<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
RAINBOW TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not 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 transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
RAINBOW TECHNOLOGIES, INC.
50 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 12, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the 1997 Annual Meeting of
Shareholders of Rainbow Technologies, Inc. (the "Company"), will be held on
June 12, 1997 at 2:00 PM, Pacific Daylight Time at the Company's Headquarters,
50 Technology Drive, Irvine, California 92618, 714-450-7300, (the "Annual
Meeting") for the purposes described below.
1. To elect a Board of Directors who shall hold office until the
next Annual Meeting of Shareholders or until their successors are
duly elected and shall have qualified.
2. To consider and vote upon a proposal to approve an amendment to
Rainbow's 1990 Restated Incentive Stock Option Plan the ("Option
Plan") to increase the number of shares of Rainbow Common Stock
that may be issued under the Option Plan by an additional amount
of 750,000 shares of Rainbow Common Stock.
3. To ratify the appointment of Ernst & Young, LLP as the
independent auditors of the Company.
4. To transact such other business as may properly come before the
Annual Meeting.
Only Shareholders of record at the close of business on May 1,
1997 are entitled to notice of and to vote at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. However,
if you are not able to be present, please be sure that your shares are
represented at the Annual Meeting by indicating your voting instructions,
dating and signing the enclosed proxy card and returning it promptly in the
enclosed, postage paid envelope.
By Order of the Board of Directors
[SIG]
Walter W. Straub
Chairman
May 12, 1997
<PAGE> 3
RAINBOW TECHNOLOGIES, INC.
50 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
PROXY STATEMENT
This proxy statement is furnished in connection with the
solicitation by the Board of Directors of Rainbow Technologies, Inc. (the
"Company") of proxies, in the form enclosed, for use at the 1997 Annual Meeting
of Shareholders of the Company (the "Annual Meeting") to be held at the time
and place and for the purpose set forth in the attached Notice of Annual
Meeting of Shareholders.
Mailing of this proxy statement and the accompanying proxy card
is to commence on May 12, 1997.
GENERAL INFORMATION
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on May 1, 1997
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, the Company had issued and outstanding 7,817,896
shares of Common Stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this 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 subsequent proxy relating to the same
shares and delivering it to the Secretary of the Company before 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).
VOTING
Each share of Common Stock outstanding on the Record Date is
entitled to one vote. No shareholder will be entitled to cumulative votes.
The six nominees for election as Directors at the Annual Meeting who receive
the highest number of affirmative votes will be elected. The other matter
submitted for shareholder approval at the Annual Meeting will require the
affirmative vote of a majority of shares of the Company's Common Stock present
or represented and entitled to vote at the meeting.
2
<PAGE> 4
SOLICITATION OF PROXIES
The cost of solicitation will be borne by the Company. The
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares of Common Stock for their expenses in forwarding soliciting
materials to such beneficial owners. Proxies may be solicited by certain of
the Company's directors, officers, and regular employees, without additional
compensation, personally or by telephone or telegram.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders of the Company intended to be presented
by such shareholder at the Company's 1998 Annual Meeting must be received by
the Company no later than February 15, 1998 in order that they may be included
in the proxy statement related to that meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINEES
Six directors are to be elected to hold office until the next
Annual Meeting of Shareholders and until their successors are elected and
qualified. Unless otherwise directed, the proxy holders will vote the proxies
received by them for the six nominees named below. Management expects that
each of the nominees will be available for election, but if any of them is not
a candidate at the time the election occurs, it is intended that such proxy
will be voted for the election of another nominee to be designated by the Board
to fill any such vacancy.
The names of the nominees and certain information about them are
set forth below.
<TABLE>
<CAPTION>
Name of Nominee Age Position
- --------------- --- --------
<S> <C> <C>
Walter W. Straub 53 Chairman, President,
Chief Executive Officer and Director
Peter M. Craig 52 Vice Chairman, Executive Vice President,
Secretary and Director
Richard P. Abraham 67 Director
Frederick M. Haney 56 Director
Marvin Hoffman 62 Director
Alan K. Jennings 67 Director
</TABLE>
3
<PAGE> 5
All of the nominees of management are members of the Board of
Directors at the present time and have served continuously since the dates of
their election as described below.
