-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVW7pwuTqI4oH1k1w/1xhOfCKDgFXc5lvGX3DtC2GqbiWPtoa/AX/pMbVZsU7Hqt OYo5MSxcdzZGXWc7XClLbg== 0000892569-97-001244.txt : 19970507 0000892569-97-001244.hdr.sgml : 19970507 ACCESSION NUMBER: 0000892569-97-001244 CONFORMED SUBMISSION TYPE: DEFR14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970506 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAINBOW TECHNOLOGIES INC CENTRAL INDEX KEY: 0000819706 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 953745398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFR14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16641 FILM NUMBER: 97595934 BUSINESS ADDRESS: STREET 1: 50 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7144542100 MAIL ADDRESS: STREET 1: 50 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 DEFR14A 1 REVISED DEFINITIVE PROXY MATERIAL 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission [X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
RAINBOW TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] Fee not required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------ (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------ (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------ (5) Total fee paid: ------------------------------------------------------------------------ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------ (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------ (3) Filing Party: ------------------------------------------------------------------------ (4) Date Filed: ------------------------------------------------------------------------ 2 RAINBOW TECHNOLOGIES, INC. 50 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS JUNE 12, 1997 TO THE SHAREHOLDERS: NOTICE IS HEREBY GIVEN THAT the 1997 Annual Meeting of Shareholders of Rainbow Technologies, Inc. (the "Company"), will be held on June 12, 1997 at 2:00 PM, Pacific Daylight Time at the Company's Headquarters, 50 Technology Drive, Irvine, California 92618, 714-450-7300, (the "Annual Meeting") for the purposes described below. 1. To elect a Board of Directors who shall hold office until the next Annual Meeting of Shareholders or until their successors are duly elected and shall have qualified. 2. To consider and vote upon a proposal to approve an amendment to Rainbow's 1990 Restated Incentive Stock Option Plan the ("Option Plan") to increase the number of shares of Rainbow Common Stock that may be issued under the Option Plan by an additional amount of 750,000 shares of Rainbow Common Stock. 3. To ratify the appointment of Ernst & Young, LLP as the independent auditors of the Company. 4. To transact such other business as may properly come before the Annual Meeting. Only Shareholders of record at the close of business on May 1, 1997 are entitled to notice of and to vote at the Annual Meeting. You are cordially invited to attend the Annual Meeting. However, if you are not able to be present, please be sure that your shares are represented at the Annual Meeting by indicating your voting instructions, dating and signing the enclosed proxy card and returning it promptly in the enclosed, postage paid envelope. By Order of the Board of Directors [SIG] Walter W. Straub Chairman May 12, 1997 3 RAINBOW TECHNOLOGIES, INC. 50 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 PROXY STATEMENT This proxy statement is furnished in connection with the solicitation by the Board of Directors of Rainbow Technologies, Inc. (the "Company") of proxies, in the form enclosed, for use at the 1997 Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held at the time and place and for the purpose set forth in the attached Notice of Annual Meeting of Shareholders. Mailing of this proxy statement and the accompanying proxy card is to commence on May 12, 1997. GENERAL INFORMATION RECORD DATE AND SHARES OUTSTANDING Shareholders of record at the close of business on May 1, 1997 (the "Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At the Record Date, the Company had issued and outstanding 7,817,896 shares of Common Stock. REVOCABILITY OF PROXIES Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (i) filing with the Secretary of the Company, at or before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the Secretary of the Company before the Annual Meeting, or (iii) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). VOTING Each share of Common Stock outstanding on the Record Date is entitled to one vote. No shareholder will be entitled to cumulative votes. The six nominees for election as Directors at the Annual Meeting who receive the highest number of affirmative votes will be elected. The other matter submitted for shareholder approval at the Annual Meeting will require the affirmative vote of a majority of shares of the Company's Common Stock present or represented and entitled to vote at the meeting. 2 4 SOLICITATION OF PROXIES The cost of solicitation will be borne by the Company. The Company may reimburse brokerage firms and other persons representing beneficial owners of shares of Common Stock for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may be solicited by certain of the Company's directors, officers, and regular employees, without additional compensation, personally or by telephone or telegram. SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING Proposals of shareholders of the Company intended to be presented by such shareholder at the Company's 1998 Annual Meeting must be received by the Company no later than February 15, 1998 in order that they may be included in the proxy statement related to that meeting. PROPOSAL 1: ELECTION OF DIRECTORS NOMINEES Six directors are to be elected to hold office until the next Annual Meeting of Shareholders and until their successors are elected and qualified. Unless otherwise directed, the proxy holders will vote the proxies received by them for the six nominees named below. Management expects that each of the nominees will be available for election, but if any of them is not a candidate at the time the election occurs, it is intended that such proxy will be voted for the election of another nominee to be designated by the Board to fill any such vacancy. The names of the nominees and certain information about them are set forth below.
