SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Cylink Corporation
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
CYLINK CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2002
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.,
Pacific Daylight time, on May 15, 2002, for the following purposes:
1. ELECTION OF DIRECTORS. To elect two directors of the Company to serve
until the 2005 Annual Meeting of Shareholders or until their successors are
elected and qualified.
2. RATIFICATION AND APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
appointment of Deloitte & Touche LLP as the Company's independent auditors
for the fiscal year ending December 31, 2002.
3. OTHER BUSINESS. To transact such other business as may properly come
before the Annual Meeting of Shareholders and any adjournment or
postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached hereto and made a part hereof. The Board of
Directors has fixed the close of business on March 29, 2002 as the record date
for determining the shareholders entitled to notice of and to vote at the 2002
Annual Meeting of Shareholders and any adjournment or postponement thereof.
All Shareholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend, please sign and return the enclosed
proxy as promptly as possible in the envelope enclosed for your convenience.
You may revoke your proxy at any time prior to the Annual Meeting. If you
attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ William P. Crowell
-------------------------------------
William P. Crowell
President and Chief Executive Officer
Santa Clara, California
April 12, 2002
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CYLINK CORPORATION
3131 Jay Street
Santa Clara, California 95056
PROXY STATEMENT
FOR 2002 ANNUAL MEETING OF SHAREHOLDERS
General Information
This Proxy Statement is furnished to the shareholders of Cylink
Corporation, a California corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board" or "Board of
Directors") of proxies in the accompanying form for use in voting at the 2002
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on May 15, 2002, at the Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA
95054, at 2:00 p.m., Pacific Daylight 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
This Proxy Statement and the accompanying proxy were first sent by mail to
shareholders on or about April 12, 2002. The close of business on March 29,
2002 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 33,035,017 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. Each outstanding share of Common
Stock on the Record Date is entitled to one vote on all matters.
In the election of directors, the two 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 Annual
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. A broker non-vote occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee
does not have the discretionary voting power with respect to that item and has
not received instructions from the beneficial owner. While there is no
definitive specific statutory or case law authority in California concerning
the proper treatment of abstentions and broker non-votes, the Company believes
that the tabulation procedures to be followed at the Annual Meeting are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
1
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 General Counsel 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 General Counsel 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 delivered to Cylink Corporation, P.O. Box 54952,
3131 Jay Street, Santa Clara, California 95056-0952, Attention: General
Counsel, or hand-delivered to the General Counsel 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
Requirements for Stockholder Proposals to be Brought Before an Annual
Meeting. For stockholder proposals to be considered properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
therefor in writing to the Secretary of the Company. To be timely for the 2003
Annual Meeting, a stockholder's notice must be delivered to or mailed and
received by the Secretary of the Company at the principal executive offices of
the Company, between January 28, 2003 and February 27, 2003. A stockholder's
notice to the Secretary must set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the Company which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
Requirements for Stockholder Proposals to be Considered for Inclusion in
the Company's Proxy Material. Stockholder proposals submitted pursuant to Rule
14a-8 under the Securities Exchange Act of 1933, as amended (the "Exchange
Act") and intended to be presented at the Company's 2003 Annual Meeting of
Stockholders must be received by the Company not later than December 14, 2002
in order to be considered for inclusion in the Company's proxy materials for
that meeting.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Two directors will be elected at the Annual Meeting to serve as Class 1
directors until the 2005 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 two nominees for
director who receives the greatest number of votes will be elected.
Elwyn Berlekamp will not seek re-election as a Class I director and his
term as a Class I director will automatically expire at the Annual Meeting. The
Board has amended the Company's Bylaws to set the authorized number of
directors at seven and set the number of Class I directors at two.
Set forth below are the names and certain information relating to each of
the two Class 1 director nominees:
Director Term
Name of Nominee Class Age Position with Company Since Expires
- ------------------ ------- ----- ----------------------- ---------- --------
Paul Gauvreau(1) 1 62 Director 1999 2002
Regis McKenna 1 62 Director 1998 2002
Set forth below are the names and certain information relating to each of
the five current directors whose term as a director of the Company is not
expiring:
Director Term
Name of Director Class Age Position with Company Since Expires
- ------------------------- ------- ----- --------------------------- ---------- --------
Howard L. Morgan(1)(4) 2 56 Director 1995 2003
William W. Harris(1)(4) 2 62 Director 1995 2003
William P. Crowell(3) 2 61 President, Chief Executive
Officer and Director 1999 2003
Leo Guthart(2)(3) 3 64 Chairman of the Board 1984 2004
James H. Simons(2)(3) 3 63 Director 1984 2004
- ----------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
(4) Member of Nominating Committee
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 was Chief Financial Officer and Financial Vice President,
Treasurer of Pittway Corporation. Mr. Gauvreau is a Director of Adusa, Inc.,
Vice Chair of the finance committee and Trustee of Benedictine University and
Treasurer and Director of the Children's Brittle Bone Foundation. He holds a
B.S.C. from Loyola University, Chicago and an M.B.A. from the University of
Chicago.
3
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
is on the board of the Economic Strategies Institute and is also on the
advisory board of the University of California Berkeley Haas Graduate School of
Business and a member of the International Advisory Board of Toyota Motor
Company. Mr. McKenna is Chairman of the Board of the Santa Clara University
Center for Science Technology and Society, a trustee of Santa Clara University
and President of the Board of Trustees of the Children's Fund of Silicon
Valley. Mr. McKenna also serves as director for Caliper Technologies Corp. and
is a director of several private start-up high technology companies. Mr.
