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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 Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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RAINBOW TECHNOLOGIES, INC.
50 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 2001
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the 2001 Annual Meeting of Shareholders of
Rainbow Technologies, Inc. (the "Company"), will be held on June 7, 2001, at
2:00 PM, Pacific Daylight Time at the Company's Headquarters, 50 Technology
Drive, Irvine, California 92618, (the "Annual Meeting") for the purposes
described below.
1. To elect five 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 ratify the appointment of Ernst & Young LLP as independent
auditors of the Company.
3. To transact such other business as may properly come before the
Annual Meeting.
Only Shareholders of record at the close of business on April 23, 2001
shall be entitled to receive 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 23, 2001
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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 2001 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 4, 2001.
GENERAL INFORMATION
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 23, 2001 (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 26,062,661 shares of
common stock, $0.001 par value per share ("Common Stock").
A Proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked, will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted (i) FOR the election as directors, the persons who have been
nominated by the Board of Directors, (ii) FOR the ratification of the selection
of Ernst & Young LLP as independent auditors to audit and report upon the
consolidated financial statements of the Company for the 2001 fiscal year, and
(iii) in accordance with the judgment of the person or persons voting the
proxies on any other matter that may be properly brought before the Annual
Meeting.
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).
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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 nominees
for election as Directors at the Annual Meeting who receive the highest number
of affirmative votes will be elected.
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.
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 Annual Meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
DIRECTOR NOMINEES
Five 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 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 57 CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
RICHARD P. ABRAHAM 71 DIRECTOR
FREDERICK M. HANEY 60 DIRECTOR
MARVIN HOFFMAN 66 DIRECTOR
ALAN K. JENNINGS 71 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.
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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.
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 the Company 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 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.
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EXECUTIVE OFFICERS
The names of the Company's executive officers who are not nominated for
election as members of the Board of Directors, and certain information about
them is set forth below.
NAME AGE POSITION
---- --- --------
AVIRAM MARGALITH 51 CHIEF OPERATING OFFICER
PATRICK E. FEVERY 45 VICE PRESIDENT OF FINANCE, AND CHIEF
FINANCIAL OFFICER
NORMAN L. DENTON, III 55 EXECUTIVE VICE PRESIDENT OF THE COMPANY, AND
CHIEF OPERATING OFFICER OF RAINBOW-IVEA
SUBSIDIARY
RICHARD L. BURRIS 56 VICE PRESIDENT OF MANUFACTURING
LAURIE W. CASEY 44 VICE PRESIDENT OF STRATEGIC MARKETING
JAMES KOPYCKI 59 SENIOR VICE PRESIDENT OF THE COMPANY, AND
PRESIDENT OF RAINBOW-MYKOTRONX SUBSIDIARY
SHAWN ABBOTT 32 PRESIDENT OF RAINBOW-IVEA SUBSIDIARY
CHERYL BAFFA 48 VICE PRESIDENT OF WORLDWIDE HUMAN RESOURCES
Dr. Aviram Margalith has been Chief Operating Officer of the Company
since September 1998. From 1997 to 1998, Dr. Margalith was Senior Vice President
of the Company and President of Mykotronx, a wholly-owned subsidiary of the
Company. 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 Chief Financial Officer and Vice President of
Finance 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 Chief Operating Officer of the Company's
iVEA subsidiary since January 1, 2001. Prior to assuming this responsibility, he
served as Executive Vice President of the Sentinel Business Unit beginning in
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 the Company. Mr. Denton attended the University of
California at Berkeley and San Francisco State University.
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.
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Laurie W. Casey has been Vice President of Strategic Marketing since
December 1995. Ms. Casey joined the Company as Manager of Product Management and
Planning in 1992. From 1990 to 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 the Company's Mykotronx
subsidiary and Senior Vice President of the Company 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.
Shawn Abbott was appointed President of the Company's iVEA subsidiary on
January 1, 2001. Prior to assuming this responsibility, he served as the Chief
Technology Officer for the Company. Mr. Abbott has studied intellectual property
protection and Internet cryptographic security for over a decade. Prior to
joining the Company, he established and built the AND group which pioneered the
encryption based CD-ROM software distribution system used on several million
discs. An accomplished speaker and teacher, he has presented at more than one
hundred conferences on topics of network security, digital rights management,
and software development. Mr. Abbott has a degree in physics from the University
of Alberta.
Cheryl G. Baffa was promoted to Vice President of Worldwide Human
Resources in January 2000. Ms. Baffa joined the Company as Director of Worldwide
Human Resources in May 1997 and has in excess of fifteen 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 meetings during the Company's fiscal
year ended December 31, 2000. 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, Mr. Haney, and Mr.
