SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 4a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule l4a-11(c) or Rule 14a-12
CYLINK CORPORATION
------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions 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>
CYLINK CORPORATION
------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1999
------------
To the Shareholders of Cylink Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of Cylink
Corporation, a California corporation (the "Company"), will be held at the
Sheraton Four Points Hotel, 1100 North Mathilda Avenue, Sunnyvale, California
94089, at 2:00 p.m., local time, on May 14, 1999, for the following purposes:
1. Election Of Directors. To elect three directors of the Company to serve
until the 2002 Annual Meeting of Shareholders or until their successors
are elected and qualified.
2. Other Business. To transact such other business as may properly come
before the Annual Meeting of Shareholders and any adjournment or
postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached hereto and made a part hereof. The Board of
Directors has fixed the close of business on March 29, 1999 as the record date
for determining the shareholders entitled to notice of and to vote at the 1999
Annual Meeting of Shareholders and any adjournment or postponement thereof.
All Shareholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed Proxy as
promptly as possible in the envelope enclosed for your convenience. You may
revoke your proxy at any time prior to the Annual Meeting. If you attend the
Annual Meeting and vote by ballot, your proxy will be revoked automatically and
only your vote at the Annual Meeting will be counted.
By Order of the Board of Directors,
/s/ William P. Crowell
------------------------------------
William P. Crowell
President and Chief Executive
Officer
Sunnyvale, California
April 19, 1999
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, WE URGE YOU TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
<PAGE>
Mailed to Shareholders on or about April 19, 1999
CYLINK CORPORATION
910 HERMOSA COURT
SUNNYVALE, CALIFORNIA 94086
------------
PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
------------
PROCEDURAL MATTERS
General Information
This Proxy Statement is furnished to the shareholders of Cylink
Corporation, a California corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board" or "Board of
Directors") of proxies in the accompanying form for use in voting at the 1999
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on May 14, 1999, at the Sheraton Four Points Hotel, 1100 North Mathilda Avenue,
Sunnyvale, California 94089, at 2:00 p.m., local time, and any adjournment or
postponement thereof. The shares represented by the proxies received, properly
marked, dated, executed and not revoked will be voted at the Annual Meeting.
The Company's headquarters are located at 910 Hermosa Court, Sunnyvale,
California 94086.
Quorum And Voting Procedures
The close of business on March 29, 1999 has been fixed as the record date
(the "Record Date") for determining the holders of shares of common stock of
the Company (the "Common Stock") entitled to notice of and to vote at the
Annual Meeting. As of the close of business on the Record Date, the Company had
approximately 29,118,467 shares of Common Stock outstanding and entitled to
vote at the Annual Meeting. The presence at the Annual Meeting of a majority of
these shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting.
In the election of directors, the three candidates receiving the highest
number of affirmative votes will be elected as directors. Any other proposals
require for approval (i) the affirmative vote of a majority of the shares
"represented and voting" and (ii) the affirmative vote of a majority of the
required quorum. The required quorum for the transaction of business at the
Annual meeting is a majority of the shares of Common Stock issued and
outstanding on the Record Date (the "Quorum"). Shares that are voted "FOR",
"AGAINST" or "ABSTAIN" in a matter are treated as being present at the meeting
for purposes of establishing the Quorum, but only shares voted "FOR" or
"AGAINST" are treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter. Accordingly, abstentions and
broker non-votes, if any, will be counted for purposes of determining the
presence or absence of the Quorum for the transaction of business, but will not
be counted for purposes of determining the number of Votes Cast with respect to
a proposal.
Revocability Of Proxies
Any proxy given pursuant to the solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be
1
<PAGE>
delivered to Cylink Corporation, 910 Hermosa Court, Sunnyvale, California
94086, Attention: Secretary, or hand-delivered to the Secretary of the Company
at or before the taking of the vote at the Annual Meeting.
Solicitation Of Proxies
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, by telephone or by facsimile through its officers, directors and
regular employees, none of whom will receive additional compensation for
assisting with the solicitation.
Shareholder Proposals
To be considered for presentation to the annual meeting of shareholders to
be held in the year 2000, a shareholder proposal must be received by the
Secretary of Cylink Corporation, 910 Hermosa Court, Sunnyvale, California
94086, no later than December 21, 1999. In addition, a shareholder who intends
to present a proposal at the Company's annual meeting of shareholders in the
year 2000 without inclusion of the proposal in the Company's proxy materials
may wish to provide written notice of such proposal to the Company's Secretary
no later than March 5, 2000. If the shareholder proponent does not do so,
management may use its discretionary voting authority to vote on such proposal
for all of the shares for which executed proxies are received. Further, the
Company reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with the
foregoing requirements and other requirements of the proxy rules promulgated by
the Securities and Exchange Commission. In order to avoid any dispute as to the
date on which a proposal was received by the Company, it is suggested that
proponents submit their proposals by certified mail, return receipt requested.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
As set by the Board of Directors pursuant to the Bylaws of the Company,
the authorized number of directors is set at nine. Three directors will be
elected at the Annual Meeting to serve as Class 1 directors until the 2002
Annual Meeting of Shareholders or until their successors are elected or
appointed and qualified or until the director's earlier resignation or removal.
In the event that any nominee of the Company is unable or declines to serve as
a director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in
such a manner as will ensure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders. The Board has no reason to believe
that the persons named below will be unable or unwilling to serve as a
director, if elected. Each of the three nominees for director who receives the
greatest number of votes will be elected.