Name of Nominee Age Position - --------------- --- -------- Walter W. Straub 53 Chairman, President, Chief Executive Officer and Director Peter M. Craig 52 Vice Chairman, Executive Vice President, Secretary and Director Richard P. Abraham 67 Director Frederick M. Haney 56 Director Marvin Hoffman 62 Director Alan K. Jennings 67 Director
3 5 All of the nominees of management are members of the Board of Directors at the present time and have served continuously since the dates of their election as described below. Walter W. Straub, a co-founder of the Company, has been a director of the Company since its inception in 1982, and President and Chief Executive Officer of the Company since 1983. Since 1989, Mr. Straub has served as director of CAM Data Systems, a manufacturer of computerized inventory control systems. Mr. Straub received a B.S.E.E. in 1965 and an M.B.A. in Finance in 1970 from Drexel University. In May 1993, Mr. Straub was elected to the Board of Trustees of Drexel University. Peter M. Craig has been a director of the Company since 1985, Vice Chairman since December, 1995, Executive Vice President since 1992, and Secretary of the Company since 1989. Mr. Craig received a B.S.E.E. from Case Institute of Technology in 1967 and a M.S.E.E. from the University of Minnesota in 1975. Richard P. Abraham has been a director of the Company since 1988. He is currently the President of Pacific Associates, a sole proprietorship engaged in business consulting. Mr. Abraham is a member of the Board of Directors of Quantum Manufacturing Technologies, (QMT) of Albuquerque, New Mexico. As a member of the Board of QMT, Mr. Abraham has an option to purchase 109,400 shares of QMT's common stock at an option price of $0.10, vesting over four years. The Company has invested $4.2 million for 52.5% of the common stock of QMT Since 1987, Mr. Abraham has been a General Partner of Weeden Capital Management and has also been a consultant to Weeden & Co. Mr. Abraham received a B.S. and M.S. from Stanford University in 1954. Dr. Frederick M. Haney has been a director of Rainbow since January, 1996. He is President of Venture Management Company, Palos Verdes Estates, California. From 1984 to 1991 he was founder and manager of 3i Ventures, California, a high technology venture capital fund. Dr. Haney has extensive experience in strategic planning, operations and finance in the information and computer industry. Dr. Haney holds a Ph.D. in Computer Science from Carnegie-Mellon University. Marvin Hoffman has been a director of the Company since 1990. He is currently, and has been since 1976, the Chief Executive Officer and Chairman of the Board of XXCAL, Inc., a corporation engaged in the business of providing high technology computer and computer- related temporary personnel. He is also currently, and has been since 1988 and 1987, respectively, the President of the Los Angeles City College Foundation and a director of RIMTECH, a not-for-profit organization encouraging trade and joint ventures between United States and Japanese businesses. Mr. Hoffman received a B.A. in Mathematics from California State University Northridge in 1962. Dr. Alan K. Jennings, a co-founder of the Company, has been a director of the Company since its inception in 1982. From 1982 to 1992 he served as an officer of the Company in various capacities. Since 1980, Dr. Jennings has been the President of Dartex, Inc., a California 4 6 corporation which provides technical and management services. He received a B.S.E.E. from Stanford University in 1949, an M.S. in Mathematics from Oklahoma State University in 1951 and a Ph.D. in Mathematics from Kansas University in 1954. EXECUTIVE OFFICERS The names of the Company's executive officers who are not nominated for election as members of the Board of Directors, and certain information about them is set forth below.