Walter W. Straub, a co-founder of the Company, has been a
director of the Company since its inception in 1982, and President and Chief
Executive Officer of the Company since 1983. Since 1989, Mr. Straub has served
as director of CAM Data Systems, a manufacturer of computerized inventory
control systems. Mr. Straub received a B.S.E.E. in 1965 and an M.B.A. in
Finance in 1970 from Drexel University. In May 1993, Mr. Straub was elected to
the Board of Trustees of Drexel University.
Peter M. Craig has been a director of the Company since 1985,
Vice Chairman since December, 1995, Executive Vice President since 1992, and
Secretary of the Company since 1989. Mr. Craig received a B.S.E.E. from Case
Institute of Technology in 1967 and a M.S.E.E. from the University of Minnesota
in 1975.
Richard P. Abraham has been a director of the Company since 1988.
He is currently the President of Pacific Associates, a sole proprietorship
engaged in business consulting. Mr. Abraham is a member of the Board of
Directors of Quantum Manufacturing Technologies, (QMT) of Albuquerque, New
Mexico. As a member of the Board of QMT, Mr. Abraham has an option to purchase
109,400 shares of QMT's common stock at an option price of $0.10, vesting over
four years. The Company has invested $4.2 million for 52.5% of the common
stock of QMT Since 1987, Mr. Abraham has been a General Partner of Weeden
Capital Management and has also been a consultant to Weeden & Co. Mr. Abraham
received a B.S. and M.S. from Stanford University in 1954.
Dr. Frederick M. Haney has been a director of Rainbow since
January, 1996. He is President of Venture Management Company, Palos Verdes
Estates, California. From 1984 to 1991 he was founder and manager of 3i
Ventures, California, a high technology venture capital fund. Dr. Haney has
extensive experience in strategic planning, operations and finance in the
information and computer industry. Dr. Haney holds a Ph.D. in Computer
Science from Carnegie-Mellon University.
Marvin Hoffman has been a director of the Company since 1990. He
is currently, and has been since 1976, the Chief Executive Officer and Chairman
of the Board of XXCAL, Inc., a corporation engaged in the business of providing
high technology computer and computer- related temporary personnel. He is also
currently, and has been since 1988 and 1987, respectively, the President of the
Los Angeles City College Foundation and a director of RIMTECH, a not-for-profit
organization encouraging trade and joint ventures between United States and
Japanese businesses. Mr. Hoffman received a B.A. in Mathematics from
California State University Northridge in 1962.
Dr. Alan K. Jennings, a co-founder of the Company, has been a
director of the Company since its inception in 1982. From 1982 to 1992 he
served as an officer of the Company in various capacities. Since 1980, Dr.
Jennings has been the President of Dartex, Inc., a California
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<PAGE> 6
corporation which provides technical and management services. He received a
B.S.E.E. from Stanford University in 1949, an M.S. in Mathematics from Oklahoma
State University in 1951 and a Ph.D. in Mathematics from Kansas University in
1954.
EXECUTIVE OFFICERS
The names of the Company's executive officers who are not
nominated for election as members of the Board of Directors, and certain
information about them is set forth below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul A. Bock 49 Senior Vice President Business Development
Norman L. Denton, III 51 Senior Vice President Sales and Marketing
Aviram Margalith 47 Senior Vice President
Patrick E. Fevery 41 Vice President Finance
and Chief Financial Officer
Richard L. Burris 52 Vice President Manufacturing
Laurie W. Casey 40 Vice President Strategic Marketing
Kenneth A. Konechy 52 Vice President Strategic Technology Programs
Dorinda Dorsey Rowden 44 Vice President
</TABLE>
Paul A. Bock was promoted to Senior Vice President Business
Development in December 1995, and has served as Vice President of Business
Development since 1992. From 1988 to 1992, Mr. Bock held the positions of
Director of Business Development for the Company and Manager of National Sales
and Major Accounts for the Company. Mr. Bock received his B.S. degree in
Political Science from California State University Northridge in 1969.
Norman L. Denton, III was promoted to Senior Vice President of
Sales and Marketing December 1995, and has served as Vice President of Sales
and Marketing since 1992. From 1990 to 1992, Mr. Denton held positions of
Director of Sales and Marketing North American, and Director of National
Accounts Marketing at Rainbow. Mr. Denton attended University of California at
Berkeley and San Francisco State University.
Patrick E. Fevery has been Vice President of Finance and Chief
Financial Officer of the Company since January 1992. From 1990 to 1992, Mr.