<TABLE>
Set forth below are the names and certain information relating to each of
the three Class 1 director nominees:
<CAPTION>
Director Term
Name of Nominee Class Age Position with Company Since Expires
- --------------------------- ------- ----- ----------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Elwyn Berlekamp(1) ...... 1 58 Director 1995 2002
Paul Gauvreau ............ 1 59 Director -- 2002
Regis McKenna ............ 1 59 Director 1998 2002
</TABLE>
<TABLE>
Set forth below are the names and certain information relating to each of
the six current directors whose term as a director of the Company is not
expired:
<CAPTION>
Director Term
Name of Nominee Class Age Position with Company Since Expires
- -------------------------------- ------- ----- ----------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
William P. Crowell(3) ......... 2 58 President, Chief 1999 2000
Executive Officer
and Director
William W. Harris(1)(4) ...... 2 59 Director 1995 2000
Howard L. Morgan(1)(4) ...... 2 53 Director 1995 2000
Leo A. Guthart(2)(3) ......... 3 61 Chairman of 1984 2001
the Board
William J. Perry(4) ......... 3 71 Director 1997 2001
James H. Simons(2)(3) ......... 3 60 Director 1984 2001
<FN>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
(4) Member of Nominating Committee
</FN>
</TABLE>
Dr. Berlekamp has served as a Director of the Company since October 1995.
He also co-founded the Company and served as a Director of the Company from
1984 to 1990. From 1994 until 1998, he served as the Chairman of the Board of
Trustees of the Mathematical Sciences Research Institute. From 1989 until 1990
he served as the President of Axcom. Dr. Berlekamp has been a professor of
mathematics and of electrical engineering and computer science at the
University of California since 1971. He is a member of the National Academy of
Engineering and a fellow of the American Academy of Arts and Sciences, and
holds a B.S., M.S. and Ph.D. in Electrical Engineering from the Massachusetts
Institute of Technology.
Mr. Gauvreau is currently nominated to serve as a Director of the Company.
Mr. Gauvreau served as a Director of the Company from 1985 until 1995.
Mr. Gauvreau has served as Chief Financial Officer and Financial Vice
President, Treasurer of Pittway Corporation (a principal shareholder of the
Company) since 1966. He holds a B.S.C. from Loyola University, Chicago and an
M.B.A. from the University of Chicago.
3
<PAGE>
Mr. McKenna has served as a Director of the Company since July 1998.
Mr. McKenna has served as the Chairman of The McKenna Group since 1970. Mr.
McKenna serves on the board of The Economic Strategies Institute and is a
member of the Council on Competitiveness. He serves on the advisory board to
Stanford's Graduate School of Business. He is a trustee of Santa Clara
University and is the Chairman of the Board of the Santa Clara University
Center for Science, Technology and Society. Mr. McKenna attended St. Vincent
College and holds a B.S. from Duquesne University.
Mr. Crowell became a Director of the Company in 1999. Mr. Crowell has
served as President and Chief Executive Officer of the Company since
November 1998. He joined the Company as Vice President, Product Development and
Strategy in January 1998. Prior to joining the Company, he served as the Deputy
Director at the National Security Agency from 1994 to 1997, and previously
served as Vice President of the Atlantic Aerospace Electronics Corporation. He
holds a B.A. in Political Science from Louisiana State University.
Dr. William W. Harris has served as a Director of the Company since 1995.
Dr. Harris has been a private investor and the Treasurer of KidsPac for the
last five years. He holds a B.A. in Psychology from Wesleyan University and a
Ph.D. in Urban Studies from the Massachusetts Institute of Technology. Dr.
Harris also serves as a Director of Pittway Corporation (a principal
shareholder of the Company) and Aptar Group, Inc.
Dr. Morgan has served as a Director of the Company since 1995 and also
served as a Director of the Company from 1984 to 1990. Dr. Morgan has served
since June 1989 as the President of ArcaGroup, Inc. a consulting and investment
management company. He holds a B.S. in Physics from City College of New York
and a Ph.D. in Operations Research from Cornell University. Dr. Morgan also
serves as a Director of Franklin Electronic Publishers, Inc., Infonautics,
Inc., Kentek Information Systems, Inc., MetaCreations Corporation, Neoware
Systems, Inc., Segue Software, Inc. and Unitronix Corporation.
Dr. Guthart has served as a Director of the Company since 1984. Since
1990, he has served as the Vice Chairman of Pittway Corporation and as the
Chairman of the Ademco division of Pittway Corporation (a principal shareholder
of the Company). He holds an A.B. in Physics from Harvard and an M.B.A. and a
D.B.A. in Finance from Harvard Business School. Dr. Guthart also serves as a
Director of Pittway Corporation and Aptar Group, Inc. and is a Trustee of the
Acorn Investment Trust.
Dr. William J. Perry has served as a Director of the Company since May
1997. Dr. Perry is currently the Michael and Barbara Berberian Professor at
Stanford University, with a joint appointment in the Department of
Engineering-Economic Systems/Operations Research and the Institute for
International Studies. Dr. Perry was the 19th Secretary of Defense for the
United States of America, serving from February 1994 to January 1997. He also
served as the Deputy Secretary of Defense from 1993 until 1994. He holds a B.S.
and an M.S. from Stanford University and a Ph.D. from Pennsylvania State
University, all in mathematics. He is a member of the National Academy of
Engineering and a fellow of the American Academy of Arts and Sciences. Dr.
Perry also serves as a Director of United Technologies, Hambrecht & Quist, and
the Boeing Company.
Dr. Simons has served as a Director of the Company since 1984. Dr. Simons
has served as the President and Chairman of Renaissance Technologies
Corporation since 1982. He holds a B.S. in Mathematics from the Massachusetts
Institute of Technology and a Ph.D. in Mathematics from the University of
California, Berkeley. Dr. Simons also serves as a Director of Franklin
Electronic Publishers, Inc., Numar Corp., Segue Software and Kentec Information
Systems.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. BERLEKAMP, GAUVREAU AND MCKENNA
AS DIRECTORS OF THE COMPANY
4
<PAGE>
Meetings And Committees Of The Board Of Directors
During the fiscal year ended December 31, 1998, the Board met four times
in person and held four telephonic meetings, one of which was held by video
conference. Each Director attended no fewer than 75% of all the scheduled
meetings of the Board and its committees on which he served after becoming a
member of the Board. The Board has four committees, the Audit Committee, the
Compensation Committee, the Executive Committee and the Nominating Committee.
The Audit Committee, which held two meetings in person and one meeting by
telephone during the fiscal year ended December 31, 1998, consists of Drs.