Hoffman. The Audit Committee held two meetings during fiscal year 2000. 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. Its activities are described in more detail under "Report of the
Audit Committee" below.
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The members of the Compensation Committee are Mr. Abraham and Mr.
Hoffman. The Compensation Committee held two meetings during fiscal year 2000.
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
Incentive Stock Option Plan, 2000 Stock Option Plan, and 2001 Non-Statutory
Stock Option Plan. The Stock Option Committee held four meetings during fiscal
year 2000. The members of the Stock Option Committee are Mr. Abraham and Mr.
Hoffman.
Each member of each particular Committee attended all of the meetings of
each such Committee.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. The Company's independent
auditors are responsible for expressing an opinion on the conformity of the
Company's audited financial statements with generally accepted accounting
principles. The discussions included the quality, not just the acceptability of
the accounting principles utilized, the reasonableness of significant accounting
judgments, and clarity of disclosure.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the audited financial statements. The
Audit Committee has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). Also, the Audit Committee received from the independent
auditors the written disclosures required by Independence Standards Board No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company and its management. Additionally, the Audit
Committee considered whether the independent auditors' provision of non-audit
related work is compatible with the auditors' independence.
FEES PAID TO INDEPENDENT AUDITORS
AUDIT FEES
During the fiscal year 2000, the Company paid to Ernst & Young LLP, the
Company's independent accountant's, an aggregate of $544,000 for the audit of
the Company's annual financial statements for the 2000 fiscal year.
ALL OTHER FEES
During the fiscal year 2000, the Company paid Ernst & Young LLP, an
aggregate of $669,000 for professional services rendered to the Company
(including tax return preparation work and tax planning and consulting
services).
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In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors and the Board approved, that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, for filing with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Alan K. Jennings
Frederick M. Haney
Marvin Hoffman
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, 2000 Stock Option Plan, and 2001
Non-Statutory 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 Company's 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.
The bonus compensation paid to executives for the current year is
established by the Compensation Committee each year following a review of the
Company's performance for the prior year. The Compensation Committee's criteria
for determining 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
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made annually and generally become exercisable during a 40 month vesting period,
thus providing an incentive for the employee to remain with the Company. 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
with the Company for the period required for the stock option to be exercisable.
CHIEF EXECUTIVE OFFICER COMPENSATION
Compensation for the Chief Executive Officer was set according to the
established compensation philosophy described above.
The Compensation Committee reviewed competitive base compensation
information reflecting the most recent compensation data and the Company's
performance in 2000 and goals for 2001. 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 2000.
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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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 the Company:
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS ALL OTHER
------------------------------------------------------------------
NAME YEAR SALARY ($) BONUS ($) OPTIONS # COMPENSATION (1) ($)
- --------------------------------------------------------------------------------------------------
WALTER W. STRAUB 2000 212,446 226,675 70,000 5,250
CHAIRMAN, CHIEF 1999 200,000 183,150 100,000 8,600
EXECUTIVE OFFICER,
AND PRESIDENT
1998 195,600 317,500 44,200 13,600
AVIRAM MARGALITH 2000 206,848 177,840 63,000 5,250
CHIEF OPERATING 1999 201,867 115,600 90,000 5,000
OFFICER
1998 204,270 58,000 40,200 5,000
PATRICK E. FEVERY 2000 148,846 72,662 42,000 5,250
VICE PRESIDENT OF 1999 140,000 89,100 60,000 5,000
FINANCE, AND CHIEF
FINANCIAL OFFICER
1998 132,000 145,250 33,200 10,000
NORMAN L. DENTON III 2000 183,846 135,000 49,000 5,250
EXECUTIVE VICE 1999 175,000 106,500 70,000 19,692
PRESIDENT, AND
CHIEF OPERATING
OFFICER
RAINBOW-IVEA
SUBSIDIARY
1998 219,632 32,800 35,200 10,000
PAUL A. BOCK(2) 2000 139,092 76,950 35,000 5,250
SENIOR VICE 1999 130,500 99,450 50,000 7,400
PRESIDENT
1998 125,000 104,000 33,200 7,400
(1) COMPANY CONTRIBUTION UNDER THE COMPANY'S 401(K) PLAN.
(2) MR. BOCK RESIGNED AS AN OFFICER OF THE COMPANY EFFECTIVE JANUARY 1,
2001.