Name Age Position - ---- --- -------- Paul A. Bock 49 Senior Vice President Business Development Norman L. Denton, III 51 Senior Vice President Sales and Marketing Aviram Margalith 47 Senior Vice President Patrick E. Fevery 41 Vice President Finance and Chief Financial Officer Richard L. Burris 52 Vice President Manufacturing Laurie W. Casey 40 Vice President Strategic Marketing Kenneth A. Konechy 52 Vice President Strategic Technology Programs Dorinda Dorsey Rowden 44 Vice President
Paul A. Bock was promoted to Senior Vice President Business Development in December 1995, and has served as Vice President of Business Development since 1992. From 1988 to 1992, Mr. Bock held the positions of Director of Business Development for the Company and Manager of National Sales and Major Accounts for the Company. Mr. Bock received his B.S. degree in Political Science from California State University Northridge in 1969. Norman L. Denton, III was promoted to Senior Vice President of Sales and Marketing December 1995, and has served as Vice President of Sales and Marketing since 1992. From 1990 to 1992, Mr. Denton held positions of Director of Sales and Marketing North American, and Director of National Accounts Marketing at Rainbow. Mr. Denton attended University of California at Berkeley and San Francisco State University. Patrick E. Fevery has been Vice President of Finance and Chief Financial Officer of the Company since January 1992. From 1990 to 1992, Mr. Fevery was Controller of the Company. From 1988 to 1990, Mr. Fevery was the Company's Manager of Finance and Administration. Mr. Fevery received a Bachelor's Degree in Business Administration from 5 7 European University in Belgium in 1980, and a Masters Degree in Business Administration from Claremont Graduate School in Claremont, California in 1982. Richard L. Burris has been Vice President of Manufacturing since 1992. From 1988 to 1992, Mr. Burris held the positions as the Company's Manufacturing Manager and Director of Manufacturing. Mr. Burris received an AA from Fullerton College in 1973. Laurie W. Casey was promoted to Vice President Strategic Marketing in December 1995. Ms. Casey joined Rainbow as Manager of Product Management & Planning in 1992. From 1990 to 1992, she was a Product Manager for Printronix Corporation. Ms. Casey received her B.A. in Spanish in 1978 from the University of California at Santa Barbara, and obtained her Master's degree in International Management from the American Graduate School of International Management in 1989. Kenneth A. Konechy became Vice President of Strategic Technology Programs in December, 1995. He served as Vice President of Engineering of the Company since 1990. From 1989 to 1990, Mr. Konechy held the position of Engineering Director for the Company. Mr. Konechy received a B.S.E.E. in 1964 and a M.S.E.E. in 1967 from the University of Pittsburgh. Dorinda Dorsey Rowden was promoted to Vice President in 1992. Ms. Rowden has served as Vice President responsible for Software Security, Inc., a wholly owned subsidiary, since October 1996. Ms. Rowden was Vice President of Asia Pacific and Latin America from 1992 through 1996. From 1989 to 1992, Ms. Rowden was the Company's Manager of Sales and Distribution for Asia and Latin America. Ms. Rowden received a B.A. from San Diego State University in 1974. Dr. Aviram Margalith was appointed Senior Vice President of Rainbow and President of Mykotronx, a wholly owned subsidiary of Rainbow, in April 1997. Prior to this appointment, Dr. Margalith was Vice President and General Manager of Group Technologies Corporation of Tampa, Florida. His assignments at Group Technologies included International operations, Engineering Services and Federal Systems. He replaces Dr. Theodore Bettwy who recently announced his retirement. Except as stated, there are no arrangements or understandings by or between any director or executive officer and any other person(s), pursuant to which he or she was or is to be selected as a director or executive officer, respectively. There is no family relationship by or between any director or executive officer of the Company. 6 8 BOARD MEETINGS AND COMMITTEES The Board of Directors held five meetings during the Company's year ended December 31, 1996. Each director attended all meetings of the Board of Directors. The Board of Directors of the Company has standing Audit, Compensation and Stock Option Committees. The Board of Directors has no Nominating Committee nor any committee performing the functions of a Nominating Committee. The members of the Audit Committee are Mr. Jennings and Mr. Hoffman. The Audit Committee held two meetings during fiscal 1996. The purpose of the Audit Committee is to review with the management of the Company and with the Company's independent auditors such matters as internal accounting controls and procedures, the plan and