SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
| | Preliminary proxy statement
|X| Definitive proxy statement
| | Definitive additional materials
| | Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TRUSTED INFORMATION SYSTEMS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in 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 the 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:
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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:
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| | 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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<PAGE>
TRUSTED INFORMATION SYSTEMS, INC.
3060 WASHINGTON ROAD
GLENWOOD, MARYLAND 21738
(301) 854-6889
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1997
The Annual Meeting of Stockholders (the 'Annual Meeting') of Trusted
Information Systems, Inc., a Delaware corporation (the 'Company'), will be held
on Tuesday, May 27, 1997, at 10:00 a.m., local time, at the offices of Piper &
Marbury L.L.P., 1200 Nineteenth Street, N.W., Suite 700, Washington, D.C. 20036
for the following purposes:
1. To elect one (1) director to serve until the 2000 Annual Meeting of
Stockholders, and until his successor is elected and duly qualified;
2. To approve the adoption of the Trusted Information Systems, Inc. 1997
Employee Stock Purchase Plan and the reservation of 400,000 shares of
Common Stock for issuance thereunder;
3. To ratify the appointment of Ernst & Young L.L.P. as the Company's
independent auditors for the fiscal year ending December 26, 1997; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed Proxy
Statement. The Board of Directors has fixed the close of business on March 31,
1997, as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the Annual Meeting and any postponement or
adjournment thereof. Only those stockholders of record of the Company as of the
close of business on that date will be entitled to vote at the Annual Meeting or
any postponement or adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF THE NUMBER YOU OWN.
WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, YOU ARE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENVELOPE
ENCLOSED FOR THAT PURPOSE. YOU WILL BE MOST WELCOME AT THE MEETING AND MAY THEN
VOTE IN PERSON IF YOU SO DESIRE, EVEN THOUGH YOU MAY HAVE EXECUTED AND RETURNED
THE PROXY. ANY STOCKHOLDER WHO EXECUTES SUCH A PROXY MAY REVOKE IT AT ANY TIME
BEFORE IT IS EXERCISED.
By Order of the Board of Directors,
Harvey L. Weiss
Secretary
Glenwood, Maryland
April 24, 1997
<PAGE>
TRUSTED INFORMATION SYSTEMS, INC.
3060 WASHINGTON ROAD
GLENWOOD, MARYLAND 21738
(301) 854-6889
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Trusted Information Systems, Inc., a Delaware
corporation (the 'Company'), of proxies in the accompanying form for use in
voting at the Annual Meeting of Stockholders (the 'Annual Meeting') to be held
on Tuesday, May 27, 1997 at 10:00 a.m., local time, at the offices of Piper &
Marbury L.L.P., 1200 Nineteenth Street, N.W., Washington, D.C. 20036, and any
adjournment or postponement thereof. This Proxy Statement, the accompanying
proxy card and the Company's Annual Report to Stockholders are first being
mailed to stockholders on or about April 24, 1997.
VOTING SECURITIES
Only stockholders of record on the books of the Company as of 5:00 p.m.,
March 31, 1997 (the 'Record Date'), will be entitled to vote at the Annual
Meeting. At the close of business on the Record Date, the Company had 11,524,771
shares of Common Stock outstanding, entitled to one vote per share.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the 'Inspector') with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors and except
in certain other specific circumstances, the affirmative vote of a majority of
shares present in person or represented by proxy at a duly held meeting at which
a quorum is present is required under Delaware law for approval of proposals
presented to stockholders. In general, Delaware law also provides that a quorum
consists of a majority of the shares entitled to vote and present in person or
represented by proxy. The Inspector will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum and as negative votes for purposes of determining the approval of any
matter submitted to the stockholders for a vote.
The shares represented by the proxies received, properly dated and executed
and not revoked will be voted at the Annual Meeting in accordance with the
instructions of the stockholders. A proxy may be revoked at any time before it
is exercised by delivering to the Company (Attention: Stephen T. Walker) a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person. Any proxy which is returned
using the form of proxy enclosed and which is not marked as to a particular item
will be voted FOR the election of directors, FOR the adoption of the Company's
1997 Employee Stock Purchase Plan, FOR ratification of the appointment of the
designated independent auditors and, as the proxy holders deem advisable, on
other matters that may come before the meeting, as the case may be with respect
to the item not marked. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
<PAGE>
PROPOSAL NO 1: ELECTION OF DIRECTORS
The Company's directors are divided into three classes. The number of
directors is determined from time to time by the Board of Directors and is
currently fixed at five (5) members. A single class of directors is elected each
year at the Company's annual meeting of stockholders. Subject to transition
provisions, each director elected at each such meeting will serve for a term
ending on the date of the third annual meeting of stockholders after his or her
election and until his or her successor has been elected and duly qualified.
One director is to be elected at this Annual Meeting to serve until the
2000 Annual Meeting of Stockholders, and until his successor is elected and duly
qualified. In the event the nominee is unable or unwilling to serve as a
nominee, the proxies may be voted for any substitute nominee designated by the
present Board of Directors or the proxy holders to fill such vacancy, or the
Board of Directors may be reduced in accordance with the Bylaws of the Company.
The Board of Directors has no reason to believe that the person named will be
unable or unwilling to serve as a nominee or as a director if elected.
Set forth below is certain information concerning the nominee and the other
incumbent directors:
Director to be Elected at the 1997 Annual Meeting
Harvey L. Weiss, age 54, has been Executive Vice President of the Company,
President of the Commercial Division and a Director of the Company since March
1996, and has been Secretary of the Company since May 1996. Prior to that time,
from February 1994 to March 1996, Mr. Weiss served as President of Public Sector
Worldwide Division for Unisys Corporation. From July 1991 to December 1993, Mr.
Weiss was the Vice President of Sales and the President and Chief Operating
Officer of Thinking Machines Corporation. Prior to that time, Mr. Weiss served
in various senior capacities at Digital Equipment Corporation. Thinking Machines
Corporation sought bankruptcy protection under Chapter 11 of the Bankruptcy Code
in August 1994. Mr. Weiss holds a B.S. degree in mathematics from the University
of Pittsburgh.