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OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------
% OF
NUMBER OF TOTAL POTENTIAL REALIZABLE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION 10-YEAR OPTION TERM(2)
NAME GRANTED (1) IN 2000 ($/SHARE) DATE 5% ($) 10%($)
- ----------------------------------------------------------------------------------------------------------------------
WALTER W. STRAUB 9,203 0.49 15.97 09/01/10 92,423 234,217
60,797 3.24 15.97 09/01/10 610,564 1,547,288
AVIRAM MARGALITH 6,975 0.37 15.97 09/01/10 70,048 177,514
56,025 2.99 15.97 09/01/10 562,640 1,425,840
PATRICK E. FEVERY 7,698 0.41 15.97 09/01/10 77,308 195,915
34,302 1.83 15.97 09/01/10 344,483 872,988
NORMAN L. DENTON III 7,817 0.42 15.97 09/01/10 78,503 198,943
41,183 2.20 15.97 09/01/10 413,587 1,048,110
PAUL BOCK 7,769 0.41 15.97 09/01/10 78,021 197,722
27,231 1.45 15.97 09/01/10 273,472 693,031
(1) NO OPTION MAY BE EXERCISED PRIOR TO ONE YEAR FROM DATE OF GRANT, AT
WHICH TIME 30% OF THE GRANT IS VESTED WITH 2.5% PER MONTH VESTING
THEREAFTER.
(2) POTENTIAL REALIZABLE VALUE IS CALCULATED BASED ON THE ASSUMPTIONS THAT
THE STOCK PRICE ON THE DATE OF GRANT WILL APPRECIATE AT THE ANNUAL RATE
SHOWN, COMPOUNDED ANNUALLY FOR THE ENTIRE TERM OF THE OPTION, AND THAT
THE OPTION WILL BE EXERCISED AND SOLD ON THE LAST DAY OF ITS TERM FOR
THE APPRECIATED PRICE. THE ANNUAL GROWTH RATES USED ARE SET BY SEC
REGULATIONS AND DO NOT REFLECT THE COMPANY'S ESTIMATE OF FUTURE
APPRECIATION IN ITS STOCK PRICE.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE
NAME (#) ($) YEAR END 2000 MONEY OPTIONS AT YEAR END 2000(1)
-------- --------- ------------------------------------- ------------------------------------
EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
--------------- ----------------- --------------- -----------------
WALTER W. STRAUB 115,000 2,240,479 501,437 158,751 5,455,123 870,198
AVIRAM MARGALITH 146,344 2,536,194 11,832 153,024 123,205 892,123
PATRICK E. FEVERY 224,766 3,880,192 8,612 98,502 83,835 553,345
NORMAN DENTON, III 130,000 2,517,546 224,271 112,297 2,312,014 621,312
PAUL A. BOCK 182,000 3,215,535 37,801 85,251 374,091 492,788
(1) BASED ON A CLOSING PRICE OF THE COMMON STOCK ON DECEMBER 29, 2000 OF
$15.81/SH.
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 2000. Company contributions vest at the
date of the employee's commencement of service.
EMPLOYMENT AGREEMENTS AND
CHANGE OF CONTROL AGREEMENTS
In January 2001, the Company entered into employment agreements and
change of control agreements with Walter W. Straub, Chairman, President, and
Chief Executive Officer of the Company, Norman L. Denton, III, Executive Vice
President, and Chief Operating Officer of the Company's iVEA subsidiary, Patrick
Fevery, Vice President, and Chief Financial Officer, Aviram Margalith, Chief
Operating Officer, Laurie Casey, Vice President of Strategic Marketing, Richard
Burris, Vice President of Manufacturing, James Kopycki, Senior Vice President of
the Company, and President of the Mykotronx subsidiary, and Cheryl Baffa, Vice
President of Worldwide Human Resources. 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. Fevery, Dr. Margalith, Ms.
Casey, Mr. Burris, Mr. Kopycki, and Ms. Baffa, and three times the salary and
bonus paid in the prior year for Mr. Straub.
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DIRECTORS' COMPENSATION
For the year ended December 31, 2000, 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,
and each was granted options under the Company's 2000 Stock Option Plan to
purchase 10,000 shares of common stock at an exercise price of $15.97 per share.
For the year ended December 31, 2000, Richard P. Abraham, Marvin Hoffman,
Frederick Haney, and Alan Jennings, outside directors of the Company, each
received $10,000.
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SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph shows a comparison of five-year cumulative return
among the Company's NASDAQ Index, and the NASDAQ Computer and Data Processing
Index.
