CYLINK CORPORATION
------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2000
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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
Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA 95054, at 2:00 p.m.,
local time, on May 17, 2000, for the following purposes:
1. Election of Directors. To elect three directors of the Company to serve
until the 2003 Annual Meeting of Shareholders or until their successors
are elected and qualified.
2. 2000 Employee Stock Purchase Plan. To approve the adoption of the
Company's 2000 Employee Stock Purchase Plan.
3. Amendment to Articles of Incorporation. To approve the amendment of the
Company's Articles of Incorporation to increase the authorized number of
shares of Common Stock the Company may issue.
4. Appointment of Auditors. To ratify the appointment of Deloitte & Touche
LLP as the Company's independent auditor for the fiscal year ending
December 31, 2000.
5. 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 31, 2000 as the record date
for determining the shareholders entitled to notice of and to vote at the 2000
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,
[GRAPHIC OMITTED]
William P. Crowell
President and Chief Executive Officer
Sunnyvale, California
April 14, 2000
================================================================================
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 14, 2000
CYLINK CORPORATION
3131 JAY STREET
SANTA CLARA, CALIFORNIA 95056
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PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
------------
PROCEDURAL MATTERS
General Information
This Proxy Statement is furnished to the shareholders of Cylink
Corporation, a California corporation ("us", "we" or 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 2000 Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held on May 17, 2000, at the Biltmore Hotel, 2151 Laurelwood
Road, Santa Clara, CA 95054, 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 3131 Jay Street, Santa Clara,
California 95056-0952.
Quorum and Voting Procedures
The close of business on March 31, 2000 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 30,440,642 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
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delivered to Cylink Corporation, P.O. Box 54952, 3131 Jay Street, Santa Clara,
California 95056-0952, 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, P.O. Box 54952, 3131 Jay Street, Santa Clara,
California 95056-0952, no later than December 16, 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.
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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 2 directors until the 2003
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 2 director nominees:
<CAPTION>
Director Term
Name of Nominee Class Age Position with Company Since Expires
- -------------------------------- ------- ----- --------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Howard L. Morgan(1)(4) ...... 2 54 Director 1995 2003
William W. Harris(1)(4) ...... 2 60 Director 1995 2003
William P. Crowell(3) ......... 2 59 President, Chief Executive
Officer and Director 1999 2003
</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>
Elwyn Berlekamp(1) ......... 1 59 Director 1995 2002
Paul Gauvreau(1) ............ 1 60 Director 1999 2002
Regis McKenna ............... 1 60 Director 1998 2002
Leo Guthart(2)(3) ......... 3 62 Chairman of the Board 1984 2001
William J. Perry(4) ......... 3 72 Director 1997 2001
James H. Simons(2)(3) ...... 3 61 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 has served as a Director of the Company since 1999. Mr.
Gauvreau previously served as a Director of the Company from 1985 until 1995.
Mr. Gauvreau has served as Chief Financial Officer
3
<PAGE>
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.
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. McKenna also serves as director for Caliper
Technologies and Cybergold Incentive.
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. Mr. Crowell
also serves as the Chairman of the President's Export Council Subcommittee on
Encryption. 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 is a private investor and is the founder and Treasurer of KidsPac.
He holds a B.A. in Psychology from Wesleyan University and a Ph.D. in Urban
Studies from the Massachusetts Institute of Technology.
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., IdeaLab!, Inc.,
Infonautics, Inc., MyPoints.com, Segue Software, Inc., Tickets.com 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 Aptar Group, Inc. and Symbol Technologies, Inc., and he 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 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.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1999 the Board met 4 times in
person. 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, with the exception of Dr. Perry, who attended 50% of the Board's
scheduled meetings. The Board has four committees, the Audit Committee, the
Compensation Committee, the Executive Committee and the Nominating Committee.
4
<PAGE>
The Audit Committee, which held 2 meetings in person and 3 meetings by
telephone during the fiscal year ended December 31, 2000, consists of Dr.
