<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] 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:
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<PAGE> 2
RAINBOW TECHNOLOGIES, INC.
50 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the 2000 Annual Meeting of Shareholders of
Rainbow Technologies, Inc. (the "Company"), will be held on June 8, 2000 at 2:00
PM, Pacific Daylight Time at the Company's Headquarters, 50 Technology Drive,
Irvine, California 92618, 949-450-7300, (the "Annual Meeting") for the purposes
described below.
1. To elect five (5) persons to serve on the Company's 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 approve an amendment to the Company's Certificate of Incorporation
to authorize the issuance of Preferred Stock and increase the number
of authorized shares of capital stock to 60 million.
3. To approve the Company's 2000 Stock Option Plan.
4. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company.
5. To transact such other business as may properly come before the Annual
Meeting.
Only Shareholders of record at the close of business on April 24, 2000 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
Walter W. Straub
Chairman
April 24, 2000
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<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 2000 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 1, 2000.
GENERAL INFORMATION
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 24, 2000 (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 12,376,562 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 five (5)
nominees for election as Directors at the Annual Meeting who receive the highest
number of affirmative votes will be elected. Proposal 2 requires the affirmative
vote of the holders of a majority of the outstanding common stock. The other
proposal 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.
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<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 2001 ANNUAL MEETING
Proposals of shareholders of the Company intended to be presented by such
shareholder at the Company's 2000 Annual Meeting must be received by the Company
no later than February 16, 2001 in order that they may be included in the proxy
statement related to that meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINEES
Five (5) 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 five (5) 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.
NAME OF NOMINEE AGE POSITION
--------------- --- --------
Walter W. Straub 56 Chairman, President,
Chief Executive Officer
Richard P. Abraham 70 Director
Frederick M. Haney 59 Director
Marvin Hoffman 65 Director
Alan K. Jennings 70 Director
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 BSEE and an MBA in Finance from Drexel University. In May
1993, Mr. Straub was elected to the Board of Trustees of Drexel University.
3
<PAGE> 5
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. 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 BS and MS from
Stanford University.
Dr. Frederick M. Haney has been a director of Rainbow since January, 1996.
He is President of Venture Management, 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. From 1976 to
1998, he was 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. Mr. Hoffman is currently CEO
of NTS/XXCAL IT Staffing and Managed Service Organization. In October of 1998,
XXCAL merged with National Technical Systems to form NTS/XXCAL IT Solutions
Group. 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 BA in Mathematics
from California State University Northridge.
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 corporation which provides technical
and management services. He received a BSEE from Stanford University, an MS in
Mathematics from Oklahoma State University and a Ph.D. in Mathematics from
Kansas University.
CORPORATE OFFICERS
The names of the Company's corporate officers who are not nominated for
election as members of the Board of Directors, and certain information about
them is set forth below.
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<PAGE> 6
Name Age Position
---- --- --------
Aviram Margalith 50 Chief Operating Officer
Patrick E. Fevery 44 Vice President Finance and Chief
Financial Officer
Norman L. Denton, III 54 Executive Vice President, Sentinel
Business Unit
Paul A. Bock 52 Senior Vice President Business
Development
Richard L. Burris 55 Vice President Manufacturing
Laurie W. Casey 43 Vice President Strategic Marketing
James Kopycki 58 President Mykotronx
Cheryl Baffa 47 Vice President Human Resources
Dr. Aviram Margalith has been Chief Operating Officer of Rainbow since
September 1998. From 1997 to 1998, Dr. Margalith was Senior Vice President of
Rainbow and President of Mykotronx, a wholly owned subsidiary of Rainbow. Prior
to this appointment, Dr. Margalith was Vice President and General Manager of
Group Technologies Corporation of Tampa, Florida. Dr. Margalith holds a Ph.D.,
MSEE and BSEE from Case Western Reserve, Cleveland, Ohio.
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 European University in Belgium and a Masters
Degree in Business Administration from Claremont Graduate School in Claremont,
California.
Norman L. Denton, III has been Executive Vice President of Sentinel
Business Unit since January 1999. From 1995 to January, 1999, Mr. Denton served
as Senior Vice President of Sales and Marketing. From 1992 to 1995, Mr. Denton
was Vice President of Sales and Marketing. From 1990 to 1992, Mr. Denton held
positions of Director of Sales and Marketing North America and Director of
National Accounts Marketing at Rainbow. Mr. Denton attended University of
California at Berkeley and San Francisco State University.
