<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
YURIE SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
------------------------
YURIE SYSTEMS, INC.
(NAME OF PERSON FILING STATEMENT)
------------------------
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
------------------------
98871Q102
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
JOHN J. MCDONNELL, ESQ.
SECRETARY AND GENERAL COUNSEL
YURIE SYSTEMS, INC.
8301 PROFESSIONAL PLACE
LANDOVER, MD 20785
(301) 352-4600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
------------------------
Copies to:
RICHARD A. STEINWURTZEL, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVE., N.W., SUITE 800
WASHINGTON, D.C. 20004-2505
(202) 639-7000
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<PAGE> 2
This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated April 30, 1998 (the "Schedule 14D-9") with
respect to the tender offer by Lucent Technologies Inc., a Delaware corporation
("Parent"), and Reindeer Acquisition, Inc., a Delaware corporation and wholly
owned subsidiary of Parent (the "Purchaser"), to acquire all of the outstanding
common stock, $.01 par value per share (the "Shares"), of Yurie Systems, Inc.
(the "Company") at a price of $35.00 per Share, upon the terms and conditions
set forth in the Offer to Purchase, dated April 30, 1998, and the related letter
of transmittal. Capitalized terms used herein and not defined shall have the
meanings ascribed to them in the Schedule 14D-9.
The Schedule 14D-9 is hereby amended by adding the attached Information
Statement as Annex B to the Schedule 14D-9, which Information Statement is being
provided pursuant to Rule 14f-1 of the Securities Exchange Act of 1934, as
amended, and which will be mailed to stockholders of the Company on or about May
7, 1998.
<PAGE> 3
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
YURIE SYSTEMS, INC.
By: /s/ HARRY J. CARR
------------------------------------
Harry J. Carr
President and Chief Operating
Officer
Dated: May 6, 1998
<PAGE> 4
Yurie Systems Logo
YURIE SYSTEMS, INC.
8301 PROFESSIONAL PLACE
LANDOVER, MD 20785
---------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, AND RULE 14F-1 THEREUNDER
---------------------
This Information Statement is being mailed on or about May 7, 1998 to the
holders of record of the common stock, $.01 par value per share (the "Shares"),
of Yurie Systems, Inc. (the "Company") at the close of business on or about
April 27, 1998. This Information Statement is part of the
Solicitation/Recommendation Statement on Schedule 14D-9 dated April 30, 1998
(the "Schedule 14D-9") of the Company that was mailed to stockholders of the
Company on or about May 1, 1998. You are receiving this Information Statement in
connection with the possible appointment of persons designated by Reindeer
Acquisition, Inc. (the "Purchaser") to a majority of the seats on the Board of
Directors of the Company.
On April 27, 1998, the Company, Lucent Technologies Inc. ("Parent"), and
the Purchaser entered into an Agreement and Plan of Merger (the "Merger
Agreement") in accordance with the terms and subject to the conditions of which
(i) Parent has caused the Purchaser to commence a tender offer (the "Offer") for
all outstanding Shares at a price of $35.00 per Share, net to the seller in cash
and without interest thereon, and (ii) the Purchaser will be merged with and
into the Company (the "Merger") at the effective time of the Merger (the
"Effective Time"). As a result of the Offer and the Merger, the Company will
become a wholly-owned subsidiary of Parent. On May 1, 1998, the Company mailed
the Schedule 14D-9 in connection with the Offer and Parent mailed its Offer to
Purchase dated April 30, 1998 (the "Offer to Purchase") and related tender offer
documents. Consummation of the Merger is subject to the expiration of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the satisfaction of certain other customary conditions.
The Merger Agreement requires the Company to cause the directors designated
by the Purchaser to be elected to the Board of Directors under the circumstances
described therein. See "Right to Designate Directors; Designees."
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
April 30, 1998. The Offer is scheduled to expire at 12:00 Midnight, New York
City time, on May 28, 1998, unless the Offer is extended. The information
contained in this Information Statement concerning the Purchaser, Parent and the
Purchaser Designees (as defined below) has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of April 24, 1998, there were
31,005,092 Shares outstanding as determined on a fully diluted basis, including
25,520,763 issued and outstanding Shares and 5,484,329 Shares reserved for
issuance upon the
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<PAGE> 5
exercise of certain options outstanding. The Company's Board of Directors
currently consists of three classes, with three directors in each of Class I and
Class II, and two directors in Class III. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
annual meeting of stockholders for a full three-year term. The officers of the
Company serve at the discretion of the Board.
RIGHT TO DESIGNATE DIRECTORS; DESIGNEES
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, Shares by the Purchaser pursuant to the Offer, the
Purchaser will be entitled to designate such number of directors on the Board of
Directors of the Company (the "Purchaser Designees") as will give the Purchaser,
subject to compliance with Section 14(f) of the Exchange Act, representation on
the Company's Board of Directors equal to the product of (1) the total number of
directors on the Company's Board of Directors and (2) the percentage that the
number of Shares purchased by Purchaser in the Offer bears to the number of
Shares outstanding, and the Company will, at such time, cause the Purchaser
Designees to be so elected by its existing Board of Directors. Subject to
applicable law, the Company has agreed to take all action requested by the
Purchaser necessary to effect any such election, including mailing to its
stockholders this Information Statement. The Merger Agreement further provides
that in the event that the Purchaser Designees are elected to the Board of
Directors of the Company, until the effective time of the Merger the Board of
Directors of the Company will have at least two directors who are directors on
the date of Merger Agreement and who are not officers of the Company or any of
its subsidiaries (the "Independent Directors") and; provided further, that in
such event if the number of Independent Directors shall be reduced below two for
any reason whatsoever, the remaining Independent Director shall designate a
person to fill such vacancy who shall be deemed to be an Independent Director
for purposes of the Merger Agreement, or if no Independent Directors then
remain, the directors of the Company at the Effective Time shall designate two
persons to fill such vacancies who shall not be officers or affiliates of the
Company and its subsidiaries or of Parent. The Merger Agreement also provides
that the Company will promptly, at the option of the Purchaser, either increase
the size of the Company's Board of Directors and/or obtain the resignation of
such number of its current directors as is necessary to enable the Purchaser
Designees to be elected or appointed to, and constitute a majority of the
Company's Board of Directors as provided above.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from persons listed below. The Purchaser has informed the Company that
each of the Purchaser Designees has consented to act
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<PAGE> 6
as a director, if so designated. Biographical information concerning each of the
Purchaser Designees is presented below.
