SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SECURE COMPUTING CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:________________________
(2) Aggregate number of securities to which transaction applies:
_________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):_________________
(4) Proposed maximum aggregate value of transaction:_____________
(5) Total fee paid:________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:_________________
(2) Form, Schedule or Registration Statement No.:_____________
(3) Filing Party:_______________
(4) Date Filed:_______________
<PAGE>
[Secure Logo]
SECURE COMPUTING CORPORATION
ONE ALMADEN BLVD., SUITE 400
SAN JOSE, CALIFORNIA 95113
(408) 918-6100
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 80 South Eighth Street, Suite 5000, IDS Tower, Minneapolis,
Minnesota, at 2:00 p.m., local time, on Thursday, May 14, 1998.
The Notice of Annual Meeting of Stockholders and the Proxy Statement which
follow describe the matters to come before the meeting. During the meeting, we
will also review the activities of the past year and items of general interest
about the Company.
We hope that you will be able to attend the meeting in person and we look
forward to seeing you. Please mark, date and sign the enclosed proxy and return
it in the accompanying envelope as quickly as possible, even if you plan to
attend the Annual Meeting. You may revoke the proxy and vote in person at that
time if you so desire.
Sincerely,
Jeffrey H. Waxman
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 29, 1998
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[LOGO]
SECURE COMPUTING CORPORATION
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1998
----------------------------------------
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Secure Computing Corporation, a Delaware corporation (the
"Company"), will be held at the 80 South Eighth Street, Suite 5000, IDS Tower,
Minneapolis, Minnesota, at 2:00 p.m., local time, on Thursday, May 14, 1998 for
the following purposes:
1. To elect two directors of the Company to serve for a three year
term that expires upon the Annual Meeting of Stockholders in
2001, or until their successors are duly elected.
2. To approve an amendment to the Company's Amended and Restated
1995 Omnibus Stock Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 2,500,000
shares.
3. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the year ending December 31, 1998.
4. To transact such other business as may properly be brought
before the Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only holders of record of the Company's Common Stock at the close of
business on March 30, 1998, the record date, are entitled to notice of and to
vote at the Annual Meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
By Order of the Board of Directors
San Jose, California
April 29, 1998
- --------------------------------------------------------------------------------
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
SECURE COMPUTING CORPORATION
----------------------
PROXY STATEMENT
FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
------------------------
PROCEDURAL MATTERS
GENERAL
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Secure Computing
Corporation, a Delaware corporation (the "Company"), for use at the Company's
Annual Meeting of Stockholders (the "Annual Meeting") to be held on Thursday,
May 14, 1998 at 2:00 p.m., Central Daylight Time, and at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the 80 South
Eighth Street, Suite 5000, IDS Tower, Minneapolis, Minnesota. The Company's
headquarters are located at One Almaden Blvd., Suite 400, San Jose, California
95113, and its telephone number at that location is (408) 918-6100.
These proxy solicitation materials were mailed on or about April 20,
1998, together with the Company's 1997 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record at the close of business on March 30, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of the
Record Date, 15,993,994 shares of the Company's Common Stock were issued and
outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING AT THE ANNUAL MEETING
On all matters to be presented at the Annual Meeting, each share has
one vote. The presence, in person or by proxy, of the holders of a majority of
the shares of Common Stock outstanding as of the Record Date is necessary to
constitute a quorum at the Annual Meeting. A plurality of the votes of the
outstanding shares of Common Stock present or represented by proxy at the Annual
Meeting is required for the election of directors. The affirmative vote of a
majority of the votes duly cast is required (i) to approve the amendment to the
Amended and Restated 1995 Omnibus Stock Plan and (ii) to ratify the appointment
of the auditors.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum of shares is present at the Annual Meeting.
However, abstentions and broker non-votes will not be included in the tabulation
of the voting results on the election of directors or on issues requiring
approval of a majority of the votes cast. Under the General Corporation Law of
the State of Delaware, the Company's state of incorporation, an abstaining
<PAGE>
vote is not deemed to be a "vote cast." A broker non-vote occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
PROXIES
All shares entitled to vote and represented by properly executed
proxies received prior to the Annual Meeting will be voted at the Annual Meeting
in accordance with the instructions indicated on those proxies, if not revoked
prior thereto. If no instructions are indicated on a properly executed proxy,
the shares represented by that proxy will be voted as recommended by the Board
of Directors. If any other matters are properly presented for consideration at
the Annual Meeting, the proxy holders will have discretion to vote on those
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. A proxy may be revoked (i) by
delivery of a written notice of revocation or a duly executed proxy to the
Secretary of the Company bearing a date later than the prior proxy relating to
the same shares, or (ii) by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not itself revoke a proxy). Any
written notice of revocation or subsequent proxy must be received by the
Secretary of the Company prior to the taking of the vote at the Annual Meeting.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. The Company may
reimburse brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of Common Stock for their reasonable expenses in
forwarding solicitation material to such beneficial owners. Directors, officers
and employees of the Company may also solicit proxies in person or by telephone,
telegram, letter or facsimile. Such directors, officers and employees will not
be additionally compensated, but they may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Stockholders may present proper proposals for inclusion in the
Company's proxy materials for consideration at the next annual meeting of its
stockholders by submitting their proposals to the Company in a timely manner. In
order to be included in the Company's proxy materials for the next Annual
Meeting, stockholder proposals must be received by the Company no later than
December 31, 1998, and must otherwise comply with the requirements of Rule 14a-8
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
<PAGE>
ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors currently consists of six persons,
divided into three classes serving staggered terms of office. Currently there
are three directors of Class I and two directors of each of Class II and Class
III. Two Class II directors are to be elected at the Annual Meeting. The Class
II directors elected at the Annual Meeting will serve for three-year terms, or
until their successors have been duly elected and qualified.
VOTE REQUIRED
A plurality of votes duly cast at the Annual Meeting will be required
to elect each director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL
NOMINEES FOR DIRECTOR NAMED BELOW.
DIRECTORS AND NOMINEES FOR DIRECTOR
The following table sets forth the name, age and certain other
information regarding the nominee for director.
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Betsy S. Atkins........... 44 Private Investor
Steven M. Puricelli....... 45 Costine Associates, L.P., General Partner
BETSY S. ATKINS has been a director of the Company since April 1997.
Ms. Atkins has been a consultant and private investor since August 1993. From
January 1990 to August 1993, she served as President, Chief Executive Officer
and a Director of Nellson Candies, a producer of specialized foods. Ms. Atkins
is a director of Ascend Communications Corporation.
STEPHEN M. PURICELLI has been a director of the Company since February
1990. Mr. Puricelli has been a General Partner of Costine Associates, L.P.,
which is the corporate general partner of Corporate Venture Partners, since its
inception in April 1988. Corporate Venture Partners is a venture capital fund
headquartered in Ithaca, New York.
The remaining directors of the Company as of the date of this Proxy
Statement, and certain information about them as of the Record Date, are set
forth below. Dennis J. Shaughnessy has submitted his resignation as a director,
effective as of the Annual Meeting.
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Eric P. Rundquist........ 50 Eric Thomas, Inc., Chief Executive Officer
Jeffrey H. Waxman........ 51 Chief Executive Officer
Dennis J. Shaughnessy.... 50 Grotech Capital Group, Managing Director
Robert J. Frankenberg.... 50 Encanto Networks, Inc., Chief Executive Officer
ERIC P. RUNDQUIST has been a director of the Company since August 1996
and prior to its acquisition by the Company was a director of Enigma Logic, Inc.
from 1994 to August 1996. In 1991, Mr. Rundquist founded and since that time has
been President and Chief Executive Officer of Eric Thomas, Inc., a firm that
assists medium to large corporations in managing their federal and state income,
sales and property tax matters.
<PAGE>
JEFFREY H. WAXMAN has been Chairman of the Board since January 1997 and
Chief Executive Officer of the Company since November 1996. From June 1995
through August 1996, Mr. Waxman was the Executive Vice President and General
Manager of the Application Group of Novell Inc., a network software provider.
From November 1992 through June 1995, Mr. Waxman was the President and Chief
Executive Officer of ServiceSoft Corporation, a diagnostics software company.
From June 1988 through January 1992, Mr. Waxman was the Chief Executive Officer
of Uniplex, Inc. Mr. Waxman currently serves on the Board of Directors of
ComTel.
DENNIS J. SHAUGHNESSY has been a director of the Company since March
1993. Since 1989 Mr. Shaughnessy has been a Managing Director of Grotech Capital
Group of Baltimore, Maryland, a venture capital fund. Mr. Shaughnessy also is a
director of TESSCO Technologies, Inc., Forensic Technologies International and
Polk Audio, Inc..
ROBERT J. FRANKENBERG has been a director of the Company since December
1996. Mr. Frankenberg is the President & Chief Executive Officer of Encanto
Networks, Inc., an internet e-commerce provider. From April 1994 to August 1996,
he was President, Chief Executive Officer and a director of Novell, Inc. Mr.