McKenna attended St. Vincent College and holds a B.S. from Duquesne University.
Mr. Crowell has served as a Director of the Company since 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. 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 and President
of the Children's Research and Education Institute. 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
previously 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 and, since 1999, has served as Vice Chairman
of IdeaLab! Corporation. Dr. Morgan also serves as a Director of Franklin
Electronic Publishers, Inc., Segue Software, Inc. and Unitronix Corporation. He
holds a B.S. in Physics from City College of New York and a Ph.D. in Operations
Research from Cornell University.
Dr. Guthart has served as a Director of the Company since 1984. Between
1990 and 2000, he served as the Vice Chairman of Pittway Corporation and as the
Chairman of the Ademco division of Pittway Corporation. In February 2000,
Pittway Corporation was acquired by Honeywell Corporation and Dr. Guthart
became Executive Vice President of the Home and Building Control division of
Honeywell Corporation, and the Chairman of Security and Fire Solutions
division. Dr. Guthart is also the Managing Member of Topspin Partners, a
venture capital firm. 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. Simons has served as a Director of the Company since 1984. Dr. Simons
has also served as the President and Chairman of Renaissance Technologies
Corporation since 1982. From 1968 to 1975, Dr. Simons was Chairman of the
Mathematics Department at State University of New York, Stony Brook. 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., Segue Software,
Inc. and Symbol Technologies, Inc.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF THE NOMINEES NAMED ABOVE
4
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2001 the Board met fifteen
times, including four regular meetings and eleven special meetings. Each
Director attended no fewer than 75% of all the scheduled meetings of the Board
and its committees on which he served, except for Mr. McKenna who attended
three of the regularly scheduled quarterly meetings and six of the special
meetings. The Board has four committees, the Audit Committee, the Compensation
Committee, the Executive Committee and the Nominating Committee.
The Audit Committee, which held five meetings during the fiscal year ended
December 31, 2001, consists of Dr. Elwyn Berlekamp, Mr. Paul Gauvreau, Dr.
William W. Harris, and Dr. Howard L. Morgan. The Audit Committee reviews and
supervises the Company's financial controls, including selection of the
Company's auditors, reviews the books and accounts of the Company, meets with
the officers of the Company regarding the Company's financial controls, acts
upon recommendations of auditors and takes 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 Board of Directors has adopted and approved a charter for the Audit
Committee, a copy of which was attached to the Company's 2001 Proxy Statement
as Appendix A. The Board of Directors has determined that all members of the
Audit Committee are "independent" as that term is defined in Rule 4200 of the
listing standards of the National Association of Securities Dealers.
The Compensation Committee, which held one meeting, as well as numerous
telephone discussions, in the fiscal year ended December 31, 2001, consists of
Dr. Leo Guthart and Dr. James H. Simons. The Compensation Committee reviews and
approves the compensation and benefits for the Company's chief executive
officer, reviews and advises the Board of Directors about the chief executive
officer's performance, supervises administration of the Company's 1994 Flexible
Stock Incentive Plan (the "1994 Plan"), the 2001 Non-Qualified Stock Incentive
Plan (the "2001 Plan"), and the Year 2000 Employee Stock Purchase Plan (the
"ESPP"), and performs such other duties as may from time to time be determined
by the Board.
The Executive Committee, which held numerous telephone discussions in the
fiscal year ended December 31, 2001, consists of Mr. William P. Crowell, Dr.
Leo Guthart and Dr. James H. Simons. The Executive Committee acts or authorizes
action on behalf of the Board on specific matters delegated by the Board.
The Nominating Committee consists of Dr. Howard L. Morgan 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 General
Counsel, Robert B. Fougner, Esq., indicating the nominee's qualifications and
other relevant biographical information.
5
Compensation Of Directors
The Company's general policy is to pay Non-Employee Directors a $1,000 fee
for each quarterly Board meeting attended and $1,000 for each committee meeting
attended that is not held in conjunction with a Board meeting. However, in the
fiscal year ending December 31, 2001, the Company paid each Director $1,000 for
each quarterly meeting attended and issued vested options in varying amounts to
purchase between 2,420 and 5,915 shares of Common Stock, having an exercise
price of $2.04 per share, as compensation for all other Board and committee
meetings attended. All Non-Employee Directors are reimbursed for expenses
incurred in connection with attending meetings of the Board. Each option
generally has a term of six years and will expire ninety days after the
individual ceases to be a Non-Employee Director, unless such cessation is due
to permanent disability or death, in which case the option will expire twelve
months after the individual ceases to be a Non-Employee Director. Employee
directors of the Company do not receive compensation for their services as
directors.
Certain Transactions
Pursuant to the terms of William P. Crowell's employment agreement with
the Company, the Company made a loan to Mr. Crowell in the amount of
approximately $1,111,123 (the "Loan") to purchase a primary residence in
California commensurate with his prior residence in Maryland. The Loan is
interest free for the period of his employment and secured by a deed of trust
on Mr. Crowell's principal residence. As of December 31, 2001, the total amount
outstanding under the Crowell Loan was $1,111,123.