Howard L. Morgan, Dr. William W. Harris, Dr. Elwyn Berlekamp and Mr. Paul
Gauvreau. 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 3 meetings in the fiscal year ended
December 31, 1999, consists of Mr. Leo Guthart and Mr. James H. Simons. 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 consists of Dr. Howard L. Morgan, Mr. William J.
Perry and Dr. William W. Harris. 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
July 1997, Mr. Perry received a grant of options to purchase 50,000 shares,
which vest monthly over a four year period. In July 1997, Dr. Guthart received
a grant of options to purchase 30,000 shares, which vested immediately. In July
1998, Mr. McKenna received a grant of options to purchase 50,000 shares, which
vest monthly over a four year period. In May 1999, the Directors received the
following option grants:
Dr. William Perry ......... 25,000
Mr. Regis McKenna ......... 25,000
Dr. Elwyn Berlekamp ...... 10,500
Mr. Paul Gauvreau ......... 12,500
Dr. Leo Guthart ......... 10,500
Dr. William Harris ...... 10,500
Dr. Howard Morgan ......... 10,500
Dr. Jim Simons ............ 10,500
Dr. Perry's options were vested immediately. Mr. McKenna's options vest
over three years. All other Directors grants vest over two years such that they
will be fully vested by May 1, 2001.
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.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. MORGAN, HARRIS AND CROWELL
AS DIRECTORS OF THE COMPANY
5
<PAGE>
PROPOSAL 2
APPROVAL OF ADOPTION OF 2000 EMPLOYMENT STOCK PURCHASE PLAN
The Board of Directors determined that it is in the best interests of the
Company and its stockholders to adopt the 2000 Employee Stock Purchase Plan
("Purchase Plan") (described below). On October 29, 1999, the Board of
Directors adopted the Purchase Plan and reserved 200,000 shares of Common Stock
for issuance thereunder subject to stockholder approval. As of the date of
stockholder approval of the Purchase Plan, no shares have been purchased
pursuant to the Purchase Plan.
At the annual meeting, the stockholders are being asked to approve the
Purchase Plan and the reservation of shares thereunder. The affirmative vote of
the holders of a majority of the shares present in person or represented by
Proxy is required for approval of the Purchase Plan.
Summary of the Purchase Plan
General. The purpose of the Purchase Plan is to provide employees with an
opportunity to purchase Common Stock of the Company through payroll deductions.
Administration. The Purchase Plan may be administered by the Board of
Directors (the "Board"), a committee appointed by the Board or officers of the
Company acting under their supervision. All questions of interpretation or
application of the Purchase Plan are determined by the Board or its appointed
committee, or officers of the Company acting under the supervision of the Board
or committee and the decisions of the Board, committee and officers, as the
case may be, are final, conclusive and binding upon all participants.
Eligibility. Each employee of the Company (including officers), whose
customary employment with the Company is at least twenty (20) hours per week
and more than five (5) months in any calendar year, is eligible to participate
in the Purchase Plan; provided, however, that no employee shall be granted an
option under the Purchase Plan (i) to the extent that, immediately after the
grant, such employee would own 5% of either the voting power or value of the
stock of the Company, or (ii) to the extent that his or her rights to purchase
stock under all employee stock purchase plans of the Company accrues at a rate
which exceeds $25,000 worth of stock (determined at the fair market value of
the shares at the time such option is granted) for each calendar year. The
Board or it designees may impose additional restrictions on eligibility.
Offering Period. The Purchase Plan is implemented by offering periods
lasting approximately six months in duration with the first offering period
commencing on February 1, 2000 and a new offering period commencing on July 1
and January 1 of each year. To participate in the Purchase Plan, each eligible
employee must authorize payroll deductions pursuant to the Purchase Plan. Such
payroll deductions may not exceed 10% of a participant's compensation.
Compensation is defined as base straight time gross earnings, overtime and
shift premium, but exclusive of payments for sales commissions, incentive
compensation, bonuses and other compensation. Once an employee becomes a
participant in the Purchase Plan, Common Stock will automatically be purchased
under the Purchase Plan at the end of each offering period, unless the
participant withdraws or terminates employment earlier, and the employee will
automatically participate in each successive offering period until such time as
the employee withdraws from the Purchase Plan or the employee's employment with
the Company terminates.
