<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Check the appropriate box:
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[ ] 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 240.14a-11(c) or 240.14a-12
MMC Networks, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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Payment of Filing Fee (Check the appropriate box):
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(1) Title of each class of securities to which transaction applies:
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
MMC NETWORKS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 31, 2000
------------------------
To the Stockholders of MMC Networks, Inc.:
MMC Networks, Inc., a Delaware corporation ("the Company"), will hold its
Annual Meeting of Stockholders on Wednesday, May 31, 2000 at 1:00 p.m., local
time, in our corporate offices located at 1144 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 III 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, 2000.
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 April 14,
2000, 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,
Richard C. Yonker
Vice President, Finance
and Chief Financial Officer
Sunnyvale, California
April 28, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Notice of 2000 Annual Meeting of Stockholders
Proxy Statement........................................... 1
Information concerning solicitation and voting............ 1
Stock Ownership By Principal Stockholders And
Management............................................. 2
Proposal One -- Election of Directors..................... 3
Nominees for Director and Biographies of Directors..... 3
Meetings and Committees of the Board of Directors...... 5
Directors' Compensation................................ 5
Vote Required.......................................... 6
Board of Directors Recommendation...................... 6
Proposal Two -- Ratification of Independent Accountants... 6
Vote Required.......................................... 6
Board of Directors Recommendation...................... 6
Executive Compensation.................................... 7
Summary Compensation Table............................. 7
Stock Option Grants in Fiscal 1999..................... 8
Stock Option Exercises in Fiscal 1999 and Fiscal
Year-End Option Values................................ 9
Change in Control Provisions.............................. 9
Certain Transactions...................................... 10
Loans to Officers...................................... 10
Indemnification Agreements............................. 10
Section 16(a) Beneficial Ownership Reporting Compliance... 10
Report of the Compensation Committee of the Board of
Directors on Executive Compensation.................... 11
Report of the Audit Committee of the Board of Directors... 13
Stock Price Performance Graph............................. 14
Other Matters............................................. 15
</TABLE>
<PAGE> 4
MMC NETWORKS, INC.
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION. The Board of Directors of MMC Networks, Inc. (the "Company")
is soliciting proxies for the 2000 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 April 14,
2000 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 32,536,486 shares of the Company's Common Stock outstanding.
There were approximately 119 stockholders of record on the record date.
MAILING DATE. The Company is mailing this Proxy Statement on or about April
28, 2000 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 Douglas Spreng 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 Douglas
Spreng 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.
<PAGE> 5
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.
STOCKHOLDER PROPOSALS. Proposals from stockholders of the Company must be
received no later than December 30, 2000 to be considered for possible inclusion
in the proxy materials for the Company's 2001 Annual Meeting.
If you wish to present a proposal at the Company's 2001 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 March 14, 2001. 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.
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 April 14, 2000.
<TABLE>
<CAPTION>
NUMBER OF RIGHTS TO TOTAL SHARES PERCENT OF
OUTSTANDING ACQUIRE BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES OWNED(1) STOCK(2) OWNED SHARES
------------------------ --------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Capital Research and Management(3)......... 3,635,000 -- 3,635,000 11.2%
333 South Hope Street
Los Angeles, CA 90071
Massachusetts Financial Services Co........ 2,213,280 -- 2,213,280 6.8%
500 Boylston Street
Boston, MA 02116
Alexander Joffe(4)......................... 1,068,000 453,124 1,521,124 4.6%
1144 East Arques Avenue
Sunnyvale, CA 94086
Amos Wilnai(5)............................. 1,304,876 3,333 1,308,209 4.0%
1144 East Arques Avenue
Sunnyvale, CA 94086
Douglas C. Spreng(6)....................... 937 291,666 292,603 *
Sena C. Reddy.............................. 53,118 86,249 139,367 *
Ari Birger................................. 73,257 39,270 112,527 *
John A. Teegen............................. 4,173 84,999 89,172 *
Frederick J. Berkowitz..................... 185 49,999 50,184 *
Andrew J. Gottlieb......................... 2,000 -- 2,000 *
Jeffrey L. Cashen.......................... -- -- -- *
Richard C. Yonker.......................... -- -- -- *
Geoffrey Y. Yang(7)........................ 124,488 23,333 147,821 *
Andrew S. Rappaport........................ 112,650 23,333 135,983 *
Irwin Federman............................. 74,707 23,333 98,040 *
John G. Adler.............................. -- 42,708 42,708 *
All directors and executive officers as a
group (14 persons)(8).................... 4,134,053 1,121,347 5,255,400 15.6%
</TABLE>
- ---------------
* Less than 1%.
