<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MMC NETWORKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MMC NETWORKS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1999
To the Stockholders of MMC Networks, Inc.:
MMC Networks, Inc., a Delaware corporation ("the Company"), will hold its
Annual Meeting of Stockholders on Tuesday, May 18, 1999 at 4:30 p.m., local
time, in our corporate offices located at 1134 East Arques Avenue, Sunnyvale, CA
94086. Our main phone number is 408-731-1600.
At the meeting stockholders will vote on the:
1. Election of two Class II directors to serve three-year terms or until
their successors are duly elected and qualified.
2. Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year ending
December 31, 1999.
3. Transaction of any other business that may properly come before the
meeting.
If you are a stockholder of record at the close of business on March 22,
1999, you are entitled to attend and vote at the Annual Meeting (the "meeting").
Your stockholder vote is very important to us. TO ENSURE YOUR REPRESENTATION AT
THE MEETING, PLEASE FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE PREPAID ENVELOPE AS SOON AS POSSIBLE. Your cooperation is
greatly appreciated.
The attached Proxy Statement describes in detail each of the proposals
listed above, as well as the procedures for voting by proxy card.
On behalf of the MMC Networks, Inc. Board of Directors and management team,
I look forward to greeting you and our other valued stockholders at the meeting.
Sincerely,
Uday Bellary
Vice President, Finance,
Chief Financial Officer and
Assistant Secretary
Sunnyvale, California
April 14, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Notice of 1999 Annual Meeting of Stockholders
Proxy Statement............................................. 1
Information Concerning Solicitation and Voting............ 1
Stock Ownership By Principal Stockholders And
Management............................................. 3
Proposal One -- Election of Directors..................... 5
Nominees for Director and Biographies of Directors..... 5
Meetings and Committees of the Board of Directors...... 6
Directors' Compensation................................ 6
Vote Required.......................................... 7
Board of Directors Recommendation...................... 7
Proposal Two -- Ratification of Auditors.................. 8
Vote Required.......................................... 8
Board of Directors Recommendation...................... 8
Executive Compensation.................................... 9
Summary Compensation Table............................. 9
Stock Option Grants in Fiscal 1998..................... 10
Stock Option Exercises in Fiscal 1998 and Fiscal
Year-End Option Values................................ 11
Change in Control Provisions.............................. 12
Certain Transactions...................................... 12
Chief Executive Officer Settlement Agreement........... 12
Loans to Officers...................................... 13
Indemnification Agreements............................. 13
Section 16(a) Beneficial Ownership Reporting Compliance... 13
Report of the Compensation Committee of the Board of
Directors on
Executive Compensation................................. 14
Stock Price Performance Graph............................. 17
Other Matters............................................. 17
</TABLE>
<PAGE> 4
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION. The Board of Directors of MMC Networks, Inc. (the "Company")
is soliciting proxies for the 1999 Annual Meeting of Stockholders. This Proxy
Statement contains important information for you to consider when deciding how
to vote on matters brought before the meeting. Please read it carefully.
RECORD DATE AND OUTSTANDING SHARES. The Board of Directors set March 22,
1999 as the record date for the meeting. Stockholders who owned the Company's
Common Stock at the close of business on that date are entitled to vote and
attend the meeting. Each share you own is entitled to one vote. On the record
date, there were 30,402,252 shares of the Company's Common Stock outstanding.
There were approximately 174 stockholders of record on the record date.
MAILING DATE. The Company is mailing this Proxy Statement on or about April
14, 1999 to stockholders entitled to vote at the meeting.
HOW TO VOTE IF YOU DO NOT ATTEND THE MEETING (PROXY VOTE). If you do not
plan to attend the meeting, you may vote by proxy. Each share you own is
entitled to one vote. To vote by proxy, read the proxy card and this Proxy
Statement carefully, mark your votes and sign, date and return the enclosed
proxy card in the postage prepaid envelope provided. Even if you plan to attend
the meeting, the Company requests that you complete, sign and return your proxy
card in advance of the meeting in case you are unable to attend. You can always
change your vote by voting in person at the meeting, even if you have already
returned your proxy card.
When you sign the proxy card, you appoint Amos Wilnai and Andrew Rappaport
to be your representatives at the meeting. At the meeting they will vote your
shares as you have instructed them on your proxy card. In this way, your shares
will be voted whether or not you attend the Annual Meeting. If an issue comes up
for vote at the meeting that is not on the proxy card, Amos Wilnai and Andrew
Rappaport will vote your shares, under your proxy, in accordance with their best
judgment.
HOW TO REVOKE YOUR PROXY VOTE. You may cancel your proxy vote at any time
before its use if you deliver a written notice of revocation to the Company,
present another signed proxy with a later date or attend the meeting and vote in
person.