<TABLE>
<CAPTION>
POSITION WITH PARENT;
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME 5-YEAR EMPLOYMENT HISTORY
---- -----------------------------------
<S> <C>
William T. O'Shea..... Group President, Business Communications Systems business
unit and Data Networking Systems business unit of Parent
since December 1997 and President of the Purchaser since
April 1998. President, Business Communications Systems
business unit of Parent from January 1997 through December
1997 and President, International, Network Systems of Parent
from February 1996 through January 1997. President,
International Regions and Professional Services of the AT&T
Network Systems Group (1995-1996). Acting Chief Executive
Officer of AT&T Global Information Solutions Company (now
NCR Corporation) (1995). Prior thereto, held various senior
positions at AT&T Global Information Solutions Company. Age:
50.
Paul D. Diczok........ Corporate Counsel for the Business Communications Systems
business unit of Parent and AT&T Corp. since 1990 and
Director, Chief Financial Officer, Vice President and
Treasurer of the Purchaser since April 1998. Joined AT&T
Corp. Law Division in 1977. Age: 54.
Pamela F. Craven...... Vice President--Law of Parent since February 1996 and
Director, Vice President and Secretary of the Purchaser
since April 1998. Joined AT&T Corp. Law Division in January
1992. Age: 44.
Jean F. Rankin........ Corporate Counsel in the Mergers and Acquisitions Law Group
of Parent and AT&T Corp. since 1993 and Director of the
Purchaser since April 1998. Joined AT&T Corp. Law Division
in 1990. Age: 39.
</TABLE>
None of the Purchaser Designees (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the Purchaser's
knowledge, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by the Purchaser that,
to the Purchaser's knowledge, none of the Purchaser Designees has been involved
in any transaction or material legal proceedings with the Company or any of its
directors, executive officers or affiliates which is required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"), except as may be disclosed herein or in the Schedule 14D-9.
DIRECTORS AND EXECUTIVE OFFICERS
Biographical information concerning each of the Company's current directors
and executive officers as of April 30, 1998 is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Dr. Jeong H. Kim...... 37 Chairman of the Board and Chief Executive Officer
Kwok L. Li............ Vice Chairman of the Board and Chief Technology
40 Officer
Harry J. Carr......... 41 President, Chief Operating Officer and Director
Barton Y. Shigemura... Senior Vice President, Sales and Marketing and
38 Director
Kenneth D. Brody...... 54 Director
Dr. William J.
Perry............... 70 Director
R. James Woolsey...... 56 Director
Dr. Herbert Rabin..... 69 Director
Harry J. D'Andrea..... 42 Chief Financial Officer and Treasurer
John J. McDonnell..... 51 General Counsel and Secretary
</TABLE>
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<PAGE> 7
Dr. Jeong H. Kim is the founder of the Company and has served as Chief
Executive Officer and Chairman of the Board of Directors of the Company since
October 1995; Chief Executive Officer and Director since the Company's inception
in February 1992; and President from its inception until March 1996. From 1990
to 1993, Dr. Kim served as Senior Project Engineer with Allied-Signal Technical
Services Corporation, a subsidiary of Allied-Signal Inc. Previously, he served
as an Engineering Consultant with SFA, Inc., a U.S. Department of Defense
contractor and as a Nuclear Submarine Officer in the U.S. Navy. Dr. Kim holds a
Ph.D. in Reliability Engineering from the University of Maryland, and an M.S. in
Technical Management and a B.E.S. in Electrical Engineering and Computer Science
from The Johns Hopkins University.
Kwok L. Li is the Company's Chief Technology Officer and Vice Chairman of
the Board of Directors. Prior to holding these positions, Mr. Li served as
President and Chief Operating Officer from March 1996 to June 1997, and as
Executive Vice President and Chief Technical Officer of the Company from August
1994 through March 1996. Mr. Li has been a Director of the Company since 1995.
Mr. Li was employed by the Company on a part-time basis from its inception in
1992 through August 1994. From 1991 to 1994, Mr. Li was Director of Strategic
Planning at WilTel, Inc., an interexchange carrier, and from 1988 to 1991, he
was Manager of Fiber Access Systems Development for Bell Northern Research,
Inc., a subsidiary conducting technological research and development for
Northern Telecom Limited. In addition to his executive positions at the Company,
Mr. Li serves as Chairman of the Board of Directors of Splitrock Services, Inc.
("Splitrock"), a Texas corporation that provides communications services
specifically configured to meet the needs of large network users, and in that
capacity is responsible for the strategic initiatives of Splitrock and devotes a
significant amount of his time to Splitrock. He is also the majority and
controlling member-owner of Linsang Partners LLC. Mr. Li and Linsang Partners
LLC are the majority shareholders of Splitrock. Mr. Li holds a B.E.S. in
Electrical Engineering from The Johns Hopkins University.
Harry J. Carr joined the Company in June 1997 as its President, Chief
Operating Officer and a Director. Prior to joining the Company, he spent five
years in various executive positions with AT&T, including Market Development
Vice President for the Atlantic States region, National Program Manager at AT&T
Local Services, and Vice President at AT&T's Defense Markets Division. From 1989
to 1992, Mr. Carr practiced law, most recently as a partner at Veneble, Baetjar,
Howard & Civiletti. Prior to that, he was employed by AT&T for over 11 years,
holding a variety of positions in finance, marketing, operations and law. Mr.
Carr holds a B.S. in Finance from Fairfield University and a J.D. from the
University of Connecticut Law School.
Barton Y. Shigemura joined the Company in May 1996 as its Senior Vice
President of Sales and Marketing and a Director. From 1993 to 1996, Mr.
Shigemura was Vice President, Marketing & Services and an executive officer of
Premisys Communications, Inc., a manufacturer of integrated access products for
telecommunications service providers, and from 1990 to 1993, he was Director,
Product Line Management for Northern Telecom Limited, a telecommunications
equipment manufacturer. Prior to that, he served as an Area Vice President,
Sales for General DataComm Industries, Inc., a provider of wide area network and
telecommunications products. Mr. Shigemura holds a B.S. in Marketing and Finance
from the University of Southern California.
Kenneth D. Brody has served as a Director of the Company since June 1996.
Mr. Brody is the founding partner of Winslow Partners LLC, a private equity
investment firm in Washington, D.C. From 1993 to early 1996, Mr. Brody served as
President and Chairman of the Export-Import Bank of the United States. Prior to
that, he was a Partner at Goldman, Sachs & Co., where he served as a member of
the firm's Management Committee and founded and headed the high technology
investment banking group. Mr. Brody also serves as a Director of Quest
Diagnostics Incorporated and Federal Realty Investment Trust. Mr. Brody holds an
M.B.A. from the Harvard Business School and a B.S. in Electrical Engineering
from the University of Maryland.
