As filed with the Securities and Exchange Commission on November 26, 1996.
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
SECURE COMPUTING CORPORATION
(Exact name of the Registrant as specified in its charter)
Delaware 52-1637226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2675 Long Lake Road
Roseville, Minnesota 55113
(612) 628-2700
(Address and telephone number of the Registrant's
principal executive offices)
-----------------------------
Jeffrey H. Waxman
President and Chief Executive Officer
2675 Long Lake Road
Roseville, Minnesota 55113
(612) 628-2700
(Name, address and telephone number of agent for service)
Copies to:
James E. Nicholson
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
-----------------------------
Approximate date of commencement of proposed sale to the public: From time to
time 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 only in connection with
dividend or interest reinvestment plans, check the following box. |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------- ------------- ---------------------- ----------------------- -----------------
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS FOR SECURITIES BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
TO BE REGISTERED REGISTERED SHARE(1) PRICE
- -------------------------------------- ------------- ---------------------- ----------------------- -----------------
- -------------------------------------- ------------- ---------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value . . . 51,000 $8.50 $433,500 $151.00
- -------------------------------------- ------------- ---------------------- ----------------------- -----------------
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(c).
</TABLE>
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT 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.
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, DATED NOVEMBER 26, 1996
51,000 SHARES
SECURE COMPUTING CORPORATION
COMMON STOCK
This Prospectus relates to shares of Common Stock of Secure
Computing Corporation ("the Company") which may be sold by the Selling
Stockholders. See "Selling Stockholders." Such shares were issued to the Selling
Stockholders in connection with the acquisition of Webster Network Strategies,
Inc. by the Company. The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.
The Common Stock of the Company is traded in the
over-the-counter market and quoted on the Nasdaq Stock Market under the symbol
"SCUR." On November 25, 1996, the last sale price for the Common Stock, as
reported by the Nasdaq Stock Market was $8.63 per share. See "Price Range of
Common Stock and Dividend Policy."
The distribution of the shares of Common Stock offered hereby
by the Selling Stockholders may be effected from time to time in one or more
transactions (which may involve block transactions) on the Nasdaq Stock Market
or otherwise, in the over-the-counter market, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
purchasers of shares for whom they may act as agent (which compensation may be
in excess of customary commissions). See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation. The delivery of this Prospectus at any time shall not
under any circumstances create an implication that there has been no change in
the affairs of the Company since the date hereof.
THE DATE OF THIS PROSPECTUS IS ____________ , 1996
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated in and
made a part of this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (which incorporates by reference certain
portions of the Company's 1995 Annual Report to Stockholders, including
financial statements and notes thereto, and certain portions of the
Company's definitive Notice and Proxy Statement for the Company's
Annual Meeting of Stockholders held on May 1, 1996. (File No. 0-27074)
(b) The Company's definitive Notice and Proxy Statement for
the Company's Annual Meeting of Stockholders held on May 1, 1996 (File
No. 0-27074)
(c) The Company's definitive Notice and Proxy Statement for
the Company's Special Meeting of Stockholders held on August 28, 1996.
(File No. 0-27074)
(d) The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996.
(File No. 0-27074)
(e) The Company's Form 8-K filed on September 12, 1996. (File
No. 0-27074)
(f) The Company's Form 8-K/A filed on November 12, 1996. (File
No. 0-27074)
(g) The Company's Form 8-K filed on November 25, 1996. (File
No. 0-27074).
(h) The description of the Company's Common Stock which is
contained in the Registration Statement on Form 8-A filed October 27,
1995, under the Exchange Act, and all amendments and reports filed for
the purpose of updating such description (File No. 0-27074).
All reports and any definitive proxy or information statements
filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the shares offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed
to be incorporated herein by reference 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 herein by reference modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits not specifically
incorporated in such documents). Requests for such copies should be directed to
the Chief Financial Officer, Secure Computing Corporation, 2675 Long Lake Road,
Roseville, Minnesota 55113 (telephone number 612/628-2700).
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 75
Park Place, 14th Floor, New York, New York 10007. Copies of such material may be
obtained at prescribed rates from the public reference facilities of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy statements and
other information filed by the Company at: http://www.sec.gov.
Additional information regarding the Company and the shares
offered hereby is contained in the Registration Statement, and exhibits thereto,
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information regarding the Company and the shares
offered hereby reference is made to the Registration Statement, and exhibits
thereto, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
THE COMPANY
The Company produces and markets products designed to enable
electronic commerce by protecting an organization's computer network from access
by unauthorized users. The Company's security products include Sidewinder
Security Server, BorderWare Firewall Server, WebTrack Internet monitoring and
filtering software and SafeWord family of identification and authentication
servers and products. The Company continues to conduct research and development
under contracts with government agencies as well as selling its line of Secure
Network Servers to government customers
The Company is a successor of the June 1992 merger of ITI
Incorporated, a Maryland corporation ("ITI"), and Secure Computing Technology
Corporation, a Maryland corporation ("SCTC"), which was renamed Secure Computing
Corporation. SCTC was incorporated in 1989 as a wholly-owned subsidiary of ITI
for the purpose of acquiring certain assets of a computer security division of
Honeywell, Inc. In September 1995, Secure Computing Corporation was reorganized
as a Delaware corporation. During the past year, the Company has made three
major acquisitions. Webster Network Strategies, Inc. ("Webster"), a developer of
monitoring and filtering software, was acquired in May 1996. In August 1996,
Border Network Technologies Inc. ("Border") and Enigma Logic, Inc. ("Enigma"),
developers of computer network security products, were acquired by the Company.
The Company's executive offices are located at 2675 Long Lake Road, Roseville,
Minnesota 55113, and its telephone number is (612) 628-2700.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND THE
DOCUMENTS INCORPORATED BY REFERENCE, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING SHARES OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
RECENT ACQUISITIONS
The Company recently acquired Webster, Border and Enigma and is in the
process of integrating their operations, product technology and personnel with
the Company's business. The integration of Webster, Border and Enigma with the
operations of the Company and the continued support and enhancement of the
product lines of those companies will require significant commitments of
management, financial and marketing and sales resources. There can be no
assurance that such integration will be successful. Although the Company has
attempted to identify all potential liabilities relating to theses acquisitions,
no assurance can be given that unknown material liabilities relating to the
business of Webster, Border or Enigma, including the obligations assumed, will
not surface. If any such unknown material liabilities are discovered, the impact
of such liabilities could have a material adverse effect on the Company's
business condition and financial results of operations.
TRANSITION TO COMMERCIAL PRODUCT VENDOR
The Company's principal business historically has been contract
research and development for U.S. government agencies, which has accounted for
substantially all of the Company's revenue. Since late 1995, the Company has
been in the process of transitioning to a commercial product vendor. This
transition will continue to require the Company to significantly expand its
non-contract research and development, to regularly 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.
UNCERTAINTY OF ACCEPTANCE OF COMMERCIAL PRODUCTS
The timing and degree of success of the Company depends on the timely
adoption of its current and future products by users in the commercial market.
Sales of such commercial products depend on a number of factors, including the
influence of market competition. There can be no assurance that these products
will continue to be accepted in the network security market, and that
competition, technological change or other factors will not have a material
adverse effect on the Company's business, operating results and financial
condition. Commercially available competitive products currently exist which
have comparable or more favorable price characteristics and which may be
perceived to have comparable performance characteristics, and the Company
anticipates the introduction of additional competitive products, particularly if
the demand for network security products increases. This competition may reduce
future market acceptance for the Company's products. The lifecycle of the
Company's products is difficult to estimate due in large measure to the recent
emergence of the market for network security products, the effect of new
products, applications or product enhancements, technological changes in the
network security market and future competition. The Company's future financial
performance will depend in part on the successful development, introduction and
market acceptance of current and future products, applications and product
enhancements based on its current products. There can be no assurance that the
Company will continue to be successful in marketing its current products or any
future products, applications or product enhancements. Any significant delay in
the introduction of the Company's future products to commercial markets in the
United States and internationally would have a material adverse effect on the
Company's business, financial condition and results of operations.
In November 1994, the Company established a test site for its
Sidewinder firewall product ("Sidewinder") accessible from the global Internet
and issued a public challenge to the Internet community to attempt to breach
Sidewinder's type-enforcement security features. A well-publicized actual or
perceived breach of Sidewinder security, or an actual or perceived breach of
security of one of the Company's customer's computer networks, regardless of
whether such breach is attributable to the Company's products, could adversely
affect the market's perception of the Company and the Company's business,
financial condition and results of operations.
COMPETITION
The market for network security products and services is new, intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in the future.