A QUORUM. A quorum is the number of shares that must be present, in person
or by proxy, in order for business to be transacted at the meeting. The required
quorum for the Annual Meeting is the majority of the shares issued and
outstanding on the record date. There must be a quorum for the meeting to be
held. All completed and signed proxy cards, whether representing a vote for,
against, withheld, abstained or a broker non-vote, will be counted toward the
quorum.
ABSTENTIONS. Abstentions are counted for determining the presence or
absence of a quorum but will not be included in the total number of votes cast
with respect to a particular matter. Therefore abstentions will not affect the
outcome of voting on any proposal.
BROKER NON-VOTES. Brokers have discretion to vote shares that they hold in
"street name" for their clients who are beneficial owners of the shares. Holding
shares in "street name" means that your Company shares are held in an account at
a brokerage firm and the stock certificates and record of ownership are not in
your name. A vote is considered a broker non-vote when the broker has expressly
not voted. Broker non-votes are counted for determining the presence or absence
of a quorum, but they are not counted for determining the number of votes cast
with respect to a particular proposal. As such, broker non-votes do not affect
the outcome on any proposal in this Proxy Statement.
REQUIREMENTS FOR A PROPOSAL TO PASS. In order for a proposal (other than
the election of directors) to pass, the proposal must obtain a majority of the
votes cast. The votes cast on a particular proposal include votes for and
against a proposal.
1
<PAGE> 5
STOCKHOLDER PROPOSALS. Proposals from stockholders of the Company must be
received no later than December 15, 1999 to be considered for possible inclusion
in the proxy materials for the Company's 2000 Annual Meeting.
If you wish to present a proposal at the Company's 2000 Annual Meeting and
do not wish to include that proposal in our proxy statement relating to that
meeting, you must give advance notice to us prior to February 28, 2000. If you
give notice of such a proposal to us after that deadline, the Company's proxy
holders will be allowed to use their discretionary voting authority to vote
against the proposal when and if the proposal is raised at the annual meeting.
We have not been notified by any stockholder of his or her intent to
present a stockholder proposal from the floor at this year's Annual Meeting. The
enclosed proxy card grants the proxy holders discretionary authority to vote on
any matter properly brought before the Annual Meeting.
2
<PAGE> 6
STOCK OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
This table shows how much Company Common Stock is beneficially owned by
owners of more than 5% of the outstanding shares, directors and certain
executive officers, as of March 22, 1999.
<TABLE>
<CAPTION>
NUMBER OF RIGHTS TO
OUTSTANDING ACQUIRE TOTAL SHARES PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED(1) STOCK(2) BENEFICIALLY OWNED OUTSTANDING SHARES
------------------------ --------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Institutional Venture
Partners(3).................... 3,315,662 -- 3,315,662 10.9%
3000 Sand Hill
Bldg. 2, Suite 290
Menlo Park, CA 94025
Alexander Joffe(4)............... 1,568,000 299,999 1,867,999 6.1%
1134 East Arques Avenue
Sunnyvale, CA 94086
Prabhat K. Dubey(5).............. 1,722,000 84,375 1,806,375 5.9%
835 Mesa Court
Palo Alto, CA 94036
Amos Wilnai(6)................... 1,633,926 -- 1,633,926 5.4%
1134 East Arques Avenue
Sunnyvale, CA 94086
Brent R. Bilger.................. 1,533 210,936 212,469 *
Sena C. Reddy.................... 51,533 92,499 144,032 *
John A. Teegen................... 2,103 97,499 99,602 *
Uday Bellary..................... 3,248 59,374 62,622 *
Andrew S. Rappaport.............. 199,650 12,500 212,150 *
Irwin Federman................... 130,650 12,500 143,150 *
Geoffrey Y. Yang(7).............. 81,444 12,500 93,944 *
John G. Adler.................... -- 57,500 57,500 *
All directors and executive
officers as a group (11
persons)(8).................... 8,628,305 939,682 9,567,987 30.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares for which the named person (i) has sole voting and investing
power or (ii) has shared voting and investment power with his or her spouse.
(2) Includes shares that can be acquired through stock options exercises through
May 21, 1999, which is 60 days from the record date of March 22, 1999.
(3) Includes 3,261,322 shares held by Institutional Venture Partners VI, L.P.,
18,114 shares held by Institutional Venture Management VI, L.P. and 36,226
shares held by IVP Founders Fund I, L.P. Also includes 81,444 shares held by
Mr. Geoffrey Y. Yang. Mr. Yang, a director of the Company, is a General
Partner of Institutional Venture Management VI, L.P., which is the General
Partner of each of these limited partnerships.
