As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-77715
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SECURE COMPUTING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------
DELAWARE 7371 52-1637226
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION
ORGANIZATION) CODE NUMBER) NUMBER)
ONE ALMADEN BLVD., SUITE 400
SAN JOSE, CALIFORNIA 95113
(408) 918-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
JOHN MCNULTY
CHIEF EXECUTIVE OFFICER
SECURE COMPUTING CORPORATION
ONE ALMADEN BLVD., SUITE 400
SAN JOSE, CALIFORNIA 95113
(408) 918-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
COPIES TO:
JEFFREY D. SAPER, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED(2) PER SHARE(1) PRICE(1) FEE
================================================================================
Common Stock
$0.01 par value....... 8,475,042 shares $3.032 $25,696,327 $7,143.58
================================================================================
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(1) These figures are estimates made solely for the purpose of calculating the
registration fee, based on the average of the high and low sales prices of
the common stock as reported on the Nasdaq National Market on July 30,
1999 in accordance with Rule 457 under the Securities Act of 1933. Fee of
$9719 was paid with the initial filing of this registration statement on
May 4, 1999.
(2) Includes 8,475,042 shares of common stock which may be offered pursuant to
this Registration Statement which have been issued or are issuable upon
conversion of 4,150 shares of Series C convertible preferred stock and upon
exercise of warrants to purchase up to 174,464 shares of common stock. The
number of shares of common stock included in this Registration Statement is
based on the sum of the number of shares subject to the warrants plus
607,182 shares of common stock held by the selling shareholders pursuant to
prior conversions of the Series C Preferred Stock plus approximately 582% of
the estimated number of shares of common stock issuable in connection with
the conversion of the Series C preferred (based on an assumed conversion
price of $3.617 which is the average closing bid price of the common stock
reported on the Nasdaq National Market for the fifteen (15) consecutive
trading days ended July 22, 1999).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST [__], 1999
PROSPECTUS
8,475,042 SHARES
SECURE COMPUTING CORPORATION
---------------------
COMMON STOCK
($0.01 PAR VALUE)
---------------------
The selling stockholders may sell up to 8,475,042 shares of common
stock. We will not receive any of the proceeds from the shares of common stock
sold by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the
symbol "SCUR." On August __, 1999, the last reported sale price for the common
stock on the Nasdaq National Market was $[____] per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE [3].
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This prospectus is dated August ___, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY........................................................................1
PROSPECTUS............................................................1
OFFICES AND PLACE OF INCORPORATION....................................1
YOU CAN FIND MORE INFORMATION.........................................1
RECENT DEVELOPMENTS............................................................3
RISK FACTORS...................................................................3
WE ARE EXPERIENCING OPERATING LOSSES AND MAY NOT ACHIEVE
PROFITABILITY.........................................................3
WE WILL LIKELY NEED ADDITIONAL FINANCING NEXT YEAR, AND MAY NOT BE ABLE
TO OBTAIN THE FINANCING ON ATTRACTIVE TERMS, OR AT ALL................4
DELAYS IN PURCHASES HAVE MATERIALLY REDUCED OUR REVENUES
DURING 1999 AND WILL LIKELY CONTINUE TO REDUCE OUR REVENUES
THROUGH THE END OF THIS YEAR..........................................4
THE COMMON STOCK SOLD IN THIS OFFERING SIGNIFICANTLY
INCREASES THE SUPPLY OF OUR COMMON STOCK ON THE PUBLIC
MARKET, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE....................4
OUR PREFERRED STOCK FINANCING HAS RESULTED IN SUBSTANTIAL
DILUTION TO HOLDERS OF OUR COMMON STOCK...............................4
SHORT SELLING OF OUR STOCK MAY FURTHER DEPRESS OUR STOCK
PRICE.................................................................6
IF WE FAIL TO COMPETE IN OUR HIGHLY COMPETITIVE MARKET, THEN
OUR BUSINESS WILL FAIL................................................6
DEMAND FOR OUR PRODUCTS COULD BE HARMED BY BUNDLING OF
SECURITY PRODUCTS WITH OTHER PRODUCTS.................................6
TECHNOLOGY IN THE ENTERPRISE NETWORK AND DATA SECURITY
MARKETS IS CHANGING RAPIDLY, AND IF WE FAIL TO DEVELOP NEW
PRODUCTS WHICH ARE WELL ACCEPTED, OUR MARKET SHARE WILL
ERODE.................................................................6
WE ARE DEPENDENT ON THE GROWTH OF THE INTERNET AND OTHER NETWORK
INFRASTRUCTURE........................................................7
OUR PRODUCT LINE IS NOT DIVERSIFIED, AND ANY DROP IN THE
DEMAND FOR NETWORK AND DATA SECURITY PRODUCTS WOULD
MATERIALLY HARM OUR BUSINESS..........................................7
OUR QUARTERLY OPERATING RESULTS AND OUR STOCK PRICE ARE
HIGHLY VOLATILE, WHICH MAY IMPAIR OUR ABILITY TO RAISE MONEY
AND CAUSE OUR INVESTORS TO LOSE MONEY.................................7
THE SALES CYCLE FOR OUR PRODUCTS IS LONG AND WE MAY INCUR
SUBSTANTIAL EXPENSES FOR SALES THAT DO NOT OCCUR WHEN
ANTICIPATED...........................................................8
IF OUR PRODUCTS FAIL TO FUNCTION PROPERLY OR ARE NOT PROPERLY
DESIGNED, WE MAY INCUR LIABILITY AND/OR SUFFER SIGNIFICANT
HARM TO OUR BUSINESS AND REPUTATION...................................8
IF WE BREACH OUR COVENANTS WE MAY BE REQUIRED TO REDEEM OUR
SERIES C PREFERRED STOCK, AND WE CURRENTLY LACK SUFFICIENT
FUNDS FOR REDEMPTION; WE MAY ALSO BE REQUIRED TO PAY
PENALTIES WHICH WOULD MATERIALLY AFFECT OUR BUSINESS..................9
A SIGNIFICANT DECLINE IN INTERNATIONAL MARKETS COULD
MATERIALLY REDUCE OUR REVENUES AND OUR COLLECTIONS OF FOREIGN
RECEIVABLES...........................................................9
YEAR 2000 ISSUES ARE DELAYING CUSTOMER BUYING DECISIONS IN
FISCAL 1999, WHICH IS SIGNIFICANTLY REDUCING OUR FISCAL 1999
BUSINESS; OTHER YEAR 2000 ISSUES COULD ALSO HARM OUR
BUSINESS.............................................................10
IF WE FAIL TO ADEQUATELY MANAGE OUR RECEIVABLES OUR CASH FLOW
MAY SUFFER...........................................................11
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, DELAWARE
LAW, AND OUR AGREEMENTS WITH THE HOLDERS OF OUR SERIES C
PREFERRED STOCK COULD DISCOURAGE A TAKEOVER OR FUTURE
FINANCING............................................................11
UNANTICIPATED COSTS AND DISALLOWANCE OF COSTS UNDER OUR
GOVERNMENT CONTRACTS MAY HARM OUR BUSINESS...........................12
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL
TO DEVELOP OUR PRODUCTS AND MANAGE OUR BUSINESS IS EXTREMELY
IMPORTANT AND OUR FAILURE TO DO SO COULD HARM OUR BUSINESS...........12
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS....................12
LEGAL PROCEEDINGS.............................................................13
SELLING STOCKHOLDERS..........................................................14
PLAN OF DISTRIBUTION..........................................................18
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LEGAL MATTERS.................................................................19
EXPERTS.......................................................................19
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<PAGE>
SUMMARY
PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, the selling stockholders may,
from time to time, sell shares of common stock of Secure Computing Corporation
described in this prospectus in one or more offerings up to a total of 8,475,042
shares.
