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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 March 31, 1998
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: 0-23023
MMC NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0319809
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1134 E. Arques Avenue
Sunnyvale, CA 94086
(Address of principal offices)
(zip code)
(408) 731-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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 [ ]
The number of shares outstanding of the issuer's common stock as of April 27,
1998 was 29,523,567.
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MMC NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at March 31, 1998 and 1997................. 3
Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997.......................... 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997........................ 5
Notes to the Condensed Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 14
Item 2. Changes in Securities......................................... 14
Item 3. Defaults Upon Senior Notes.................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
SIGNATURES ................................................................. 16
</TABLE>
2
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MMC NETWORKS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 11,742 $ 45,401
Short-term investments ............................................................ 34,319 --
Accounts receivable, net of allowance of $181 ..................................... 5,113 4,526
Finished goods inventories ........................................................ 620 570
Prepaid expenses and other current assets ......................................... 401 382
-------- --------
Total current assets .......................................................... 52,195 50,879
Property and equipment, net ............................................................ 4,114 3,631
Other assets ........................................................................... 213 213
-------- --------
$ 56,522 $ 54,723
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................. $ 2,451 $ 2,626
Accrued expenses .................................................................. 2,510 1,744
Current portion of capital lease obligations ...................................... 347 350
-------- --------
Total current liabilities ..................................................... 5,308 4,720
-------- --------
Capital lease obligations, net of current portion ...................................... 200 286
-------- --------
Stockholders' equity:
Series A Convertible Preferred Stock: $0.001 par value; 0 and 9,378 shares
authorized; no shares issued or outstanding .................................. -- --
Series B Convertible Preferred Stock: $0.001 par value; 0 and 4,121 shares
authorized; no shares issued or outstanding .................................. -- --
Preferred Stock: $0.001 par value; 10,000 and 0 shares authorized; no
shares issued or outstanding ................................................. -- --
Common Stock: $0.001 par value; 100,000 shares authorized; 29,303
and 29,198 shares issued and outstanding ..................................... 25 25
Additional paid-in capital ........................................................ 50,810 50,778
Notes receivable from stockholders ................................................ (172) (181)
Retained earnings (Accumulated deficit) ........................................... 351 (905)
-------- --------
Total stockholders' equity .................................................... 51,014 49,717
-------- --------
$ 56,522 $ 54,723
======== ========
</TABLE>
3
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
MMC NETWORKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues ...................................... $ 9,623 $ 3,421
Cost of revenues .............................. 2,936 1,118
-------- --------
Gross profit ................. 6,687 2,303
-------- --------
Operating expenses:
Research and development, net ........ 3,144 1,096
Selling, general and administrative .. 2,097 1,062
-------- --------
Total operating expenses ..... 5,241 2,158
-------- --------
Operating income .............................. 1,446 145
-------- --------
Other income (expense):
Interest income ...................... 529 78
Interest expense ..................... (19) (33)
-------- --------
Total other income ........... 510 45
-------- --------
Income before income taxes .................... 1,956 190
Provision for income taxes .................... 700 4
-------- --------
Net income .................................... $ 1,256 $ 186
======== ========
Basic income per share ........................ $ 0.04 $ 0.02
======== ========
Shares used to compute basic income per share . 29,276 11,281
======== ========
Diluted income per share ...................... $ 0.04 $ 0.01
======== ========
Shares used to compute diluted income per share 33,717 27,076
======== ========
</TABLE>
4
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
MMC NETWORKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1998 1997
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 1,256 $ 186
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization..... 462 155
Issuance of Common Stock in
exchange for services............ -- 30
Changes in assets and liabilities:
Accounts receivable............. (587) (594)
Inventories..................... (50) 288
Prepaid expenses and other
assets......................... (19) (191)
Accounts payable................ (175) (255)
Accrued expenses................ 766 177
------- ------
Net cash provided by (used in)
operating activities......... 1,653 (204)
------- ------
Cash flows from investing activities:
Sale (purchase) of short-term
investments........................ (34,319) 232
Acquisition of property and
equipment.......................... (945) (404)
------- ------
Net cash used in investing
activities................... (35,264) (172)
------- ------
Cash flows from financing activities:
Proceeds from exercise of stock
options and other................. 32 35
Proceeds from the repayment of notes
receivable from stockholders....... 9 --
Principal payments on capital lease
obligations........................ (89) (64)
------- ------
Net cash used in financing
activities................... (48) (29)
------- ------
Net increase (decrease) in cash and
cash equivalents..................... (33,659) (405)
Cash and cash equivalents at beginning
of period............................ 45,401 4,809
------- ------
Cash and cash equivalents at end of
period............................... $11,742 $4,404
======= ======
Supplemental disclosure:
Cash paid for interest.............. $ 19 $ 33
Cash paid for income taxes.......... $ 233 $ 10
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
5
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MMC NETWORKS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial information
reflects all adjustments including only normal recurring adjustments, necessary
for the fair presentation of the financial position, results of operations and
cash flows for MMC Networks, Inc. ("the Company") for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997. Results for the interim periods
are not necessarily indicative of results for the entire year.
NOTE 2 - EARNINGS PER SHARE
The following table reconciles the numerator and denominator of the basic and
diluted EPS computations for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1998 1997
------------------------------ -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ------- -------- -------- ------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Basic income per share:
Net income available to
common stockholders ..... $1,256 29,276 $ 0.04 $ 186 11,281 $ 0.02
======== ==========
Effect of dilutive securities:
Convertible Preferred Stock .. -- -- -- 13,342
Warrants ..................... -- 30 -- 112
Stock options ................ -- 4,411 -- 2,341
-------- ------- -------- -------
Diluted income per share:
Net income available to
common stockholders and
assumed conversions ..... $ 1,256 33,717 $ 0.04 $ 186 27,076 $ 0.01
======= ======= ======== ======== ======= ==========
</TABLE>
At March 31, 1998 and 1997, options to purchase a total of 51,000 and 69,000
shares of common stock with average exercise prices of $18.69 and $2.67,
respectively, are considered anti-dilutive because the options' exercise prices
were greater than the average fair market value of the Company's common stock
for the three months then ended and, as such, are excluded from the calculation
of diluted net income per share. Each share of Convertible Preferred Stock
outstanding at March 31, 1997 was converted into one share of Common Stock upon
the completion of the Company's initial public offering effective October 28,
1998.