Directors Whose Terms Expire in 1998
Martha A. Branstad, age 55, has been Executive Vice President and a
Director of the Company since 1986, Chief Operating Officer of the Company since
1993 and President of the Advanced Research & Engineering Division since January
1996. From August 1984 to August 1985, Dr. Branstad served as the Program
Director, Software Engineering for the National Science Foundation, and was
responsible for directing academic research grants in software engineering and
computational mathematics. During the period from September 1978 to September
1985, Dr. Branstad worked in various positions within the National Bureau of
Standards, including Manager, Software for Parallel Processing and Manager,
Software Engineering. Prior to that time, Dr. Branstad managed a software
research group for the National Security Agency ('NSA'). Dr. Branstad holds a
B.S. in mathematics from Iowa State University, an M.S. degree in mathematics
from the University of Wisconsin and a Ph.D. in computer science from Iowa State
University.
Charles W. Stein, age 56, has been Director of the Company since May 1996.
Mr. Stein has over 35 years of experience in the computer and communications
industry. Since January 1997, Mr. Stein has been the Chairman of the Board of
Directors of Netrix Corporation, an electronic components company. From February
1987 to December 1996, he served as the President, Chief Executive Officer and
Director of Netrix Corporation. Prior to that time, Mr. Stein was a Vice
President with BBN Communications Corporation where he was responsible for
marketing and later the Professional Services Division. Mr. Stein holds a B.S.
degree in mathematics from Tufts University.
2
<PAGE>
Directors Whose Terms Expire in 1999
Stephen T. Walker, age 53, founded the Company in May 1983 and has
continuously served as President, Chief Executive Officer, Chairman of the Board
and a Director. From 1980 to 1983, Mr. Walker was the Director of the
Information Systems for the Office of the Assistant Secretary of Defense for
Communications, Command, Control and Intelligence (C3I), Pentagon. In
recognition of Mr. Walker's contributions, he was awarded the Secretary of
Defense Meritorious Civilian Service Medal in 1984, and the first National
Computer System Security Award in 1988. Mr. Walker holds a B.S. degree in
electrical engineering from Northeastern University and an M.S. degree in
electrical engineering from the University of Maryland.
Gerald J. Popek, age 50, has been a Director of the Company since May 1996.
He has served a Chief Technology Officer of Platinum Technology, Inc.
('Platinum') since August 1995 and is responsible for participating in the
setting of overall corporate technology and product strategy, enterprise
security and open systems issues. From January 1982 to August 1995, Dr. Popek
was the founder and Chairman of Locus Computing Corporation, an organization
dedicated to open systems based distributed computing which was acquired by
Platinum. Additionally, since 1987 Dr. Popek has been a senior faculty member in
the Computer Science Department at UCLA, conducting research on computer
security, distributed UNIX systems, replication and mobile computing. Dr. Popek
holds a B.S. degree in nuclear engineering from New York University and S.M. and
Ph.D. degrees in applied mathematics from Harvard University.
Unless marked otherwise, proxies received will be voted for the election of
the nominee named above.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE ELECTION OF THE NOMINEE
NAMED ABOVE.
THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors met 13 times during 1996. All directors
attended more than 75% of all meetings of the Board of Directors.
The Audit Committee currently consists of Mr. Walker, Dr. Popek and Mr.
Stein. This committee, which was formed in June 1996 and met three times during
1996, recommends the firm to be appointed as independent auditors to audit the
Company's financial statements, discusses the scope and results of the audit
with the independent auditors, reviews with management and the independent
auditors the Company's interim and year-end operating results, considers the
adequacy of the internal accounting controls and audit procedures of the Company
and reviews the non-audit services to be performed by the independent auditors.
Dr. Popek attended one of the three meetings in 1996.
The Compensation Committee currently consists of Mr. Walker, Dr. Popek and
Mr. Stein. The Compensation Committee, which was formed in June 1996 and met
three times during 1996, reviews and recommends the compensation arrangements
for management of the Company and administers the Company's stock option plans.
The Board of Directors currently does not have a nominating committee or a
committee performing the functions of a nominating committee. Although there are
no formal procedures for stockholders to nominate persons to serve as directors,
the Board of Directors will consider recommendations from stockholders, which
should be addressed to Stephen T. Walker, President, Chief Executive Officer,
and Chairman of the Board of Directors of the Company, at the Company's address.
Directors who are not currently employees of the Company are entitled to
receive a fee of $750 per meeting attended in person, are reimbursed for certain
reasonable expenses incurred in attending each meeting of the Board of Directors
and receive awards of stock options under the Amended and Restated 1996
Directors' Stock Option Plan.
3
<PAGE>
EXECUTIVE OFFICERS
In addition to Mr. Walker, Dr. Branstad and Mr. Weiss, the following are
the executive officers of the Company:
Steven B. Lipner, age 53, has been Executive Vice President and Network
Security Product Line Manager of the Company since February 1994. From February
1992 to February 1994, Mr. Lipner served as the Director of Information Systems,
Center for Information Systems of The MITRE Corporation. Prior to that time, Mr.
Lipner held various engineering management positions with Digital Equipment
Corporation ('DEC') from march 1981 to February 1992. From 1987 to 1992, Mr.
Lipner was Engineering Group Manager of DEC's Secure Systems Group with
responsibility for secure systems product development and business strategy. Mr.
Lipner received S.B. and S.M. degrees in Civil Engineering from the
Massachusetts Institute of Technology.
Homayoon Tajalli, age 38, has been an Executive Vice President of the
Company since December 1993, and from October 1987 until December 1995 was
responsible for all aspect of the Company's Trusted Mach operating system
development activities. Since January 1996, Mr. Tajalli has served as the
General Manager of Cryptographic Products. From February 1983 to October 1987,
Mr. Tajalli held various management positions with Digital Equipment
Corporation, including Senior Technical Software Manager, Technical Software
Manager/Software Consultant and Principal Software Specialist. Mr. Tajalli holds
B.S. and M.S. degrees in electrical engineering from the University of Maryland.