Fevery was Controller of the Company. From 1988 to 1990, Mr. Fevery was the
Company's Manager of Finance and Administration. Mr. Fevery received a
Bachelor's Degree in Business Administration from
5
<PAGE> 7
European University in Belgium in 1980, and a Masters Degree in Business
Administration from Claremont Graduate School in Claremont, California in 1982.
Richard L. Burris has been Vice President of Manufacturing since
1992. From 1988 to 1992, Mr. Burris held the positions as the Company's
Manufacturing Manager and Director of Manufacturing. Mr. Burris received an AA
from Fullerton College in 1973.
Laurie W. Casey was promoted to Vice President Strategic
Marketing in December 1995. Ms. Casey joined Rainbow as Manager of Product
Management & Planning in 1992. From 1990 to 1992, she was a Product Manager
for Printronix Corporation. Ms. Casey received her B.A. in Spanish in 1978
from the University of California at Santa Barbara, and obtained her Master's
degree in International Management from the American Graduate School of
International Management in 1989.
Kenneth A. Konechy became Vice President of Strategic Technology
Programs in December, 1995. He served as Vice President of Engineering of the
Company since 1990. From 1989 to 1990, Mr. Konechy held the position of
Engineering Director for the Company. Mr. Konechy received a B.S.E.E. in 1964
and a M.S.E.E. in 1967 from the University of Pittsburgh.
Dorinda Dorsey Rowden was promoted to Vice President in 1992.
Ms. Rowden has served as Vice President responsible for Software Security,
Inc., a wholly owned subsidiary, since October 1996. Ms. Rowden was Vice
President of Asia Pacific and Latin America from 1992 through 1996. From 1989
to 1992, Ms. Rowden was the Company's Manager of Sales and Distribution for
Asia and Latin America. Ms. Rowden received a B.A. from San Diego State
University in 1974.
Dr. Aviram Margalith was appointed Senior Vice President of
Rainbow and President of Mykotronx, a wholly owned subsidiary of Rainbow, in
April 1997. Prior to this appointment, Dr. Margalith was Vice President and
General Manager of Group Technologies Corporation of Tampa, Florida. His
assignments at Group Technologies included International operations,
Engineering Services and Federal Systems. He replaces Dr. Theodore Bettwy who
recently announced his retirement.
Except as stated, there are no arrangements or understandings by
or between any director or executive officer and any other person(s), pursuant
to which he or she was or is to be selected as a director or executive officer,
respectively.
There is no family relationship by or between any director or
executive officer of the Company.
6
<PAGE> 8
BOARD MEETINGS AND COMMITTEES
The Board of Directors held five meetings during the Company's year
ended December 31, 1996. Each director attended all meetings of the Board of
Directors.
The Board of Directors of the Company has standing Audit, Compensation
and Stock Option Committees. The Board of Directors has no Nominating
Committee nor any committee performing the functions of a Nominating Committee.
The members of the Audit Committee are Mr. Jennings and Mr. Hoffman.
The Audit Committee held two meetings during fiscal 1996. The purpose of the
Audit Committee is to review with the management of the Company and with the
Company's independent auditors such matters as internal accounting controls and
procedures, the plan and results of the annual audit, and the recommendations
of the independent auditors with respect to their audit activities.
The members of the Compensation Committee are Mr. Abraham and Mr.
Hoffman. The Compensation Committee held two meetings during fiscal 1996. The
Compensation Committee is primarily responsible for establishing compensation
for the executive officers of the Company. Its activities are described in
more detail under "Report of the Compensation Committee on Executive
Compensation" below.
The Stock Option Committee is primarily responsible for establishing
the number of options granted to employees of the Company under the 1990
Restated Stock Option Plan. The Stock Option Committee held 6 meetings during
fiscal 1996. The members of the Stock Option Committee are Mr. Abraham and Mr.
Hoffman.
Each member of each particular Committee attended all of the meetings
of each such Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation and Stock Option Committees of the Board of Directors.
The Compensation Committee and the Stock Option Committee are each
comprised entirely of non-employee, independent members of the Board of
Directors. The Compensation Committee establishes the general compensation
policies of the Company and the compensation paid to the Chief Executive
Officer and other executive officers. The Stock Option Committee administers
the 1990 Restated Incentive Stock Option Plan including review and approval of
stock option grants to all employees, including the Chief Executive Officer and
other executive officers.
GENERAL COMPENSATION PHILOSOPHY
The Company's compensation philosophy is that cash compensation should
be related to the performance of the Company and any long term incentive should
be closely aligned with the
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<PAGE> 9
interests of shareholders. This philosophy is designed to attract, retain and
motivate the high caliber of executives required for the success of the
business.