OFFICES AND PLACE OF INCORPORATION
Secure Computing Corporation makes and sells a comprehensive line of
products designed to control access to and provide security for computer
networks. These products include firewalls which restrict access to and across
networks, authentication devices which facilitate secure internet and other
electronic communication and commercial transactions, web filters which limit
access to certain internet sites, and professional consulting services relating
to network security. Our principal executive offices are located at One Almaden
Blvd., Suite 400, San Jose, California 95113. Our telephone number is (408)
918-6100.
YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Commission, in accordance with the Securities Exchange Act of 1934. You may read
and copy our reports, proxy statements and other information filed by us at the
public reference facilities of the Commission in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for
further information about the public reference rooms. Our reports, proxy
statements and other information filed with the Commission are available to the
public over the Internet at the Commission's World Wide Web site at
http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information
we filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete:
* Annual Report on Form 10-K for the fiscal year ended December
31, 1998,
* Quarterly Report on Form 10-Q for the quarter ended March 31,
1999
* The description of our common stock contained in Form 8-A
filed with the Commission on August 8, 1997, and any amendment
or report filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
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<PAGE>
Chief Financial Officer
Secure Computing Corporation
One Almaden Blvd., Suite 400
San Jose, California 95113
(408) 918-6100
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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<PAGE>
RECENT DEVELOPMENTS
On June 30, 1999, Jeffrey Waxman, our Chairman and Chief Executive
Officer, Christine Hughes, our Senior Vice President of Worldwide Marketing and
Business Development, and Betsy Atkins, a member of the Board of Directors,
resigned from their positions. On July 1, 1999, John McNulty, 52, our President
and Chief Operating Officer, assumed the positions held by Mr. Waxman. Mr.
McNulty first joined us as President and Chief Operating Officer on May 3, 1999.
From 1997 until joining us, he served as Senior Vice President Sales, Services,
and Business Development at Genesys Telecommunications Laboratories, a leading
independent software company in the computer telephony integration environment.
Mr. McNulty was also previously with Intel Corporation, the leading
semiconductor manufacturer, where he held a number of positions, including
Director of Marketing and Business Development for the Enterprise Server Group,
which he launched.
On July 6, 1999, we announced the appointment of Carr Biggerstaff, 43,
as Senior Vice President of Marketing, Business Development and Strategic and
Product Planning. From 1997 to February, 1999 Mr. Biggerstaff was the Chief
Information Officer and Vice President of Strategic Programs at Genesys
Telecommunications Laboratories, responsible for partner and analyst
relationships including co-development with strategic partners. He holds a BA
from Duke University, and an MBA from the University of Texas at Austin.
On July 20 we announced a second quarter net loss of $19.7 million or
$1.11 per share. Excluding significant charges in the quarter, the loss was $7.9
million, or $0.45 per share, on revenues of $5.5 million, compared to net income
of $970,000 or $0.60 per share, on revenues of $14.5 million in the same quarter
last year. Included in these results are expense charges relating to product
line rationalization, refocusing of the company on enabling e-commerce and
streamlining the company's executive management structure.
RISK FACTORS
You should carefully consider the following risks, together with the
discussion under "Special Note Regarding Forward-Looking Statements" and other
information contained in this prospectus before making an investment decision.
If any of the events or circumstances described in the following risks actually
occurs, our business, financial condition, or results of operations could be
materially harmed. In that case, the trading price of our common stock could
decline, and you may lose all or a part of your investment.
WE ARE EXPERIENCING OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY.
We have incurred losses in the past and we incurred a sizeable loss for
our quarter ended June 30, 1999 (see "Recent Developments") and expect that we
will continue to incur losses for at least the next two quarters. We may
continue to incur losses thereafter. If these losses continue, our stock price
may continue to decline, which could cause you to lose part or all of your
investment.
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<PAGE>
WE WILL LIKELY NEED ADDITIONAL FINANCING NEXT YEAR, AND MAY NOT BE ABLE TO
OBTAIN THE FINANCING ON ATTRACTIVE TERMS, OR AT ALL.
Our cash and working capital balances have been declining in recent
quarters, and we expect this decline to continue for the immediate future. Based
on our current cash flows, we expect that we will need additional financing next
year in order to continue operations. We cannot assure investors that we will be
able to obtain financing on satisfactory terms, or at all. Our failure to obtain
financing could result in our insolvency and the loss to investors of their
entire investment in our common stock.
DELAYS IN PURCHASES HAVE MATERIALLY REDUCED OUR REVENUES DURING 1999 AND WILL
LIKELY CONTINUE TO REDUCE OUR REVENUES THROUGH THE END OF THIS YEAR.
In recent months we have experienced delays in customer purchasing
decisions. In the government sector these delays relate to the recent conflict
in Kosovo. In the private sector the delays result from year 2000 compliance
concerns and lengthening of the sales cycle resulting from increases in
enterprise-wide transactions, which typically involve complex sales of bundled
security products. We believe that these delays, particularly year 2000 related
delays, will continue to adversely affect our revenues for the balance of this
year, but we have not been able to determine the extent of this reduction in
revenues.
THE COMMON STOCK SOLD IN THIS OFFERING SIGNIFICANTLY INCREASES THE SUPPLY OF OUR
COMMON STOCK ON THE PUBLIC MARKET, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.
This prospectus relates to shares of common stock issuable on the
conversion of our Series C preferred stock and upon the exercise of the warrants
for common stock which were issued to the holders of the Series C preferred
stock. The conversion of the Series C preferred stock and sale into the public
market could materially adversely affect the market price of the common stock.
Substantially all of the shares of our common stock are eligible for immediate
and unrestricted sale in the public market at any time. Once the registration
statement of which this prospectus forms a part is declared effective, all
shares of common stock offered hereby will be eligible for immediate and
unrestricted resale into the public market. The presence of these additional
shares of common stock in the public market may further depress the stock price.
OUR PREFERRED STOCK FINANCING HAS RESULTED IN SUBSTANTIAL DILUTION TO HOLDERS OF
OUR COMMON STOCK.