NOTE 3 - EQUITY
On January 13, 1998, the Company amended its Certificate of Incorporation to
authorize 10,000,000 shares of undesignated Preferred Stock. The Board of
Directors will have the authority to issue the undesignated Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in the first quarter of 1998. SFAS
130 establishes standards for the reporting of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner sources. Examples
of items to be included in
6
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MMC NETWORKS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gain/loss on available-for-sale
securities. For the three months ended March 31, 1998 and 1997, comprehensive
income approximated net income.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). This statement establishes standards for the way companies report
information about operating segments in financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 has not resulted
in a change in the way the Company reports information and related disclosures.
NOTE 5 - FINANCING AGREEMENTS
In February 1998, the Company entered into a non-recourse receivables purchase
agreement with a bank. The agreement expires in February 1999 and allows the
Company to sell up to $2 million of its accounts receivable to the bank at a
discount rate of 9.5%, less an administrative fee equal to 0.20% of the total
purchased receivable balance. The agreement also provides for the Company to
grant to the bank a continuing lien on and security interest in all purchased
receivables and related property. To date, the Company has not sold any
receivables under this agreement.
The Company had two lines of credit, a $5.0 million revolving bank credit
facility under which borrowings accrued interest at the bank's prime rate and a
$3.0 million bank lease line under which borrowings accrued interest at the
bank's prime rate plus 0.5%. These lines-of-credit expired in April 1998. The
Company had not borrowed any funds under either facility as of March 31, 1998.
In conjunction with the expiration of these lines, the Company obtained a letter
of commitment from a bank to enter into a new $8 million revolving credit
facility for which borrowings will bear interest at the bank's prime rate.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the interim
condensed financial statements and the notes thereto included in Part I, Item 1
of this Quarterly Report on Form 10-Q and the financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which reflect the Company's
current views with respect to future events which may impact the Company's
results of operations and financial condition. In this report, the words
"anticipates", "believes", "expects", "intends" and similar expressions identify
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties and other factors, including those set forth below under
the caption "Factors Affecting Future Results", which could cause the actual
future results to differ materially from historical results or those described
in the forward-looking statements. Readers are urged to carefully review the
disclosures made by the Company in this Report and in the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Factors Affecting Future Results" of the Company's Annual Report on
Form 10-K previously filed with the Securities and Exchange Commission that
describe certain risks and factors that may affect the Company's business and
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
BACKGROUND
The Company is a leading developer and supplier of network processors --
high-performance, open-architecture, software-programmable processors optimized
for network applications. The Company's network processors form the core silicon
"engines" of LAN and WAN switches and routers and are designed to allow network
equipment vendors to rapidly develop high-performance, feature-rich,
cost-effective products supporting a broad range of networking functions. MMC
Networks' customers employ the Company's network processors to develop and
market multi-gigabit, wire-speed switches and routers with advanced features
such as Layer 3 switching, internetworking of LANs and WANs, security, class of
service, quality of service and network management.
The Company's current products, the PS1000, ATMS2000 and AF5000 families of
network processors, provide the core functionality of high-performance Fast
Ethernet and Asynchronous Transfer Mode ("ATM") networking equipment. The
Company believes that network equipment vendors are able to reduce design and
development costs and accelerate product development cycles for high-performance
routers and switches by using the Company's products. All of the Company's
products are based on the Company's proprietary ViX(TM) architecture, which
enables network equipment vendors to easily and cost-effectively implement high-
performance, value-added features in their switch and router products.
The Company was incorporated in California in September 1992 and reincorporated
in Delaware in October 1997.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data expressed as
a percentage of the Company's revenue for the interim periods presented.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Statement of Operations Data:
Revenues ......................................... 100.0% 100.0%
Cost of revenues ................................. 30.5% 32.7%
------ ------
Gross profit ........... 69.5% 67.3%
------ ------
Operating expenses:
Research and development, net ...... 32.7% 32.1%
Selling, general and administrative 21.8% 31.0%
------ ------
Total operating expenses 54.5% 63.1%
------ ------
Operating income ................................. 15.0% 4.2%
Interest income, net ............... 5.3% 1.4%
------ ------
Income before income taxes ....................... 20.3% 5.6%
Provision for income taxes ....................... 7.2% 0.1%
====== ======
Net income ....................................... 13.1% 5.5%
====== ======
</TABLE>
Revenues
Revenues increased by 181% to $9.6 million in the first quarter of 1998 from
$3.4 million in the first quarter of 1997. The majority of the revenue growth is
due to increased sales of both the ATMS2000 and PS1000 product families to new
and existing customers. In addition, the first quarter of 1998 included revenues
generated from engineering samples of the company's newest product family,
AnyFlow 5000.
Cost of Revenues; Gross Profit
Cost of revenues increased to $2.9 million in the first quarter of 1998 as
compared to $1.1 million in the first quarter of 1997. The increase in cost of
revenues reflects the increased volume of shipments from period to period and,
as such, gross profit as a percentage of total revenues stayed relatively
constant; 69.5% for the first quarter of 1998 and 67.3% for the first quarter of
1997.
Research and Development Expenses, net
Research and development expenses, net, increased by 187% to $3.1 million in the
first quarter of 1998 as compared to $1.1 million in the first quarter of 1997.