In determining executive compensation, the Compensation Committee
compares the compensation paid at companies in the computer hardware and
software industries, and places particular emphasis upon financial performance
comparisons including sales growth, net income growth, net income per share
growth, increase in cash flow and growth in shareholder value. The Committee
then structures cash compensation for the executive officers named in the
Summary Compensation Table to consist of (i) a base salary determined upon a
review of the Company's performance in the prior year, and (ii) bonus
compensation that is directly related to the Company's sales, quality and net
income performance in the current year.
In particular, the bonus compensation paid to executives is
established by the Compensation Committee each year following a review of
Rainbow's performance for the prior year. The bonus compensation is based
directly on Rainbow's current year operating performance goals, and is
generally established to equal 30% to 60% of the executive's total cash
compensation for the year.
Long term incentive compensation is realized through the granting of
stock options to key employees including the Chief Executive Officer and other
executive officers. The number of shares of Common Stock subject to a stock
option grant is based upon the employee's current and anticipated future
performance and ability to achieve strategic goals and objectives. Grants are
made annually and generally become exercisable during a four year vesting
period, thus providing an incentive to remain in the Company's employ. Stock
options have value for the employee only if the price of the Company's stock
increases above the fair market value on the grant date and the employee
remains in the Company's employ for the period required for the stock option to
be exercisable.
CHIEF EXECUTIVE OFFICER COMPENSATION
Compensation for the Chief Executive Officer was set according to the
established compensation philosophy described above.
The Compensation Committee reviewed competitive base compensation
information reflecting the most recent compensation data and the Company's
performance in 1995 and goals for 1996. The bonus portion of the Chief
Executive Officer's compensation represents approximately 55% of the Chief
Executive Officer's total cash compensation. This reflects the Company's
commitment to its stated compensation philosophy. The Chief Executive Officer
received a grant of stock options based upon an evaluation of the Company's
performance in 1995.
CONCLUSION
The committee believes that these policies and programs are
competitive and effectively align executive compensation with the Company's
goal of maximizing the return to shareholders.
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<PAGE> 10
COMPENSATION COMMITTEE:
Richard P. Abraham
Marvin Hoffman
EXECUTIVE COMPENSATION
The following tables set forth the annual compensation for the Chief
Executive Officer and the four other most highly compensated executive officers
of Rainbow Technologies, Inc.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards All Other
----------------------------------------------------------
Name Year Salary($) Bonus($) Options# Compensation(1)($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walter W. Straub 1996 172,600 218,400 22,000 4,500