Ronald W. Kaiser, age 43, joined the Company in May 1996 as Executive Vice
President and Chief Financial Officer. From November 1994 through January 1996,
Mr. Kaiser served as Chief Financial Officer of American Communications
Services, Inc. ('ACSI'), a regional competitive access provider of
telecommunications services, and from February through April 1996, Mr. Kaiser
served as a consultant to ACSI. From April 1993 to November 1994, Mr. Kaiser
served as Vice President of Finance, Treasurer and Chief Financial Officer at
ADAK Communications Corporation, a manufacturer and distributor of
telecommunications digital access controllers. From 1990 through 1993, Mr.
Kaiser served as Vice President--Finance and Treasurer of a subsidiary of George
Fischer AG, a Swiss corporation. Mr. Kaiser received B.A. degrees in accounting
and pre-law from Michigan State University.
Officers of the Company are elected by the Board of Directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of the directors or executive
officers of the Company.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain annual compensation information for
the Company's Chief Executive Officer and each of the other officers of the
Company whose annual salary exceeded $100,000 as of December 27, 1996
(collectively, the 'Named Officers').
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
-------------------------------- SECURITIES OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) UNDERLYING OPTIONS COMPENSATION($)(2)
- - ----------------------------------------- ---- --------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Stephen T. Walker 1996 $ 216,931 $ 157,407 -- $ 6,867
President and Chief Executive 1995 195,952 146,026 -- 4,472
Officer 1994 180,055 141,274 2,453 9,931
Martha A. Branstad 1996 175,107 51,008 -- 5,427
Executive Vice President 1995 148,784 40,594 -- 11,170
and Chief Operating Officer 1994 137,187 38,497 2,453 11,392
Steven B. Lipner 1996 147,931 31,494 129,194(3) 1,042
Executive Vice President 1995 138,445 29,191 -- 864
1994 109,430 21,397 49,076 720
Homayoon Tajalli 1996 145,001 32,525 214,563(4) 332
Executive Vice President 1995 136,571 29,484 -- 198
1994 126,874 24,424 2,453 198
Harvey L. Weiss(5) 1996 153,309 86,388 258,364(6) 1,162
Executive Vice President 1995 -- -- -- --
Secretary and Director 1994 -- -- -- --
</TABLE>
- - ------------------
(1) The Company's executive officers are eligible for annual cash bonuses. Such
bonuses are based upon achievement of individual or corporate performance
objectives determined by the Board of Directors.
(2) Includes the payment by the Company of the annual premium for certain term
life coverage pursuant to a benefit program, and in the case of Mr. Walker
and Dr. Branstad includes payment by the Company of the premium for buy-sell
life insurance.
(3) Options vest 25% on April 19, 1997; with the remaining 75% vesting in equal
monthly increments over the next 3 years.
(4) Options vest 50% on April 19, 1997; with the remaining vesting 25% over year
2, 15% over year 3 and 10% over year 4 in equal monthly increments within
each year.
(5) Mr. Weiss joined the Company in March 1996. His annual salary would have
been $200,000 if he were with the Company for the entire fiscal year.
(6) Options vest 25% on March 4, 1997; with the remaining 75% vesting in equal
monthly increments over the next 3 years.
5
<PAGE>
The following table contains further information concerning the stock
option grants made to each of the Named Officers during the fiscal year ended
December 27, 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- - ----------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE -------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE 5% 10%
- - ------------------------ ---------- -------------- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen T. Walker....... -- -- -- -- -- --
Martha A. Branstad...... -- -- -- -- -- --
Steven B. Lipner........ 129,194 10.99% $2.66 4/19/02-4/19/05 $189,467 $466,667
Homayoon Tajalli........ 214,563 18.26 2.66 4/19/02-4/19/05 314,664 775,032
Harvey L. Weiss......... 258,364 21.98 2.66 3/4/02- 3/4/05 378,899 933,247
</TABLE>
- - ------------------
(1) Except in the case of Mr. Tajalli, stock options vest over four years, 25%
in the first year and monthly thereafter on a pro rata basis, provided such
officer remains continuously employed by the Company. Options held by Mr.
Tajalli vest over four years, 50% in the first year, 25% in equal monthly
installments in the second year, 15% in equal monthly installments in the
third year, and 10% in equal monthly installments in the fourth year.
(2) Based on options to purchase 1,175,316 shares granted in fiscal 1996.
(3) All stock options were granted with exercise prices equal to the fair market
value, as determined by the Board of Directors, on the grant date.
(4) These amounts are based on compounded annual rates of stock price
appreciation of five and ten percent over the 9-year term of the options, as
mandated by the rules of the Securities and Exchange Commission and are not
indicative of expected stock performance. Actual gains, if any, on stock
option exercises are dependent on future performance of the Common Stock,
overall market conditions, as well as the option holders' continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or may be exceeded. The indicated
amounts are net of the option exercise price but before taxes that may be
payable upon exercise.
The following table sets forth certain information regarding options to
purchase Common Stock as of December 27, 1996 by each of the Named Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR-END(3) FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen T. Walker................ 14,722 $ 28,757 -- -- -- --
Martha A. Branstad............... 14,722 28,757 -- -- -- --
Steven B. Lipner................. 49,076 106,004 -- 129,194 -- $ 1,158,224
Homayoon Tajalli................. 12,269 23,925 2,453 214,563 $26,824 1,923,557
Harvey L. Weiss.................. -- -- -- 258,364 -- 2,316,233
</TABLE>
- - ------------------
(1) Calculated on the basis of the fair market value of the Common Stock on the
date of exercise less the exercise price payable for such shares, multiplied
by the number of shares.
(2) Calculated on the basis of $11.625 per share, the fair market value of the
Common Stock at December 27, 1996, less the exercise price payable for such
shares, multiplied by the number of shares underlying the option.
The Company does not have any employment agreements with any of the above
Named Officers.