Frankenberg was also Chairman of the Board of Novell, Inc. from August 1994 to
August 1996. From April 1991 to April 1994, he was Vice President and General
Manager of Personal Information Products Group at Hewlett Packard Company. Mr.
Frankenberg currently serves a director of America Online, Inc., Electroglas,
Inc., Wall Data, Inc., Daw Technologies, Inc. and Caere Corp.
Following the Annual Meeting, there will be two vacancies on the
Company's Board of Directors, which vacancies will be filled by the Board of
Directors in accordance with the Company's Certificate of Incorporation and
Bylaws.
None of the directors is related to any other director or to any
executive officer of the Company.
BOARD MEETINGS AND COMMITTEES
During fiscal 1997, the Board of Directors held nine meetings
(including regularly scheduled and special meetings), and all of the incumbent
directors attended 75% or more of the meetings of the Board of Directors and
committees, if any, upon which such directors served. Certain matters were
approved by the Board of Directors by unanimous written consent.
The Board of Directors of the Company currently has three standing
committees: an Audit Committee, Compensation Committee and Nominating Committee.
AUDIT COMMITTEE. The Company's Audit Committee consists of Messrs.
Puricelli, Rundquist and Shaughnessy. The Audit Committee makes recommendations
concerning the selection and appointment of independent auditors, reviews the
scope and findings of the completed audit, and reviews the adequacy and
effectiveness of the Company's accounting policies and system of internal
accounting controls. The Audit Committee met two times during 1997.
COMPENSATION COMMITTEE. The Company's Compensation Committee consists
of Messrs. Puricelli (Chairman) and Shaughnessy and Ms. Atkins. The Compensation
Committee annually reviews and acts upon the Chief Executive Officer's
compensation package and sets compensation policy for the other employees of the
Company, as well as acting upon management recommendations concerning employee
stock options, bonuses and other compensation and benefit plans. The
Compensation Committee also administers the Secure Computing Corporation Amended
and Restated 1995 Omnibus Stock Plan discussed below, the Secure Computing
Corporation Employee Stock Purchase Plan and the 1997 Non-Officer Stock Option
Plan. The Compensation Committee met thirteen times during 1997.
<PAGE>
NOMINATING COMMITTEE. The Nominating Committee presently consists of
Messrs. Puricelli (Chairman), Shaughnessy and Waxman. The Company's Nominating
Committee advises and makes recommendations to the Board on all matters
concerning the selection of candidates as nominees for election as directors.
The Nominating Committee met three times during 1997.
The Nominating Committee will consider persons recommended by
stockholders in selecting nominees for election to the Board of Directors.
Stockholders who wish to suggest qualified candidates should write to: Secure
Computing Corporation, One Almaden Blvd., Suite 400, San Jose, California 95113,
Attention: Chairman, Nominating Committee. All recommendations should state in
detail the qualification of such persons for consideration by the Nominating
Committee and should be accompanied by an indication of the person's willingness
to serve.
DIRECTOR COMPENSATION
Effective June 1997, each member of the Board of Directors who is not
an employee of the Company (an "Outside Director"), following an Annual Meeting
of Stockholders is granted, by virtue of serving as an Outside Director, an
option to purchase 35,000 shares of Common Stock of the Company at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
These stock options become fully exercisable on the date of the Annual Meeting
of Stockholders next following the grant of the option and expire ten years from
the date of grant. Outside Directors who are elected between Annual Meetings of
Stockholders of the Company are granted an option on terms similar to those
awarded at an Annual Meeting, except that the number of shares covered by such
option is pro-rated to reflect the number of months that have expired from the
date of the prior Annual Meeting.
During 1997, the Compensation Committee of the Board of Directors
granted each Outside Director an option to purchase 35,000 shares of Common
Stock of the Company.
<PAGE>
PROPOSAL TWO
APPROVAL OF THE AMENDED AND RESTATED
1995 OMNIBUS STOCK PLAN, AS AMENDED
PROPOSED AMENDMENTS REQUIRING STOCKHOLDER APPROVAL
In September 1995, the Board of Directors of the Company adopted, and
the Company's stockholders approved, the Company's 1995 Omnibus Stock Plan. As
described below, the Board of Directors, subject to stockholder approval, also
has approved an amendment to the Omnibus Stock Plan to increase by 2,500,000
(from 5,244,131 to 7,744,131) the number of shares of Common Stock available for
issuance under the Omnibus Stock Plan. The purpose of this amendment is to
ensure that the Company has flexibility to meet its foreseeable future needs for
awards to be granted under the Omnibus Stock Plan.
The Board of Directors has directed that the Omnibus Stock Plan, as
amended and restated, be submitted to the stockholders in its entirety for
approval. The Omnibus Stock Plan, as amended and restated, is attached hereto as
Exhibit 1.
As of March 30, 1998, an aggregate of 1,693,344 shares had been issued
under the Omnibus Stock Plan and options to purchase 3,469,168 shares were
outstanding under the Omnibus Stock Plan, leaving only 81,619 shares available
for stock option grants. Options outstanding at March 30, 1998 have per share
exercise prices ranging from $.01 to $30.00, or a weighted average per share
exercise price of $6.31, and expire ten years from the date of grant of the
option on dates ranging from March 2001 to February 2007 (unless exercised prior
to that time). Approximately 350 employees are currently eligible to participate
in the Omnibus Stock Plan. Stockholder approval of the proposed increase in the
number of shares under the Omnibus Stock Plan is also necessary to provide for
compensation of non-employee directors, who receive stock option awards for
their service.
If stockholders approve the Omnibus Stock Plan, as amended and
restated, options to purchase an aggregate of 2,581,619 shares of Common Stock
would be available for future stock option grants under the Omnibus Stock Plan.
DESCRIPTION OF AMENDED AND RESTATED 1995 OMNIBUS STOCK PLAN
PURPOSE
The purpose of the Omnibus Stock Plan is to motivate key personnel,
including non-employee directors, to produce a superior return to the
stockholders of the Company by offering such personnel an opportunity to realize
stock appreciation, by facilitating stock ownership, and by rewarding them for
achieving a high level of corporate financial performance. The Omnibus Stock
Plan is also intended to facilitate recruiting and retaining key personnel of
outstanding ability by providing an attractive capital accumulation opportunity.
ADMINISTRATION
The Omnibus Stock Plan is administered by a committee (the "Committee")
of two or more directors who are "non-employee directors" within the meaning of
Rule 16b-3 under the Exchange Act. The Compensation Committee of the Board of
Directors currently serves as the Committee that administers the Omnibus Stock
Plan, of which all three members are "non-employee directors" for purposes of
Exchange Act Rule 16b-3 and "outside directors" for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). Subject to the
provisions of the Omnibus Stock Plan, the Committee has the exclusive power to
make awards under the Omnibus Stock Plan, to determine when and to whom awards
will be granted, and the form, amount and other
<PAGE>
terms and conditions of each award. The Committee has the authority to interpret
the Omnibus Stock Plan and any award or agreement made under the Omnibus Stock
Plan, Omnibus Stock and to make all other determinations necessary or advisable
for the administration of the Omnibus Stock Plan. The Committee may delegate all
or part of its responsibilities under the Omnibus Stock Plan to persons who are
not "non-employee directors" within the meaning of Exchange Act Rule 16b-3 for
purposes of determining and administering awards solely to employees who are not
then subject to the reporting requirements of Section 16 of the Exchange Act.
Notwithstanding the foregoing, the granting, terms, conditions and
eligibility requirements of Outside Director Options (as defined in the Omnibus
Stock Plan) are governed solely by the provisions of the Omnibus Stock Plan and
the Committee has no discretion with respect to the granting of such awards or
to alter or amend any terms, conditions or eligibility requirements of such
awards to outside directors. The provisions for automatic stock option grants to
outside directors are non-exclusive. Pursuant to its authority under the Omnibus
Stock Plan, the Committee canceled and reissued all outstanding Outside Director
Options with an exercise price per share above $6.125 as part of the February
13, 1997 option repricing. This action resulted in all the outstanding Outside
Director Options having an exercise price of $6.125 per share. See "Executive
Compensation--Report of the Compensation Committee--Repricings of Stock
Options".
NUMBER OF SHARES AND ELIGIBILITY
The total number of shares of Company Common Stock available for
distribution under the Omnibus Stock Plan is presently 5,244,131 (7,744,131 as
the Omnibus Stock Plan is proposed to be amended), subject to adjustment for
future stock splits, stock dividends and similar changes in the capitalization
of the Company. Section 162(m) of the Code places limits on the deductibility
for Federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options and stock appreciation rights
granted to such persons, the Plan provides that no participant may presently
receive, in any one calendar year, any combination of options and stock
appreciation rights relating to more than 750,000 shares of Common Stock in the
aggregate under the Omnibus Stock Plan.