Research and development expenses as a percentage of total revenues remained
relatively constant; 32.7% in the first quarter of 1998 as compared to 32.1% in
the first quarter of 1997. This increase in research and development expenses
from period to period was due to increased expenditures for the development of
new products. Research and development expenses are expected to continue to
increase in absolute dollars over the remainder of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 97% to $2.1 million in
the first quarter of 1998 as compared to $1.1 million in the first quarter of
1997. The increase in selling, general and administrative expenses was comprised
of increased sales commissions resulting from higher revenues, increased selling
and marketing costs associated with new products, additional personnel and
additional costs related to being a public Company. Selling, general and
administrative expenses decreased as a percentage of revenues to 21.8% in the
first quarter of 1998 from 31.0% in the first quarter of 1997 as revenue growth
9
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surpassed the increase in selling, general and administrative expenses. The
Company expects selling, general and administrative expenses to increase in
absolute dollars over the remainder of 1998.
Interest Income, net
The increase in net interest income is due to increased cash and investment
balances from period to period.
Provision for Income Taxes
The provision for income taxes increased to $700,000 in the first quarter of
1998 from $4,000 in the first quarter of 1997 reflecting effective tax rates
of 35.8% and 2.1%, respectively. Management expects the effective tax rate
for the remainder of 1998 to decrease as the Company utilizes research and
development tax credit carryforwards and deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's cash, cash equivalents and short-term
investments totaled $46.1 million and the Company's working capital was
approximately $46.9 million. Net cash totaling $1.7 million was provided by
operating activities during the three months ended March 31, 1998. This increase
was primarily due to net income adjusted for depreciation and amortization of
$1.7 million. Cash used in investing activities of $35.3 million for the three
months ended March 31, 1998 was comprised of the purchase of short-term
investments of $34.3 million and the acquisition of property and equipment of
$945,000.
In February 1998, the Company entered into a non-recourse receivables purchase
agreement with a bank. The agreement expires in February 1999 and allows the
Company to sell up to $2 million of its accounts receivable to the bank at a
discount rate of 9.5%, less an administrative fee equal to 0.20% of the total
purchased receivable balance. To date, the Company has not sold any receivables
under this agreement.
The Company had two lines of credit, a $5.0 million revolving bank credit
facility under which borrowings accrued interest at the bank's prime rate and a
$3.0 million bank lease line under which borrowings accrued interest at the
bank's prime rate plus 0.5%. These lines-of-credit expired in April 1998. The
Company had not borrowed any funds under either facility as of March 31, 1998.
In conjunction with the expiration of these lines, the Company obtained a letter
of commitment from a bank to enter into a new $8 million revolving credit
facility for which borrowings will bear interest at the bank's prime rate.
The Company believes that its existing cash balances together with its available
line of credit, related financing agreement and cash flow expected from future
operations will be sufficient to meet the Company's capital requirements through
the next twelve months, although the Company could be required, or could elect,
to seek to raise additional capital before such time. This is a forward-looking
statement and the actual period of time for which the Company's resources will
be sufficient will depend on many factors, including the rate of revenue growth,
if any, the timing and extent of spending to support product development efforts
and the expansion of sales and marketing efforts, the timing and size of
business or technology acquisitions, the timing of introductions of new products
and enhancements to existing products and market acceptance of the Company's
products. There can be no assurance that additional equity or debt financing, if
required, will be available on acceptable terms or at all.
FACTORS AFFECTING FUTURE RESULTS
As described by the following factors, past financial performance should not be
considered a reliable indicator of future performance and investors should not
use historical trends to anticipate results or trends in future periods.
Fluctuations in Operating Results. Fluctuations in the Company's operating
results have occurred in the past and are likely to occur in the future due to a
variety of factors, any of which may have a material adverse effect on the
Company's operating results. In particular, the Company's quarterly results of
10
<PAGE>
operations may vary significantly due to general business conditions in the
networking equipment and semiconductor industries, changes in demand for the
network equipment products of the Company's customers, the timing and amount of
orders from the Company's network equipment vendor customers, cancellations or
delays of customer product orders, new product introductions by the Company or
its competitors, cancellations, changes or delays of deliveries of products to
the Company by its suppliers, increases in the costs of products from the
Company's suppliers, fluctuations in product life cycles, price erosion,
competition, changes in the mix of products sold by the Company, availability of
semiconductor foundry capacity, variances in the timing and amount of
nonrecurring engineering funding and operating expenses, seasonal fluctuations
in demand, intellectual property disputes and general economic conditions. In
addition, in the past the Company has recognized a substantial portion of its
revenues in the last month of a quarter. Since a large portion of the Company's
operating expenses, including rent, salaries and capital lease expenses, is
fixed and difficult to reduce or modify, if revenue does not meet the Company's
expectations, the material adverse effect of any revenue shortfall will be
magnified by the fixed nature of these operating expenses. All of the above
factors are difficult for the Company to forecast, and these and other factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Customer Concentration. The percentage of total revenues accounted for by the
Company's significant customers (significant customers are those customers
accounting for more than 10% of the Company's total revenues) for the three
months ended March 31, 1998 and 1997 are as follows: Cisco, Mitsui Comtek Corp.,
a non-stocking sales representative for Japan, Cabletron and the U.S. Computer
Division of Hitachi accounted for 30%, 27%, 11% and 10%, respectively, of total
revenues during the first quarter of 1998 and 26%, 19%, less than 1% and 25%,
respectively, of total revenues during the first quarter of 1997.
The Company's customer base is highly concentrated. A relatively small number of
customers has accounted for a significant portion of the Company's revenues to
date, and the Company expects that this trend will continue for the foreseeable
future. Each of the Company's network equipment vendor customers, including
Cisco, Mitsui, Cabletron and Hitachi can cease incorporating the Company's
products with limited notice to the Company and with little or no penalty. The
Company's agreements with network equipment vendor customers do not require
minimum purchases.
The Company's longstanding relationship with Cisco may inhibit other leading
network equipment vendors from adopting the Company's network processors. Cisco
faces intense competition from vendors such as Bay Networks, Inc., 3Com
Corporation and FORE, none of which currently uses the Company's network
processors. Accordingly, the Company's future operating results may be
substantially dependent on Cisco's competitive position in the networking
equipment market. The loss of one or more of the Company's customers or the
inability of the Company to successfully develop relationships with additional
significant network equipment vendors could have a material adverse effect on
the Company's business, financial condition and results of operations.