6
<PAGE>
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee reviews and recommends the compensation
arrangements for management of the Company and administers the Company's stock
option plans. The Compensation Committee of the Board of Directors was
established in June 1996 immediately following the establishment of the
Company's current Board of Directors. The Committee consists of three members,
two of whom are outside directors. None of the non-employee directors has any
interlocking or other relationship with the Company that would call into
question his independence as a Committee member.
The Committee's philosophy regarding executive compensation is to offer
competitive and fair compensation which will attract and retain key executives,
and to reward executives and hold them accountable for the Company's overall
performance. In setting compensation levels, the Committee reviews compensation
of executives at comparable companies, general economic conditions, the
competitive nature of the Company's industry and the existing compensation
structures of the Company, which have been established to give consideration to
government guidelines for comparability with similar industry compensation
levels. The total compensation of executive officers consists of three
components: base salary; bonus; and stock option awards.
During mid 1996, the Company contracted with an experienced independent
Human Resources consultant with over 15 years of experience and began to conduct
a review of its executive compensation program, as well as a study of the
Company's overall compensation programs. This review was conducted over the
remainder of 1996 and consisted of comparisons of the executive officer team's
salaries, bonuses and stock option awards to several similar companies and to
industry averages for similar size companies.
Base Salary. In determining the appropriate level of base salaries, the
Compensation Committee considers responsibility, prior experience and
accomplishments and the relative importance of the position in achieving the
Company objectives. The Compensation Committee also sets base salaries at levels
necessary to retain key employees, including consideration for information
provided by the Company's outside independent consultants.
Bonuses. Bonuses were awarded based upon achievement of individual or
corporate performance objectives determined by the Board of Directors from time
to time. Factors considered by the Compensation Committee in awarding bonuses in
fiscal 1996 included completion of an initial public offering of the Company's
Common Stock, the formal establishment of the Company's Commercial Division and
its related activities, including the hiring of a sales, marketing and product
development staff, and the development and introduction of new products and
technologies.
Stock Option Grants. The Company currently maintains the Amended and
Restated 1996 Stock Option Plan (the '1996 Option Plan'). The 1996 Option Plan
provides for grants to employees, officers and consultants of the Company. The
number of options granted to each executive officer is subjective based upon
individual performance, future potential, and abilities to affect the Company's
performance. In addition, the shares owned by the Named Officers and their
respective option positions were considered in determining such option grants.
The Committee's basis for compensation for the Company's Chief Executive
Officer has been to remain consistent with its compensation policy for all
executive officers of the Company. The 1996 compensation and bonus of the Chief
Executive Officer reflect increases of 10.7% and 7.8%, respectively, over the
levels of his compensation and bonus levels of the previous year.
Section 162(m) of the Internal Revenue Code generally limits to $1,000,000
the tax deductible compensation paid to the Chief Executive Officer and the four
highest-paid executive officers who are employed as executive officers on the
last day of the year. However, the limitation does not apply to
performance-based compensation provided certain conditions are satisfied.
None of the Company's compensation payments for fiscal 1996 exceeded the
tax deductibility limit set forth in Section 162(m) nor is it expected that
compensation to be paid in fiscal 1997 will exceed that limit. The Compensation
Committee will continue to monitor the Company's executive compensation with the
impact of Section 162(m) where appropriate and consistent with the Company's
compensation policy.
Stephen T. Walker
Gerald J. Popek
Charles W. Stein
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Company's Compensation Committee was formed in June 1996 and the
members of the committee are Mr. Walker, Dr. Popek and Mr. Stein. Neither Dr.
Popek nor Mr. Stein was at any time during the fiscal year ended December 27,
1996 or at any other time, an officer or employee of the Company. Mr. Walker has
been an officer and Director of the Company since May 1983. No executive officer
of the Company serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as
members of the Company's Board of Directors or Compensation Committee.
PERFORMANCE GRAPH
The following graph shows a six-month comparison of cumulative total
shareholder return on the Company's Common Stock, based on the market price of
the Common Stock assuming reinvestment of dividends, with the cumulative total
return of companies in the Nasdaq Stock Market Index of U.S. Companies and the
Russell 2000 Index for the period beginning October 10, 1996, the day the
Company's Common Stock began trading, through March 31, 1997. The graph was
derived from a very limited period of time, in part and reflects the market's
reaction to the initial public offering of the Common Stock, and as a result, is
not necessarily indicative of possible future performance of the Company's
Common Stock.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
10/10/96 10/31/96 11/29/96 12/31/96 1/31/97 2/28/97 3/31/97
TRUSTED INFORMATION SYSTEMS, INC. $100 $ 91 $ 78 $ 78 $ 102 $ 99 $87
<S> <C> <C> <C> <C> <C> <C> <C>
RUSSELL 2000 INDEX $100 $ 99 $101 $104 $ 107 $ 104 $99
NASDAQ US COMPANY INDEX $100 $ 99 $103 $104 $ 111 $ 105 $96
</TABLE>
* Assumes $100 invested on October 10, 1996, with dividends reinvested.
8
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table set forth information regarding the beneficial
ownership of the Company's Common stock as of March 31, 1997 and as adjusted to
reflect the sale of the Common Stock offered hereby, for (i) each person known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each of the Named
Officers, and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated (i) the persons named in the table have sole
voting and investment power with respect to all shares of Common stock shown as
beneficially owned by them, subject to community property laws where applicable,
and (ii) the address for the persons named in the table is 3060 Washington Road,
Glenwood, Maryland 21738.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
AS OF
MARCH 31, 1997(1)
----------------------
NUMBER OF
NAME SHARES PERCENT
- - ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
Martha A. Branstad (2)................................................. 1,434,16 12.4%
Ronald W. Kaiser (3)................................................... 24,804 *
Steven B. Lipner (4)................................................... 84,081 *
Gerald J. Popek (5).................................................... 3,067 *
Charles W. Stein (6)................................................... 3,067 *
Homayoon Tajalli (7)................................................... 165,734 1.4
Stephen T. Walker (8).................................................. 2,959,325 25.7
Harvey L. Weiss (9).................................................... 75,385 *
All directors and executive officers as a group
(8 persons) (10)..................................................... 4,749,479 41.2
</TABLE>
- - ------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after March 31, 1997 are deemed
outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage of
any other person.