The Company and Mr. Crowell, Mr. Chillingworth, Mr. Fougner, Mr. Breeden
and Mr. Walsh have entered into employment agreements as more fully described
under "Employment Agreements."
6
PROPOSAL NO. 2
RATIFICATION AND APPROVAL OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors, following the recommendation of the Audit
Committee, has appointed Deloitte & Touche LLP, independent auditors, to audit
the Company's consolidated financial statements for the fiscal year ending
December 31, 2002. The appointment is being presented to the shareholders for
ratification at the Annual Meeting. The affirmative vote of the holders of a
majority of the shares of Common Stock 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 the Company's consolidated financial
statements since July 12, 1999. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting. They will have the opportunity to
address the audience at the Annual Meeting, and will be available to answer
appropriate questions from shareholders.
The following fees were billed to the Company by Deloitte & Touche LLP
during the fiscal year ending December 31, 2001:
Audit Fees
Audit fees billed to the Company by Deloitte & Touche LLP during the
Company's fiscal year ended December 31, 2001 for review of the Company's
annual financial statements and those financial statements included in the
Company's quarterly reports on Form 10-Q totaled $336,530.
Financial Information Systems Design and Implementation Fees
The Company did not engage Deloitte & Touche LLP to provide advice to the
Company regarding financial information systems design and implementation
during the fiscal year ended December 31, 2001.
All Other Fees
Fees billed to the Company by Deloitte & Touche LLP during the Company's
fiscal year ended December 31, 2001 for all other non-audit services rendered
to the Company, including tax related services totaled $283,636.
The Audit Committee has considered whether the provision of services
described above under "Financial Information Systems Design and Implementation
Fees" and "All Other Fees" is compatible with maintaining the independence of
Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
AND APPROVAL OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2002
7
MANAGEMENT
Executive Officers
The following table sets forth certain information concerning the
Company's executive officers:
Name Age Position
- -------------------------------- ----- ----------------------------------------------------
William P. Crowell ............. 61 President and Chief Executive Officer
Philip Breeden ................. 62 Vice President, Engineering
R. Christopher Chillingworth ... 50 Vice President, Finance and Chief Financial Officer
Pamela Drew .................... 53 Vice President, Human Resources
Robert B. Fougner .............. 50 Vice President, and General Counsel
Patrick K. Reilly .............. 52 Vice President, Marketing and Sales
Richard F. Walsh ............... 46 Vice President and Chief Information Officer
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.
Mr. Breeden became Vice President, Engineering on July 23, 2001. Prior to
becoming Vice President, Mr. Breeden served as Director of Hardware & Services
at the Company, responsible for all hardware and ASIC design, as well as
engineering services and technical publications. Prior to joining the Company,
Mr. Breeden served as the Vice President of Engineering at Adaptec, Inc. and
Priam Systems Corporation, as a director of the technology division for Sophia
Systems & Technology and as an engineering manager at Applied Materials, Inc.
Mr. Chillingworth served as the Company's Acting Vice President, Finance
and Chief Financial Officer from November 6, 2000 to February 1, 2001. On
February 1, 2001, Mr. Chillingworth became Vice President, Finance and Chief
Financial Officer of the Company. Previously, Mr. Chillingworth served as the
Company's Corporate Controller and prior to joining the Company, Mr.
Chillingworth was engaged for nearly five years providing consulting services
at the chief financial officer and controller level to a number of Northern
California firms.
Ms. Drew has served as the Company's Vice President, Human Resources and
Workplace Environment since December 1, 2000. Prior to becoming Vice President,
Ms. Drew served as the Company's Director of Human Resources. Prior to joining
the Company, Ms. Drew served as the global Human Resources Director for
Honeywell-Measurex Corporation.
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.
8
Mr. Reilly became Vice President of Marketing and Sales on April 20, 2001.
Before joining the Company, Mr. Reilly was Vice President of Marketing and
Sales of Eturn Communications, Inc., a software provider for the
telecommunications industry. Mr. Reilly also held executive level sales and
marketing positions at National Semiconductor Corporation, Digital Equipment
and Enhansys and has founded several companies.
Mr. Walsh joined the Company as Vice President and Chief Information
Officer, effective March 13, 2000. On April 23, 2001 he became Vice President
of Operations and Chief Information Officer. Prior to joining the Company, Mr.
Walsh served as Director of Information Technology for Honeywell-Measurex
Corporation.
Relationships Among Directors Or Executive Officers
There are no family relationships among any of the Company's directors or
executive officers.
9
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 29, 2002 for (i)
each person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers appearing in the Summary Compensation Table below and (iv)
all directors and executive officers as a group.
Shares Percentage
Directors, Nominees for Director, Beneficially Beneficially
Executive Officers and 5% Shareholders Owned(1) Owned(2)
- ----------------------------------------------------------------- -------------- -------------
Leo A. Guthart(3) ............................................... 7,946,659 24.0%
James H. Simons(4) .............................................. 7,598,434 23.0%
Topspin Management, L.L.C.(5) ................................... 7,577,514 22.9%
Topspin Partners, L.P.(6) ....................................... 7,235,010 21.9%
Kopp Investment Advisors, Inc.(7) ............................... 7,155,750 21.7%
Shining Sea Limited(8) .......................................... 1,748,605 5.3%
Elwyn Berlekamp(9) .............................................. 1,330,310 4.0%
William P. Crowell(10) .......................................... 1,039,375 3.1%
Robert B. Fougner(11) ........................................... 264,637 *
R. Christopher Chillingworth(12) ................................ 163,712 *
Richard F. Walsh(13) ............................................ 137,708 *
Philip Breeden(14) .............................................. 114,408 *
Paul R. Gauvreau(15) ............................................ 66,800 *
Regis McKenna(16) ............................................... 65,725 *
Howard L. Morgan(17) ............................................ 36,415 *
William W. Harris(18) ........................................... 24,145 *
All executive officers and Directors as a group (14 persons)(19) 11,259,421 32.2%
- ------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 29, 2002 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 33,035,017 shares outstanding as
of March 29, 2002.