Purchase Price. The purchase price per share at which shares will be sold
in an offering under the Purchase Plan is the lower of (i) 85% of the fair
market value of a share of Common Stock on the first day of an offering period
or (ii) 85% of the fair market value of a share of Common Stock on the last day
of each offering period. The fair market value of the Common Stock on a given
date is generally the closing sale price of the Common Stock as reported on the
Nasdaq National Market for such date.
Payment of Purchase Price; Payroll Deductions. The purchase price of the
shares is accumulated by payroll deductions throughout the offering period. The
number of shares of Common Stock a participant may purchase in each offering
period is determined by dividing the total amount of payroll deductions
withheld from the participant's compensation during that offering period by the
purchase price; provided, however, that a participant may not purchase more
than 2000 shares for each offering period. During the
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<PAGE>
offering period, a participant may discontinue his or her participation in the
Purchase Plan, and may decrease or increase the rate of payroll deductions in
an offering period within limits set by the Administrator.
All payroll deductions made for a participant are credited to the
participant's account under the Purchase Plan, are withheld in whole
percentages only and are included with the general funds of the Company. Funds
received by the Company pursuant to exercises under the Purchase Plan are also
used for general corporate purposes. A participant may not make any additional
payments into his or her account.
Withdrawal. A participant may terminate his or her participation in the
Purchase Plan at any time by giving the Company a written notice of withdrawal.
In such event, the payroll deductions credited to the participant's account
will be returned, without interest, to such participant. Payroll deductions
will not resume unless a new subscription agreement is delivered in connection
with a subsequent offering period.
Termination of Employment. Termination of a participant's employment for
any reason, including death, cancels his or her participation in the Purchase
Plan immediately. In such event the payroll deductions credited to the
participant's account will be returned without interest to such participant,
his or her designated beneficiaries or the executors or administrators of his
or her estate.
Stock. The Purchase Plan shall initially be authorized to issue up to
200,000 shares of the Company's Common Stock. Thereafter, on the first day of
each fiscal year beginning with January 1, 2001, the Purchase Plan shall be
increased by an amount of shares equal to 1% of the outstanding shares on such
date, or such lesser amount determined by the Compensation Committee.
Adjustments Upon Changes in Capitalization. In the event of any changes in
the capitalization of the Company effected without receipt of consideration by
the Company, such as a stock split, stock dividend, combination or
reclassification of the Common Stock, resulting in an increase or decrease in
the number of shares of Common Stock, proportionate adjustments will be made by
the Board in the shares subject to purchase and in the price per share under
the Purchase Plan. In the event of liquidation or dissolution of the Company,
the offering periods then in progress will terminate immediately prior to the
consummation of such event unless otherwise provided by the Board. In the event
of a sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Purchase Plan shall be assumed or an equivalent option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set.
Amendment and Termination. The Board may at any time and for any reason
amend or terminate the Purchase Plan, except that no such termination shall
affect shares previously purchased and no amendment shall make any change in
shares purchased prior thereto which adversely affects the rights of any
participant. Stockholder approval for amendments to the Purchase Plan shall be
obtained in such a manner and to such a degree as required to comply with all
applicable laws or regulations. The Purchase Plan will terminate in October
2009, unless terminated earlier by the Board in accordance with the Purchase
Plan.
Certain Federal Income Tax Information. The following brief summary of the
effect of federal income taxation upon the participant and the Company with
respect to the shares purchased under the Purchase Plan does not purport to be
complete, and does not discuss the tax consequences of a participant's death or
the income tax laws of any state or foreign country in which the participant
may reside.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax in an amount that depends upon the holding period.
If the shares are sold or otherwise disposed of more than two years from the
first day of the applicable offering period and one year from the applicable
date of purchase, the participant will recognize ordinary income measured as
the lesser of (a) the excess of the
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<PAGE>
fair market value of the shares at the time of such sale or disposition over
the purchase price, or (b) an amount equal to 15% of the fair market value of
the shares as of the first day of the applicable offering period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of these holding periods,
the participant will recognize ordinary income generally measured as the excess
of the fair market value of the shares on the date the shares are purchased
over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. The Company generally is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding periods described above.
