997 period compared with $4.6 million
during the 1996 period. Of this $10.0 million in product revenue, $6.9 million,
or 68.9%, resulted from sales to commercial customers. There were no sales to
commercial customers in the second quarter of 1996. Of the $10.0 million in
product sales in the 1997 quarter, $3.1 million were made to SplitRock Services,
Inc. An additional $3.1 million in revenue resulted from sales to AT&T under the
AT&T Agreement. In the second quarter of 1996, 100% of product revenue resulted
from sales to AT&T under the AT&T Agreement. Service revenue was $956,000 in the
1997 quarter compared with $430,000 in the 1996 quarter. This 122.2% increase
was attributable to growth in both the number and size of contracts with U.S.
government customers and government contractors.
8
<PAGE>
Gross Profit. Gross profit increased to $6.6 million in the second quarter of
1997 from $3.1 million in the comparable 1996 period. Gross margins were 60.3%
and 61.4% during the 1997 and 1996 quarters, respectively. The decline in gross
margin was due largely to an increase in product cost of goods sold, to 36.0% of
product revenue in the 1997 quarter from 35.4% of product revenue in the 1996
quarter. This reflects the migration of the Company's cost structure to a
commercially sustainable model, both for commercial and government market sales.
Cost of service increased to 78.1% of service revenue in the 1997 quarter from
73.5% in the comparable 1996 period.
Research and Development. Research and development expenses were $1.8
million in the second quarter of 1997, compared with $945,000 in the second
quarter of 1996. This increase was due primarily to the hiring of additional
engineering personnel and increased prototyping expenses related to the
development of the Company's LDR products. As a percentage of total revenue,
research and development expenses were 16.1% and 18.8% of total revenue,
respectively.
Sales and Marketing. Sales and marketing expenses were $1.2 million, or
10.8% of total revenue, in the second quarter of 1997, compared with $237,000,
or 4.7% of total revenue, in the second quarter of 1996. This increase resulted
primarily from the hiring of sales and marketing personnel to support generally,
the Company's entry into the commercial marketplace, and specifically, the
release of the Company's LDR200 product.
General and Administrative. General and administrative expenses increased to
$1.3 million in the second quarter of 1997 from $365,000 in the comparable 1996
quarter. This increase was due primarily to higher personnel expenses related to
increased staffing in finance, information technology and administration
undertaken in support of the Company's growth. Also, in June 1996 and again in
June 1997, the Company relocated its operations to larger, leased facilities,
resulting in higher occupancy costs in the 1997 period. As a percentage of total
revenue, general and administrative expenses were 12.2% and 7.3% in the second
quarters of 1997 and 1996, respectively.
Provision for Income Taxes. The provision for income taxes in the second
quarter of 1997 was $1.1 million, resulting in an effective tax rate of 38.9%.
In the second quarter of 1996, the provision was $619,000, resulting in an
effective tax rate of 40.0%.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenue. Total revenue for the first six months of 1997 was $19.3 million,
compared with $8.8 million for the first six months of 1996. This 119.0%
increase resulted primarily from an increase in sales of the Company's LDR
products, and particularly from increased product sales to the commercial
marketplace. Product revenue was $17.4 million during the 1997 period compared
with $7.4 million during the 1996 period. Of this $17.4 million in product
revenue, $10.3 million, or 59.5%, resulted from sales to commercial customers.
There were no sales to commercial customers in the first six months of 1996. Of
the $17.4 million in product sales in the 1997 period, $4.8 million were made to
SplitRock Services, Inc. An additional $6.0 million in product revenue resulted
from sales to AT&T under the AT&T Agreement. In the first six months of 1996,
100% of product revenue resulted from sales to AT&T under the AT&T Agreement.
Service revenue was $1.9 million in the first six months of 1997 compared with
$1.0 million in the first six months of 1996. This 84.0% increase was
attributable to growth in both the number and size of contracts with U.S.
government customers and government contractors. Other revenue in the first six
months of 1996 totaled $392,000, coming from fees earned under the AT&T
Agreement, which called for a total of $1.5 million to be earned over the six
months beginning in August 1995.
Gross Profit. Gross profit increased to $11.5 million in the first six months
of 1997 from $5.7 million in the comparable 1996 period. Gross margins were
59.7% and 64.9% during the 1997 and 1996 periods, respectively. The decline in
gross margin was due to an increase in product cost of goods sold, to 36.8% of
product revenue in the 1997 period from 31.9% of product revenue in the 1996
period. This reflects the migration of the Company's cost structure to a
commercially sustainable model, both for commercial and government market sales.
The higher gross margin in the 1996 period was also due to the inclusion of
$392,000 in fees earned under an agreement with AT&T which had no associated
direct cost. Cost of service revenue increased to 72.9% of service revenue in
the 1997 period, from 71.4% in the comparable 1996 period.
9
<PAGE>
Research and Development. Research and development expenses were $3.3
million, or 17.3% of total revenue, in the first six months of 1997, compared
with $1.3 million, or 15.3% of total revenue, in the first six months of 1996.
This increase was due primarily to the hiring of additional engineering
personnel and increased prototyping expenses related to the development of the
Company's LDR products.
Sales and Marketing. Sales and marketing expenses were $2.3 million, or
11.9% of total revenue, in the first six months of 1997, compared with $286,000,
or 3.2% of total revenue, in the first six months of 1996. This increase
resulted primarily from the hiring of sales and marketing personnel to support
generally, the Company's entry into the commercial marketplace, and
specifically, the release of the Company's LDR200 product.
General and Administrative. General and administrative expenses increased to
$2.3 million in the first six months of 1997 from $836,000 in the comparable
1996 period. This increase was due primarily to higher personnel expenses
related to increased staffing in finance, information technology and
administration undertaken in support of the Company's growth. Also, in June 1996
and again in June 1997, the Company relocated its operations to larger, leased
facilities, resulting in higher occupancy costs in the 1997 period. As a
percentage of total revenue, general and administrative expenses were 12.1% and
9.5% in the first six months of 1997 and 1996, respectively.
Provision for Income Taxes. The provision for income taxes in the first six
months of 1997 was $1.7 million, resulting in an effective tax rate of 39.0%. In
the first six months of 1996, the provision was $1.3 million, resulting in an
effective tax rate of 40.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its working capital and capital expenditure requirements
primarily from the proceeds from its February 1997 initial public offering. At
June 30, 1997, the Company had cash and cash equivalents of $28.7 million, short
term investments of $12.9 million and working capital of $51.7 million. This
compares to cash and cash equivalents of $3.2 million, no short term investments
and working capital of $7.0 million at December 31, 1996. The Company had no
long term debt at either date.