The agreements with the purchasers of the Series C preferred stock and
warrants contain terms and covenants that could result in substantial dilution
to our stockholders. For so long as our common stock trades at a price less than
$19.0035 per share, then the Series C preferred stock will be convertible into
shares of our common stock at variable rates based on the trading prices of the
common stock. Specifically, if the common stock trades below the fixed
conversion price of $19.0035 then the Series C preferred stock converts to
common stock at a price equal to the lower of (1) the average closing bid price
for the five trading days prior to the date of conversion and (2) the average
closing bid price for the fifteen trading days immediately prior to the date of
conversion. The number of shares of common stock that may ultimately be issued
upon conversion is therefore presently indeterminable, but will increase as the
price of our stock drops. This would in turn place additional downward pressure
on the price of our stock. A downward spiral of the price of our stock could
result in the loss of all of your investment.
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<PAGE>
Based on the average closing bid price $3.617 for the fifteen trading
days ended July 22, 1999, and a conversion on the following day, July 23, 1999
of all of the 4,150 shares of Series C preferred stock then outstanding and the
exercise of outstanding warrants to purchase 174,464 shares of our common stock,
we would issue 1,321,824 shares of common stock. These shares would then
constitute 5.97% of the outstanding shares of common stock.
The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding Series C preferred stock and
percentage ownership that each represents assuming:
* the market price of the common stock is 25%, 50%, 75% and 100% of the
market price of the common stock on July 23, 1999, which was $3.063 per share at
the close of trading;
* the variable conversion price feature of the preferred stock that was
in effect;
* the maximum conversion prices of the preferred stock was not adjusted
as provided in our certificate of incorporation or the amount of shares issuable
is otherwise limited by the transaction agreements; and
* excludes shares issuable in respect of any default amounts.
Percent of Common Stock Shares Underlying %/(2)/
Market Price Issuable /(1)/
25% ($.766) 5,417,755 20.7%
50% ($1.532) 2,708,877 11.5%
75% ($2.297) 1,806,704 8.0%
100% ($3.063) 1,354,881 6.1%
/(1)/ On July 23, 1999, there were 20,807,414 shares of common stock
and 4,150 shares of Series C Preferred Stock outstanding.
/(2)/ Limitations in the transaction agreements and the certificate of
incorporation preclude these levels of beneficial ownership from being achieved.
In addition, the foregoing conversion price of the Series C preferred
stock is subject to adjustment upon the occurrence of certain events, including
stock splits and distributions, or announcement by us that we intend to engage
in a change of control transaction or if there is announced a tender offer,
exchange offer or other transaction to purchase 50% or more of our stock. The
conversion price of the Series C preferred stock is subject to adjustment if we
fail to comply in a timely manner with certain covenants to register, and keep
effective a registration statement respecting, the common stock issued or
issuable to the holders of the Series C preferred stock, and to keep such shares
listed on the New York Stock Exchange or American Stock Exchange or quoted on
NASDAQ's National Market or Small Cap Market. (See "Selling Shareholders - Terms
of Series C stock and warrants.")
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<PAGE>
SHORT SELLING OF OUR STOCK MAY FURTHER DEPRESS OUR STOCK PRICE.
The significant downward pressure on our stock price as a result of the
conversion of Series C preferred stock and the sale of material amounts of the
common stock could encourage short sales of our stock. Short sales could place
further downward pressure on the price of our common stock.
IF WE FAIL TO COMPETE IN OUR HIGHLY COMPETITIVE MARKET, THEN OUR BUSINESS WILL
FAIL.
Our principal products are enterprise network and data security
products. The market for these products is highly competitive and changes
rapidly. If we do not compete effectively or if we experience an increase in
competition, we may experience price pressure, reduced margins and a loss of
market share. Any reduction in our gross margins resulting from competitive
factors could materially harm our business.
Many of our competitors and potential competitors have significantly
greater financial, marketing, technical and other competitive resources than we
have. As a result, they may be able to leverage an installed customer base
and/or other existing or future enterprise-wide products, adapt more quickly to
new or emerging technologies and changes in customer requirements, or devote
greater resources to the promotion and sale of their products than we can. Our
potential competitors could in the future include developers of operating
systems or network suppliers not currently offering competitive enterprise-wide
security products including Microsoft Corporation, Sun Microsystems, Inc.,
Lucent Technologies, Inc., Nortel Networks, 3Com Corporation, Cisco Systems,
Inc. and Novell, Inc. Ultimately, the market for enterprise network and data
security products may be dominated by approaches other than ours.
Our most significant competitors include ActivCard S.A., Axent
Technologies Ltd., CheckPoint Software Technologies Ltd., Network Associates,
Inc., and Security Dynamics Technologies, Inc.
DEMAND FOR OUR PRODUCTS COULD BE HARMED BY BUNDLING OF SECURITY PRODUCTS WITH
OTHER PRODUCTS.
In the future, vendors of hardware and of operating system or other
software may continue to enhance their products or bundle separate products to
include functions that are currently provided primarily by network security
software. If network security functions become standard features of computer
hardware or of operating system software or other software, our products may
become obsolete and unmarketable, particularly if the quality of such network
security features was comparable to that of our products. Furthermore, even if
the network security and/or management functions provided as standard features
by hardware providers or operating systems or other software is more limited
than that of our products, our customers might accept such functionality in lieu
of purchasing additional software. Our business would suffer materially if we
were then unable to develop new network security and management products to
further enhance operating systems or other software and to replace any obsolete
products.
TECHNOLOGY IN THE ENTERPRISE NETWORK AND DATA SECURITY MARKETS IS CHANGING
RAPIDLY, AND IF WE FAIL TO DEVELOP NEW PRODUCTS WHICH ARE WELL ACCEPTED, OUR
MARKET SHARE WILL ERODE.
To compete successfully we must enhance our existing products and
develop and introduce new products in a timely manner. If we fail to introduce
new products on a timely basis, our
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<PAGE>
business and results of operations could be adversely affected. The rate of new
network and data security product introductions is substantial, and security
products have relatively short product life cycles. Our customer requirements
and preferences change rapidly. If the market adopts as industry standards
solutions other than those employed by us, our sales and business will be
harmed. In addition, a portion of our basic research efforts are funded by
government contracts. If those contracts are terminated for any reason, it could
reduce our new product stream, which could have an adverse effect on our results
of operations.
WE ARE DEPENDENT ON THE GROWTH OF THE INTERNET AND OTHER NETWORK INFRASTRUCTURE.
Our sales also depend upon a robust industry and infrastructure for
providing access to public switched networks, such as the Internet. If the
infrastructure or complementary products necessary to make these networks into
viable commercial marketplaces are not developed, or, if developed, these
networks do not become and continue to be viable commercial marketplaces, our
sales could suffer.
OUR PRODUCT LINE IS NOT DIVERSIFIED, AND ANY DROP IN THE DEMAND FOR NETWORK AND
DATA SECURITY PRODUCTS WOULD MATERIALLY HARM OUR BUSINESS.
Substantially all of our revenue comes from sales of enterprise network
and data security products, and related services and we expect this will
continue for the foreseeable future. As a result, if for any reason our sales of
these products and services are impeded, or we face difficulties or delay in
diversifying our product offerings to lessen our dependency on those products,
it could have an adverse effect on our business and results of operations.