New Product Development and Technological Change. The data networking and
semiconductor industries are characterized by rapidly changing technology,
frequent product introductions, rapid erosion of average selling prices and
evolving industry standards. Accordingly, the Company's future performance
depends on a number of factors, including the acceptance of network processors
as an alternative to the Application-Specific Integrated Circuit ("ASIC")
components and general purpose processors and the acceptance by the Company's
customers of third party sourcing for network processors as an alternative to
in-house development as well as the Company's ability to identify emerging
technological trends in its target markets, develop and maintain competitive
products, enhance its products by adding innovative features that differentiate
its products from those of competitors, bring products to market on a timely
basis at competitive prices, properly identify target markets and respond
effectively to new technological changes or new product announcements by others.
Products as complex as those offered by the Company frequently contain errors,
defects and bugs when first introduced or as new versions are released. The
Company has in the past experienced such errors, defects and bugs. Delivery of
products with production defects or reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of such
11
<PAGE>
products, which could damage the Company's reputation and adversely affect the
Company's ability to retain its existing customers and to attract new customers.
In addition, the Company must generally incur substantial research and
development costs before the technical feasibility and commercial viability of a
product line can be ascertained. There can be no assurance that revenues from
future products or product enhancements will be sufficient to recover the
development costs associated with such products or enhancements, or that the
Company will be able to secure the financial resources necessary to fund future
development. The inability of the Company and its products to achieve market
acceptance from network equipment vendors and to adequately address any of the
factors discussed above could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Independent Manufacturers. Currently, the Company outsources all
manufacturing, assembly and test of its network processors. The Company's
suppliers currently deliver fully assembled and tested products on a turnkey
basis. Only one of the Company's products is currently manufactured by more than
one supplier. The Company depends on its suppliers to deliver sufficient
quantities of finished product to the Company in a timely manner. Since the
Company places its orders on a purchase order basis and does not have a
long-term volume purchase agreement with any of its existing suppliers, these
suppliers may allocate, and in the past have allocated, capacity to the
production of other products while reducing deliveries to the Company on short
notice. Given that the Company must place orders approximately 12 to 14 weeks in
advance of expected delivery, any sudden increase in customer demand not
anticipated by the Company in advance could result in the inability to deliver
product on a timely basis and, as such, may reduce the Company's product
revenues or increase the Company's cost of revenues and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Competition. The data networking and semiconductor industries are intensely
competitive and are characterized by constant technological change, rapid rates
of product obsolescence and price erosion. The Company's PS1000, ATMS2000 and
AF5000 product families compete with products from companies such as Texas
Instruments Incorporated, Lucent Technologies, Inc., PMC-Sierra Inc./Integrated
Technology Ltd., Galileo Technology Ltd. and I-Cube, Inc. In addition, the
Company expects significant competition in the future from major domestic and
international semiconductor suppliers. The Company also may face competition
from suppliers of products based on new or emerging technologies. Moreover,
several established electronics and semiconductor suppliers have recently
entered or indicated an intent to enter the switching and routing equipment
market. In addition, many of the Company's existing and potential customers
internally develop ASICs, general purpose processors, network processors and
other devices which attempt to perform all or a portion of the functions
performed by the Company's products. Many of the Company's current and
prospective competitors offer broader product lines and have significantly
greater financial, technical, manufacturing and marketing resources than the
Company. Failure of the Company to compete successfully could have a material
adverse effect on its operating results.
Protection of Intellectual Property. The Company relies primarily on a
combination of nondisclosure agreements and other contractual provisions as well
as patent, trademark, trade secret and copyright law to protect its proprietary
rights. There can be no assurance that any patents will issue pursuant to the
Company's current or future patent applications or that patents issued pursuant
to such applications will not be invalidated, circumvented, challenged or
licensed to others. In addition, there can be no assurance that the rights
granted under any such patents will provide competitive advantages to the
Company or be adequate to safeguard and maintain the Company's proprietary
rights. From time to time, third parties, including competitors of the Company,
may assert patent, copyright and other intellectual property rights to
technologies that are important to the Company. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future, that assertions by third parties will not result in costly litigation or
that the Company would prevail in any such litigation or be able to license any
valid and infringed patents from third parties on commercially reasonable terms,
if at all. Failure of the Company to enforce and protect its intellectual
property rights could have a material adverse effect on the Company's business,
financial condition and results of operations.
12
<PAGE>
On October 27, 1997, FORE filed a complaint in the United States District Court
for the Western District of Pennsylvania alleging that the Company willfully
infringed two of FORE's patents. The complaint seeks both a preliminary and a
permanent injunction against the Company, as well as recovery of damages. On
December 17, 1997, FORE filed an amended complaint alleging patent infringement
of an additional patent, seeking identical relief on all three patents and, in
addition, FORE alleged trade secret misappropriation against MMC seeking
preliminary and permanent injunctive relief as well as recovery of damages. On
January 9, 1998, MMC filed a motion to dismiss or transfer the Pennsylvania
action and to transfer the case to the Northern District of California. This
motion is currently pending. At present time litigation has been stayed by joint
stipulation of the parties. The results of litigation are inherently uncertain,
and there can be no assurance that the Company will prevail in any litigation
with FORE. An adverse result in the FORE litigation could have a material effect
on the Company's business, financial condition and results of operations.
Risks Associated with Expansion of International Business Activities.
Substantially all of the Company's sales to date have been to customers located
in the United States, including sales to U.S.-based affiliates of non-U.S.
network equipment vendors. If the Company's international sales increase, the
Company will be subject to additional risks inherent in international
operations. All of the Company's international sales to date are U.S. dollar-
denominated. As a result, an increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products less competitive in
international markets. In addition, the Company procures a portion of its
manufacturing, assembly and test services from suppliers located outside the
United States. International business activities may be limited or disrupted by
the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions and changes in tariffs.
