<PAGE> 1
AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON DECEMBER 24, 1997 REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TRUSTED INFORMATION SYSTEMS, INC.
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1281786
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3060 WASHINGTON ROAD (RT. 97)
GLENWOOD, MARYLAND 21738
(301) 854-6889
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN T. WALKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRUSTED INFORMATION SYSTEMS, INC.
3060 WASHINGTON ROAD
GLENWOOD, MARYLAND 21738
(301) 854-6889
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT
FOR SERVICE, SHOULD BE SENT TO:
EDWIN M. MARTIN, JR., ESQ.
PIPER & MARBURY, L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036
(202) 861-6315
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX: [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX:[x]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING: [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: [ ]
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURIRITES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCRUACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
TITLE OF AMOUNT TO BE PROPOSED MAXIMUM
SHARES REGISTERED AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C>
COMMON STOCK, $.01 PAR VALUE 2,105,494 $18,949,446 $5,590
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</TABLE>
(1) PURSUANT TO RULE 457(c), THE PROPOSED MAXIMUM OFFERING PRICE PER
SHARE, PROPOSED MAXIMUM AGGREGATE OFFERING PRICE AND REGISTRATION FEE ARE BASED
UPON THE CLOSING PRICE OF $9.00 PER SHARE OF COMPANY'S COMMON STOCK ON DECEMBER
17, 1997, AS REPORTED ON THE NASDAQ NATIONAL MARKET.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION
DECEMBER 24, 1997
PROSPECTUS
2,105,494 SHARES
TRUSTED INFORMATION SYSTEMS, INC.
COMMON STOCK
------------
This Prospectus relates to the public offering from time to time of up
to an aggregate of 2,105,494 shares (the "Shares") of Common Stock, par value
$.01 per share (the "Common Stock"), of Trusted Information Systems, Inc., a
Delaware corporation (the "Company" or "TIS"), by the Selling Stockholders
named herein. See "Selling Stockholders."
The Common Stock is traded on the nasdaq National Market under the
symbol "TISX." On December 17, 1997, the reported closing price of the
Company's Common Stock on the Nasdaq National Market was $9.00 per share.
NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
The Trusted Information Systems, Inc. logo, TIS, Gauntlet, Building A
World of Trust and Trusted Mach are registered trademarks or servicemarks of
the Company. Trademark registrations are pending for KRT, RecoverKey and
RecoverKey International. This Registration Statement also includes
trademarks, servicemarks and tradenames of other companies.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission,
including the reports and other information incorporated by reference into this
Prospectus, can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at its regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at rates prescribed by the Commission or from the
Commission's Internet web site at http:\\www.sec.gov. The Common Stock of the
Company is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company can be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006. This Prospectus
does not contain all the information set forth in the Registration Statement of
which this Prospectus is a part and exhibits relating thereto which the Company
has filed with the Commission. Copies of the information and exhibits are on
file at the offices of the Commission and may be obtained, upon payment of the
fees prescribed by the Commission, may be examined without charge at the
offices of the Commission or through the Commission's Internet web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No.: 000-21067 ) pursuant to the 1934 Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 27, 1996;
2. Quarterly Reports on Form 10-Q for each of the quarters
ended March 28, 1997, June 27, 1997 and September 26, 1997;
3. Current Report on Form 8-K as amended regarding the
Company's merger with Haystack Laboratories on October 16,
1997.
4. Current Report on Form 8-K/A as amended regarding the
financial statements for the merger with Haystack
Laboratories, Inc. on December 24, 1997.
5. The Company's Definitive Proxy Statement on Schedule 14A
filed with the Commission under the 1934 Act on April 24,
1997;
6. The description of Common Stock contained in the Company's
Registration Statement on Form S-1, filed September 26, 1996
under the 1934 Act; and
7. All other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act
subsequent to the date of filing of the Registration
Statement of which this Prospectus is a part and prior to
the termination of the offering made hereby.
The Company will provide, without charge, to each person to whom a
copy of this Prospectus is delivered, upon the request of any such person, a
copy of any or all of the documents which have been incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests for such
documents should be directed to Trusted Information Systems, Inc., 3060
Washington Road (Rt. 97), Glenwood, Maryland 21738, Attention: Chief Financial
Officer (301) 854-6889.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
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THE COMPANY
Trusted Information Systems, Inc. (the "Company" or "TIS"), founded in
1983, provides comprehensive security solutions for the protection of computer
networks, including global Internet-based systems, internal networks and
individual workstations and laptops, and is a leading provider of firewall
products. The Company develops, markets, licenses and supports the Gauntlet(R)
family of firewall products. These products allow customers to create
"trusted" networks that are protected from access, theft and damage by
unauthorized users from "untrusted" networks such as the Internet and also
enable the creation of virtual private networks ("VPNs") through the encrypted
transmission of information across untrusted networks. The Company emphasizes
the robustness of its security solutions, its long experience with computer
security and cryptography issues and its ability to provide comprehensive
solutions to customers. The Company also emphasizes its strong reputation with
corporate and government computer security professionals in the United States
and abroad as a pioneer in the field of computer network security.
The Company's Gauntlet Internet Firewall, introduced in 1994, was
derived from the TIS Firewall Toolkit, which has been available on the Internet
since 1993 and has been downloaded over 50,000 times to more than 35,000
discrete locations. To date, more than 7,000 Gauntlet Internet Firewalls have
been licensed to customers, including the following or subsidiaries thereof:
Chrysler Corporation, Microsoft Corporation, NationsBank Corporation, Royal
Dutch Petroleum Company and Swiss Bank Corporation. In January 1996, the
Company initiated a program to proactively introduce TIS Internet Firewall
Toolkit users to the Gauntlet family of firewall products. These products use
a proxy-based application gateway system rather than a filtering gateway
system, thus assuring a higher level of security by prohibiting direct
connections between networks and by permitting only specifically approved
application data to flow into and out of the trusted network. Additionally,
the Gauntlet family of firewall products is built on an operating system that
has been modified or "hardened" for additional system security. TIS employs a
"Crystal Box" approach in which the source code is made available for
distribution to allow assurance reviews by the Company's customers, resellers
and other experts. The Gauntlet Internet Firewall is available on an Intel
Pentium-based platform as well as other platforms such as Hewlett-Packard,
Silicon Graphics and Sun Microsystems workstations. The Gauntlet family of
firewall products includes the Gauntlet Intranet Firewall for internal
networks, Gauntlet Net Extender for remote sites and Gauntlet PC Extender for
desktop or mobile computer users.