(4) Includes 9,000 shares held by Mr. Joffe's minor children, as to which Mr.
Joffe disclaims beneficial ownership.
(5) Includes 508,952 shares held by Dr. Ranjana Sharma, as custodian for Mr.
Dubey's minor children. Mr. Dubey disclaims beneficial ownership of all
these shares. Mr. Dubey resigned from his position as Chief Executive
Officer in November 1998. See "Certain Transactions -- Chief Executive
Officer Settlement Agreement."
(6) Represents shares held by Amos Wilnai and Ruth Wilnai, Trustees of the
Wilnai Family Trust U/D/T dated June 10, 1997. Does not include 1,214,456
shares held by each of Nitzan Wilnai, Sigal Wilnai and Yael Wilnai, Mr.
Wilnai's adult children. Also does not include 113,205 shares held by Miriam
Wilnai, Mr. Wilnai's mother. Mr. Wilnai disclaims beneficial ownership of
all these shares.
3
<PAGE> 7
(7) Does not include 3,261,322 shares beneficially owned by Institutional
Venture Partners VI, L.P., 18,114 shares held by Institutional Venture
Management VI, L.P., and 36,226 shares held by IVP Founders Fund I, L.P. As
a General Partner of Institutional Venture Management VI, L.P., which is the
General Partner of each of such limited partnerships, Mr. Yang may be deemed
to share voting and investment power with respect to these shares. However,
Mr. Yang disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest in these partnerships.
(8) Includes shares held by Institutional Venture Partners VI, L.P.,
Institutional Venture Management VI, L.P., IVP Founders Fund I, L.P.
4
<PAGE> 8
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR AND BIOGRAPHIES OF DIRECTORS
The Company's Board of Directors (the "Board") consists of six persons,
divided into three Classes as shown in the table below. Each Class serves a
three-year term. Each year at the Annual Meeting the stockholders elect
directors in one of the Classes. This year the stockholders will elect two Class
II directors. The table below shows information regarding this year's nominees
for Class II directors as well as for the remaining directors of the Company as
of the record date.
<TABLE>
<CAPTION>
NOMINEES CLASS AGE POSITIONS DIRECTOR SINCE
-------- ----- --- --------- --------------
<S> <C> <C> <C> <C>
Andrew S.
Rappaport.......... II 41 Director 1994
Amos Wilnai.......... II 59 Chairman of the Board 1992
REMAINING DIRECTORS
Douglas C. Spreng.... I 55 President and Chief Executive Officer 1999
Geoffrey Y. Yang..... I 40 Director 1994
John G. Adler........ III 61 Director 1997
Irwin Federman....... III 63 Director 1994
</TABLE>
Andrew S. Rappaport has served as a director of the Company since July
1994. Mr. Rappaport has been a partner of August Capital, LLC, a venture capital
firm, since July 1996. Prior to that time, Mr. Rappaport was the President of
The Technology Research Group, Inc., a Boston-based strategic management
consulting firm which he founded in August 1984. He is also the director of
numerous private companies. Mr. Rappaport attended Princeton University.
Amos Wilnai has served as the Chairman of the Board of Directors since he
founded the Company in September 1992 and was appointed Interim Chief Executive
Officer in November 1998. From September 1994 to June 1998, Mr. Wilnai served as
the Company's Executive Vice President of Business Development and from
September 1992 to October 1994, he was the President of the Company. Mr. Wilnai
has a B.S.E.E. degree from the Technion Institute of Technology in Israel and an
M.S.E.E. degree from the Polytechnic Institute in Brooklyn.
Douglas C. Spreng was appointed director of the Company in April 1999 and
serves as the Company's President and Chief Executive Officer. Mr. Spreng was
most recently the Executive Vice President of the Client Access Business Unit of
3Com Corporation, a networking company, from 1992 to 1999. Mr. Spreng holds a
B.S.E.E. from the Massachusetts Institute of Technology and an M.B.A. from
Harvard Business School.
Geoffrey Y. Yang has served as a director of the Company since July 1994.
Mr. Yang has been a general partner of Institutional Venture Partners, a venture
capital firm, since June 1989. He also serves on the Board of Directors of
Excite, Inc., an Internet navigation service, and numerous private companies.
Mr. Yang holds a B.A. in Economics from Princeton University, a B.S.E. in
Engineering and Management Systems from Princeton University, as well as an
M.B.A. from Stanford University.
John G. Adler has served as a director of the Company since March 1997. Mr.
Adler has served as a director of Adaptec, Inc., an electronic equipment
manufacturing company, since June 1998. Mr. Adler also served for Adaptec, Inc.
as the Chairman of the Board of Directors from May 1990 through August 1997, as
the President from May 1985 to August 1992 and as the Chief Executive Officer
from December 1986 to July 1995. Mr. Adler holds a B.S.E.E. degree from the
University of Mississippi and was a Sloan Executive Fellow at Stanford
University in 1971.