Dr. William J. Perry has served as a Director of the Company since January
1997. Since March 1997, Dr. Perry has been a professor at the School of
Engineering at Stanford University, where he also had been a professor from 1989
to 1993, and had served as the Chairman of Technology Strategies Alliances and
as a Co-Director of Stanford's Center for International Security and Arms
Control. Dr. Perry served as the U.S. Secretary of Defense from 1994 to 1997,
and as the Deputy Secretary of Defense from 1993 to 1994.
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<PAGE> 8
Dr. Perry also serves as a Director of Hambrecht & Quist LLC, United
Technologies Corporation and Evolutionary Technologies International Inc. Dr.
Perry holds a Ph.D. in Mathematics from Penn State University and an M.S. and
B.S. in Mathematics from Stanford University.
R. James Woolsey has served as a Director of the Company since April 1996.
Mr. Woolsey practices law at the law firm of Shea & Gardner in Washington, D.
C., where he has been a partner since 1979, with the exception of the periods
from 1989-1991, when he served as Ambassador and Negotiator for the Conventional
Armed Forces in Europe Treaty (CFE), and 1993-1995, when he served the United
States as the Director of Central Intelligence. Shea & Gardner is one of several
law firms that provides legal services to the Company. Mr. Woolsey also serves
as a Director of Sun Healthcare Group, Inc. Mr. Woolsey holds an L.L.B. from
Yale Law School, an M.A. from Oxford University and a B.A. from Stanford
University.
Dr. Herbert Rabin has served as a Director of the Company since 1995. Dr.
Rabin is Director of the Engineering Research Center and Associate Dean of the
College of Engineering at the University of Maryland, where he has been
Professor of Electrical Engineering since 1983. He was Deputy Assistant
Secretary of the Navy (Research Applied and Space Technology) Research
Laboratory from 1979 through 1983 and Associate Director of Research at the
Naval Research Laboratory from 1971 to 1979. He currently serves as a Director
of General Research Corporation International and a member of the Board of
Trustees of the National Technological University. Dr. Rabin holds a Ph.D., an
M.S. and a B.S. in Physics from the University of Maryland, the University of
Illinois, and the University of Wisconsin, respectively.
Harry J. D'Andrea joined the Company in June 1997 as its Chief Financial
Officer and Treasurer. During 1996, he served as Chief Financial Officer for
American Communications Services, Inc., a company specializing in fiber optic
network development and local telecommunications services. From 1993 to 1995, he
was employed by Caterair International Corporation, an in-flight catering
company, as its Executive Vice President, Chief Financial Officer and Treasurer,
and from 1989 to 1993, as its Vice President of Finance and Treasurer. Prior to
joining Caterair, he held various financial positions with Marriott Corporation
and Xerox Corporation. Mr. D'Andrea holds an M.B.A. from Drexel University and a
B.A. in Foreign Service from the Pennsylvania State University.
John J. McDonnell joined the Company in June 1996 on a part-time basis as
its General Counsel and Secretary. He also serves as Chief Executive Officer of
Coagulation Diagnostics, Inc., a medical diagnostics device company founded in
1995. From 1990 to 1995, he was counsel with Reed Smith Shaw & McClay, a law
firm. He previously served as Executive Vice President and General Counsel for
Fairchild Space and Defense Corporation, Senior Vice President and General
Counsel for Fairchild Industries, Inc., and Principal Deputy General Counsel of
the Department of the Navy. Mr. McDonnell serves on the Board of Directors of
Geraghty and Miller, Inc., an environmental engineering firm, PHP Healthcare
Corporation and Sequoia National Bank. Mr. McDonnell holds an A.B. from Boston
College and a J.D. from Fordham Law School.
All officers serve at the discretion of the Board of Directors. There are
no family relationships between directors or executive officers of the Company.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company directs the management of the
business and affairs of the Company, as provided by Delaware law, and conducts
its business through meetings of the Board and four standing committees: the
Audit Committee, the Compensation Committee, the Stock Option Committee, and the
Splitrock Committee. In addition, from time to time, special committees may be
established under the direction of the Board when necessary to address specific
issues. The Company has no nominating or similar committee.
The Board of Directors of the Company held eight (8) meetings in 1997, and
took action by written consent in lieu of a meeting four (4) times during 1997.
Each director attended 75% or more of the aggregate of (i) meetings of the Board
held during the period for which he served as a director and (ii) meetings of
all committees held during the period for which he served on those committees.
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<PAGE> 9
The Audit Committee's principal functions are to review the scope of the
annual audit of the Company by its independent public accountants, review the
annual financial statements of the Company and the related audit report of the
Company as prepared by the independent public accountants, review management's
selection of an independent public accounting firm each year and review audit
and any non-audit fees paid to the Company's independent public accountants. The
Audit Committee also reviews the audit and control practices and procedures of
the Company. The Company's Chief Financial Officer generally attends Audit
Committee meetings and gives reports to and answers inquiries from the Audit
Committee. The Audit Committee reports its findings and recommendations to the
Board of Directors. The members of the Audit Committee are Kenneth D. Brody, Dr.
Herbert Rabin, and R. James Woolsey (Chairman). The Audit Committee held five
(5) meetings in 1997.
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
compensation policies. See the Report of the Compensation Committee under
"Compensation of Executive Officers," below. The Compensation Committee held
five (5) meetings during 1997, and took action by written consent in lieu of a
meeting one time during 1997. The members of the Compensation Committee are
Kenneth D. Brody, Dr. William J. Perry, and Dr. Herbert Rabin (Chairman).
The Stock Option Committee is responsible for administering the Company's
1996 Non-Statutory Stock Option Plan (the "Stock Option Plan") with respect to
employees that are not executive officers of the Company. The Stock Option
Committee was formed in order to provide timely option grants to new employees
(other than executive officers and directors of the Company). The Stock Option
Committee has limited authority to administer the Company's Stock Option Plan.
The Compensation Committee must approve option grants to executive officers of
the Company. The members of the Stock Option Committee are Dr. Jeong H. Kim,
Kwok L. Li, Barton Y. Shigemura, Harry J. Carr and Kenneth D. Brody. The Stock
Option Committee took action by written consent in lieu of a meeting four (4)
times during 1997.