All employees of the Company and its affiliates are eligible to receive
awards under the Omnibus Stock Plan at the discretion of the Committee. Outside
directors will receive grants of non-statutory options as set forth under "Types
of Awards--Outside Director Options". Awards other than incentive stock options
also may be awarded by the Committee to individuals who are not employees or
outside directors but who provide services to the Company or its affiliates in
the capacity of an independent contractor. Incentive stock options may be
granted only to employees.
The Omnibus Stock Plan provides that all awards are to be evidenced by
written agreements containing the terms and conditions of the awards. Such
agreements are subject to amendment, including unilateral amendments by the
Company (with the approval of the Committee) unless such amendments are deemed
by the Committee to be materially adverse to the recipient and are not required
as a matter of law. Any shares of Common Stock subject to an award under the
Omnibus Stock Plan which are not used because the terms and conditions of the
award are not met may again be used for an award under the Omnibus Stock Plan.
However, shares of Common Stock with respect to which a stock appreciation right
has been exercised (in cash and/or in stock) may not again be awarded under the
Omnibus Stock Plan.
TYPES OF AWARDS
The types of awards that may be granted under the Omnibus Stock Plan
include incentive and non-statutory stock options, stock appreciation rights,
restricted stock, performance units and other stock-based awards (awards of, or
based on, stock other than options, stock appreciation rights, restricted stock
or performance units).
<PAGE>
Subject to certain restrictions applicable to outside director options and
incentive stock options, awards will be exercisable by the recipients at such
times as are determined by the Committee.
In addition to the general characteristics of all of the awards
described in this Proxy Statement, the basic characteristics of awards that may
be granted under the Omnibus Stock Plan are as follows:
INCENTIVE AND NON-STATUTORY STOCK OPTIONS. Options may be granted to
recipients at such exercise prices as the Committee may determine but not less
than 50% of their fair market value (as defined in the Omnibus Stock Plan) as of
the date the option is granted. Stock options may be granted and exercised at
such times as the Committee may determine, except that, unless applicable
federal tax laws are modified, (1) no incentive stock option may be granted at
less than fair market value, (2) no incentive stock options may be granted more
than ten years after the effective date of the Omnibus Stock Plan, (3) an
incentive stock option shall not be exercisable more than ten years after the
date of grant, and (4) the aggregate fair market value of the shares of the
Company's Common Stock with respect to which incentive stock options may first
become exercisable in any calendar year for any employee may not exceed $100,000
under the Omnibus Stock Plan or any other plan of the Company. Additional
restrictions apply to an incentive stock option granted to an individual who
beneficially owns more than ten percent of the combined voting power of all
classes of stock of the Company.
The purchase price payable upon exercise of options may be payable in
cash, or through a reduction of the number of shares of Common Stock delivered
to the participant upon exercise of the option or by delivering stock already
owned by the participant (where the fair market value of the shares of Common
Stock withheld or delivered on the date of exercise is equal to the option price
of the stock being purchased), or in a combination of cash and such stock,
unless otherwise provided in the applicable award agreement. To the extent
permitted by law, the participants may simultaneously exercise options and sell
the stock purchased upon such exercise pursuant to brokerage or similar
relationships and use the sale proceeds to pay the purchase price.
OUTSIDE DIRECTOR OPTIONS. Beginning with the 1996 Annual Meeting of
Stockholders, and for each subsequent Annual Meeting of Stockholders thereafter,
each outside director is granted an option to purchase 35,000 shares of Common
Stock at the conclusion of each such Annual Meeting at a price equal to the fair
market value of a share of Common Stock on the date of grant, such options to
vest on the date of the next Annual Meeting of Stockholders subsequent to the
grant. Each person who is elected to be an outside director between Annual
Meetings of Stockholders shall be granted a stock option on the date such person
is elected. The number of shares of Common Stock covered by such option shall be
pro-rated from 35,000 for the number of months which have expired from the most
recent Annual Meeting of Stockholders, such options to vest on the date of the
next Annual Meeting of Stockholders subsequent to the grant.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS. The value of a stock
appreciation right granted to a recipient is determined by the appreciation in
the Company's Common Stock, subject to any limitations upon the amount or
percentage of total appreciation that the Committee may determine at the time
the right is granted. The recipient receives all or a portion of the amount by
which the fair market value of a specified number of shares of Common Stock, as
of the date the stock appreciation right is exercised, exceeds a price specified
by the Committee at the time the right is granted. The price specified by the
Committee must be at least 100% of the fair market value of the specified number
of shares of Common Stock to which the right relates determined as of the date
the stock appreciation right is granted. A stock appreciation right may be
granted in connection with a previously or contemporaneously granted option, or
independent of any option. No stock appreciation right may be exercised less
than six months from the date it is granted unless the recipient dies or becomes
disabled.
Performance units entitle the recipient to payment in amounts
determined by the Committee based upon the achievement of specified performance
targets during a specified term. With respect to recipients who are "covered
employees" under Section 162(m) of the Code, such performance targets will
consist of one or any
<PAGE>
combination of two or more of revenue, revenue per employee, earnings before
income tax (profit before taxes), earnings before interest and income tax, net
earnings (profits after taxes), earnings per employee, tangible, controllable or
total asset turnover, earnings per share, operating income, total stockholder
return, market share, return on equity, before- or after-tax return on net
assets, distribution expense, inventory turnover, or economic value added, and
any such targets may relate to one or any combination of two or more of
corporate, group, unit, division, affiliate or individual performance.
Payments with respect to stock appreciation rights and performance
shares of Common Stock may be paid in cash, shares of Common Stock or a
combination of cash and shares of Common Stock as determined by the Committee.
RESTRICTED STOCK AND OTHER STOCK-BASED AWARDS. The Company's Common
Stock granted to recipients may contain such restrictions as the Committee may
determine, including provisions requiring forfeiture and imposing restrictions
upon stock transfer. A participant with a restricted stock award shall have all
the other rights of a stockholder including, but not limited to, the right to
receive dividends and the right to vote. The Committee may also from time to
time grant awards of unrestricted stock or other stock-based awards such as
awards denominated in stock units, securities convertible into stock and phantom
securities.
TRANSFERABILITY
During the lifetime of a participant to whom an award is granted, only
such participant (or such participant's legal representative) may exercise an
option or stock appreciation right or receive payment with respect to
performance units or any other award. No award of restricted stock (prior to the
expiration of the restrictions), options, stock appreciation rights, performance
units or other stock-based award (other than an award of stock without
restrictions) may be sold, assigned, transferred, exchanged or otherwise
encumbered (other than pursuant to a qualified domestic relations order as
defined in the Code or Title I of ERISA or the rules thereunder); provided,
however, that any participant may transfer a non-statutory stock option granted
under the Omnibus Stock Plan to a member or members of his or her immediate
family or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, if (i) the
agreement with respect to such options, which must be approved by the Committee,
expressly so provides either at the time of initial grant or by amendment to an
outstanding agreement and (ii) the participant does not receive any
consideration for the transfer. Notwithstanding the foregoing, an award may be
transferable to a successor in the event of a participant's death.
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS
The Committee may accelerate vesting requirements, performance cycles
and the expiration of the applicable term or restrictions, and adjust
performance targets and payments, upon such terms and conditions as are set
forth in the participant's agreement, or otherwise in the Committee's
discretion, which may include, without limitation, acceleration resulting from a
change in control, fundamental change (as such term is defined in the Omnibus
Stock Plan), a recapitalization, a change in accounting practices of the
Company, a change in the participant's title or employment responsibilities, or
the participant's death, disability or retirement.
DURATION, ADJUSTMENTS, MODIFICATIONS, TERMINATION
The Omnibus Stock Plan will remain in effect until all stock subject to
it is distributed or all awards have expired or lapsed, whichever occurs later,
or the Omnibus Stock Plan is terminated as described below.
In the event of a fundamental change, recapitalization,
reclassification, stock dividend, stock split, stock combination or other
relevant change, the Committee has the discretion to adjust the number and type
of shares
<PAGE>
of Common Stock available for awards or the number and type of shares of Common
Stock and amount of cash subject to outstanding awards, the option exercise
price of outstanding options, and outstanding awards of performance units and
payments with regard thereto. Adjustments in performance targets and payments on
performance units are also permitted upon the occurrence of such events as may
be specified in the related agreements, which may include a change in control.
The Omnibus Stock Plan also gives the Board the right to terminate,
suspend or modify the Omnibus Stock Plan, except that amendments to the Omnibus
Stock Plan are subject to stockholder approval if needed to comply with Exchange
Act Rule 16b-3, the incentive stock option provisions of the Code, their
successor provisions, or any other applicable law or regulation.
Under the Omnibus Stock Plan, the Committee may cancel outstanding
options and stock appreciation rights generally in exchange for cash payments to
the recipients upon the occurrence of a fundamental change.