The Company's principal current competitors include Advanced Network & Services,
Inc. (which is owned by America Online, Inc.), CheckPoint Software, Inc., Raptor
Systems, Inc., Sun Microsystems, Inc., Trusted Information Systems Inc.,
Security Dynamics, Inc., Digital Pathways Inc., CKS Group, Inc., Blockade,
Leemah DataCom Security Corporation and Racal-Guardata, Inc., and Cyberguard,
Inc. Several other companies offering other network products could enter the
security market at any time. Many of the Company's current and potential
competitors have longer operating histories, greater name recognition, larger
installed customer bases and significantly greater financial, technical and
marketing 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. Such
competition and any resulting reduction in gross margins could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company's competitors will not
develop network security products that may be more effective than the Company's
current or future products or that the Company's technologies and products would
not be rendered obsolete by such developments. Competitors may also employ
litigation or the threat of litigation relating to patents and other
intellectual property to gain a competitive advantage.
HISTORY OF OPERATING LOSSES; UNPREDICTABILITY OF OPERATING RESULTS
The Company incurred operating losses for the year ended December 31,
1995 and will incur an operating loss for the year ended 1996. Historically, a
significant portion of the Company's revenue has been derived from contracts
with departments and agencies of the U.S. government and other government
contractors, and the Company expects to continue to rely on such contracts and
product sales to U.S. government agencies for a majority of the Company's
revenues in the immediate future. Government contracts are awarded infrequently,
normally provide for reimbursement of cost plus a fee, and are cancelable for
the government's convenience. As a result, the timing of the contract awards,
the availability of funding and unexpected increases in the costs of performance
all can materially and adversely impact the Company's business, financial
condition and results of operations in any period or from period to period. As
the Company makes the transition from its contract research and development
business to commercial product sales, its results of operations will become
increasingly likely to vary and fluctuate significantly from quarter to quarter
as a result of numerous factors, including market acceptance of the Company's
products, the timing of orders and shipments of such products, new product
introductions, or the introduction or the announcement of competitive products.
The Company's current expense levels are based in part on its expectations of
future revenue and, as a result, net income for a given period could be
disproportionately affected by any reduction in revenue. There can be no
assurance that the Company will be able to achieve significant revenues from
sales of commercial products in the future or that the level of revenues in the
future will not decrease from past levels. In past quarters, the Company's net
revenues and operating results have been below the expectations of stock market
securities analysts and investors and there can be no assurance that in some
future quarter net revenues or operating results will not be below such
expectations. In such event, the price of the Company's Common Stock would
likely be materially and adversely affected.
RISK ASSOCIATED WITH THE NETWORK SECURITY MARKET
The market for the Company's products is only beginning to emerge. The
rapid development of enterprise-wide and internetwork computing has increased
the ability of users to access proprietary information and resources and has in
recent years increased demand for computer and network security products.
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON THE INTERNET
Although some sales of the Company's products will depend upon growth of private
networks using Transmission Control Protocol/Internet Protocol ("TCP/IP"), early
sales of the Company's current products will depend in large part upon a robust
industry and infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone or timely development of complementary products.
Because global commerce and the 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. There can be no assurance that the infrastructure or
complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace. If the necessary infrastructure or complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the Company's business, operating results and financial
condition will be materially and adversely affected.
SALES AND DISTRIBUTION RISKS
The Company recently has added substantially to its internal sales and
marketing staff through the acquisitions of Border and Enigma and through
internal growth prior to such acquisitions in order to increase its direct sales
effort. Moreover, the Company intends to continue expanding its sales and
marketing force. There can be no assurance that the sales and marketing forces
of Secure, Border and Enigma will be integrated successfully, can be further
expanded, that the cost of such expansion will not exceed the revenues
generated, or that the Company's sales and marketing organization will
successfully compete against the more extensive and well-funded sales and
marketing operations of many of the Company's current and future competitors.
The Company recently has developed reseller channels in North America. There can
be no assurance that its resellers 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
distributors and resellers on a purchase-order basis, and the Company's
distributors and resellers will be likely to carry competing product lines.
Therefore, there can be no assurance that any distributor or reseller will
continue to represent the Company's products. The inability to recruit, or the
loss of, important sales personnel, distributors or resellers could materially
adversely affect the Company's business, financial condition and results of
operations in the future.
NEED TO ESTABLISH COLLABORATIVE MARKETING RELATIONSHIPS
A significant business strategy of the Company is to enter into
strategic marketing alliances or other similar collaborative relationships.
There can be no assurance that the Company's existing or contemplated
collaborative relationships will be commercially successful, that the Company
will be able to negotiate additional collaborative relationships, that such
additional collaborations will be available to the Company on acceptable terms
or that any such relationships, if established, will be commercially successful.
The potential increased revenues from such relationships may be reduced by
requirements to provide volume price discounts and other allowances, and
significant costs incurred in customizing the Company's products. Although the
Company does not intend that such relationships be exclusive, the Company may be
required to enter into an exclusive relationship or forego a significant sales
opportunity. To the extent the Company is dependent on the performance of
certain actions by such parties, the Company could be adversely affected if such
parties fail to perform as anticipated by the Company. In addition, there can be
no assurance that parties with whom the Company has established collaborative
relationships will not pursue alternative technologies or develop alternative
products in addition to or in lieu of the Company's products either on their own
or in collaboration with others, including the Company's competitors. The
Company's financial condition or results of operations may also be affected by
the success of its collaborators in marketing any successfully developed
products.
LONG SALES CYCLE
The sales of the Company's security products generally involve
significant education of and commitment of capital by prospective customers,
with the attendant delays frequently associated with large capital expenditures
and lengthy procurement procedures. For these and other reasons, the sales cycle
associated with the sales of the Company's security products is typically long
and subject to a number of significant risks over which the Company has little
or no control and, as a result, the Company may expend significant resources
pursuing potential sales that will not be consummated.
RISKS OF DOING BUSINESS WITH THE U.S. GOVERNMENT
Historically, the Company has derived substantially all of its revenue
from contracts with and product sales to departments and agencies of the U.S.
government and government contractors. Due to the relative size of the Company's
government contract revenue stream, the Company expects to continue to rely on
existing and future research and development contracts with agencies of the U.S.
government and product sales to such agencies for a substantial majority of the
Company's revenues in the immediate future. Because no government agency has an
obligation to award contracts to or to purchase products from the Company in the
future, the Company believes that future government contracts and orders for its
Secure Network Server products will in part be dependent upon the continued
favorable reaction of government agencies to the development capabilities of the
Company and the reliability of the Company's products. The Company's Secure
Network Server development contract with the NSA, which accounts for a majority
of the Company's current government contract business, is scheduled to expire in
late 1997. There can be no assurance that the Company will be able to procure an
extension of this contract or additional contracts of a similar magnitude. The
NSA contract permits a fee as low as 4.7% of the Company's costs of development,
and is subject to cancellation for the convenience of the agency. Although there
have been no terminations of the Company's government contracts in the past,
there can be no assurance that cancellations will not occur in the future.
Reductions or delays in federal funds available for projects the Company is
performing or to purchase the Company's products 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 subcontractors, the inability of such parties to
perform under their contracts. The Company is also exposed to the risk of
increased or unexpected costs, causing losses or reduced profits, under
government and certain third party fixed-price contracts. Any of the foregoing
events would have a material adverse impact on the Company's business, financial
condition and results of operations.
INTERNATIONAL SALES RISKS
The Company sells its products outside of North America. International
sales and operations may be subject to risks such as the imposition of
governmental controls, export license requirements, restrictions on the export
of critical technology, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international dealers, longer receivables collection
periods and difficulty in collecting accounts receivable. Currency fluctuations
also may make the Company's products less competitive in foreign markets and
contribute to fluctuations in the Company's operating results. In addition, the
laws of certain countries will not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. There can be no assurance that these factors will not have an adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company relies on manufacturing subcontractors to manufacture its
computers and other major components used in its products. The Company's
strategy to rely on subcontractors for major subassemblies involves a number of
significant risks, including the loss of control over the manufacturing process,
the potential absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules, manufacturing yields, quality and costs. In the event that
any significant subcontractor were to become unable or unwilling to continue to
manufacture these subassemblies in required volumes, the Company would have to
identify and qualify acceptable replacements. The process of qualifying
manufacturing subcontractors could be lengthy and no assurance can be given that
any additional sources would be available to the Company on a timely basis. Any
extended interruption in the future supply of or increase in the cost of the
subassemblies manufactured by third party subcontractors could materially and
adversely affect the Company's business, operating results and financial
condition.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
The Company and its manufacturing subcontractors are dependent upon
single or limited source suppliers for its computers and a number of other
components and parts used in the Company's products. There can be no assurance
that these subcontractors and suppliers will continue to be able to meet the
Company's requirements for these components or that the price of these
components will not increase. The Company's subcontractors generally purchase
these single or limited source components pursuant to purchase orders and have
no guaranteed supply arrangements with such suppliers. In addition, the
availability of many of these components to the Company's subcontractors is
dependent in part on the Company's ability to provide its subcontractors, and in
turn their ability to provide their suppliers, with accurate forecasts of their
future requirements. The process of qualifying suppliers could be lengthy and no
assurance can be given that any additional sources would be available to the
Company on a timely basis. Any extended interruption or reduction in the future
supply of any key components currently obtained from a single or limited source
could have a significant adverse effect on the Company's business, operating
results and financial condition in any given period.
CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS
The commercial network security industry is undergoing rapid changes,
including evolving industry standards, frequent new product introductions and
changes in customer requirements and preferences. The introduction of new
commercial technologies or a significant advance in techniques for gaining
unauthorized network access could render the Company's existing products
obsolete or unmarketable. The development cycle for products utilizing new
technologies may be significantly longer than the Company's current development
cycle for products on existing operating systems, microprocessors and formats
and may require the Company to invest resources in products that may not become
profitable. There can be no assurance that the Company's future product
offerings will keep pace with technological changes or satisfy evolving consumer
preferences or that 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 result in
significant product returns and inventory obsolescence and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF ERRORS OR FAILURES
Products as complex as those offered by the Company may contain
undetected errors when first introduced or when new versions are released. The
Company has in the past discovered software errors in certain of its product
offerings after their introduction and has experienced delays or lost revenues
during the period required to correct these errors. In particular, the personal
computer hardware environment is characterized by a wide variety of 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, errors will not be found in new products
or releases after commencement of commercial shipments by the Company. Computer
break-ins and other disruptions, if caused by errors or failures in the
Company's products, would jeopardize the security of information stored in and
transmitted through computer networks and could result in product recalls,
liability under the Company's warranties or otherwise or in loss of or delay in
market acceptance of the Company's products. 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 consequences of errors or failures in the Company's products
could have a material adverse effect on the Company's business, financial
condition and results of operations. 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 "shrinkwrap licenses" in which they are often
embodied, to be unenforceable. Accordingly, there can be no assurance that such
limitations will be enforced. The Company currently does not have product
liability insurance to protect against these risks and there can be no assurance
that such insurance will be available to the Company on commercially reasonable
terms or at all.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF
LITIGATION
The Company relies on patent, trademark, copyright and trade secret
laws, employee and third-party non-disclosure agreements and other methods to
protect its proprietary rights. The Company holds patents and has pending patent
applications which cover certain aspects of its technology. There can be no
assurance that any pending or future patent applications will be granted or that
any current or future patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company. 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. Under its contracts with
the Company, the U.S. government has the right to disclose certain technology
developed with government funding to competitors of the Company as part of the
establishment by the U.S. government of second-source manufacturing arrangements
or competitive bidding. The Company's inability to maintain a competitive
advantage based on proprietary rights would have a material adverse effect on
the Company's business, financial condition and results of operations.
As the number of network security products in the industry increases
and the functionality of these products further overlaps, software developers
and publishers may increasingly become subject to infringement claims. There can
be no assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products. Although
the Company is not currently the subject of any material litigation, involving
its intellectual property, there has been substantial litigation regarding
patent, copyright, trademark and other intellectual property rights involving
computer software companies. Further, the Company is subject to additional risk
when 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 business, financial condition
and results of operations. Adverse determinations in such claims or litigation
could also have a material adverse effect on the Company's business, financial
condition and results of operations.
NEED FOR FUTURE FINANCING
Based upon the Company s anticipated working capital requirements, the
Company anticipates that its existing capital resources, will be adequate to
satisfy its capital requirements through 1997. The Company's future capital
requirements, however, will depend on many factors, including its ability to
successfully market and sell its commercial products, the availability of
funding for its research through U.S. government and third party contracts and
through strategic joint ventures, competing technological and market
developments and the cost of manufacturing activities. To date, the Company has
relied on significant funding for research and development through U.S.
government contracts, sales of equity securities and borrowings. There can be no
assurance that adequate funds will be available to the Company in the future, or
that such funds can be obtained on favorable terms. To the extent that cash
generated by operations is insufficient to satisfy the Company's capital
requirements, the Company may sell additional equity or debt securities or
obtain additional credit facilities. Any equity or debt financings, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity or convertible debt financings, could result in dilution to the
Company's then existing stockholders, including purchasers in this offering. If
adequate funds are not available, the Company may be required to curtail its
activities, including marketing and sales plans, significantly.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
financial, management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial and management information systems and to attract, train, motivate,
manage and retain key employees. If the Company's executives are unable to
manage growth effectively, the Company's business, financial condition and
results of operations could be adversely affected. In the normal course of its
business, the Company evaluates potential acquisitions of businesses, products
and technologies that could complement or expand the Company's network security
business. In the event the Company were to identify 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 business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in large part on its ability to attract
and retain highly qualified scientific, technical, management and marketing
personnel. Although the Company maintains key man life insurance on the
Company's Chief Executive Officer, the loss of the services of the Company's
Chief Executive Officer or other key employees of the Company could have a
material adverse effect on the Company. Competition for such personnel is
intense and there can be no assurance that the Company will be able to attract
and retain all personnel necessary for the development and operation of its
business. The loss of the services of key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONCENTRATION OF SHARE OWNERSHIP
Directors and officers of the Company, together with entities
affiliated with them, own 48% of the Company's outstanding Common Stock in the
aggregate on a fully-diluted basis. Accordingly, these shareholders will
continue to exert significant influence over the outcome of most corporate
actions requiring stockholders approval, including the election of directors and
the approval of transactions involving a change in control of the Company.
PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue shares of
preferred stock and to determine the designations, preferences and rights and
the qualifications and restrictions 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
preferred stock that may be issued in the future. The issuance of preferred
stock 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. In addition,
the Company is subject to the antitakeover provisions of Section 203 of the
Delaware General Corporation Law, which generally prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the person becomes an
interested stockholder, unless the business combination is approved in a
prescribed manner. Also, the directors of the Company are divided into three
classes with staggered terms of office. The Certificate of Incorporation also
provides that all stockholder action must be effected at a duly called meeting
of stockholders and not by a consent in writing. Furthermore, the Company's
By-Laws provide that special meetings of stockholders may be called only by the
chief executive officer of the Company and upon written request of a majority of
the Board of Directors or, in certain circumstances, by the Board of Directors
or a committee of the Board of Directors. These provisions and certain other
provisions of the Company's Certificate of Incorporation and By-Laws may have
the effect of discouraging, delaying or preventing a merger, tender offer or
proxy contest, which could adversely affect the market price of the Company's
Common Stock.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and could be
in the future, subject to significant fluctuations in response to variations in
quarterly operating results and other factors, such as announcements of new
products by the Company or its competitors and changes in financial estimates by
securities analysts or other events. Moreover, the stock market has experienced
extreme volatility that has particularly affected the market prices of equity
securities of many technology companies and that has often been unrelated and
disproportionate to the operating performance of such companies. Broad market
fluctuations, as well as economic conditions generally and in the software
industry specifically, may adversely affect the market price of the Company's
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock.
Holders of approximately 9,337,000 shares of Common Stock are entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded in the
over-the-counter market and quoted on the Nasdaq Stock Market under the symbol
SCUR since the Company's initial public offering on November 17, 1995. The
following table sets forth, for the fiscal quarters indicated, the high and low
last sale prices for the Common Stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL YEAR ENDED DECEMBER 31, 1995:
<S> <C> <C>
Fourth Quarter (from November 17, 1995)................... $60.50 $47.25
FISCAL YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................. $52.00 $21.00
Second Quarter............................................ 35.25 20.50
Third Quarter............................................. 25.25 9.50
Fourth Quarter (through November 25, 1996)................ 12.50 8.50
</TABLE>
On November 25, 1996, the last sale price for the Common Stock
as reported by the Nasdaq Stock Market was $8.63 per share.