(2) Includes 460,094 shares held in a trust over which Dr. Branstad is the
Trustee, and includes 460,094 shares held in a trust over which Dr.
Branstad's husband is the Trustee and over which Dr. Branstad exercises
voting and investment power. Also includes 20,241 shares held by members of
Dr. Branstad's family over which Dr. Branstad exercises voting and
investment power.
(3) Includes 23,004 shares issuable upon exercise of outstanding options.
(4) Includes 24,538 shares held in a trust over which Mr. Lipner is the Trustee
and 35,005 shares exercisable upon exercise of outstanding options.
(5) Includes 3,067 shares issuable upon exercise of outstanding options.
(6) Includes 3,067 shares issuable upon exercise of outstanding options.
(7) Includes 116,659 shares issuable upon the exercise of outstanding options,
2,453 of which will expire on May 31, 1997. Also includes 14,722 shares held
by Mr. Tajalli's wife.
(8) Includes 147,230 shares held in a trust over which Mr. Walker is the
Trustee, and includes 147,230 shares held in a trust over which Mr. Walker's
wife is the Trustee and over which Mr. Walker does not exercise voting or
investment power. Mr. Walker disclaims beneficial ownership of the latter
147,230 shares. Also includes 1,521 shares held by Mr. Walker's wife of
which Mr. Walker disclaims beneficial ownership.
(9) Includes 75,385 shares issuable upon exercise of outstanding options.
(10) See footnotes (3), (4), (5), (6), (7) and (9) above. Includes 256,187
shares issuable upon exercise of outstanding options.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, the Company purchased the real property and improvements
located adjacent to the Company's Glenwood, Maryland headquarters (the 'Adjacent
Property') from Glenwood Associates Limited Partnership ('Glenwood Associates')
for a purchase price of $360,000. Stephen T. Walker is the general partner of
Glenwood Associates. Dr. Martha A. Branstad is a limited partner of Glenwood
Associates. The purchase price was determined base on a valuation of the
property prepared by the Company based primarily upon an independent appraisal.
Prior to such transaction, the Company leased the Adjacent Property from
Glenwood Associates pursuant to an oral lease agreement which provided for
monthly rent of $3,929 plus payment of operating expenses.
In August 1996, in connection with a $2.0 million credit facility (the
'Credit Facility') with Mercantile Bank, Mr. Walker entered into a personal
guaranty agreement with Mercantile Bank. Under the Credit Facility, Mr. Walker
unconditionally and irrevocably guaranteed the obligations of the Company under
the Credit Facility.
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. The Company has adopted a policy whereby all future
transactions between the Company and its officers, directors and affiliates will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board of Directors.
10
<PAGE>
PROPOSAL NO. 2: ADOPTION OF THE COMPANY'S 1997 EMPLOYEE
STOCK PURCHASE PLAN
The Board of Directors proposes that the stockholders of the Company
approve the 1997 Employee Stock Purchase Plan (the 'Plan'), pursuant to which
shares of the Company's Common Stock would be issued to eligible employees of
the Company. The following summary of the principal features of the Plan is a
fair and complete summary of the Plan; it is qualified in its entirety by the
full text of the Plan, which appears as Exhibit A to this Proxy Statement.
GENERAL
The purpose of the Plan is to promote the success and enhance the value of
the Company, by providing eligible employees of the Company and its
participating subsidiaries with the opportunity to purchase Common Stock of the
Company through payroll deductions. The Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code of
1986, as amended (the 'Code').
The Plan provides for the issuance of an aggregate of 400,000 shares of
Common Stock to employees. In the event of a subdivision of outstanding shares
of Common Stock, payment of a stock divided in Common Stock or other change
affecting Common Stock, the Board or the Committee responsible for
administration of the Plan (as described below) will make appropriate and
equitable adjustments in the aggregate number of shares that may be issued under
the Plan. As of March 31, 1997, the market value, as determined by the last
reported sale price of the Company's Common Stock at the Nasdaq National Market,
was $13.125 per share.
ELIGIBILITY TO RECEIVE AWARDS
Employees of the Company and participating subsidiaries, who are regularly
employed for 20 or more hours per week for more than five months in a calendar
year, are eligible to participate in the Plan. However, if the employee owns, or
is deemed to own, 5% or more of the voting power or value of the stock of the
Company or any subsidiary of the Company, he or she is not eligible for the
Plan. As of March 31, 1997, approximately 280 employees would be eligible to
participate in the Plan.
ADMINISTRATION, AMENDMENT AND TERMINATION
The Plan is administered by the Board of Directors of the Company (the
'Board') or by a committee appointed by the Board (the 'Committee'). A member of
the Board or the Committee is not excluded from participating in the Plan solely
by virtue of such membership.
Subject to the terms of the Plan, the Board and the Committee has authority
to make rules and regulations, and take any other appropriate actions to
administer the Plan.
The Board may amend the Plan at any time for any reason, provided that such
amendment is made in compliance with Section 423 of the Code. The Board, in its
sole discretion, may terminate the Plan at any time and for any reason.
ENROLLMENT AND CONTRIBUTIONS
The Plan establishes annual offering periods ('Offering Periods') which
correspond with the calendar year, except that the initial Offering Period will
consist of the period from July 1, 1997, through December 31, 1997. Each
Offering Period consists of two six-month purchase periods commencing on the
first business day on or after January 1 and July 1 of each calendar year (the
'Purchase Periods'), except that the initial Offering Period will consist of a
single Purchase Period from July 1 through December 31, 1997.