OUR QUARTERLY OPERATING RESULTS AND OUR STOCK PRICE ARE HIGHLY VOLATILE, WHICH
MAY IMPAIR OUR ABILITY TO RAISE MONEY AND CAUSE OUR INVESTORS TO LOSE MONEY.
The price of our common stock, like that of many technology companies,
has fluctuated widely. In addition, our revenues and operating results have
fluctuated significantly from period to period, which tends to increase the
volatility of our common stock price. We expect that our quarterly results will
continue to fluctuate significantly. Fluctuation in our results and stock price
may cause our investors to lose money and impair our ability to raise additional
capital.
Factors that may affect stock price volatility include:
* Unexpected fluctuations in operating results;
* announcements of technological innovations or new products by us or our
competitors;
* developments with respect to our patents or other proprietary rights or
those of our competitors;
* general market conditions in the network security industry; and
* analyst reports and media stories;
Quarterly revenues and operating results depend on the volume and
timing of orders received, which may be affected by large individual
transactions and which sometimes are difficult to predict. Historically we have
recognized a substantial portion of our license revenues in the last
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<PAGE>
week of each quarter. This increases our uncertainty about the results of any
given quarter. Our quarterly operating results may vary significantly depending
on a number of factors, including the timing of the introduction or enhancement
of products by us or our competitors, the size, timing and shipment of
individual orders, market acceptance of new products, changes in our operating
expenses, personnel changes, mix of products sold, changes in product pricing,
development of our direct and indirect distribution channels and general
economic conditions.
THE SALES CYCLE FOR OUR PRODUCTS IS LONG AND WE MAY INCUR SUBSTANTIAL EXPENSES
FOR SALES THAT DO NOT OCCUR WHEN ANTICIPATED.
Sales of our products generally involve a significant commitment of
capital by customers, with the attendant delays frequently associated with large
capital expenditures. For these and other reasons, the sales cycle for our
products is typically lengthy and subject to a number of significant risks over
which we have little or no control. We are often required to ship products
shortly after we receive orders and consequently, order backlog at the beginning
of any period has in the past represented only a small portion of that period's
expected revenue. As a result, our product revenue in any period is
substantially dependent on orders booked and shipped in that period. We
typically plan our production and inventory levels based on internal forecasts
of customer demand, which are highly unpredictable and can fluctuate
substantially. If revenue falls significantly below anticipated levels, our
business would be seriously harmed. In addition, our operating expenses are
based on anticipated revenue levels and a high percentage of our expenses are
generally fixed in the short term. Based on these factors, a small fluctuation
in the timing of sales can cause operating results to vary significantly from
period to period. Recently, we have experienced a lengthening of our sales cycle
as a consequence of increases in enterprise-wide transactions. We believe that
this extension of the sales cycle is caused by an increase in enterprise-wide
purchasing involving extensive bundling of security products.
IF OUR PRODUCTS FAIL TO FUNCTION PROPERLY OR ARE NOT PROPERLY DESIGNED, WE MAY
INCUR LIABILITY AND/OR SUFFER SIGNIFICANT HARM TO OUR BUSINESS AND REPUTATION.
Our customers rely on our information security products to prevent
unauthorized access to their networks and data transmissions. These customers
include major financial institutions, defense related government agencies
protecting national security information, and other large organizations. These
customers use our products to protect confidential business information with
commercial value far in excess of our net worth. Therefore, if our products
malfunction or are not properly designed we could face tort or warranty claims,
which may exceed our ability to pay. We seek to reduce the risk of these losses
by attempting to negotiate warranty disclaimers and liability limitation clauses
in our sales agreements and by maintaining product liability insurance. However,
these measures may ultimately prove ineffective in limiting our liability for
damages.
In addition to any monetary liability for the failure of our products,
the market's perception of our products and business and our business and
results of operations could be harmed by an actual or perceived breach of
enterprise network or data security at one of our customers, regardless of
whether that breach is attributable to our products.
We also face the more general risk of bugs and other errors in our
software. Software products often contain undetected errors or bugs when first
introduced or as new versions are released, and software products or media may
contain undetected viruses. Errors or bugs may also be present in software
licensed by us from third parties and incorporated into our products. Errors,
bugs or viruses in our products may result in loss of or delay in market
acceptance, recalls of
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<PAGE>
hardware products incorporating the software or loss of data. Delays or
difficulties associated with new product introductions or product enhancements
could seriously harm our business.
IF WE BREACH OUR COVENANTS WE MAY BE REQUIRED TO REDEEM OUR SERIES C PREFERRED
STOCK, AND WE CURRENTLY LACK SUFFICIENT FUNDS FOR REDEMPTION; WE MAY ALSO BE
REQUIRED TO PAY PENALTIES WHICH WOULD MATERIALLY AFFECT OUR BUSINESS.
In June 1998, we raised $16.0 million by issuing a newly designated
Series C convertible preferred stock. The Series C preferred stock is
convertible into shares of our common stock based on the trading prices of the
common stock.
The financing agreements pursuant to which the Series C preferred stock
was issued also include penalty provisions that are triggered if we fail to
satisfy certain obligations. In particular, the holders of the Series C
preferred stock shall have the right to require us to redeem all or any portion
of the Series C preferred stock at a price equal to the greater of:
* 125% of the $1,000 stated price of each share of Series C preferred
stock; and
* an amount determined by dividing the stated price by the conversion
price ($3.617, assuming conversion on July 23, 1999) and multiplying
the resulting amount by the average closing bid price for the common
stock on the five days preceding the date of redemption (or $3.719,
assuming redemption on July 23, 1999).
These redemption obligations arise upon certain events, including
breach by us of representations and warranties and covenants, including the
failure to maintain the effectiveness of the registration statement covering the
common stock issuable upon conversion of the Series C preferred stock. If the
holders of Series C preferred stock become entitled to have their Series C
preferred stock redeemed, we may not be able to fund that redemption, and even
if funding is available, the substantial payment required to fund that
redemption could have an adverse effect on our business and financial condition.
In addition, if we fail to pay a redemption amount when due, we may become
obligated to pay a default premium at a rate of 24% per annum, and may be
subject to additional dilution which would require us to issue up to twice the
number of shares of common stock otherwise issuable (see "Selling Shareholders -
Terms of Series C preferred stock and warrants").
A SIGNIFICANT DECLINE IN INTERNATIONAL MARKETS COULD MATERIALLY REDUCE OUR
REVENUES AND OUR COLLECTIONS OF FOREIGN RECEIVABLES.
International sales are a substantial portion of our business. Although
almost all of our sales are payable in U.S. dollars, a severe economic decline
in one of our major foreign markets, or any substantial decline in the exchange
rate for foreign currencies with respect to the United States Dollar, could make
it difficult for customers from those countries to purchase our products and
services, or pay us for obligations already incurred. A substantial decline in
our international sales or collections could have an adverse effect on our
operations and financial condition. In 1998, twenty-nine percent (29%) of our
total product and services sales came from international sales. Of this 29%,
Japan and Sweden accounted for the largest sources of foreign sales. A very
large drop in our sales or collections of accounts receivable in these specific
countries as a result of recession or other economic or political disturbances
or otherwise, would likely cause harm to our business.