SUMMARY OF FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that awards made under the
Omnibus Stock Plan generally will result in the following tax events for United
States citizens under current United States federal income tax laws.
INCENTIVE STOCK OPTIONS
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time an incentive stock option is
granted under the Omnibus Stock Plan although the exercise is an adjustment item
for alternative minimum tax purposes and may subject the optionee to the
alternative minimum tax. If certain statutory employment and holding period
conditions are satisfied before the recipient disposes of shares of Common Stock
acquired pursuant to the exercise of such an option, then no taxable income will
result upon the exercise of such option and the Company will not be entitled to
any deduction in connection with such exercise. Upon disposition of the shares
of Common Stock after expiration of the statutory holding periods, any gain or
loss realized by a recipient will be a capital gain or loss. The Company will
not be entitled to a deduction with respect to a disposition of the shares of
Common Stock by a recipient after the expiration of the statutory holding
periods.
Except in the event of death, if shares of Common Stock acquired by a
recipient upon the exercise of an incentive stock option are disposed of by such
recipient before the expiration of the statutory holding periods (a
"disqualifying disposition"), such recipient will be considered to have realized
as compensation, taxable as ordinary income in the year of disposition, an
amount, not exceeding the gain realized on such disposition, equal to the
difference between the exercise price and the fair market value of the shares of
Common Stock on the date of exercise of the option. Unless limited by Section
162(m) of the Code, the Company will be entitled to a deduction at the same time
and in the same amount as the recipient is deemed to have realized ordinary
income. Any gain realized on the disposition in excess of the amount treated as
compensation or any loss realized on the disposition will constitute capital
gain or loss, respectively. If the recipient pays the option price with shares
of Common Stock that were originally acquired pursuant to the exercise of an
incentive stock option and the statutory holding periods for such shares of
Common Stock have not been met, the recipient will be treated as having made a
disqualifying disposition of such shares of Common Stock, and the tax
consequences of such disqualifying disposition will be as described above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes, an incentive stock option will be treated as
if it were a non-statutory stock option, the tax consequences of which are
discussed below.
<PAGE>
NON-STATUTORY STOCK OPTIONS
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time a non-statutory stock option is
granted under the Omnibus Stock Plan. At the time of exercise of a non-statutory
stock option, the recipient will realize ordinary income, and the Company will
be entitled to a deduction (unless limited by Section 162(m) of the Code), equal
to the excess of the fair market value of the stock on the date of exercise over
the option price. Upon disposition of the shares of Common Stock, any additional
gain or loss realized by the recipient will be taxed as a capital gain or loss,
depending on the holding period.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
Generally (1) the recipient will not realize income upon the grant of a
stock appreciation right or performance unit award, (2) the recipient will
realize ordinary income, and the Company will be entitled to a corresponding
deduction, in the year that cash, shares of Common Stock or a combination of
cash and shares of Common Stock are delivered to the recipient upon exercise of
a stock appreciation right and (3) the amount of such ordinary income and
deduction will be the amount of cash received plus the fair market value of the
shares of Common Stock received on the date of issuance. The federal income tax
consequences of a disposition of unrestricted shares of Common Stock received by
the recipient upon exercise of a stock appreciation right or in payment of a
performance share award are the same as described below with respect to a
disposition of unrestricted shares of Common Stock.
RESTRICTED AND UNRESTRICTED STOCK
Unless the recipient files an election to be taxed under Section 83(b)
of the Code, (1) the recipient will not realize income upon the grant of
restricted stock, (2) the recipient will realize ordinary income, and the
Company will be entitled to a corresponding deduction, when the restrictions
have been removed or expire, and (3) the amount of such ordinary income and
deduction will be the fair market value of the restricted stock on the date the
restrictions are removed or expire. If the recipient files an election to be
taxed under Section 83(b) of the Code, the tax consequences to the recipient and
the Company will be determined as of the date of the grant of the restricted
stock rather than as of the date of the removal or expiration of the
restrictions.
With respect to awards of unrestricted stock, (1) the recipient will
realize ordinary income and the Company will be entitled to a corresponding
deduction upon the grant of the unrestricted stock, and (2) the amount of such
ordinary income and deduction will be the fair market value of such unrestricted
stock on the date of grant.
When the recipient disposes of restricted or unrestricted stock, the
difference between the amount received upon such disposition and the fair market
value of such shares of Common Stock on the date the recipient realizes ordinary
income will be treated as a capital gain or loss.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS, AND THE COMPANY WITH
RESPECT TO THE GRANT AND EXERCISE OF OPTIONS, STOCK APPRECIATION RIGHTS,
PERFORMANCE UNITS AND STOCK PURCHASE RIGHTS UNDER THE PLAN. IT DOES NOT PURPORT
TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR
CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
<PAGE>
WITHHOLDING
The Omnibus Stock Plan permits the Company to withhold from awards an
amount sufficient to cover any required withholding taxes. If permitted by the
Committee, in lieu of cash, a participant may elect to cover withholding
obligations through a reduction in the number of shares of Common Stock to be
delivered to such participant or by delivery of shares of Common Stock already
owned by the participant.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors, subject to obtaining stockholder approval,
approved amendments to the Omnibus Stock Plan to increase the total number of
shares of Common Stock available for issuance under the Omnibus Stock Plan from
5,244,131 to 7,744,131, and to restate the Omnibus Stock Plan in its entirety.
The Board directed that the Omnibus Stock Plan, as amended and restated, be
submitted in its entirety to the stockholders for approval. The text of the
proposed Omnibus Stock Plan is set forth in Exhibit 1 to this Proxy Statement.
The changes described above are the only substantive changes to the Omnibus
Stock Plan as described herein.
VOTE REQUIRED AND RECOMMENDATION
At the Annual Meeting, the stockholders are being asked to approve the
amendment to the 1995 Omnibus Stock Plan. The affirmative vote of the holders of
a majority of the shares entitled to vote at the Annual Meeting will be required
to approve the amendment to the 1995 Omnibus Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE AMENDED AND RESTATED 1995 OMNIBUS STOCK PLAN.
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On the recommendation of the Audit Committee, the Board of Directors
has appointed Ernst & Young LLP as independent auditors of the Company to audit
the consolidated financial statements of the Company for the year ending
December 31, 1998, and recommends that the stockholders vote for ratification of
such appointment.
Ernst & Young LLP has audited the Company's financial statements since
1991. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement and is expected to
be available to respond to appropriate questions.
VOTE REQUIRED
Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors will require the affirmative vote of a majority of the
votes cast at the Annual Meeting. In the event that the stockholders do not
approve the selection of Ernst & Young LLP, the Board of Directors will
reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1998.
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock, including shares of Secure Computing
Canada Ltd., a corporation incorporated under the laws of Ontario and a
wholly-owned subsidiary of the Company which shares are exchangeable into shares
of the Company's Common Stock (the "Exchangeable Shares") of the Company, as of
March 30, 1998 (unless otherwise noted below) by each director of the Company,
by each executive officer of the Company named in the Summary Compensation Table
herein, by all directors and current executive officers as a group, and by each
stockholder who is known by the Company to own beneficially more than five
percent of the Company's outstanding Common Stock, including Exchangeable
Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1) OUTSTANDING SHARES
------------------------------------- ------------------------ ------------------
<S> <C> <C>
Directors and Executive Officers:
Betsy S. Atkins (2) 4,740 *
James Boyle (3) 28,540 *
Robert J. Frankenberg (4) 5,833 *
Christine Hughes (5) 76,655 *
Timothy P. McGurran (6) 44,603 *
Stephen M. Puricelli (7) (8) 1,096,597 6.8%
Eric P. Rundquist (9) 114,872 *
Dennis J. Shaughnessy (10) (11) 254,700 1.6%
Gary Taggart (12) 24,678 *
Jeffrey H. Waxman (13) 252,999 1.6%
All directors and current executive officers as a group (10 1,899,217 11.5%
persons)
Other beneficial owners:
Corporate Venture Partners (8) 1,040,568 6.5%
Suite 261
171 East State Street
Ithaca, New York 14850
Clifford W. Swenson (14) 1,430,161 8.9%
701 North First Street
San Jose, California 95110
</TABLE>
- ---------------------------
*Less than one percent
(1) Unless otherwise indicated in the footnotes to this table, the listed
beneficial owner has sole voting power and investment power with
respect to such shares of Common Stock.
(2) Includes 4,740 shares of Common Stock covered by options which are
exercisable within 60 days of the record date.
(3) Includes 28,540 shares of Common Stock covered by options which are
exercisable within 60 days of the record date.
(4) Includes 5,833 shares of Common Stock covered by options which are
exercisable within 60 days of the record date.
(5) Includes 76,655 shares of Common Stock covered by options which are
exercisable within 60 days of the record date but excludes 50,000
shares subject to an option that vests upon the Company's Common Stock
reaching and maintaining certain target prices for a period of ten
consecutive business days, the vesting date of which is
unascertainable.