An employee who satisfies the eligibility requirements described above on
the first day of a Purchase Period may enroll in the Plan as of the first day of
the Purchase Period by authorizing payroll deduction from his or her
compensation for the Purchase Period of any whole number percentage of such
compensation up to 10 percent. For this purpose, 'compensation' is defined by
the Plan to mean taxable income for federal income tax purposes, but excludes
overtime, shift premiums, incentive bonus awards, allowances and reimbursements
for relocation, travel and other expenses, income from stock options and stock
appreciation rights and similar items,
11
<PAGE>
and includes elective contributions to the Company's 401(k) plan or cafeteria
plan (within the meaning of Section 125 of the Code).
Eligible employees are re-enrolled automatically for each new Purchase
Period. Participating employees may decrease or discontinue the contribution
percentage once during any Purchase Period by submitting a new payroll deduction
authorization form, but may not increase the contribution percentage during a
Purchase Period. A participating employee also may on any one occasion during
any Purchase Period elect to withdraw all or a portion of his or her payroll
deduction amounts for the Purchase Period. However, if the participant withdraws
all payroll deduction amounts, he or she will be deemed to have terminated
participation in the Plan and may not enroll again until the beginning of the
next Purchase Period.
On the last business day of each Purchase Period (the 'Exercise Date'), the
employee's accumulated payroll deductions are used to purchase shares of the
Company's Common Stock for the employee. The price of the shares purchased will
be the lower of (i) 85% of the stock's closing price on the first trading day
for the Company's Common Stock during the applicable Offering Period or (ii) 85%
of the stock's closing price on the Exercise Date. The maximum aggregate number
of shares which an employee may purchase under the Plan in a single calendar
year is equal to $25,000, divided by the fair market value of such Common Stock
determined at the commencement date of the Offering Period.
Certificates for shares purchased under the Plan during any Purchase Period
are delivered to the participant as soon as practicable after the end of the
Purchase Period. Plan participants have no rights as a stockholder of the
Company until shares have been purchased under the Plan and issued to the
participant.
Because the number of shares of Common Stock that may be purchased by any
participant in the Plan is based on the fair market value of such shares on
future dates and on the participant's decision to purchase shares, the benefits
or amounts that will be received by Plan participants are not currently
determinable. No purchases will be made under the Plan prior to approval of the
Plan by the stockholders.
Participation in the Plan terminates when a participating employee's
employment with the Company ceases for any reason, the employee withdraws, or
the Plan is terminated or amended such that the employee is no longer eligible
to participate.
TAX ASPECTS
An employee will not have taxable income when the shares of Common Stock
are purchased for that employee, but income taxes generally will be due when the
employee sells or otherwise disposes of stock purchased through the Plan.
If the employee disposes of shares acquired under the Plan before the
expiration of two years from the beginning of the Offering Period in which the
shares were purchased, or within one year of the date on which the shares were
purchased, the employee generally will recognize ordinary income on the
disposition date equal to the difference between the fair market value of the
shares on the date they were purchased and the purchase price. Any amount
realized on the disposition of those shares in excess of the fair market value
on the purchase date generally will be treated as long-term or short-term
capital gain, depending on the holding period for such shares.
If the employee disposes of shares acquired under the Plan after expiration
of the two-year and one-year periods described above, the employee will
recognize ordinary income equal to the lesser of (1) the excess of the fair
market value of the shares at the time of the disposition over the amount paid
for the shares or (2) the excess of the fair market value of the shares at the
beginning of the Offering Period in which they were acquired over the purchase
price of the shares under the Plan determined as if shares were purchased on the
first day of the Offering Period. Any amount recognized as ordinary income as a
result of such a disposition will reduce the amount of gain otherwise realized
on the disposition.
As a general rule, the Company will not be entitled to a deduction for
federal income tax purposes as a result of employee participation in the Plan.
However, if an employee recognizes ordinary income as a result of the
disposition of shares before expiration of the two-year and one-year periods
described above, the Company generally will be entitled to a deduction for
federal income tax purposes corresponding in timing and amount to the ordinary
income recognized by the employee.
12
<PAGE>
REQUIRED VOTE
Adoption of the Plan requires the affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE ADOPTION OF THE EMPLOYEE
STOCK PURCHASE PLAN.
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT OF AUDITORS
Ernst & Young L.L.P. has served as the Company's independent auditors since
inception and has been selected by the Board as the Company's independent
auditors for the fiscal year ending December 26, 1997. In the event that
ratification of this selection of auditors is not approved by a majority of the
shares of Common Stock voting thereon, management will review its future
selection of auditors.
Representatives of Ernst & Young L.L.P. are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so. They are also expected to be available to respond to appropriate
questions.
Unless marked to the contrary, proxies received will be voted FOR
ratification of the appointment of Ernst & Young L.L.P. as the independent
auditors for the current year.
REQUIRED VOTE
The ratification of the appointment of Ernst & Young L.L.P. as the
Company's independent auditors for the fiscal year ending December 26, 1997
requires the affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present at the Annual Meeting in person or by proxy and
entitled to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG L.L.P. AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS
To be considered for presentation to the Annual Meeting of Stockholders to
be held in 1998, a stockholder proposal must be received by Stephen T. Walker,
President and Chief Executive Officer, Trusted Information Systems, Inc., 3060
Washington Road, Glenwood, Maryland 21738, no later than December 19, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the 'SEC'). Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file.
SEC rules require the Company to disclose all known delinquent Section
16(a) filings by its officers, directors and 10% stockholders in this Proxy
Statement. Based solely on its review of the copies of reports received by it,
or written representations from certain reporting persons that no such reports
were required for those persons, the Company believes that, for the period
beginning October 10, 1996 through December 27, 1996, all filing requirements
applicable to its officers, directors, and greater than 10% beneficial owners
were complied with, except that Mr. Stein did not timely file a Form 4.
13
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
to the Annual Meeting. If any other business is properly brought before the
Annual Meeting, 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. Stockholders are urged to sign, date and promptly return the
enclosed proxy card in the enclosed envelope.
A copy of the Company's 1996 Annual Report to Stockholders accompanies this
Proxy Statement. The Company has filed an Annual Report for its fiscal year
ended December 27, 1996 on Form 10-K with the Securities and Exchange
Commission. Stockholders may obtain, free of charge, a copy of the Form 10-K by
writing to Ronald W. Kaiser, Chief Financial Officer, Trusted Information
Systems, Inc., 3060 Washington Road, Glenwood, Maryland 21738.