results of the annual audit, and the recommendations of the independent auditors with respect to their audit activities. The members of the Compensation Committee are Mr. Abraham and Mr. Hoffman. The Compensation Committee held two meetings during fiscal 1996. The Compensation Committee is primarily responsible for establishing compensation for the executive officers of the Company. Its activities are described in more detail under "Report of the Compensation Committee on Executive Compensation" below. The Stock Option Committee is primarily responsible for establishing the number of options granted to employees of the Company under the 1990 Restated Stock Option Plan. The Stock Option Committee held 6 meetings during fiscal 1996. The members of the Stock Option Committee are Mr. Abraham and Mr. Hoffman. Each member of each particular Committee attended all of the meetings of each such Committee. REPORT OF THE COMPENSATION COMMITTEE The Company's executive compensation program is administered by the Compensation and Stock Option Committees of the Board of Directors. The Compensation Committee and the Stock Option Committee are each comprised entirely of non-employee, independent members of the Board of Directors. The Compensation Committee establishes the general compensation policies of the Company and the compensation paid to the Chief Executive Officer and other executive officers. The Stock Option Committee administers the 1990 Restated Incentive Stock Option Plan including review and approval of stock option grants to all employees, including the Chief Executive Officer and other executive officers. GENERAL COMPENSATION PHILOSOPHY The Company's compensation philosophy is that cash compensation should be related to the performance of the Company and any long term incentive should be closely aligned with the 7 9 interests of shareholders. This philosophy is designed to attract, retain and motivate the high caliber of executives required for the success of the business. In determining executive compensation, the Compensation Committee compares the compensation paid at companies in the computer hardware and software industries, and places particular emphasis upon financial performance comparisons including sales growth, net income growth, net income per share growth, increase in cash flow and growth in shareholder value. The Committee then structures cash compensation for the executive officers named in the Summary Compensation Table to consist of (i) a base salary determined upon a review of the Company's performance in the prior year, and (ii) bonus compensation that is directly related to the Company's sales, quality and net income performance in the current year. In particular, the bonus compensation paid to executives is established by the Compensation Committee each year following a review of Rainbow's performance for the prior year. The bonus compensation is based directly on Rainbow's current year operating performance goals, and is generally established to equal 30% to 60% of the executive's total cash compensation for the year. Long term incentive compensation is realized through the granting of stock options to key employees including the Chief Executive Officer and other executive officers. The number of shares of Common Stock subject to a stock option grant is based upon the employee's current and anticipated future performance and ability to achieve strategic goals and objectives. Grants are made annually and generally become exercisable during a four year vesting period, thus providing an incentive to remain in the Company's employ. Stock options have value for the employee only if the price of the Company's stock increases above the fair market value on the grant date and the employee remains in the Company's employ for the period required for the stock option to be exercisable. CHIEF EXECUTIVE OFFICER COMPENSATION Compensation for the Chief Executive Officer was set according to the established compensation philosophy described above. The Compensation Committee reviewed competitive base compensation information reflecting the most recent compensation data and the Company's performance in 1995 and goals for 1996. The bonus portion of the Chief Executive Officer's compensation represents approximately 55% of the Chief Executive Officer's total cash compensation. This reflects the Company's commitment to its stated compensation philosophy. The Chief Executive Officer received a grant of stock options based upon an evaluation of the Company's performance in 1995. CONCLUSION The committee believes that these policies and programs are competitive and effectively align executive compensation with the Company's goal of maximizing the return to shareholders. 8 10 COMPENSATION COMMITTEE: Richard P. Abraham Marvin Hoffman EXECUTIVE COMPENSATION The following tables set forth the annual compensation for the Chief Executive Officer and the four other most highly compensated executive officers of Rainbow Technologies, Inc. SUMMARY COMPENSATION TABLE