The Company used $3.5 million in cash for operations in the first six months
of 1997, primarily to fund its growth. Accounts receivable and inventory
increased by $3.9 million and $1.4 million , respectively, from December 31,
1996 to June 30, 1997, reflecting growth associated with the Company's
expansion of its product line and move into the commercial marketplace.
Interest receivable increased by $406,000 reflecting the investment of proceeds
from the Company's February 1997 initial public offering. The Company also made
$740,000 in reimbursable advances related to the relocation to its new
headquarters facility. Accounts payable decreased by $303,000 from December 31,
1996 levels and income taxes payable increased by $742,000. Accrued expenses
increased by $137,000. The significant components of this increase were a
$653,000 decrease in deferred offering costs and a $635,000 increase in warranty
accrual. The Company anticipates that the warranty accrual portion of accrued
liabilities may fluctuate significantly from period to period due to the timing
of customer upgrades and other warranty work.
Cash used in investing activities was $15.8 million for first six months of
1997. Short term investments increased by $12.9 million from December 31, 1996
to June 30, 1997, resulting from the investment of certain proceeds of the
Company's initial public offering. An additional $2.9 million was used for the
purchase of property and equipment, primarily computer hardware and software and
assembly and test equipment.
Financing activities generated cash of $44.8 million in the first quarter of
1997, reflecting the receipt of proceeds, net of offering costs, from the
Company's February 1997 initial public offering, as well as the exercise of
certain employee stock options. The Company sold 4.0 million shares of common
stock at $12.00 per share in its February 1997 initial public offering.
Yurie has recently entered into a lease to occupy, and relocated its
headquarters facility to, a 137,000 square foot facility located at 8301
Professional Place, Landover, Maryland. This lease commenced on July 1, 1997
and has an expiration date of November 30, 2004, with an optional 5-year
extension. The Company has vacated the two Lanham, Maryland facilities that it
previously occupied, one at the end of the lease term and one through
termination of the lease. The cost associated with this lease termination was
not material.
10
<PAGE>
The rent and other expenses associated with this new lease represent a
significant increase in the Company's occupancy costs. The Company believes,
however, that this relocation is necessary to facilitate and support the
Company's growth, and that the additional costs will not have a material adverse
effect on the Company's financial condition and operating results.
PART II
<TABLE>
<CAPTION>
<S> <C>
ITEMS 1 THROUGH 5.
Not Applicable.
ITEM 6.
EXHIBITS
10.1 Harry J. Carr Employment Agreement, dated as of April 30, 1997
10.2 Harry J. Carr Employee Stock Option Agreement, dated as of April 30, 1997
10.3 Purchase Agreement between Yurie Systems, Inc. and SplitRock Services, Inc., dated as of July 1, 1997
11.1 Statement regarding Computation of Earnings per Share
27.1 Financial Data Schedule
REPORTS ON FORM 8-K
None
</TABLE>
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
YURIE SYSTEMS, INC.
DATE: August 14, 1997 BY: /s/ Harry J. D'Andrea
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HARRY J. D'ANDREA
Chief Financial Officer and Treasurer
(also serves as Chief Accounting Officer)
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<PAGE>
Exhibit 10.1
HARRY J. CARR
EMPLOYMENT AGREEMENT
Agreement, dated as of April 30, 1997, by and between Yurie Systems, Inc.,
a Delaware corporation (the "Company") and Harry J. Carr, an individual residing
in the State of New Jersey (the "Executive").
WHEREAS, the Company desires to retain the services of the Executive on the
terms set forth herein;
WHEREAS, in order to induce the Executive to be retained by the Company,
the Company desires by this writing to set forth the employment relationship of
the Executive with the Company;
WHEREAS, the Company acknowledges that the initial grant of stock options
to the Executive represents a critical inducement for the Executive to abandon
his current career and enter into this Agreement, and in partial consideration
for the execution of this Agreement by the Executive, the Company is willing to
enter into that certain Nonstatutory Stock Option Agreement being simultaneously
executed with this Agreement, a copy of which is attached as Exhibit A hereto;
---------
and
WHEREAS, in partial consideration for the execution of this Agreement by
the Company, the Executive is willing to enter into a covenant not to compete
with the Company, which covenant is contained in this Agreement.
NOW, THEREFORE, in consideration wherefore, the Company and the Executive
agree as follows:
1. Term. The initial term of employment under this Agreement shall begin
----
on the date hereof and end on June 30, 2000 (the "Initial Term"); provided,
however, that the term of this Agreement shall be automatically extended for one
(1) year on June 30, 2000 and on each June 30 thereafter unless either the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended. If the Company gives such written notice that it elects not to extend
the term of this Agreement for one year after the Initial Term, such action
shall be considered a termination by the Company other than for "Cause" (as
defined herein), death or "Disability" (as defined herein) under the terms of
this Agreement.
<PAGE>
2. Employment.
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(a) Duties. As of April 30, 1997, the Executive shall render services
------
as requested from time to time by the Company with respect to its business in a
manner that does not interfere with his duties to his current employer. As of
June 30, 1997, the Executive shall be appointed as the President and Chief
Operating Officer of the Company and/or in such other senior executive capacity
as may be mutually agreed to in writing by the parties. The Executive shall
perform the duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a similar
executive capacity. He shall also promote, by entertainment or otherwise, the
business of the Company.
(b) Full Attention and Time. As of June 30, 1997, excluding periods of
-----------------------
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote his attention and time during usual business hours to the business and
affairs of the Company to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder. The Executive may (i) serve on corporate,
civil or charitable boards or committees, (ii) manage personal investments and
(iii) deliver lectures and teach at educational institutions, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities hereunder.
3. Base Salary and Bonus.
---------------------
(a) Base Salary. The Company agrees to pay or cause to be paid to the
-----------
Executive, beginning on June 30, 1997 and continuing during the term of this
Agreement, a base salary at the rate of $200,000 per annum or such larger amount
as the Board may from time to time determine (hereinafter referred to as the
"Base Salary"). Such Base Salary shall be payable in accordance with the
Company's customary practices applicable to its executives. Such rate of
salary, or increased rate of salary, if any, as the case may be, shall be
reviewed at least annually by the Board and may be further increased (but not
decreased) in such amounts as the Board in its discretion may decide.