The Splitrock Committee was formed in June 1997 as an independent committee
to oversee and provide guidance to the Company in its relationship with
Splitrock, a Texas corporation that provides communications services
specifically configured to meet the needs of large network users. Kwok L. Li,
the Chief Technology Officer and Vice Chairman of the Board of Directors of the
Company, is also the Chairman of the Board of Directors of Splitrock and the
majority and controlling shareholder of Linsang Partners LLC. Mr. Li and Linsang
Partners LLC are the majority shareholders of Splitrock. Splitrock purchases
Yurie's products pursuant to an agreement between Splitrock and the Company. See
"Certain Transactions and Relationships." The Splitrock Committee is responsible
for reviewing, authorizing and approving all transactions between the Company
and Splitrock, and for ratifying and recommending contracts, policies and other
matters in connection with the Company's relationship with Splitrock. The
members of the Splitrock Committee are Kenneth D. Brody, Dr. William J. Perry,
Dr. Herbert Rabin, Barton Y. Shigemura, and Harry J. Carr. The Splitrock
Committee held four (4) meetings in 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and holders of more than 10% of the Company's Shares to file
with the Commission reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company on Forms 3, 4, and 5. Dr. Kim
and Mr. Li each filed a Form 4 for the month of February 1997, reflecting the
sale of Shares in connection with the underwriters' exercise of their
overallotment option. These forms, which reflect one transaction each, were
filed four days late. Mr. Shigemura also filed a Form 4 late for the month of
February 1997, reflecting four purchases of Shares.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company each receive $5,000 per year
for serving on the Board of Directors, and are reimbursed for their travel and
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors or committees thereof. In addition, the Company's Stock
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<PAGE> 10
Option Plan provides for automatic annual grants to non-employee directors of
5,000 stock options on June 30 of each year, vesting over a four-year period.
Each of Drs. Rabin and Perry, and Messrs. Woolsey and Brody received automatic
grants of options to purchase 5,000 Shares during 1997. Non-employee directors
may also receive options to purchase Shares upon their initial appointment or
election to the Board of Directors. Upon his appointment to the Board of
Directors in 1997, Dr. Perry received options to purchase 75,000 Shares. Options
granted to directors during 1997 have a weighted average exercise price of
$10.70 and vest periodically over four years. See "Stock Option Plan."
EXECUTIVE COMPENSATION
General
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the four most highly paid executive officers of
the Company other than the Chief Executive Officer who were serving as executive
officers at December 31, 1997 (the "Named Executive Officers"), for each of the
fiscal years ended December 31, 1997, 1996 and 1995.
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<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
----------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
- ---------------------------- ---- -------- -------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeong H. Kim(1)............. 1997 $200,010 -- $13,666(2) -- -- --
Chief Executive Officer 1996 200,000 -- 16,616(3) -- -- --
1995 206,112 $656,865 41,346(4) -- -- --
Harry J. Carr(1)(5)......... 1997 100,758 -- 2,256(2) -- 1,000,000 $22,038(6)
President and Chief 1996 -- -- -- -- -- --
Operating Officer 1995 -- -- -- -- -- --
Kwok L. Li(1)............... 1997 150,008 -- 13,562(2) -- -- --
Chief Technology Officer 1996 150,000 -- 11,407(3) -- -- --
1995 140,851 250,077 25,962(4) $154,000(7) -- 15,940(6)
Barton Y. Shigemura(8)...... 1997 135,007 50,000 1,525(2) -- -- 7,229(6)
Senior Vice President, 1996 89,559 5,000 308(3) -- 1,000,000 4,680(6)
Sales and Marketing 1995 -- -- -- -- -- --
Harry J. D'Andrea(9)........ 1997 65,492 17,500 -- -- 150,000 --
Chief Financial Officer 1996 -- -- -- -- -- --
and Treasurer 1995 -- -- -- -- -- --
</TABLE>
- ---------------
(1) The Company has employment agreements with each of Dr. Kim, Mr. Li and Mr.
Carr.
(2) For Dr. Kim and Mr. Li, includes the Company's 1997 contribution to their
401(k) plans of 313 and 277 Shares, respectively. For Dr. Kim and Messrs.
Carr, Li and Shigemura, also includes compensation related to their use of
Company vehicles of $8,750, $2,256, $8,750 and $1,525, respectively.
(3) For Dr. Kim and Mr. Li, includes the Company's 1996 contribution to their
401(k) plans of $10,000 and $7,500, respectively. For Dr. Kim and Messrs. Li
and Shigemura, also includes compensation related to their use of Company
vehicles of $6,616, $1,846 and $308, respectively.
(4) Includes payments for unused vacation and sick leave and the Company's
contribution to pension plans.
(5) Mr. Carr replaced Mr. Li as President and Chief Operating Officer in June
1997, and is included in the Summary Compensation Table for the first time.
(6) Represents reimbursed relocation expenses and, for Messrs. Li and Carr,
applicable associated taxes.
(7) Represents the fair market value of 4,000,000 fully-vested Shares granted to
Mr. Li in March 1995, as of the date of the grant.
(8) Mr. Shigemura joined the Company in July 1996.
(9) Mr. D'Andrea joined the Company in July 1997 as its Chief Financial Officer,
and is included in the Summary Compensation Table for the first time.
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<PAGE> 12
STOCK OPTION GRANTS DURING FISCAL YEAR 1997
The following table sets forth the stock option grants to each of the named
executive officers for fiscal 1997. There were no stock appreciation rights
(SARs) granted by the Company in fiscal 1997.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE/ FOR OPTION TERM(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------------
NAME GRANTED YEAR ($/SH) DATE 5% 10%
---- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeong H. Kim(3).................... -- -- -- -- -- --
Harry J. Carr(4)................... 1,000,000 35.8% $ 9.625 4/30/07 $6,053,111 $15,339,771
Kwok L. Li(3)...................... -- -- -- -- -- --
Barton Y. Shigemura................ -- -- -- -- -- --
Harry J. D'Andrea(5)............... 150,000 5.4% 17.0625 6/30/07 1,609,577 4,078,985
</TABLE>
- ---------------
(1) All awards listed on table were in the form of option grants made pursuant
to the Company's Stock Option Plan. See "Stock Option Plan."
(2) Sets forth potential option gains based on assumed annualized rates of stock
price appreciation from the market price at the date of grant of 5% and 10%
(compounded annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission, and do not represent the Company's estimate or projection of
future Share prices.
(3) To date, neither Dr. Kim nor Mr. Li has been granted options to purchase
Shares.
(4) Mr. Carr's options vest over a four-year period in accordance with the Stock
Option Plan and are subject to the terms of the Stock Option Plan, with
certain exceptions. See "Stock Option Plan" and "Employment Agreements and
Change In Control Provisions."
(5) Mr. D'Andrea's options vest over a four-year period in accordance with the
Stock Option Plan, and are subject to the terms of the Stock Option Plan.
See "Stock Option Plan."
AGGREGATED OPTION VALUES
The following table sets forth the stock option values as of December 31,
1997 for each of the named executive officers. One of the named executive
officers, Mr. Shigemura, exercised 10,000 of his stock options during the fiscal
year ended December 31, 1997.