2
<PAGE> 6
(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
June 13, 2000, which is 60 days from the record date of April 14, 2000.
(3) Capital Research and Management Company, an investment adviser, is deemed to
be the beneficial owner of 3,635,000 shares for which they have sole
dispositive power. Capital Research and Management Company disclaims
beneficial ownership of these shares. SMALLCAP World Fund, Inc., an
investment company which is advised by Capital Research and Management
Company, is the beneficial owner of 2,060,000 shares for which it has sole
voting power. SMALLCAP World Fund, Inc. is located at 333 South Hope Street,
Los Angeles, CA 90071.
(4) Includes 9,000 shares held by Mr. Joffe's minor children, as to which Mr.
Joffe disclaims beneficial ownership.
(5) 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 1,039,456
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.
(6) Does not include 300 shares held by Mr. Spreng's son, as to which Mr. Spreng
disclaims beneficial ownership.
(7) Does not include 1,261,322 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.
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
III directors. The table below shows information regarding this year's nominees
for Class III 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>
John G. Adler...................... III 62 Director 1997
Irwin Federman..................... III 64 Director 1994
REMAINING DIRECTORS
- -----------------------------------
Douglas C. Spreng.................. I 56 President and Chief Executive Officer 1999
Geoffrey Y. Yang................... I 40 Director 1994
Andrew S. Rappaport................ II 42 Director 1994
Amos Wilnai........................ II 60 Chairman of the Board 1992
</TABLE>
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 as the Chairman of
the Board of Directors of Adaptec, Inc. from May 1990 through August 1997, as
3
<PAGE> 7
the President from May 1985 to August 1992 and as 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.
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. From 1988 to 1990 he was a Managing Director of Dillon
Read & Co., an investment banking firm, and a general partner in its venture
capital affiliate, Concord Partners. Mr. Federman also serves on the boards of
directors of SanDisk Corporation, a memory systems company, Netro Corporation, a
provider of wireless networking equipment, QuickLogic, Inc., a semiconductor
manufacturer, Komag Inc., a thin film media manufacturer, Checkpoint Software
Technologies, Inc., 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.
Douglas C. Spreng has served as the Company's President and Chief Executive
Officer since April 1999. 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 has also been a managing director of Redpoint
Ventures, a venture capital firm, since August 1999. He serves on the boards of
directors of AskJeeves, Inc., an online personal service infrastructure company,
TiVo, Inc., a provider of personal television services, Turnstone Systems, Inc.,
a provider of digital subscriber line deployment and management products, 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.
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 also serves on the boards of
directors of Silicon Image, a semiconductor manufacturer and Telocity, a
provider of residential internet services. 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. 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.
4
<PAGE> 8
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held seven meetings during the last fiscal year. The Board has
two standard committees as follows:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF COMMITTEE MEETINGS IN
AND MEMBERS FUNCTIONS OF THE COMMITTEE FISCAL YEAR
----------------- -------------------------- -----------
<S> <C> <C>
AUDIT:
Irwin Federman Recommends selection of independent accountants to the 4
Board
Andrew S. Rappaport Reviews the scope of the Company's annual audit and its
costs
Reviews the Company's policies and procedures regarding
internal accounting controls
Reviews recommendations from the independent accountants
COMPENSATION:
John G. Adler Reviews performance of the CEO and other executive officers 1
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 served during 1999, except Mr. Federman who was absent
from two meetings of the Board.
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.
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
exercisable. As of December 31, 1999, 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 "Change in
Control Provisions."
5
<PAGE> 9
VOTE REQUIRED
The two nominees for Class III 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.
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, 2000. 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 2000 fiscal year.