Demand for the Company's products could also be adversely affected by
seasonality of international sales and economic conditions in the Company's
primary overseas markets. These international factors could have a material
adverse effect on future sales of the Company's products to international
customers and, consequently, on the Company's business, financial condition and
results of operations. While the Company has not experienced any revenue
shortfall to date as a result of recent financial difficulties of Asian
economies, any decrease in demand by Company customers for the Company's
products caused by decreased sales by such customers in Asia could have an
adverse effect on the Company's revenues in the future.
Expected Volatility of Stock Price. In recent years the stock market in general,
and the market for shares of high technology, data networking and semiconductor
companies in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. The
trading price of the Company's Common Stock is expected to be subject to extreme
fluctuations in response to both business-related issues, such as quarterly
variations in operating results, announcements of new products by the Company or
its competitors, the gain or loss of significant network equipment vendor
customers, and stock market-related influences, such as changes in analysts'
estimates, the presence or absence of short-selling of the Company's Common
Stock and events affecting other companies that the market deems to be
comparable to the Company. In addition, technology stocks have from time to time
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of these companies. Trading
prices of many high technology, data networking and semiconductor stocks,
including the Common Stock of the Company, are at or near their historical highs
and reflect price/earnings ratios substantially above historical norms. There
can be no assurance that the trading price of the Company's Common Stock will
remain at or near its current level.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
The following table lists the amount of expenses incurred for the Company's
account in connection with the issuance and distribution of 4,025,000 shares of
the Common Stock issued in the Company's initial public offering on October
28, 1998.
[CAPTION]
<TABLE>
Direct or indirect payments to directors
or officers of the Company or their associates;
to persons owning ten percent or more of
any class of equity securities of the Direct or indirect
Company; and to affiliates of the Company payments to others
----------------------------------------------- --------------------
<S> <C> <C>
Underwriting discounts and commissions..... $0 $3,099,250
Finders' fees.............................. $0 $0
Expenses paid to or for underwriters....... $0 $0
Other expenses through March 31, 1998...... $0 $1,189,811
---------------
Total expenses............................. $0 $4,289,061
Gross proceeds of IPO ..................... $0 $44,275,000
Less total expenses................... $0 $4,289,061
----------------
Net proceeds of IPO........................ $0 $39,985,939
================
</TABLE>
The following table lists the amount of net offering proceeds to the Company
used for each of the purposes listed below for the period from December 31, 1997
through March 31, 1998.
<TABLE>
Direct or indirect payments to directors
or officers of the Company or their associates;
to persons owning ten percent or more of any
class of equity securities of the Company; Direct or indirect
and to affiliates of the Company payments to others
----------------------------------------------- ------------------
<S> <C> <C>
Construction of plants, building and
facilities.......................... $0 $0
Purchase and installation of machinery
and equipment....................... $0 $0
Purchase of real estate............... $0 $0
Acquisition of other business(es)..... $0 $0
Repayment of indebtedness............. $0 $0
Working Capital....................... $0 $39,985,939
Temporary investment
Asset-backed securities............... $0 $0
Municipal bonds....................... $0 $0
Commercial paper....................... $0 $0
Other purposes
Acquisition of minority equity
interests in other corporations..... $0 $0
</TABLE>
14
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Non-Recourse Receivables Purchase Agreement dated February
9, 1998, by and between Silicon Valley Financial Services, a
division of Silicon Valley Bank, and the Registrant. 27
Financial Data Schedule as of March 31, 1998 and for the 3
months then ended.
27 Financial Data Schedule as of March 31, 1998 and for the 3
months then ended.
27.1 Restated Financial Data Schedule as of December 31, 1997
and 1996 and for the 12 months then ended.
27.2 Restated Financial Data Schedule as of September 30, 1997
and for the 9 months then ended.
27.3 Restated Financial Data Schedule as of June 30, 1997 and for
the 6 months then ended.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months
ended March 31, 1998.
15
<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.
Dated: May 1, 1998 MMC NETWORKS, INC.
By: /s/ Prabhat K. Dubey
--------------------------
Prabhat K. Dubey
President, Chief Executive
Officer and Director
By: /s/ Uday Bellary
---------------------------
Uday Bellary
Vice President, Finance,
Chief Financial Officer and
Assistant Secretary
(Principal Financial and
Accounting Officer)
16
<PAGE>
Exhibit 10.1
Silicon Valley Financial Services
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
(408)554-1000 - Fax (408) 980-5410
This NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT (the "Agreement"),
dated as of February 9, 1998, is between Silicon Valley Financial Services, a
division of Silicon Valley Bank, ("Buyer") and MMC Networks, Inc., a Delaware
corporation, ("Seller"), with its chief executive office at:
Street Address: 1134 East Arques Avenue
City: Sunnyvale
County: Santa Clara
State: CA
Zip code: 94086
Fax: (408) 731-1560
1. DEFINITIONS. In this Agreement:
1.1 "Payment" is when Buyer has received payments equal to the Total
Purchased Receivables.
1.2 "Purchased Receivables" is all accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances other rights to payment and all proceeds arising
from the invoices and other agreements on the Schedule.
1.3 "Schedule" is the attached schedule showing the: Purchase Date, Due
Date, Total Purchased Receivables, Discount Rate, Purchase Price, Administrative
Fee and Interest Reserve amount.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1 SALE AND PURCHASE. On the Purchase Date, Seller sells and Buyer buys
Seller's right, title, and interest (but none of Sellers obligations) to payment
from any person liable on a Purchased Receivable, ("Account Debtors").
Each purchase and sale is at Buyer's and Seller's discretion. Buyer will
not (I) pay Seller an aggregate outstanding amount exceeding TWO MILLION AND
001100 DOLLARS ($2,000,000.00) or (ii) buy any Purchased Receivable after
FEBRUARY 8,1999. Each purchase and sale will be on an assignment form acceptable
to Buyer.
