As filed with the Securities and Exchange Commission on February 18, 2000
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SECURE COMPUTING CORPORATION
(Exact Name of Secure Computing as Specified in Its Charter)
DELAWARE 7371 52-1637226
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
ONE ALMADEN BLVD., SUITE 400, SAN JOSE, CALIFORNIA 95113 (408) 918-6100
(Address, including zip code, and telephone number, including area code,
of Secure Computing Corporation' principal executive offices)
JOHN MCNULTY
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)
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COPIES TO:
AUGUST J. MORETTI
KYLE GUSE
HELLER EHRMAN WHITE & MCAULIFFE
2500 SAND HILL ROAD, SUITE 100
MENLO PARK, CALIFORNIA 94025-7063
TELEPHONE: (650) 234-4229
FACSIMILE: (650) 234-4299
Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT.
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, 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 of 1933, please check the
following box and list the Securities Act registration 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 of 1933, 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: [ ]
------------------------
SECURE COMPUTING CORPORATION HEREBY AMENDS THIS REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
SECURE COMPUTING CORPORATION SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
TITLE OF SECURITIES TO BE REGISTERED REGISTERED SHARE(2) PRICE(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 1,989,786(1) $14.8125 $29,473,705 $7,781.06
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(1) In accordance with Rule 416 under the Securities Act of 1933, common stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions. Amount being registered includes (i)
793,205 shares of common stock currently outstanding and (ii) an estimated
1,196,581 shares of common stock issuable upon conversion of 8,750 shares
of Series E preferred stock. The number of shares issuable upon conversion
of the Series E preferred stock is estimated based on an assumed conversion
price of $14.625, which was the closing price of the common stock on the
Nasdaq National Market on February 14, 2000. Secure has chosen to register
approximately 200% of the number of shares of common stock based on such a
conversion price so that a sufficient number of shares are registered in
the event the conversion price of the Series E preferred stock is lower
than expected.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the common
stock on the Nasdaq National Market on February 14, 2000, as reported in
The Wall Street Journal.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 15, 2000
PROSPECTUS
SECURE COMPUTING CORPORATION
1,989,786
SHARES
COMMON STOCK
This prospectus may be used only in connection with the resale, from
time to time, of up to 1,989,786 shares of common stock, $0.01 par value, of
Secure Computing Corporation by Westgate International, L.P. This amount
includes 793,205 shares of common stock previously issued to Westgate and an
estimated 1,196,581 shares of common stock issuable upon conversion of
outstanding shares of Series E preferred stock.
Our address is One Almaden Blvd., Suite 400, San Jose, California
95113, telephone number (408) 918-6100.
Our common stock trades on the Nasdaq National Market under the symbol
"SCUR". On February 14, 2000, the closing price for our common stock, as
reported on the Nasdaq National Market, was $14.625 per share.
Beginning on page 3, we have listed several "RISK FACTORS" which you
should consider. You should read the entire prospectus carefully before you make
your investment decision.
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.
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. Westgate is offering to sell, and seeking
offers to buy, shares of Secure Computing's common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the shares.
In this prospectus, "Secure Computing", "we", "us" and "our" refer to
Secure Computing Corporation.
This prospectus is dated February __, 2000
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SUMMARY INFORMATION
Forward looking statements made in this prospectus or in the documents
incorporated by reference herein that are not statements of historical fact are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. A number of risks and uncertainties, including those discussed under
the caption "Risk Factors" below and the documents incorporated by reference
herein could affect such forward-looking statements and could cause actual
results to differ materially from the statements made.
We develop and sell computer network "security" products and services
designed to provide secure access control for organizations engaged in
electronic commerce/business. Our products provide solutions intended to assure
the integrity and security of transactions and communications over public
networks such as the Internet. Our products can also be used to prevent
unauthorized access to private organizations and government networks. Our
products generally fall into two broad categories:
Those intended to prevent unauthorized access to computer and network
based data and information:
* firewalls; and
* web (URL) filtering software.