5
<PAGE> 9
Irwin Federman has served as a director of the Company since July 1994. Mr.
Federman has been a general partner of U.S. Venture Partners, a venture capital
firm, since April 1990. Mr. Federman also serves on the boards of directors of
SanDisk Corporation, a memory systems company, Western Digital Corporation, a
disk drive manufacturer, Komag Incorporated, a thin film media manufacturer,
NeoMagic Corporation, a developer of multimedia accelerators, Checkpoint
Software Technology, Ltd., a network security software company and several
privately-held companies. Mr. Federman received a B.S. degree in Economics from
Brooklyn College and was awarded an honorary Doctorate of Engineering Science
from Santa Clara University.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held nine meetings during the last fiscal year. The Board has two
standard committees as follows:
<TABLE>
<CAPTION>
NAME OF
COMMITTEE NUMBER OF
AND MEETINGS IN
MEMBERS FUNCTIONS OF THE COMMITTEE FISCAL YEAR
--------- -------------------------- -----------
<S> <C> <C>
Audit: Recommends selection of independent accountants to the
Board 4
Irwin Federman Reviews the scope of the Company's annual audit and its
costs
Andrew S. Rappaport Reviews the Company's policies and procedures regarding
internal accounting controls
Reviews recommendations from the independent accountants
Compensation: Reviews performance of the CEO and other executive
officers 2
John G. Adler Determines total compensation arrangements for the CEO
and other executive officers
Geoffrey Y. Yang Reviews management's policies and practices regarding
bonus and stock compensation arrangements for other
employees of the Company
Administers the Company's employee stock plans
</TABLE>
No director attended less than 75% of the meetings of the Board or any
committee on which he serves during 1998.
DIRECTORS' COMPENSATION
The Company does not pay cash compensation to its directors for their
services. The Company's 1997 Director Option Plan (the "Plan") automatically
grants to each non-employee director (who was not a member of the Board in 1997
when the Plan was adopted) an option to purchase 40,000 shares when he or she
first becomes a non-employee director. The option vests as to 25% of the
underlying shares one year after the date of grant, then as to 1/48 of those
shares ratably over the next 36 months. Each year the Plan also automatically
grants an option to each non-employee director to purchase 10,000 shares two
days after the announcement of the Company's earnings for the preceding fiscal
year, if the director has served on the Board for the preceding six months.
These options vest as to 1/12 of the underlying shares each month for one year.
All options are non-statutory options, have an exercise price equal to the fair
market value on the date of grant and have a term of ten years.
6
<PAGE> 10
In light of the prior and continuing contributions of directors to the
Company, options issued under the Plan contain a change in control provision. A
change in control is a merger of the Company or a sale of substantially all of
the assets of the Company. If there is a change in control of the Company and:
- the successor corporation does not assume or substitute each option held
or
- the successor does assume or substitute each option held but the director
is later terminated other than by voluntary resignation
all options held by the director under the Plan will become fully vested and
exerciseable. As of December 31, 1998, all director options outstanding had been
issued under the 1997 Director Option Plan, except one option issued to John
Adler for 90,000 shares. This option was issued from the Company's 1993 Stock
Option Plan and was amended, along with other options issued from the 1993 Stock
Option Plan to certain executive officers, to contain a change in control
provision. See a discussion of this amendment in the section entitled "Executive
Compensation -- Change in Control Provisions."
VOTE REQUIRED
The two nominees for Class II director receiving the highest number of
affirmative votes will be elected. Votes withheld from any nominee are counted
for purposes of determining the presence or absence of a quorum, but have no
other legal effect under Delaware law.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR the Company's
nominees for director.
7
<PAGE> 11
PROPOSAL TWO
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors selected PricewaterhouseCoopers LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1999. If the stockholders do not ratify the
appointment, the Board will reconsider the selection of the independent
accountants. PricewaterhouseCoopers LLP have advised the Company that they will
have a representative at the Annual Meeting available to respond to appropriate
questions. The representative will also have the opportunity to make a statement
if he or she desires to do so.
VOTE REQUIRED
The affirmative vote of the majority of the votes cast is required for
ratification.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR the
ratification of PricewaterhouseCoopers LLP as the Company's independent
accountants for the 1999 fiscal year.