The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to retain any earnings for use
in its business and therefore does not anticipate paying any cash dividends in
the foreseeable future.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of October 1, 1996 and as
adjusted to reflect the sale of shares offered by this Prospectus by each
Selling Stockholder.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO AFTER
OFFERING OFFERING
------------ ------------
SHARES OFFERED
NAME NUMBER NUMBER NUMBER PERCENT
---- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Richard R. Viets(1) 20,400 10,200 10,200 *
1360 Nottingham Drive
Naples, Florida 34109
Stephen R. Campbell(2) 20,400 10,200 10,200 *
5761 Cypress Hollow Way
Naples, Florida 34109
Stephen J. Dempsey(3) 20,400 10,200 10,200 *
1100 5th Avenue South, Suite 308
Naples, Florida 34102
Wayne D. Sharrett(4) 20,400 10,200 10,200 *
3733 Bailes Street
Bonita Springs, Florida 34134
David G. Motes(5) 24,321(6) 10,200 14,121(6) *
24777 Carnoustie Court
Bonita Springs, Florida 34541
</TABLE>
- -----------------------
1 Mr. Viets is Vice President and General Manager of Webster. Prior to the
acquisition of Webster Mr. Viets was President of Webster.
2 Mr. Campbell was President of Apogee Software before it merged with Webster
in May 1996. He also provided sales and marketing services to Webster before
it was acquired by the Company.
3 Mr. Dempsey was Vice President of Apogee Software before it merged with
Webster in May 1996. He also provided sales and marketing services to
Webster before it was acquired by the Company.
4 Mr. Sharett is a Senior Principal Computer Scientist at Webster. Prior to
Webster being acquired by the Company, Mr. Sharett was Webster's Treasurer.
5 Mr. Motes is a Senior Principal Computer Scientist at Webster. Prior to
Webster being acquired by the Company, Mr. Motes was Webster's Secretary.
6 Includes options to purchase 3,921 shares of Common Stock.
* Represents beneficial ownership of less than one percent of the outstanding
Common Stock.
PLAN OF DISTRIBUTION
The distribution of the shares of Common Stock offered hereby
by the Selling Stockholders may be effected from time to time in one or more
transactions (which may involve block transactions) on the Nasdaq Stock Market
or otherwise, in the over-the-counter market, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
purchasers of shares for whom they may act as agent (which compensation may be
in excess of customary commissions). The Selling Stockholders and broker-dealers
that participate with the Selling Stockholders in the distribution of shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of shares may be deemed to be underwriting compensation.
EXPERTS
The financial statements and schedule of Secure Computing Corporation
appearing in or incorporated by reference in Secure Computing Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1995, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
incorporated by reference therein and incorporated herein by reference. The
supplemental consolidated financial statements and schedule of Secure Computing
Corporation appearing in the Secure Computing Corporation's Current Report on
Form 8-K dated November 25, 1996 have been audited by Ernst & Young LLP, as set
forth in their report included therein and incorporated herein by reference. The
financial statements of Enigma Logic, Inc. appearing or incorporated by
reference in the Company's Proxy Statement, Form 8-K, and Form 8-K/A have been
audited by, Price Waterhouse, San Jose, independent accountants, as set forth in
their report thereon included therein and incorporated herein by reference. The
financial statements of Border Network Technologies, Inc. appearing or
incorporated by reference in the Company's Proxy Statement, Form 8-K, and Form
8-K/A have been audited by Price Waterhouse, Toronto, independent accountants,
as set forth in their report thereon included therein and incorporated herein by
reference. The financial statements of Border Network Technologies, Inc. for the
year ended December 31, 1994 appearing or incorporated by reference in the
Company's Form 8-K and Form 8-K/A have been audited by McClurkin Ahier &
Company, independent accountants, as set forth in their report thereon included
therein and incorporated herein by reference. All such financial statements,
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such reports given the authority of such firms as
experts in auditing and accounting
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the shares
of Common Stock being registered hereunder other than underwriting commissions
and expenses, are estimated below.
SEC registration fee............................ $ 151
Legal fees and expenses......................... 25,000
Accounting fees and expenses.................... 5,000
Blue Sky fees and expenses...................... 1,000
Printing expenses............................... 500
Transfer agent fees and expenses................ 200
Miscellaneous................................... 149
----------
Total $ 32,000
==========
Except for the SEC registration fee, all of the foregoing expenses have been
estimated. The Selling Stockholders will bear fees and disbursements of their
own legal counsel and transfer taxes. The Company will bear all other expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may indemnify any person who was or
is a party or is threatened to be made a party to an action (other than an
action by or in the right of the corporation) by reason of his services as a
director or officer of the corporation, or his service, at the corporation's
request, as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorneys' fees) that are actually
and reasonably incurred by him ("Expenses'), and judgments, fines and amounts
paid in settlement that are actually and reasonably incurred by him, in
connection with the defense or settlement of such action, provided that he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnify for such
Expenses as the court deems proper. The General Corporation Law of the State of
Delaware also provides for mandatory indemnification of any director, officer,
employee or agent against Expenses to the extent such person has been successful
in any proceeding covered by the statute. In addition, the General Corporation
Law of the State of Delaware provides the general authorization of advancement
of a director's of officer's litigation expenses in lieu of requiring the
authorization of such advancement by the board of directors in specific cases,
and that indemnification and advancement of expenses provided by the statute
shall not be deemed exclusive of any other rights to which those seeking
indemnification of expenses may be entitled under any bylaw, agreement or
otherwise.
Article V of the By-Laws of the Registrant provide for the broad
indemnification of the directors and officers of the Registrant and for
advancement of litigation expenses to the fullest extent required or permitted
by current Delaware law.
The Registrant maintains a policy of directors and officers liability
insurance that reimburses the Registrant for expenses that it may incur in
conjunction with the foregoing indemnity provisions and that may provide direct
indemnification to officers and directors where Registrant is unable to do so.
The Certificate of Incorporation of the Registrant eliminates the
personal liability of a director to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except under
certain circumstances involving certain wrongful acts such as breach of a
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for any unlawful acts
under Section 174 of the General Corporation Law of the State of Delaware, or
for any transaction from which a director derives an improper personal benefit.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
Exhibit Description
------- -----------
5.1 Opinion and Consent of Faegre & Benson LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse, Chartered Accountants, Toronto, Canada.
23.3 Consent of Price Waterhouse LLP, San Jose, California.
23.4 Consent of McClurkin Ahier & Company, Chartered Accountants.
23.5 Consent of Faegre & Benson LLP (to be included in Exhibit No. 5.1 to
the Registration Statement).
24.1 Power of Attorney (included in the signature page to the Registration
Statement).
ITEM 17. UNDERTAKINGS
The undersigned Registrant 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) of
the Securities Act of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(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;
(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;
(4) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this 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.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions summarized in Item 15 above, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act, and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, State of Minnesota, on November 26,
1996.
SECURE COMPUTING CORPORATION
By /s/ Jeffrey H. Waxman
------------------------------------
Jeffrey H. Waxman
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Jeffrey H. Waxman and Steven M. Maurer, or either of them, such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for such person and in such persons' name, place
and stead, in any and all capacities, to sign the Registration Statement on Form
S-3 of Secure Computing Corporation and any or all amendments (including
post-effective amendments) to the Registration Statement, and to file the same,
with all exhibits hereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 26, 1996.
Signature Title
- --------- -----
/s/ Jeffrey H. Waxman President, Chief Executive Officer
- --------------------------------- and Director
Jeffrey H. Waxman (Principal Executive Officer)
/s/ Timothy P. McGurran Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting
Timothy P. McGurran Officer)
/s/ Kermit M. Beseke Chairman of the Board of Directors
- ---------------------------------
Kermit M. Beseke
/s/ Stephen M. Puricelli Director
- ---------------------------------
Stephen M. Puricelli
/s/ Dennis J. Shaughnessy Director
- ---------------------------------
Dennis J. Shaughnessy
/s/ Timothy H. Hanson Director
- ---------------------------------
Timothy H. Hanson
/s/ Ervin F. Kamm, Jr. Director
- ---------------------------------
Ervin F. Kamm, Jr.
/s/ Glenn G. Mackintosh Director
- ---------------------------------
Glenn G. Mackintosh
/s/ Adam Adamou Director
- ---------------------------------
Adam Adamou
/s/ Robert Forbes Director
- ---------------------------------
Robert Forbes
/s/ Eric P. Rundquist Director
- ---------------------------------
Eric P. Rundquist
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
5.1 Opinion and Consent of Faegre & Benson LLP. FILED ELECTRONICALLY
23.1 Consent of Ernst & Young LLP. FILED ELECTRONICALLY
23.2 Consent of Price Waterhouse, Chartered Accountants, Toronto, Canada. FILED ELECTRONICALLY
23.3 Consent of Price Waterhouse LLP, San Jose, California. FILED ELECTRONICALLY
23.4 Consent of McClurkin Ahier & Company, Chartered Accountants. FILED ELECTRONICALLY
23.5 Consent of Faegre & Benson LLP (to be included in Exhibit No. 5.1 to FILED ELECTRONICALLY
the Registration Statement).
24.1 Power of Attorney (included in the signature page to the FILED ELECTRONICALLY
Registration Statement).