PROPOSAL 3
AMENDMENT TO ARTICLES OF INCORPORATION
Our Amended and Restated Articles of Incorporation, as currently in effect
(the "Articles"), provide that we are authorized to issue 45,000,000 shares of
our capital stock comprising 40,000,000 shares of Common Stock, $0.0001 par
value and 5,000,000 shares of Preferred Stock, $0.001 par value.
On January 28, 2000, the Board of Directors unanimously authorized an
amendment to the Articles (the "Proposed Amendment") to (i) increase the total
number of shares the Board is authorized to issue from 45,000,000 shares to
60,000,000 shares; and (ii) to increase the authorized number of shares of
Common Stock from 40,000,000 shares to 55,000,000 shares.
The principal purpose and effect of the Proposed Amendment will be to
authorize additional shares of Common Stock. Such shares will be available in
the event the Board of Directors determines that it is necessary and
appropriate to acquire another company, business or assets or to raise
additional capital through the sale of securities in the public market or for
such other uses as may be authorized by the Board of Directors in accordance
with the Company's Articles and Bylaws. The affirmative vote of the holders of
a majority of the shares present in person or represented by Proxy and entitled
to vote at the meeting is required for approval of the Proposed Amendment.
THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION
OF THE PROPOSED AMENDMENT AND RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 4
APPROVAL OF AUDITORS
The Board of Directors, following the recommendation of the Audit
Committee, has appointed Deloitte & Touche LLP, independent auditors, to audit
our consolidated financial statements for the fiscal year ending December 31,
2000. This appointment is being presented to the shareholders for ratification
at the meeting. The affirmative vote of the holders of a majority of the shares
present in person or represented by Proxy and entitled to vote at the meeting
is required to ratify the Board's appointment. If the appointment is not
ratified, the Board of Directors will reconsider its selection.
Deloitte & Touche LLP has audited our consolidated financial statements
since July 12, 1999. Representatives of Deloitte & Touche LLP are expected to
be present at the meeting. They will have the opportunity to address the
audience at the meeting, and will be available to answer appropriate questions
from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR RATIFICATION OF
DELOITTE & TOUCHE LLP AS CYLINK'S INDEPENDENT AUDITORS.
8
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MANAGEMENT
<TABLE>
The following table sets forth certain information concerning our
executive officers:
<CAPTION>
Name Age Position
- ---------------------------- ----- -----------------------------------------------------
<S> <C> <C>
William P. Crowell ...... 59 President and Chief Executive Officer
Roger A. Barnes ......... 52 Vice President Finance and Chief Financial Officer
Yosef A. Cohen ............ 46 Chief Executive Officer, Algorithmic Research, Ltd.
Sarah L. Engel ............ 56 Vice President, Professional Services
Robert B. Fougner ......... 48 General Counsel and Secretary
Theresa A. Marcroft ...... 41 Vice President, Worldwide Marketing
Paul Massie ............... 45 Vice President, Information Systems
Peter J. Slocum ......... 44 Vice President, Engineering
Michael M. Stewart ...... 51 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. Crowell also serves as the Chairman of the President's Export
Council Subcommittee on Encryption.
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 Israeli
Ministry of Defense, including his last position 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.
Ms. Theresa Marcroft joined the Company as Vice President, Worldwide
Marketing in September 1999. Prior to joining Cylink, she served as the head of
worldwide marketing for Surfwatch Software, a division of Spyglass, Inc.
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. Massie resigned from the Company
effective February 28, 1999.
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.
Relationships Among Directors Or Executive Officers
There are no family relationships among any of our directors or executive
officers.