(6) Includes 43,332 shares of Common Stock covered by options which are
exercisable within 60 days of the record date but excludes 50,000
shares subject to an option that vests upon the Company's Common Stock
reaching and maintaining certain target prices for a period of ten
consecutive business days, the vesting date of which is
unascertainable.
(7) Represents 37,279 owned personally by Mr. Puricelli, 1,040,568 shares
owned by Corporate Venture Partners and 18,750 shares of Common Stock
covered by options which are exercisable within 60 days of the record
date.
<PAGE>
(8) Stephen M. Puricelli, a director of the Company, is a general partner
of Costine Associates, L.P., the Corporate General Partner of Corporate
Venture Partners. Mr. Puricelli disclaims beneficial ownership of
shares of Common Stock owned by Corporate Venture Partners except for
his proportional interest therein.
(9) Includes 18,219 shares of Common Stock covered by options which are
exercisable within 60 days of the record date.
(10) Includes 26,250 shares of Common Stock covered by options which are
exercisable within 60 days of the record date.
(11) Dennis J. Shaughnessy, a director of the Company, is a Managing
Director of Grotech Capital Group. Mr. Shaughnessy disclaims beneficial
ownership of shares of Common Stock owned by Grotech Capital Group
except for his proportional interest therein.
(12) Includes 23,332 shares of Common Stock covered by options which are
exercisable within 60 days of the record date but excludes 50,000
shares subject to an option that vests upon the Company's Common Stock
reaching and maintaining certain target prices for a period of ten
consecutive business days, the vesting date of which is
unascertainable.
(13) Includes 248,999 shares of Common Stock covered by options which are
exercisable within 60 days of the record date, but excludes 200,000
shares subject to an option that vests upon the Company's Common Stock
reaching and maintaining certain target prices for a period of ten
consecutive business days, the vesting date of which is
unascertainable.
(14) Includes 1,430,101 shares of Common Stock owned by Swenson Ventures,
Inc. as to which Mr. Swenson controls voting power.
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
concerning total compensation received by the Chief Executive Officer and each
of the four other executive officers during the last fiscal year (the "Named
Executive Officers") for services rendered to the Company in all capacities
during each of the three fiscal years ended December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(#)
--------------------------- ---- ------ -------- ---------------
<S> <C> <C> <C> <C>
Jeffrey H. Waxman, 1997 $337,500 $ 0 --
Chief Executive Officer, 1996 50,000(2) 34,600 750,000
Director
Timothy P. McGurran, 1997 136,749 0 60,000
Senior Vice President of 1996 72,193(3) 27,500(4) 100,000
Operations, Chief Financial
Officer
James Boyle, 1997 129,013 0 80,000
Vice President of the 1996 93,510 10,500 44,375
Government Division 1995 24,998 -- --
Christine Hughes 1997 225,567 0 60,000
Senior Vice President of 1996 29,615(5) 12,500 200,000
Marketing and Business
Development
Gary Taggart 1997 213,144 0 60,000
Vice President of Sales 1996 29,916(6) 28,750 40,000
</TABLE>
- ----------------------------------------------------
(1) Unless otherwise indicated, all amounts reflect compensation earned as
annual incentive bonus. Such compensation is actually paid to the
recipient in the year following the year earned. See "Executive
Compensation--Report of the Compensation Committee".
(2) Mr. Waxman joined the Company in November 1996.
(3) Mr. McGurran joined the Company in May 1996.
(4) Represents a $20,000 signing bonus in addition to compensation earned
as an annual incentive bonus.
(5) Ms. Hughes joined the Company in November 1996.
(6) Mr. Taggart joined the Company in October 1996.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to the Named Executive Officers,
information concerning stock options granted during the year ended December 31,
1997.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO ASSUMED ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN EXERCISE PRICE APPRECIATION FOR OPTION
GRANTED FISCAL PRICE EXPIRATION TERMS (2)
NAME (#)(1) YEAR PER SHARE DATE 5% ($) 10% ($)
---- ------ ---- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Waxman - - - - - -
Timothy P. McGurran 60,000(3) 3.2% $6.125 2/13/07 $ 231,121 $ 585,685
James Boyle 60,000(3) 3.2% $6.125 6/11/98 231,121 585,685
20,000 1.1% $6.250 6/11/98 77,040 195,228
Christine Hughes 60,000(3) 3.2% $6.125 2/13/07 231,121 585,685
Gary Taggart 60,000(3) 3.2% $6.125 2/13/07 231,121 585,685
</TABLE>
- ---------------------------
(1) Options granted pursuant to the Omnibus Stock Plan at an exercise price
equal to the fair market value as determined by the Board of Directors on
the date of grant. Unless otherwise indicated, each option becomes
exercisable with respect to one-third of the shares of Common Stock
covered thereby on each of the first through third anniversaries of the
date of grant, commencing on the first anniversary of such date. Each
option has a maximum term of 10 years, subject to earlier termination in
the event of the optionee's cessation of service with the Company.
(2) The potential realizable value is based on a 10-year term of each option
at the time of grant. Assumed stock price appreciation of 5% and 10% is
mandated by rules of the Securities and Exchange Commission and is not
intended to forecast actual future financial performance or possible
future appreciation. The potential realizable value is calculated by
assuming that the deemed fair value of the Company's Common Stock for
financial statement presentation purposes on the date of grant
appreciates at the indicated rate for the entire term of the option and
that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price.
(3) Options vest if the Company's Common Stock reaches a price by the first
anniversary of the date of grant which is $5.00 greater than its fair
market value on the date of grant and maintains such price for a period
of ten consecutive business days, a portion of which vest if the
Company's Common Stock reaches a price by the second anniversary of the
date of grant which is $15.00 greater than its fair market value on the
date of grant and maintains such price for a period of twenty consecutive
business days, and a portion of which vest if the Company's Common Stock
reaches a price by the third anniversary of the date of grant which is
$25.00 greater than its fair market value on the date of grant and
maintains such price for a period of ten consecutive business days.
AGGREGATE OPTION
EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, as to the Named Executive Officers,
certain information concerning stock options exercised during fiscal 1997 and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1997. Also reported are values for unexercised "in-the-money"
options, exercise prices of outstanding stock options and the fair market value
of the Company's Common Stock as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
YEAR END END ($) (1)
SHARES VALUE ------------------------------ ----------------------------
ACQUIRED REALIZED
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Waxman - $ - 100,000 650,000 $ 568,800 $ 3,697,200
Timothy P. McGurran - - 10,000 150,000 56,880 853,200
James Boyle - - 13,750 112,500 78,210 637,400
Christine Hughes - - 10,000 250,000 56,880 1,422,000
Gary Taggart - - 10,000 90,000 56,880 511,920
</TABLE>
- --------------------
(1) Market value of underlying securities based on the closing price of the
Company's Common Stock on December 31, 1997 (the last trading day of
fiscal 1997) on the Nasdaq National Market of $11.813 minus the
exercise price.
<PAGE>
TEN YEAR OPTION REPRICINGS
The following table sets forth certain information with respect to the
Company's exchange of outstanding options with certain of its officers in
February 1997. For further information with respect to such option exchanges,
see "Report of the Compensation Committee."
<TABLE>
<CAPTION>
NUMBER OF MARKET LENGTH OF ORIGINAL
SECURITIES PRICE OF OPTION TERM
UNDERLYING STOCK AT EXERCISE PRICE NEW REMAINING AT DATE OF
OPTIONS TIME OF AT TIME OF EXERCISE REPRICING
NAME DATE REPRICED REPRICING REPRICING PRICE (IN YEARS)
---- ---- -------- --------- --------- ----- --------------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Waxman 2/13/97 750,000 $ 6.125 $ 9.75 $ 6.125 8.75
Timothy P. McGurran 2/13/97 13,351 6.125 24.75 6.125 8.25
11,649 6.125 25.75 6.125 8.25
15,000 6.125 30.25 6.125 8.25
60,000 6.125 14.00 6.125 8.50
James Boyle 2/13/97 9,375 6.125 24.75 6.125 8.25
3,134 6.125 13.50 6.125 8.50
1,900 6.125 13.50 6.125 8.50
29,966 6.125 13.50 6.125 8.50
Christine Hughes 2/13/97 200,000 6.125 10.50 6.125 8.75
Gary Taggart 2/13/97 40,000 6.125 8.50 6.125 8.75
</TABLE>
- ---------------------------
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
is responsible for establishing compensation policy and administering the
compensation programs of the Company's Chief Executive Officer. The Committee is
comprised of three non-employee directors. The Committee meets periodically to
review executive compensation, the design of compensation programs, stock option
programs, and individual salary and awards for the Chief Executive Officer. The
purpose of this report is to inform stockholders of the Company's compensation
policies and the rationale for the compensation paid to the Company's current
and former Chief Executive Officer and other executive officers in 1997.