1995 163,604 208,000 20,000 1,000
1994 163,604 160,000 60,400 1,000
Theodore Bettwy* 1996 124,500 214,850 0 4,500
1995 124,800 201,100 27,000 6,756
1994 103,960 143,600 6,600 5,100
Peter M. Craig 1996 164,128 144,300 15,000 4,500
1995 152,420 115,500 12,000 1,000
1994 152,420 105,000 38,425 1,000
Norman L. Denton III 1996 213,588 96,200 15,000 4,500
1995 226,974 91,000 19,000 1,000
1994 182,358 70,000 23,025 1,000
Paul A. Bock 1996 98,600 96,200 15,000 4,500
1995 91,580 91,000 14,500 1,000
1994 91,580 70,000 22,675 1,000
</TABLE>
* Retired effective May 1997
1. Company contribution under the Company's 401(K) Plan.
9
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
% of Total Potential Realizable at
Options Assumed Annual Rates of
Granted to Exercise Stock Price Appreciation
Options Employees Price Expiration Option Term
Name Granted(1) in 1996 ($/Sh) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Straub 22,000 7.23% 15.250 07/23/06 $210,994 $534,701
Peter M. Craig 15,000 4.93% 15.250 07/23/06 143,860 364,569
Norman L Denton III 15,000 4.93% 15.250 07/23/06 143,860 364,569
Paul A. Bock 15,000 4.93% 15.250 07/23/06 143,860 364,569
</TABLE>
(1) No Option may be exercised prior to one year from date of grant, at which
time 28% of the grant is vested with 2% per month vesting thereafter.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-The-Money
Shares at Year End 1996 Options at Year End
Acquired On Value -------------------------------- ---------------------------------
Name Exercise(#) Realized($) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Straub 0 0 98,309 66,691 548,502 271,923
Peter M. Craig 0 0 55,909 42,816 255,046 176,214
Norman L. Denton 0 0 57,694 39,431 335,054 125,856
Theodore S. Bettwy 66,000 1,226,610 26,879 12,921 286,955 20,242
Paul A. Bock 2,540 30,002 21,940 35,695 90,983 124,716
</TABLE>
10
<PAGE> 12
DIRECTORS' COMPENSATION
For the year ended December 31, 1996, the Company had an Outside
Directors' Plan to compensate those directors of the Company who were not also
employees of the Company, for serving as directors. The Outside Directors'
Plan provides for outside directors to receive the sum of $2,500 per Board
meeting. For the year ended December 31, 1996, Richard P. Abraham, Marvin
Hoffman, Frederick Haney and Alan Jennings, outside directors of the Company,
each received $10,000.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph shows a comparison of five-year cumulative return
among Rainbow Technologies, the NASDAQ Index, and the NASDAQ Computer and Data
Processing Index.
[PERFORMANCE GRAPH]
Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96
------ ------ ------ ------ ------ ------
Rainbow 100 77 82 60 93 80
Nasdaq I. 100 116 134 131 185 227
Nasdaq C&D 100 108 114 138 211 260
The graph assumes $100 was invested on December 31, 1991.
11
<PAGE> 13
EMPLOYMENT AGREEMENTS AND
CHANGE OF CONTROL AGREEMENTS
In January 1997, the Company entered into employment agreements and
change of control agreements with Walter W. Straub, President and Chief
Executive Officer of the Company, Peter M. Craig, Vice Chairman and Executive
Vice President, Norman L. Denton III, Senior Vice President, Paul A. Bock,
Senior Vice President and Patrick Fevery, Vice President & Chief Financial
Officer. The terms of the employment agreements provide for a term of one
year, and base salary and bonus compensation to be determined by the Board of
Directors. In the event of a change of control, the agreements provide for
severance payments equal to the salary and bonus paid in the prior year for Mr.
Craig, Mr. Denton, Mr. Bock, and Mr. Fevery and three times the salary and
bonus paid in the prior year for Mr. Straub.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 1,
1997 with respect to share ownership of the Company's Common Stock by (i) each
person who owns beneficially more than 5% of the outstanding shares of Common
Stock of the Company, (ii) each director of the Company and (iii) executive
officers listed in the Summary Compensation Table (iv) all officers and
directors of the Company as a group without naming them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNERS (1) OWNERSHIP(2) OF CLASS
- --------------------- ----------------- ----------
<S> <C> <C>
Alan K. Jennings 683,514 7.38%
Walter W. Straub 425,994 4.60%
Peter M. Craig 87,062 *
Richard P. Abraham 33,850 *
Marvin Hoffman 24,850 *
Frederick Haney 2,850 *
Norman L. Denton III 63,862 *
Paul A. Bock 27,526 *
All officers and
directors
as a group (12 persons) 1,426,998 13.29%
</TABLE>
(1) c/o Rainbow Technologies, Inc., 50 Technology Drive, Irvine, CA
92618.
(2) For purposes of this table, "beneficial ownership" of any security as
of a given date includes the right to acquire such security within 60
days of May 1, 1997. To the
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<PAGE> 14
knowledge of the Company, each person named in the table has the sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such person or entity.
(*) Indicates less than one percent ownership.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times during 1996, the following individuals (none of whom
was or had been an officer or employee of the Company or any of its
subsidiaries) served on the Company's Compensation Committee: Richard P.
Abraham, Marvin Hoffman. There were no interlocks with other companies within
the meaning of the SEC's Proxy rules during 1996.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
During 1996, the Company paid $42,000 to XXCAL, Inc. a corporation
engaged in providing high technology temporary computer and computer-related
personnel. Marvin Hoffman is the Chief Executive Officer and Chairman of the
Board of XXCAL, Inc.
401(K) PROFIT SHARING PLAN AND TRUST.
In January 1990, the Board of Directors adopted and approved a 401(k)
Profit Sharing Plan and Trust effective January 1, 1990. Under the 401(k)
program, the Company is obligated to match each employee's contribution 50% per
dollar of salary contribution with a company matching maximum contribution of
6% of salary deferral. The Company has the option to contribute an additional
discretionary amount based upon current or accumulated net profits. No such
discretionary contributions were made in 1996. Company contributions vest at
the date of the employee's commencement of service.