9
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of March 31, 2000, for (i) each
person who is known by us to beneficially own more than 5% of our Common Stock,
(ii) each of our 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) ................................................... 8,949,772 29.40%
Paul R. Gauvreau(4) ................................................... 8,662,857 28.46%
Pittway Corporation(5) ................................................ 8,606,085 28.27%
Kopp Investment Advisors, Inc.(6) .................................... 7,018,470 23.05%
James H. Simons(7) ................................................... 1,762,292 5.79%
Bermuda Trust Company, as Trustee of the Lord Jim Trust(8) ............ 1,748,605 5.74%
GeoCapital LLC(9) ................................................... 1,651,500 5.42%
Roger A. Barnes(10) ................................................... 90,000 *
Elwyn Berlekamp(11) ................................................... 299,551 *
Yosef A. Cohen(12) ................................................... 214,377 *
William C. Crowell(13) ................................................ 460,833 *
Sarah L. Engel(14) ................................................... 95,438 *
William W. Harris(15) ................................................ 13,687 *
Regis McKenna(16) ................................................... 27,570 *
Howard L. Morgan(17) ................................................ 25,687 *
William J. Perry(18) ................................................ 63,542 *
Peter J. Slocum(19) ................................................... 117,921 *
All executive officers and Directors as a group (13 persons)(20) ...... 3,571,357 11.73%
<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 31, 2000
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 30,440,642 shares outstanding as
of March 31, 2000.
(3) Includes 8,606,085 shares beneficially owned by Pittway Corporation, of
which Dr. Guthart is the Chairman and Chief Executive Officer of the
Prittway Security Group. Dr. Guthart disclaims beneficial ownership of
such shares. Also includes 43,687 shares subject to options exercisable
within 60 days of March 31, 2000.
(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. Also includes 6,771 shares subject to options exercisable within
60 days of March 31, 2000.
(5) The address of Pittway Corporation is 200 South Wacker Drive, Suite E,
Chicago, IL 60606-5802.
(6) Based on a Schedule 13D filed on February 24, 2000, Kopp Investment
Advisors, Inc. is the beneficial owner of 7,018,470 shares of the
Company's Common Stock. The address of Kopp Investment Advisors, Inc. is
6600 France Avenue So., Suite 672, Edina, MN 55435.
</FN>
</TABLE>
(Footnotes continued on following page)
10
<PAGE>
(Footnotes continued from previous page)
(7) 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) 13,687 shares subject to
options exercisable within 60 days of March 31, 2000.
(8) 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.
(9) 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.
(10) Includes 90,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(11) Includes 13,687 shares subject to options exercisable within 60 days of
March 31, 2000.
(12) Includes 83,479 shares subject to options exercisable within 60 days of
March 31, 2000.
(13) Includes 460,833 shares subject to options exercisable within 60 days of
March 31, 2000.
(14) Includes 95,438 shares subject to options exercisable within 60 days of
March 31, 2000.
(15) Includes 13,687 shares subject to options exercisable within 60 days of
March 31, 2000.
(16) Includes 27,570 shares subject to options exercisable within 60 days of
March 31, 2000.
(17) Includes 13,687 shares subject to options exercisable within 60 days of
March 31, 2000.
(18) Includes 63,542 shares subject to options exercisable within 60 days of
March 31, 2000.
(19) Includes 117,396 shares subject to options exercisable within 60 days of
March 31, 2000.
(20) Includes 1,251,642 shares subject to options exercisable within 60 days of
March 31, 2000.
11
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
<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 and (ii) the four other most highly
compensated executive officers of the Company, (collectively, the "Named
Executive Officers"):
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------ ------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation Options/SARs Compensation ($)
- --------------------------------- ------ ------------- ----------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
William P. Crowell ............ 1999 300,000 200,000 13,746 150,000 95,200(1)
CEO 1998 214,369 82,800 500,000 56,819
1997 350,000
Yossi A. Cohen ............... 1999 250,000(2) 50,000
CEO, Algorithmic Research Ltd. 1998 123,189 250,000 17,903
1997 128,323 51,262 50,000 18,951
Roger A. Barnes ............... 1999 200,000 97,500 948 17,832(3)
VP Finance & CFO 1998 19,231 50,000 300,000
1997
Peter J. Slocum ............... 1999 185,000 80,000 9,412
VP Engineering 1998 185,000 80,000 250,000(4)
1997 163,654 42,230 250,000
Sarah L. Engel ............... 1999 180,000 55,000 2,194 80,000(5)
VP Professional Services 1998 154,154 50,000 200,000(6) 80,000
1997 124,615 15,000 150,000 62,904
<FN>
- ------------
(1) Includes a car allowance of $6,300 and, assuming an 8% interest rate,
imputed interest in the amount of $88,960 on an interest-free loan from
the Company.