Initially, the Company focused on consulting to major corporations
such as Digital Equipment Corporation, International Business Machines
Corporation and MCI Communications Corporation, and it has continued to provide
computer security consulting to major corporations throughout its history. The
Company's commercial consulting practice offers expert technology research
services, consultation on security issues associated with products and
services, corporate information security policy development, architectural and
diagnostic security analysis, firewall configuration and maintenance support,
and training for corporate network and security administration personnel.
These services are carried out by a staff of 30 persons with significant
information security experience in both commercial and government
organizations.
The Company believes that full commercial utilization of the Internet
has been hampered by lack of security and the vulnerability of the Internet and
private networks directly connected to the Internet. The very openness of the
Internet means that transmitted information and data stored in connected hosts
are exposed to other users who are able, in the absence of effective security
measures, to gain access to, manipulate and divert the data. This fundamental
weakness requires that organizations and individuals weigh security concerns
against the perceived commercial opportunities presented by millions of
Internet users.
To satisfy an organization's desire to both conduct commerce on public
networks and keep hackers and viruses outside of its trusted network, firewalls
are designed to monitor and regulate the traffic passing in and out of an
organization's internal network. Organizations are vulnerable not only to
unauthorized access to information resources by outsiders, but also to abuse by
employees within their own organizations. The Company believes that firewalls
and encryption are key elements in providing solutions to these security
issues. International Data Corporation has forecast that revenues from new
licensees of firewall software will grow from approximately $160 million in
1995 to $729 million in the year 2001.
To capitalize on this opportunity, the Company is pursing a focused
marketing strategy to achieve greater market penetration through complementary
domestic and international distribution channels, including direct sales,
resellers and telesales. The Company's direct sales force markets its products
and services to Fortune 500 and other corporations and organizations with
complex information security needs, such as telecommunications companies,
finance and banking institutions, petrochemical companies and pharmaceutical
companies. The Company's more
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<PAGE> 6
than 100 resellers include Internet service providers such as BBN Internet
Service Corp., PSINet, Inc., Unipalm PLC and UUNet Technologies, Inc.; value
added resellers and hardware vendors such as Bull Enterprise Systems, Data
General Corporation, HITACHI Ltd., Silicon Graphics, Inc. and Sumitomo
Electric Systems Company, Ltd.; system integrators such as AvantComp Oy,
Conjugi Corporation, and Media Communications STM AB; and security product
vendors such as Hanil Telecom Co., Ltd., and Virtual Open Network Environment
Corporation ("V-One").
Prior to founding TIS in 1983, Stephen T. Walker spent 20 years
working on computer security issues at the National Security Agency ("NSA") and
the Advanced Research Projects Agency ("ARPA") and the office of the Secretary
of Defense. While working for the U.S. Department of Defense, Mr. Walker was
responsible for the development of network security standards and policies as
well as for the establishment of the Department of Defense Computer Security
Initiative, the first comprehensive attempt in the Department of Defense at
managing the computer security systems solutions. Mr. Walker is widely
recognized as a pioneer in the field of computer network security. He has
testified before Congress as an expert witness on these issues on numerous
occasions and has played an instrumental role in assisting the U.S. government
to formulate encryption export policy. Mr. Walker's experience is complemented
by other members of the Company's senior management team who average more than
20 years of experience working on computer security and networking issues in
industry and government.
In 1987, TIS began to perform consulting and research and development
projects for government agencies, including NSA and ARPA. These activities
have contributed to the Company's in-depth understanding of the technologies,
threats and user requirements in computer security and have contributed to the
development of the TIS Internet Firewall Toolkit and the Gauntlet family of
firewall products. The Company continues to provide research and development
and consulting services to government agencies in areas such as next generation
firewalls, distributed trusted operating systems, Internet domain name
services, international cryptography and advanced cryptographic key handling
and recovery techniques.
The Company's position as an adviser and supplier to industry and the
government has enabled it to be a leader in developing a Key Recovery solution,
based on its proprietary Key Recovery Technology ("KRT") to permit the export
of products with strong cryptography while protecting the interests of security
and law enforcement agencies. The Clinton Administration Policy, as outlined
by the Vice President on July 12, 1996 would link the relaxation of export
controls to systems that include Key Recovery. The Company has incorporated
its Commercial Key Recovery ("CKR") solution into its Gauntlet Internet
Firewall. In January 1996, the United States granted the Company an export
license for a particular transaction involving the Gauntlet Internet Firewall
using the DES algorithm (56 bits). This was the first export license granted
because the encryption is combined with a Key Recovery system. Since June
1996, the U.S. Government granted the Company several export licenses to sell
the Gauntlet Internet Firewall in order to provide Global Virtual Private
Network services.
On October 16, 1997, the Company acquired Haystack Laboratories, Inc.,
a privately held Austin, Texas based software company. Haystack Laboratories,
Inc. is best known for its industry-leading Stalker and Webstalker intrusion
detection and monitoring software. These products allow an enterprise to
detect misuse on mission-critical servers, systems and websites, and identify
unauthorized users and activities. Once detected, the software responds to
attacks by immediately disabling a logon or killing a process.
The Company was incorporated in Maryland in 1983 and was
reincorporated in Delaware in 1996. The Company's principal executive offices
are located at 3060 Washington Road (Rt. 97), Glenwood, Maryland 21738. Its
telephone number is (301) 854-6889. The Company home page on the World Wide
Web is www.tis.com.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered in evaluating the Company and its business
before purchasing shares of the Common Stock offered hereby.
CHALLENGES OF INTEGRATION. TIS acquired Haystack Laboratories, Inc.
("Haystack") in a merger transaction ("the Merger") in October 1997. Whether
TIS will achieve the anticipated benefits of the merger will depend in part
upon whether the integration of the two companies' businesses is accomplished
in an efficient and effective manner, and there can be no assurance that this
will occur. The successful combination of companies in a rapidly changing high
technology industry may be more difficult to accomplish than in other
industries. The combination of the two companies will require, among other
things, integration of the companies' respective product offerings and
coordination of their sales, marketing, research and development efforts.
There can be no assurance that such integration will be accomplished smoothly
or successfully. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations require the dedication of management
resources, which may temporarily distract attention from the day-to-day
business of the combined company. The business of the combined company may
also be disrupted by employee uncertainty and lack of focus during such
integration. The inability of management to successfully integrate the
operations of the two companies could have a material adverse effect on the
business, results of operations and financial condition of TIS.