Long-term Compensation Annual Compensation Awards All Other ---------------------------------------------------------- Name Year Salary($) Bonus($) Options# Compensation(1)($) - --------------------------------------------------------------------------------------------- Walter W. Straub 1996 172,600 218,400 22,000 4,500 1995 163,604 208,000 20,000 1,000 1994 163,604 160,000 60,400 1,000 Theodore Bettwy* 1996 124,500 214,850 0 4,500 1995 124,800 201,100 27,000 6,756 1994 103,960 143,600 6,600 5,100 Peter M. Craig 1996 164,128 144,300 15,000 4,500 1995 152,420 115,500 12,000 1,000 1994 152,420 105,000 38,425 1,000 Norman L. Denton III 1996 213,588 96,200 15,000 4,500 1995 226,974 91,000 19,000 1,000 1994 182,358 70,000 23,025 1,000 Paul A. Bock 1996 98,600 96,200 15,000 4,500 1995 91,580 91,000 14,500 1,000 1994 91,580 70,000 22,675 1,000
* Retired effective May 1997 1. Company contribution under the Company's 401(K) Plan. 9 11 OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants ------------------------------------------------ % of Total Potential Realizable at Options Assumed Annual Rates of Granted to Exercise Stock Price Appreciation Options Employees Price Expiration Option Term Name Granted(1) in 1996 ($/Sh) Date 5% 10% - ------------------------------------------------------------------------------------------------------------------ Walter W. Straub 22,000 7.23% 15.250 07/23/06 $210,994 $534,701 Peter M. Craig 15,000 4.93% 15.250 07/23/06 143,860 364,569 Norman L Denton III 15,000 4.93% 15.250 07/23/06 143,860 364,569 Paul A. Bock 15,000 4.93% 15.250 07/23/06 143,860 364,569
(1) No Option may be exercised prior to one year from date of grant, at which time 28% of the grant is vested with 2% per month vesting thereafter. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Unexercised Options Value of Unexercised In-The-Money Shares at Year End 1996 Options at Year End Acquired On Value -------------------------------- --------------------------------- Name Exercise(#) Realized($) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($) - ------------------------------------------------------------------------------------------------------------------------ Walter W. Straub 0 0 98,309 66,691 548,502 271,923 Peter M. Craig 0 0 55,909 42,816 255,046 176,214 Norman L. Denton 0 0 57,694 39,431 335,054 125,856 Theodore S. Bettwy 66,000 1,226,610 26,879 12,921 286,955 20,242 Paul A. Bock 2,540 30,002 21,940 35,695 90,983 124,716
10 12 DIRECTORS' COMPENSATION For the year ended December 31, 1996, the Company had an Outside Directors' Plan to compensate those directors of the Company who were not also employees of the Company, for serving as directors. The Outside Directors' Plan provides for outside directors to receive the sum of $2,500 per Board meeting. For the year ended December 31, 1996, Richard P. Abraham, Marvin Hoffman, Frederick Haney and Alan Jennings, outside directors of the Company, each received $10,000. STOCKHOLDER RETURN PERFORMANCE GRAPH The following graph shows a comparison of five-year cumulative return among Rainbow Technologies, the NASDAQ Index, and the NASDAQ Computer and Data Processing Index. [PERFORMANCE GRAPH] Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96 ------ ------ ------ ------ ------ ------ Rainbow 100 77 82 60 93 80 Nasdaq I. 100 116 134 131 185 227 Nasdaq C&D 100 108 114 138 211 260 The graph assumes $100 was invested on December 31, 1991. 11 13 EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS In January 1997, the Company entered into employment agreements and change of control agreements with Walter W. Straub, President and Chief Executive Officer of the Company, Peter M. Craig, Vice Chairman and Executive Vice President, Norman L. Denton III, Senior Vice President, Paul A. Bock, Senior Vice President and Patrick Fevery, Vice President & Chief Financial Officer. The terms of the employment agreements provide for a term of one year, and base salary and bonus compensation to be determined by the Board of Directors. In the event of a change of control, the agreements provide for severance payments equal to the salary and bonus paid in the prior year for Mr. Craig, Mr. Denton, Mr. Bock, and Mr. Fevery and three times the salary and bonus paid in the prior year for Mr. Straub. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of May 1, 1997 with respect to share ownership of the Company's Common Stock by (i) each person who owns beneficially more than 5% of the outstanding shares of Common Stock of the Company, (ii) each director of the Company and (iii) executive officers listed in the Summary Compensation Table (iv) all officers and directors of the Company as a group without naming them.