Those intended to authenticate/identify network users and control
access to network resources or applications:
* authenticators (hardware and software tokens, digital
certificates, and others);
* authentication, authorization and audit; and
* security access control management software.
Finally, in addition to our products, we provide security centered
professional services for:
* vulnerability assessment and analysis;
* penetration testing; and
* security architecture design & implementation.
We originated as a small division of Honeywell Inc. which pioneered
the principles of modern data security in the 1970s. We spun off from Honeywell
in 1989 to develop and market core security for the National Security Agency
(NSA) and other departments and agencies of the United States government. We
anticipated an increased need for a product to provide security to enterprise
information systems. We therefore acquired firewall, authentication and URL
filtering companies in 1996. We have subsequently created a Professional
Services Division, recruited several well-known security experts and built our
internal consulting staff.
We now market a range of interoperable, standards-based e-commerce
security products and services worldwide. Our customers include:
* fortune 500 companies and their branch offices;
* mid- to large-size companies domestically and internationally;
and
* government agencies.
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Our goal is to provide security software solutions, which enable
organizations to conduct electronic business safely and confidentially.
RISK FACTORS
You should carefully consider the following 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.
You should consider carefully whether an investment in Secure
Computing is an appropriate investment for you. We do not intend to issue any
dividends in the foreseeable future, so the only purpose of investment in Secure
Computing's shares is to enjoy a potential increase in the shares' value.
Because of the risks mentioned here, and other risks not mentioned specifically
here, it is possible that Secure Computing's shares will decline in value in the
future. For at least some period of time in the future Secure Computing's shares
may decline in value. If you cannot afford to lose the full value of your
investment, in either the short or long term, purchasing Secure Computing shares
is not appropriate for you.
WE ARE EXPERIENCING OPERATING LOSSES AND MAY NOT ACHIEVE
PROFITABILITY. We have incurred losses in the past. For example, for the quarter
ended September 30, 1999 we had a net operating loss of $7.9 million and for the
quarter ended December 31, 1999 we had a net operating loss of $7.6 million. We
expect to continue to incur losses for at least the next four quarters. We may
continue to incur losses thereafter. If these losses continue, our stock price
may decline, which could cause you to lose part or all of your investment.
IF OUR EXISTING FINANCING SOURCES AND OTHER SOURCES ARE NOT AVAILABLE
WE MAY NOT HAVE SUFFICIENT CASH TO SATISFY WORKING CAPITAL REQUIREMENTS. We
believe our current cash balances and the additional financing resources in the
put/call agreement with Westgate are sufficient to satisfy our working capital
requirements for at least the next 12 months. At the time we need cash, however,
our existing financing sources, including the arrangement with Westgate, may not
be available. The reasons our existing financing sources may not be available
are as follows:
* Series E put/call agreement. On January 26, 2000, we entered into
an agreement with Westgate that gives us the right, and under
certain circumstances the obligation, to sell a total of
$17,500,000 of Series E preferred stock to Westgate in two
tranches on or before November 1, 2000. This arrangement with
Westgate and our previous sale of Series D preferred stock are
intended to replace the October 4, 1999 common stock investment
agreement with Manchester Securities Corp. which has been
terminated. As of the date of this prospectus, we have sold 8,750
shares of Series E preferred stock to Westgate under this
agreement with gross proceeds to us of $8,750,000. Our right and
obligation to sell to Westgate is subject to a number of
conditions and limitations. The conditions include, for example,
a requirement that our representations and warranties contained
in the put/call agreement must be accurate and our stock must be
listed for trading. The limitations include, for example, a
requirement that we cannot require Westgate to purchase any
amount of stock in excess of 6% of our market capitalization in
any tranche and we cannot sell stock to Westgate if the market
price of our common stock is less than $5.00. The terms of the
Series E preferred stock are described below under "Description
of Capital Stock - Preferred
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Stock." If any of the conditions are not satisfied or if any of
the limitations are exceeded, we may not be able to raise working
capital by selling additional shares of Series E preferred stock
to Westgate.