(3) Includes 54, 145 shares subject to options exercisable within 60 days of
March 29, 2002. Also includes 7,577,414 shares held by Topspin Management,
L.L.C and entities affiliated with Topspin Management, L.L.C of which
shares Mr. Guthart disclaims beneficial interest except to the extent of
his pecuniary interest therein.
(4) Includes 20,920 shares subject to options exercisable within 60 days of
March 29, 2002. Also includes 7,577,414 shares held by Topspin Management,
L.L.C and entities affiliated with Topspin Management, L.L.C of which
shares Mr. Simons disclaims beneficial interest except to the extent of his
pecuniary interest therein.
(5) Based on Schedule 13D filed on September 29, 2001, includes (1) 7,235,010
shares held by Topspin Partners, L.P. of which Topspin Management, L.L.C.
is a general partner; and (2) 342,504 shares held by Topspin Associates,
L.P. of which Topspin Management, L.L.C. is a general partner.
(6) Based on Schedule 13D filed on September 29, 2001.
10
(7) Based on a Schedule 13D filed on November 15, 2001, Kopp Investment
Advisors, Inc. and entities affiliated with or controlled by Kopp
Investment Advisors, Inc. beneficially own 7,155,750 shares of the
Company's Common Stock. The address of Kopp Investment Advisors, Inc. is
7701 France Avenue South, Suite 500, Edina, MN 55435.
(8) Shining Sea Limited, a Bermuda company, holds 1,748,605 shares of the
Company's Common Stock in a trust for the benefit of Dr. Simons, a Director
of the Company, and his descendants, which is controlled (and therefore
beneficially owned) by the Bermuda Trust Company in its capacity as
Trustee. The address of Shining Sea Limited is Murdoch & Co., c/o Bermuda
Trust Company Limited, Attn.: Susan Gibbons, Compass Point, 9 Bermudiana
Road, Hamilton, HM11, Bermuda.
(9) Includes 23,875 shares subject to options exercisable within 60 days of
March 29, 2002.
(10) Includes 1,039,375 shares subject to options exercisable within 60 days of
March 29, 2002.
(11) Includes 264,637 shares subject to options exercisable within 60 days of
March 29, 2002.
(12) Includes 160,105 shares subject to options exercisable within 60 days of
March 29, 2002.
(13) Includes 137,708 shares subject to options exercisable within 60 days of
March 29, 2002.
(14) Includes 112,873 shares subject to options exercisable within 60 days of
March 29, 2002.
(15) Includes 16,800 shares subject to options exercisable within 60 days of
March 29, 2002.
(16) Includes 65,725 shares subject to options exercisable within 60 days of
March 29, 2002.
(17) Includes 24,415 shares subject to options exercisable within 60 days of
March 29, 2002.
(18) Includes 24,145 shares subject to options exercisable within 60 days of
March 29, 2002.
(19) Includes 1,984,504 shares subject to options exercisable within 60 days of
March 29, 2002.
11
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth certain information concerning compensation
of (i) each person that served as the Company's Chief Executive Officer during
the fiscal year ended December 31, 2001 and (ii) the four other most highly
compensated executive officers of the Company, (collectively, the "Named
Executive Officers"):
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------- -----------------------------------
Securities
Name and Bonus Other Annual Underlying All Other
Principal Position Year Salary ($) ($)(1) Compensation Options/ SARs Compensation(2)($)
- -------------------------------------- ------ ------------ ---------- ----------------- --------------- -------------------
William P. Crowell ................... 2001 300,000 -- 45,117 (3) 500,000 88,960
President and Chief 2000 300,000 150,000 13,746 (4) -- 88,960
Executive Officer 1999 300,000 100,000 13,746 150,000 88,960
R. Christopher Chillingworth ......... 2001 180,820 -- -- 185,000 --
Vice President, Finance and 2000 148,754 60,000 -- 110,000 --
Chief Financial Officer 1999 127,211 6,500 -- 50,000 --
Robert B. Fougner .................... 2001 190,000 -- -- 170,000 --
Vice President, 2000 188,077 40,000 -- -- --
Secretary and General 1999 160,192 55,000 -- -- --
Counsel
Philip Breeden ....................... 2001 173,362 21,542 -- 179,000 --
Vice President, 2000 163,169 20,605 -- 16,000 --
Engineering 1999 152,628 18,833 -- 6,000 --
Richard F. Walsh(5) .................. 2001 165,923 -- -- 210,000 --
Vice President and 2000 112,500 -- -- 125,000 --
Chief Information Officer
- ------------
(1) All bonuses paid in 2001 were earned in 2000.
(2) Imputed interest, assuming 8% interest rate, on an interest free loan from
the Company.