By Order of the Board of Directors
Harvey L. Weiss
Secretary
Dated: April 24, 1997
Glenwood, Maryland
14
<PAGE>
EXHIBIT A
TRUSTED INFORMATION SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Trusted
Information Systems, Inc. (the 'Company') and certain of its subsidiaries with
opportunities to purchase shares of the Company's Common Stock, $.01 par value
(the 'Common Stock'). Four Hundred Thousand (400,000) shares of Common Stock in
the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the 'Board') or by a Committee appointed by the Board (the
'Committee'). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto will be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the 'Code'), and regulations promulgated thereunder. All
employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a 'Designated
Subsidiary'), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for 20 or more hours a week and for more than five months in a
calendar year; and
(b) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Offering Period (as defined below).
No employee may be granted an Option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code will apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase will be treated as
stock owned by the employee.
3. Offerings.
(a) Options granted pursuant to the Plan ('Offerings') may be exercised
during an offer period which will commence on the first day on which national
stock exchanges and the National Association of Securities Dealers Automated
Quotation ('Nasdaq') system are open for trading ('Trading Day') on or after
January 1 of each calendar year (the 'Offering Commencement Date') and
terminating on the last Trading Day in such calendar year (each such calendar
year referred to herein as an 'Offering Period'). Each Offering Period under the
Plan will consist of two consecutive six-month purchase periods (each a
'Purchase Period') commencing on the first Trading Day on or after January 1 and
July 1 during the Offering Period (the 'Purchase Period Commencement Dates').
(b) Notwithstanding the provisions of paragraph (a):
(i) the first Offering Period shall consist of a single Purchase
Period commencing on the first Trading Day on or after July 1, 1997, and
ending on December 31, 1997. With respect to the first Offering Period
described in this subparagraph (i), the term 'Offering Commencement Date'
shall mean the first Trading Day on or after July 1, 1997, and the term
'Offering Period' shall mean the period commencing with the Offering
Commencement Date and ending on December 31, 1997.
(ii) with respect to any employee who first becomes eligible to
participate in the Plan after the Offering Commencement Date of any
Offering Period, but prior to the first Trading Day on or after July 1 of
such Offering Period (the 'July Offering Commencement Date'), the Offering
Period for the calendar year in which the employee becomes eligible to
participate will consist of a single Purchase Period commencing on the July
Offering Commencement Date and ending on the last Trading Day in such
calendar year. With
i
<PAGE>
respect to any Offering Period described in this subparagraph (ii), the
term 'Offering Commencement Date' shall mean the July Offering Commencement
Date and the term 'Offering Period' shall mean the period commencing with
the July Offering Commencement Date and ending on the last Trading Day in
such calendar year.
(c) The Board will have the power to change the duration of Offering and
Purchase Periods (including the commencement and termination dates thereof) with
respect to future Offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected thereafter.
4. Participation. An employee eligible on the Offering Commencement Date
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Controller of the Company at least
14 days prior to the applicable Purchase Period Commencement Date. The form will
authorize a regular payroll deduction from the Compensation received by the
employee during the Purchase Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings and Purchase Periods under the Plan as long as the
Plan remains in effect. The term 'Compensation' means the amount of taxable
income reportable for federal income tax purposes on the employee's Federal
Income Tax Withholding Statement, excluding overtime, shift premium, incentive
or bonus awards, allowances and reimbursements for expenses such as relocation
allowances or travel expenses, income or gains on the exercise of Company stock
options or stock appreciation rights, and similar items, whether or not shown on
the employee's Federal Income Tax Withholding Statement, but including, in the
case of salespersons, sales commissions to the extent determined by the Board or
the Committee. 'Compensation' shall be determined before reductions for any
contributions to any plan maintained by the Company and described in Section
401(k) or Section 125 of the Code.
5. Deductions.
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Purchase Period under this Plan, an
eligible employee may authorize a payroll deduction in any whole number
percentage up to a maximum of 10% of the Compensation he or she receives during
the Purchase Period or such shorter period during which deductions from payroll
are made.
(b) No employee may be granted an Option which permits his rights to
purchase Common Stock under this Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Offering Period) for each calendar year in which the Option is
outstanding at any time, as required by Section 423 of the Code.
6. Deduction Changes. An employee may decrease or discontinue his payroll
deduction once during any Purchase Period by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Purchase Period. If an employee elects to discontinue his payroll
deductions during a Purchase Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
accounts, except to the extent that the Board or the Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum rate
as it may from time to time determine.
8. Withdrawal of Funds. An employee may on any one occasion during a
Purchase Period and for any reason withdraw all or part of the balance
accumulated in the employee's payroll deduction account. Any such withdrawal
must be effected prior to the close of business on the last day of the Purchase
Period. If the employee withdraws all of such balance, the employee will thereby
withdraw from participation in the Offering and may not begin participation
again during the remainder of the Purchase Period. Any employee withdrawing all
or part of such balance may participate in any subsequent Purchase Period of any
Offering in accordance with terms and conditions established by the Board or the
Committee.
ii
<PAGE>
9. Purchase of Shares.
(a) On the Offering Commencement Date of each Offering Period, the Company
will grant to each eligible employee who is then eligible to participate in the
Plan an option (an 'Option') to purchase during the Offering Period such number
of whole shares of Common Stock of the Company reserved for the purposes of the
Plan as does not exceed the number of shares determined by dividing (i) $25,000
by (ii) the closing price (as defined in the next paragraph) of Common Stock on
the Offering Commencement Date of such Offering Period. The Option may be
exercised, at the election of the Participant, for any or all of the shares
subject to the unexercised portion of the Option on the last Trading Day of any
Purchase Period during the Offering Period (each an 'Exercise Date'), subject to
the limitations set forth in this Plan.