* Line of Credit with Wells Fargo Business Credit, Inc. We have a
line of credit with Wells Fargo of up to $5,000,000. This line of
credit is subject to a number of covenants and conditions that as
of the date of this prospectus have not been satisfied. The line
of credit is therefore not available and we may not be able to
obtain an alternative line of credit.
The risk to us is that at the time we will need cash, the above
potential sources of working capital may be unavailable or insufficient to meet
our cash needs. Moreover, financing from other sources may not be available 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 MATERIALLY REDUCED OUR REVENUES DURING 1999 AND
WILL LIKELY CONTINUE TO REDUCE OUR REVENUES INTO EARLY 2000. In recent months we
have experienced delays in customer purchasing decisions. 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.
Enterprise-wide transactions typically involve complex sales of bundled security
products. Our customers take longer to reach purchasing decisions for these
enterprise-wide transactions, thus slowing our sales cycle. In the government
sector delays have related to the conflict in Kosovo. We believe the conflict in
Kosovo has caused government agencies to focus government spending on matters
related to the Kosovo conflict rather than our products and services. We believe
that these delays, particularly year 2000 related delays, will continue to
adversely affect our revenues through the early part of 2000. However, we have
not been able to determine the extent of this reduction in revenues.
THE CONVERSION OF THE SERIES E PREFERRED STOCK SOLD PURSUANT TO THE
PUT/CALL AGREEMENT WITH WESTGATE WILL HAVE A DILUTIVE IMPACT ON OUR SECURITY
HOLDERS. The number of shares of common stock that may ultimately be issued upon
conversion of shares of Series E preferred stock is presently undeterminable
because the conversion price of the Series E preferred stock is based, in part,
on the price of the common stock around the time of the conversion. Assuming a
conversion price of $13.00 per share, conversion of all of the 17,500 shares of
Series E preferred stock authorized for issuance would result in the issuance of
approximately 1,346,154 shares of common stock. This represents about 5.7% of
our outstanding common stock based on the number of shares outstanding as of the
date of the put/call agreement.
The number of shares issuable upon conversion of the Series E
preferred stock will increase as the price of our common stock drops. For
example, if the price of our common stock drops to $5.00 per share, assuming all
17,500 shares of Series E preferred stock were converted, we would issue
approximately 3,500,000 shares of common stock. This would represent
approximately 16% of our outstanding common stock based on the number of shares
outstanding as of the date of the put/call agreement. This would in turn place
additional downward pressure on the price of our common stock. A downward spiral
of the price of our common stock could result in the loss of substantially all
your investment.
COMPETITION FROM COMPANIES PRODUCING ENTERPRISE NETWORK AND DATA
SECURITY PRODUCTS COULD REDUCE OUR SALES AND MARKET SHARE. Our principal
products are network and data security products which enable organizations to
conduct electronic business safely and confidentially. Because the market for
these products is highly competitive it may be difficult to significantly
increase our market share and our share may actually decline.
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Our customers' purchase decisions are based heavily upon the quality
of the security our products provide, the ease of installation and management,
the ability to increase the numbers of individuals using our software
simultaneously and the flexibility of our software. If a competitor can offer
our customers a better solution in these areas and we are unable to rapidly
offer a competitive product we may lose customers. Additionally, barriers to
entry into our market are relatively low, and competitors could offer new
solutions rapidly and at relatively low costs. This could lead to increased
price pressure, reduced margins and a loss of market share.
MANY OF OUR COMPETITORS AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY
GREATER FINANCIAL, MARKETING, TECHNICAL AND OTHER COMPETITIVE RESOURCES THAN WE
HAVE. Our most significant competitors currently include:
* ActivCard S.A.;
* Axent Technologies Ltd.;
* CheckPoint Software Technologies Ltd.;
* Network Associates, Inc.; and
* RSA Security, Inc.