(3) Includes a automobile allowance of $6,925 and $26,017 for property taxes
and insurance for personal residence.
(4) Includes a automobile allowance of $6,300.
(5) Mr. Walsh joined the Company in March 2000.
12
Option Grants In Last Fiscal Year
The following table provides certain information with respect to stock
options granted to the Named Executive Officers during the fiscal year ended
December 31, 2001. 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 grant date 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 price. Actual gains, if
any, on stock option exercises will be dependent on the future performance of
the Common Stock.
Potential Realizable
Value at Assumed
Annual Rates of Stock
% of Total Price Appreciation for
Number of Securities Options to Exercise Option Term(4)
Underlying Options Employees in Price Per Expiration ----------------------
Name Granted(1) Fiscal Year(2) Share(3) Date 5% 10%
- -------------------------------------- ---------------------- ---------------- ------------- ------------ ---------- -----------
William P. Crowell ................... 500,000 13.2% $ 0.54 09/04/07 $71,724 $181,748
R. Christopher Chillingworth ......... 185,000 4.8% 0.54 09/04/07 26,538 67,247
Robert B. Fougner .................... 170,000 4.4% 0.54 09/04/07 24,386 61,794
Philip Breeden ....................... 9,000 (5) 0.2% 0.93 05/31/07 2,846 6,458
170,000 4.4% 0.51 09/04/07 24,386 61,794
Richard F. Walsh ..................... 50,000 (5) 1.3% 4.1875 01/19/07 71,208 161,546
160,000 4.2% 0.54 09/04/07 22,952 58,159
- ------------
(1) Except where noted, the options vest over two years at a rate of 50% of the
shares subject to the option per year and have a six year term.
(2) Based on a total of 3,783,900 options granted to employees of the Company
in 2001, including the Named Executive Officers.
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the date the options were
granted.
(4) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates
of appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
(5) These options vest over four years at a rate of 25% of the shares subject
to the option per year and have a six year term.
13
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Values
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during fiscal year ended
December 31, 2001, 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, 2001, 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, 2001.
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money
at December 31, 2001(#) at December 31, 2001($)(1)
----------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise (#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ----------------- ------------- ------------- --------------- ------------- --------------
William P. Crowell ......... -- -- 851,875 648,125 $ 138,125 $ 966,875
R. Christopher Chillingworth -- -- 107,708 237,292 56,575 364,775
Robert B. Fougner .......... -- -- 212,553 188,750 73,266 328,738
Philip Breeden ............. -- -- 73,621 166,396 52,752 342,728
Richard F. Walsh ........... -- -- 86,146 248,854 44,200 309,400
- ------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 2001 ($2.75 per share)
and the exercise price of the Named Executive Officers' respective options.
Employment Agreements
The Company entered into an employment agreement with Mr. Crowell in
December 1997, which agreement was amended in November 1998 and in September
2001(the "Crowell Agreement"). Under the terms of the Crowell Agreement, Mr.
Crowell is to be employed by the Company as President and Chief Executive
Officer until December 31, 2004 for an annual salary of $300,000, subject to
increase or decrease by the Board of Directors, and is eligible for an annual
performance bonus of $100,000, payable semi-annually. The Crowell Agreement
provides that during the first year of Mr. Crowell's employment, the Company
will contribute an additional $30,000 to Mr. Crowell's retirement plans.
Pursuant to the terms of the Crowell Agreement, the Company made a loan to Mr.
Crowell in the amount of approximately $1,111,123 (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. As of December
31, 2001, the total amount outstanding under the Crowell Loan was $1,111,123.
Under the Crowell Agreement, Mr. Crowell received a grant of options to
purchase 350,000 shares of the Company's Common Stock, which options have a ten
year term and 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, a third grant of 150,000
options in January 1999, which options vest ratably over four years, and a
fourth grant of options to purchase 500,000 shares of the Company's Common
Stock which have a term of six years and vest monthly over two years. These
options are subject to accelerated vesting, in certain circumstances, if there
is a change in control of the Company. In the event of termination of Mr.
Crowell's employment within one year following a change in control, the Crowell
Agreement provides that the Company shall employ Mr. Crowell as a consultant
for a period of not less than one year, for a minimum of 20 days per year at
the rate of $3,000 per day. Upon termination of employment without cause by the
Company or for Good Reason (as defined in the Crowell Agreement), Mr. Crowell
will be entitled to receive, upon the execution of a release in favor of the
Company, (i) twelve monthly payments of severance pay in an amount equal to
1/12th of the sum of Mr. Crowell's then base salary and annual bonus, and (ii)
payment of health insurance for the period during which Mr. Crowell receives
severance payments under the Crowell Agreement. Upon voluntary termination of
employment without Good Reason (as defined in the Crowell Agreement), Mr.
Crowell shall receive any unpaid balance of salary and a prorated portion of
his annual bonus. Upon termination of employment with cause, Mr. Crowell shall
cease to have any rights to salary or bonus except such as is accrued at the
date of termination of employment. The
14
Crowell Agreement further contains a covenant not to compete, which provides
that Mr. Crowell cannot enter into competition with the Company during his
period of employment or for a period of two years from the date of termination
of employment. The Crowell Agreement provides that in consideration for Mr.
Crowell entering into the covenant not to complete, the outstanding balance of
the Loan shall be forgiven in full upon the closing of a Corporate Transaction
(as defined in the Crowell Agreement).