(b) The Option Price for each share purchased pursuant to an Option during
a Purchase Period will be 85% of the closing price of the Common Stock on (i)
the Offering Commencement Date of such Offering Period or (ii) the applicable
Exercise Date, whichever closing price will be less. Such closing price will be
(A) the closing price of the Common Stock on any national securities exchange on
which the Common Stock is listed, or (B) the closing price of the Common Stock
on the Nasdaq National Market ('Nasdaq') or (C) the average of the closing bid
and asked prices in the over-the-counter market, whichever is applicable, as
published in The Wall Street Journal. If no sales of Common Stock were made on
such a day, the price of the Common Stock for purposes of clauses (A) and (B)
above will be the reported price for the next preceding day on which sales were
made.
(c) Each employee who continues to be a participant in the Plan on an
Exercise Date will be deemed to have exercised his Option at the Option Price on
such date and will be deemed to have purchased from the Company the number of
full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number of shares for which the
Option was granted and has not previously been exercised, determined in the
manner set forth above).
(d) Any balance remaining in an employee's payroll deduction account at the
end of the first Purchase Period of any Offering will be carried forward into
the employee's payroll deduction account for the second Purchase Period of the
Offering, unless the Option has been fully exercised in the first Purchase
Period or the employee elects not to participate in the second Purchase Period
of the Offering, in which case the balance of the employee's account will be
refunded. Any balance remaining in an employee's payroll deduction account at
the end of an Offering Period will be automatically refunded to the employee,
except that any balance which is less than the purchase price of one share of
Common Stock will be carried forward into the employee's payroll deduction
account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case the balance
in the employee's account will be refunded.
10. Issuance of Certificates. As soon as practicable following the end of
each Purchase Period, certificates representing shares of Common Stock purchased
under the Plan on the Exercise Date for such Purchase Period shall be issued
only in the name of the employee, in the name of the employee and another person
of legal age as joint tenants with rights of survivorship, or (in the Company's
sole discretion) in the street name of a brokerage firm, bank or other nominee
holder designated by the employee.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Purchase Period (whether as a result of the employee's
voluntary or involuntary termination, retirement, death or otherwise), no
payroll deduction will be taken from any pay due and owing to the employee and
the balance in the employee's payroll deduction account will be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of a Purchase Period,
the Designated Subsidiary by which an employee is employed will cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of
the Company that is not a Designated Subsidiary, the employee will be deemed to
have terminated employment for the purposes of this Plan.
iii
<PAGE>
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay will constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Adjustment in Case of Changes Affecting Common Stock. In the event of
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, will be increased proportionately, and
such other adjustment will be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment will be made as may be deemed equitable by the Board or the Committee
to give proper effect to such event.
15. Merger.
(a) If the Company at any time merges or consolidates with another
corporation and the holders of the capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80% by voting
power of the capital stock of the surviving corporation ('Continuity of
Control'), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option will be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee will take such
steps in connection with such merger as the Board or the Committee deem
necessary to assure that the provisions of this Section 15 will thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
(b) In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or a sale of
all or substantially all of the assets of the Company while unexercised Options
remain outstanding under the Plan, (i) subject to the provisions of clauses (ii)
and (iii), after the effective date of such transaction, each holder of an
outstanding Option will be entitled, upon exercise of such Option, to receive in
lieu of shares of Common Stock, shares of such stock or other securities as the
holders of shares of Common Stock received pursuant to the terms of such
transaction; or (ii) all outstanding Options may be canceled by the Board or the
Committee as of a date prior to the effective date of any such transaction and
all payroll deductions will be paid out to the participating employees; or (iii)
all outstanding Options may be canceled by the Board or the Committee as of the
effective date of any such transaction, provided that notice of such
cancellation will be given to each holder of an Option, and each holder of an
Option will have the right to exercise such Option in full based on payroll
deductions then credited to his account as of a date determined by the Board or
the Committee, which date will not be less than ten (10) days preceding the
effective date of such transaction.
16. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment will not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
17. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
18. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees will be promptly refunded.
iv
<PAGE>
19. Governmental Regulations.
(a) The Company's obligation to sell and deliver Common Stock under this
Plan is subject to listing on a national stock exchange or quotation on Nasdaq
and the approval of all governmental authorities required in connection with the
authorization, issuance or sale of such stock.
(b) The Plan will be governed by the laws of the State of Delaware except
to the extent that such law is preempted by federal law.
20. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
21. Notification upon Sale of Shares. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the transfer of such share to the employee, so that the Company
may take appropriate income tax deductions with respect to such transfer and
otherwise comply with applicable federal, state and local income tax laws.
22. Effective Date and Approval of Stockholders. The Plan will take effect
on July 1, 1997, subject to approval by the stockholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
v
<PAGE>
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Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
TRUSTED INFORMATION SYSTEMS, INC.
May 27, 1997
A /X/ Please mark your
votes as in this
example
FOR WITHHELD
ITEM 1. ELECTION OF DIRECTOR / / / /
Nominee: FOR AGAINST ABSTAIN
SHarvey L. Weiss ITEM 2. ADOPTION OF THE 1997 EMPLOYEE / / / / / /
STOCK PURCHASE PLAN
ITEM 3. APPOINTMENT OF INDEPENDENT / / / / / /
AUDITORS
Signature--------------------- Signature ------------------ Dated --------------
(Signatures if held Jointly)
Please sign as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such.
- - --------------------------------------------------------------------------------
PROXY
TRUSTED INFORMATION SYSTEMS, INC.
THIS PROXY IS SOLICTED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Martha A. Branstad, Ronald W. Kaiser
and Kenneth A. Mendelson proxies, each with power to act alone and with power of
substitution, and hereby authorizes each of them to represent and vote, as
designated on the other side, all the shares of stock of Trusted Information
Systems, Inc. (the "Company") standing in the name of the undersigned with all
powers which the undersigned would possess if presented at the Annual Meeting of
Stockholders of the Company to be held on May 27, 1997 or any adjournment
thereof.
(Continued, and to be marked, dated and signed, on the other side)
================================================================================