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<PAGE>
In addition, we face a number of general risks inherent in doing
business in international markets, including, among others:
* unexpected changes in regulatory requirements, including
taxation;
* export controls relating to encryption technology;
* changing economic conditions; and
* longer collection cycles.
None of the foregoing general risks have materially affected our
business to date. It is difficult to predict the future impact of these risks on
our business, but these and other factors could have a material impact on our
business.
YEAR 2000 ISSUES ARE DELAYING CUSTOMER BUYING DECISIONS IN FISCAL 1999, WHICH IS
SIGNIFICANTLY REDUCING OUR FISCAL 1999 BUSINESS; OTHER YEAR 2000 ISSUES COULD
ALSO HARM OUR BUSINESS.
The following information constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
Many currently installed computer systems and software products are
programmed to use only two digit dates rather than four. This could result in
system and processing failures of date-related data because computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than 2000. We believe that our products and systems sold after
December 31, 1998 are Year 2000 compliant. We have completed preparation and
testing of our products and systems, and have verified compliance of third party
computer software that we use. However, we have not verified Year 2000
compliance of certain semiconductors embedded in other (third-party) equipment
that we use, nor have we established the costs and risks associated with such
external equipment.
Failure of this third-party equipment to operate properly with regard
to the Year 2000 and thereafter could require us to incur unanticipated expenses
to remedy any problems, which could have a material adverse effect on our
business, operating results and financial condition. The business, operating
results and financial condition of our customers could be adversely affected to
the extent that they utilize third-party software and other products which are
not Year 2000 compliant.
Further, the purchasing patterns of customers or potential customers
may be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures may
result in reduced funds available to purchase products and services such as
those offered by us, which could have an adverse effect on our business and
results of operations. In addition, we believe that certain customers or
potential customers who have undertaken Year 2000 compliance programs are now
delaying additional software purchases in order to insure that all systems will
remain Year 2000 compliant on January 1, 2000. We further believe that these
delays are materially reducing our sales in the current year. Over the last few
months it has become apparent that a significant number of enterprise networks
will make no additional purchases of network security software until after
January 1, 2000.
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<PAGE>
IF WE FAIL TO ADEQUATELY MANAGE OUR RECEIVABLES OUR CASH FLOW MAY SUFFER
Because the timing of our revenues is difficult to predict, and our
expenses are often difficult to reduce in the short run, management of our cash
flows is very important to us. In recent quarters the time for collection of
receivables from our customers has increased significantly. Although our
management provides a reserves for bad debts, this reserve may not accurately
reflect subsequent credit write-offs which could have an adverse effect on our
financial condition and operating results.
In addition, collection cycles for sales to resellers and distributors
are generally longer than for other sales. Therefore, if our sales to resellers
and distributors increase as a percentage of our total revenue, our days sales
outstanding may increase.
We have taken and may from time to time take various forms of action to
manage our receivables, including selling our receivables at a discount and
granting customer discounts.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, DELAWARE LAW, AND OUR
AGREEMENTS WITH THE HOLDERS OF OUR SERIES C PREFERRED STOCK COULD DISCOURAGE A
TAKEOVER OR FUTURE FINANCING
The terms of our Certificate of Incorporation and Share Rights
Agreement permit our Board of Directors to issue up to 2,000,000 shares of
preferred stock and determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our stockholders. The Board may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of our common stock. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more difficult
for a third party to acquire a majority of our outstanding voting stock.
Further, certain provisions of Delaware law, our Certificate of Incorporation
and Bylaws, such as a classified board and limitations on the ability of
shareholders to call special meetings, and certain provisions of our Share
Rights Agreement could delay or make more difficult a merger, tender offer,
proxy contest or other takeover attempts.
Our agreements with the purchasers of the Series C preferred stock
contain covenants that could impair our ability to engage in various corporate
transactions in the future, including financing transactions and certain
transactions involving a change-in-control or acquisition of us, or that could
otherwise disadvantage us and the holders of our common stock. In particular,
any "leveraged buy-out," and certain consolidations, mergers or other business
combinations with or into another entity that has a trading volume equal to less
than 90% of our average daily trading volume over a specified 90-day period,
will give rise to a right of redemption in the holders of the Series C preferred
stock. These provisions may make an acquisition of us more difficult and
expensive and could discourage some potential acquirers. Covenants we made in
connection with the issuance of the Series C preferred stock may also limit our
ability to obtain additional financing by, for example, providing the holders of
Series C preferred stock certain rights of first offer. In addition, protective
provisions in the Certificate of Designation prohibit us, without the consent of
holders of two-thirds of the outstanding Series C preferred stock, from:
* increasing our authorized preferred stock,
* issuing securities with a liquidation preference which is
senior to or pari-passu with the Series C preferred stock
(other than debt securities which are not
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convertible into or exchangeable for common stock or any other
equity or convertible security), or
* creating any new class or series of capital stock having a
liquidation preference senior to or pari-passu with the Series
C preferred stock.
UNANTICIPATED COSTS AND DISALLOWANCE OF COSTS UNDER OUR GOVERNMENT CONTRACTS MAY
HARM OUR BUSINESS.
Under our government contracts, we bear the risk that increased or unexpected
costs of our services may reduce the amount of our fee. Any material
unanticipated costs could therefore harm our business. In addition, recoverable
expenses previously billed by us are subject to review and audit by the Defense
Contract Audit Agency. The Defense Contract Audit Agency could disallow the
costs claimed by us under our contracts, which could have an adverse effect on
our business. We have not previously experienced any material disallowance of
costs respecting our government contracts.
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO DEVELOP OUR
PRODUCTS AND MANAGE OUR BUSINESS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO SO
COULD HARM OUR BUSINESS.
We believe our success depends significantly upon a number of key
technical and management employees. We may be unable to achieve our revenue and
operating performance objectives unless we can attract and retain technically
qualified and highly skilled engineers, sales, consulting, technical, marketing
and management personnel. These personnel are particularly important to our
research and development efforts, and to our growing professional service
business, where we employ a large number of technical personnel holding advanced
degrees and special professional certification. Competition for such personnel
is intense and we expect it to remain so for the foreseeable future. We may not
be successful in retaining our existing key personnel and in attracting and
retaining the personnel we require. Our failure to retain and increase our key
employee population could harm our business and results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors," and Legal Proceedings" and
elsewhere in this prospectus are forward-looking statements. These statements
relate to future events or our future product development or financial
performance. In some cases you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of these terms and other comparable terminology. These statements reflect only
management's current expectations. Actual events or results may differ
materially. In evaluating these statements, you should consider various factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statements. We are
not undertaking any obligation to update any forward-looking statements
contained in this prospectus to reflect any future events or developments.