(b) Bonus. The Company agrees to pay or cause to be paid to the
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Executive each year during the term of this Agreement a bonus equal to 20% of
the Base Salary or such other amount as the Board may from time to time
determine (hereinafter referred to as the "Bonus"). Such Bonus shall be payable
in accordance with the Company's customary practices applicable to its
executives. Such Bonus, if any, shall be reviewed at least annually by the Board
and may be further increased or decreased in such amounts as the Board in its
discretion may decide.
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<PAGE>
4. Benefits.
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(a) Employee Benefits. The Executive shall be entitled to participate
-----------------
in all employee benefit plans, practices and programs now maintained or
hereafter established by the Company and made available to employees generally
including, without limitation all pension, retirement, profit sharing, savings,
medical, hospitalization, disability, dental, life or travel accident insurance
benefit plans. The Executive's participation in such plans, practices and
programs shall be on the same basis and terms as are applicable to employees of
the Company generally.
(b) Executive Benefits. The Executive shall be entitled to
------------------
participate in all executive benefit or incentive compensation plans now
maintained or hereafter established by the Company for the purpose of providing
compensation and/or benefits to executives of the Company.
5. Expenses. The Executive shall be entitled to receive prompt
--------
reimbursement of all expenses reasonably incurred by him in connection with the
performance of his duties hereunder or for promoting, pursuing or otherwise
furthering the business or interests of the Company.
6. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Executive shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, provided that:
(a) The Executive shall be entitled to annual vacation in accordance
with the policies as periodically established by the Board for similarly
situated executives of the Company.
(b) In addition to the aforesaid paid vacations, the Executive shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment for such additional periods of time and for such
valid and legitimate reasons as the Board in its discretion may determine.
Further, the Board shall be entitled to grant to the Executive a leave or leaves
of absence with or without pay at such time or times and upon such terms and
conditions as the Board in its discretion may determine.
(c) The Executive shall be entitled to sick leave (without loss of pay)
in accordance with the Company's policies as in effect from time to time.
7. Termination. The Executive's employment hereunder may be terminated
-----------
under the following circumstances:
(a) Disability. The Company may terminate the Executive's employment
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after having established the Executive's Disability. For purposes of this
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<PAGE>
Agreement, "Disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties under this Agreement
which continues for a period of at least one hundred eighty (180) consecutive
days. The Executive shall be entitled to the compensation and benefits provided
for under this Agreement for any period during the term of this Agreement and
prior to the establishment of the Executive's Disability during which the
Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until the
Termination Date specified in a Notice of Termination (as each term is
hereinafter defined) relating to the Executive's Disability, the Executive shall
be entitled to return to his position with the Company as set forth in this
Agreement in which event no Disability of the Executive will be deemed to have
occurred.
(b) Cause. After May 31, 1998, the Company may terminate the
-----
Executive's employment for "Cause." A termination for Cause is a termination
evidenced by a resolution adopted in good faith by two-thirds (2/3) of the Board
that the Executive (i) willfully and continually failed to substantially perform
his duties with the Company (other than a failure resulting from the Executive's
incapacity due to physical or mental illness) which failure continued for a
period of at least thirty (30) days after a written notice of demand for
substantial performance has been delivered to the Executive specifying the
manner in which the Executive has failed to substantially perform, or (ii)
willfully engaged in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise; provided, however, that no termination of
the Executive's employment shall be for Cause as set forth in clause (ii) above
until (x) there shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive was guilty of the conduct set forth in
clause (ii) and specifying the particulars thereof in detail, and (y) the
Executive shall have been provided an opportunity to be heard by the Board (with
the assistance of the Executive's counsel if the Executive so desires). No act,
nor failure to act, on the Executive's part, shall be considered "willful"
unless he has acted or failed to act, with an absence of good faith and without
a reasonable belief that his action or failure to act was in the best interest
of the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after Notice of Termination is
given by the Executive shall constitute Cause for purposes of this Agreement.
(c) Good Reason. The Executive may terminate his employment for "Good
-----------
Reason." For purposes of this Agreement, Good Reason shall mean either of the
following:
(i) any material breach by the Company of any provision of this
Agreement.
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<PAGE>
(ii) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy, of the Company.
(d) Voluntary Termination. The Executive may voluntarily terminate his
---------------------
employment hereunder at any time upon ninety (90) days notice.
(e) Notice of Termination. Any purported termination by the Company
---------------------
or by the Executive shall be communicated by written Notice of Termination to
the other. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination of employment shall be effective without such Notice of Termination.
(f) Termination Date, Etc. "Termination Date" shall mean in the case
---------------------
of the Executive's death, his date of death, or in all other cases, the date
specified in the Notice of Termination subject to the following:
(i) If the Executive's employment is terminated by the Company for
Cause or due to Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the
Notice of Termination is given to the Executive, provided that in the
case of Disability the Executive shall not have returned to the full-
time performance of his duties during such period of at least thirty
(30) days; and
(ii) If the Executive's employment is terminated for Good Reason,
the date specified in the Notice of Termination shall not be more than
sixty (60) days from the date the Notice of Termination is given to
the Company.
8. Compensation Upon Termination. Upon termination of the Executive's
-----------------------------
employment during the term of this Agreement (including any extensions thereof),
the Executive shall be entitled to the following benefits:
(a) If the Executive's employment is terminated by the Company for
Cause or Disability or voluntarily by the Executive, or by reason of the
Executive's death, the Company shall pay the Executive all amounts earned or
accrued hereunder through the Termination Date but not paid as of the
Termination Date, including (i) Base Salary, (ii) reimbursement for any and all
monies advanced or expenses incurred in connection with the Executive's
employment for reasonable and necessary expenses incurred by the Executive on
behalf of the Company for the period ending on the Termination Date, (iii) any
Bonus or incentive compensation and (iv) any previous compensation which the
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<PAGE>
Executive has previously deferred (including any interest earned or credited
thereon) (collectively, "Accrued Compensation"). In addition to the foregoing,
if the Executive's employment is terminated by the Company for Disability or by
reason of the Executive's death, the Company shall pay to the Executive or his
beneficiaries an amount equal to the Bonus or incentive award that the Executive
would have been entitled to receive in respect of the fiscal year in which the
Executive's Termination Date occurs had he continued in employment until the end
of such fiscal year, calculated as if all performance targets and goals (if
applicable) had been fully met by the Company and by the Executive, as
applicable, for such year, multiplied by a fraction the numerator of which is
the number of days in such fiscal year through the Termination Date and the
denominator of which is 365 (a "Pro Rata Bonus"). Executive's entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs and practices
then in effect.