POSSIBLE ADVERSE EFFECT ON CUSTOMER PURCHASING DECISIONS. There can
be no assurance that present and potential customers of TIS and Haystack will
continue their current buying patterns without regard to the Merger. In
particular, TIS and Haystack believe that certain customers' purchasing
decisions may be affected as they evaluate TIS's future product strategy and
competitive positioning. Any adverse decisions made as a result of such
evaluations could have a material adverse effect upon the results of operations
of TIS and/or Haystack both in the near and the long term.
INCURRENCE OF SIGNIFICANT CHARGES. Unanticipated expenses may be
incurred relating to the integration of the businesses of Haystack and TIS,
including the integration of certain product lines, distribution and
administrative functions. Although TIS expects that the elimination of
duplicative expenses as well as other efficiencies related to the integration
of the business of Haystack may offset additional expenses over time, there can
be no assurance that such net benefit will be achieved in the near term, or at
all.
POSSIBLE DILUTION. TIS anticipates that the results of operations for
the combined company in the quarter in which the Merger occurs will be
materially adversely affected. While neither TIS nor Haystack anticipates that
the Merger will be dilutive for the stockholders of the respective companies
over the long term, there can be no assurance that, if the Merger fails to
produce the anticipated benefits, it will not have the dilutive effect of
causing the per share earnings of the combined company to be lower than they
would have been for either company if operated independently. Furthermore, if
the anticipated benefits are not achieved, or if the Merger has other adverse
effects that are not currently anticipated, the Merger could result in a
reduction in per share earnings of the combined company (as compared to the per
share earnings that either or both of the companies would have achieved if the
Merger had not occurred). Even if the effects of the Merger prove to be as
anticipated, there can be no assurance that future earnings will not be
adversely affected by any number of economic, market or other factors that are
not related to the Merger.
LOSS OF KEY EMPLOYEES, DISTRIBUTORS OR RESELLERS OF HAYSTACK. The
successful continuation of Haystack's business by TIS and the successful
integration of the companies' operations depends upon the continued
contribution of key employees of Haystack and the continued participation of
key distributors and resellers of Haystack's products. The loss of key
personnel, distributors or resellers of Haystack could adversely affect the
financial condition and results of operation of Haystack before completion of
the Merger and of the combined companies after completion of the Merger.
Competition for qualified personnel, distributors and resellers is intense, and
there can be no assurance that the companies will be successful in retaining
its key employees, distributors and resellers.
FEDERAL INCOME TAX CONSEQUENCES AND CONTINUITY OF INTEREST. One of
the requirements for the Merger being treated as a "reorganization" that is
generally tax free under the Code is that the "continuity of interest"
requirement be met. Under this requirement, holders of Haystack Stock must
intend, at the time of the Merger, to retain a portion of their Common Stock,
such that Haystack stockholders, as a group, have a significant equity interest
in TIS after the Merger. If former Haystack stockholders should collectively
sell in excess of 50% of the
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<PAGE> 8
Common Stock to be delivered at the Closing of the Merger within a relatively
short period after the Closing, for example one to two years, the Internal
Revenue Service (the "IRS") may contend that this requirement is not met. In
such event, the Merger would be a taxable transaction and former Haystack
stockholders would recognize taxable income as of the date of the Merger based
on the difference between the tax basis in their shares of Haystack Stock and
the fair market value of Common Stock received by them on that date (even if
such fair market value declines after the Merger).
TRANSITION TO COMMERCIAL PRODUCT VENDOR. Historically, the Company's
principal business had been contract research and development, primarily for
U.S. government agencies or companies engaged in work for U.S. government
agencies. In addition, the Company performed consulting for major companies.
The Company introduced its Firewall Toolkit on the Internet in October 1993,
and announced its first commercial firewall product, the Gauntlet Internet
Firewall, in April 1994. The transition to a commercial product vendor
requires the Company to significantly expand its non-contract research and
development, to continually introduce new products and add features to existing
products, to enhance its domestic and international sales force and to
establish additional distribution channels. In addition, the Company must
adapt to the demands of an emerging and rapidly changing commercial market,
intense competition and changing technology and industry standards. There can
be no assurance that the Company can make this transition successfully or that
the Company will be able to penetrate the commercial markets in a manner
sufficient to assure its success in the future. The Company believes it is
likely that, as a result of its transition from contract research and
development to a commercial product vendor, its historical financial
performance will not be indicative of future performance.
POTENTIAL SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS AND LENGTHY
SALES CYCLE. The Company anticipates significant quarterly fluctuations in its
operating results in the future. The Company generally ships orders for
commercial products as they are received and, as a result, has little backlog.
Quarterly revenues and operating results therefore depend on the volume and
timing of orders received during the quarter, which are difficult to forecast.
In addition, government contract revenues and consulting service revenues tend
to fluctuate as projects, which may continue over several quarters, are
undertaken or completed. Operating results may also fluctuate on a quarterly
basis due to factors such as the demand for the Company's products, the
introduction of new products and product enhancements by the Company or its
competitors, market acceptance of new products introduced by the Company or its
competitors and the size, timing, cancellation or delay of customer orders,
including cancellation or delay in anticipation of new product introduction or
enhancement. The Company's quarterly operating results are also affected by
the budgeting cycles of customers, changes in the proportion of revenues
attributable to licenses and consulting fees, changes in the mix of products
sold, changes in the percentage of products sold through the Company's direct
sales force, changes in product pricing, changes in the development of the
Company's direct and indirect distribution channels, competitive conditions in
the industry and changes in general economic conditions.
Due to all the foregoing factors, it is likely that in some future
quarters, the Company's operating results will be below the expectations of
public market analysts and investors. Regardless of the general outlook for
the Company's business, the announcement of quarterly operating results below
analyst and investor expectations could have a material and adverse effect on
the price of the Company's Common Stock.
SALES AND DISTRIBUTION RISKS. In the nine months ended September 26,
1997, the Company generated a significant portion of its revenues from its more
than 100 resellers worldwide. There can be no assurance that the Company will
be able to retain or attract additional resellers that will be able to market
the Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service. The Company anticipates that it
will ship products to resellers on a purchase-order basis, and the Company's
resellers may carry competing product offerings. Therefore, there can be no
assurance that any reseller will continue to represent the Company's products.
The loss of resellers could materially adversely affect the Company's financial
condition and results of operations.
RISK ASSOCIATED WITH INFORMATION SECURITY MARKET. The market for the
Company's software products is in an early stage of development. Declines in
demand for the Company's products, whether as a result of competition,
technological change, the public's perception of the need for security
products, developments in the hardware and software environments in which these
products operate, general economic conditions or other factors, could have a
material adverse effect on the Company's financial condition or results of
operations.