Our larger actual and potential competitors 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. Additionally, we may lose product sales to these
competitors because of their greater name recognition and reputation among
potential customers.
Our future potential competitors could include developers of operating
systems or hardware 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. If any of those potential customers begin to offer
enterprise-wide security systems as a component of their hardware, demand for
our software could decrease. Ultimately, approaches other than ours may dominate
the market for enterprise network and data security products.
OTHER VENDORS MAY INCLUDE PRODUCTS SIMILAR TO OURS IN THEIR HARDWARE
OR SOFTWARE AND RENDER OUR PRODUCTS OBSOLETE. 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. For example, a group of companies,
including Microsoft, IBM, Compaq, and Hewlett-Packard, recently formed an
alliance for the purpose of developing standard security specifications. We may
be at a competitive disadvantage if any such standards gain market acceptance
and are adopted by competitors and if we are unable to take advantage of such
standards. 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 these 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 this limited functionality
in lieu of purchasing additional software. Sales of our products 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
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successfully we must enhance our existing products and develop and introduce new
products in a timely manner. Our net sales and operating results could be
materially affected if we fail to introduce new products on a timely basis. 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. Our net sales and operating results
will be materially affected if the market adopts as industry standards solutions
other than those we employ. 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 materially reduce
our net sales and operating results.
IF THE USE OF PUBLIC SWITCHED NETWORKS SUCH AS THE INTERNET DOES NOT
CONTINUE TO GROW, OUR MARKET AND ABILITY TO SELL OUR PRODUCTS AND SERVICES WILL
BE LIMITED. 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
net sales and operating results 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. 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, our net sales and operating results will be
significantly reduced. The same would occur if we face difficulties or delay in
diversifying our product offerings to lessen our dependency on those products.
OUR STOCK PRICE AND OUR QUARTERLY OPERATING RESULTS 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;
* Secure Computing or its competitors announce technological
innovations or new products;
* developments with respect to our patents or other proprietary
rights or those of our competitors;
* our ability to successfully execute our business plan and compete
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 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 other 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;
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* changes in our operating expenses;
* personnel changes, mix of products sold; and
* changes in product pricing, and development of our direct and
indirect distribution channels.
THE SALES CYCLE FOR OUR PRODUCTS IS LONG AND WE MAY INCUR SUBSTANTIAL
EXPENSES AND INVENTORY 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 substantially depends 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 customer demand falls below anticipated levels, it could seriously
harm our operating results. 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 an
increase in enterprise-wide purchasing involving extensive bundling of security
products causes this extension of the sales cycle.
IF OUR PRODUCTS FAIL TO FUNCTION PROPERLY OR ARE NOT PROPERLY
DESIGNED, OUR REPUTATION MAY BE HARMED AND CONSUMERS MAY MAKE PRODUCT LIABILITY
AND WARRANTY CLAIMS AGAINST US. 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 warranty and other legal 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,
an actual or perceived breach of network or data security at one of our
customers could harm the market's perception of our products and our business.
The harm could occur 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 that
we license from third parties and incorporate into our products. Errors, bugs or
viruses in our products may result in loss of or delay in market acceptance,
recalls of hardware products incorporating the software or loss of data. Our net
sales and operating results could be materially reduced if we experience delays
or difficulties with new product introductions or product enhancements.
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UNDER THE TERMS OF OUR FINANCINGS WE MAY BE REQUIRED TO MAKE
COMPENSATORY PAYMENTS WHICH WOULD MATERIALLY AFFECT OUR CASH POSITION AND
business.