(b) If the Executive's employment by the Company shall be terminated
(1) by the Company other than for Cause, death or Disability or (2) by the
Executive for Good Reason, then the Executive shall be entitled to the benefits
provided below:
(i) the Company shall pay the Executive all Accrued Compensation
and a Pro Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in
lieu of any further salary for periods subsequent to the Termination
Date, in a single payment an amount in cash equal the sum of (A) the
Executive's Base Salary for the then-current fiscal year and (B) the
"Bonus Amount" (as defined below). The term "Bonus Amount" shall mean
(x) the amount of any Bonus or incentive compensation received by the
Executive during the fiscal year immediately preceding the Termination
Date or (y) if no Bonus was received by the Executive during the
preceding fiscal year, then an amount equal to the Executive's maximum
Bonus which could be awarded for the fiscal year in which the
Termination Date occurs had he continued in employment until the end
of such fiscal year, assuming all performance targets and goals (if
applicable) had been fully met by the Company and by the Executive, as
applicable, for such year; and
(iii) the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries all life insurance,
disability, medical, dental and hospitalization benefits which were
being provided to the Executive at the time Notice of Termination. The
benefits provided in this Section 8(b)(iii) shall be no less favorable
to the Executive, in terms of amounts and deductibles and costs to
him, than the coverage provided the Executive under the plans
providing such benefits at the time
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<PAGE>
Notice of Termination is given. The Company's obligation hereunder
with respect to the foregoing benefits shall terminate on the earlier
of (x) the date on which the Executive obtains benefits pursuant to a
subsequent employer's benefit plans and (y) one year after the
Termination Date.
(c) The amounts provided for in Sections 8(a) and 8(b)(i) and (ii)
shall be paid within ten (10) days after the Executive's Termination Date.
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment.
9. Executive's Covenants
---------------------
(a) Non-Competition. During the Executive's employment with the
---------------
Company and for one (1) year after the Termination Date (the "Applicable
Period"), the Executive shall not, without the prior written consent of the
Company, directly or indirectly engage in any business or activity, whether as
an employee, consultant, partner, principal, agent, representative, stockholder
(other than as the holder of an interest of five percent (5%) or less in the
equity of a publicly traded corporation) or other individual, corporate or
representative capacity, or render any services or provide any advice or
substantial assistance to any business, person or entity, if such business,
person or entity, directly or indirectly, competes (or, to the Executive's
knowledge after due inquiry, intends to compete or is preparing to compete
during the Applicable Period in the United States in any material manner with
(i) the Company, or any entity directly or indirectly controlled by, controlling
or under common control with the Company, or any corporation or other entity
acquiring, directly or indirectly, all or substantially all the assets and
business of the Company, whether by operation of law or otherwise (an
"Affiliate") (ii) any then-current material product, service or business of the
Company or any Affiliate of the Company or (iii) any material product, service
or business which is under serious consideration by the Company or any Affiliate
of the Company as of the Termination Date or at any time during the twelve (12)
month period prior thereto. If the Executive's employment shall be terminated
(x) by the Company other than for Cause or Disability or (y) by the Executive
for Good Reason, then for purposes of this Section 9(a) only, the Applicable
Period shall terminate upon the Termination Date, and the restrictions contained
in this Section 9(a) shall thereupon be of no further force or effect. The
parties hereto recognize that the laws and public policies of the various states
of the United States may differ as to the validity and enforceability of
covenants similar to those set forth in this Section. It is the intention of the
parties that the potential restrictions on the Executive's activities imposed by
this Section be reasonable in both duration and geographic scope and in all
other respects. It is also the intention of the parties that the
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<PAGE>
provisions of this Section be enforced to the fullest extent permissible under
the laws and policies of each jurisdiction in which enforcement may be sought,
and that in the event that any provision of this Section shall, for any reason,
be held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof, and such invalid
or unenforceable provision shall be construed by limiting it so as to be valid
and enforceable to the fullest extent permissible under applicable law.
Accordingly, if any provision of this Section shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall be deemed to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such determination is made and not with respect to any
other provision or jurisdiction.
(b) Non-Solicitation. During the Applicable Period, except as is
----------------
required or appropriate in the furtherance of the business of the Company and
its Affiliates, the Executive shall not, directly or indirectly, divert, solicit
or lure away, in competition with the Company, the patronage of (i) any customer
or business of the Company or any Affiliate as of or at any time prior to the
Termination Date, or (ii) any prospective customer or business of the Company or
any Affiliate. As used herein, "prospective customer" means any customer that
the Company or any of its Affiliates (1) has actively solicited within twelve
months prior to the Termination Date, (2) as of the Termination Date, is
soliciting or (3) within the twelve (12) month period prior to the Termination
Date has seriously considered soliciting and, in fact, solicits within the nine
(9) month period following the Termination Date. Except as is required or
appropriate in the furtherance of the business of the Company and its
Affiliates, the Executive shall not, during the Applicable Period, directly or
indirectly, recruit, hire or assist others in recruiting or hiring, or otherwise
solicit for employment, any employees of the Company or any of its Affiliates,
customers or subcontractors. The provisions of this Section shall not be deemed
to limit in any way the provisions of any other Section of this Agreement.
(c) Non-Publication. During the Applicable Period, the Executive
---------------
shall not publish any statement or make any statement (under circumstances
reasonably likely to become public) critical of the Company or in any way
adversely affecting or otherwise maligning the reputation of the Company or any
of its affiliates.
(d) Confidentiality. The Executive shall not, without the prior express
---------------
written consent of the Company, directly or indirectly, use for any purpose not
reasonably believed by the Executive in good faith to be in furtherance of the
business of the Company and/or any Affiliate of the Company any Confidential
Information (as defined below) in any way, or divulge, disclose or make
available or accessible any Confidential Information to any person, firm,
partnership, corporation, trust or any other entity or third party (other than
when required to do so in good faith to perform the Executive's duties and
responsibilities to the Company and its Affiliates or when required to do so by
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<PAGE>
a lawful order of a court of competent jurisdiction or if required to do so to
defend the Executive in connection with a dispute arising under this Agreement).