Paul A. Bock has been Senior Vice President Business Development since
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 BS degree in Political Science from
California State University Northridge.
Richard L. Burris has been Vice President of Manufacturing since 1992. From
1988 to 1992, Mr. Burris held the positions of the Company's Manufacturing
Manager and Director of Manufacturing. Mr. Burris received an AA from Fullerton
College.
Laurie W. Casey has been Vice President Strategic Marketing since December
1995. Ms. Casey joined Rainbow as Manager of Product Management and Planning in
1992. From 1990 to
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<PAGE> 7
1992, she was a Product Manager for Printronix Corporation. Ms. Casey received
her BA in Spanish 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.
James J. Kopycki was appointed President of Mykotronx and Senior Vice
President, Rainbow in January 1999. Prior to this appointment, Mr. Kopycki was
President and COO of Vanguard Integrity Professionals in Orange, California. Mr.
Kopycki received his BS degree in Industrial Management from University of
Illinois. Mr. Kopycki also graduated from the UCLA Executive Management Program.
Cheryl G. Baffa was promoted to Vice President of Human Resources in
January, 2000. Ms. Baffa joined Rainbow as Director of Human Resources in May,
1997 and has in excess of 15 years of human resource experience in high-tech
companies. Ms. Baffa received her BA in Business Management from the University
of Redlands and her MA in Organizational Leadership from Chapman University.
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 corporate officer,
respectively.
There is no family relationship by or between any director or corporate
officer of the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held four (4) meetings during the Company's fiscal
year ended December 31, 1999. 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 1999. 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 1999. 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 four (4) meetings during
fiscal 1999. The members of the Stock Option Committee are Mr. Abraham and Mr.
Hoffman.
6
<PAGE> 8
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 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 the Company's
performance for the prior year. The bonus compensation is based directly on the
Company'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 40 month 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.
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<PAGE> 9
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 1998 and goals for 1999. The bonus portion of the Chief Executive
Officer's compensation represents approximately 62% 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 1998.
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.
COMPENSATION COMMITTEE:
Richard P. Abraham
Marvin Hoffman
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<PAGE> 10
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)($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walter W. Straub 1999 200,000 183,150 50,000 8,600
1998 195,600 317,500 22,100 13,600
1997 182,000 218,400 33,000 4,750
Aviram Margalith 1999 201,867 115,600 45,000 5,000
1998 204,270 58,000 20,100 5,000
1997 190,590 62,000 82,500 4,750
Patrick E. Fevery 1999 140,000 89,100 30,000 5,000
1998 132,000 145,250 16,600 10,000
1997 125,000 80,000 22,500 4,750
Norman L. Denton III 1999 175,000 106,500 35,000 19,692
1998 219,632 32,800 17,600 10,000
1997 216,146 160,200 22,500 4,750
Paul A. Bock 1999 130,500 99,450 25,000 7,400
1998 125,000 104,000 16,600 7,400
1997 105,000 96,200 22,500 7,150
</TABLE>
(1) Company contribution under the Company's 401(K) Plan.
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<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
Number of % of Total Potential Realizable at
Securities Options Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation
Options Employees Price Expiration for 10-Year Option Term
Name Granted(1) in 1999 ($/Share) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Straub 50,000 5.13 12.25 09/01/2009 385,198 976,167
Aviram Margalith 45,000 4.62 12.25 09/01/2009 346,678 878,550
Patrick E. Fevery 30,000 3.08 12.25 09/01/2009 231,119 585,701
Norman L. Denton III 35,000 3.59 12.25 09/01/2009 269,638 683,317
Paul Bock 25,000 2.57 12.25 09/01/2009 195,599 488,083
</TABLE>
(1) No Option may be exercised prior to one year from date of grant, at which
time 30% of the grant is vested with 2.5% per month vesting thereafter.
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<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT YEAR
NUMBER OF UNEXERCISED OPTIONS END 1999 (MARKET PRICE AT
SHARES AT YEAR END 1999 12/31/99 AT $23.25/SH)
ACQUIRED ON VALUE ---------------------------------- ----------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ------------ ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Straub 0 0 270,298 82,296 3,755,416 935,535
Aviram Margalith 10,000 102,708 36,386 87,716 435,183 1,025,239
Patrick E. Fevery 0 0 91,999 52,941 1,146,856 601,121
Norman Denton, III 0 0 150,180 58,604 1,992,127 667,242
Paul A. Bock 0 0 87,085 47,941 1,103,871 546,121
</TABLE>
DIRECTORS' COMPENSATION
For the year ended December 31, 1999, 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, 1999 Richard P. Abraham, Marvin Hoffman, Frederick Haney and
Alan Jennings, outside directors of the Company, each received $10,000.