8
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table lists, for the last three years, compensation paid to
the Company's Chief Executive Officer and the four most highly compensated
executive officers serving at fiscal year end. The table also lists information
for our former Chief Executive Officer who would have been included in the table
had he still been serving as Chief Executive Officer at fiscal year end. We
refer to all of these officers and the former officer as the "Named Officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION($) ---------------------
------------------------- SECURITIES UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS(#) COMPENSATION($)
---------------------------- ---- -------- ------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Amos Wilnai......................... 1998 $131,667 -- -- --
Chairman of the Board of Directors 1997 160,000 -- -- --
and Interim Chief Executive
Officer 1996 150,000 -- -- --
Sena C. Reddy(1).................... 1998 140,000 -- 50,000 --
Executive Vice President,
Operations 1997 134,854 -- 300,000 --
Uday Bellary(2)..................... 1998 140,000 -- 50,000 --
Vice President, Finance, 1997 35,897 -- 150,000 --
Chief Financial Officer and
Assistant Secretary
Brent R. Bilger(3).................. 1998 140,000 -- 25,000 --
Vice President, Marketing 1997 105,000 -- 405,000 --
Alexander Joffe(4).................. 1998 160,000 -- 100,000 --
Vice President, Engineering 1997 140,000 -- 150,000 --
1996 140,000 $50,000 300,000 --
John A. Teegen(5)................... 1998 140,000 42,000 25,000 --
Vice President, Sales 1997 132,553 66,237 270,000 $74,693(7)
Prabhat K. Dubey(6)................. 1998 215,000 -- -- --
Former Chief Executive Officer 1997 180,000 -- 225,000 33,729(7)
1996 165,000 -- -- --
</TABLE>
- ---------------
(1) Mr. Reddy joined the Company in January 1997.
(2) Mr. Bellary joined the Company in September 1997.
(3) Mr. Bilger joined the Company in March 1997.
(4) Mr. Joffe was promoted to Executive Vice President and Chief Technology
Officer in January 1999.
(5) Mr. Teegen joined the Company in January 1997.
(6) Mr. Dubey resigned as President and Chief Executive Officer in November
1998. See "Certain Transactions -- Chief Executive Officer Settlement."
(7) Relocation expenses reimbursed by the Company.
9
<PAGE> 13
STOCK OPTION GRANTS IN FISCAL 1998
The following table lists all stock option grants to the Named Officers
during fiscal 1998. No options were granted to Messrs. Wilnai or Dubey during
fiscal 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL EXERCISE OF STOCK APPRECIATION FOR
UNDERLYING OPTIONS GRANTED PRICE OPTION TERMS(5)
OPTIONS TO EMPLOYEES IN PER EXPIRATION --------------------------
NAME GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE(4) 5% 10%
---- ----------- --------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sena C. Reddy............. 50,000 3.05% $11.44 12/10/08 $359,649 $ 911,421
Uday Bellary.............. 50,000 3.05 11.44 12/10/08 359,649 911,421
Brent R. Bilger........... 25,000 1.53 11.44 12/10/08 179,825 455,711
Alexander Joffe........... 100,000 6.11 11.44 12/10/08 719,298 1,822,843
John A. Teegen............ 25,000 1.53 11.44 12/10/08 179,825 455,711
</TABLE>
- ---------------
(1) All Options were granted under the 1997 Stock Plan, have a 10 year term and
vest as to 25% of the underlying shares one year after the date of grant,
then as to 1/48 of those shares ratably over the next 36 months.
(2) Options to purchase a total of 1,638,000 shares of Common Stock were granted
to employees during the fiscal year ended December 31, 1998.
(3) All options have an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee is terminated, upon the optionee's death or disability or
upon a change in control of the Company.
(5) Potential realizable value assumes that the stock price will appreciate at
the annual rates shown. These rates are compounded annually from the date of
grant until the end of the 10-year term of the option. The potential
realizable value is calculated as:
(i) the potential stock price at the end of the term based on the 5 and 10
percent assumed appreciation rates
(ii) less the exercise price
(iii) times the number of shares subject to the option
The assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices.
10
<PAGE> 14
STOCK OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
The following table lists information regarding stock option exercises
during fiscal 1998 and the number and value of options held at December 31, 1998
by the Named Officers. Mr. Wilnai does not hold any options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sena C. Reddy........ 82,500 $1,089,999 61,250 206,250 $ 689,063 $1,848,438
Uday Bellary......... -- -- 46,875 153,125 292,969 735,156
Brent R. Bilger...... -- -- 177,187 252,813 1,963,817 2,570,232
Alexander Joffe...... -- -- 256,250 293,750 3,057,808 2,385,937
John A. Teegen....... 50,000 1,059,125 79,375 165,625 892,969 1,627,344
Prabhat K. Dubey..... -- -- 65,625 159,375 650,783 1,580,474
</TABLE>
- ---------------
(1) Value realized upon exercise is calculated as:
<TABLE>
<S> <C>
(i) the price at which the stock was sold if the stock was sold
on the same day as the exercise, or the closing price of the
Company's stock on the date of exercise if the stock was not
sold on the same day as the exercise
(ii) less the option exercise price per share
(iii) times the number of shares purchased on exercise of the
option.