Under the terms of the agreement with the holders of common stock
issued upon conversion of our Series C preferred stock, we are subject to a
number of ongoing obligations. For example, our stock must be quoted on the
Nasdaq Stock Market, or listed on the New York Stock Exchange or the American
Stock Exchange. Additionally, we must maintain the effectiveness of the
registration statement covering the resale of the common stock issued upon
conversion of the Series C preferred stock. If we fail to satisfy our ongoing
obligations we are subject to compensatory payments. The potential compensatory
payments generally consists of a cash payment equal to 1.5% per month of the
stated value of the Series C preferred stock and/or a downward adjustment to the
conversion price of the Series C preferred stock. For example, in September
1999, one of our holders of Series C preferred stock claimed that we were not in
compliance with our obligations. We issued 42,100 shares of common stock in full
satisfaction of this claim. The risk to us is that if the holders of any of the
common stock issued upon conversion of the Series C preferred stock are
successful in imposing such compensatory payments, our cash could be depleted
and/or our stockholders could be diluted by the issuance of additional stock.
In addition, we may also be required to make compensatory payments
which would materially affect our cash position and business under the terms of
the Series D preferred stock financing and our Series E preferred stock
financing. Under the terms of the agreements with Westgate, we are subject to a
number of ongoing obligations. For example, our stock must be quoted on the
Nasdaq Stock Market and the registration statements covering the resale of the
common stock issued or issuable upon conversion of the Series D and Series E
preferred stock must be effective. If we fail to satisfy our ongoing obligations
we are subject to compensatory payments. The potential compensatory payments
generally consist of a cash payment equal to approximately 1% of the purchase
price of the preferred stock for the first 30 days that we fail to satisfy our
obligations and 2% for each 30 day period thereafter. See "Description of
Capital Stock - Preferred Stock." The risk to us is that if a stockholder is
successful in imposing such compensatory payments, our cash could be depleted.
WE MAY BE REQUIRED TO REDEEM THE SERIES E PREFERRED STOCK AND WE
CURRENTLY DO NOT HAVE SUFFICIENT FUNDS TO PAY FOR A REDEMPTION. We may be forced
to redeem all of the Series E preferred stock, 8,750 shares of which are
outstanding on the date of this prospectus, upon the occurrence of certain
events. Events that could trigger our obligation to redeem the Series E
preferred stock include, for example, delisting of our common stock from the
Nasdaq National Market, our failure to maintain the effectiveness of the
registration statement covering the resale of the common stock issuable upon
conversion of the Series E preferred stock or if there is a change in control of
Secure Computing.
We currently lack sufficient funds to pay for a redemption of a
significant amount of Series E preferred stock. Even if we have sufficient funds
to pay for a redemption, our operations would be materially and adversely affect
by the substantial cost of a redemption. For a description of the circumstances
requiring a potential redemption, see "Description of Capital Stock - Preferred
Stock."
YEAR 2000 ISSUES ARE DELAYING CUSTOMER BUYING DECISIONS IN EARLY
FISCAL YEAR 2000, WHICH IS SIGNIFICANTLY REDUCING OUR SALES; 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
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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 all semiconductors
embedded in other (third-party) equipment that we use, nor have we established
the costs and risks associated with such external equipment.
The failure of third-party equipment to operate properly with regard
to the Year 2000 and thereafter could materially affect our operating results
and financial condition. This failure could also require us to incur material
unanticipated expenses to remedy any problems. In addition, 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
that are not Year 2000 compliant.
Further, Year 2000 issues may affect the purchasing patterns of
customers or potential customers as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures could
materially affect our net sales and operating results as a result of customers
or potential customers having reduced funds available to purchase our products
and services. In addition, we believe that some 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 have
materially reduced our sales in the past and could reduce sales in early 2000.
IF WE LOSE A SIGNIFICANT CUSTOMER, WE WILL INCUR GREATER LOSSES. We
derive a significant portion of our revenues from a limited number of customers.
For example, our top five customers in products and services made up 20% of our
products and services revenue in 1999. If we lose any of these customers and
fail to replace the customer or fail to increase revenues from other customers,
we will incur greater losses. Additionally, if our revenues from any of these
customers are reduced, without an increase in revenues from other customers, we
will incur greater losses.