Harris, Morgan and Berlekamp. The Audit Committee reviews and supervises the
Company's financial controls, including selection of the Company's auditors,
meeting with the officers of the Company regarding the Company's financial
controls, acting upon recommendations of auditors and taking such further
action as the Audit Committee deems necessary to complete an audit of the books
and accounts of the Company, as well as other matters which may come before it
or as directed by the Board.
The Compensation Committee, which held one scheduled meeting in the fiscal
year ended December 31, 1998, consists of Drs. Simons and Guthart. The
Compensation Committee reviews and approves the compensation and benefits for
the Company's chief executive officer, supervises administration of the
Company's 1994 Stock Incentive Plan (the "1994 Plan") and performs such other
duties as may from time to time be determined by the Board.
The Nominating Committee, which held one meeting in the fiscal year ended
December 31, 1998, consists of Drs. Harris, Morgan and Perry. The Nominating
Committee is responsible for soliciting recommendations for candidates for the
Board of Directors, developing and reviewing background information for
candidates and making recommendations to the Board with respect to candidates.
Any shareholder wishing to propose a nominee should submit a recommendation in
writing to the Company's Secretary, Robert B. Fougner, Esq., indicating the
nominee's qualifications and other relevant biographical information.
Compensation Of Directors
In January 1996, each Director who was not an affiliate or an employee of
the Company ("Non-Employee Director") received a grant of options to purchase
8,000 shares, which vest monthly over a four year period. Non-Employee
Directors are eligible to receive discretionary awards under the 1994 Plan. In
April 1997, Mr. Perry received a grant of options to purchase 50,000 shares,
which vest monthly over a four year period. In July 1998, Mr. McKenna received
a grant of options to purchase 50,000 shares, which vest monthly over a four
year period.
The Company's Non-Employee Directors receive a $1,000 fee for each Board
meeting attended and $1,000 for each committee meeting attended that is not
held in conjunction with a Board meeting. All Non-Employee Directors are
reimbursed for expenses incurred in connection with attending meetings of the
Board. Employee directors of the Company do not receive compensation for their
services as directors.
Relationships Among Directors Or Executive Officers
There are no family relationships among any of the directors or executive
officers of the Company.
5
<PAGE>
MANAGEMENT
<TABLE>
The following table sets forth certain information concerning the
executive officers of the Company:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William P. Crowell ...... 58 President and Chief Executive Officer
Roger Barnes ............ 51 Vice President Finance and Chief Financial Officer
Yosef A. Cohen ......... 45 Chief Executive Officer, Algorithmic Research, Ltd.
Sarah L. Engel ......... 55 Vice President, Human Resources and Organizational
Development
Robert B. Fougner ...... 47 General Counsel and Secretary
Paul Massie ............ 44 Vice President, Information Systems
Peter J. Slocum ......... 43 Vice President, Engineering
Michael Stewart ......... 50 Vice President, Sales
</TABLE>
Mr. Crowell has served as President and Chief Executive Officer of the
Company since November 1998. He joined the Company as Vice President, Product
Development and Strategy in January 1998. Prior to joining the Company, Mr.
Crowell served as the Deputy Director at the National Security Agency, and has
also served as Vice President of the Atlantic Aerospace Electronics
Corporation.
Mr. Barnes joined the Company as Vice President of Finance and Chief
Financial Officer in November 1998. Mr. Barnes served as Senior Vice President
and Chief Financial Officer for Evolving Systems, Inc. from November 1997 to
November 1998. Mr. Barnes served as President and Chief Executive Officer of
Formida Software Corporation from February 1996 to June 1997. From February
1995 to February 1996, Mr. Barnes held the position of Director, Technology
Corporate Finance at Arthur Andersen & Co., LLP.
Mr. Cohen has served as the Chief Executive Officer of Algorithmic
Research, Ltd, a subsidiary of the Company, since November 1998. Mr. Cohen
joined Algorithmic Research as Chief Operating Officer in 1991. Prior to
joining Algorithmic Research, he served in various positions with the Isreali
Ministry of Defense, most recently as Head of the Computer Section.
Ms. Engel has served as Vice President of Professional Services since
November 1998. She joined the Company as Vice President, Human Resources and
Organizational Development in February 1997. Before joining the Company she was
an independent consultant specializing in strategic planning, human resources
and organizational development.
Mr. Fougner has been General Counsel and Secretary since joining the
Company in December 1989. Prior to joining the Company he was a partner in the
New York law firm of Hill, Betts & Nash.
Mr. Massie joined the Company as Vice President, Business Systems in June
1997. Prior to joining the Company he was with Bay Networks where he was the
director of information systems. He has also served as director of computing
for Sun Microsystems, Inc. and as director of computer systems and
telecommunications for Sterling Software.
Mr. Slocum joined the Company as Vice President, Engineering in February
1997. From July 1993 to February 1997, he served as Vice President of
Engineering for Octel Communications Corporation. Mr. Slocum served as Director
of Engineering for Silicon Graphics, Inc. from July 1992 to July 1993 and MIPS
Computer Systems, Inc. from August 1990 to July 1992.
Mr. Stewart joined the Company as Vice President of Sales in
February 1999. Prior to joining the Company, Mr. Stewart served as President
and Chief Executive Officer of Escalade Networks and as Vice President,
Worldwide Systems Sales & Marketing for A.T.M.L.
6
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 29, 1999, for
(i) each person who is known by the Company to beneficially own more than 5% of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the officers appearing in the Summary Compensation Table below and (iv) all
directors and executive officers as a group.