</TABLE>
EXHIBIT 5.1
FAEGRE & BENSON LLP
2200 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-3901
612/335-3000
FACSIMILE 612/336-3026
November 26, 1996
Secure Computing Corporation
2675 Long Lake Road
Roseville, Minnesota 55113
Gentlemen:
In connection with the proposed registration under the
Securities Act of 1933, as amended, of 51,000 shares of Common Stock, par value
$.01 per share, of Secure Computing Corporation, a Delaware corporation (the
"Company"), proposed to be sold by certain Selling Stockholders of the Company,
we have examined such corporate records and other documents, including the
Registration Statement on Form S-3, dated the date hereof, relating to such
shares (the "Registration Statement"), and have reviewed such matters of law as
we have deemed necessary for this opinion, and we advise you that in our
opinion:
1. The Company is a corporation duly organized and existing
under the laws of the State of Delaware.
2. The shares of Common Stock proposed to be sold by the
Selling Stockholders named in the Registration Statement are, and when
sold as contemplated in the Registration Statement will be, legally and
validly issued and fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm wherever appearing
therein.
Very truly yours,
FAEGRE & BENSON
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 Secure Computing
Corporation for the registration of 51,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 30, 1996 with
respect to the financial statements of Secure Computing Corporation incorporated
by reference and the financial statement schedule included in its Annual Report
on Form 10-K for the year ended December 31, 1995 and our report dated November
25, 1996 with respect to the supplemental consolidated financial statements and
supplemental financial statement schedule of Secure Computing Corporation
included in its Current Report on Form 8-K dated November 25, 1996 filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
November 25, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 29, 1996 relating to the consolidated financial statements of Border
Network Technologies Inc. for the year ended December 31, 1995, included in the
Proxy Statement dated August 5, 1996 (File No. 0-27074), incorporated by
reference to the Current Report on Form 8-K dated September 12, 1996 and
included in the Current Report on Form 8-K/A dated November 12, 1996. We also
consent to the reference to us under the heading "Experts" in such prospectus.
/s/ Price Waterhouse
Chartered Accountants
Toronto, Ontario
November 22, 1996
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 1, 1996, relating to the financial statements of Enigma Logic, Inc.,
included in the Proxy Statement dated August 5, 1996, (File No. 0-27074),
incorporated by reference to the Current Report on Form 8-K dated September 12,
1996 and included in the Current Report on Form 8-K/A dated November 12, 1996.
We also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, CA
November 22, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of Secure Computing Corporation of our report dated
October 2, 1995 relating to the financial statements of Border Network
Technologies Inc. for the year ended December 31, 1994, which are included in
the Current Reports on Form 8-K and 8-K/A of Secure Computing Corporation dated
September 12, 1996 and November 12, 1996, respectively. We also consent to the
reference to us under the heading "Experts" in such registration statement.
/s/ McClurkin Ahier & Company
Chartered Accountants
Mississauga, Ontario
November 22, 1996
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CANADIAN PROSPECTUS
- --------------------------------------------------------------------------------
THIS IS A PRELIMINARY PROSPECTUS RELATING TO THESE SECURITIES, A COPY OF WHICH
HAS BEEN FILED WITH THE SECURITIES COMMISSION IN ONTARIO BUT WHICH HAS NOT YET
BECOME FINAL FOR THE PURPOSE OF A DISTRIBUTION TO THE PUBLIC. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD TO, NOR MAY OFFERS TO BUY BE ACCEPTED FROM, RESIDENTS OF ONTARIO PRIOR
TO THE TIME A RECEIPT FOR THE FINAL PROSPECTUS IS OBTAINED FROM THE SECURITIES
COMMISSION IN ONTARIO.
This prospectus constitutes a public offering of these securities only
in those jurisdictions where they may be lawfully offered for sale and therein
only by persons permitted to sell such securities. No securities commission or
any similar authority in Canada or the United States has in any way passed upon
the merits of the securities offered hereunder and any representation to the
contrary is an offense.
51,000 SHARES
SECURE COMPUTING CORPORATION
COMMON STOCK
This Prospectus relates to shares of Common Stock of Secure
Computing Corporation ("the Company") which may be sold by the Selling
Stockholders in the United States and the Providence of Ontario, Canada. See
"Selling Stockholders." Such shares were issued to the Selling Stockholders in
connection with the acquisition of Webster Network Strategies, Inc. by the
Company. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
The Common Stock of the Company is traded in the
over-the-counter market and quoted on the Nasdaq Stock Market under the symbol
"SCUR." On November 25, 1996, the last sale price for the Common Stock, as
reported by the Nasdaq Stock Market was $8.63 per share. See "Price Range of
Common Stock and Dividend Policy."
The distribution of the shares of Common Stock offered hereby
by the Selling Stockholders may be effected from time to time in one or more
transactions (which may involve block transactions) on the Nasdaq Stock Market
or otherwise, in the over-the-counter market, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
purchasers of shares for whom they may act as agent (which compensation may be
in excess of customary commissions). See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation. The delivery of this Prospectus at any time shall not
under any circumstances create an implication that there has been no change in
the affairs of the Company since the date hereof.
This offering is being made by a U.S. issuer pursuant to disclosure
documents prepared in accordance with U.S. securities laws. Purchasers should be
aware that these requirements may differ from those of the securities laws of
Ontario. The financial statements included or incorporated by reference in this
prospectus have not been prepared in accordance with Canadian generally accepted
accounting principles and thus may not be comparable to financial statements of
Canadian issuers.
Certain of the directors and officers of the issuer and certain of the
experts named herein reside outside of Canada. Substantially all of the assets
of these persons and of the issuer may be located outside of Canada. The issuer
has appointed Secure Computing Canada Ltd. as its agent for service of process
in Canada, but it may not be possible for investors to effect service of process
within Canada upon the directors, officers and experts referred to above. It may
also not be possible to enforce against the issuer, its directors and officers
and certain of the experts named herein judgments obtained in Canada courts
predicted upon the civil liability provisions of applicable securities laws in
Canada.
THE DATE OF THIS PRELIMINARY PROSPECTUS IS ____________ , 1996
This is a preliminary prospectus relating to these securities, a copy of which
has been filed with the securities commission in Ontario but which has not yet
become final for the purpose of a distribution to the public. Information
contained herein is subject to completion or amendment. These securities may not
be sold to, nor may offers to buy be accepted from, residents of Ontario prior
to the time a receipt for the final prospectus is obtained from the securities
commission in Ontario.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated in and
made a part of this Prospectus by reference and have been filed with the
Securities Commission in Ontario in connection with the filing of this
prospectus therewith:
(a) The Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (which incorporates by reference certain
portions of the Company's 1995 Annual Report to Stockholders, including
financial statements and notes thereto, and certain portions of the
Company's definitive Notice and Proxy Statement for the Company's
Annual Meeting of Stockholders held on May 1, 1996. (File No. 0-27074)
(b) The Company's definitive Notice and Proxy Statement for
the Company's Annual Meeting of Stockholders held on May 1, 1996 (File
No. 0-27074)
(c) The Company's definitive Notice and Proxy Statement for
the Company's Special Meeting of Stockholders held on August 28, 1996.
(File No. 0-27074)
(d) The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996.
(File No. 0-27074)
(e) The Company's Form 8-K filed on September 12, 1996. (File
No. 0-27074)
(f) The Company's Form 8-K/A filed on November 12, 1996. (File
No. 0-27074)
(g) The Company's Form 8-K filed on November 25, 1996. (File
No. 0-27074).
(h) The description of the Company's Common Stock which is
contained in the Registration Statement on Form 8-A filed October 27,
1995, under the Exchange Act, and all amendments and reports filed for
the purpose of updating such description (File No. 0-27074).
In addition, the Company has filed with the securities commission in
Ontario a Reconciliation to Canadian Generally Accepted Accounting Principles of
financial statements incorporated herein by reference and Independent Public
Accountants' Report thereon, which schedule and report are incorporated herein
by reference.
All reports and any definitive proxy or information statements
filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the shares offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed
to be incorporated herein by reference 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 herein by reference modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits not specifically
incorporated in such documents). Requests for such copies should be directed to
the Chief Financial Officer, Secure Computing Corporation, 2675 Long Lake Road,
Roseville, Minnesota 55113 (telephone number 612/628-2700).
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 75
Park Place, 14th Floor, New York, New York 10007. Copies of such material may be
obtained at prescribed rates from the public reference facilities of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy statements and
other information filed by the Company at: http://www.sec.gov.