AGGREGATED OPTION EXERCISES AND OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeong H. Kim...................... -- -- -- -- -- --
Harry J. Carr..................... -- -- -- 1,000,000 -- $10,562,500
Kwok L. Li........................ -- -- -- -- -- --
Barton Y. Shigemura............... 10,000 $329,800 427,500 562,500 $8,407,856 11,062,969
Harry J. D'Andrea................. -- -- -- 150,000 -- 468,750
</TABLE>
- ---------------
(1) Sets forth values for "in the money" options that represent the positive
spread between the respective exercise/base prices of outstanding stock
options and the closing price of the Common Stock of $20.1875 per share as
reported by the Nasdaq National Market on December 31, 1997.
A-9
<PAGE> 13
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL PROVISIONS
The Company has an employment agreement with Dr. Kim, its Chief Executive
Officer and Chairman of the Board of Directors (the "Kim Employment Agreement").
Pursuant to the Kim Employment Agreement, Dr. Kim receives an annual salary of
$200,000 and a bonus of 20% of his annual base salary or such other amount as
the Board of Directors may determine. Dr. Kim's employment is for a one-year
term that renews automatically unless terminated by either party. If the Kim
Employment Agreement is terminated by the Company for any reason other than
"disability" or "cause" or by Dr. Kim for any reason other than "good reason"
(as those terms are defined in the Kim Employment Agreement), the Company must
make a cash lump sum severance payment equal to Dr. Kim's base salary (as
defined in the Kim Employment Agreement) and a "bonus amount" for the
then-current year, and continue his benefits for up to one year. Throughout his
employment, Dr. Kim is bound by a covenant not to compete, which prevents him
from engaging in any business in the United States in which the Company is then
involved. Dr. Kim will continue to be bound by this covenant not to compete for
one year after his termination or resignation. The Kim Employment Agreement also
provides for certain registration rights with respect to Dr. Kim's Shares
pursuant to a registration rights agreement. The Kim Employment Agreement will
terminate upon the consummation of the Offer pursuant to the terms of the
Retention Agreement, dated as of April 27, 1998, among Parent, Purchaser, the
Company, the Bank of New York and Dr. Kim. Dr. Kim's Retention Agreement is
described in Section 12 of Parent's Offer to Purchase, and is incorporated
herein by reference.
The Company has an employment agreement with Mr. Li, its Chief Technology
Officer and Vice Chairman of the Board of Directors (the "Li Employment
Agreement"). Pursuant to the Li Employment Agreement, as amended, Mr. Li will
receive an annual salary of $150,000 and a bonus of 20% of his annual base
salary or such other amount as the Board of Directors may determine. Mr. Li's
employment is for a one-year term that renews automatically unless terminated by
either party. If the Li Employment Agreement is terminated by the Company for
any reason other than "disability" or "cause" or by Mr. Li for any reason other
than "good reason" (as those terms are defined in the Li Employment Agreement),
the Company must make a cash lump sum severance payment equal to Mr. Li's base
salary for the then-current year and a "bonus amount" (as defined in the Li
Employment Agreement), and continue his benefits for up to one year. Throughout
his employment, Mr. Li is bound by a covenant not to compete, which prevents him
from engaging in any business in the United States in which the Company is then
involved. Mr. Li will continue to be bound by this covenant not to compete for
one year after his termination. The Li Employment Agreement, as amended,
acknowledges Mr. Li's position with Splitrock and allows him, to a material
extent, to participate in business activities relating to Splitrock. The Li
Employment Agreement also provides for certain registration rights with respect
to Mr. Li's Shares pursuant to a registration rights agreements. The Li
Employment Agreement will terminate upon the consummation of the Offer pursuant
to the terms of the Retention Agreement, dated as of April 27, 1998, among
Parent, Purchaser, the Company, the Bank of New York and Mr. Li. Mr. Li's
Retention Agreement is described in Section 12 of Parent's Offer to Purchase,
and is incorporated herein by reference.
The Company has an employment agreement with Mr. Carr, its President and
Chief Operating Officer (the "Carr Employment Agreement"). Pursuant to the Carr
Employment Agreement, Mr. Carr will receive an annual salary of $200,000 and a
bonus of 20% of his annual base salary or such other amount as the Board of
Directors may determine. Mr. Carr's employment is for a three-year term that
renews automatically for one-year terms unless terminated by either party. If
the Carr Employment Agreement is terminated by the Company for any reason other
than "disability" or "cause" or by Mr. Carr for "good reason" (as those terms
are defined in the Carr Employment Agreement), the Company must make a cash lump
sum severance payment equal to Mr. Carr's base salary for then-current year and
a "bonus amount" (as defined in the Carr Employment Agreement), and continue his
benefits for up to one year. Throughout his employment, Mr. Carr is bound by a
covenant not to compete, which prevents him from engaging in any business in the
United States in which the Company is then involved. Unless terminated by the
Company other than for "disability" or "cause," or by Mr. Carr for "good
reason," Mr. Carr will continue to be bound by this covenant not to compete for
one year after his termination. In connection with the Carr Employment
Agreement, the Company granted Mr. Carr options to purchase 1,000,000 Shares
(the "Carr Options"). The vesting schedule
A-10
<PAGE> 14
of the Carr Options follows the Stock Option Plan, including the vesting
provisions that are triggered upon a change in control of the Company. If Mr.
Carr's employment is terminated by the Company without "cause" or for
"disability" or by Mr. Carr for "good reason," the Carr Options will
automatically become fully exercisable. In the case other than voluntary
termination by Mr. Carr, the then vested Carr Options will not terminate until
the expiration of their term. The Carr Employment Agreement will terminate upon
the consummation of the Offer pursuant to the terms of the Retention Agreement,
dated as of April 27, 1998, among Parent, Purchaser, the Company, the Bank of
New York and Mr. Carr. Mr. Carr's Retention Agreement is described in Section 12
of Parent's Offer to Purchase, and is incorporated herein by reference.
Mr. Shigemura, the Company's Senior Vice President of Sales and Marketing,
does not currently have an employment agreement with the Company, but has
entered into a Retention Agreement, dated as of April 27, 1998, among Parent,
Purchaser, the Company, the Bank of New York and Mr. Shigemura. Mr. Shigemura's
Retention Agreement is described in Section 12 of Parent's Offer to Purchase,
and is incorporated herein by reference.
In addition to the Retention Agreements, each of Dr. Kim, Mr. Li, Mr. Carr
and Mr. Shigemura has entered into a three-year non-competition agreement with
Parent, dated as of April 27, 1998.