6
<PAGE> 10
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. Our former Vice President,
Finance and Chief Financial Officer, Uday Bellary, would have been included in
the table had he still been serving as Vice President, Finance and Chief
Financial Officer at fiscal year end. We refer to the officers listed below 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>
Douglas C. Spreng(1)................ 1999 $204,488 -- 1,000,000 --
President and Chief Executive
Officer
Alexander Joffe..................... 1999 180,000 -- 50,000 --
Executive Vice President and 1998 160,000 -- 100,000 --
Chief Technology Officer 1997 140,000 -- 150,000 --
Sena C. Reddy(2).................... 1999 160,000 -- 50,000 --
Executive Vice President,
Operations 1998 140,000 -- 50,000 --
1997 134,854 -- 300,000 --
Frederick J. Berkowitz(3)........... 1999 153,231 $39,000 215,000 --
Vice President, Engineering
John A. Teegen(4)................... 1999 160,000 82,633 50,000 --
Vice President, Sales 1998 140,000 42,000 25,000 --
1997 132,553 66,237 270,000 $74,693(5)
</TABLE>
- ---------------
(1) Mr. Spreng joined the Company in April 1999. His 1999 annual salary was
$275,000.
(2) Mr. Reddy joined the Company in January 1997.
(3) Mr. Berkowitz joined the Company in January 1999
(4) Mr. Teegen joined the Company in January 1997.
(5) Relocation expenses reimbursed by the Company.
7
<PAGE> 11
STOCK OPTION GRANTS IN FISCAL 1999
The following table lists all stock option grants to the Named Officers
during fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS(5)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------------
NAME GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE(4) 5% 10%
---- ---------- -------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas C. Spreng........... 1,000,000 31.77% $16.75 4/3/09 $10,533,985 $26,695,186
Alexander Joffe............. 50,000 1.59% 27.25 12/7/09 856,869 2,171,474
Sena C. Reddy............... 50,000 1.59% 27.25 12/7/09 856,869 2,171,474
Frederick J. Berkowitz...... 150,000 4.77% 16.94 1/26/09 1,597,785 4,049,102
65,000 2.07% 27.25 12/7/09 1,113,930 2,822,916
John A. Teegen.............. 50,000 1.59% 27.25 12/7/09 856,869 2,171,474
</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 3,147,467 shares of Common Stock were granted
to employees during the fiscal year ended December 31, 1999.
(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.
8
<PAGE> 12
STOCK OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table lists information regarding stock option exercises
during fiscal 1999 and the number and value of options held at December 31, 1999
by the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas C. Spreng........ -- -- -- 1,000,000 -- $17,625,000
Alexander Joffe.......... -- -- 393,750 206,250 $12,736,713 4,682,032
Sena C. Reddy............ 100,000 $3,551,595 48,750 168,750 1,460,313 3,846,875
Frederick J. Berkowitz... -- -- -- 215,000 -- 3,078,750
John A. Teegen........... 90,000 2,491,573 63,125 141,875 1,984,688 3,153,750
</TABLE>
- ---------------
(1) Value realized upon exercise is calculated as:
(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.
(2) The value of an unexercised in-the-money option is calculated as:
(i) the closing price of the Company's stock at December 31, 1999, which
was $34.375 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.
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 and directors 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 exercisable 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.
9
<PAGE> 13
CERTAIN TRANSACTIONS
Except as described below, the Company did not enter into any transaction
or series of similar transactions during fiscal 1999 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
LOANS TO OFFICERS
LOAN TO FUND THE EXERCISE PRICE OF STOCK OPTIONS. During 1995, the Company
made a full recourse, interest-free loan to the executive officer listed below.
The loan was issued in November 1995 and is secured by some of the shares of
Common Stock purchased with the proceeds of the loan. The loan matures on the
earlier of:
(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
Information regarding the loan as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
PRINCIPAL SHARES REMAINING
SHARES AMOUNT OF IN ESCROW AT
EXECUTIVE OFFICER PURCHASED LOAN OUTSTANDING DECEMBER 31, 1999
----------------- --------- ---------------- -----------------
<S> <C> <C> <C>
Alexander Joffe..................................... 1,800,000 $47,400 85,500
</TABLE>
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 1999, except a Form 4 Filing for
Mr. Rappaport for a single transaction that occurred in January 1999 that was
reported in May 1999.
10
<PAGE> 14
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
MEMBERSHIP OF THE COMMITTEE. During fiscal 1999, 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 1999 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's 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.
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
11
<PAGE> 15
- Number of unvested options outstanding held by the executive
- Executive's prior year individual performance
In fiscal 1999, 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 1999 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 exercisable 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 and directors 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. 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 Mr. Spreng had remained
employed with the Company for two years beyond his termination date. 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 involuntarily terminated for any reason other than a change in
control, his salary and benefits will continue for a period of six months beyond
his termination date.