AMOUNT AND NATURE NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE BENEFICIAL OWNERS (1) OWNERSHIP(2) OF CLASS - --------------------- ----------------- ---------- Alan K. Jennings 683,514 7.38% Walter W. Straub 425,994 4.60% Peter M. Craig 87,062 * Richard P. Abraham 33,850 * Marvin Hoffman 24,850 * Frederick Haney 2,850 * Norman L. Denton III 63,862 * Paul A. Bock 27,526 * All officers and directors as a group (12 persons) 1,426,998 13.29%
(1) c/o Rainbow Technologies, Inc., 50 Technology Drive, Irvine, CA 92618. (2) For purposes of this table, "beneficial ownership" of any security as of a given date includes the right to acquire such security within 60 days of May 1, 1997. To the 12 14 knowledge of the Company, each person named in the table has the sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such person or entity. (*) Indicates less than one percent ownership. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At various times during 1996, the following individuals (none of whom was or had been an officer or employee of the Company or any of its subsidiaries) served on the Company's Compensation Committee: Richard P. Abraham, Marvin Hoffman. There were no interlocks with other companies within the meaning of the SEC's Proxy rules during 1996. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS During 1996, the Company paid $42,000 to XXCAL, Inc. a corporation engaged in providing high technology temporary computer and computer-related personnel. Marvin Hoffman is the Chief Executive Officer and Chairman of the Board of XXCAL, Inc. 401(K) PROFIT SHARING PLAN AND TRUST. In January 1990, the Board of Directors adopted and approved a 401(k) Profit Sharing Plan and Trust effective January 1, 1990. Under the 401(k) program, the Company is obligated to match each employee's contribution 50% per dollar of salary contribution with a company matching maximum contribution of 6% of salary deferral. The Company has the option to contribute an additional discretionary amount based upon current or accumulated net profits. No such discretionary contributions were made in 1996. Company contributions vest at the date of the employee's commencement of service. PROPOSAL 2: APPROVAL OF AMENDMENT TO 1990 RESTATED INCENTIVE STOCK OPTION PLAN Rainbow shareholders are being asked to approve the amendment of Rainbow's 1990 Restated Incentive Stock Option Plan (the "Option Plan") to increase the number of shares of Rainbow Common Stock which may be issued, by 750,000 shares of Rainbow Common Stock. As of May 1, 1997, options covering an aggregate of 1,291,814 shares of Rainbow's Common Stock were outstanding under the Option Plan, and 117,998 shares remain available for future grant under the Option Plan. In March 1997, the Board of Directors of Rainbow (the "Board") adopted, subject to shareholder approval, a proposal to amend the Option Plan to increase the number of shares authorized for issuance under the Option Plan by, 750,000 shares. The Board adopted these amendments to ensure that Rainbow continue to grant stock options to employees at levels determined appropriate by the Board and the Compensation and Option Committee of the Board. 13 15 VOTE REQUIRED The affirmative vote of a majority of shares of the Common Stock present in person or represented by proxy and entitled to vote at the Rainbow Special Meeting will be required for the approval of this proposal. Abstentions will be counted towards the tabulation of votes cast on the proposal and will have the same effect as negative votes. Brokers non-votes will not be counted for any purpose in determining whether the proposal has been approved. DESCRIPTION OF THE OPTION PLAN The essential features of the Option Plan are outlined below. GENERAL The Option Plan provides for the grant of incentive stock options. Incentive stock options granted under the Option Plan are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code (the "Code"). See "Tax Information" for a discussion of the tax treatment of incentive and non-qualified stock options. PURPOSE The Option Plan was adopted to provide a means by which selected officers and employees of Rainbow and its affiliates could be given an opportunity to purchase