The Executive shall also, upon request of the Company, proffer to the Company,
no later than the Termination Date, and without retaining any copies, notes or
excerpts thereof, all memoranda, computer disks or other media, computer
programs, diaries, notes, records, data, customer or client lists, marketing
plans and strategies, and any other documents consisting of or containing any
Confidential Information that are in the Executive's possession or which are
subject to the Executive's control at such time (other than when required to do
so in good faith to perform the Executive's duties and responsibilities to the
Company and its Affiliates or when required to do so by a lawful order of a
court of competent jurisdiction or if required to do so to defend the Executive
in connection with a dispute arising under this Agreement). In consideration of
the Executive's employment by the Company, any and all inventions, improvements,
discoveries, processes, programs or systems developed or discovered by the
Executive shall be fully disclosed by the Executive to the President or Chief
Executive Officer of the Company and the same shall be the sole and absolute
property of the Company and, upon request of the Company, the Executive shall
execute, acknowledge and deliver such assignments, clarifications and other
documents as the Company may consider necessary or appropriate to properly vest
all rights, title and interests therein to the Company.
"Confidential Information" means all information respecting the business
and activities of the Company and any of its Affiliates, including, without
limitation, the clients, customers, suppliers, employees, consultants, computer
or other files, projects, products, computer disks or other media, computer
hardware or computer software programs, marketing plans, financial information,
methodologies, know-how, processes, trade secrets, practices, projections,
forecasts, formats, systems data gathering methods and/or strategies of the
Company and any of its Affiliates. Notwithstanding the immediately preceding
sentence, Confidential Information shall not include (x) any information that
is, or becomes, a part of the public domain or generally available to the public
(unless such availability occurs as a result of any breach by the Executive of
this paragraph or any other obligation the Executive owes to the Company or any
of its Affiliates) or (y) any business knowledge and experience of the type
usually acquired by persons engaged in positions similar to the Executive's
position with the Company, to the extent such knowledge and experience is non-
Company specific and not proprietary to the Company or any of its Affiliates.
10. Successors and Assigns.
-----------------------
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Company shall require
any successor or assign to expressly assume and agree to perform this Agreement
in the same manner
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<PAGE>
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. The term "the Company" as used
herein shall include such successors and assigns. The term "successors and
assigns" as used herein shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
11. Fees and Expenses. The Company shall pay all legal fees and related
-----------------
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (i) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (ii) the Executive's hearing
before the Board as contemplated in Section 7(b) of this Agreement, or (iii) the
Executive's seeking to obtain or enforce any right or benefit provided by this
Agreement or by any other plan or arrangement maintained by the Company under
which the Executive is or may be entitled to receive benefits.
12. Notice. For the purposes of this Agreement, notices and all other
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communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective parties addressed as follows:
If to the Company, to:
Yurie Systems, Inc.
8301 Professional Place
Landover, Maryland 20785
Attn: Secretary
With a copy to:
John J. McDonnell, Esq.
7315 Wisconsin Avenue, Suite 245E
Bethesda, Maryland 20814
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<PAGE>
If to the Executive, to:
Harry J. Carr
9 Laurelwood Drive
Bernardsville, New Jersey 07924
All notices and communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the mailing thereof,
except that notice of change of address shall be effective only upon receipt.
13. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
14. Settlement of Claims. The Company's obligation to make the payments
--------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
15. Miscellaneous. No provision of this Agreement may be modified, waived
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or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
16. Governing Law. This Agreement shall be governed by and construed and
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enforced in accordance with the laws of the State of Delaware without giving
effect to the conflict of law principles thereof.
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<PAGE>
17. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.
YURIE SYSTEMS, INC.
ATTEST: By: /s/ Jeong H. Kim
--------------------------------
Name: Jeong H. Kim
Title: Chairman and Chief Excecutive
Officer
/s/ John J. McDonnell
- ----------------------------- HARRY J. CARR
Secretary
By: /s/ Harry J. Carr
--------------------------------
Harry J. Carr
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<PAGE>
Exhibit 10.2
YURIE SYSTEMS, INC.
NONSTATUTORY STOCK OPTION GRANT AGREEMENT
1. PURPOSE.
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The purpose of this Agreement is to secure for Yurie Systems, Inc. and its
shareholders the benefits arising from capital stock ownership by employees,
officers, Directors and consultants who are expected to contribute to the future
growth and success of the Company.
2. DEFINITIONS.
-----------
(1) "Agreement" means this Nonstatutory Stock Option Grant Agreement.
(2) "Board of Directors" means the Board of Directors of Yurie Systems,
Inc.
(3) "Change in Control" means "Change in Control" as defined in Section 2
of the Plan.
(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) "Effective Date" means the date set forth in Schedule A hereof.
(8) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
<PAGE>
(9) "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 the purpose.
(10) "Merger Price" means, in the event of a merger described in Section 11
hereof, any cash payment that holders of Common Stock receive for each
share of Common Stock surrendered in the merger.
(11) "Officer" means a person who is an officer of the Company for purposes
of Rule 16b-3.
(12) "Option" means the option granted pursuant to the Plan and this
Agreement to purchase Common Stock at the price set forth in
Schedule A hereof.
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(13) "Option Shares" means shares of Common Stock that may be purchased by
the optionee, pursuant to the Plan and this Agreement.
(14) "Option Term" means the period during which an Option is outstanding.
(15) "Plan" means the Yurie Systems, Inc. 1996 Nonstatutory Option Plan, as
amended from time to time.
(16) "Pooling Transaction" means a "Pooling Transaction" as defined in
Section 2 of the Plan.
(17) "Rule 16b-3" means Rule 16b-3 under the Exchange Act of 1934, or any
successor rule.
(18) "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.
For purposes of this Section 2(18) a "person" means a person for
purposes of Section 13(d) or 14(d) of the Exchange Act.
-2-
<PAGE>
(19) "Yurie" means Yurie Systems, Inc.
3. GRANT OF OPTION.
---------------
a. Option Granted. Yurie hereby grants to the undersigned optionee an
--------------
Option to purchase shares of Common Stock in an amount and at a price set forth
in Schedule A to this Agreement. This Option is a non-statutory option which is
not intended to meet the requirements of Sections 422 of the Code.
b. Subject to the Plan. This Option is issued pursuant to the Plan and
-------------------
is subject to the terms and conditions of the Plan. In the event of any
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall supersede the Agreement.