11
<PAGE> 13
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.
<TABLE>
<CAPTION>
DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
<S> <C> <C> <C> <C> <C> <C>
Rainbow 100 154.464 133.036 207.143 201.563 249.107
NASDAQ Index 244.532 345.609 425.222 521.032 734.202 1326.416
NASDAQ Computer & Dataprocessing Index 494.138 752.486 928.752 1140.964 2036.971 4305.299
<CAPTION>
GRAPH DATA
DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
<S> <C> <C> <C> <C> <C> <C>
Rainbow 100 154 133 207 202 249
NASDAQ Index 100 141 174 213 300 542
NASDAQ Computer & Dataprocessing Index 100 152 188 231 412 871
</TABLE>
The graph assumes $100 was invested on December 31, 1994.
12
<PAGE> 14
EMPLOYMENT AGREEMENTS AND
CHANGE OF CONTROL AGREEMENTS
In January 2000, the Company entered into employment agreements and change
of control agreements with Walter W. Straub, President and Chief Executive
Officer of the Company, Norman L. Denton III, Executive Vice President, Paul A.
Bock, Senior Vice President, Patrick Fevery, Vice President and Chief Financial
Officer, Aviram Margalith, Chief Operating Officer, Laurie Casey, Vice President
Strategic Marketing and Richard Burris, Vice President Manufacturing. The terms
of the employment agreements provide for a term of one year and base salary and
bonus compensation are determined by the Board of Directors. In the event of a
change of control, the agreements provide for severance payments equal to one
and one-half times salary and bonus paid in the prior year for Mr. Denton, Mr.
Bock, Mr. Fevery, Mr. Margalith, Ms. Casey and Mr. Burris, 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 April 24, 2000
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 956,983 7.22%
Walter W. Straub 715,330 5.40%
Richard P. Abraham 65,587 *
Marvin Hoffman 50,587 *
Frederick Haney 18,837 *
Aviram Margalith 28,937 *
Patrick Fevery 84,842 *
Norman L. Denton III 155,641 1.17%
Paul A. Bock 54,929 *
All officers and directors
as a group (23 persons) 2,243,000 16.92%
</TABLE>
(1) c/o Rainbow Technologies, Inc., 50 Technology Drive, Irvine,
California, 92618.
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<PAGE> 15
(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 April 24, 2000. The total amount of these shares with respect
to which all of the above have rights to acquire beneficial ownership
in sixty (60) days are as follows: Alan K. Jennings 64,837, Walter W.
Straub 281,532, Richard Abraham 64,087, Marvin Hoffman 34,087,
Frederick Haney 18,837, Norman L. Denton 153,219, Patrick E. Fevery
84,842, Aviram Margalith 28,937, Paul Bock 54,929 other officers as a
group 93,679. To the 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times during 1999, 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 and Marvin
Hoffman. There were no interlocks with other companies within the meaning of the
SEC's Proxy rules during 1999.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
During 1999, the Company paid $45,570 to NT/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 NT/XXCAL, Inc.
During 1999, the Company paid $18,323 to Fred Haney, a director of the
Company, for providing the Company with consulting services.
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 1999. Company contributions vest at the
date of the employee's commencement of service.
PROPOSAL 2: APPROVAL TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND INCREASE
THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK TO SIXTY MILLION
The Board of Directors proposes an amendment to the Certificate of
Incorporation (the "Charter Amendment") to increase the number of authorized
shares of capital stock from 20 million to 60 million. The Board of Directors
has determined it is advisable and in the best interests of the stockholders of
the Company to increase the number of authorized shares of Common Stock and to
authorize the issuance of Preferred Stock to accommodate future corporate
transactions.
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<PAGE> 16
The Company's Certificate of Incorporation currently authorizes the
issuance of a total of 20 million shares of Common Stock, par value $.001 per
share (the "Common Stock".) The Charter Amendment will increase the total number
of authorized shares to 60 million, of which 55 million will be Common Stock and
5 million of which will be Preferred Stock. The Charter Amendment will modify
the first paragraph of Article Fourth of the Certificate of Incorporation and
add a new Paragraph Eighth to the Certificate of Incorporation as follows:
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 60 million, of which 55 million shares shall
be Common Stock, $0.001 par value, and 5 million shall be Preferred
Stock, $0.001 par value, which shall be subject to the provisions of
Article Eighth.