Parent, the Purchaser and certain principal stockholders of the Company
(the "Stockholders") have entered into a Stockholders Agreement dated as of
April 27, 1998, pursuant to which each Stockholder has agreed to tender its
Shares into the Offer. These Shares represent approximately 57% of the
outstanding Shares (determined on a fully diluted basis). The Stockholders
Agreement is described in Section 12 of Parent's Offer to Purchase, and is
incorporated herein by reference.
The Stock Option Plan provides that in the event of a transaction that
constitutes a Change of Control (as defined in the Stock Option Plan) of the
Company, each outstanding option will automatically become exercisable as to all
of the option shares immediately prior to the effective date of such
transaction, subject to certain exceptions. The consummation of the Offer will
constitute a Change of Control for purposes of the Stock Option Plan.
STOCK OPTION PLAN
Under the Company's Stock Option Plan, stock option awards may be made to
employees, consultants, directors and officers of the Company. The purposes of
the Stock Option Plan are to attract, retain and motivate the best available
officers (executive or otherwise), other employees and consultants for positions
of substantial responsibility, to give such officers, employees and consultants
a greater personal stake in the success of the Company's business, to provide
additional incentive to the Company's officers and employees to continue and
advance in their employment and service to the Company and to promote the
success of the Company's business.
The Stock Option Plan was adopted by the Company's Board of Directors on
January 31, 1996 and amended and restated on May 14, 1997 to increase the
maximum number of Shares issuable under the Stock Option Plan. The Company's
shareholders approved the amended and restated Stock Option Plan on June 26,
1997. A total of 7.0 million Shares have been reserved for issuance under the
Stock Option Plan, 27,233 of which may be issued under the Data Labs Plan
described below. The Stock Option Plan will remain effective until all Shares
available for issuance under the Plan have been issued, unless sooner terminated
by action of the Board of Directors. The number and kind of Shares subject to
the Stock Option Plan may be adjusted by the Board to prevent dilution or
enlargement of rights in the event of a merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
reclassification, stock dividend, stock split, reverse stock split or other
similar distribution with respect to the outstanding Shares. No individual may
be granted options to purchase more than 1,500,000 Shares in any year under the
Stock Option Plan. An additional amendment to the Stock Option Plan, adopted by
the Board of Directors on July 30, 1997, provides that stock options granted
pursuant to the Stock Option Plan are transferable to members of the option
holder's "immediate family" (as defined in the Stock Option Plan), subject to
the terms and conditions of the Stock Option Plan.
A-11
<PAGE> 15
The Stock Option Plan is administered by the Board of Directors, although
the Board is in some cases authorized (and in some cases required) to delegate
the administration of the Stock Option Plan to a committee. The Board (or the
committee) is authorized to modify or amend the Stock Option Plan at any time.
The Board (or the committee) is further authorized to select the optionees and
determine the terms of the options granted, including: (i) the number of Shares
subject to each option; (ii) when the option becomes exercisable; (iii) the
duration of the option and (iv) any other appropriate term of the option
agreement. The Board (or the committee) also may accelerate or extend the time
at which any option may be exercised. The Stock Option Plan requires that the
exercise price of each option be set at the fair market value of the Shares on
the effective date of the grant.
As of April 24, 1998, options to acquire an aggregate of 5,484,329 Shares
were outstanding pursuant to the Stock Option Plan (net of canceled options) and
925,786 Shares remained for future grants. In general, these options vest over a
four-year period from their grant date and expire after a specified period not
to exceed ten years. Neither Dr. Kim nor Mr. Li hold any options to purchase
Shares under the Stock Option Plan. Other executive officers and directors have
been granted options to purchase Shares under the Stock Option Plan as of April
24, 1998 as follows: Harry J. Carr -- 1,000,000; Barton Y.
Shigemura -- 1,000,000; Harry J. D'Andrea -- 150,000; John J.
McDonnell -- 30,000; Herbert Rabin -- 126,000; R. James Woolsey -- 105,000;
Kenneth D. Brody -- 80,000; and William J. Perry -- 80,000. These options have
exercise prices ranging from $.52 to $17.06 per share and a weighted average
exercise price of $4.84. All of these options vest periodically through June
2001.
The options granted under the Stock Option Plan are not incentive stock
options within the meaning of Section 422 of the Internal Revenue Code.
Under the terms of the Merger Agreement, the Company may, prior to the
Effective Time, grant options to purchase up to a maximum of 300,000 Shares to
new hires. After the Effective Time, no additional options will be granted under
the Stock Option Plan, but existing options will continue to be governed by the
terms of the Stock Option Plan, which will be assumed by Parent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer of
the Company, nor does any executive officer serve as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. During the fiscal year ended December 31, 1997, Mr.
Brody, Dr. Perry and Dr. Rabin (Chairman) served on the Compensation Committee.
See "Board Meetings and Committees -- The Compensation Committee."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee sets the Company's policies with respect to
executive compensation and reviews the performance and compensation levels for
three of the Company's named executive officers: the Chief Executive Officer,
the Chief Technology Officer, and the President/Chief Operating Officer. In
accordance with the policies set by the Compensation Committee, these executive
officers, in turn, determine the compensation for the other two named executive
officers (the Chief Financial Officer and the Senior Vice President of Sales and
Marketing) as well as the other officers of the Company. The Compensation
Committee or the Board of Directors approves option grants to executive officers
under the Stock Option Plan. No member of the Compensation Committee is employed
by the Company.
SUMMARY OF COMPENSATION POLICY
The Company's policy is to provide a level of compensation to executive
officers in order (i) to attract, motivate, retain and reward superior talent
and (ii) to correlate executive officer compensation with the
A-12
<PAGE> 16
Company's performance, thereby aligning executive officers' interests with those
of the Company's shareholders. In considering the Company's executive
compensation levels, the Compensation Committee reviewed the compensation
packages of executive officers in comparable positions at other similarly-sized
high-technology companies. Total executive officer compensation, including
equity-based compensation, is targeted at or above the market average for
comparable positions in similarly-sized companies.
The Compensation Committee, furthermore, seeks to maintain an appropriate
balance between cash compensation and equity incentives for each executive
officer. In determining cash compensation, the Compensation Committee's policy
is to weigh each executive officer's existing equity incentives, whether in the
form of current equity ownership or potential equity ownership (based on the
future exercise of stock options) of the Company. The Company's compensation
program for its executive officers consists of base salary, long-term
compensation in the form of stock options, and cash bonuses as determined on an
individual basis.
BASE SALARIES
Base salaries for executive officers are reviewed on an annual basis and
may be adjusted annually, based on an assessment of the individual's
contribution to the Company's performance, competitive pay levels and the
individual's existing equity incentives. The base salaries of executive officers
are not dependent upon the application of specific formulas. Although each of
the named executive officers had made significant contributions to the Company's
performance, because of their significant equity interests in the Company, the
named executive officers received modest or no increases to their respective
1997 base salaries.