(2) Mr. Cohen's Salary includes Managers and Disability Insurance, Education
Fund, and other benefits in accordance with local practices in Israel.
(3) Includes, assuming an 8% interest rate, imputed interest in the amount of
$17,832 on an interest-free loan of $565,000 from the Company.
(4) Includes an option to purchase 250,000 shares of Common Stock that had been
previously granted and repriced in December 1998.
(5) Includes, assmuing an 8% interest rate, imputed interest in the amount of
$80,000 on an interest-free loan from the Company.
(6) Includes an option to purchase 150,000 shares of Common Stock that had been
previously granted and repriced in December 1998.
</FN>
</TABLE>
12
<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
The following table provides certain information with respect to stock
options granted to the Named Executive Officers during the fiscal year ended
December 31, 1999. In addition, as required by the Securities and Exchange
Commission rules, the table sets forth the potential realizable value over the
term of the option (the period from the date of grant to the expiration date)
based on assumed rates of stock appreciation of 5% and 10%, compounded
annually. These amounts are based on certain assumed rates of appreciation and
do not represent the Company's estimate of future stock value. Actual gains, if
any, on stock option exercises will be dependent on the future performance of
the Common Stock. The option to Mr. Crowell provides for vesting monthly over
the next four years. The term of this option is for six years, subject to
earlier termination upon the occurrence of certain events related to
termination of employment.
Individual Grants
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Percentage of Rates
Granted to of Stock
Total Option Appreciation for
Granted to Option Term
Option Shares Employees in Exercise or Base -------------------
Officer Granted Fiscal Year Price ($/Share) Expiration Date 5% ($) 10% ($)
- ------------------------------ --------------- --------------- ------------------ ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William P. Crowell(1) ...... 150,000 6.53 3.5150 1/29/05 670,500 852,000
<FN>
- ------------
(1) Mr. Crowell was the only Named Executive Officer to receive options to
acquire Common Stock during fiscal year 1999.
</FN>
</TABLE>
Option Exercises and Holdings
<TABLE>
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during fiscal year 1999,
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, 1999, 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, 1999.
Aggregated Option Exercise 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, 1999 (#) at December 31, 1999 ($)(2)
Acquired on Realized ------------------------------- -------------------------------
Name Exercise (#)(1) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ----------------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William P. Crowell ...... -- -- 374,375 625,625 2,825,714 4,878,197
Peter J. Slocum ......... -- -- 82,500 167,500 763,125 1,549,375
Sarah L. Engel ......... -- -- 70,333 129,667 672,716 1,230,410
Yosef A. Cohen ......... -- -- 59,833 190,167 604,913 1,945,087
Roger A. Barnes ......... -- -- 65,000 235,000 678,438 2,452,813
<FN>
- ------------
(1) No Named Executive Officers exercised options during fiscal year 1999.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1999 ($13.50 per
share) and the exercise price of the Named Executive Officers' respective
options.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
Ten-Year Option Repricings
<CAPTION>
Market Length of
Number of Price of Exercise Original
Securities Stock at Price at Option Term
Underlying Time of Time of New Remaining at
Options Repricing Repricing Exercise Date of
Name Date Repriced (#) ($) ($) Price ($) 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>
Employment Agreements
We 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, we 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 our 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, and a third grant of
150,000 options in January 1999, which options vest ratably over four years.
These options are subject to accelerated vesting, in certain circumstances, if
there is a change in control of Cylink.
In November 1998, our 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. Under the Cohen Agreement, Mr.
Cohen received a grant of options covering 50,000 shares of our Common Stock,
which options were repriced in December 1998 and will continue to vest over the
following three year period beginning December 1998. Mr. Cohen received a
second option grant covering 200,000 shares of our Common Stock in November
1998, 20% of which vested immediately, with the balance vesting ratably over
four years from the date of grant.