COMPENSATION PHILOSOPHY
The Company's compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's long-term success and continued growth in stockholder
value. The compensation program has been designed to provide a competitive level
of total compensation and offers incentive opportunities directly linked to the
Company's performance and stockholder return. The Committee believes it is in
the best interests of the stockholders to reward executives when the Company's
performance objectives are achieved and to provide significantly less
compensation when these objectives are not met. Therefore, a significant portion
of executive compensation is comprised of "at risk" incentives.
Key objectives of the compensation program are to:
* Provide a strong, direct link between the Company's financial
and strategic goals and executive compensation.
<PAGE>
* Align the financial interest of executives with those of its
stockholders through equity-based plans.
* Motivate executives to achieve operating goals through an
emphasis on performance-based compensation.
* Provide competitive total compensation that recognizes
individual performance and that can attract and retain high
caliber key executives critical to the long-term success of
the Company.
To maintain a competitive level of total executive compensation, the
Committee periodically evaluates the compensation packages of competitor
companies. This analysis provides the Committee with competitive data on the mix
of compensation elements and overall compensation levels.
The Company participates each year in the Annual Radford Benchmark
Salary Survey sponsored by Alexander & Alexander Consulting Group. This survey
includes data from 429 high technology companies located outside of the San
Francisco Bay area which are used for comparison. The Committee's intent is to
target total compensation for executives at an average for competitor companies
and to exceed average compensation when performance goals are exceeded.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's executive officer compensation
program are base salary, annual incentive bonus and long-term incentives. These
elements are described below. In determining compensation, the Committee
considers all elements of an executive's compensation package.
BASE SALARY. The Committee annually reviews the base salary of the
Chief Executive Officer. In determining appropriate salary levels, the Committee
considers individual performance, level of responsibility, scope and complexity
of the position, and internal equity and salary levels for comparable positions
at the peer companies. In determining the base salary increase for the Chief
Executive Officer, the Committee also considers strategic planning, team
building and operating results. The Chief Executive Officer, in consultation
with the Committee, annually reviews the base salary of the other executive
officers based on the same criteria.
ANNUAL INCENTIVE BONUS. The purpose of the Company's annual incentive
bonus is to provide a direct financial incentive in the form of an annual cash
bonus to the executive officers and key managers who achieve performance goals
established by the Committee. The Committee determines the annual incentive
bonus of the Chief Executive Officer and the Chief Executive Officer, in
consultation with the Committee, determines the annual incentive bonus of the
other executive officers.
Executives are eligible for target awards under the annual incentive
program with maximum payouts ranging from 15% to 100% of base salary, with 100%
possible in the case of the Chief Executive Officer only. The size of the target
award is determined by the executive's position and competitive data for similar
positions at the peer companies. The Company sets high goals and, therefore, the
resulting awards decrease or increase substantially if actual employee
performance in achieving the Company's goals fails to meet or exceeds target
levels. For 1997, performance was assessed against target measures of team
building, strategic planning and financing goals. For 1997, Mr. Waxman did not
receive an incentive bonus award. However, in January 1998 the Company agreed to
guarantee a loan to Mr. Waxman in an amount of $250,000. See "Certain
Transactions."
STOCK OPTIONS. Long-term performance incentives are provided to
executives through the Company's Amended and Restated 1995 Omnibus Stock Plan
(the "Omnibus Stock Plan"). The Omnibus Stock Plan is
<PAGE>
administered by the Committee, which is authorized to award stock options to
employees of the Company, non-employee directors of the Company and certain
advisors and consultants to the Company. At least annually, the Committee
considers whether awards will be made to executive officers under the Omnibus
Stock Plan. Such awards are based on the scope and complexity of the position,
competitive compensation data and the maintenance of the Company's stock at a
target share price. The Committee has broad discretion to select the optionees
and to establish the terms and conditions for the grant, vesting and exercise of
each option. Although the Committee's practice has been to grant incentive stock
options to employees vesting over three years, recently the Company has begun to
grant options a portion of which vest if the Company's Common Stock reaches a
price by the first anniversary of the date of grant which is $5.00 greater than
its fair market value on the date of grant and maintains such price for a period
of ten consecutive business days, a portion of which vest if the Company's
Common Stock reaches a price by the second anniversary of the date of grant
which is $15.00 greater than its fair market value on the date of grant and
maintains such price for a period of twenty consecutive business days, and a
portion of which vest if the Company's Common Stock reaches a price by the third
anniversary of the date of grant which is $25.00 greater than its fair market
value on the date of grant and maintains such price for a period of ten
consecutive business days. Options granted to executives vest immediately upon
the occurrence of an "Event" as defined in the Omnibus Stock Plan.
PROFIT SHARING AND RETIREMENT PLAN. The Secure Computing Corporation
Profit Sharing and Retirement Plan (the "Retirement Plan") was made effective as
of February 1, 1994. The Retirement Plan is intended to be a qualified
retirement plan under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions by employees or by the Company to the Retirement
Plan, and income earned thereon, are not taxable to employees until withdrawn
from the Retirement Plan (except for contributions under the 401(k) component,
which are subject to Social Security withholding); and so that contributions by
the Company, if any, will be deductible when made. The purpose of the Retirement
Plan is to enable eligible employees, including executive officers, to save for
retirement and to provide incentives to increase corporate financial performance
by establishing a direct link between profit sharing contributions to employees
and corporate financial performance. It may also provide certain benefits in the
event of death, disability, or other termination of employment. The Retirement
Plan is for the exclusive benefit of eligible employees and their beneficiaries.
There are two components to the Retirement Plan, a 401(k)-type component and a
Company profit sharing component.
Under the 401(k) component, employees may contribute up to 12% of their
annual compensation, subject to a federally imposed annual maximum which is
currently $10,500. The Company may provide additional matching contributions of
up to $1.00 for every dollar contributed by that employee in a given year under
this component. The plan trustee, at the direction of each participant, invests
funds in any of six investment options. In 1997, the Company did not contribute
to Mr. Waxman's account under this component of the Retirement Plan.
The Retirement Plan also provides a profit sharing component, which
covers substantially all employees of the Company, including the executive
officers. Contributions under this component are limited to the Company's
discretionary annual contribution, which is based on the financial performance
of the Company. The Company can make contributions of up to 6% of the employee's
annual salary. During the first five years of employment, contributions vest
based on an employee's years of service. Thereafter, contributions vest
immediately.
EMPLOYEE STOCK PURCHASE PLAN. The Secure Computing Corporation Employee
Stock Purchase Plan (the "Purchase Plan") was approved by the Company's
stockholders at the 1996 Annual Meeting and became effective July 1, 1996. The
purpose of the Purchase Plan is to provide eligible employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of its Common Stock and, thus, to develop a stronger incentive to work
for the continued success of the Company. The Purchase Plan is an employee stock
<PAGE>
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Purchase Plan is administered by the Committee.
Any employee of the Company or, subject to approval by the Board of
Directors, a parent or subsidiary corporation of the Company is eligible to
participate in the Purchase Plan for any Purchase Period (as defined below) so
long as, on the first day of such Purchase Period, the employee has completed at
least six months of continuous service and is customarily employed at least 20
hours per week. "Purchase Period" means each quarter of the Company's fiscal
year.
Any eligible employee may elect to become a participant in the Purchase
Plan by authorizing payroll deductions of a specified whole percentage from 1%
to 10% of the employee's gross cash compensation. The Company currently has
approximately 350 employees who are eligible to participate in the Purchase
Plan. Amounts withheld under the Purchase Plan will be held by the Company as
part of its general assets until the end of the Purchase Period and will be used
to purchase Common Stock of the Company as of the last day of the Purchase
Period at a price equal to 85% of the lesser of the fair market value of a share
of Common Stock on either the first or last day of the Purchase Period. All
amounts so withheld will be used to purchase the number of shares of Common
Stock (including fractional shares) that can be purchased with such amount,
unless the participant has properly notified the Company that he or she elects
to purchase a lesser number of shares of Common Stock or to receive the entire
amount in cash. If purchases by all participants would exceed the number of
shares of Common Stock available for purchase under the Purchase Plan, each
participant will be allocated a ratable portion of such available shares of
Common Stock. Any amount not used to purchase shares of Common Stock will be
refunded to the participant in cash.
Shares of Common Stock acquired by each participant will be held in a
general account maintained for the benefit of all participants. Certificates for
the number of whole shares of Common Stock purchased by a participant will be
issued and delivered to him or her only upon the request of such participant or
his or her representative.
No more than $25,000 in fair market value (determined on the first day
of the respective Purchase Periods) of shares of Common Stock may be purchased
under the Purchase Plan and all other employee stock purchase plans, if any, of
the Company and any parent or subsidiary corporation of the Company by any
participant in each calendar year.