Additional information regarding the Company and the shares
offered hereby is contained in the Registration Statement, and exhibits thereto,
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information regarding the Company and the shares
offered hereby reference is made to the Registration Statement, and exhibits
thereto, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
THE COMPANY
The Company produces and markets products designed to enable
electronic commerce by protecting an organization's computer network from access
by unauthorized users. The Company's security products include Sidewinder
Security Server, BorderWare Firewall Server, WebTrack Internet monitoring and
filtering software and SafeWord family of identification and authentication
servers and products. The Company continues to conduct research and development
under contracts with government agencies as well as selling its line of Secure
Network Servers to government customers
The Company is a successor of the June 1992 merger of ITI
Incorporated, a Maryland corporation ("ITI"), and Secure Computing Technology
Corporation, a Maryland corporation ("SCTC"), which was renamed Secure Computing
Corporation. SCTC was incorporated in 1989 as a wholly-owned subsidiary of ITI
for the purpose of acquiring certain assets of a computer security division of
Honeywell, Inc. In September 1995, Secure Computing Corporation was reorganized
as a Delaware corporation. During the past year, the Company has made three
major acquisitions. Webster Network Strategies, Inc. ("Webster"), a developer of
monitoring and filtering software, was acquired in May 1996. In August 1996,
Border Network Technologies Inc. ("Border") and Enigma Logic, Inc. ("Enigma"),
developers of computer network security products, were acquired by the Company.
The Company's executive offices are located at 2675 Long Lake Road, Roseville,
Minnesota 55113, and its telephone number is (612) 628-2700.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND THE
DOCUMENTS INCORPORATED BY REFERENCE, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING SHARES OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
RECENT ACQUISITIONS
The Company recently acquired Webster, Border and Enigma and is in the
process of integrating their operations, product technology and personnel with
the Company's business. The integration of Webster, Border and Enigma with the
operations of the Company and the continued support and enhancement of the
product lines of those companies will require significant commitments of
management, financial and marketing and sales resources. There can be no
assurance that such integration will be successful. Although the Company has
attempted to identify all potential liabilities relating to theses acquisitions,
no assurance can be given that unknown material liabilities relating to the
business of Webster, Border or Enigma, including the obligations assumed, will
not surface. If any such unknown material liabilities are discovered, the impact
of such liabilities could have a material adverse effect on the Company's
business condition and financial results of operations.
TRANSITION TO COMMERCIAL PRODUCT VENDOR
The Company's principal business historically has been contract research
and development for U.S. government agencies, which has accounted for
substantially all of the Company's revenue. Since late 1995, the Company has
been in the process of transitioning to a commercial product vendor. This
transition will continue to require the Company to significantly expand its
non-contract research and development, to regularly 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.
UNCERTAINTY OF ACCEPTANCE OF COMMERCIAL PRODUCTS
The timing and degree of success of the Company depends on the timely
adoption of its current and future products by users in the commercial market.
Sales of such commercial products depend on a number of factors, including the
influence of market competition. There can be no assurance that these products
will continue to be accepted in the network security market, and that
competition, technological change or other factors will not have a material
adverse effect on the Company's business, operating results and financial
condition. Commercially available competitive products currently exist which
have comparable or more favorable price characteristics and which may be
perceived to have comparable performance characteristics, and the Company
anticipates the introduction of additional competitive products, particularly if
the demand for network security products increases. This competition may reduce
future market acceptance for the Company's products. The lifecycle of the
Company's products is difficult to estimate due in large measure to the recent
emergence of the market for network security products, the effect of new
products, applications or product enhancements, technological changes in the
network security market and future competition. The Company's future financial
performance will depend in part on the successful development, introduction and
market acceptance of current and future products, applications and product
enhancements based on its current products. There can be no assurance that the
Company will continue to be successful in marketing its current products or any
future products, applications or product enhancements. Any significant delay in
the introduction of the Company's future products to commercial markets in the
United States and internationally would have a material adverse effect on the
Company's business, financial condition and results of operations.
In November 1994, the Company established a test site for its Sidewinder
firewall product ("Sidewinder") accessible from the global Internet and issued a
public challenge to the Internet community to attempt to breach Sidewinder's
type-enforcement security features. A well-publicized actual or perceived breach
of Sidewinder security, or an actual or perceived breach of security of one of
the Company's customer's computer networks, regardless of whether such breach is
attributable to the Company's products, could adversely affect the market's
perception of the Company and the Company's business, financial condition and
results of operations.
COMPETITION
The market for network security products and services is new, intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in the future.
The Company's principal current competitors include Advanced Network & Services,
Inc. (which is owned by America Online, Inc.), CheckPoint Software, Inc., Raptor
Systems, Inc., Sun Microsystems, Inc., Trusted Information Systems Inc.,
Security Dynamics, Inc., Digital Pathways Inc., CKS Group, Inc., Blockade,
Leemah DataCom Security Corporation and Racal-Guardata, Inc., and Cyberguard,
Inc. Several other companies offering other network products could enter the
security market at any time. Many of the Company's current and potential
competitors have longer operating histories, greater name recognition, larger
installed customer bases and significantly greater financial, technical and
marketing 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. Such
competition and any resulting reduction in gross margins could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company's competitors will not
develop network security products that may be more effective than the Company's
current or future products or that the Company's technologies and products would
not be rendered obsolete by such developments. Competitors may also employ
litigation or the threat of litigation relating to patents and other
intellectual property to gain a competitive advantage.
HISTORY OF LOSSES; UNPREDICTABILITY OF OPERATING RESULTS
The Company incurred operating losses for the fiscal year ended
December 31, 1995 and will incur an operating loss for the year ended 1996.
Historically, a significant portion of the Company's revenue has been derived
from contracts with departments and agencies of the U.S. government and other
government contractors, and the Company expects to continue to rely on such
contracts and product sales to U.S. government agencies for a majority of the
Company's revenues in the immediate future. Government contracts are awarded
infrequently, normally provide for reimbursement of cost plus a fee, and are
cancelable for the government's convenience. As a result, the timing of the
contract awards, the availability of funding and unexpected increases in the
costs of performance all can materially and adversely impact the Company's
business, financial condition and results of operations in any period or from
period to period. As the Company makes the transition from its contract research
and development business to commercial product sales, its results of operations
will become increasingly likely to vary and fluctuate significantly from quarter
to quarter as a result of numerous factors, including market acceptance of the
Company's products, the timing of orders and shipments of such products, new
product introductions, or the introduction or the announcement of competitive
products. The Company's current expense levels are based in part on its
expectations of future revenue and, as a result, net income for a given period
could be disproportionately affected by any reduction in revenue. There can be
no assurance that the Company will be able to achieve significant revenues from
sales of commercial products in the future or that the level of revenues in the
future will not decrease from past levels. In past quarters, the Company's net
revenues and operating results have been below the expectations of stock market
securities analysts and investors and there can be no assurance that in some
future quarter net revenues or operating results will not be below such
expectations. In such event, the price of the Company's Common Stock would
likely be materially and adversely affected.
RISK ASSOCIATED WITH THE NETWORK SECURITY MARKET
The market for the Company's products is only beginning to emerge. The
rapid development of enterprise-wide and internetwork computing has increased
the ability of users to access proprietary information and resources and has in
recent years increased demand for computer and network security products.
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON THE INTERNET
Although some sales of the Company's products will depend upon growth of private
networks using Transmission Control Protocol/Internet Protocol ("TCP/IP"), early
sales of the Company's current products will depend in large part upon a robust
industry and infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone or timely development of complementary products.
Because global commerce and the 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. There can be no assurance that the infrastructure or
complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace. If the necessary infrastructure or complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the Company's business, operating results and financial
condition will be materially and adversely affected.
SALES AND DISTRIBUTION RISKS
The Company recently has added substantially to its internal sales and
marketing staff through the acquisitions of Border and Enigma and through
internal growth prior to such acquisitions in order to increase its direct sales
effort. Moreover, the Company intends to continue expanding its sales and
marketing force. There can be no assurance that the sales and marketing forces
of Secure, Border and Enigma will be integrated successfully, can be further
expanded, that the cost of such expansion will not exceed the revenues
generated, or that the Company's sales and marketing organization will
successfully compete against the more extensive and well-funded sales and
marketing operations of many of the Company's current and future competitors.
The Company recently has developed reseller channels in North America. There can
be no assurance that its resellers 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
distributors and resellers on a purchase-order basis, and the Company's
distributors and resellers will be likely to carry competing product lines.
Therefore, there can be no assurance that any distributor or reseller will
continue to represent the Company's products. The inability to recruit, or the
loss of, important sales personnel, distributors or resellers could materially
adversely affect the Company's business, financial condition and results of
operations in the future.