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LEGAL PROCEEDINGS
On April 2, 9, 12, 14 and 20, 1999, purported class action complaints
were filed in the United States District Court for the Northern District of
California by Myron Goldstein, Herbert Silverberg, William Preiner, Charles
McInnis, and George H. Rosenquist and Melvin Freedenberg, respectively, against
Secure Computing Corporation, and its present or former officers Jeffrey Waxman,
Timothy McGurran, Patrick Regester, Gary Taggart, Howard Smith and Christine
Hughes. Each complaint alleges that defendants made false and misleading
statements about our business condition and prospects during a purported class
period of November 10, 1998 - March 31, 1999, and asserts claims for violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule
10b-5. Each complaint seeks damages of an unspecified amount.
There has been no discovery to date and no trial is scheduled in any of
these actions. We believe that we have meritorious defenses to these actions and
intend to defend them vigorously. However, if we do not obtain a favorable
resolution of the claims set forth in the actions it could have a material
adverse effect on our business, results of operations and financial condition.
We are currently unable to reasonably estimate the size or impact of such
material adverse effect.
On August 26, 1998, a purported class action complaint was filed in the
Delaware Chancery Court in and for New Castle County by Rosalyn Golaine against
Secure Computing Corporation, our former Chairman and Chief Executive Officer
Jeffrey Waxman, our Chief Financial Officer Timothy McGurran, and present or
former directors Betsy Atkins,Robert Frankenberg, Stephen Puricelli, Eric
Rundquist and Dennis Shaughnessy. The complaint alleged that the provisions of
the July 24, 1997 Shareholder Rights Plan permitting only those directors who
voted for the Rights Plan (or their designated successors) to redeem the rights
granted therein, violated Delaware law. The complaint sought injunctive relief
and damages of an unspecified amount. After the Golaine action was filed, we
amended the Shareholder Rights Plan, thereby rendering moot the injunctive
relief requested. On June 8, 1999, the court approved a settlement of the
Golaine action requiring us to pay $100,000 in attorney fees and the costs of
notifying the class of the proposed settlement. The $100,000 payment was
entirely covered by insurance.
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<PAGE>
SELLING STOCKHOLDERS
The selling stockholders received or will receive the shares offered by
this prospectus upon conversion of shares of our Series C preferred stock or
exercise of warrants to purchase common stock.
TERMS OF SERIES C PREFERRED STOCK AND WARRANTS
On June 30, 1998, we sold 16,000 shares of newly issued Series C
convertible preferred stock for an aggregate of $16 million to two investors,
Marshall Capital Management, Inc., an affiliate of investment bank Credit Suisse
First Boston, and CC Investments, LDC, an affiliate of Castle Creek Partners, a
Chicago-based private investment partnership. In connection with the investment
we also issued to the investors warrants to acquire 174,464 shares of our common
stock.
The Series C preferred stock is convertible at the election of the
holder into shares of common stock. Each share of Series C preferred stock,
which has a face value of $1,000, is convertible into the number of shares of
our common stock which may be purchased for face value at a per share price
equal to the lower of (i) the average of the closing bid prices for our common
stock for the five trading days immediately prior to the date of conversion,
(ii) the average of the closing bid prices for our common stock for the fifteen
trading days immediately prior to the date of the conversion and (iii) a fixed
conversion price of $19.0035 per share.
The conversion price of the Series C preferred stock is subject to
modification and adjustment. For example, in addition to adjustment for stock
splits and distributions,the Series C conversion price is subject to adjustment
upon the public announcement by Secure Computing Corporation that it intends to
engage in a change of control transaction or any person, group or entity
publicly announces a tender offer, exchange offer or other transaction to
purchase 50% or more of our common stock, then the conversion price shall be the
lower of the average closing bid price for our common stock on the five trading
days immediately preceeding the announcement date and the conversion price that
would otherwise apply.
Under the terms of the Certificate of Designation for the Series C
preferred stock, if we fail to deliver certificates representing the shares of
common stock issuable on conversion to the selling shareholders within seven
business days of the date due (generally three trading days following receipt of
the conversion notice), then we will be obligated to pay the selling
stockholders a default interest penalty equal to 24% of the face value of the
shares of Series C preferred stock specified in the conversion notice. In
addition, if by the tenth business day following the due date for delivery of
the certificated shares the certificate has not been delivered, then the selling
stockholder may withdraw its conversion notice at any time and the conversion
price then in effect with respect to the number of shares of Series C preferred
stock would be reduced by 1% for each day beyond such tenth business day that
the failure to deliver a certificate continued, up to a maximum of 50%.
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<PAGE>
The Series C preferred stock has a liquidation preference equal to the
face value, and is senior to our Series A and Series B convertible preferred
stock in respect of the right to receive dividend payments and liquidation
preferences.
Redemption provisions
The Series C preferred stock is also subject to redemption at a
premium: (1) at the request of the holders upon the occurrence of certain
events, such as certain specified business combinations involving us or our
subsidiaries, or (2) at our request if, during any period of twenty (20)
consecutive trading days, the average closing bid price for our common stock is
less than $5.00.
The redemption price that we must pay upon a redemption request by the
selling stockholders is equal to the greater of (1) 125% of the face value of
the Series C preferred stock being redeemed and (2) an amount equal to the face
value of the Series C preferred stock divided by the conversion price in effect
on the redemption date, and multiplied by the average closing bid price for the
common stock on the five trading days immediately preceding the redemption date.
In the case of a redemption by us, the redemption price will be the
face value of the Series C preferred stock held by the selling stockholders,
plus an amount equal to an annual rate of return of 13% on the face amount. If
we fail to pay the redemption price when requested by the selling stockholders,
we may be required to pay interest to the selling shareholders at the default
rate of 24% per year. If we fail to pay the redemption price within ten business
days of the date requested, the selling shareholders may require us by written
notice to immediately issue, in lieu of the redemption price, a number of shares
of our common stock equal to the redemption price divided by the conversion
price then in effect. In addition, the conversion price is reduced one percent
per day for each day beyond the tenth business day in which our failure to pay
continues, up to a reduction of 50%.
Warrants
The warrants may be exercised until the earlier to occur of: (i) June
29, 2001 and (ii) our consolidation, merger or other business combination with
or into another entity pursuant to which we are not the surviving company. The
exercise price for our common stock related to the warrants is 130% of the
average of the closing bid prices for our common stock on the 15 trading days
occurring immediately prior to June 30, 1998, or $11.9223 per share. The number
of shares of common stock issuable under the warrants is subject to adjustment
for stock dividends, recapitalization or reclassification of our common stock,
and distributions or dividends (other than from earned surplus or net profits).
In addition, in the event of a merger or consolidation, sale of all or
substantially all of our assets, or a similar event, the holders of the warrants
shall be entitled to exercise the warrants in exchange for the class and type of
securities or other assets received for the common stock.
Registration requirement
We are required to file with the Securities and Exchange Commission a
"shelf" registration statement such as the one filed with this prospectus
covering the resale of all shares of our common stock issuable upon conversion
of the Series C preferred stock and upon exercise of the warrants. Under the
terms of the Registration Rights Agreement between us and the selling
stockholders, we are required to register additional common shares.