2.2 PURCHASE PRICE AND RELATED MATTERS. For each Purchased Receivable:
(a) Payment of Purchase Price. Buyer will pay Seller, on the Purchase
Date, the Purchase Price, less the Administrative Fee and legal fees (if any).
(b) Late Payment. If Payment is made after the Due Date then on the
earlier of Payment or 90 days, Seller will also pay Buyer the product of the
Discount Rate and the average daily balance of the amounts outstanding on the
Purchased Receivables multiplied by the number of days in the first of Payment
or 90 days and divided by 350 days.
3. COLLECTIONS, PAYMENTS AND REMITTANCES.
3.1 Application of Payments. All payments for any Purchased Receivable,
received by Seller or Buyer, are Buyer's property.
<PAGE>
3.2 COLLECTION BY SELLER.
a. Buyer appoints Seller its attorney-in-fact to receive payments and
enforce its rights and designates Seller it's assignee for collection. Seller
will use diligence and commercially reasonable means to collect Purchased
Receivables. Buyer may revoke these appointments if an Event of Default occurs
and continues.
b. Seller will begin legal proceedings about Purchased Receivables in
its name (as Buyer's assignee for collection or enforcement) or, with Buyer's
prior written consent, in Buyer's name. Seller will not make Buyer party to any
litigation or arbitration without Buyer's written consent.
c. Seller will hold in trust for and give Buyer: (I) all payments
made by Account Debtors, and (ii) all instruments, chattel paper and other
proceeds of the Purchased Receivables.
d. Unless an Event of Default occurs and continues Seller will remit
payments to Buyer on the last business day of each week ("Settlement Date")
starting the week after the Purchase Date. On each Settlement Date Seller will
deliver a report acceptable to Buyer of account activity (including dates and
amounts of payments) and changes for each Purchased Receivable.
3.3 COLLECTION BY BUYER. If an Event of Default occurs and continues Buyer
is appointed Sellers attorney-in-fact and Buyer may:
(a) demand, sue for and receive all payments for the Purchased
Receivables; and
(b) enforce payment of each Purchased Receivable in Sellers name; and
(c) endorse Seller's name on checks or other instruments; and
(d) notify Account Debtors of the purchase and sale and require all
payments be made directly to Buyer.
(e) compromise, prosecute or defend any action or claim involving a
Purchased Receivable including filing or voting a claim in a bankruptcy case.
(f) require Seller, at its expense, to notify the Account Debtors to
pay Buyer directly; and
(g) require Seller to assist collecting and enforcing claims and
execute any documents that Buyer reasonably requests.
3.4 NO OBLIGATION TO TAKE ACTION. Buyer has no obligation to perform
Seller's obligations or to take action on any Purchased Receivable (including on
defaulted Purchased Receivables).
4. NON-RECOURSE; REPURCHASE OBLIGATIONS.
4.1 NON-RECOURSE AND SELLER'S AGREEMENT TO REPURCHASE. Buyer acquires
Purchased Receivables without recourse, except Seller will pay Buyer on demand
any unpaid portion of any Purchased Receivable if:
(a) For which there has been any breach of warranty, representation or
covenant in this Agreement; or
(b) For which the Account Debtor asserts any discount, allowance,
return, dispute, defense, right of recoupment, right of return, warranty claim,
or short payment;
together with Buyers reasonable attorneys' and professional fees and expenses
and all court costs for collecting Purchased Receivables and/or enforcing its
rights under this Agreement.
4.2 PAYMENT TO BUYER. Seller will pay Buyer in immediately available
funds.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
<PAGE>
5.1 PURCHASED RECEIVABLES - WARRANTIES, REPRESENTATIONS AND COVENANTS.
Seller warrants and covenants for each Purchased Receivable:
(a) It is the owner with legal right to sell, transfer and assign
it;
(b) The correct amount is on the Schedule and is not disputed;
(c) No payment is contingent on any obligation or contract, and it
has fulfilled all its obligations as of the Purchase Date;
(d) It is based on actual sale and delivery of goods and/or services
rendered, due no later than its Due Date and owing to Seller, it
is not past due or in default, has not been previously sold,
assigned, transferred, or pledged, and is free of any liens,
security interests and encumbrances;
(e) There are no defenses, offsets, counterclaims or agreements in
which the Account Debtor may claim any deduction or discount.
(f) It reasonably believes no Account Debtor is insolvent as defined
in the United States Bankruptcy Code ("US Code") or the
California Uniform Commercial Code ("UCC"') and no Account Debtor
has filed or had filed against it a voluntary or involuntary
petition for relief under the US CODE.; and
(g) No Account Debtor has objected to payment for or the quality or
quantity of the subject of the Purchased Receivable,
(h) It will not assign, transfer, sell, or grant, or permit any lien
or security interest without Buyer's prior written consent.
5.2 ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. Seller
represents, warrants and covenants:
(a) Its name, form of organization, chief executive office, and the
place where the records about all Purchased Receivables are kept
is shown at the beginning of this Agreement and it will give
Buyer at least 10 days prior written notice of changes to its
name, organization, chief executive office or location of
records.
(b) It will pay all its taxes including gross payroll, withholding
and sales taxes when due and will deliver satisfactory evidence
of payment if requested.
(c) It has not filed a voluntary petition or had filed against it an
involuntary petition under the US CODE and does not anticipate
any filing;
(d) If Payment of any Purchased Receivable does not occur by its Due
Date then Seller will provide a written report, within 10 days,
of the reasons for the delay.
(e) While any Purchased Receivable is outstanding, Seller will give
Buyer copies of all Forms 1 0-K, 1 0-Q and 8-K (or equivalents)
within 5 days of its filing with the Securities and Exchange
Commission.
6. ADJUSTMENTS. If any Account Debtor asserts a discount, allowance, return,
offset, defense, warranty claim, or the like (an "Adjustment") Seller will
promptly advise Buyer and, with Buyers approval, resolve the dispute. Seller
will resell any rejected, returned, or recovered personal property for Buyer, at
Sellers expense, with the proceeds payable to Buyer. While Seller has returned
goods that are Buyers property, Seller will segregate and mark them "property of
Silicon Valley Financial Services." Buyer owns the Purchased Receivables and
until Payment has the right to take possession of any rejected. returned, or
recovered personal property.