NEED TO ESTABLISH COLLABORATIVE MARKETING RELATIONSHIPS
A significant business strategy of the Company is to enter into
strategic marketing alliances or other similar collaborative relationships.
There can be no assurance that the Company's existing or contemplated
collaborative relationships will be commercially successful, that the Company
will be able to negotiate additional collaborative relationships, that such
additional collaborations will be available to the Company on acceptable terms
or that any such relationships, if established, will be commercially successful.
The potential increased revenues from such relationships may be reduced by
requirements to provide volume price discounts and other allowances, and
significant costs incurred in customizing the Company's products. Although the
Company does not intend that such relationships be exclusive, the Company may be
required to enter into an exclusive relationship or forego a significant sales
opportunity. To the extent the Company is dependent on the performance of
certain actions by such parties, the Company could be adversely affected if such
parties fail to perform as anticipated by the Company. In addition, there can be
no assurance that parties with whom the Company has established collaborative
relationships will not pursue alternative technologies or develop alternative
products in addition to or in lieu of the Company's products either on their own
or in collaboration with others, including the Company's competitors. The
Company's financial condition or results of operations may also be affected by
the success of its collaborators in marketing any successfully developed
products.
LONG SALES CYCLE
The sales of the Company's security products generally involve
significant education of and commitment of capital by prospective customers,
with the attendant delays frequently associated with large capital expenditures
and lengthy procurement procedures. For these and other reasons, the sales cycle
associated with the sales of the Company's security products is typically long
and subject to a number of significant risks over which the Company has little
or no control and, as a result, the Company may expend significant resources
pursuing potential sales that will not be consummated.
RISKS OF DOING BUSINESS WITH THE U.S. GOVERNMENT
Historically, the Company has derived substantially all of its revenue
from contracts with and product sales to departments and agencies of the U.S.
government and government contractors. Due to the relative size of the Company's
government contract revenue stream, the Company expects to continue to rely on
existing and future research and development contracts with agencies of the U.S.
government and product sales to such agencies for a substantial majority of the
Company's revenues in the immediate future. Because no government agency has an
obligation to award contracts to or to purchase products from the Company in the
future, the Company believes that future government contracts and orders for its
Secure Network Server products will in part be dependent upon the continued
favorable reaction of government agencies to the development capabilities of the
Company and the reliability of the Company's products. The Company's Secure
Network Server development contract with the NSA, which accounts for a majority
of the Company's current government contract business, is scheduled to expire in
late 1997. There can be no assurance that the Company will be able to procure an
extension of this contract or additional contracts of a similar magnitude. The
NSA contract permits a fee as low as 4.7% of the Company's costs of development,
and is subject to cancellation for the convenience of the agency. Although there
have been no terminations of the Company's government contracts in the past,
there can be no assurance that cancellations will not occur in the future.
Reductions or delays in federal funds available for projects the Company is
performing or to purchase the Company's products 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 subcontractors, the inability of such parties to
perform under their contracts. The Company is also exposed to the risk of
increased or unexpected costs, causing losses or reduced profits, under
government and certain third party fixed-price contracts. Any of the foregoing
events would have a material adverse impact on the Company's business, financial
condition and results of operations.
INTERNATIONAL SALES RISKS
The Company sells its products outside of North America. International
sales and operations may be subject to risks such as the imposition of
governmental controls, export license requirements, restrictions on the export
of critical technology, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international dealers, longer receivables collection
periods and difficulty in collecting accounts receivable. Currency fluctuations
also may make the Company's products less competitive in foreign markets and
contribute to fluctuations in the Company's operating results. In addition, the
laws of certain countries will not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. There can be no assurance that these factors will not have an adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company relies on manufacturing subcontractors to manufacture its
computers and other major components used in its products. The Company's
strategy to rely on subcontractors for major subassemblies involves a number of
significant risks, including the loss of control over the manufacturing process,
the potential absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules, manufacturing yields, quality and costs. In the event that
any significant subcontractor were to become unable or unwilling to continue to
manufacture these subassemblies in required volumes, the Company would have to
identify and qualify acceptable replacements. The process of qualifying
manufacturing subcontractors could be lengthy and no assurance can be given that
any additional sources would be available to the Company on a timely basis. Any
extended interruption in the future supply of or increase in the cost of the
subassemblies manufactured by third party subcontractors could materially and
adversely affect the Company's business, operating results and financial
condition.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
The Company and its manufacturing subcontractors are dependent upon
single or limited source suppliers for its computers and a number of other
components and parts used in the Company's products. There can be no assurance
that these subcontractors and suppliers will continue to be able to meet the
Company's requirements for these components or that the price of these
components will not increase. The Company's subcontractors generally purchase
these single or limited source components pursuant to purchase orders and have
no guaranteed supply arrangements with such suppliers. In addition, the
availability of many of these components to the Company's subcontractors is
dependent in part on the Company's ability to provide its subcontractors, and in
turn their ability to provide their suppliers, with accurate forecasts of their
future requirements. The process of qualifying suppliers could be lengthy and no
assurance can be given that any additional sources would be available to the
Company on a timely basis. Any extended interruption or reduction in the future
supply of any key components currently obtained from a single or limited source
could have a significant adverse effect on the Company's business, operating
results and financial condition in any given period.
CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS
The commercial network security industry is undergoing rapid changes,
including evolving industry standards, frequent new product introductions and
changes in customer requirements and preferences. The introduction of new
commercial technologies or a significant advance in techniques for gaining
unauthorized network access could render the Company's existing products
obsolete or unmarketable. The development cycle for products utilizing new
technologies may be significantly longer than the Company's current development
cycle for products on existing operating systems, microprocessors and formats
and may require the Company to invest resources in products that may not become
profitable. There can be no assurance that the Company's future product
offerings will keep pace with technological changes or satisfy evolving consumer
preferences or that 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 result in
significant product returns and inventory obsolescence and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF ERRORS OR FAILURES
Products as complex as those offered by the Company may contain
undetected errors when first introduced or when new versions are released. The
Company has in the past discovered software errors in certain of its product
offerings after their introduction and has experienced delays or lost revenues
during the period required to correct these errors. In particular, the personal
computer hardware environment is characterized by a wide variety of 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, errors will not be found in new products
or releases after commencement of commercial shipments by the Company. Computer
break-ins and other disruptions, if caused by errors or failures in the
Company's products, would jeopardize the security of information stored in and
transmitted through computer networks and could result in product recalls,
liability under the Company's warranties or otherwise or in loss of or delay in
market acceptance of the Company's products. 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 consequences of errors or failures in the Company's products
could have a material adverse effect on the Company's business, financial
condition and results of operations. 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 "shrinkwrap licenses" in which they are often
embodied, to be unenforceable. Accordingly, there can be no assurance that such
limitations will be enforced. The Company currently does not have product
liability insurance to protect against these risks and there can be no assurance
that such insurance will be available to the Company on commercially reasonable
terms or at all.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF
LITIGATION
The Company relies on patent, trademark, copyright and trade secret
laws, employee and third-party non-disclosure agreements and other methods to
protect its proprietary rights. The Company holds patents and has pending patent
applications which cover certain aspects of its technology. There can be no
assurance that any pending or future patent applications will be granted or that
any current or future patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company. 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. Under its contracts with
the Company, the U.S. government has the right to disclose certain technology
developed with government funding to competitors of the Company as part of the
establishment by the U.S. government of second-source manufacturing arrangements
or competitive bidding. The Company's inability to maintain a competitive
advantage based on proprietary rights would have a material adverse effect on
the Company's business, financial condition and results of operations.
As the number of network security products in the industry increases and
the functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. Although the
Company is not currently the subject of any material litigation involving its
intellectual property, there has been substantial litigation regarding patent,
copyright, trademark and other intellectual property rights involving computer
software companies. Further, the Company is subject to additional risk when 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 business, financial condition and
results of operations. Adverse determinations in such claims or litigation could
also have a material adverse effect on the Company's business, financial
condition and results of operations.
NEED FOR FUTURE FINANCING
Based upon the Company s anticipated working capital requirements, the
Company anticipates that its existing capital resources, will be adequate to
satisfy its capital requirements through 1997. The Company's future capital
requirements, however, will depend on many factors, including its ability to
successfully market and sell its commercial products, the availability of
funding for its research through U.S. government and third party contracts and
through strategic joint ventures, competing technological and market
developments and the cost of manufacturing activities. To date, the Company has
relied on significant funding for research and development through U.S.
government contracts, sales of equity securities and borrowings. There can be no
assurance that adequate funds will be available to the Company in the future, or
that such funds can be obtained on favorable terms. To the extent that cash
generated by operations is insufficient to satisfy the Company's capital
requirements, the Company may sell additional equity or debt securities or
obtain additional credit facilities. Any equity or debt financings, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity or convertible debt financings, could result in dilution to the
Company's then existing stockholders, including purchasers in this offering. If
adequate funds are not available, the Company may be required to curtail its
activities, including marketing and sales plans, significantly.