Specifically, in the event that during any three consecutive trading days for
our common stock, the number of shares available for sale under the
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<PAGE>
registration statement is less than 175% of the number of shares of common stock
then issuable, then we must amend the registration or file a new registration
statement covering at least 200% of the common stock then issuable. The
amendment or new registration must be filed within ten days of the end of the
three day period.
If (1) the sale of common stock issued pursuant to conversion of the
Series C preferred stock or exercise of the warrants cannot be made by the
selling stockholders under an effective registration statement for any reason
not within the exclusive control of the selling stockholders, or (2) our common
stock is not included for quotation on the Nasdaq National Market or Nasdaq
Small Cap Market or listed on the New York Stock Exchange or American Stock
Exchange, then until these circumstances are no longer in effect we must pay the
selling stockholders an amount equal to 1.5% per month times the face value of
their Series C preferred stock ($1000 per share). In addition, for a period of
22 trading days following the cessation of the circumstances described in items
(1) and (2) of this paragraph, the fixed component of the conversion formula for
the Series C preferred shares (currently $19.0035) will be reduced to the lower
of (a) the lowest conversion price during the period in which these sales could
not be made or our common stock was not so quoted or listed, and (b) $19.0035.
HOLDINGS OF SELLING SHAREHOLDERS
The following table sets forth the aggregate number of shares of common
stock held by each selling stockholder and offered by each selling stockholder
and the percentage of all shares of common stock held by the selling stockholder
after giving effect to the offering (based on 20,807,414 shares of common stock
outstanding as of July 23, 1999). The share numbers set forth in the table below
include an aggregate of 174,464 shares of common issuable upon the exercise
price of the warrants held by the selling stockholders, and an estimated
1,147,360 shares issuable upon conversion of the shares of Series C preferred
stock held by the selling stockholders. The estimated number of shares issuable
upon conversion of the shares of Series C preferred stock is based on an
estimated conversion price of $3.617 per share of common stock, which would
have been the applicable conversion price of the Series C preferred stock had
all shares of Series C preferred been converted into common stock on July 23,
1999. (The estimated conversion price is based on the lower of: (a) of the
average closing bid price for the common stock on the Nasdaq National Market for
the five (5) trading day period ended July 22, 1999, and (b) the average of the
closing bid prices for the common stock for the fifteen (15) day period ended
July 22, 1999). The actual number of shares of common stock issuable upon
conversion of Series C preferred stock currently is indeterminable, is subject
to adjustment and could be materially less or more than the estimated number
depending on factors which we cannot predict at this time, including, among
other factors, the future market price of our common stock. Other than their
ownership of our securities, none of the selling stockholders has had any
material relationship with us within the past three years. Because of the
possibility of antidilution adjustments to the conversion price of the preferred
stock (which is based on the market price of the common stock), or that the
number of shares of common stock outstanding increases due to a stock split or
dividend, the number of shares of common stock issuable upon the conversion or
exercise is indeterminate.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING PERCENT OF
NUMBER OF SHARES COMMON STOCK OUTSTANDING
OWNED IF ALL REPRESENTED BY NUMBER OF COMMON
NAME OF SELLING ACQUISITION RIGHTS SHARE IN PREVIOUS SHARES STOCK OWNED
STOCKHOLDER ARE EXERCISED(1) COLUMN(1) OFFERED(2) AFTER OFFER
- --------------- ------------------ ----------------- ---------- -----------
<S> <C> <C> <C> <C>
Marshall Capital
Management, Inc. 707,593(3) 3.3% 707,593 *
CC Investments, LDC 1,221,413(4) 5.7% 1,221,413 *
</TABLE>
- -----------------------------
(*) Less than 1%.
1. The shares of common stock included in this column include shares of
common stock currently owned by the selling stockholders, as well as
all shares of common stock issuable on exercise of the warrants and
upon conversion of the Series C preferred shares held by the selling
stockholders assuming conversion at $3.617, the conversion price on
July 23, 1999. However, under the terms of the Series C preferred stock
and the warrants, no holder can convert any portion of the Series C
preferred stock or exercise any warrants if the conversion or exercise
would increase that holder's beneficial ownership of common stock to an
amount in excess of 4.99% of the amount of common stock outstanding at
the time of such conversion or exercise. Accordingly, each selling
stockholder disclaims beneficial ownership of any amount of common
stock in excess of 4.99% of the amount of common stock outstanding at
any time by virtue of its ownership of the Series C preferred stock and
warrants. In order to stay within this 4.99% limit, the selling
stockholders may be required to sell shares of common stock prior to
exercising some of the warrants or converting some of the Series C
preferred stock.
2. To help insure our compliance with the registration rights agreement we
have chosen to register for resale by the selling shareholders
8,475,042 shares of our common stock. If the warrants were exercised in
full and all of the Series C preferred stock was converted at the
conversion price of $3.617 prevailing as of July 23, 1999, only
1,321,824 shares of common stock would be issued and available for
resale under this prospectus. However, we cannot determine the exact
number of shares of common stock that we will ultimately issue upon
exercise of the warrants and conversion of the Series C preferred stock
if anti-dilution adjustment occurs with respect to the warrants or the
conversion price for the Series C preferred stock changes from the
price applicable on July 23, 1999. The 8,475,042 shares of common stock
covered by this prospectus represent approximately 40.7 percent of our
outstanding shares as of July 23, 1999.
3. Includes 456,179 shares of common stock issuable upon conversion of
1,650 shares of Series C preferred stock, assuming a per share
conversion price of $3.617, the conversion price prevailing on July 23,
1999, 164,182 shares of common stock held on June 23, 1999 following
conversion of Series C preferred stock and 87,232 shares of common
stock issuable upon exercise of the warrants held by Marshall Capital
Management, Inc. Under the terms of the Series C preferred stock and
the warrants, no holder can convert any portion of the Series C
preferred stock or exercise any warrants if the conversion or exercise
would increase that holder's beneficial ownership of common stock to an
amount in excess of 4.99% at the time of such conversion or exercise.
Marshall Capital Management, Inc. is an indirect, wholly owned
subsidiary of Credit Suisse First Boston Group, which is a publicly
held Swiss financial services company.
4. Includes 691,181 shares of common stock issuable upon conversion of
2500 shares of Series C preferred stock, assuming a per share
conversion price of $3.617, the conversion price prevailing on July 23,
1999, 443,000 shares of common stock held on June 23, 1999 following
conversion of Series C preferred stock and 87,232 shares of common
stock issuable upon exercise of the warrants. Under the terms of the
Series C preferred stock and the warrants, no holder can convert any
portion of the Series C preferred stock or exercise any warrants if the
conversion or exercise would increase that holder's beneficial
ownership of common stock to in excess of 4.99% at the time of such
conversion or exercise. Pursuant to a management agreement, Castle
Creek Partners LLC may be deemed to beneficially own the securities
held by CC Investments LDC. Castle Creek Partners LLC disclaims such
beneficial ownership. John Ziegelman and Daniel Asher, as managing
members of Castle Creek Partners LLC, may be deemed to be beneficial
owners of these securities. Messrs. Asher and Ziegelman disclaim such
beneficial ownership.