4. TERM AND EXERCISE.
-----------------
a. Option Term. The Option and all rights hereunder with respect thereto,
-----------
to the extent such rights have not been exercised, shall terminate and become
null and void after the expiration of 10 years from the Effective Date, if not
terminated earlier pursuant to Section 7 hereof.
b. Exercise. The Option shall become exercisable as follows:
--------
i. General. The initial grant made under this Agreement 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
-3-
<PAGE>
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 under this Option shall become exercisable as shown in
Schedule A.
- -----------
ii. Change in Control. Notwithstanding anything contained in the
-----------------
Plan or this Agreement to the contrary, in the event of a Change in Control, the
Option shall become exercisable in full immediately prior to such Change in
Control.
-4-
<PAGE>
5. EXERCISE PROCEDURE.
------------------
a. General. Subject to the conditions set forth in this Agreement, the
-------
Option shall be exercised by the optionee's delivery of written notice of
exercise to Yurie, specifying the number of Option Shares to be purchased and
the purchase price to be paid therefor and accompanied by payment in full. Such
exercise shall be effective upon receipt by the Yurie of such written notice
together with the required payment.
b. Method of Payment.
--------------------
i. Cash or Stock Owned by Optionee. Payment of the purchase price
-------------------------------
for shares purchased upon exercise of the Option shall be made by delivery to
Yurie of cash or a check to the order of Yurie Systems, Inc. in an amount equal
to the purchase price of such shares, or by delivery to Yurie of shares of
Common Stock then owned by the optionee having a Fair Market Value on the date
of delivery of such shares equal in amount to the purchase price of the Option
Shares, or by any combination of such methods of payment. Provided, however,
that if the optionee is an Officer or Director and such 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. The Option also may be
----------------------------------
exercised through a registered broker-dealer or through such other cashless
exercise procedures that are, from time to time, established by the Board of
Directors.
c. Delivery of Shares in Payment of Purchase Price. If the optionee
-----------------------------------------------
purchases some or all of the Option Shares by delivery of shares of Common
Stock, the certificate or certificates
-5-
<PAGE>
representing the shares of Common Stock to be delivered shall be duly executed
in blank by the optionee or shall be accompanied by a stock power duly executed
in blank suitable for purposes of transferring such shares to Yurie. Fractional
shares of Common Stock will be accepted in payment of the purchase price of
shares acquired upon exercise of the Option.
d. Delivery of Shares of Common Stock. Upon payment of the purchase price
----------------------------------
by the optionee, Yurie shall make prompt delivery to the optionee of the number
of Option Shares purchased and paid for, provided that if any law or regulation
requires Yurie to take any action with respect to such shares before the
issuance thereof, the date of delivery of such shares shall be extended for the
period necessary to complete such action.
6. TRANSFERABILITY OF OPTIONS.
--------------------------
a. General. Except as set forth in Section 6(b), the Option is personal
-------
and no rights granted hereunder may be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise), nor shall
any such rights be subject to execution, attachment or similar process. Upon
any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option or of such rights contrary to the provisions hereof, or upon the levy of
any attachment or similar process upon the Option or such rights, the Option and
such rights shall, at the election of Yurie, become null and void.
b. Certain Transfers Permitted. The Option may be transferred 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 the
-6-
<PAGE>
optionee, the 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 a party to whom
the Option is transferred by such a domestic relations order. If the Option is
so transferred to, or becomes exercisable by, another person than the optionee,
the terms of this Option Agreement shall be final, binding and conclusive upon
such other person.
7. TERMINATION OF EMPLOYMENT.
-------------------------
a. Continuous Relationship Required. Except as otherwise provided herein,
--------------------------------
the Option may not be exercised unless, at the time the Option is exercised,
the optionee has at all times since the Effective Date been an employee,
officer, Director or consultant of the Company.
b. Exercise Period Upon Death or Disability. To the extent that the
----------------------------------------
Option was outstanding and exercisable on the date of the optionee's death or on
the date of the optionee's termination of service with the Company due to
disability (within the meaning of Section 22(e)(3) of the Code), the Option may
be exercised by the optionee or by a person who acquires the right to exercise
such Option by reason of the death of the optionee, provided that the exercise
occurs both within the shorter of the remaining Option Term and one (1) year
after the optionee's death or termination of employment or service.
c. Employment Agreement. Notwithstanding the provisions of Sections 7(a)
--------------------
and (b) above, if that certain Employment Agreement by and between the Company
and the optionee, dated as of even date herewith (the "Employment Agreement") is
terminated for any reason other than (i) a "Voluntary Termination" by the
"Executive" (as such terms are defined in the
-7-
<PAGE>
Employment Agreement) pursuant to Section 7(d) of the Employment Agreement or
(ii) a termination for "Cause" (as defined in the Employment Agreement) by the
Company pursuant to Section 7(b) of the Employment Agreement, then any options
from the grant made as of April 30, 1997 (the "initial options") that are not
then exercisable by the Executive shall vest immediately and become exercisable
at their initial purchase price. In any case other than Voluntary Termination by
the Executive of the Employment Agreement, the Executive shall have the same
period for exercising all unexercised initial options as if the Executive had
remained an employee, officer, Director or consultant of the Company for the
entirety of the Option Term of the initial options.
8. RIGHTS TO WORK PRODUCT AND NON-COMPETE AGREEMENT.
------------------------------------------------
a. Work Product. In consideration for the granting of the Option pursuant
------------
to this Agreement, the optionee hereby grants to the Company the entire and
exclusive right, title, and interest in and to the optionee's work product
related to his service to the Company as an employee, officer or consultant,
including the following:
(i) all original technical data or written material prepared for the
Company;
(ii) all ideas, concepts, know-how, or techniques relating to such
technical data or written material; and
(iii) all inventions, discoveries, or improvements, including ideas,
concepts, know-how, or techniques relating to the software industry
that were (a) developed during the period the optionee was an
employee or officer of, or consultant to, the Company or (b)
conceived or originated by the optionee solely or jointly with
others: (1) at the Company's request or expense; (2) in the course of
the optionee's service to the Company as an employee, officer or
consultant; or (3)
-8-
<PAGE>
based on knowledge or information obtained from the Company during
the course of such service.