The Company entered into an employment agreement with R. Christopher
Chillingworth in November 2000 (the "Chillingworth Agreement"). Under the terms
of the Chillingworth Agreement, Mr. Chillingworth is to be employed by the
Company as Vice President Finance and Chief Financial Officer until November 6,
2005 for an annual base salary of $175,000, subject to increase or decrease by
the Chief Executive Officer, and is eligible for an annual performance bonus of
$75,000. Under the Chillingworth Agreement, Mr. Chillingworth received a grant
of options to purchase 100,000 shares of the Company's Common Stock, which
options have a six year term and vest over a period of four years from the date
of his employment, with 25% thereof being immediately exercisable. These
options are subject to accelerated vesting, in certain circumstances, if there
is a change in control of the Company. Upon termination of employment without
cause by the Company or for Good Reason (as defined in the Chillingworth
Agreement) prior to Mr. Chillingworth's sixty-fifth birthday, Mr. Chillingworth
will be entitled to receive, upon the execution of a release in favor of the
Company, (i) thirteen bi-weekly payments of severance pay in an amount equal to
1/26th of the sum of Mr. Chillingworth's then base salary and annual bonus, and
(ii) payment of health insurance for the period during which Mr. Chillingworth
receives severance payments under the Chillingworth Agreement. Upon voluntary
termination of employment without Good Reason (as defined in the Chillingworth
Agreement), Mr. Chillingworth shall receive any unpaid balance of salary and a
prorated portion of his annual bonus. Upon termination of employment with
cause, Mr. Chillingworth shall cease to have any rights to salary or bonus
except such as is accrued at the date of termination of employment. The
Chillingworth Agreement further contains a covenant not to compete, which
provides that Mr. Chillingworth cannot enter into competition with the Company
during his period of employment or for a period of one year from the date of
termination of employment.
The Company entered into an executive retention agreement with Mr. Fougner
in June 1998 (the "Fougner Agreement"). The Fougner Agreement does not
guarantee any specific employment, salary or bonus, but does provide that Mr.
Fougner will receive salary and bonus for a period of six months on the
occurrence of certain events; including involuntary termination upon a change
in control of the Company or upon termination for Good Reason (as defined in
the Fougner Agreement). The Fougner Agreement provides that the Company shall
provide Mr. Fougner with suitable rental living quarters and reimburse Mr.
Fougner for all travel expenses associated with the commute between Mr.
Fougner's personal residence, which is more than 100 miles from the Company's
principal place of business, and the Company. The Fougner Agreement also
includes a provision for acceleration of vesting of all outstanding options and
an increase in severance, in certain circumstances, if there is a change in
control of the Company.
The Company entered into an employment agreement with Philip Breeden in
July 2001 (the "Breeden Agreement"). Under the terms of the Breeden Agreement,
Mr. Breeden is to be employed by the Company as Vice President, Engineering
until July 23, 2006 for an annual base salary of $185,000, subject to increase
or decrease by the Chief Executive Officer, and is eligible for an annual
performance bonus of $70,000. Under the Breeden Agreement, Mr. Breeden received
a grant of options to purchase 170,000 shares of the Company's Common Stock,
which options have a six year term and vest over a period of two years from the
date of his employment. These options are subject to accelerated vesting, in
certain circumstances, if there is a change in control of the Company. Upon
termination of employment without cause by the Company or for Good Reason (as
defined in the Breeden Agreement) prior to Mr. Breeden's sixty-fifth birthday,
Mr. Breeden will be entitled to receive, upon the execution of a release in
favor of the Company, (i) thirteen bi-weekly payments of severance pay in an
amount equal to 1/26th of the sum of Mr. Breeden's then base salary and annual
bonus, and (ii) payment of health insurance for the period during which Mr.
Breeden receives severance payments under the Breeden Agreement. Upon voluntary
termination of employment without Good Reason ( as defined in the Breeden
Agreement), Mr. Breeden shall receive any unpaid balance of salary and a
prorated portion of his annual bonus. Upon termination of employment with
cause, Mr. Breeden shall cease to have any rights to salary or bonus
15
except such as is accrued at the date of termination of employment. The Breeden
Agreement further contains a covenant not to compete, which provides that Mr.
Breeden cannot enter into competition with the Company during his period of
employment or for a period of one year from the date of termination of
employment.
The Company entered into an employment agreement with Richard F. Walsh in
March 2000, which was amended in January 2002 (the "Walsh Agreement"). Under
the terms of the Walsh Agreement, Mr. Walsh is to be employed by the Company as
Vice President, Chief Information Officer until March 13, 2005 for an annual
base salary of $150,000, subject to increase or decrease by the Chief Executive
Officer, and is eligible for an annual performance bonus of $40,000. Under the
Walsh Agreement, Mr. Walsh received a grant of options to purchase 125,00
shares of the Company's Common Stock, which options have a six year term and
vest over a period of four years from the date of his employment, with 25%
thereof being exercisable on the first anniversary of the date of his
employment. These options are subject to accelerated vesting, in certain
circumstances, if there is a change in control of the Company. Upon termination
of employment without cause by the Company or for Good Reason (as defined in
the Walsh Agreement) prior to Mr. Walsh's sixty-fifth birthday, Mr. Walsh will
be entitled to receive, upon the execution of a release in favor of the
Company, (i) six monthly payments of severance pay in an amount equal to 1/12th
of the sum of Mr. Walsh's then base salary and annual bonus, and (ii) payment
of health insurance for the period during which Mr. Walsh receives severance
payments under the Walsh Agreement. Upon voluntary termination of employment
without Good Reason (as defined in the Walsh Agreement), Mr. Walsh shall
receive any unpaid balance of salary and a prorated portion of his annual
bonus. Upon termination of employment with cause, Mr. Walsh shall cease to have
any rights to salary or bonus except such as is accrued at the date of
termination of employment. The Walsh Agreement further contains a covenant not
to compete, which provides that Mr. Walsh cannot enter into competition with
the Company during his period of employment or for a period of one year from
the date of termination of employment.