stock in Rainbow, to assist in retaining the services of employees holding key positions, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for the success of Rainbow. ADMINISTRATION The Option Plan provides that it will be administered by the Board and authorized the Board to delegate such administration to a committee of not fewer than two members of the Board each of whom shall be disinterested within the meaning of Rule 16b-3 under the Exchange Act of 1934. As used herein with respect to the Option Plan the "Board" refers to the Compensation and Option Committee as well as the Board of Directors itself. The Board has the power to construe and interpret the Option Plan and, subject to the provisions of the Option Plan, to determine the persons to and the dates on which options will be granted, the number of shares to be subject to each option, the exercise price, the type of consideration and other terms of the option. The Board has delegated such administration to the Compensation and Option Committee. ELIGIBILITY Incentive Stock options may be granted under the Option Plan only to selected employees (including officers) of Rainbow and its affiliates. 14 16 STOCK SUBJECT TO THE OPTION PLAN If options granted under the Option Plan expire or otherwise terminate without being exercised, the Common Stock not purchased pursuant to such options, again becomes available for issuance under the Option Plan. The current number of shares authorized for issuance under the Option Plan is 1,409,812 shares. Under this proposal the Option Plan would be amended to increase the number of shares authorized for issuance to 2,159,812. FEDERAL AND CALIFORNIA INCOME TAX INFORMATION Incentive stock options under the Option Plan are intended to be eligible for the favorable federal and California income tax treatment accorded "incentive stock options" under the Code. There generally are no federal and California income tax consequences to the optionee or Rainbow by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the optionee's alternative minimum tax liability, if any. If an optionee holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option is granted and more than one year from the date on which the shares are transferred to the optionee upon exercise of the option, any gain or loss on a disposition of such stock will be long-term capital gain or loss. Generally if the optionee disposes of the stock before the expiration of either of these holding periods (a "disqualification disposition"), at the time of disposition, the optionee will realize taxable ordinary income equal to the lesser of (i) the excess of the stock's fair market value on the date of exercise over the exercise price or (ii) the optionee's actual gain, if any, on the purchase and sale. The optionee's additional gain or any loss upon the disqualifying disposition, will be a capital gain or loss which will be long-term or short-term, depending on whether the stock was held for more than one year. Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act of 1934. To the extent the optionee recognizes ordinary income by reason of a disqualifying disposition, Rainbow will generally be entitled (subject to the requirement of reasonableness and perhaps in the future the satisfaction of a withholding obligation) to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs. Pursuant to Section 162(m) of the Code for options granted on or after the May, 1994 Annual Meeting, or options materially modified after January 1, 1994, Rainbow's business expense deduction will be limited to $1 million for certain executive employees if such an employee's recognition of ordinary income on such disqualifying disposition, combined with all other compensation paid to the employee during the year of the disqualifying disposition, exceeds $1 million. 