PROPOSAL 2: APPROVAL OF AMENDMENT TO 1990 RESTATED INCENTIVE STOCK OPTION PLAN
Rainbow shareholders are being asked to approve the amendment of
Rainbow's 1990 Restated Incentive Stock Option Plan (the "Option Plan") to
increase the number of shares of Rainbow Common Stock which may be issued, by
750,000 shares of Rainbow Common Stock. As of May 1, 1997, options covering
an aggregate of 1,291,814 shares of Rainbow's Common Stock were outstanding
under the Option Plan, and 117,998 shares remain available for future grant
under the Option Plan. In March 1997, the Board of Directors of Rainbow (the
"Board") adopted, subject to shareholder approval, a proposal to amend the
Option Plan to increase the number of shares authorized for issuance under the
Option Plan by, 750,000 shares. The Board adopted these amendments to ensure
that Rainbow continue to grant stock options to employees at levels determined
appropriate by the Board and the Compensation and Option Committee of the
Board.
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<PAGE> 15
VOTE REQUIRED
The affirmative vote of a majority of shares of the Common Stock
present in person or represented by proxy and entitled to vote at the Rainbow
Special Meeting will be required for the approval of this proposal.
Abstentions will be counted towards the tabulation of votes cast on the
proposal and will have the same effect as negative votes. Brokers non-votes
will not be counted for any purpose in determining whether the proposal has
been approved.
DESCRIPTION OF THE OPTION PLAN
The essential features of the Option Plan are outlined below.
GENERAL
The Option Plan provides for the grant of incentive stock options.
Incentive stock options granted under the Option Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code (the "Code"). See "Tax Information" for a discussion of the tax
treatment of incentive and non-qualified stock options.
PURPOSE
The Option Plan was adopted to provide a means by which selected
officers and employees of Rainbow and its affiliates could be given an
opportunity to purchase stock in Rainbow, to assist in retaining the services
of employees holding key positions, to secure and retain the services of
persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of Rainbow.
ADMINISTRATION
The Option Plan provides that it will be administered by the Board and
authorized the Board to delegate such administration to a committee of not
fewer than two members of the Board each of whom shall be disinterested within
the meaning of Rule 16b-3 under the Exchange Act of 1934. As used herein with
respect to the Option Plan the "Board" refers to the Compensation and Option
Committee as well as the Board of Directors itself. The Board has the power
to construe and interpret the Option Plan and, subject to the provisions of the
Option Plan, to determine the persons to and the dates on which options will be
granted, the number of shares to be subject to each option, the exercise price,
the type of consideration and other terms of the option. The Board has
delegated such administration to the Compensation and Option Committee.
ELIGIBILITY
Incentive Stock options may be granted under the Option Plan only to
selected employees (including officers) of Rainbow and its affiliates.
14
<PAGE> 16
STOCK SUBJECT TO THE OPTION PLAN
If options granted under the Option Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such
options, again becomes available for issuance under the Option Plan. The
current number of shares authorized for issuance under the Option Plan is
1,409,812 shares. Under this proposal the Option Plan would be amended to
increase the number of shares authorized for issuance to 2,159,812.
FEDERAL AND CALIFORNIA INCOME TAX INFORMATION
Incentive stock options under the Option Plan are intended to be
eligible for the favorable federal and California income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal and California income tax consequences
to the optionee or Rainbow by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the optionee's alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are
transferred to the optionee upon exercise of the option, any gain or loss on a
disposition of such stock will be long-term capital gain or loss. Generally if
the optionee disposes of the stock before the expiration of either of these
holding periods (a "disqualification disposition"), at the time of disposition,
the optionee will realize taxable ordinary income equal to the lesser of (i)
the excess of the stock's fair market value on the date of exercise over the
exercise price or (ii) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain or any loss upon the disqualifying
disposition, will be a capital gain or loss which will be long-term or
short-term, depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act of 1934.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Rainbow will generally be entitled (subject to the
requirement of reasonableness and perhaps in the future the satisfaction of a
withholding obligation) to a corresponding business expense deduction in the
tax year in which the disqualifying disposition occurs. Pursuant to Section
162(m) of the Code for options granted on or after the May, 1994 Annual
Meeting, or options materially modified after January 1, 1994, Rainbow's
business expense deduction will be limited to $1 million for certain executive
employees if such an employee's recognition of ordinary income on such
disqualifying disposition, combined with all other compensation paid to the
employee during the year of the disqualifying disposition, exceeds $1 million.