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
financial, management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial and management information systems and to attract, train, motivate,
manage and retain key employees. If the Company's executives are unable to
manage growth effectively, the Company's business, financial condition and
results of operations could be adversely affected. In the normal course of its
business, the Company evaluates potential acquisitions of businesses, products
and technologies that could complement or expand the Company's network security
business. In the event the Company were to identify 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 business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in large part on its ability to attract
and retain highly qualified scientific, technical, management and marketing
personnel. Although the Company maintains key man life insurance on the
Company's Chief Executive Officer, the loss of the services of the Company's
Chief Executive Officer or other key employees of the Company could have a
material adverse effect on the Company. Competition for such personnel is
intense and there can be no assurance that the Company will be able to attract
and retain all personnel necessary for the development and operation of its
business. The loss of the services of key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONCENTRATION OF SHARE OWNERSHIP
Directors and officers of the Company, together with entities affiliated
with them, own 48% of the Company's outstanding Common Stock in the aggregate on
a fully-diluted basis. Accordingly, these shareholders will continue to exert
significant influence over the outcome of most corporate actions requiring
stockholders approval, including the election of directors and the approval of
transactions involving a change in control of the Company.
PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue shares of
preferred stock and to determine the designations, preferences and rights and
the qualifications and restrictions 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
preferred stock that may be issued in the future. The issuance of preferred
stock 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. In addition,
the Company is subject to the antitakeover provisions of Section 203 of the
Delaware General Corporation Law, which generally prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the person becomes an
interested stockholder, unless the business combination is approved in a
prescribed manner. Also, the directors of the Company are divided into three
classes with staggered terms of office. The Certificate of Incorporation also
provides that all stockholder action must be effected at a duly called meeting
of stockholders and not by a consent in writing. Furthermore, the Company's
By-Laws provide that special meetings of stockholders may be called only by the
chief executive officer of the Company and upon written request of a majority of
the Board of Directors or, in certain circumstances, by the Board of Directors
or a committee of the Board of Directors. These provisions and certain other
provisions of the Company's Certificate of Incorporation and By-Laws may have
the effect of discouraging, delaying or preventing a merger, tender offer or
proxy contest, which could adversely affect the market price of the Company's
Common Stock.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and could be in
the future, subject to significant fluctuations in response to variations in
quarterly operating results and other factors, such as announcements of new
products by the Company or its competitors and changes in financial estimates by
securities analysts or other events. Moreover, the stock market has experienced
extreme volatility that has particularly affected the market prices of equity
securities of many technology companies and that has often been unrelated and
disproportionate to the operating performance of such companies. Broad market
fluctuations, as well as economic conditions generally and in the software
industry specifically, may adversely affect the market price of the Company's
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock.
Holders of approximately 9,337,000 shares of Common Stock are entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded in the
over-the-counter market and quoted on the Nasdaq Stock Market under the symbol
SCUR since the Company's initial public offering on November 17, 1995. The
following table sets forth, for the fiscal quarters indicated, the high and low
last sale prices for the Common Stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1995:
Fourth Quarter (from November 17, 1995).................................. $60.50 $47.25
FISCAL YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................................ $52.00 $21.00
Second Quarter........................................................... 35.25 20.50
Third Quarter............................................................ 25.25 9.50
Fourth Quarter (through November 25, 1996)............................... 12.50 8.50
</TABLE>
On November 25, 1996, the last sale price for the Common Stock
as reported by the Nasdaq Stock Market was $8.63 per share.
The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to retain any earnings for use
in its business and therefore does not anticipate paying any cash dividends in
the foreseeable future.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of October 1, 1996 and as
adjusted to reflect the sale of shares offered by this Prospectus by each
Selling Stockholder.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO AFTER OFFERING
OFFERING
SHARES OFFERED
NAME NUMBER NUMBER NUMBER PERCENT
<S> <C> <C> <C> <C>
Richard R. Viets(1) 20,400 10,200 10,200 *
1360 Nottingham Drive
Naples, Florida 34109
Stephen R. Campbell(2) 20,400 10,200 10,200 *
5761 Cypress Hollow Way
Naples, Florida 34109
Stephen J. Dempsey(3) 20,400 10,200 10,200 *
1100 5th Avenue South, Suite 308
Naples, Florida 34102
Wayne D. Sharrett(4) 20,400 10,200 10,200 *
3733 Bailes Street
Bonita Springs, Florida 34134
David G. Motes(5) 24,321(6) 10,200 14,121(6) *
24777 Carnoustie Court
Bonita Springs, Florida 34541
</TABLE>
- ------------------
1 Mr. Viets is Vice President and General Manager of Webster. Prior to the
acquisition of Webster Mr. Viets was President of Webster.
2 Mr. Campbell was President of Apogee Software before it merged with
Webster in May 1996. He also provided sales and marketing services to
Webster before it was acquired by the Company.
3 Mr. Dempsey was Vice President of Apogee Software before it merged with
Webster in May 1996. He also provided sales and marketing services to
Webster before it was acquired by the Company.
4 Mr. Sharett is a Senior Principal Computer Scientist at Webster. Prior
to Webster being acquired by the Company, Mr. Sharett was Webster's
Treasurer.
5 Mr. Motes is a Senior Principal Computer Scientist at Webster. Prior to
Webster being acquired by the Company, Mr. Motes was Webster's
Secretary.
6 Includes options to purchase 3,921 shares of Common Stock.
* Represents beneficial ownership of less than one percent of the
outstanding Common Stock.
PLAN OF DISTRIBUTION
The distribution of the shares of Common Stock offered hereby
by the Selling Stockholders may be effected from time to time in one or more
transactions (which may involve block transactions) on the Nasdaq Stock Market
or otherwise, in the over-the-counter market, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling shares to purchasers in the United States or
in Ontario Canada or through broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of shares for whom they may act
as agent (which compensation may be in excess of customary commissions). The
Selling Stockholders and broker-dealers that participate with the Selling
Stockholders in the distribution of shares may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit on the resale of shares may be deemed to be
underwriting compensation.
EXPERTS
The financial statements and schedule of Secure Computing Corporation
appearing in or incorporated by reference in Secure Computing Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1995, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
incorporated by reference therein and incorporated herein by reference. The
supplemental consolidated financial statements and schedule of Secure Computing
Corporation appearing in the Secure Computing Corporation's Current Report on
Form 8-K dated November 25, 1996 have been audited by Ernst & Young LLP, as set
forth in their report included therein and incorporated herein by reference. The
financial statements of Enigma Logic appearing or incorporated by reference in
the Company's Proxy Statement, Form 8-K, and Form 8-K/A have been audited by,
Price Waterhouse, San Jose, independent accountants, as set forth in their
report thereon included therein and incorporated herein by reference. The
financial statements of Border Network Technologies, Inc. appearing or
incorporated by reference in the Company's Proxy Statement, Form 8-K, and Form
8-K/A have been audited by Price Waterhouse, Toronto, independent accountants,
as set forth in their report thereon included therein and incorporated herein by
reference. The financial statements of Border Network Technologies, Inc. for the
year ended December 31, 1994 appearing or incorporated by reference in the
Company's Form 8-K and Form 8-K/A have been audited by McClurkin Ahier &
Company, independent accountants, as set forth in their report thereon included
therein and incorporated herein by reference. All such financial statements,
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such reports given the authority of such firms as
experts in auditing and accounting
PURCHASER'S STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus or any
amendment. In several provinces of Canada, securities legislation further
provides a purchaser with rights of rescission or, in some jurisdictions,
damages where the prospectus or any amendment contains a misrepresentation or is
not delivered to the purchaser, provided that such remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by the
securities legislation of the purchaser's province. Purchasers should refer to
the applicable provisions of the securities legislation of their province for
the particulars of these rights or consult with a lawyer. Rights and remedies
also may be available to purchase under U.S. law; purchasers may wish to consult
with a U.S. lawyer for particulars of these rights.
CERTIFICATE OF THE COMPANY
Dated November 26, 1996
The foregoing, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
such securities as required by the securities laws of the Province of Ontario.
/s/ Jeffrey H. Waxman /s/ Timothy P. McGurran
JEFFREY H. WAXMAN. TIMOTHY P. MCGURRAN
President and Chief Chief Financial Officer
Executive Officer
On behalf of the Board of Directors
/s/ Glenn G. Mackintosh /s/ Robert Forbes
Glenn G. Mackintosh Robert Forbes
Director Director