</TABLE>
(2) The value of an unexercised in-the-money option is calculated as:
<TABLE>
<S> <C>
(i) the closing price of the Company's stock at December 31,
1998, which was $13.25 per share,
(ii) less the option exercise price per share of the in-the-money
option
(iii) times the number of shares subject to the option.
</TABLE>
11
<PAGE> 15
CHANGE IN CONTROL PROVISIONS
In fiscal 1997, the Board of Directors approved the amendment of all
outstanding director and executive officer options to contain a change in
control provision. The provision provides for partial acceleration of vesting
if, following a change in control of the Company, the executive officer or
director is terminated for any reason. Except for the President and Chief
Executive Officer, the same terms apply to all new options granted to executive
officers since that date. See "Report of the Compensation Committee of the Board
of Directors on Executive Compensation -- Chief Executive Officer Compensation".
The acceleration of vesting will occur even if the successor entity in the
change of control transaction assumes the options. If obtaining "pooling of
interest" accounting treatment is a condition to the change in control
transaction, the Company must obtain concurrence from its independent
accountants with management's opinion that the acceleration will not jeopardize
the likelihood of receiving such accounting treatment in order to accelerate any
of the options.
The number of options accelerated is calculated as the number of options
which would have vested if the individual had remained an employee or director
of the Company for 1 year beyond his or her termination date. The total number
of shares exerciseable after a change in control which meets the circumstances
described above is equal to (i) all options vested as of the termination date
plus (ii) the number of options accelerated.
CERTAIN TRANSACTIONS
Except as described below, the Company did not enter into any transaction
or series of similar transactions during fiscal 1998 with any individual
qualifying under the bullets listed below who had or will have a direct or
indirect material interest in the Company and for which the individual or
cumulative amount of the transaction exceeded $60,000.
- director or executive officer
- holder of more than 5% of the Company's voting securities
- immediate family members of individuals qualifying under either of the
bullets listed above
CHIEF EXECUTIVE OFFICER SETTLEMENT AGREEMENT
In November 1998, Prabhat K. Dubey resigned from his position as the
Company's Chief Executive Officer and from his position as a member of the Board
of Directors. Mr. Dubey entered into a Settlement Agreement and Mutual Release
with the Company in December 1998. The agreement provides that for a period of
six months from November 1998 to May 1999, Mr. Dubey will continue his
employment with the Company by making himself available to the Company at
mutually agreed upon times. In exchange for Mr. Dubey's continuing employment
with the Company, the Company agreed to take the following actions during the
six month period:
- pay Mr. Dubey a salary of $17,917.67 per month
- pay Mr. Dubey's health insurance coverage expense
- continue regular monthly vesting of Mr. Dubey's stock option.
12
<PAGE> 16
LOANS TO OFFICERS
LOANS TO FUND THE EXERCISE PRICE OF STOCK OPTIONS. At times in prior fiscal
years, the Company made full recourse, interest-free loans to the executive
officers listed below. The loans are secured by some of the shares of Common
Stock purchased with the proceeds of the loans. As of December 31, 1998, the
following loans were outstanding:
<TABLE>
<CAPTION>
PRINCIPAL SHARES REMAINING
SHARES AMOUNT OF IN ESCROW AT
EXECUTIVE OFFICER PURCHASED LOAN OUTSTANDING DECEMBER 31, 1998
----------------- --------- ---------------- -----------------
<S> <C> <C> <C>
Prabhat K. Dubey(1)......................... 1,800,000 $60,000 500,590
Alexander Joffe(1).......................... 1,800,000 $47,400 85,500
</TABLE>
- ---------------
(1) Mr. Dubey's loan was issued in October 1995 and Mr. Joffe's loan was issued
in November 1995. Each loan matures on the earlier of:
<TABLE>
<S> <C>
(i) five years from the date of issue
(ii) 30 days after the termination of employment for any reason
other than death or disability
(iii) one year after termination of employment due to death or
disability
</TABLE>
OTHER LOANS. In March 1997, the Company made a loan to Prabhat K. Dubey for
$100,000 with an interest rate of 6.07% per year. The loan matures on the
earlier of October 1999 or six months after Mr. Dubey's termination of
employment with the Company. The loan is secured by 500,590 shares of the
Company's Common Stock which are held in escrow. The principal amount and
accrued interest on the loan was outstanding as of December 31, 1998.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that its directors, officers and greater than 10%
stockholders complied with all reporting requirements under Section 16(a) of the
Securities Exchange Act on time during fiscal 1998.