A well-publicized actual or perceived breach of network or computer
security could trigger a heightened awareness of computer abuse, resulting in
an increased demand for security products such as those offered by the Company.
Similarly, an actual or perceived breach of network or computer security at one
of the Company's customers, regardless of whether such breach is attributable
to the Company's products, could adversely affect the
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<PAGE> 9
market's perception of the Company and the Company's financial condition or
results of operations. In addition, although the effectiveness of the
Company's products is not dependent upon the secrecy of its proprietary
technology or licensed technology, the public disclosure of its technology
could result in a perception of breached security and reduced effectiveness of
the Company's products, which could have an adverse effect on the Company's
financial condition or results of operations.
NEW PRODUCT INTRODUCTION. The first Gauntlet Internet Firewall
product was released commercially in April 1994, and a family of Gauntlet
Internet Firewall products was released commercially in April 1996. The
Company is currently devoting significant resources toward the development of
enhancements and new versions to these families of products and the development
of KRT products . There can be no assurance that the Company will successfully
complete the development of these products in a timely fashion, that the
Company will be able to develop versions of its products that operate on the
range of hardware platforms and operating systems currently anticipated or that
the Company's current or future products will satisfy the needs of the computer
and information security market or achieve market acceptance or, if market
acceptance is achieved, that the Company will be able to maintain such
acceptance for a significant period of time. Any inability of the Company to
develop products on a timely basis that address changing customer requirements
may require the Company to substantially increase development expenditures or
may result in a loss of market share to a competitor. There can also be no
assurance that security-related products or technologies developed by others
will not adversely affect the Company's competitive position or render its
products or technologies noncompetitive or obsolete.
CHANGES IN TECHNOLOGY. The information security industry is
characterized by rapid changes, including frequent new product introductions,
continuing advances in technology and changes in customer requirements and
preferences. The introduction of new technologies or advances in techniques
for gaining unauthorized network access could render the Company's existing
products obsolete or unmarketable. The development cycle for the Company's new
products may be significantly longer than the Company's historical product
development cycle, resulting in higher development costs or a loss in market
share. Advances in techniques by individuals and entities seeking to gain
unauthorized access to networks could expose the Company's existing products to
new and unexpected attacks and require accelerated development of new products
or require the Company to invest resources in products that may not become
profitable. There can be no assurance that: (i) the Company will be able to
counter challenges to its current products; (ii) the Company's future product
offerings will keep pace with the technological changes implemented by
competitors or persons seeking to breach information security; (iii) the
Company's products will satisfy evolving preferences of customers and
prospects; or (iv) the Company will be successful in developing and marketing
products for any future technology. Failure to develop and introduce new
products and product enhancements in a timely fashion could have a material
adverse effect on the Company's financial condition and results of operations.
DEPENDENCE ON THE INTERNET. The success of the Company's products and
services will depend in large part upon the development of an infrastructure
for providing Internet access and services. Because global commerce and
on-line exchange of information on the Internet and other similar open wide
area networks are new and evolving, it is difficult to predict with any
assurance whether the Internet will prove to be a viable commercial
marketplace. The Internet has experienced, and is expected to continue to
experience, significant, geometric growth in the number of users and amount of
traffic. There can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed on it by this continued
growth. In addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols (for example, the
next-generation Internet Protocol) to handle increased levels of Internet
activity, or due to increased governmental regulation. If the necessary
infrastructure or complementary services or facilities are not developed, or if
the Internet does not become a viable commercial marketplace, the Company's
business, results of operations and financial conditions could be materially
adversely affected.
RISKS OF DOING BUSINESS WITH THE U.S. GOVERNMENT. In the nine months
ended September 26, 1997, the Company derived approximately 25% of its revenues
from research, development and consulting in computer and related security
systems for agencies of the U.S. government. The aggregate award value of the
Company's sixteen major active government contracts is approximately $35
million as of September 26, 1997. Three of these contracts will expire during
1998, eight will expire in 1999 and two will expire in 2000. There can be no
assurance that the Company will be able to procure an extension of these
contracts or additional contracts of a similar magnitude. Reductions or delays
in federal funds available for projects the Company is performing could also
have an adverse impact on the Company's government business. Contracts
involving the U.S. government are also subject to the risks of disallowance of
costs upon audit, changes in government procurement policies, the necessity to
participate in competitive bidding and, with respect to contracts involving
prime contractors or government-designated
-7-
<PAGE> 10
subcontractors, the inability of such parties to perform under their contracts.
Any of the foregoing events would have an adverse impact on the Company's
business, financial condition and results of operations.
COMPETITION. Competition in the information security market is
intense and constantly evolving, and the Company expects such competition to
increase in the future. The Company believes that significant competitive
factors affecting this market are depth of product functionality, product
quality and performance, product price, customer support, conformance to
protocols and industry standards and breadth of platform support. In addition,
the ability to rapidly develop and implement new products and features for the
market is critical. The Company's competitors include organizations that
provide information security products based upon approaches similar to and
different from those employed by the Company. There can be no assurance that
the market for information security products will not ultimately be dominated
by approaches other than the approach marketed by the Company. The Company is
not currently recognized as the leader in Firewall Security products.
Many of the Company's competitors and potential competitors have
significantly greater financial, marketing, technical and other competitive
resources than the Company. As a result, they may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements,
or to devote greater resources to the promotion and sale of their products than
can the Company. Competition could increase if new companies enter the market
or if existing competitors expand their product lines. An increase in
competition could result in price reductions and loss of market share. Any
resulting reduction in gross margins could have a material adverse effect on
the Company's financial condition or results of operations. Although the
Company believes it has certain technological and other advantages over its
competitors, maintaining such advantages will require continued investment by
the Company in research and development and sales and marketing. There can be
no assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological advances
necessary to maintain such competitive advantages. In addition, current and
potential competitors have established or may in the future establish
collaborative relationships among themselves or with third parties, including
third parties with whom the Company has strategic relationships, to increase
the ability of their products to address the security needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this
were to occur, the Company's financial condition and results of operations
would be materially adversely affected.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS. The Company intends from
time to time to evaluate potential acquisitions of businesses, products and
technologies that could complement or expand the Company's business. In the
event the Company identifies an appropriate acquisition candidate, there is no
assurance that the Company would be able to successfully negotiate the terms of
any such acquisition, finance such acquisition and integrate such acquired
business, products or technologies into the Company's existing business and
operations. Furthermore, the integration of an acquired business could cause a
diversion of management time and resources. There can be no assurance that a
given acquisition, when consummated, would not materially adversely affect the
Company's financial condition and results of operations. If the Company
proceeds with one or more significant acquisitions in which the consideration
consists of cash, a substantial portion of the Company's available cash
(including proceeds of the Offering) could be used to consummate the
acquisitions. If the Company consummates one or more significant acquisitions
in which the consideration consists of stock, stockholders of the Company could
suffer a significant dilution of their interests in the Company.