<CAPTION>
Shares Percentage
Directors, Nominees For Director, Beneficially Beneficially
Executive Officers and 5% Shareholders Owned(1) Owned(2)
-------------------------------------- -------- --------
<S> <C> <C>
Leo A. Guthart(3) ................................................... 8,941,729 30.7%
Paul R. Gauvreau(4) ................................................... 8,656,085 29.7%
William W. Harris(5) ................................................ 8,612,729 29.6%
Pittway Corporation(6) ................................................ 8,606,085 29.6%
Kopp Investment Advisors, Inc.(7) .................................... 2,218,970 7.6%
James H. Simons(8) ................................................... 1,755,259 6.0%
Bermuda Trust Company, as Trustee of the Lord Jim Trust(9) ............ 1,748,605 6.0%
GeoCapital LLC(10) ................................................... 1,651,500 5.7%
Elwyn Berlekamp(11) ................................................... 284,508 *
Yosef A. Cohen(12) ................................................... 265,521 *
William C. Crowell(13) ................................................ 228,125 *
Robert B. Fougner(14) ................................................ 197,290 *
William J. Perry(15) ................................................ 11,456 *
Howard L. Morgan(16) ................................................ 18,644 *
Sarah L. Engel(17) ................................................... 15,000 *
Regis McKenna(18) ................................................... 9,375 *
Peter J. Slocum ...................................................... 0 *
All executive officers and Directors as a group (16 persons)(19) ...... 11,783,551 39.7%
<FN>
- ------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of March 29, 1999
are deemed outstanding. To the Company's knowledge, except as set forth in
the footnotes to this table and subject to applicable community property
laws, each person named in the table has sole voting and investment power
with respect to the shares set forth opposite such person's name.
(2) Percentage beneficially owned is based on 29,118,467 shares outstanding as
of March 29, 1999.
(3) Includes 8,606,085 shares beneficially owned by Pittway Corporation, of
which Dr. Guthart is the Vice Chairman. Dr. Guthart disclaims beneficial
ownership of such shares. Also includes 36,644 shares subject to options
exercisable within 60 days of March 29, 1999.
(4) Includes 8,606,085 shares beneficially owned by Pittway Corporation, of
which Mr. Gauvreau is the Chief Financial Officer and the Financial Vice
President, Treasurer. Mr. Gauvreau disclaims beneficial ownership of such
shares.
(5) Includes 8,606,085 shares beneficially owned by Pittway Corporation, of
which Dr. Harris is a Director. Dr. Harris disclaims beneficial ownership
of such shares. Also includes 6,644 shares subject to options exercisable
within 60 days of March 29, 1999.
(6) The address of Pittway Corporation is 200 South Wacker Drive, Suite E,
Chicago, IL 60606-5802.
(Footnotes continued on following page)
7
<PAGE>
(Footnotes continued from previous page)
(7) Based on a Schedule 13G filed on January 7, 1999, Kopp Investment
Advisors, Inc. is the beneficial owner of 2,218,970 shares of the
Company's Common Stock. The address of Kopp Investment Advisors, Inc. is
6600 France Avenue So., Suite 672, Edina, MN 55435.
(8) Includes (a) 1,748,605 shares owned by Bermuda Trust Company, as Trustee
of the Lord Jim Trust (a trust of which Dr. Simons and the members of his
immediate family are the beneficiaries), and (b) 6,644 shares subject to
options exercisable within 60 days of March 29, 1999.
(9) Bermuda Trust Company, as Trustee of the Lord Jim Trust, holds 1,748,605
shares of the Company's Common Stock in a trust of which Dr. Simons, a
Director of the Company, and members of his immediate family are the
beneficiaries. The address of Bermuda Trust Company is Murdoch & Co., c/o
Bermuda Trust Company Limited, Attn.: Susan Gibbons, Compass Point, 9
Bermudiana Road, Hamilton, HM11, Bermuda.
(10) Based on a Schedule 13G filed on February 10, 1999, GeoCapital LLC is the
beneficial owner of 1,651,500 shares of the Company's Common Stock. The
address of GeoCapital LLC is 767 Fifth Avenue, 45th floor, New York, NY
10153-4590.
(11) Includes 6,644 shares subject to options exercisable within 60 days of
March 29, 1999.
(12) Includes 20,000 shares subject to options exercisable within 60 days of
March 29, 1999.
(13) Includes 228,125 shares subject to options exercisable within 60 days of
March 29, 1999.
(14) Includes 197,290 shares subject to options exercisable within 60 days of
March 29, 1999.
(15) Includes 11,456 shares subject to options exercisable within 60 days of
March 29, 1999.
(16) Includes 6,644 shares subject to options exercisable within 60 days of
March 29, 1999.
(17) Includes 15,000 shares subject to options exercisable within 60 days of
March 29, 1999.
(18) Includes 9,375 shares subject to options exercisable within 60 days of
March 29, 1999.
(19) Includes 544,466 shares subject to options exercisable within 60 days of
March 29, 1999.
</FN>
</TABLE>
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth certain information concerning compensation
of (i) each person that served as the Company's Chief Executive Officer during
the last fiscal year of the Company, (ii) the four other most highly
compensated executive officers of the Company, and (iii) up to two former
executive officers of the Company who would have been one of the Company's four
most highly compensated executive officers had such officer been serving as
such at the end of the Company's last fiscal year (collectively, the "Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Securities
Underlying All Other
Name And Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ---------------------------------- ------ ------------- ----------- ------------------ -----------------------
<S> <C> <C> <C> <C> <C>
William P. Crowell(1) ......... 1998 214,369 82,800 500,000 56,819 (2)
President, Chief Executive 1997 350,000
Officer and Director 1996
Peter J. Slocum(3) ............ 1998 185,000 80,000 250,000 (4)
Vice President, Engineering 1997 163,654 42,230 250,000
1996
Robert B. Fougner ............... 1998 155,000 105,000 200,000
General Counsel and Secretary 1997 161,152 (5) 44,000
1996 135,000 500
Sarah L. Engel(6) ............... 1998 154,154 50,000 200,000 (7) 80,000 (8)
Vice President Professional 1997 124,615 15,000 150,000 62,904
Services 1996
Yosef A. Cohen(9) ............... 1998 123,189 250,000 (10) 17,903 (11)
Chief Executive Officer, 1997 128,323 51,262 50,000 18,951
Algorithmic Research, Ltd. 1996
Fernand B. Sarrat(12) ......... 1998 252,329 84,110 2,049,196 (13)
Former President, Chief Executive 1997 300,000 100,000
Officer and Director 1996 32,308 500 1,000,000
Thomas L. Butler(14) ............ 1998 200,000 149,095 57,319 (15)
Former Senior Vice President, 1997 146,154 85,000 200,000 2,625
Sales and Marketing ............ 1996
John H. Daws(16) ............... 1998 155,000 30,000 21,313 (17)
Former Vice President, 1997 163,942 65,000 75,000
Chief Financial Officer 1996 143,462 500 25,000
<FN>
- ------------
(1) Mr. Crowell commenced employment with the Company in January 1998.