<PAGE>
7. INDEMNIFICATION.
(a) If any Account Debtor is released from any payment obligation for
any Purchased Receivable because of: (i) Seller's act or omission: or (ii) any
of the documentation about the Purchased Receivables which results in
termination of any part of the Account Debtor's obligation for the Purchased
Receivables, then Seller will pay Buyer the lesser of the amount of the
Purchased Receivable not payable or the unpaid portion of the Purchased
Receivable.
(b) Seller indemnifies and holds Buyer harmless from any taxes from
this transaction (except Buyer's income taxes) and costs, expenses and
reasonable attorney fees if Buyer promptly notifies it of any taxes of which
Buyer has notice.
8. Additional Rights. Seller grants Buyer a continuing lien on and security
interest in all of Seller's rights existing now or later and interest in:
(a) Returned or rejected goods connected with the Purchased
Receivables
(b) Books and records about the Purchased Receivables or returned or
rejected goods;
(c) Proceeds from voluntary or involuntary dispositions, including
insurance proceeds.
(all the "'Related Property")
Seller may not sell or convey any interest in Related Property without Buyer's
prior written consent. Seller will sign UCC financing statements and any other
instruments or documents to evidence, perfect or protect Buyers interests in the
Purchased Receivables and Related Property. Seller will deliver to Buyer all
original instruments, chattel paper and documents about Purchased Receivables
and Related Property.
9. DEFAULT. Any of the following is an Event of Default:
(a) Seller fails to pay Buyer any amount when due under Section
2.2(b), 3.2(c) & (d), 4.1, 7 or 12;
(b) There is a voluntary or involuntary case against Seller under the
US CODE, or an assignment for the benefit of creditors, or
appointment of a receiver or custodian for its assets;
(c) Seller's debts are greater than the fair value of its assets or
Seller is not paying its debts as they become due or has
unreasonably small capital;
(d) An involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or
Related Property;
(e) Seller breaches a covenant, agreement, warranty, or
representation in this Agreement and the breach is not cured to
Buyer's satisfaction within 10 days after Buyer gives Seller oral
or written notice. A breach that cannot be cured is an immediate
default.
(f) Seller defaults under any debt or liability to Buyer.
10. REMEDIES ON DEFAULT. When an Event of Default occurs Buyer has all rights
and remedies under this Agreement and the law, including those of a secured
party under the UCC, and the right to collect, dispose of, sell, lease or use
all Purchased Receivables and Related Property.
11. DEFAULT RATE. Amounts not paid by Seller when due under Section 2.2(b),
3.2(c) & (d), 4.1,7 or 12; will accrue interest until paid at the Discount Rate
plus 5%.
12. FEES, COSTS AND EXPENSES. Immediately on demand Seller will pay all
reasonable fees, costs and expenses (including attorney and professional fees)
that Buyer incurs from (a) preparing,
<PAGE>
negotiating, administering and enforcing this Agreement or any other agreement,
including amendments, waivers or consents, (b) litigation or disputes relating
to the Purchased Receivables, the Related Property, this Agreement or any other
agreement, (c) enforcing rights against Seller, (d) protecting or enforcing its
title to the Purchased Receivables or its security interest in the Related
Property, (e) collecting any amounts due from Seller or for a Purchased
Receivable under a breach of Seller's representation, warranty or covenant and
(f) any bankruptcy case or insolvency proceeding involving Seller. Reimbursement
for fees, costs, and expenses through the initial Purchase Date will be limited
to $5,000.00.
13. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER. California law governs this
Agreement. Seller and Buyer each submit to the exclusive jurisdiction of the
State and Federal courts in Santa Clara County, California.
SELLER AND BUYER EACH WAIVE ITS RIGHT TO A JURY TRIAL FROM ANY CAUSE OF ACTION
RELATED TO AGREEMENT, INCLUDING CONTRACT, TORT, BREACH OF DUTY OR OTHER CLAIM.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
14. NOTICES. Notices or demands by either party about this Agreement must be in
writing and personally delivered or sent by an overnight delivery service, by
certified mail postage prepaid return receipt requested, or by FAX to the
addresses below:
Seller: MMC Networks, Inc.
1134 East Arques Avenue
Sunnyvale, CA 94086
Attn: Ray Solari
FAX: (408)731-1660
Buyer: Silicon Valley Financial Services, A Division of
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Michael Field
FAX: (408) 980-6410
A party may change notice address by written notice to the other party.
15. GENERAL PROVISIONS.
15.1 Successors and Assigns. This Agreement binds and is for the benefit
of successors and permitted assigns of each party. Seller may not assign this
Agreement or any rights under it without Buyer's prior written consent which may
be granted or withheld in Buyer's discretion. Buyer may, without the consent of
or notice to Seller, sell, transfer, or grant participation in any part of
Buyer's obligations, rights or benefits under this Agreement.
15.2 Indemnification. Seller will indemnify, defend and hold harmless
Buyer and its officers, employees, and agents against: (a) obligations, demands,
claims, and liabilities asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) losses or expenses
incurred, or paid by Borrower from or consequential to transactions between
Buyer and Seller (including reasonable attorneys fees and expenses), except for
losses caused by Buyer's gross negligence or willful misconduct.
15.3 Time of Essence. Time is of the essence for performance of all
obligations in this Agreement.
15.4 Severability of Provision. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
<PAGE>
15.5 Amendments in Writing, Integration. All amendments to this Agreement
must be in writing. This Agreement is the entire agreement about this subject
matter and supersedes prior negotiations or agreements.
15.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts and when executed
and delivered are one Agreement.
15.7 Survival. All covenants, representations and warranties made in this
Agreement continue in full force while any Purchased Receivable amount remains
outstanding. Seller's indemnification obligations survive until all statutes of
limitations for actions that may be brought against Buyer have run.