In February 1997, we entered into 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, we 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 our Common Stock which
options now vest over a period of three years from December, 1999. These
options are, in certain circumstances, subject to accelerated vesting if there
is a change in control of Cylink. Ms. Engel received a second grant of 50,000
options in November 1998, 20% of which vested immediately, with the balance
vesting ratably over four years from the date of the grant.
In October 1998, the Company entered into an employment agreement with Mr.
Barnes which agreement was amended in August 1999 (the "Barnes Agreement").
Under the terms of the Barnes Agreement, Mr. Barnes is to be employed until
December 31, 2003 for an annual salary initially set at
14
<PAGE>
$200,000 and is eligible for an annual performance bonus of $75,000. Pursuant
to the terms of the Barnes Agreement, we made a loan to Mr. Barnes in the
amount of approximately $565,000 (the "Loan") to purchase a primary residence
in California commensurate with his prior residence in Colorado. The Loan will
be interest-free for the period of his employment and secured by a deed of
trust on Mr. Barnes' principal residence. Under Barnes Agreement, Mr. Barnes
received a grant of options covering 300,000 shares our Company's Common Stock
which options now vest over a period of five years from October 1998, subject
to accelerated vesting, in certain circumstances, if there is a change in
control of Cylink.
In January 1997, we entered into an employment agreement with Mr. Slocum
(the " Slocum Agreement"). Under the terms of the Slocum Agreement, Mr. Slocum
is to be employed until January 2002 for an annual salary initially set at
$185,000 and is eligible for an annual performance bonus of $70,000. Under the
Slocum Agreement, Mr. Slocum received a grant of options covering 250,000
shares of our Common Stock, which options now vest over a period of three years
from December 1998. These options are, in certain circumstances, subject to
accelerated vesting if there is a change of control of Cylink.
Certain Transactions
In 1998, we issued a $1,112,000 interest-free loan to Mr. Crowell, our
Chief Executive Officer. The loan will remain interest free during the period
of Mr. Crowell's employment with us, 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, 1999, the total amount outstanding was approximately $1,112,000.
In August 1999, we issued a $565,000 interest-free loan to Mr. Barnes, our
Chief Financial Officer. The loan will remain interest-free during the period
of Mr. Barnes' employment with us and is due in August, 2004. The loan is
secured by a deed of trust on Mr. Barnes' principal residence. As of December
31, 1999, the total amount outstanding was $565,000.
In 1997, we issued a $1,000,000 interest-free loan to Ms. Engel, our Vice
President of Professional Services. The loan will remain interest-free during
the period of Ms. Engel's employment with us, 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, 1999, the total amount outstanding was approximately 1,000,000.
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 Dr. Leo Guthart and Dr. James Simons. Decisions concerning the
compensation of our Chief Executive Officer is made by the Compensation
Committee and reviewed periodically by the full Board (excluding any interested
director). Decisions concerning the compensation of our 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 our
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,
15
<PAGE>
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 our 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 our financial performance
generally. The weight given each such factor may vary from individual to
individual. Based on prior surveys, the base salaries for our executive
officers were at the approximate median of the base salary range for other
executive officers in comparable positions at comparable companies in our
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 our
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 our success and to our
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 our long-term performance, which we
believe 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 to the various terms and conditions of our 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 our executive officers are prior
performance, level of responsibility, other compensation and the executive
officer's ability to influence our 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 us 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, 1999 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
16
<PAGE>
companies of similar size, the compensation for our 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 our industry and geographical region.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee currently consists of Dr. Leo A. Guthart and
Dr. James H. Simons. No interlocking relationship exists between any member of
our 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.
17
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on our Common Stock from February 15, 1996, the date of our
initial public offering, through the end of our fiscal year ended December 31,
1999, 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 our 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.