(2) Including a car allowance of $6,300 and, assuming an 8% interest rate,
imputed interest in the amount of $50,519 on an interest free loan from
the Company
(3) Mr. Slocum commenced employment with the Company in February 1997.
(4) Consists of an option to buy 250,000 shares of Common Stock that had been
previously granted and was repriced in December 1998.
(5) Includes $20,767 from a one-time distribution of royalties.
(6) Ms. Engel commenced employment with the Company in January 1997.
(7) Includes an option to buy 150,000 shares of Common Stock that had been
previously granted and was repriced in December 1998.
(8) Includes, assuming an 8% interest rate, imputed interest in the amount of
$80,000 in 1998 and $62,904 in 1997 on an interest free loan from the
Company.
(9) Mr. Cohen commenced employment with the Company in September 1997.
(Footnotes continued on following page)
9
<PAGE>
(Footnotes continued from previous page)
(10) Includes an option to buy 50,000 shares of Common Stock that had been
previously granted and was repriced in December 1998.
(11) Consists of a car allowance of $8,381 in 1998 and $5,961 in 1997 and funds
contributed to Mr. Cohen's retirement accounts in the amount of $9,522 in
1998 and $12,990 in 1997.
(12) Mr. Sarrat resigned from the Company in November 1998. He commenced
employment with the Company in November 1996.
(13) Consists of a car allowance of $1,525 and $2,047,671 in payments made by
the Company to Mr. Sarrat in connection with Mr. Sarrat's resignation from
the Company and pursuant to the terms of an employment termination
agreement. Of the amounts paid to Mr. Sarat, $2,000,000 was applied
against an existing loan owed to the Company.
(14) Mr. Butler resigned from the Company in October 1998. Mr. Butler commenced
employment with the Company in March, 1997.
(15) Constitutes a cash payment of $18,876 made in lieu of accrued vacation
time, a car allowance of $6,300 and, assuming an 8% interest rate, imputed
interest in the amount of $32,143 on an interest free loan from the
Company in 1998 and a car allowance of $2,625 in 1997.
(16) Mr. Daws resigned from the Company in October 1998.
(17) Constitutes a cash payment of $21,313 made in lieu of accrued vacation
time.
</FN>
</TABLE>
10
<PAGE>
Option Grants In Last Fiscal Year
The following table provides certain information with respect to stock
options granted to the Named Executive Officers during the fiscal year ended
December 31, 1998. In addition, as required by the Securities and Exchange
Commission rules, the table sets forth the potential realizable value over the
term of the option (the period from the date of grant to the expiration date)
based on assumed rates of stock appreciation of 5% and 10%, compounded
annually. These amounts are based on certain assumed rates of appreciation and
do not represent the Company's estimate of future stock value. Actual gains, if
any, on stock option exercises will be dependent on the future performance of
the Common Stock. The option grants to Messrs. Crowell and Fougner and Ms.
Engel provide for 20% vesting on the date of the grant, with the remainder
vesting monthly over the next four years. The option grants to Mr. Cohen vest
20% on the first anniversary of grant, with the remainder vesting monthly over
the next four years. The terms of these option grants are ten years, subject to
earlier termination upon the occurrence of certain events related to
termination of employment.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Potential Realizable
Value
Number Of % Of At
Assumed Annual Rate Of
Securities Total Options Stock
Underlying Granted To Exercise Price Price Appreciation For
Option Term
Options Employees In Per Share Expiration -------------------------
Name Granted (#) Fiscal Year(1) ($/Sh)(2) Date 5% ($) 10% ($)
- ---------------------- ----------------- ---------------- ---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
William P. Crowell ... 400,000 11.18% 4.25 12/08 1,069,121 2,709,362
100,000 2.79% 4.625 12/08 290,864 737,106
Peter J. Slocum ... 250,000 (3) 6.49% 4.25 12/06 507,296 1,215,063
Robert B. Fougner ... 200,000 5.59% 4.25 12/08 534,560 1,354,681
Sarah L. Engel ...... 50,000 1.40% 3.1875 12/08 100,230 254,003
50,000 (3) 1.40% 4.25 12/06 101,459 243,013
Yosef A. Cohen ...... 200,000 5.59% 3.0625 12/08 385,198 976,167
50,000 (3) 1.40% 4.25 12/06 101,459 243,013
Fernand B. Sarrat ... -- -- -- -- -- --
Thomas L. Butler ... -- -- -- -- -- --
John H. Daws ...... -- -- -- -- -- --
<FN>
- ------------
(1) Based on a total of 1,254,322 new options granted to employees of the
Company in 1998, including the Named Executive Officers and 2,324,000
options which were repriced in 1998, including those held by the Named
Executive Officers.
(2) All options were granted at an exercise price equal to the fair market
value based on the closing market value of a share of the Company's Common
Stock on the Nasdaq National Market on the date the options were granted.
(3) Consists of options to buy Common Stock which were previously granted and
subsequently were repriced in December 1998.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
Option Exercises and Holdings
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during fiscal year 1998,
including the aggregate value of gains on the date of exercise. In addition,
the table sets forth the number of shares covered by stock options as of
December 31, 1998, and the value of "in-the-money" stock options, which
represent the positive spread between the exercise price of a stock option and
the market price of the shares subject to such option on December 31, 1998.