RISKS OF ERROR OR FAILURES. Products as complex as those offered by
the Company may contain undetected errors, failures or bugs when first
introduced or when new versions are released. Many companies offering similar
products have, in the past, discovered software errors, failures and bugs in
certain of its product offerings after their introduction and have experienced
delays or lost revenues during the period required to correct these errors.
The computer technology environment is characterized by a wide variety of
standard and non-standard configurations that make pre-release testing for
programming or compatibility errors very difficult and time-consuming.
Furthermore, there can be no assurance that, despite testing by the Company and
by others, errors, failures or bugs will not be found in new products or
releases after commencement of commercial shipments by the Company. Errors,
failures or bugs in the Company's products could result in adverse publicity,
in product returns, in loss of or delay in market acceptance of the Company's
products or in claims by the customer or others against the Company.
Alleviating such problems could require significant expenditures of capital and
resources by the Company and could cause interruptions, delays or cessation of
service to the Company's customers. The Company attempts to limit its
liability to customers, including liability arising from a failure of the
security features contained in the Company's products, through contractual
limitations of warranties and remedies. However, some courts have held similar
contractual limitations of liability, or the "shrink-wrap licenses" in which
they sometimes are embodied, to be unenforceable. Accordingly, there can be no
assurance that such limitations will be enforced. The
-8-
<PAGE> 11
consequences of errors, failures or bugs in the Company's products could have a
material adverse effect on the Company's financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant degree upon the continuing contributions of its key management,
sales, marketing and product development personnel. The loss of the services
of any key employee could adversely affect the Company's financial condition
and results of operations. The Company believes that its future success will
depend in large part upon its ability to attract and retain highly skilled
managerial, sales, marketing and product development personnel. The Company
requires consulting services and product development personnel who are highly
technically trained in the field of information security. The Company has at
times experienced, and continues to experience, difficulty in recruiting
qualified personnel. Competition for qualified personnel in the software
industry is intense, and there can be no assurance that the Company will be
successful in retaining its key employees or that it can attract or retain
additional skilled personnel as required.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. Sales outside North
America accounted for approximately 24%, 7.9%, 11.9% and 14.1% of the Company's
revenue from its network security products in the years ended December 30,
1994, December 29, 1995, December 27, 1996 and the nine months ended September
26, 1997, respectively. Management expects that such sales will continue to
generate a significant portion of the Company's total revenue. The Company's
international business may be subject to a variety of risks, including costs
relating to the start-up of direct operations in certain countries or regions,
delays in expanding its international distribution channels, difficulties in
collecting international accounts receivable from distributors or resellers,
and increased costs associated with maintaining international marketing
efforts. Some of the Company's international sales are denominated in the
local currency of the country in which the sale was made, and the Company is
subject to the risks associated with fluctuations in currency exchange rates.
A decrease in the value of any of these foreign currencies relative to the U.S.
dollar could affect the profitability in U.S. dollars of the Company's products
sold in these markets. In addition, the Company is subject to the usual risks
of doing business abroad, including increases in duty rates, the introduction
of non-tariff barriers and difficulties in enforcement of intellectual property
rights. There can be no assurance that these factors will not have an adverse
effect on the Company's financial condition and results of operations.
EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS. The Company's
international sales and operations may be subject to risks such as the
imposition of governmental controls, new or changed export license
requirements, restrictions on the export of critical technology, trade
restrictions and changes in tariffs. While the Company believes its products
are designed to meet the regulatory standards of foreign markets, any inability
to obtain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's financial condition or results of operations.
Certain of the Company's products are subject to export controls under U.S.
law, and the Company believes it has obtained all necessary export approvals
when required. There can be no assurance, however, that the list of products
and countries for which export approval is required, and the regulatory
policies with respect thereto, will not be revised from time to time. The
inability of the Company to obtain required approvals or the cost of complying
under these regulations could materially adversely affect the ability of the
Company to make international sales. For example, because of U.S. governmental
controls on the exportation of encryption technology, the Company is unable to
export some of its products with the most robust information security
encryption technology. As a result, foreign competitors facing less stringent
controls on their products may be able to compete more effectively than the
Company in the global information security market. However, certain parties
including companies in the computer industry and members of the U.S. Congress,
call for remaining export control on some products which could also have an
adverse impact on the market by allowing too much competition in foreign
countries. There can be no assurance that these factors will not have a
material adverse effect on the Company's financial condition or results of
operation.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
The Company regards its software as proprietary, and its success and ability to
compete is dependent in part upon its proprietary technology and rights. The
Company relies on copyright and trade secret laws, trademarks, confidentiality
procedures and contractual provisions to protect its proprietary software,
documentation and other proprietary information. The Company holds one patent
and has four pending patent applications, which cover certain aspects of its
technology. There can be no assurance that the Company will seek patents on
aspects of its technology relating to its information security products, that
any such patents will issue, or that any such additional patents will be
sufficiently broad to protect the Company's technology relating to its
information security products. There also can be no assurance that the
confidentiality agreements and other methods on which the Company relies to
protect its trade secrets and proprietary information and rights will be
adequate. In addition, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide
-9-
<PAGE> 12
proprietary protection to the Company. Litigation to defend and enforce the
Company's intellectual property rights could result in substantial costs and
diversion of resources and could have a materially adverse effect on the
Company's financial condition and results of operations regardless of the final
outcome of such litigation. Despite the Company's efforts to safeguard and
maintain its proprietary rights, there can be no assurance that the Company
will be successful in doing so or that the steps taken by the Company in this
regard will be adequate to deter misappropriation or independent third-party
development of its technology or to prevent an unauthorized third party from
copying or otherwise obtaining and using the Company's products, technology or
other information that the Company regards as proprietary. There can also be
no assurance that the Company's trade secrets or non-disclosure agreements will
provide meaningful protection of the Company's proprietary information.
Furthermore, there can be no assurance that others will not independently
develop similar technologies or duplicate any technology developed by the
Company or that the Company's technology will not infringe upon patents or
other rights owned by others. The Company's inability to protect its
proprietary rights would have a material adverse effect on the Company's
financial condition and results of operations.