Two of the named executive officers, the President/Chief Operating Officer
and the Chief Financial Officer, joined the Company during 1997. The base salary
of the Chief Financial Officer was determined by the Compensation Committee and
approved by the Board of Directors. The base salary of the President/Chief
Operating Officer is set forth in an employment agreement with the Company,
which was approved by the Board of Directors. Factors taken into account in
determining the starting base salaries of these executive officers were prior
experience, expected contribution to the Company, and the relative importance of
the job in terms of achieving corporate objectives.
Base salaries for each of the President/Chief Operating Officer, the Chief
Technology Officer and Chief Executive Officer (discussed in more detail below),
are paid pursuant to employment agreements between each such executive officer
and the Company. See "Employment Agreements and Change In Control Provisions."
BONUSES
The Company's policy as to bonuses for executive officers is subjective. In
determining whether to grant a cash bonus to a particular executive officer, the
Compensation Committee considers the existing equity incentives of each
executive officer, as well as individual performance and Company's performance.
Despite commendable individual performances and strong Company performance, the
Compensation Committee awarded no cash bonuses during 1997 because of the
significant equity interests held by the three named executive officers for
which it sets bonuses. Management awarded bonuses on an individual basis to the
officers whose bonuses are not set by the Compensation Committee. In awarding
these bonuses, management took into consideration that the Company had
successfully achieved critical objectives in 1997, including (i) completing its
initial public offering, (ii) shipping a new product, the LDR 50, to customers,
(iii) increasing commercial sales, and (iv) achieving earning targets for each
1997 quarter and for fiscal 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Jeong H. Kim has served as Chief Executive Officer of the Company since
1992. Dr. Kim's base salary, which is set at $200,000 per annum under his
employment agreement, is subject to annual review by the Board of Directors or
the Compensation Committee. The Compensation Committee did not make any
adjustments to the Chief Executive Officer's base salary or award any bonus to
him during 1997. This determination was based on the Compensation Committee's
assessment that Dr. Kim's interests are
A-13
<PAGE> 17
appropriately aligned with the Company's interests because of his significant
shareholdings of the Company's Shares.
STOCK OPTIONS
The Compensation Committee strongly believes in correlating executive
officer compensation with the long-term success of the Company through the grant
of stock options. All stock options granted to executive officers are subject to
vesting restrictions that lapse in annual increments to motivate executive
officers to stay with the Company.
The Company grants stock options to executive officers upon their joining
the Company and may make additional periodic grants thereafter to reward the
performance of executive officers and to provide incentives for future
performance. There is no established formula or criteria for grants under the
Stock Option Plan, and options are granted at intervals as determined on a
subjective basis by the Board of Directors or the Compensation Committee. Under
the Stock Option Plan, options may be granted at exercise prices equal to the
Fair Market Value (as defined in the Stock Option Plan) of the Shares on the
date of grant. Thus, as a stockholder benefits from a stock price increase above
the exercise price, an optionee likewise benefits. In this manner, the interests
of the officer and those of the Company's shareholders are aligned.
Neither the Chief Executive Officer nor the Chief Technology Officer holds
any stock options, and the Compensation Committee has not recommended stock
option grants to either of these individuals due to their existing equity
ownership of the Company. Dr. Kim and Mr. Li each holds a significant percentage
of the Company's Shares and, therefore, each participates proportionately in
increases in stockholder value.
OTHER BENEFITS
The Company does not maintain benefit plans exclusively for its executive
officers. Executive officers, as well as all other employees, are eligible to
participate in the Company's 401(k) Plan and Employee Stock Purchase Plan.
Pursuant to the 401(k) Plan, the Company provides matching contributions in the
form of Shares of up to a maximum of 5% of the employee's base salary.
COMPLIANCE WITH SECTION 162(m)
The Compensation Committee will consider, if and when applicable, the
potential impact of Section 162(m) of the Internal Revenue Code of 1986, as
amended, and its limit on tax deductions for annual compensation in excess of
$1,000,000 paid to the Company's Chief Executive Officer or any of the other
four most highly compensated executive officers. The Compensation Committee does
not believe that this limitation will apply to the Company in the foreseeable
future. Among other things, the individual annual base salaries (and bonuses) of
the Company's Chief Executive Officer and the other executive officers do not
currently exceed $1,000,000. In addition, the Company's Stock Option Plan has
been designed so that compensation attributable to stock options granted
pursuant to the Plan will qualify under the performance-based compensation
exception to Section 162(m).
BY THE COMPENSATION COMMITTEE
Dr. Herbert Rabin (Chairman)
Kenneth D. Brody
Dr. William J. Perry
A-14
<PAGE> 18
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Company's common stock with the cumulative total return of the Nasdaq Stock
Market Index and the Nasdaq Computer Manufacturer Stock Index during the period
beginning February 5, 1997, the Company's initial public offering date, and
ending December 31, 1997.
YURIE SYSTEMS, INC.
Total Cumulative Shareholder Return
February 5, 1997 through December 31, 1997
<TABLE>
<CAPTION>
Nasdaq
Computer
Measurement Period Yurie Manufacturer Nasdaq Stock
(Fiscal Year Covered) Systems, Inc. Stock Index Market Index
<S> <C> <C> <C>
2/5/97 100.00 100.00 100.00
12/31/97 133.47 119.24 117.36
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known by the Company
regarding the beneficial ownership of the Company's Shares, as of March 31,
1998, by each beneficial owner of more than five percent of the outstanding
Shares, by each of the Company's directors, each of the executive officers named
in the Summary Compensation Table and all directors and officers of the Company
as a group. To the Company's knowledge, except as otherwise indicated, the
persons listed below have sole voting and investment power with respect to all
Shares beneficially owned by them, except to the extent such power may be shared
with a spouse.
A-15
<PAGE> 19
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK
---------------------------- BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) DIRECT INDIRECT(3) OWNED(2)
--------------------------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Jeong H. Kim........................................ 13,287,400(4) 513(5) 52.1%
Kwok L. Li.......................................... 20,000 3,150,277(6) 12.4
Harry J. Carr....................................... -- 250,000 *
Kenneth D. Brody.................................... -- 724,380(4) 2.8
Barton Y. Shigemura................................. 6,306 443,125 1.7
R. James Woolsey.................................... 51,000(7) 53,125(8) *
Herbert Rabin....................................... -- 30,834 *
Harry J. D'Andrea................................... -- -- *
John J. McDonnell................................... -- 5,625 *
William J. Perry.................................... -- 26,042 *
Amerindo Technology Growth Fund, Inc.(9)............ 2,645,500 10.4
One Embarcadero Center, Suite 2300
San Francisco CA 94111
All executive officers and directors as a group (10
persons).......................................... 13,364,706 3,996,521 66.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise set forth in the table, the address listed for the
beneficial owners and managers is c/o Yurie Systems, Inc., 8301 Professional
Place, Landover, Maryland, 20785.