16
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Report of the Compensation Committee shall not be incorporated by reference
into any such filings, nor shall it be deemed to be soliciting material or
deemed filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, or under the Securities Exchange Act of 1934, as
amended.
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 the Company's Chief Executive Officer are made by the
Compensation Committee and reviewed periodically by the full Board (excluding
any interested director). Decisions concerning the compensation of the
Company's executive officers are made by the Chief Executive Officer in
consultation with members of the Compensation Committee. Policies concerning
the terms of the 1994 Plan, the 2001 Plan and the ESPP (collectively, the
"Stock Plans") are determined by the Compensation Committee and administered by
certain of the Company's executive officers.
Executive Officer Compensation Programs
The objectives of the executive officer compensation programs are to
attract, retain, motivate and reward key personnel who possess the necessary
leadership and management skills, through competitive base salary, annual cash
bonus incentives, long-term incentive compensation in the form of stock
options, and various benefits, including medical and life insurance plans.
The executive compensation policies of the Compensation Committee are
intended to combine competitive levels of compensation and rewards for above
average performance and to align relative compensation with the achievements of
key business objectives, optimal satisfaction of customers, and maximization of
shareholder value. The Compensation Committee believes that stock ownership by
management is beneficial in aligning management and shareholder interests,
thereby enhancing shareholder value.
Base Salaries. Salaries for the Company's executive officers are
determined primarily on the basis of the executive officer's responsibility,
general salary practices of peer companies and the officer's individual
qualifications and experience. Among other sources of information, the
Compensation Committee and the Chief Executive Officer rely on reports from
Radford Associates concerning competitive compensation practices in the
Company's geographical region. The base salaries are reviewed annually and may
be adjusted in accordance with certain criteria which include individual
performance, the functions performed by the executive officer, the scope of the
executive officer's on-going duties, general changes in the compensation peer
group in which the Company competes for executive talent, and the Company's
financial performance generally. The weight given each such factor may vary
from individual to individual. Based on prior surveys, the base salaries for
the Company's executive officers were at the approximate median of the base
salary range for other executive officers in comparable positions at comparable
companies in the Company's industry and geographical region.
Incentive Bonuses. The Compensation Committee and the Chief Executive
Officer believe that a cash incentive bonus plan can serve to motivate the
Company's executive officers and management to address annual performance
goals, using more immediate measures for performance than those reflected in
the appreciation in value of stock options. The bonus amounts are based upon a
subjective consideration of factors including such executive officer's level of
responsibility, individual performance, contributions to the Company's success
and to the Company's financial performance generally.
Stock Option Grants. Stock options are granted to executive officers and
other employees under the 1994 Plan and, with respect to Mr. Crowell, under the
2001 Plan. Because of the direct relationship between the value of an option
and the stock price, the Compensation Committee believes that options motivate
executive officers to manage the Company in a manner that is consistent with
shareholder interests. Stock option grants are intended to focus the attention
of the recipient on the Company's
17
long-term performance, which the Company believes results in improved
shareholder value, and to retain the services of the executive officers in a
competitive job market by providing significant long-term earning potential. To
this end, stock options generally vest over a two to four year period. However,
the Compensation Committee continues to evaluate and consider revisions to the
various terms and conditions of the Company's option agreements, specifically
with respect to the duration of the option agreements, and the basis for
issuing and vesting of awards. The principal factors considered in granting
stock options to the Company's executive officers are prior performance, level
of responsibility, other compensation and the executive officer's ability to
influence the Company's long-term growth and profitability. However, the Stock
Plans do 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
of 1986, as amended (the "IRC") provides that, for purposes of the regular
income tax and the alternative minimum tax, the otherwise allowable deduction
for compensation paid or accrued with respect to a covered employee of a
publicly-held corporation is limited to no more than $1 million per year. It is
not expected that the cash compensation to be paid to the Company's Named
Executive Officers for fiscal 2002 will exceed the $1 million limit per
officer. In addition, the 1994 and 2001 Plans are designed so that any
compensation deemed paid to a Named Executive Officer when he or she exercises
an outstanding option under the Plan, with an exercise price equal to the fair
market value of the option shares on the grant date, will qualify as
performance-based compensation which will not be subject to the $1 million
limitation.. The Compensation Committee remains aware of the existence of the
IRC Section 162(m) limitations, and the available exemptions therefrom, and
will address the issue of deductibility when and if the circumstances so
warrant.
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, 2001 was $300,000. The
Compensation Committee authorized the Company to accrue a bonus for the Chief
Executive Officer for fiscal 2001, which has not been paid. In addition, Mr.
Crowell and most of the Company's executive officers agreed to forgo bonuses
for services performed by them during fiscal 2000. The bonus paid to Mr.