The optionee will promptly communicate and disclose to the Company all such
information, inventions, discoveries, and improvements. If requested by the
Company, the optionee also shall execute all papers necessary to assign such
information, inventions, discoveries and improvements to the Company free of
encumbrances and restrictions. All such assignments shall include the patent
rights, if any, in the United States and all foreign countries.
b. Non-Competition. In addition, for a period of one year from the time
---------------
the optionee's employment or service as an employee, officer or consultant with
the Company terminates, the optionee shall not work for any business,
corporation, joint venture, partnership, or other entity (as an owner, employee,
consultant, independent contractor, or investor) engaged in providing the same
or similar services as the Company to the same or similar customers as the
Company. In no event during said one-year term shall the optionee solicit
customers of the Company, inform customers of the Company of the name and
location of his new place of employment or work, and/or do any work, in any
capacity whatsoever, for any customers of the Company.
c. Enforcement. If the optionee violates this Section 8, any unexercised
-----------
portion of the Option shall, at the discretion of the Board of Directors,
immediately terminate and be void, and the Company shall be entitled to obtain
injunctions enforcing this provision, to money damages and to such other
remedies as may be available.
The parties agree that they have attempted to limit the optionee's right to
compete only to
-9-
<PAGE>
the extent necessary to protect the Company from unfair competition. The parties
recognize, however, that reasonable people may differ in making such a
determination. Consequently, the parties hereby agree that, if the scope of
enforceability of this restrictive covenant is in any way disputed at any time,
a court or other trier of fact may modify and enforce the covenant to the extent
that it believes to be reasonable under the circumstances existing at that time.
The optionee recognizes that the covenant not to compete and the granting
to the Company of the optionee's work product as defined above are an integral
part of this Agreement without which the Company could not afford to grant the
Option granted herein.
9. ADDITIONAL PROVISIONS.
---------------------
a. Acceleration. The Board of Directors may, in its sole discretion: (i)
------------
accelerate the date or dates on which the Option may be exercised; or (ii)
extend the dates during which the Option may be exercised; provided, however,
that no such acceleration or extension shall be permitted if it would cause the
Option to fail to comply with Rule 16b-3 or to satisfy the requirements of
Section 162(m)(4)(C) of the Code (relating to performance-based compensation).
b. 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 optionee: (i) the cancellation of the Option 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
Option; or
-10-
<PAGE>
(ii) the amendment of the terms of this Agreement to provide an Option price
which is higher or lower than the then-current Option price of such outstanding
Option. No cancellation or amendment of the Option will be made, however, to the
extent it would cause the Option to fail to satisfy the requirements of Rule
16b-3 or of Section 162(m)(4)(C) (relating to performance-based compensation).
10. 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 number and kind
of shares or other securities subject to the Option, and (y) the price for each
share subject to the Option, without changing the aggregate purchase price as to
which the Option remains exercisable.
b. Board Authority to Make Adjustments. Adjustments under this Section 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 Option on account of any such
adjustments.
-11-
<PAGE>
11. MERGER, CONSOLIDATION, ASSET SALE, OR LIQUIDATION OF YURIE.
----------------------------------------------------------
Subject to the provisions of Section 4(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 the unexercised portion of the Option: (i) provide that the Option 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 optionee, provide that the Option 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 optionee equal to the
difference between (X) the Merger Price times the number of shares of Common
Stock subject to the Option (to the extent exercisable at prices not in excess
of the Merger Price) and (Y) the aggregate exercise price of the Option in
exchange for the termination of such Option, and (iv) provide that the Option
shall become exercisable in full immediately prior to such event. In any such
case, the
-12-
<PAGE>
Board of Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
12. RIGHTS AS A SHAREHOLDER.
-----------------------
The optionee 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 the optionee. Except as Section 10
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.
13. NO SPECIAL EMPLOYMENT OR OTHER RIGHTS.
-------------------------------------
Nothing contained in this Agreement shall confer upon the optionee any
right with respect to the continuation of the optionee's employment or service
as a Director or consultant 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.
14. OTHER BENEFITS.
--------------
Except as to plans which by their terms include such amounts as
compensation, or as specifically determined by the Board of Directors, or as
specifically determined by the Board of Directors, neither the amount of any
compensation deemed to be received by the optionee as a result of the exercise
of the Option nor the sale of shares received upon such exercise will
-13-
<PAGE>
constitute compensation
with respect to which any other employee or fringe benefits of the optionee are
determined, including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan.
15. 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 the Option.
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 on the date delivered or withheld 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.
-14-
<PAGE>
16. 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 or lapsing of restrictions with respect
to the Option, (ii) providing that the payment or settlement in respect of the
Option be made in the form of cash, shares or securities of a successor or
acquirer 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.
17. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
In the event that, pursuant to Section 18 of the Plan, the Plan is
terminated, modified, or amended, the termination, modification or amendment of
the Plan shall not adversely affect the rights of the optionee under this
Agreement. However, the Board of Directors may, with the consent of the
optionee, amend this Agreement in a manner not inconsistent with the Plan.
Notwithstanding the preceding sentences of this Section:
a. The Board of Directors shall have the right to amend or modify the
terms and provisions of this Agreement to the extent necessary to ensure the
qualification of the Option under Rule 16b-3 or Section 162(m)(4)(C) of the Code
(relating to performance-based compensation); and
-15-
<PAGE>
b. No amendment to this Agreement will take effect to the extent the
amendment would cause the Option to fail to satisfy the requirements of Rule
16b-3 or Section 162(m)(4)(C) of the Code (relating to performance-based
compensation).
18. DELEGATION.
----------
The Board of Directors (i) may, as provided in Section 3(c) of the Plan,
and (ii) shall, as required, by Section 4(c) of the Plan, delegate any or all of
its powers under this Agreement to a committee appointed by the Board of
Directors, and if a committee is so appointed, all references to the Board of
Directors in this Agreement shall mean and shall relate to such committee.
19. NOTICE.
------
All notices under this Agreement shall be mailed or delivered by hand to
the parties at their respective addresses set forth beneath their names below or
at such other address as may be designated in writing by either of the parties
to one another.
20. GOVERNING LAW.
-------------
The provisions of this Agreement shall be interpreted in a manner
consistent with all applicable law, including the Securities Exchange Act of
1934, as amended from time to time, and the rules and regulations thereunder.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland.
-16-
<PAGE>
21. ENTIRE AGREEMENT.
----------------
This Agreement and the Employment Agreement constitute the entire agreement of
the parties with respect to the subject matter continued herein.
-17-
<PAGE>
YURIE SYSTEMS, INC.
-------------------
Date: 4/30/97 By: /s/ Jeong H. Kim
-------------------------- -------------------------------
Address: 8301 Professional Place
Landover, Maryland 20785
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing Option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy
of the Company's 1996 Non Statutory Stock Option Plan.