(2) Applicable percentage is based on 25,482,461 Shares outstanding on March 31,
1998.
(3) Unless otherwise indicated, consists of Shares issuable pursuant to options
granted pursuant to the Stock Option Plan and exercisable currently or
within 60 days of March 31, 1998. Pursuant to the rules of the Commission,
Shares which a person has the right to acquire within 60 days pursuant to
the exercise of stock options are deemed to be outstanding for the purpose
of computing the percentage of ownership of such person, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(4) Includes 687,400 Shares subject to an option to purchase Shares from Dr. Kim
held by Mr. Brody (the "Brody Option"). The Brody Option originally covered
1,000,000 Shares; however, as of March 31, 1998, Mr. Brody had exercised the
option as to 312,600 Shares. For purposes of this table, and until Mr. Brody
exercises his option to purchase the remaining 687,400 Shares, Dr. Kim and
Mr. Brody share beneficial ownership of these Shares.
(5) Consists of 313 Shares held in the 401(k) Plan and 200 Shares owned by Dr.
Kim's wife, the latter of which he disclaims beneficial ownership.
(6) Includes 2,200,000 Shares held by Linsang Partners LLC, of which Mr. Li
holds a majority and controlling interest. Linsang is a significant
shareholder of Splitrock. Also includes 950,000 Shares owned by Mr. Li's
spouse, as to which he disclaims beneficial ownership, and 277 Shares held
in the 401(k) Plan.
(7) Mr. Woolsey holds these Shares jointly with his spouse.
(8) Includes 25,000 Shares held in Mr. Woolsey's retirement account.
(9) As reported on Schedule 13D dated April 17, 1998. On November 7, 1996, prior
to the Company's initial public offering, Amerindo Technology Growth Fund,
Inc. ("Amerindo") purchased an aggregate of 1,000,000 Shares from: the
Company (400,000 Shares); Dr. Kim (500,000 Shares); and Mr. Li (100,000
Shares). Amerindo received registration rights in connection with these
purchases.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The matters set forth elsewhere in this Information Statement and in Item 3
of the Schedule 14D-9 are hereby incorporated by reference.
A-16
<PAGE> 20
On July 1, 1996, Dr. Jeong H. Kim and Kenneth D. Brody entered into an
agreement pursuant to which Mr. Brody paid $500,000 to buy an option (the "Brody
Option") to purchase 1,000,000 Shares from Dr. Kim at an exercise price of $4.00
per share. The Brody Option became fully vested on June 3, 1997. To secure Dr.
Kim's obligations to deliver Shares to Mr. Brody upon exercise of the Brody
Option, Dr. Kim granted Mr. Brody a security interest in all of the Shares
subject to the Brody Option. Mr. Brody may assign the Brody Option, in whole or
in part, subject to the limitation that each assignee (with the exception of
affiliates and family members) must be assigned a portion of the Brody Option
covering at least 200,000 Shares. The Brody Option is exercisable for a term of
20 years. As of April 24, 1998, Mr. Brody had exercised and sold 312,600 Shares
pursuant to the Brody Option, leaving 687,400 Shares subject to the Brody
Option.
During 1997, certain executive officers and directors of the Company were
granted options to purchase Shares as follows: Harry J. Carr -- 1,000,000; Harry
J. D'Andrea -- 150,000; Dr. William J. Perry -- 80,000; Kenneth D.
Brody -- 5,000; Dr. Herbert Rabin -- 5,000; and R. James Woolsey -- 5,000. These
options have a weighted average exercise price of $10.60 per Share.
On January 14, 1997, the Company entered into a consulting agreement with
In Y. Chung, under which Mr. Chung performed consulting and business development
activities for the Company in the Pacific Rim area. Pursuant to this consulting
agreement, the Company granted options to Mr. Chung to purchase 50,000 Shares at
an exercise price of $9.00 per Share. These options vested upon their grant. Mr.
Chung exercised these options in June 1997 and the Company issued 50,000 Shares
to Mr. Chung. Since 1997, the Company has employed Mr. Chung as Senior Advisor
to the Company's President, Harry J. Carr. The Company paid Mr. Chung $17,502 in
1997 and granted him options to purchase 100,000 Shares at an exercise price of
$20.1875 per Share in connection with his services as Senior Advisor to Mr.
Carr. Mr. Chung is the father-in-law of Dr. Jeong H. Kim.
The Company has a significant customer relationship with Splitrock
Services, Inc., a Texas Corporation that provides communications services
specifically configured to meet the needs of large network users. Splitrock
purchased the underlying network assets of Prodigy Services Corporation, an
Internet service provider in 1997. Yurie and Splitrock are parties to an
agreement (the "Splitrock Agreement") that requires Splitrock to purchase a
minimum of $20.0 million of LDR products from the Company in the period from
July 1997 to December 1998 and provides for Yurie to furnish services to support
deployment and implementation of Yurie's products in Splitrock's network on a
time and materials basis. Kwok L. Li, the Chief Technology Officer and Vice
Chairman of the Board of Yurie, is Chairman of the Board of Splitrock and the
majority and controlling shareholder of Linsang Partners LLC. Linsang Partners
LLC and Mr. Li are the majority shareholders of Splitrock.
Of the Company's sales of LDR products in 1997, $12.4 million consisted of
direct purchases by Splitrock, $7.6 million of which purchases were credited
against Splitrock's minimum purchase guarantee under the Splitrock Agreement.
Splitrock and Ericsson executed a letter of intent on February 2, 1998, pursuant
to which Ericsson would provide Splitrock with certain services as well as LDR
products that Ericsson had purchased or will purchase under its private-label
partner agreement with the Company. Subsequently, during the first quarter of
1998, Linsang Partners LLC agreed to purchase from Ericsson for use in
Splitrock's network the $5 million of LDR products sold to Ericsson in the
fourth quarter of 1997. This expected $5 million purchase is separate from the
$12.4 million of product sales to Splitrock during 1997 and upon such purchase
by Linsang Partners LLC will be credited against Splitrock's minimum purchase
guarantee under the Splitrock Agreement. Linsang Partners LLC also submitted a
purchase order to Ericsson for up to an additional $2 million of LDR products,
which purchases, as made, will also be credited against Splitrock's minimum
purchase guarantee under the Splitrock Agreement.
R. James Woolsey, a director of the Company, is a partner in the law firm
of Shea & Gardner, which is one of several law firms that performs legal work
for the Company.
A-17