13
<PAGE> 17
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
MEMBERSHIP OF THE COMMITTEE. During fiscal 1998, the Compensation Committee
consisted of John G. Adler and Geoffrey Y. Yang. No interlocking relationship
exists between any member of the Company's Board of Directors or the
Compensation Committee and any member of the board of directors or compensation
committee of any other company. In addition, no such interlocking relationship
existed in the past.
COMPENSATION PRINCIPLES. The Compensation Committee believes that the
compensation of the Company's employees, including executive officers, should be
designed to:
- Attract, retain and motivate well-qualified employees who contribute to
the long-term success of the Company.
- Strongly encourage the development and achievement of strategic
objectives that enhance long-term stockholder value.
- Relate compensation levels to the overall success of the Company
including (i) sound financial results for its stockholders (ii) quality
products and services for its customers and (iii) favorable environment
at the workplace for its employees.
EXECUTIVE COMPENSATION PRACTICES. The Company's executive compensation
program consists primarily of cash and equity-based components. Cash components
consist of salary and bonus. Equity-based components consist of option grants
under the Company's stock option plan and participation in the Company's
employee stock purchase plan. The Company also provides health and welfare
benefits to the Named Officers through programs that are available to all
employees in general.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the deductibility by corporations of certain executive
compensation in excess of $1 million for any covered individual. The
Compensation Committee believes that compensation under the Company's 1997 Stock
Plan is fully deductible because the Plan qualifies as "performance based"
within the meaning of Section 162(a). The non-equity-based compensation paid to
the Named Officers in fiscal 1998 did not exceed $1 million. The Compensation
Committee will continue to consider the effects of Section 162(m) but does not
currently intend to take any action to preserve the deductibility of cash
compensation.
CASH COMPONENTS. The Compensation Committee reviews salary levels for
executive officers periodically in conjunction with compensation surveys for
other data networking and semiconductor companies. The Company intends to
maintain a total compensation program that attracts, motivates and retains high-
performance executives who are critical to the long-term success of the Company.
The Company has established an incentive compensation plan that pays bonuses to
officers and employees based on achievement of pre-defined goals and financial
targets. The Company does not currently intend to pay any amount into the 401(k)
Plan to match employee contributions.
EQUITY-BASED COMPONENTS. Equity-based components of compensation for
employees, including the Named Officers, consist of stock options and discount
stock purchases under the Employee Stock Purchase Plan. Options and the stock
purchase plan provide a close tie between management and employees and the
stockholders. Since the value of such equity-based compensation has a direct
relationship to the Company' stock price performance, equity-based compensation
focuses management and employees on creating and enhancing long-term stockholder
value. The Company grants stock options to employees as an essential element of
their compensation package.
14
<PAGE> 18
The Compensation Committee evaluates the following information when
determining the number of options to grant to executive officers:
- Survey data on options granted to executives with comparable positions at
other companies
- Number of options previously granted to the executive
- Number of unvested options outstanding held by the executive
- Executive's prior year individual performance
In fiscal 1998, the Compensation Committee continued to focus on retention
and individual performance as the critical factors in determining the number of
options to grant to executives.
Options granted in fiscal 1998 have exercise prices equal to the fair
market value of the Common Stock on the date of grant and have a term of 10
years. The options vest as to 25% of the underlying shares one year after the
date of grant, then as to 1/48 of those shares ratably over the next 36 months.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL PROVISIONS. The Company
currently does not have Employment Agreements with any of its officers,
directors or employees. In light of the continuing contribution of employees,
executive officers and directors of the Company, the 1997 Stock Plan and 1997
Director Option Plan have change in control provisions. If there is a change in
control of the Company, all options under the 1997 Stock Plan and the 1997
Director Option Plan shall be fully vested and exerciseable unless the successor
corporation (i) assumes each option or (ii) substitutes each option with an
equivalent option. See additional change in control provisions of the 1997
Director Option Plan discussed in "Proposal One -- Election of
Directors -- Directors Compensation" and the discussion on additional change in
control provisions in options granted to executive officers in the "Change in
Control Provisions" section.
CHIEF EXECUTIVE OFFICER COMPENSATION. In April 1999, Douglas C. Spreng
joined the Company as its President and Chief Executive Officer. Mr. Spreng
participates in the same compensation programs as the other Named Officers. The
Compensation Committee determined his annual salary of $275,000 and stock option
grant to purchase 1,000,000 shares based on a number of factors including his
extensive background in the networking industry. The Compensation Committee
believes his compensation package to be commensurate with those provided by
other networking and semiconductor companies with similar opportunities and
potential for growth.