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
12
<PAGE> 16
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
In December 1999, the Securities and Exchange Commission, the National
Association of Securities Dealers, and the Financial Accounting Standards Board
issued new rules regarding the activities and responsibilities of corporate
audit committees. The Company's Audit Committee, together with outside counsel
and independent accountants, has reviewed the new rules and their application to
the Audit Committee. Based on this review, the Audit Committee believes that it
is already in compliance with many of the new requirements. In cases where the
Audit Committee is not in compliance, the new rules provide for transition
periods for compliance, and the Committee plans to comply with the remainder of
the rules during those periods. In this report, the Audit Committee discusses
its structure and activities and how it complies or will comply with the new
requirements.
MEMBERSHIP OF THE COMMITTEE. During fiscal 1999, the Audit Committee
members were Irwin Federman and Andrew S. Rappaport. The Audit Committee
believes that the current membership meets the requirements for independence,
financial literacy and accounting or related financial management expertise. No
cross compensation committee relationship exists between any member of the
Company's Board of Directors or the Audit Committee and any member of the board
of directors or compensation committee of any other company. No member of the
Audit Committee has ever been an employee of the company or is an immediate
family member of any current or past executive officer of the company. No
director who is a member of the Audit Committee has accepted payments from the
company during fiscal 1999, other than for board service. The new rules require
that the Audit Committee consist of three qualified members by the end of a
transition period ending in 2001. The Audit Committee intends to recruit members
as necessary to meet this requirement during the coming year.
AUDIT COMMITTEE CHARTER. The Board of Directors approved a written charter
for the Audit Committee in August 1997. In addition to membership requirements,
the charter outlines the scope of Audit Committee responsibilities and
activities. The Audit Committee intends to amend the charter during 2000 to
comply with the new rules.
REVIEW OF FINANCIAL STATEMENTS. The Audit Committee reviewed and discussed
the audited financial statements for the fiscal year ended December 31, 1999
with management. The Committee also discussed with the independent accountants
the matters requiring discussion by Statement of Auditing Standards No. 61,
"Communication with Audit Committees". The Committee discussed with the
independent accountants their independence as required by Independence Standards
Board Standard No. 1 "Independence Discussions with Audit Committees." Based on
these activities, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in the Company's Annual Report on
Form 10-K. Independence Standard No. 1 also requires that the Audit Committee
receive written disclosures and a letter from the accountants regarding their
independence. The Audit Committee received this documentation after the filing
of the Annual Report on Form 10-K, and it confirmed the verbal discussions
regarding their independence. In future years, the Audit Committee plans to
request the independent accountants to provide written documentation regarding
their independence before the filing of the Annual Report on Form 10-K.
Respectively submitted,
Irwin Federman
Andrew S. Rappaport
13
<PAGE> 17
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 Chase Hambrecht & Quist Technology Index. The Chase 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*
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET-U.S. HAMBRECHT & QUIST
MMC NETWORKS, INC. INDEX TECHNOLOGY INDEX
------------------ ------------------------ -----------------
<S> <C> <C> <C>
10/28/97 100 100 100
12/31/97 155 98 94
12/31/98 120 138 146
12/31/99 313 250 325
</TABLE>
* 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, DECEMBER 31,
1997 1997 1998 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
MMC Networks, Inc. ........................ $100 $155 $120 $313
Nasdaq Stock Market -- U.S. Index.......... 100 98 138 250
Chase Hambrecht & Quist Technology Index... 100 94 146 325
</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.
14
<PAGE> 18
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 28, 2000
15
<PAGE> 19
1679-PS-00
<PAGE> 20
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MMC NETWORKS, INC.
PROXY FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
MAY 31, 2000
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 2000 Annual Meeting of Stockholders of the Company to be held
on May 31, 2000 at 1:00 p.m., local time, at the Company's principal place of
business, 1144 East Arques Avenue, Sunnyvale, California 94086 (telephone (408)
731-1600), and hereby revokes all previous proxies and appoints Amos Wilnai and
Douglas Spreng, or either of them, with full power of 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> 21
MMC NETWORKS, INC.
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
DETACH HERE
PLEASE MARK
[X] 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: (01) John G. Adler and (02) Irwin Federman
FOR [ ] [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ]
----------------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as the independent
accountants of the Company for the fiscal year
ending December 31, 2000.
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 office held
designated. If shares are held by joint tenants
or as community property, both holders should
sign.)
Signature: Date:
------------------------------------------------ ---------------
Signature: Date:
------------------------------------------------ ---------------