OTHER. Pursuant to the terms of his employment agreement, Mr. Waxman is
entitled to receive a monthly car allowance of up to $1,000, relocation
expenses, and temporary living quarters in the general vicinity of the Company's
headquarters. In 1997, Mr. Waxman received car allowance payments of $12,000 and
did not receive any relocation expenses.
REPRICINGS OF STOCK OPTIONS
Historically, the policy of the Committee has been to set the exercise
price of the stock options at the fair market value of the underlying stock on
the date of grant. Accordingly, the stock options provide value only when the
price of the Company's stock increases above the price on the date of grant.
On January 23, 1997, the Committee approved the repricing of substitute
stock options of an exercise price of $8.00 per share, the fair market value on
the date of repricing to all holders of options with exercise prices in excess
of $8.00 per share. The Committee's action was in response to the decline in the
market price of the Company's stock during the preceding months, which had
effectively eliminated the incentive value of options with significantly higher
exercise prices. The Committee's decision was based on a number of factors,
<PAGE>
including the fear of losing skilled, mobile executives. The Committee
determined that substitute options were necessary to provide incentives for
valued employees of the Company to remain with the Company over an extended
period of time.
On February 13, 1997, the fair market value of the Company's Common
Stock had declined to $6.125. Since all conditions of the January 23, 1997
repricing of options had not been satisfied, the Committee declared the January
23, 1997 repricing of options to be null and void, and approved the repricing at
$6.125 per share of all stock options with an exercise price in excess of $6.125
per share. The termination date of the repriced options was changed to a date
ten years from the date of grant. The grant of new options to non-director
employees and outside directors is conditioned upon the termination of each old
option held by such employee or outside director. The vesting schedule for the
new options issued to non-director employees and the new option for 450,000
shares issued to Mr. Waxman were reset so that the new options were completely
unvested on the date of grant, regardless of any vesting that occurred under the
old options, and will vest at the rate of one third of the shares covered by the
new option on each of February 13, 1998, 1999, and 2000. The vesting schedule
for the repriced options to outside directors remains the same as the vesting
schedule for the unvested old outside director options. The vesting schedules
for Mr. Waxman's option for 300,000 shares and for similar options granted to
other executives were revised so that the triggering stock prices and dates are
$11.125 on February 13, 1998, $21.125 on February 13, 1999, and $31.125 on
February 13, 2000. All other terms of the repriced options remain the same as
the old options. A total of 1,545,175 options, with exercise prices ranging from
$6.84 to $30.00 per share, were repriced.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Stephen M. Puricelli, a director of the Company, is the Chairman of the
Compensation Committee of the Board of Directors. Mr. Puricelli also is a
general partner of Costine Associates, L.P., which is the General Partner of
Corporate Venture Partners, L.P. ("CVP"), which owns approximately 6.5% of the
Common Stock of the Company. Dennis J. Shaughnessy, Managing Director of Grotech
Capital Group, is a member of the Compensation Committee of the Board of
Directors. See "Certain Transactions,"
COMPENSATION COMMITTEE
Stephen M. Puricelli, Chairman
Dennis J. Shaughnessy
Betsy S. Atkins
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of the Named Executive
Officers.
JEFFREY H. WAXMAN. Mr. Waxman entered into an employment agreement with
the Company, as amended October 29, 1997, to serve as the Company's President
and Chief Executive Officer. The agreement remains in effect until November 4,
1998, unless terminated by Mr. Waxman upon 30 days written notice, subject to
the Company's right to terminate the agreement immediately at any time for
cause. The agreement shall renew for successive one-year terms unless either
party gives written notice to the other of non-renewal within 30 days
<PAGE>
prior to scheduled renewal. In addition, the Company may terminate the agreement
at any time, or not renew the agreement, for any reason, if the Company pays to
Mr. Waxman as severance pay an amount equal to one year's base salary (or if
greater than one year, base salary for the remainder of the period from the date
of termination to November 4, 1998). Mr. Waxman's annual base salary is
$375,000, and he is eligible to receive an annual cash performance bonus of up
to 100% of base salary. Both Mr. Waxman's base salary and the bonus percentage
are subject to review by the Compensation Committee which may make adjustments
upward, but not downward. Mr. Waxman also is entitled to all rights and benefits
for which Mr. Waxman is eligible under any deferred bonus, pension, group
insurance, profit sharing or other Company benefits which may be in force from
time to time.
The agreement also provides Mr. Waxman with a monthly car allowance of
up to $1,000, paid separately and not subject to withholding taxes to the extent
permitted by law. In consideration for Mr. Waxman's agreement to relocate his
residence to the general vicinity of the Company's corporate headquarters, the
Company will pay for any of his direct relocation expenses, including the cost
of moving household goods and closing costs for the sale of his present home and
the purchase of a new home, such as real estate brokers' commissions, together
with an additional amount of cash sufficient to pay any personal income taxes
payable as a result of the Company's payment of direct relocation expenses.
Until Mr. Waxman relocates, the Company will provide him with a furnished
apartment, or suitable living quarters, in the general vicinity of the Company's
corporate headquarters.
Pursuant to the agreement, Mr. Waxman was granted a non-statutory
option to purchase 450,000 shares of the Company's Common Stock and an
additional nonstatutory stock option to purchase up to an additional 300,000
shares of Secure Common Stock upon the occurrence of certain events described
below. The purchase price per share for both options is $6.125, as a result of
the repricing described in "Executive Compensation--Report of the Compensation
Committee--Repricings of Stock Options".
As a result of the repricing described in "Executive
Compensation--Report of the Compensation Committee--Repricings of Stock Options"
herein, the option for 450,000 shares vests over three years at a rate of
one-third or 150,000 shares per year on each of February 13, 1997, 1998 and
1999. Such option will also immediately vest in full upon the occurance of an
"Event" as set forth in the Omnibus Stock Plan.
As a result of the repricing of certain options by the Board of
Directors, the option for 300,000 shares vests upon the occurrence of the
following events: (1) if, on or before February 13, 1998, the closing price of a
share of Secure Common Stock is $11.125 or more and maintains or exceeds such
price for a period of ten consecutive business days, then the option shall vest
as to 100,000 shares of Secure Common Stock; (2) if, on or before February 13,
1999, the closing price of a share of Secure Common Stock is $21.125 or more and
maintains or exceeds such price for a period of ten consecutive business days,
then the option shall vest as to an additional 100,000 shares of Secure Common
Stock; and (3) if, on or before February 13, 2000, the closing price of a share
of Secure Common Stock is $31.125 or more and maintains or exceeds such price
for a period of ten consecutive business days, then the option shall vest as to
an additional 100,000 shares of Secure Common Stock. To the extent that any such
event does not occur within the applicable time periods set forth above, then
such option shall immediately terminate with respect to the applicable number of
shares which have not vested. The per share price targets are subject to
appropriate adjustments for stock splits and other changes in the capitalization
of Secure, as set forth in the Omnibus Stock Plan.
During the term of his employment and following the termination of his
employment if the Company exercises its option to have Mr. Waxman render
consulting services, Mr. Waxman is prohibited from competing with the Company
and any of its subsidiaries and he also is prohibited from soliciting employees
or customers of the Company or any of its subsidiaries for his own account or
the account of a third party.
<PAGE>
TIMOTHY P. MCGURRAN. The Company and Mr. McGurran entered into a
three-year employment agreement on August 27, 1996, as amended, pursuant to
which Mr. McGurran serves as the Company's Senior Vice President of Operations
and Chief Financial Officer. Mr. McGurran's annual base salary was increased
from $137,500 to $220,000 to account for cost of living increase (based upon a
study provided by an independent compensation consultant) in connection with his
relocation to San Jose, California, subject to upward adjustment by the Chief
Executive Officer of the Company. Mr. McGurran is also eligible to receive an
annual bonus of up to 35% of his base salary if certain performance goals
established by the Chief Executive Officer are met. Such percentage is subject
to upward adjustment by the Chief Executive Officer of the Company. Under the
terms of the agreement, Mr. McGurran was granted options to purchase 100,000
shares of Common Stock under the Company's Omnibus Stock Plan vesting in
one-third increments on the first three anniversaries of the date of the
agreement. Such options were repriced to an exercise price of $6.125 per share
on February 13, 1997. Either party may terminate the agreement; however, if the
Company terminates the agreement without cause, Mr. McGurran will be entitled to
an amount equal to twelve months of his base salary. Upon termination of
expiration of the agreement, the Company shall have the option to retain Mr.
McGurran as a consultant.