15
<PAGE> 17
THE BOARD OF DIRECTORS HAS RECOMMENDED A VOTE
FOR APPROVAL OF THE AMENDMENTS TO
RAINBOW'S 1990 RESTATED INCENTIVE STOCK OPTION PLAN
PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
It is proposed that the shareholders approve the selection of Ernst &
Young LLP as independent auditors for the Company for the 1996 fiscal year.
Ernst & Young LLP have been the independent auditors for the Company since 1987,
and their reappointment has been recommended by the Board of Directors.
Representatives of Ernst & Young LLP are expected to be available at
the Annual Meeting to respond to appropriate questions and will be given the
opportunity to make a statement if they so desire. This proposal requires the
approval of at least a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting. In the event such approval is not
obtained, selection of independent auditors will be reconsidered by the Board
of Directors.
RIGHTS OF DISSENTING SHAREHOLDERS
There are no rights of appraisal or similar rights of dissenters with
respect to any matter proposed to be acted upon at the 1997 Annual Meeting of
Shareholders.
OTHER MATTERS
The Company knows of no matters, other than those described herein,
which are to be brought before the Annual Meeting. However, if any other proper
matters are brought before the Annual Meeting, the persons named in the
enclosed proxy will vote in accordance with their judgment on such matters.
FINANCIAL STATEMENTS
Financial Statements of the Company are contained in the 1996 Annual
Report to Shareholders.
THE COMPANY FILES AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K. SHAREHOLDERS MAY OBTAIN A COPY OF THIS REPORT WITHOUT
COST BY WRITTEN REQUEST TO THE COMPANY'S SHAREHOLDER RELATIONS DEPARTMENT.
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<PAGE> 18
NOTICE TO BANKS, BROKERS/DEALERS
AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Company, at 50 Technology Drive, Irvine, California
92618, Attention: Secretary, whether other persons are the beneficial owners
of the shares for which proxies are being solicited and, if so, the number of
copies of the proxy statement, other soliciting material and Annual Report you
wish to receive in order to supply copies to the beneficial owners of shares of
Common Stock of the Company.
BY ORDER OF THE BOARD OF DIRECTORS:
[SIG]
Walter W. Straub
Chairman
Irvine, California
May 12, 1997
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<PAGE> 19
RAINBOW TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS -- JUNE 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Rainbow Technologies, Inc. (the "Company")
hereby appoints Walter W. Straub, the President of the Company, or failing him,
Peter M. Craig, Vice Chairman and Executive Vice President of the Company, or
instead of either of the foregoing, as the nominee of the undersigned to attend
and to act for and on behalf of the undersigned at the annual meeting of
shareholders of the Company to be held on June 12, 1997 at 2:00 P.M. Pacific
Time, and at any adjournment or adjournments thereof, to the same extent and
with the same power as if the undersigned were personally present at said
meeting or such adjournment or adjournments thereof and, without limiting the
generality of the power hereby conferred, the nominees named above are
specifically directed to vote as indicated below.
1. Election of Directors.
<TABLE>
<S> <C>
[ ] FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY
BELOW (EXCEPT AS MARKED TO VOTE FOR EACH
TO THE CONTRARY BELOW) NOMINEE LISTED BELOW
Walter W. Straub Alan K. Jennings Marvin Hoffman
Peter M. Craig Richard P. Abraham Frederick M. Haney
</TABLE>
(INSTRUCTION:) TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME IN THE LIST
ABOVE.
2. Proposal to approve amendment to 1990 Restated Incentive Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG, LLP AS INDEPENDENT
AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 20
If there are amendments or variations to the matters proposed at the meeting or
at any adjournment or adjournments thereof, or if any other business properly
comes before the meeting, this proxy confers discretionary authority on the
proxy nominees named herein to vote on such amendments, variations or other
business.
Name: ___________________
Dated: ____________, 1997
No. of Shares: __________
-------------------------
Signature
-------------------------
Signature if held jointly
Please sign exactly as
name appears herein. When
shares are held by joint
tenants, both should
sign. When signing as
attorney, as executor,
administrator, trustee or
guardian, please give
full title as such. If a
corporation, please sign
in full corporate name by
President or other
authorized officer. If a
partnership, please sign
in partnership name by
authorized person.
NOTE: IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ON PROPOSALS 1,
2 AND 3.