As the number of information security products in the industry
increases and the functionality of these products further overlaps, software
developers and publishers may increasingly become subject to claims of
infringement or misappropriation of the intellectual property or proprietary
rights of others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against the Company in the future with
respect to current or future products. Further, the Company may be subject to
additional risk as it enters into transactions in countries where intellectual
property laws are not well developed or are poorly enforced. Legal protections
of the Company's rights may be ineffective in such countries, and technology
developed in such countries may not be protectable in jurisdictions where
protection is ordinarily available. Any claims or litigation, with or without
merit, could be costly and could result in a diversion of management's
attention, which could have a material adverse effect on the Company's
financial condition and results of operations. Adverse determinations in such
claims or litigation could also have a material adverse effect on the Company's
financial condition and results of operations.
EFFECT OF CERTAIN CHARTER PROVISIONS. The Company's Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
(the "Preferred Stock") and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no current
plans to issue shares of Preferred Stock. Further, certain provisions of the
Company's Certificate of Incorporation and Bylaws could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. The
Company is subject to the anti-takeover provisions of Section of 203 of the
Delaware General Corporation Law. In general, the statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
In addition, the Company's Certificate of Incorporation contains other
provisions that may have the effect of delaying or preventing a change in
control of the Company: (i) a classified Board of Directors and (ii) a
limitation on stockholder action by written consent. All of these factors may
negatively affect the price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
hereunder.
SELLING STOCKHOLDERS
Each of the Selling Stockholders was a stockholder of Haystack. On
October 3, 1997, TIS and Trusted Acquisitions, Inc. a wholly-owned subsidiary
("Merger Sub") entered into an Agreement and Plan of Merger with Haystack
providing for the acquisition of Haystack by TIS pursuant to a merger between
Haystack and Merger Sub. In the Merger, which was consummated on October 16,
1997, the shares of capital stock of Haystack owned by the Selling Stockholders
were converted, on a pro rata basis, into shares of Common Stock, and Haystack
became a wholly owned subsidiary of TIS. The Selling Stockholders received, in
the aggregate, 2,105,494 shares of Common
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<PAGE> 13
Stock in the Merger, all of which may be offered for sale from time to time by
the Selling Stockholders pursuant to the registration statement of which this
Prospectus is a part.
The name and address of each of the Selling Stockholders, the
positions, offices and other material relationships, if any, of such Selling
Stockholders with Haystack prior to the Merger, the number of Shares held by
such Selling Stockholder following the Merger and the percentage ownership of
such Selling Stockholder of the issued and outstanding shares of Common Stock
as of November 30, 1997 is as set forth below:
<TABLE>
<CAPTION>
POSITION,
OFFICERS AND
OTHER MATERIAL
RELATIONSHIPS
WITH NUMBER OF PERCENTAGE OF
NAME ADDRESS HAYSTACK SHARES OWNERSHIP
---- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
Stephen E. Smaha (1) 3609 D North Hills Director and 876,841 6.39%
Austin, TX 78731 Chairman of the
Board of
Directors
Alisa Nessler 11407 Costakes Drive President 56,719 *
Austin, TX 78750 & Chief
Executive
Officer
Robert P. Northrop 4903-B Smokey Valley Vice President 45,263 *
Austin, TX 78731 of Finance &
Administration
CFO
William Kainer 3201 Century Park Vice President 23,633 *
#1035 Sales
Austin, TX 78727
Bill Bock 44 Pascal Lane Director 20,662 *
Austin, TX 78746
James Shinn 4717 Province Line Road 312,073 2.28
Princeton, NJ 08540
Venrock Associates(2) Venrock Associates 346,651 2.53
30 Rockefeller Plaza,
Room 5508
New York, NY 10112
Peter X. Yates & Nancy Arizona Capital Group 45,446 *
L. Yates
Attn: Sam Pittman
4110 N. Scottsdale
Road, Suite 370
Scottsdale, AZ 85251
Ken J. Burkhardt Quaker Lane Farm 37,871 *
Box 420
Quakertown, NJ 08868
Julian Yates P.O. Box 410028 30,297 *
San Francisco, CA 94141
Steve Snapp 3609-D North Hills 22,451 *
Austin, TX 78731
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C> <C> <C>
William P. Leddy 8111 Pilgrims Place 18,906 *
Austin, TX 78759
Charisse Castagnoli 6905 Peppervine Cove 18,709 *
Austin, TX 78750
Steve Artick 17 Colburn Street 16,543 *
Burlington, MA 01803
Tom Bernhard 2407 Chowan Way 16,543 *
Round Rock, TX 78681
DVMC Partners, L.P. Trellis Management 15,938 *
Attn: John Long
15305 Endwood Road #101-44
Dallas, TX 78746
Lee L. Kaplan and Diana 10 West Lane 15,148 *
M. Hudson Houston, TX 77019
RV Suppliers, Inc. Charles I. Kaplan 15,148 *
5007 Imogene
Houston, TX 77096
Fred Pinkett 148 Capt. Eames Cir. 14,179 *
Ashland, MA 01721
Jack Hall 400 S. Rainbow Ranch 11,816 *
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Wimberly, TX 68776
Marta Zaricznyj 11003 Centennial Trail 11,816 *
Austin, TX 78726
Eric J. Mayer and 3603 Tartan Lane 9,470 *
Isabelle Mayer
Houston, TX 77025
Richard Letsinger 12343 Hungers Chase #228 9,453 *
Austin, TX 78729
Jay Kaplan MWM Fund I, Ltd. 7,574 *
4900 Woodward Road, 700
Houston, TX 77056
Barry E. Putterman and 710 Blalock 7,574 *
Nanette K. Putterman Houston, TX 77024
Terry Escamilla 10404 Yucca Drive 7,089 *
Austin, TX 78759
Frank Flemming 2155 North Street 7,089 *
Fairfield, CT 06430
William Leake 12304 Havelock 7,089 *
Austin, TX 78759
Crosby Marks 11411 Research #1322 7,089 *
Austin, TX 78759
Scott Chapman 12620 Chincring Lane 5,908 *
Austin, TX 78727
Imperial Bank 9220 S. LaCienega Blvd 11,989 *
Englewood, CA 90301
Isabelle Nicole Mann Strauss Interests 4,735 *
Trust; Morris F. Mintz 2930 Commerce Avenue
& Carolyn Mintz Kaplan Monroe, LA 71201
Co-Trustees
Alexandra Rose Mann Strauss Interests 4,735 *
Trust; Morris F. Mintz 2930 Commerce Avenue
& Carolyn Mintz Kaplan Monroe, LA 71201
Co-Trustees
Sonja Eagle 4104 Flagstaff Drive 4,726 *
Austin, TX 78759
Virgil Itilong 2908 Tierra Blanco 4,726 *
Cedar Park, TX 78613
Steve Mason 1001 Pomeroy Avenue 3,544 *
Santa Clara, CA 95051
Marc D. Lewis 16 Stanton Road 3,505 *
Darien, CT 06820-5127
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Sarah Gail Mintz 1993 Strauss Interests 3,157 *