EIGHTH: The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of Article FOURTH, to provide for
the issuance of the shares of Preferred Stock in series, and by filing
a certificate pursuant to applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights
of the shares of each such series and the qualifications, limitations
or restrictions thereof.
RECOMMENDATION
The Board of Directors unanimously recommends that the Company's stockholders
vote "FOR" approval of the amendment to authorize the issuance of Preferred
Stock and increase the number of authorized shares of capital stock to 60
million. The adoption of the amendment will require the affirmative vote of the
holders of a majority of the currently outstanding common stock. Adoption of the
proposed amendment would not affect the rights of holders of currently
outstanding common stock.
PROPOSAL 3: APPROVAL OF 2000 STOCK OPTION PLAN
Rainbow shareholders are being asked to approve Rainbow's 2000 Stock Option
Plan (the "Option Plan") for 750,000 shares of the Company's common stock. As of
April 24, 2000, options covering an aggregate of 2,764,766 shares of Rainbow's
Common Stock were outstanding under the Company's 1990 Restated Incentive Stock
Option Plan, and 79,581 shares remain available for future grant under the
Company's 1990 Restated Incentive Stock Option Plan. The Board proposes the
Option Plan 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
DESCRIPTION OF THE OPTION PLAN
The essential features of the Option Plan are outlined below.
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GENERAL
The Option Plan provides for the grant of incentive stock options and
nonstatutory 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 promotes the interests of the Company by providing key
employees incentives to exert special efforts for the success of Rainbow. The
Plan assists in retaining the services of our top performing employees and to
attract new personnel to our Company. The demand for technology industry
professionals is strong and extremely competitive. A stock option plan is an
essential element of the Company's compensation program.
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
Options may be granted under this Plan to any key employee of the Company
or any subsidiary thereof, including any such employee who is also an officer or
director of the Company or any subsidiary thereof. Nonstatutory stock options
may also be granted to individuals or entities who are not "employees," but who
provide services to the Company or any subsidiary, including services provided
in the capacity of a consultant or advisor. To the extent that the aggregate
fair market value of common stock with respect to which incentive stock options
are exercisable for the first time by any individual during any calendar year
exceeds $100,000, such options shall be treated as nonstatutory stock options.
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 number of shares
authorized for issuance under the Option Plan is 750,000 shares.
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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.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Rainbow will generally be entitled to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs. Pursuant to Section 162(m) of the Code. 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.
RECOMMENDATION
The Board of Directors unanimously recommends that the Company's
stockholders vote "FOR" approval of the 2000 Stock Option Plan.
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PROPOSAL 4: 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 2000 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.
RECOMMENDATION
The Board of Directors unanimously recommends that the Company's
stockholders vote "FOR" confirmation of Ernst & Young LLP as independent
auditors for the 2000 fiscal year.
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 2000 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 1999 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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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:
Walter W. Straub
Chairman
Irvine, California
April 24, 2000
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PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
RAINBOW TECHNOLOGIES, INC.
JUNE 8, 2000
\/ Please Detach and Mail in the Envelope Provided \/
- --------------------------------------------------------------------------------
<PAGE> 22
A [X] Please mark your
votes as in this
example.
FOR all nominees WITHHOLD
listed at right (except AUTHORITY
as marked to the to vote for each
contrary below) nominee listed at right
1. ELECTION OF DIRECTORS. [ ] [ ]
(INSTRUCTION:) To withhold NOMINEES:
authority to vote for any Walter W. Straub
individual nominee, strike a Alan K. Jennings
line through or otherwise Richard P. Abraham
strike the nominee's name in Marvin Hoffman
the list at right. Frederick M. Haney
FOR AGAINST ABSTAIN
2. PROPOSAL TO AUTHORIZE THE
ISSUANCE OF PREFERRED STOCK AND [ ] [ ] [ ]
INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CAPITAL
STOCK TO 60 MILLION.
3. PROPOSAL TO APPROVE THE [ ] [ ] [ ]
COMPANY'S 2000 STOCK OPTION
PLAN.
4. PROPOSAL TO APPROVE THE [ ] [ ] [ ]
APPOINTMENT OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS
OF THE COMPANY.
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.
No. of Shares: ____________________
NOTE: IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ON PROPOSALS 1,
2, 3 AND 4.
Name: _____________________________________ ___________________________________
SIGNATURE
______________________________________ Date: ____________________________, 2000
SIGNATURE IF HELD JOINTLY
NOTE: 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.