OPTIONEE
Date: 4/30/97 /s/ Harry J. Carr
-------------------------- ------------------------------------
Address 9 Laurelwood Drive
------------------------------------
Bernardville, NJ
------------------------------------
-18-
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Total Number of
Effective Date of Shares for Which Option Price Per Options Vesting
Grant Option is Granted Share Vesting Dates on Vesting Date
- ----------------- ----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Initial Grant
- ----------------
April 30, 1997 1,000,000 $9.625 May 1, 1998 250,000
June 1, 1998 and 20,834
each first day of on June 1, 1998 and
the succeeding on each month thereafter
35 months through April 1, 2001
and the balance (20,810)
on May 1, 2001
Subsequent Grant
- ----------------
</TABLE>
Yurie Systems, Inc.
By: /s/ Jeong H. Kim
------------------------------
Title: Chairman & CEO Date: May 29, 1997
--------------------------- --------------------------
Optionee:
- ---------
/s/ Harry J. Carr
- ------------------------------
Signature
Harry J. Carr
- ------------------------------ Date: May 29, 1997
Name --------------------------
-19-
<PAGE>
Exhibit 10.3
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made as of July 1, 1997 by and between
Splitrock Services, Inc. a Texas Corporation ("Splitrock") and Yurie Systems,
Inc., a Delaware corporation ("Yurie").
1. During the 18 months following execution of this Purchase Agreement,
Splitrock will purchase a minimum of twenty million dollars ($20 million)
of standard Yurie products at a discount of [Yurie proprietary information
withdrawn] off of Yurie's list prices for such products, pursuant to Yurie's
commercial terms and conditions. The parties shall negotiate annual purchase
volume and discount levels for each subsequent year.
2. Yurie's acceptance of SplitRock Purchase Orders shall be subject to its
standard practice and policies, including credit worthiness. If Yurie does not
accept a Purchase Order based on credit worthiness, SplitRock may reduce its
dollar volume commitment in paragraph 1. by the dollar amount of product
contained in such Purchase Order.
3. In consideration for SplitRock's purchase commitment in paragraph 1., Yurie
is also agreeing to provide additional services to SplitRock in support of the
products purchased pursuant to paragraph 1, as outlined in attachment A. Such
services will be provided to SplitRock pursuant to SplitRock's specifications
and directions. Accordingly, Yurie makes no warranties or representations
regarding these additional services, nor any warranties or representations of
any products or materials, whether acquired by Yurie or SplitRock, other than
Yurie's commercial warranty terms for the Yurie products purchased pursuant to
paragraph 1.
4. SplitRock agrees to pay Yurie for the additional services in paragraph 3 on a
time and materials cost basis, with costs to include direct labor and material,
and overhead burdens applied to both labor and material, consistent with Yurie
accounting practices. SplitRock also agrees that it will pay Yurie for any and
all materials purchased as part of the additional services being provided.
Dated: 18th July, 1997 SPLITROCK SERVICES, INC.
---------------
By: /s/ William Wilson
----------------------------------
William Wilson, President
Dated: 21st July, 1997 YURIE SYSTEMS, INC.
---------------
By: /s/ Harry J. Carr,
----------------------------------
Harry J. Carr, President
<PAGE>
ATTACHMENT A
ADDITIONAL SERVICES
Services to be provided by Yurie (with more details to be agreed to by SplitRock
and Yurie):
1) Rack and stack equipment to go to [Yurie proprietary information withdrawn].
a) Yurie purchases 7 foot, zone 4 racks (or re-use old ones when available)
b) Yurie purchases miscellaneous connector fields, 48 V to 110 AC inverters
c) Yurie installs all equipment into racks, including SplitRock provided
modem banks (either re-use old ones supplied by SplitRock, or SplitRock
orders, drop ship to Yurie) and SplitRock orders Yurie LDR200/50/5
equipment
d) Yurie will upgrade all LDR equipment to Release 3.0, once Release 3.0 is
available at no cost (this applies to equipment purchased from Yurie prior
to Release 3.0, including equipment bought from Yurie prior to this
Agreement), provided SplitRock, at its expense, returns equipment to
Yurie, at Landover, Maryland, and pays for all costs to crate, ship, etc.,
for return to designated SplitRock locations.
e) Yurie provisions equipment to specifications provided by SplitRock
f) Yurie burns-in entire rack for 24 hours
g) Yurie checks for functional compliance after burn-in
h) Yurie crates and arranges shipping to destination
2) Un-rack and stack equipment
a) As old equipment is pulled by SplitRock in the field, it will be crated
and shipped back to Yurie by SplitRock
b) Yurie removes all equipment from racks, cleans (air) and inspects for
defects
c) Re-use equipment in new Rack and stack process and follow standard
rack and stack procedure
3) Provide technical support to SplitRock field people during installation
4) Provide support to SplitRock Network Operations Centers on technical issues.
<PAGE>
EXHIBIT 11.1
YURIE SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARES FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 1,699,305 $ 929,031 $ 2,614,117 $ 1,982,743
============= =========== =========== ===========
Average shares outstanding during the 24,657,198 20,208,400 23,865,161 20,208,400
period
Dilutive effect of stock options after
application of treasury stock method 1,984,646 1,542,408 1,862,950 1,542,408
------------- ----------- ----------- -----------
Average number of shares and equivalent
shares outstanding during the period 26,641,844 21,750,808 25,728,111 21,750,808
------------- ----------- ----------- -----------
Earnings per common and common
equivalent share $ .06 $ .04 $ .10 $ .09
============= =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q (6-30-97) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,741,677
<SECURITIES> 12,881,112
<RECEIVABLES> 8,910,508
<ALLOWANCES> 0
<INVENTORY> 3,998,550
<CURRENT-ASSETS> 56,760,410
<PP&E> 5,299,129
<DEPRECIATION> 730,335
<TOTAL-ASSETS> 61,503,804
<CURRENT-LIABILITIES> 5,070,144
<BONDS> 0
0
0
<COMMON> 247,413
<OTHER-SE> 50,087,494
<TOTAL-LIABILITY-AND-EQUITY> 61,503,804
<SALES> 19,278,073
<TOTAL-REVENUES> 19,278,073
<CGS> 7,766,076
<TOTAL-COSTS> 7,766,076
<OTHER-EXPENSES> 7,954,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (728,899)
<INCOME-PRETAX> 4,286,412
<INCOME-TAX> 1,672,295
<INCOME-CONTINUING> 2,614,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,614,117
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