Trust; Carolyn Rose 2930 Commerce Avenue
Mintz Monroe, LA 71201
Kaplan & Sally Ann Mintz
Mann Co-Trustees
Clifford Strauss Mintz Strauss Interests 3,156 *
1993 Trust; Carolyn Rose 2930 Commerce Avenue
Mintz Monroe, LA 71201
Kaplan & Sally Ann Mintz
Mann Co-Trustees
Marc Alan Mintz 1993 Strauss Interests 3,156 *
Trust; Carolyn Rose 2930 Commerce Avenue
Mintz Monroe, LA 71201
Kaplan & Sally Ann Mintz
Mann Co-Trustees
Glynn Rose Kaplan 1991 Strauss Interests 2,524 *
Trust; Morris F. Mintz & 2930 Commerce Avenue
Sally Mintz Monroe, LA 71201
Mann Co-Trustees
Jack Mintz Kaplan 1996 Strauss Interests 2,524 *
Trust; Morris F. Mintz & 2930 Commerce Avenue
Sally Mintz Mann Monroe, LA 71201
Co-Trustees
Layne Michael Kaplan Strauss Interests 2,524 *
1991 Trust; Morris F. 2930 Commerce Avenue
Mintz Monroe, LA 71201
& Sally Mintz Mann
Co-Trustees
Rajpal Singh P.O. Box 48 2,363 *
White Plains, NY 10602
Brita E. Womack 1080 W. Main Street, 1,181 *
#1104
Hendersonville, TN 37075
Julie Bellequist 5828 Linaria Lane 1,181 *
Austin, TX 78759
Michael R. Turner 9104 Deer Shadow Pass 886 *
Austin, TX 78733
Michelle Abdoo 13304-A Waverly Court 708 *
Austin, TX 78729
Paul Boomgaart 2239 Cromwell Circle, #604 708 *
Austin, TX 78761
Janet Johnson 2104 Palcon Oaks Dr. 708 *
Leander, TX 78641
Kirstin Johnson 1107 Romeria Dr. 708 *
Austin, TX 78757
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Tanna McClung 504 Meadowcreek Drive 590 *
Round Rock, TX 78664
Annette Whatley 8010 Bernard Street 472 *
Leander, TX 78648
</TABLE>
- ------------------
* Less than one percent (1%).
(1) Includes 2,835 shares held by Mr. Smaha's daughter over which Mr. Smaha is
the custodian, and includes 11,816 shares held by Mr. Smaha's wife.
(2) Includes 212,653 shares held by Venrock Associates, and 133, 998 shares
held by Venrock Associates II.
Except for the positions, offices and other material relationships
with Haystack set forth above, none of the Selling Stockholders has held any
position or office, or had any other material relationship with TIS or any of
its predecessors or affiliates prior to the merger. If all the shares of
Common Stock being offered by the Selling Stockholders are sold, none of the
Selling Stockholders will own any Common Stock.
PLAN OF DISTRIBUTION
The shares of TIS Common Stock are being registered to permit public
secondary sales of the shares of Common Stock by the Selling Stockholders, or
any of them, from time to time after the date of this Prospectus. The Company
anticipates that the Selling Stockholders may sell all or a portion of the
Common Stock from time to time through the Nasdaq National Market or in the
over-the-counter market, and may sell Commons Stock to or through one or more
broker-dealers at prices prevailing on such Nasdaq National Market or
over-the-counter market, as appropriate, at the times of such sales. The
Selling Stockholders may also make private sales directly or through one or
more broker-dealers. Broker-dealers participating in such transactions may
receive compensation in the form of discounts, concessions or commissions
(including, without limitation, customary brokerage commissions) from the
Selling Stockholders effecting such sales. The Selling Stockholders and any
broker-dealers who act in connection with sales of Common Stock may be deemed
to be "underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the Common Stock might
be deemed to be underwriting discounts and commissions under the Securities
Act. In effecting sales, broker-dealers engaged by a Selling Stockholder may
arrange for other broker-dealers to participate.
The Selling Stockholders will pay all discounts and selling
commissions (if any), fees and expenses of counsel and other advisors to the
Selling Stockholders, or any of them, and any other expenses incurred in
connection with the registration and sale of the Common Stock, other than the
registration fee payable to the Securities Exchange Commission hereunder, the
listing fee to be paid for listing the shares of Common Stock on the Nasdaq
National Market, fees and expenses relating to the registration or
qualification of the shares of Common Stock pursuant to any applicable state
securities or "blue sky" laws and the fees and expenses of the Company's
counsel and independent accountants, which will be paid by the Company.
Each Selling Stockholder has represented that at the time of the
effectiveness of the Merger, such Selling Stockholder had no plans to sell,
exchange, transfer, pledge, distribute, redeem or engage in any other
transaction which would result in the sale of more than thirty percent (30%) of
Common Stock owned by such Selling Stockholder. Each Selling Stockholder also
represented that he or she had no plans, with other stockholders, to sell,
exchange, transfer, pledge, distribute, redeem or engage in any other
transaction involving Common Stock that was in any way related to or in
connection with the Merger or the merger agreement which would result in the
total value of the Common Stock subject to such sales, at the effective time,
to exceed fifty percent (50%) of all outstanding Common Stock of Haystack prior
to the Merger. Certain Selling Stockholders who were deemed affiliates of
Haystack also represented that other than "de minimis" sales under applicable
accounting rules such Selling Stockholder would not sell, exchange, transfer,
pledge, or dispose of any shares of Common Stock until such time as financial
results covering at least thirty (30) days after the effective time of the
Merger of the combined operations of TIS and Haystack have been published in a
report filed with the Securities and Exchange Commission, or in a press
release.
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<PAGE> 18
LEGAL MATTERS
Counsel for the Company, Piper & Marbury L.L.P., Washington, D.C., has
rendered an opinion to the effect that the Common Stock offered hereby is duly
and validly issued, fully paid and nonassessable. Certain members of Piper &
Marbury L.L.P., or investment partnerships of which such persons are partners,
beneficially own approximately 500 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Trusted Information Systems,
Inc. appearing in the Company's Annual Report (Form 10-K) for the year ended
December 27, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The financial statements of Haystack
Laboratories, Inc., appearing in the Company's Current Report (Form 8-K/A) for
the year ended December 31, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITY ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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<PAGE> 19
II. INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the offering.
All such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission.