COMPARISON OF 46 MONTH CUMULATIVE TOTAL RETURN
AMONG CYLINK CORPORATION,
THE NASDAQ STOCK MARKET (U.S. & FOREIGN) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
[GRAPHIC OMITTED]
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
2/15/96 12/96 12/97 12/98 12/99
------- ----- ----- ----- -----
CYLINK CORPORATION 100 87 65 24 90
NASDAQ STOCK MARKET (U.S. & FOREIGN) 100 118 144 199 375
HAMBRECHT & QUIST TECHNOLOGY 100 118 138 215 499
18
<PAGE>
CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS
Previous Independent Accountants
On July 12, 1999, we dismissed PricewaterhouseCoopers LLP, which had
previously served as our independent accountants, and engaged Deloitte & Touche
LLP as our new independent accountants.
The reports of PricewaterhouseCoopers LLP on the financial statements for
our past two fiscal years contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle.
The Audit Committee of the Board of Directors participated in and approved
the decision to change independent accountants.
In connection with its audits for the two most recent fiscal years and
through July 12, 1999, there were no disagreements with PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused
PricewaterhouseCoopers LLP to make reference thereto in their report on the
financial statements for such years.
During the two most recent fiscal years and through July 12, 1999, there
were no reportable events as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
We requested that PricewaterhouseCoopers LLP furnish us with a letter
addressed to the Commission stating whether or not it agrees with the above
statements. A copy of such letter, dated July 19, 1999, is filed as Exhibit
16.1 to our Form 8-K, filed with the Securities and Exchange Commission on July
19, 1999.
New Independent Accountants
As stated above, we engaged Deloitte & Touche LLP as our new independent
accountants as of July 12, 1999. The Audit Committee of the Board of Directors
approved such engagement on June 21, 1999.
In October, 1998, Wilson Sonsini Goodrich & Rosati, outside counsel to
Cylink, retained Deloitte & Touche LLP to assist Wilson Sonsini Goodrich &
Rosati in a review of our prior revenue recognition practices. In conjunction
with that engagement, Deloitte & Touche LLP provided oral and written advice to
assist Wilson Sonsini Goodrich & Rosati and the Audit Committee regarding
matters relating to such revenue recognition practices.
During the two most recent fiscal years and through July 12, 1999, we did
not consult with Deloitte & Touche LLP on any matter that was either the
subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions to Item 304 of the Regulation S-K,
or a reportable event, as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
19
<PAGE>
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10% of our Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
our Common Stock. Reporting Persons are required by Securities and Exchange
Commission regulations to furnish us 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, we believe that during
the fiscal year ended December 31, 1998, all Reporting Persons complied with
all applicable filing requirements, with the exception of Mr. Cohen. Mr. Cohen
was required to file a report on Form 4 respecting certain sales of our Common
Stock. We anticipate filing a report on Form 5 on Mr. Cohen's behalf prior to
the date of the Annual Meeting.
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,
[GRAPHIC OMITTED]
William P. Crowell
President and Chief Executive
Officer
April 14, 2000
Santa Clara, California
20
<PAGE>
1486-PS-00
<PAGE>
APPENDIX A
PROXY
CYLINK CORPORATION
3131 Jay Street
Santa Clara, California 95056
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 17, 2000
The undersigned shareholder of Cylink Corporation hereby acknowledges
receipt of the 1999 Annual Report to Shareholders and the Notice of Annual
Meeting of Shareholders and the Proxy Statement, each dated April 14, 2000, for
the Annual Meeting of Shareholders of Cylink Corporation to be held on Friday,
May 17, 2000 at 2:00 p.m., local time at the Biltmore Hotel, 2151 Laurelwood
Road, Santa Clara, CA 95054, 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 31, 2000 at the Annual
Meeting to be held on May 17, 2000, 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 2 directors to serve until the Year 2003
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: Howard L. Morgan, William W. Harris and William P. Crowell
[ ] FOR ALL NOMINEES
[ ] WITHHOLD FROM ALL NOMINEES
[ ] ______________________________________
For All Nominees except as noted above
2. To approve the adoption of Cylink's 2000 Employee Stock
Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amendment of Cylink's Articles of Incorporation
to increase the authorized number of shares of Common Stock
Cylink may issue.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the appointment of Deloitte & Touche LLP as
independent auditors of Cylink for the fiscal year ending
December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. 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 should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature: __________________________ Date: ______________________________
Signature: __________________________ Date: ______________________________