The stock option granted to Mr. Spreng provides for partial acceleration of
vesting if, following a change in control of the Company, Mr. Spreng is
terminated for any reason. The acceleration of vesting will occur even if the
successor entity in the change of control transaction assumes the options. The
option vesting will not accelerate if such acceleration would affect "pooling of
interest" accounting treatment for the change in control transaction. The
portion of Mr. Spreng's option which will become exerciseable is equal to the
portion of the option which would have vested over the subsequent 24 month
period if Mr. Spreng had continued to be employed by the Company. In addition,
if Mr. Spreng is terminated due to a change in control, his salary and benefits
will continue for a period of 12 months beyond his termination date. If Mr.
Spreng is terminated for any reason other than a change in control or for cause,
his salary and benefits will continue for a period of six months beyond his
termination date.
While employed as the Company's Chief Executive Officer, Mr. Dubey
participated in the same compensation programs as the other Named Officers. The
Compensation Committee targeted Mr. Dubey's total compensation, including
compensation from the stock option plan, at a level it believes is competitive
with the average amount paid by other data networking and semiconductor
companies with similar revenues and growth rates.
15
<PAGE> 19
The Company increased Mr. Dubey's annual base salary from $180,000 in
fiscal 1997 to $215,000 in fiscal 1998. The Company based this increase on
personal accomplishments and Company performance in 1997 and 1998. In
particular, the Compensation Committee based its decision on the Company's
revenue growth, timely introduction of new products and continued increase in
design wins. The Company also provided health and welfare benefits to Mr. Dubey
which were generally available to all employees. Mr. Dubey resigned from his
position as Chief Executive Officer in November 1998. See "Certain
Transactions -- Chief Executive Officer Settlement Agreement".
The report of the Compensation Committee is not incorporated by reference
by any general statement incorporating by reference this proxy statement or any
portion of this proxy statement into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this report.
Respectfully submitted,
John G. Adler
Geoffrey Y. Yang
16
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
returns for the Company's Common Stock, the Nasdaq Stock Market -- U.S. Index,
and the Hambrecht & Quist Technology Index. The Hambrecht & Quist Technology
Index is comprised of the publicly traded stocks of approximately 275 companies
in the computer hardware, computer software, communications, semiconductor and
information services industries. Both indices weight returns based on market
capitalization of the companies in the indices. Historic stock price performance
is not necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN*
LOGO
* Assumes $100 invested on October 28, 1997, the effective date of the Company's
initial public offering. Total return assumes reinvestment of dividends.
<TABLE>
<CAPTION>
OCTOBER 28, DECEMBER 31, DECEMBER 31,
1997 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
MMC Networks, Inc...................................... $100 $155 $120
Nasdaq Stock Market -- U.S. Index...................... 100 98 138
Hambrecht & Quist Technology Index..................... 100 94 146
</TABLE>
The Stock Price Performance Graph is not incorporated by reference by any
general statement incorporating by reference this proxy statement or any portion
of this proxy statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent specifically stated in any
such filing.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 14, 1999
17
<PAGE> 21
SKU# 1679-PS-99
<PAGE> 22
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MMC NETWORKS, INC.
Proxy for 1999 Annual Meeting of Stockholders
May 18, 1999
The undersigned stockholder of MMC Networks, Inc. (the "Company") hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement for the 1999 Annual Meeting of Stockholders of the Company to be held
on May 18, 1999 at 4:30 p.m., local time, at the Company's principal place of
business, 1134 East Arques Avenue, Sunnyvale, California 94086 (telephone (408)
731-1600), and hereby revokes all previous proxies and appoints Andrew S.
Rappaport and Amos Wilnai, or either of them, with full power and substitution,
Proxies and Attorneys-in-Fact, on behalf and in the name of the undersigned, to
vote and otherwise represent all of the shares registered in the name of the
undersigned at said Annual Meeting, or any adjournment thereof, with the same
effect as if the undersigned were present and voting such shares, on the matters
specified on the reverse side:
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE> 23
MMC17A
DETACH HERE
/X/ Please mark
votes as in
this example.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE FOLLOWING PERSONS AND PROPOSALS, AND
FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE
PROXYHOLDERS DEEM ADVISABLE.
1. Election of Directors
Nominees: Andrew S. Rappaport and Amos Wilnai
FOR WITHHELD
ALL FROM ALL
NOMINEES / / / / NOMINEES
/ /
-------------------------------------
For all nominees except as note above
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the
independent accountants of the Company for the fiscal year ending December
31, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion, the Proxies are entitled to vote upon such other matters as
may properly come before the meeting or any adjournment thereof.
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
(This proxy should be marked, dated and signed by each stockholder exactly as
such stockholder's name appear hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the officer held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
Signature: Date:
--------------------------------------- ----------------
Signature: Date:
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