Crowell in fiscal 2000 was for services performed by Mr. Crowell in 1999. Mr.
Crowell's base salary was established in part by comparing the base salaries of
chief executive officers at other companies of similar size, the compensation
for the Company's previous chief executive officer, and past proposals by
competing candidates for the position of chief executive officer. Based on
prior surveys, the base salary offered to Mr. Crowell was at the approximate
median of the base salary range for other Chief Executive Officers of
comparable companies in the Company's industry and geographical region.
Compensation Committee
Dr. Leo Guthart
Dr. James H. Simons
18
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Report of the Audit Committee shall not be incorporated by reference into any
such filings, nor shall it be deemed to be soliciting material or deemed filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, or under the Securities Exchange Act of 1934, as amended
The Audit Committee of the Board was formed in 1995 and consists of Dr.
Howard L. Morgan, Dr. William W. Harris, Dr. Elwyn Berlekamp and Mr. Paul
Gauvreau, directors who meet the independence and experience requirements of
the National Association of Securities Dealers. The Audit Committee oversees a
comprehensive system of internal controls to ensure the integrity of the
financial reports and compliance with laws, regulations, and corporate
policies, and recommends resolutions for any dispute that may arise between
management and the Company's auditors.
Consistent with this oversight responsibility, the Audit Committee has
reviewed and discussed with management the audited financial statements for the
year ended December 31, 2001. Deloitte & Touche LLP, the Company's independent
auditors, issued their report dated February 8, 2002, on the Company's
financial statements.
The Audit Committee has also discussed with Deloitte & Touche LLP the
matters required to be discussed by AICPA Statement on Auditing Standards No.
61, "Communication with Audit Committees." The Audit committee has also
received the written disclosures and the letter from Deloitte & Touche LLP
required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," and has conducted a discussion with
Deloitte & Touche LLP relative to its independence, including whether Deloitte
& Touche LLP's provision of non-audit services is compatible with its
independence.
Based on these reviews and discussions, the Audit Committee recommended to
the Board of Directors that the Company's audited financial statements for the
year ended December 31, 2001 be included in the Annual Report on Form 10-K for
the fiscal year then ended.
Audit Committee
Dr. Elwyn Berlekamp
Mr. Paul Gauvreau
Dr. William W. Harris
Dr. Howard L. Morgan
19
STOCK PERFORMANCE GRAPH
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Stock Performance Graph shall not be incorporated by reference into any such
filings, nor shall it be deemed to be soliciting material or deemed filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended.
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock since December 31, 1996
through the end of the Company's fiscal year ended December 31, 2001, with the
percentage change in the cumulative total return for the Nasdaq Stock Market
(U.S.) Index and the JP Morgan H & Q Technology Index. The comparison assumes
an investment of $100 on December 31, 1996 in the Company's Common Stock and in
each of the foregoing indices and assumes reinvestment of dividends. The stock
performance shown on the graph below is not necessarily indicative of future
price performance.
CYLINK CORP
Cumulative Total Return
-----------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
CYLINK CORPORATION 100.00 75.00 27.88 103.85 16.58 21.15
NASDAQ STOCK MARKET (U.S.) 100.00 122.48 172.68 320.89 193.01 153.15
JP MORGAN H & Q TECHNOLOGY 100.00 117.24 182.36 407.27 263.28 181.99
20
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock. Reporting Persons are
required by Securities and Exchange Commission regulations to furnish 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,
2001, all Reporting Persons complied with all applicable filing requirements,
with the exception of Mr. Peter Slocum for whom Section 16 reports for
purchases made during May, June and July 2001 were reported under a Form 4
which was filed in September 2001.
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.
ANNUAL REPORT ON FORM 10-K AND ANNUAL REPORT TO SHAREHOLDERS
Upon written request to the Corporate Secretary, Cylink Corporation, 3131
Jay Street, Santa Clara, California 95056-0952, the Company will provide
without charge to each person solicited a copy of the 2001 report on Form 10-K,
including financial statements and financial statement schedules filed
therewith.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ William P. Crowell
-------------------------------------
William P. Crowell
President and Chief Executive Officer
April 12, 2002
Santa Clara, California
21
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 15, 2002
The undersigned shareholder of Cylink Corporation hereby acknowledges receipt of
the 2001 Annual Report to Shareholders, the Notice of Annual Meeting of
Shareholders and the Proxy Statement for the Annual Meeting of Shareholders of
Cylink Corporation to be held on Wednesday, May 15, 2002 at 2:00 p.m., Pacific
Daylight time at the Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA 95054
and revoking all prior proxies, hereby appoints Robert Fougner and R.
Christopher Chillingworth, 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 of record by the undersigned on March 29, 2002 at the Annual Meeting to be
held on May 15, 2002, or any postponement or adjournment thereof.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
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 and for the
appointment of the independent auditors.
1. Election of all nominees listed below to the Board of
Directors as Class 1 directors to serve until the 2005 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: Mr. Paul Gauvreau and Mr. Regis McKenna
[ ] FOR ALL NOMINEES
[ ] WITHHOLD FROM ALL NOMINEES
[ ]
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For All Nominees except as noted above
2. To ratify the appointment of Deloitte & Touche LLP as
independent auditors of Cylink Corporation for the fiscal year
ending December 31, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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:
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Signature: Date:
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