Aggregated Option Exercises In Last Fiscal Year And Fiscal
Year-End Option Values
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Value Unexercised Options In-the-Money
at December 31, 1998 (#) at December 31, 1998
Acquired on Realized ------------------------------- -------------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- -------------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William P. Crowell ...... -- -- 170,000 680,000 0 0
Peter J. Slocum ......... -- -- -- 250,000 -- 0
Robert B. Fougner ...... 20,000 225,000 173,514 169,776 252,172 16,497
Sarah L. Engel ......... -- -- 10,833 189,177 4,739 17,136
Yosef A. Cohen ......... -- -- 3,333 246,667 1,667 98,333
Fernand B. Sarrat ...... -- -- 583,333 -- 0 --
Thomas L. Butler ......... -- -- 60,000 -- 0 --
John H. Daws ............ 3,000 27,750 74,168 24,583 47,938 13,541
<FN>
- ------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option on the date of exercise and the
exercise price of the Named Executive Officers' respective options.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1998 ($3.625 per
share) and the exercise price of the Named Executive Officers' respective
options.
</FN>
</TABLE>
Employment Agreements
The Company entered into an employment agreement with Mr. Crowell in
December 1997, which agreement was amended in November 1998 (the "Crowell
Agreement"). Under the terms of the Crowell Agreement, Mr. Crowell is to be
employed by the Company until December 31, 2004 for an annual salary of
$300,000 and is eligible for an annual performance bonus of $100,000. Pursuant
to the terms of the Crowell Agreement, the Company has made a loan to
Mr. Crowell in the amount of approximately $1,112,000 (the "Loan") to purchase
a primary residence in California commensurate with his prior residence in
Maryland. The Loan will be interest free for the period of his employment and
secured by a deed of trust on Mr. Crowell's principal residence. Under the
Crowell Agreement, Mr. Crowell received a grant of options covering 350,000
shares of the Company's Common Stock which options vest over a period of five
years from the date of his employment, a second grant of 500,000 options with
20% vesting upon the grant in December 1998, and the balance vesting ratably
over four years.
In November 1998 the Company entered into a termination and severance
agreement with Fernand B. Sarrat (the "Sarrat Termination Agreement") which
terminated his employment agreement of November 1996 (the "Sarrat Employment
Agreement"). Under the terms of the Sarrat Termination Agreement, Mr. Sarrat is
entitled to receive severance payments equal to the amount of his salary under
the Sarrat Employment Agreement until November 5, 1999. Upon completion of the
severance payments Mr. Sarrat entered into a consulting agreement with the
Company (the "Consulting Agreement") and will be entitled to payment of a
consulting fee in the amount of $2,000 per month until November 2003, when the
Consulting Agreement expires. Pursuant to the terms of the Sarrat Termination
Agreement, the Company made a payment to Mr. Sarrat in the amount of
approximately $2,000,000 which, after payment of taxes was offset against a
relocation loan owed by Mr. Sarrat to the Company in the amount of $2,400,000
(the "Loan"). The Loan will be interest free for the period of the Consulting
Agreement and
12
<PAGE>
is secured by a deed of trust on Mr. Sarrat's principal residence. Under the
Sarrat Termination Agreement, Mr. Sarrat is allowed to defer exercise on
options covering 300,000 shares of the Company's Common Stock until expiration
of the Consulting Agreement.
In November 1998, the Company's subsidiary Algorithmic Research, Ltd.
amended its employment agreement with Mr. Yosef A. Cohen (the "Cohen
Agreement") under which Mr. Cohen agreed to be employed as Algorithmic
Research's Chief Executive Officer until December 31, 1999 at a salary of
$250,000 per year and a potential performance bonus of $50,000 per year. At the
end of its term, the Cohen Agreement will be automatically renewed for an
additional three year period, unless terminated by either party on six months
notice. Under the Cohen Agreement, Mr. Cohen received a grant of options
covering 50,000 shares of the Company's Common Stock which options were
repriced in December 1998 and will continue to vest over the following three
year period beginning December 1998.
In October 1998, the Company entered into a severance agreement with
Thomas L. Butler (the "Butler Severance Agreement"). Under the terms of the
Butler Severance Agreement, Mr. Butler is entitled to receive six months of
severance payments in an amount equal to that which he would have received
under his previous salary. In addition, Mr. Butler will have one year to pay in
full the amount, including interest at a rate of 7%, owed to the Company under
a previously issued loan.
In June 1998, the Company entered into a retention agreement with Robert
B. Fougner (the "Fougner Retention Agreement"). Under the terms of the Fougner
Retention Agreement, if Mr. Fougner's employment with the Company is terminated
for any reason other than cause or if Mr. Fougner resigns under certain
conditions, then the Company will be obligated to continue to pay Mr. Fougner's
salary and bonus as well as provide certain benefits for six months following
the termination, at a rate based on Mr. Fougner's salary and bonus for the
preceding twelve months. In addition, the time period for the exercise of
outstanding options previously issued to Mr. Fougner will be extended for a
certain amount of time. In the case of a change in corporate control of the
Company, the options previously issued to Mr. Fougner will immediately become
fully vested.
In February 1997, the Company entered an employment agreement with
Ms. Engel (the "Engel Agreement"). Under the terms of the Engel Agreement,
Ms. Engel is to be employed until February 2002 for an annual salary initially
set at $150,000 and is eligible for an annual performance bonus of $30,000.
Pursuant to the terms of the Engel Agreement, the Company has made a loan to
Ms. Engel in the amount of approximately $1,000,000 (the "Loan") to purchase a
primary residence in California commensurate with her prior residence in
Virginia. The Loan will be interest free for the period of her employment and
secured by a deed of trust on Ms. Engel's principal residence. Under the Engel
Agreement, Ms. Engel received a grant of options covering 150,000 shares of the
Company's Common Stock which options now vest over a period of three years from
December, 1999.
Certain Transactions
In 1998, the Company issued a $1,112,000 interest free loan to Mr.
Crowell, the Company's Chief Executive Officer. The loan will remain interest
free during the period of Mr. Crowell's employment with the Company, and is due
in December 2004. The loan is secured by a deed of trust on Mr. Crowell's
principal residence. As of December 31, 1998, the total amount outstanding was
approximately $1,112,000.
In 1997, the Company issued a $1,000,000 interest free loan to Ms. Engel,
the Company's Vice President of Professional Services. The loan will remain
interest free during the period of Ms. Engel's employment with the Company, and
is due in March 2002. The loan is secured by a deed of trust on Ms. Engel's
principal residence. As of December 31, 1998, the total amount outstanding was
approximately $1,000,000.