15 17 THE BOARD OF DIRECTORS HAS RECOMMENDED A VOTE FOR APPROVAL OF THE AMENDMENTS TO RAINBOW'S 1990 RESTATED INCENTIVE STOCK OPTION PLAN PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS It is proposed that the shareholders approve the selection of Ernst & Young LLP as independent auditors for the Company for the 1996 fiscal year. Ernst & Young LLP have been the independent auditors for the Company since 1987, and their reappointment has been recommended by the Board of Directors. Representatives of Ernst & Young LLP are expected to be available at the Annual Meeting to respond to appropriate questions and will be given the opportunity to make a statement if they so desire. This proposal requires the approval of at least a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting. In the event such approval is not obtained, selection of independent auditors will be reconsidered by the Board of Directors. RIGHTS OF DISSENTING SHAREHOLDERS There are no rights of appraisal or similar rights of dissenters with respect to any matter proposed to be acted upon at the 1997 Annual Meeting of Shareholders. OTHER MATTERS The Company knows of no matters, other than those described herein, which are to be brought before the Annual Meeting. However, if any other proper matters are brought before the Annual Meeting, the persons named in the enclosed proxy will vote in accordance with their judgment on such matters. FINANCIAL STATEMENTS Financial Statements of the Company are contained in the 1996 Annual Report to Shareholders. THE COMPANY FILES AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K. SHAREHOLDERS MAY OBTAIN A COPY OF THIS REPORT WITHOUT COST BY WRITTEN REQUEST TO THE COMPANY'S SHAREHOLDER RELATIONS DEPARTMENT. 16 18 NOTICE TO BANKS, BROKERS/DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES Please advise the Company, at 50 Technology Drive, Irvine, California 92618, Attention: Secretary, whether other persons are the beneficial owners of the shares for which proxies are being solicited and, if so, the number of copies of the proxy statement, other soliciting material and Annual Report you wish to receive in order to supply copies to the beneficial owners of shares of Common Stock of the Company. BY ORDER OF THE BOARD OF DIRECTORS: [SIG] Walter W. Straub Chairman Irvine, California May 12, 1997 17 19 RAINBOW TECHNOLOGIES, INC. ANNUAL MEETING OF SHAREHOLDERS -- JUNE 12, 1997 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned shareholder of Rainbow Technologies, Inc. (the "Company") hereby appoints Walter W. Straub, the President of the Company, or failing him, Peter M. Craig, Vice Chairman and Executive Vice President of the Company, or instead of either of the foregoing, as the nominee of the undersigned to attend and to act for and on behalf of the undersigned at the annual meeting of shareholders of the Company to be held on June 12, 1997 at 2:00 P.M. Pacific Time, and at any adjournment or adjournments thereof, to the same extent and with the same power as if the undersigned were personally present at said meeting or such adjournment or adjournments thereof and, without limiting the generality of the power hereby conferred, the nominees named above are specifically directed to vote as indicated below. 1. Election of Directors. [ ] FOR ALL NOMINEES LISTED [ ] WITHHOLD AUTHORITY BELOW (EXCEPT AS MARKED TO VOTE FOR EACH TO THE CONTRARY BELOW) NOMINEE LISTED BELOW Walter W. Straub Alan K. Jennings Marvin Hoffman Peter M. Craig Richard P. Abraham Frederick M. Haney
(INSTRUCTION:) TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME IN THE LIST ABOVE. 2. Proposal to approve amendment to 1990 Restated Incentive Stock Option Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG, LLP AS INDEPENDENT AUDITORS OF THE COMPANY. [ ] FOR [ ] AGAINST [ ] ABSTAIN 20 If there are amendments or variations to the matters proposed at the meeting or at any adjournment or adjournments thereof, or if any other business properly comes before the meeting, this proxy confers discretionary authority on the proxy nominees named herein to vote on such amendments, variations or other business. Name: ___________________ Dated: ____________, 1997 No. of Shares: __________ ------------------------- Signature ------------------------- Signature if held jointly Please sign exactly as name appears herein. When shares are held by joint tenants, both should sign. When signing as attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. NOTE: IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ON PROPOSALS 1, 2 AND 3. -----END PRIVACY-ENHANCED MESSAGE-----