JAMES BOYLE. The Company and Mr. Boyle entered into a three-year
employment agreement on October 7, 1996, pursuant to which Mr. Boyle serves the
Company as Vice President of the Government Division. Mr. Boyle's annual base
salary is $120,000, subject to upward adjustment by the Chief Executive Officer
of the Company. Mr. Boyle is also eligible to receive an annual bonus of up to
35% of his base salary if certain performance goals established by the Chief
Executive Officer are met. Such percentage is subject to upward adjustment by
the Chief Executive Officer of the Company. Under the terms of the agreement,
Mr. Boyle was granted options to purchase 35,000 shares of Common Stock under
the Company's Omnibus Stock Plan vesting in one-third increments on the first
three anniversaries of the date of the agreement at an exercise price of $13.50
per share. Such options were repriced to an exercise price of $6.125 per share
on February 13, 1997. Either party may terminate the agreement; however, if the
Company terminates the agreement without cause, Mr. Boyle will be entitled to an
amount equal to six months of his base salary. Upon termination or expiration of
the agreement, the Company shall have the option to retain Mr. Boyle as a
consultant. In March 1998, the Company and Mr. Boyle mutually agreed to
terminate the agreement and Mr. Boyle's employment with the Company.
CHRISTINE HUGHES. The Company and Ms. Hughes entered into a two-year
employment agreement on November 11, 1996, pursuant to which Ms. Hughes serves
the Company as Senior Vice President of Marketing and Business Development. Ms.
Hughes's annual base salary is $242,000, subject to upward adjustment by the
Chief Executive Officer of the Company. Ms. Hughes is also eligible to receive
an annual bonus of up to 50% of her base salary if certain performance goals
established by the Chief Executive Officer are met. Such percentage is subject
to upward adjustment by the Chief Executive Officer of the Company. Under the
terms of the agreement, Ms. Hughes was granted options to purchase 200,000
shares of Common Stock under the Company's Omnibus Stock Plan vesting in
one-third increments on the first three anniversaries of the date of the
agreement at an exercise price of $10.50 per share. Such options were repriced
to an exercise price of $6.125 per share on February 13, 1997. Either party may
terminate the agreement; however, if the Company terminates the agreement
without cause, Ms. Hughes will be entitled to an amount equal to six months of
her base salary. Upon termination or expiration of the agreement, the Company
shall have the option to retain Ms. Hughes as a consultant.
GARY TAGGART. The Company and Mr. Taggart entered into a three-year
employment agreement on October 7, 1996, pursuant to which Mr. Taggart serves
the Company as Vice President of Sales. Mr. Taggart's annual base salary is
$140,000, subject to upward adjustment by the Chief Executive Officer of the
Company. Mr. Taggart is also eligible to receive a quarterly bonus of up to
$25,000 if certain performance goals established by the Chief Executive Officer
are met. Under the terms of the agreement, Mr. Taggart was granted options to
<PAGE>
purchase 40,000 shares of Common Stock under the Company's Omnibus Stock Plan
vesting in one-third increments on the first three anniversaries of the date of
the agreement. Such options were repriced to an exercise price of $6.125 per
share on February 13, 1997. Either party may terminate the agreement; however,
if the Company terminates the agreement without cause, Mr. Taggart will be
entitled to an amount equal to six months of his base salary.
PERFORMANCE EVALUATION
The graph below compares total cumulative stockholders' return on the
Common Stock for the period from the close of the NASDAQ Stock Market - U.S.
Companies on the date of the Company's initial public offering of Common Stock
(November 17, 1995) to December 31, 1997, with the total cumulative return on
the Computer Index for the NASDAQ Stock Market - U.S. Companies (the "Computer
Index") and the Composite Index for the NASDAQ Stock Market (the "Composite
Index") over the same period. The index level for the graph and table was set to
100 on November 17, 1995 for the Common Stock, the Computer Index and the
Composite Index and assumes the reinvestment of all dividends.
[PLOT POINTS GRAPH]
11/17/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97
-------- -------- ------- -------- ------- --------
Computer Index 100 96.2 113.2 135.9 115.9 162.5
Composite Index 100 101.4 110.4 121.4 141.4 123.9
Secure Computing Corp. 100 116.1 47.4 18.9 12.2 24.5
<PAGE>
CERTAIN TRANSACTIONS
Stephen M. Puricelli is a director of the Company and is a general
partner of Costine Associates, L.P., which is the General Partner of Corporate
Venture Partners, L.P. ("CVP"), which owns approximately 6.5% of the Common
Stock of the Company. Dennis J. Shaughnessy is a director of the Company and is
the Managing Director of Grotech Capital Group ("Grotech").
Pursuant to a Registration Rights Agreement between the Company,
Grotech and CVP dated July 14, 1989, as amended by an amendment dated December
13, 1989, the shares of Common Stock issued to CVP and Grotech upon the
conversion of the Preferred Stock issued pursuant to the exercise of warrants
are subject to certain registration rights. Pursuant to such registration
rights, Grotech and CVP and certain permitted transferees have rights to demand
registration under the federal securities laws of the shares of Common Stock. In
addition, in the event the Company proposes to register additional securities
under the federal securities laws, Grotech and CVP (or their permitted
transferees) will have rights, subject to certain exceptions and limitations, to
have the shares of Common Stock included in such registration statement. The
Company has agreed that, in the event of any registration of securities owned by
Grotech and CVP (or their permitted transferees) in accordance with the
provisions thereof, it will indemnify such persons, and certain related persons,
against liabilities incurred in connection with such registration, including
liabilities arising under the federal securities laws. The registration rights
are subject to certain limitations intended to prevent undue interference with
the Company's ability to distribute securities.
In January 1998, the Company agreed to guarantee a loan by Norwest Bank
to Jeffrey Waxman, the Company's Chairman and Chief Executive Officer, in an
amount of $250,000, which guarantee shall expire upon the payment of a bonus by
the Company to Mr. Waxman in the amount of $250,000. This bonus is contingent
upon Mr. Waxman's continued employment as Chief Executive Officer of the Company
on July 31, 1998.
In January 1998, the Company agreed to loan up to $250,000 to Timothy
McGurran, the Company's Senior Vice President of Operations and Chief Financial
Officer, for the purchase of a home in connection with his relocation to San
Jose, California, which loan shall be repaid within five years of the date of
the loan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of Company's equity securities ("10% Stockholders") to file
with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers, Inc. reports of ownership on Form 3 and
reports on change in ownership on Form 4 or Form 5. Such directors, executive
officers and 10% Stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms that they file. To the Company's
knowledge based solely on a review of copies of forms submitted to the Company,
or written representations from certain reporting persons the Company believes
all required reports were filed on a timely basis during 1997.
<PAGE>
ADDITIONAL MATTERS
The Annual Report of the Company for the year ended December 31, 1997,
including financial statements, is being mailed with this Proxy Statement.
As of the date of this Proxy Statement, management knows of no matters
that will be presented for determination at the meeting other than those
referred to herein. If any other matters properly come before the Annual Meeting
calling for a vote of stockholders, it is intended that the shares of Common
Stock represented by the proxies solicited by the Board of Directors will be
voted by the persons named therein in accordance with their best judgment.
By Order of the Board of Directors
Dated: April 29, 1998
<PAGE>
P
R
O
X
Y
SECURE COMPUTING CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Secure Computing Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 29, 1998 and hereby appoints
Jeffrey Waxman and Timothy McGurran, or either of them, proxies and
attorney-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Stockholders of Secure Computing Corporation to be held on May 14, 1998, at
2:00 p.m., local time, at 80 South Eighth Street, Suite 5000, IDS Tower,
Minneapolis, Minnesota, and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth on the reverse side, and,
in their discretion, upon such other matter or matters which may properly come
before the meeting and any adjournment(s) thereof.
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted FOR the election of the specified nominee as director,
FOR the approval of the amendment to the Amended and Restated 1995 Omnibus Stock
Plan, FOR the ratification of Ernst & Young LLP as independent accountants for
the fiscal year ended December 31, 1998, and as said proxies deem advisable on
such other matters as may properly come before the meeting.
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
<PAGE>
P
R
O
X
Y
[ X ] Please mark
votes as in
this example.
FOR AGAINST ABSTAIN
1. PROPOSAL TO ELECT BETSY S. ATKINS [ ] [ ] [ ]
AND STEVEN M. PURICELLI AS
DIRECTORS TO SERVE FOR A THREE-YEAR
TERM THAT EXPIRES UPON THE ANNUAL
MEETING OF STOCKHOLDERS IN 2001, OR
UNTIL THEIR SUCCESSORS ARE DULY
ELECTED:
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE AMENDMENT OF [ ] [ ] [ ]
THE AMENDED AND RESTATED 1995
OMNIBUS STOCK PLAN.
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT [ ] [ ] [ ]
OF ERNST & YOUNG LLP AS THE
INDEPENDENT ACCOUNTANTS OF THE
COMPANY.
In their discretion, upon such other matter or
matters which may properly come before the meeting
and any adjournment(s) thereof.
MARK HERE --- This Proxy should be marked, dated, signed by the
FOR ADDRESS | | shareholder(s) exactly as his or her name appears
CHANGE AND | | hereon, and returned promptly in the enclosed
NOTE BELOW --- envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint
tenants or as community property, both should sign.
Signature: Date
------------------------ --------
Signature: Date
------------------------ --------