[PERFORMANCE GRAPH]
DEC-95 DEC-96 DEC-97 DEC-98 DEC-99 DEC-00
Rainbow 100 86 134 130 161 219
NASDAQ Index 100 123 151 213 395 238
NASDAQ Computer & Dataprocessing Index 100 123 152 271 594 275
THE GRAPH ASSUMES $100 WAS INVESTED ON DECEMBER 31, 1995
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 23, 2001,
with respect to share ownership of the Company's Common Stock by (i) each person
who beneficially owns more than 5% of the outstanding shares of Common Stock of
the Company, (ii) each director and director nominee of the Company and (iii)
executive officers listed in the Summary Compensation Table (iv) all officers
and directors of the Company as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS (1) BENEFICIAL OWNERSHIP (2) PERCENTAGE OF CLASS
- --------------------- ------------------------ -------------------
WALTER W. STRAUB 1,389,583 5.33
ALAN K. JENNINGS 547,942 2.10
RICHARD P. ABRAHAM 103,650 *
MARVIN HOFFMAN 121,650 *
FREDERICK HANEY 58,150 *
AVIRAM MARGALITH 51,071 *
PATRICK FEVERY 31,919 *
PAUL A. BOCK 56,840 *
NORMAN L. DENTON III 249,419 *
ALL OFFICERS AND DIRECTORS AS A
GROUP (17 PERSONS) 2,943,582 11.29
(1) C/O RAINBOW TECHNOLOGIES, INC., 50 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA,
92618.
(2) FOR PURPOSES OF THIS TABLE, "BENEFICIAL OWNERSHIP" OF ANY SECURITY AS OF
A GIVEN DATE INCLUDES THE RIGHT TO ACQUIRE SUCH SECURITY WITHIN 60 DAYS
OF APRIL 23, 2001. 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 133,650, WALTER W.
STRAUB 529,887, RICHARD ABRAHAM 103,650, MARVIN HOFFMAN 88,650,
FREDERICK HANEY 58,150, PAUL A. BOCK 54,840, NORMAN L. DENTON 244,575,
PATRICK E. FEVERY 27,153, AVIRAM MARGALITH 47,071, AND OTHER OFFICERS AS
A GROUP 256,034. 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.
14
17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
(the "Exchange Act") requires the Company's executive officers, directors and
persons who beneficially own greater than 10% of a registered class of the
Company's equity securities to file certain reports ("Section 16 Reports") with
the Securities and Exchange Commission with respect to ownership and changes in
ownership of the Common Stock and other equity securities of the Company. To the
best of the Company's knowledge, and based solely on the Company's view of the
Section 16 Reports furnished to the Company and written representations from
certain reporting persons, all Section 16(a) requirements applicable to its
officers, directors, and greater than 10% beneficial owners were complied with.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times during 2000, 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 2000.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
During 2000, the Company paid $2,906 to Fred Haney, a Director of the
Company, for providing the Company with consulting services.
PROPOSAL 2: 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 2001 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, upon recommendation of the Audit Committee,
unanimously recommends that the Company's shareholders vote "FOR" the
ratification of the selection of Ernst & Young LLP as independent auditors of
the Company for the 2001 fiscal year.
15
18
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company intended to be presented by
such shareholder at the Company's 2002 Annual Meeting must be received by the
Company no later than February 15, 2002, in order that they may be included in
the proxy statement related to that meeting.
FINANCIAL STATEMENTS
All shareholders as of the Record Date are concurrently being sent a
copy of the Company's Annual Report for the fiscal year ended December 31, 2000,
which contains the financial statements of the Company.
THE COMPANY FILED AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
SHAREHOLDERS MAY OBTAIN A COPY OF THIS REPORT, WITHOUT COST, BY WRITTEN REQUEST
TO THE COMPANY'S SHAREHOLDER RELATIONS DEPARTMENT.
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.
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 solicitation 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 23, 2001
16
19
RAINBOW TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 7, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Rainbow Technologies, Inc. (the
"Company") hereby appoints Walter W. Straub, the President of the Company, or
failing him, Patrick Fevery, Chief Financial Officer or instead of either of the
foregoing ______________________, as the nominee of the undersigned to attend
and to act for and on behalf of the undersigned at the annual meeting of
shareholders of the Company to be held on June 7, 2001 at 2:00 P.M. Pacific
Time, and at any adjournment or adjournments thereof, to the same extent and
with the same power as if the undersigned were personally present at said
meeting or such adjournment or adjournments thereof and, without limiting the
generality of the power hereby conferred, the nominees named above are
specifically directed to vote as indicated on the reverse side of this proxy
card.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
20
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
RAINBOW TECHNOLOGIES, INC.
JUNE 7, 2001
\/ Please Detach and Mail in the Envelope Provided \/
A [X] Please mark your
votes as in this
example.
1. ELECTION OF DIRECTORS.
FOR all nominees WITHHOLD
listed at right (except AUTHORITY
as marked to the to vote for each
contrary below) nominee listed at right NOMINEES:
[ ] [ ] Walter W. Straub
Alan K. Jennings
Richard P. Abraham
Marvin Hoffman
Frederick M. Haney
FOR AGAINST ABSTAIN
2. PROPOSAL TO RATIFY 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
AND 2.
Name: _____________________________________________________________
_______________________________________ _______________________________________
SIGNATURE SIGNATURE IF HELD JOINTLY
Date: ______________________________, 2001
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.