15.8 Buyer will use the same degree of care in handling Seller's
confidential information that it uses for its own proprietary information, but
may disclose information; (i) to its subsidiaries or affiliates in connection
with their business with Seller, (ii) to prospective transferees or purchasers
of any interest in the Agreement, (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with an examination or
audit and (v) as it considers appropriate exercising the remedies under this
Agreement. Confidential information does not include information that is either:
(a) in the public domain or in Buyer's possession when disclosed, or becomes
part of the public domain after disclosure to Buyer; or (b) disclosed to Buyer
by a third party, if Buyer does not know that the third party is prohibited from
disclosing the information.
SELLER: MMC NETWORKS, INC.,
A Delaware corporation
By: /s/ Uday Bellary
_____________________________
UDAY BELLARY
Title VICE PRESIDENT & CHIEF FINANCIAL OFFICER
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By: /s/ Prabhat K. Dubey
_____________________________
PRABHAT K. DUBEY
Title: PRESIDENT & CHIEF EXECUTIVE OFFICER
<PAGE>
SCHEDULE DATED ________________
TO
NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT
DATED AS OF FEBRUARY 9,1998
Seller: MMC Networks, Inc.
BUYER: Silicon Valley Financial Services, a division of Silicon Valley Bank
PURCHASE DATE: _______________________________________
DUE DATE: 30 DAYS FROM PURCHASE DATE
TOTAL PURCHASED RECEIVABLES: $___________________ (per attached List of
Receivables).
DISCOUNT RATE: 9.50%
PURCHASE PRICE: $____________ (is 99.21% of the Total Purchased Receivables
which is the Straight Discount of the Total Purchased Receivables discounted
from the Due Date to the Purchase Date at the Discount Rate).
ADMINISTRATIVE FEE: .20% of the Total Purchased Receivables amount.
Seller warrants and represents that (a) its warranties and representations in
the Agreement are true and correct as of the date of this Schedule and (b) no
Event of Default has occurred under the Agreement.
Seller: MMC NETWORKS, INC.
By: _______________________
Title: _______________________
BUYER: SILICON VALLEY FINANCIAL SERVICES,
A division of Silicon Valley Bank
By: _______________________
Title: _______________________
<PAGE>
CORPORATE RESOLUTION TO SELL
I, the Secretary or Assistant Secretary of MMC NETWORKS INC. (the "Seller"),
certify that:
The Seller is a DELAWARE corporation, and
Attachments I and 2 are copies of Seller's Articles of Incorporation and
Bylaws which are currently effective, and
At a duly held meeting of Seller's directors at which a quorum was present (or
by other authorized corporate action) the following resolutions were adopted:
"RESOLVED that any 1 of the following officers of Seller, whose signatures
are below:
Name Title Signature
Prabhat K. Dubey President and CEO /s/ Prabhat K. Dubey
_______________________
Uday Bellary Vice President, CFO /s/ Uday Bellary
And Assistant Secretary _______________________
______________________ ______________________ _______________________
______________________ ______________________ _______________________
acting for Seller are authorized to:
EXECUTE PURCHASE AGREEMENT. To enter a Purchase Agreement with Silicon
Valley Bank ("Buyer") on terms agreed by them and Buyer for the sale of
certain of Seller's accounts receivable and to execute renewals,
extensions, modifications, refinancings, consolidations or substitutions of
any accounts receivable and to do other acts and things and execute and
deliver other documents that they consider necessary to carry out the
effect of these Resolutions.
FURTHER ACTS. To designate other individuals as authorized to request that
Buyer purchase additional accounts receivable under the Purchase Agreement.
FURTHER RESOLVED THAT:
any acts authorized by these Resolutions but performed before their passage
are ratified, and
these Resolutions remain effective and Buyer may rely on them until it
receives written notice of their revocation, but that notice will not
affect any of Seller's agreements or commitments then effective."
I ALSO CERTIFY that the officers or agents above are duly elected or appointed
by Seller and hold the positions opposite their names and that the their
signatures are true and that the Resolutions are effective and have not been
modified or revoked.
/s/ Uday Bellary 2/16/98
______________________________________________ ________________________
(signature) Assistant Secretary or Secretary Date
<PAGE>
EXHIBIT A
SCHEDULE DATED ___________
TO
NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT
DATED AS OF DECEMBER 18, 1997
Seller: MMC NETWORKS, INC.
Buyer: Silicon Valley Financial Services, a division of Silicon Valley
Bank
Purchase Date: ________________________________
Due Date: 30 (days from the Purchase Date
Total Purchased Receivables Amount: $ (per attached List of Receivables)
Pricing:
Discount Rate: 9.50% 100% - 9.5% 12 mo = 99.21%
Administrative Fee: .2004 of the gross invoice amount 12 mo
Purchase Price: $__________________ (i.e., 99.21% the Total Purchased
Receivables Amount, which is the Straight
Discount of the Total Purchased
Receivables Amount discounted from the
Due Date to the Purchase Date at the
Discount Rate).
The undersigned agree that this Schedule is a "Schedule" under and as defined
in the above referenced NON- RECOURSE RECEIVABLES PURCHASE AGREEMENT and is
subject to all terms and conditions of such Agreement. Seller warrants and
represents that (a) the warranties and representations of Seller in such
Agreement are true and correct on and as of the date of this Schedule and (b)
no Event of Default has occurred under such Agreement.
SELLER: MMC NETWORKS, INC.
By: _______________________________
Title: _______________________________
BUYER: SILICON VALLEY FINANCIAL SERVICES,
A division of Silicon Valley Bank
By: _______________________________
Title: _______________________________
<PAGE>
Exhibit A attached to that certain UCC-1 Financing Statement and by this
reference made a part thereof.
EXHIBIT A
<TABLE>
<CAPTION>
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Account Open Amount Invoice Amount Invoice Invoice Customer's
Debtor Number Date P.O. No.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
.
- -------------------------------------------------------------------------------------------------------------------------
.
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.
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- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
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