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PLAN OF DISTRIBUTION
The selling stockholders may sell the common stock:
* through one or more underwriters or dealers for public
offering and sale,
* directly to investors, or
* through agents.
The selling stockholders may distribute the common stock from time to
time in one or more transactions at a fixed price or prices, which may be
changed from time to time:
* at market prices prevailing at the times of sale,
* at prices related to those prevailing market prices, or
* at negotiated prices.
We will not receive any proceeds from the sale of the common stock.
The distribution of the common stock may be effected in one or more of the
following methods:
* ordinary brokers' transactions, which may include long or
short sales,
* transactions involving cross or block trades, or otherwise on
the Nasdaq National Market,
* purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to
this prospectus,
* "at the market" to or through market makers or into an
existing market for the common stock,
* in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents,
* through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise),
* pursuant to Rule 144 under the Securities Act, or
* any combination of the foregoing, or by any other legally
available means.
In addition, the selling stockholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage in short
sales of common stock in the course of hedging the positions they assume with
the selling stockholders. The selling stockholders or their successors in
interest may also enter into option or other transactions with broker-dealers
that require the delivery by those broker-dealers of the common stock, which
common stock may be resold thereafter pursuant to this prospectus. In connection
with any sales, the selling stockholders and any brokers or dealers
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling stockholders and/or purchasers of the
shares offered hereby (and, if it acts as agent for the purchaser of those
shares, from that purchaser). Usual and customary brokerage fees will be paid by
the selling stockholders. Broker-dealers may agree with the selling stockholders
to sell a specified number of shares at a stipulated price per share, and, to
the extent the broker-dealer is
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<PAGE>
unable to do so acting as agent for a selling stockholder, to purchase as
principal any unsold shares at the price required to fulfill the broker-dealer
commitment to the selling stockholder. Broker-dealers who acquire shares as
principal may thereafter resell the shares from time to time in transactions
(which may involve cross and block transactions and which may involve sales to
and through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with the resales may pay to or receive from the purchasers of those
shares commissions computed as described above.
We have advised the selling stockholders that Regulation M promulgated
under the Securities Exchange Act, may apply to its sales in the market, have
furnished the selling stockholders with a copy of this regulation and have
informed the selling stockholders of the need for delivery of copies of this
prospectus. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of those shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal. We have agreed to
indemnify the selling stockholders against certain liabilities, including
liabilities under the Securities Act.
We are required by the Series C preferred stock financing agreements to
register for resale by the selling stockholders and keep registered at least
200% of the aggregate number of shares of common stock into which the Series C
preferred stock is convertible and 100% of the shares of common stock for which
the warrants are exercisable. We have agreed to and are paying the costs and
fees of registering the common stock. The selling stockholders will pay any
brokerage commissions, discounts or other expenses relating to the sale of the
common stock.
Any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that rule rather
than pursuant to this prospectus.
There can be no assurance that the selling stockholders will sell any
or all of the shares of common stock offered by them hereunder.
LEGAL MATTERS
The validity of the issuance of the common stock offered by this
prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of Secure Computing
Corporation appearing in Secure Computing Corporation's Annual Report (Form
10-K) for the year ended December 31, 1998 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by Reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
- 19 -
<PAGE>
8,475,042 SHARES
[SECURE COMPUTING CORPORATION]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
AUGUST __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth costs and expenses of the sale and
distribution of the securities being registered. All amounts except Securities
and Exchange Commission and Nasdaq Stock Market Listing fees are estimates.
Registration Statement--Securities and Exchange Commission....$ 10,143
Accounting fees............................................... 4,500
Legal fees.................................................... 35,000
Miscellaneous................................................. 357
Total.........................................................$ 50,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. Our Bylaws provide
that we will indemnify our officers and directors and may indemnify our
employees and other agents to the fullest extent permitted by Delaware law. We
have entered into indemnification agreements with our officers and directors
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements require us, among other things to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance, if available on
reasonable terms. We believe that these agreements are necessary to attract and
retain qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibit
Number
- ------
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4 hereof).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(a) to include any prospectus required by Section
10(a)(3) of the Securities Act;
(b) to reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective
amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b), if in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
(c) to include any material information with respect to
the plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this Registration Statement;
provided, however, that the undertakings set forth in
paragraphs (a) and (b) above shall not apply if the
information required to be included in a
post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such
II-2
<PAGE>
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. in the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Secure Computing Corporation, a corporation organized and existing
under the laws of the State of Delaware, certifies that it has reasonable cause
to believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on the 2nd day of August, 1999.
SECURE COMPUTING CORPORATION
By: /s/ Timothy McGurran
-----------------------------------------
Timothy McGurran, Chief Finanical Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Jeffrey Waxman and Timothy McGurran,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendment to
this Registration Statement on Form S-3, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 22, 1999 by the following
persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE DATE
/s/ Jeffrey Waxman Chief Executive Officer April 22, 1999
- ----------------------------- (Principal Executive Officer)
Jeffrey Waxman and Chairman of the
Board of Directors
/s/ Timothy McGurran Senior Vice President of April 22, 1999
- ----------------------------- Operations and Chief Financial
(Timothy McGurran) Officer (Principal Financial
and Accounting Officer)
/s/ Steven M. Puricelli Director April 22, 1999
- -----------------------------
(Steven M. Puricelli)
/s/ Eric P. Rundquist Director April 22, 1999
- -----------------------------
(Eric P. Rundquist)
/s/ Robert J. Frankenberg Director April 22, 1999
- -----------------------------
(Robert J. Frankenberg)
/s/ Alexander Zakupowsky, Jr. Director April 22, 1999
- -----------------------------
(Alexander Zakupowsky, Jr.)
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4 hereof).
II-5
EXHIBIT 5.1
May 3, 1999
Secure Computing Corporation
One Almaden Blvd., Suite 400
San Jose, California 95113
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by
you with the Securities and Exchange Commission on or about April 29, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 8,475,042 shares of your
common stock (the "Shares"), to be offered for sale for the benefit of certain
selling stockholders. The Shares are issuable upon the conversion of the
Company's Series C Preferred Stock [(the "Series C Preferred")] and upon the
exercise of Warrants (the "Warrants"), in each case as further described in the
Registration Statement. The Shares may be offered and sold from time to time on
the Nasdaq National Market at prevailing prices or as otherwise described in the
Registration Statement. As your legal counsel, we have examined the proceedings
taken or proposed to be taken by you in connection with the sale and issuance of
the Series C Preferred, the Warrants and the Shares.
It is our opinion that upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, the Shares, when issued in the manner described in the Registration
Statement, will be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, including the prospectus constituting a part thereof, and further
consent to the use of our name wherever it appears in the Registration Statement
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus
of Secure Computing Corporation for the registration of 8,475,042 shares of its
common stock and to the incorporation by reference therein of our report dated
January 29, 1999, with respect to the consolidated financial statements and
schedule of Secure Computing Corporation included in its Annual Report on Form
10-K for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
August 4, 1999