In 1997, the Company issued a $2,400,000 interest free loan to Mr. Sarrat,
the Company's former Chief Executive Officer. Pursuant to a severance
agreement, the loan will remain interest free until payment is due in full on
November 3, 2003. The loan is secured by a deed of trust on Mr. Sarrat's
principal residence. As of December 31, 1998, the total amount outstanding was
$1,369,471.
13
<PAGE>
In 1998, the Company issued a $1,047,533.12 interest free loan to Mr.
Butler, the Company's former Senior Vice President, Sales and Marketing.
Pursuant to a severance agreement, Mr. Butler will repay the full principal
amount due under the loan, plus interest at 7%, in monthly installments by
October 30, 1999. The loan is secured by a deed of trust on Mr. Butler's
principal residence. As of December 31, 1998, the total amount outstanding was
approximately $900,000.
<TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS ON THE REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors resolved on December
11, 1998 to reprice certain stock option grants which were made to all
employees, including Messrs. Cohen, Massie and Slocum and Ms. Engel, executive
officers of the Company. At the time of repricing, the exercise prices of stock
options held by these executive officers were significantly higher than the
closing trading price for the Company's Common Stock. The Company granted an
option to purchase the same number of shares granted under previous grants, at
an exercise price equal to the closing sales price per share on the date of the
grant (December 14, 1999), in cancellation of all of their existing rights to
purchase shares of Common Stock under the previously held options. The
repricing of the options was an acknowledgment of the importance to the Company
of having equity incentives in the hands of key employees. Stock options which
are "out of the money" provide no particular compensatory incentive if an
employee is considering alternative opportunities. The Committee decided to
include certain executive officers in the repricing because of the importance
of their administrative and technical leadership to the success of the
Company's business.
Ten-Year Option Repricings
<CAPTION>
Market Length of
Number of Price of Exercise Original
Securities Stock at Price at Option Term
Underlying Time of Time of New Remaining at
Options Repricing Repricing Exercise Date of
Name Date Repriced (#) ($) ($) Price ($) Repricing
- ---------------------------- ---------- -------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Yosef A. Cohen ............ 12/11/98 50,000 4.25 9.875 4.25 8 years
Chief Executive Officer,
Algorithmic Research, Ltd.
Sarah L. Engel ............ 12/11/98 150,000 4.25 11.00 4.25 8 years
Vice President,
Professional Services
Paul Massie ............... 12/11/98 85,106 4.25 11.75 4.25 8 years
Vice President,
Information Systems
Peter J. Slocum ......... 12/11/98 250,000 4.25 11.875 4.25 8 years
Vice President, Engineering
</TABLE>
The Compensation Committee
Leo A. Guthart
James H. Simons
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
This section is not "soliciting material," is not deemed "filed" with the
Commission and is not incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date hereof and irrespective
of any general language to the contrary.
The Compensation Committee of the Board was formed in December 1995 and
consists of Drs. Simons and Guthart. Decisions concerning the compensation of
the Company's executive officers are made by the Compensation Committee and
reviewed periodically by the full Board (excluding any interested director).
Decisions concerning the compensation of the Company's executive officers are
made by the Chief Executive Officer in consultation with members of the
Compensation Committee. Policies concerning the terms of the 1994 Plan are
determined by the Compensation Committee and administered by certain of the
Company's executive officers.
Executive Officer Compensation Programs
The objectives of the executive officer compensation programs are to
attract, retain, motivate and reward key personnel who possess the necessary
leadership and management skills, through competitive base salary, annual cash
bonus incentives, long-term incentive compensation in the form of stock
options, and various benefits, including medical and life insurance plans.
The executive compensation policies of the Compensation Committee are
intended to combine competitive levels of compensation and rewards for above
average performance and to align relative compensation with the achievements of
key business objectives, optimal satisfaction of customers, and maximization of
shareholder value. The Compensation Committee believes that stock ownership by
management is beneficial in aligning management and shareholder interests,
thereby enhancing shareholder value.
Base Salaries. Salaries for the Company's executive officers are
determined primarily on the basis of the executive officer's responsibility,
general salary practices of peer companies and the officer's individual
qualifications and experience. Among other sources of information, the
Compensation Committee and the Chief Executive Officer rely on reports from
Radford Associates concerning competitive compensation practices in the
Company's geographical region. The base salaries are reviewed annually and may
be adjusted in accordance with certain criteria which include individual
performance, the functions performed by the executive officer, the scope of the
executive officer's on-going duties, general changes in the compensation peer
group in which the Company competes for executive talent, and the Company's
financial performance generally. The weight given each such factor may vary
from individual to individual. Based on prior surveys, the base salaries for
the Company's executive officers were at the approximate median of the base
salary range for other executive officers in comparable positions at comparable
companies in the Company's industry and geographical region.
Incentive Bonuses. The Compensation Committee and the Chief Executive
Officer believe that a cash incentive bonus plan can serve to motivate the
Company's executive officers and management to address annual performance
goals, using more immediate measures for performance than those reflected in
the appreciation in value of stock options. The bonus amounts are based upon a
subjective consideration of factors including such officer's level of
responsibility, individual performance, contributions to the Company's success
and the Company's financial performance generally.