<TABLE>
<S> <C>
Filing Fee-Securities and Exchange Commission . . . . . . . . . . . . . . . . . $ 5,590
NASDAQ Listing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500
Legal Fees and Expenses (Counsel to the Company) . . . . . . . . . . . . . . . . . 7,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Blue Sky fees & Expenses (including Counsel Fees) . . . . . . . . . . . . . . . . 5,000
Miscellaneous Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,090
=========
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware law, a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. Under current Delaware Law,
liability of a director may not be limited: (i) for any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) in respect of certain unlawful dividend
payments or stock redemptions or purchases; and (iv) for any transaction from
which the director derives an improper benefit. The effect of this provision
of the Company's Certificate of Incorporation is to limit or eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of such director's fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
those circumstances described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of the Company directors' duty
of care. In addition, the Company's Certificate of Incorporation and Amended
and Restated Bylaws (the "Bylaws") provide that the Company shall indemnify its
directors, officers, employees and agents to the fullest extent permitted by
Delaware Law, including circumstances in which indemnification is otherwise
discretionary under Delaware law, and the Company has entered into
indemnification agreements with its directors and officers to that effect. The
Company maintains officer and director liability insurance providing coverage
of up to $10 million with respect to liabilities arising out of certain
matters, including matters arising under the Securities Act.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1* Certificate of Incorporation
3.2* Amended and Restated By-Laws
4.1* Specimen Stock Certificate
4.2* Target Stockholders' Agreement and Affiliate's Agreement dated as of October
15, 1997 by and among the Company, Certain Stockholders and the Investors
named therein.
4.3* Agreement and Plan of Merger dated as of October 3, 1997 by and among the
Company, Trusted Acquisitions, Inc. and Haystack Laboratories, Inc.
5.1 Opinion of Piper & Marbury L.L.P.
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
- -------------------
-17-
<PAGE> 20
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (No. 33-35419) filed on October, 10, 1996.
UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3);
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
-18-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Registration Statement on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Glenwood, Maryland, on this 23rd day
of December, 1997.
TRUSTED INFORMATION SYSTEMS, INC.
By: /s/ STEPHEN T. WALKER
----------------------------------
Stephen T. Walker, President, Chairman
of the Board and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Stephen T. Walker and Edwin M. Martin, Jr., and each
of them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, for him in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement on Form S-3, with
exhibits thereto and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN T. WALKER President, Chief Executive
-------------------------- Officer and Chairman of the Board December 23, 1997
Stephen T. Walker of Directors
(Principal Executive Officer)
/s/ MARTHA A. BRANSTAD Executive Vice President, Chief
-------------------------- Operating Officer, President of December 23, 1997
Martha A. Branstad Advanced Research and Engineering
Division and Director
/s/ HARVEY L. WEISS Executive Vice President,
-------------------------- President of the Commercial December 23, 1997
Harvey L. Weiss Division, Secretary and Director
/s/ RONALD W. KAISER Executive Vice President and
-------------------------- Chief Financial Officer December 23, 1997
Ronald W. Kaiser (Principal Accounting and
Financial Officer)
/s/ GERALD J. POPEK Director December 23, 1997
--------------------------
Gerald J. Popek
/s/ CHARLES W. STEIN Director December 23, 1997
--------------------------
Charles W. Stein
</TABLE>
-19-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1* Certificate of Incorporation
3.2* Amended and Restated By-Laws
4.1* Specimen Stock Certificate
4.2* Target Stockholders' Agreement and Affiliate's Agreement
dated as of October 15, 1997 by and among the Company,
Certain Stockholders and the Investors named therein.
4.3* Agreement and Plan of Merger dated as of October 3, 1997 by
and among the Company, Trusted Acquisitions, Inc. and
Haystack Laboratories, Inc.
5.1 Opinion of Piper & Marbury L.L.P.
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
- -------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 33-69558), filed on October 10, 1996.
-20-
<PAGE> 1
PIPER & MARBURY EXHIBIT 5.1
-----------
L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036-2430
202-861-3900
FAX: 202-223-2085
BALTIMORE
NEW YORK
PHILADELPHIA
EASTON
December 23, 1997
Trusted Information Systems, Inc.
3060 Washington Road (Route 97)
Glenwood, Maryland 21738
Re: Registration Statement on Form S-3
Dear Sirs:
We have acted as counsel to Trusted Information Systems, Inc., a
Maryland corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-3 (the "Registration Statement") filed on the
date hereof with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"). The Registration
Statement relates to 2,105,494 shares of the Company's Common Stock, par value
$.01 per share (the "Shares"), which were previously issued by the Company and
are being registered for resale by the holders thereof.
In this capacity, we have examined the Company's Certificate of
Incorporation and By-Laws, the proceedings of the Board of Directors of the
Company relating to the issuance of the Shares and such other documents,
instruments and matters of law as we have deemed necessary to the rendering of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion and advise you that
each of the Shares described in the Registration Statement has been duly
authorized and validly issued and is fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ PIPER & MARBURY L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Trusted Information
Systems, Inc. for the registration of 2,105,494 shares of its common stock and
to the incorporation by reference therein (i) of our report dated February 28,
1997, with respect to the consolidated financial statements of Trusted
Information Systems, Inc. included in its Annual Report (Form 10-K) for the
year ended December 27, 1996, and (ii) our report dated March 11, 1997 with
respect to the financial statements of Haystack Laboratories, Inc. for the year
ended December 31, 1996 incorporated by reference from the Current Report on
Form 8-K/A dated December 24, 1997, filed with the Securities and Exchange
Commission.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8) of Trusted Information Systems, Inc. listed below of our
report dated March 11, 1997, with respect to the financial statements of
Haystack Laboratories, Inc. for the year ended December 31, 1996 incorporated
by reference herein from the Current Report on Form 8-K/A dated December 24,
1997, filed with the Securities and Exchange Commission.
1) No. 333-20311 1994 Stock Option Plan
2) No. 333-20313 Amended and Restated 1996 Stock Option Plan
3) No. 333-24849 Amended and Restated 1996 Director's Stock option Plan
4) No. 333-30971 1997 Employees Stock Purchase Plan
/s/ Ernst & Young LLP
Vienna, Virginia
December 19, 1997