Stock Option Grants. Stock options are granted to executive officers and
other employees under the 1994 Plan. Because of the direct relationship between
the value of an option and the stock price, the Compensation Committee believes
that options motivate executive officers to manage the Company in a manner that
is consistent with shareholder interests. Stock option grants are intended to
focus the attention of the recipient on the Company's long-term performance,
which the Company believes results in improved shareholder value, and to retain
the services of the executive officers in a competitive job market by providing
significant long-term earning potential. To this end, stock options generally
vest over a four-year period. However, the Compensation Committee continues to
evaluate and consider revisions
15
<PAGE>
to the various terms and conditions of the Company's option agreements,
specifically with respect to the duration of the option agreements, and the
basis for issuing and vesting of awards. The principal factors considered in
granting stock options to executive officers of the Company are prior
performance, level of responsibility, other compensation and the executive
officer's ability to influence the Company's long-term growth and
profitability. However, the 1994 Plan does not provide any quantitative method
for weighting these factors, and a decision to grant an award is primarily
based upon a subjective evaluation of the past as well as future anticipated
performance.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code
(the "IRC") disallows a deduction by the Company for certain compensation
exceeding $1 million paid to any named executive officer, excluding, among
other things, certain performance based compensation. Because the compensation
figures for the Named Executive Officers have not approached the limitation,
the Compensation Committee has not had to use any of the available exemptions
from the deduction limit. However, the 1994 Plan is designed to qualify any
compensation realized by Named Executive Officers from the exercise of an
option as performance based compensation. The Compensation Committee remains
aware of the existence of the IRC Section 162(m) limitations, and the available
exemptions, and will address the issue of deductibility when and if
circumstances warrant the use of such exemptions in addition to the exemption
contemplated under the 1994 Plan.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is reviewed annually on
the same basis as discussed above for all executive officers. Mr. Crowell's
base salary for the fiscal year ended December 31, 1998 was $300,000. In
addition, Mr. Crowell is eligible for an annual minimum bonus of $100,000. Mr.
Crowell's base salary was established in part by comparing the base salaries of
chief executive officers at other companies of similar size, the compensation
for the Company's previous Chief Executive, and past proposals by competing
candidates for the position of Chief Executive Officer. Based on prior surveys,
the base salary offered to Mr. Crowell was at the approximate median of the
base salary range for other Chief Executive Officers of comparable companies in
the Company's industry and geographical region.
The Compensation Committee
Leo A. Guthart
James H. Simons
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Messrs. Guthart
and Simons. Mr. King W.W. Harris, a former director of the Company, served on
the Compensation Committee until his resignation from the Board in July 1998.
No interlocking relationship exists between any member of the Company's Board
of Directors or Compensation Committee and any member of the board of directors
or compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of the Compensation Committee is or
was formerly an officer or an employee of the Company or its subsidiaries.
16
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock from February 15, 1996, the
date of the Company's initial public offering, through the end of the Company's
fiscal year ended December 31, 1998, with the percentage change in the
cumulative total return for the Nasdaq Composite Index and the Hambrecht &
Quist Technology Index. The comparison assumes an investment of $100 on
February 15, 1996 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends. The stock performance shown on
the graph below is not necessarily indicative of future price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
COMPARISON OF 34 MONTH CUMULATIVE TOTAL RETURN
AMONG CYLINK CORPORATION,
THE NASDAQ STOCK MARKET (U.S. & FOREIGN) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
Cumulative Total Return
----------------------------------
2/15/96 12/96 12/97 12/98
CYLINK CORPORATION 100 87 65 24
NASDAQ STOCK MARKET (U.S. & FOREIGN) 100 118 144 199
HAMBRECHT & QUIST TECHNOLOGY 100 118 138 215
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP has served as the Company's independent
accountants since 1994. The Board has selected PricewaterhouseCoopers LLP to
serve as the Company's independent accountants for the fiscal year ending
December 31, 1999. A representative of PricewaterhouseCoopers LLP is expected
to be present at the Annual Meeting and the representative will have an
opportunity to make a statement and to respond to appropriate questions.
17
<PAGE>
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock. Reporting Persons are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based solely on its
review of the copies of such reports received or written representations from
certain Reporting Persons, the Company believes that during the fiscal year
ended December 31, 1998, all Reporting Persons complied with all applicable
filing requirements, except that Mr. Cohen filed a late Form 3 in connection
with his appointment as an executive officer in 1998.
Other Matters
The Board of Directors knows of no other business that will be presented
at the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Shareholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ William P. Crowell
------------------------------------
William P. Crowell
President and Chief Executive
Officer
April 19, 1999
Sunnyvale, California
18
<PAGE>
APPENDIX A
PROXY
CYLINK CORPORATION
910 Hermosa Court
Sunnyvale, California 94086, USA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 14, 1999
The undersigned shareholder of Cylink Corporation hereby acknowledges
receipt of the 1998 Annual Report to Shareholders and the Notice of Annual
Meeting of Shareholders and the Proxy Statement, each dated April 16, 1999, for
the Annual Meeting of Shareholders of Cylink Corporation to be held on Friday,
May 14, 1999 at 2:00 p.m., local time at the Sheraton Four Points Hotel, 1100
North Mathilda Avenue, Sunnyvale, California 94089, and revoking all prior
proxies, hereby appoints Roger Barnes and Robert Fougner, and each of them, as
proxies and attorneys-in-fact, each with full power of substitution, and to
represent and to vote, as designated on the reverse side, all shares of Common
Stock of Cylink Corporation held on record by the undersigned on March 29, 1999
at the Annual Meeting to be held on May 14, 1999, or any postponement or
adjournment thereof.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
<PAGE>
Please mark your votes as this example. [X]
Shares represented by this proxy, when properly executed, will be voted in the
manner directed by the undersigned shareholder(s). If no direction is given,
this proxy will be voted for the election of all directors.
1. Election of all nominees listed below to the Board of Directors as
Class 1 directors to serve until the Year 2002 Annual Meeting and
until their successors have been duly elected and qualified, except
as noted (write the names, if any, of nominees for whom you withhold
authority to vote).
NOMINEES: Elwyn Berlekamp, Paul Gauvreau and Regis McKenna
[ ] FOR ALL NOMINEES
[ ] WITHHOLD FROM ALL NOMINEES
[ ] __________________________
For All Nominees except as noted above
2. In their discretion, the proxies and attorneys-in-fact are
authorized to vote upon such other business as may properly come
before the Annual Meeting or any adjournment(s) thereof.
[ ] Mark here for address change and note below
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE.
Please sign exactly as your name appears hereon. Joint owners sould each sign.
When signing as attornery, executor, administrator, trustee or guardian, please
give full title as such.
Signature:_____________________________ Date:______________________
Signature:_____________________________ Date:______________________