IF WE FAIL TO COLLECT AMOUNTS DUE FROM OUR CUSTOMERS ON A TIMELY
BASIS, OUR CASH FLOW AND OPERATING RESULTS 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 flow is very important to us. In recent
quarters the time for collection of amounts due from our customers has increased
significantly. Like most companies, we anticipate that a portion of the amounts
owed to us will never be paid. However, if our actual collection of amounts owed
to us is less than we have estimated, we will have less cash to fund our
operations than we anticipated and our financial condition and operating results
could be adversely affected.
In addition, collection of amounts due us from sales to resellers and
distributors generally takes longer than for other sales. Therefore, if our
sales to resellers and distributors increase as a percentage of our total
revenue, the average number of days it takes for us to collect amounts due from
our customers may increase. If there is an increase in the time required for us
to collect amounts due us, we will have less cash to fund our operations than we
anticipated. This in turn could adversely affect our financial condition and
operating results.
We have taken and may from time to time take various forms of action
to manage the amounts due us from customers, including selling the debt owed us
to lenders at a discount and granting customer discounts in exchange for earlier
payment.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, DELAWARE LAW, COULD
DISCOURAGE A TAKEOVER OR FUTURE FINANCING. The terms of our certificate of
incorporation and share right agreement permit our Board of Directors to issue
up to 2,000,000 shares of preferred stock and determine the price, rights,
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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 materially weaken 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, 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 provisions of our share rights agreement could delay or make more difficult
a merger, tender offer, proxy contest or other takeover attempts.
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 providing our services may reduce our
profit margin. 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. If the Defense
Contract Audit Agency disallows any of the costs we claim under our contracts,
it could adversely affect our operating results. 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, financial, operations, 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 qualified 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 operating results and our ability to
successfully execute our business plan will be adversely affected if we fail to
retain and increase our key employee population.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS RELATED TO DOING
BUSINESS IN FOREIGN COUNTRIES. International sales are a substantial portion of
our business. Although almost all of our sales are payable in U.S. dollars,
several factors could make it difficult for customers from foreign countries to
purchase our products and services, or pay us for obligations already incurred.
Such factors include:
* severe economic decline in one of our major foreign markets; and
* substantial decline in the exchange rate for foreign currencies
with respect to the U.S. dollar.
A decline in our international sales or collections of amounts due us
from customers could materially effect our operations and financial conditions.
In 1998, 24% of our total sales came from international sales. Of this 24%,
Japan and Sweden accounted for the largest sources of foreign sales. For fiscal
year 1999, 11% of our total sales came from international sales. Of this 11%,
the United Kingdom, Germany, Scandinavia and Japan accounted for the largest
sources of foreign sales. A very large drop in our sales or collections of
amounts due us in these specific countries as a result of recession or other
economic or political disturbances would likely harm our net sales and operating
results.
In addition, we face a number of general risks inherent in doing
business in international markets, including, among others:
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* unexpected changes in regulatory requirements;
* tariffs and other trade barriers;
* potentially greater difficulty in collecting amounts due us;
* longer periods of time to collect amounts due us; and
* a higher rate of piracy of our products in countries with a high
incidence of software piracy.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other documents with the SEC. You may read and copy any document we file at the
SEC's public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New York,
New York, 10048 and 500 West Madison, Chicago, Illinois, 60661. You should call
1-800-SEC-0330 for more information on the public reference room. The SEC
maintains an Internet site at http://www.sec.gov where you can find certain
information regarding issuers (including Secure Computing).
This prospectus is part of a registration statement that we filed with
the SEC (Registration No. 333-_____). The registration statement contains more
information than this prospectus regarding Secure Computing Corporation and its
common stock, including certain exhibits and schedules. You can get a copy of
the registration statement from the SEC at the address listed above or from its
Internet site.
The following documents filed pursuant to the 1934 Act, as amended,
are incorporated into this prospectus by reference: (i) our Annual Report on
Form 10-K for the fiscal year ended December 31, 1998; (ii) our Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1999, June 30,
1999, and September 30, 1999; (iii) our Current Reports on Form 8-K filed with
the Commission on October 8, 1999 and February 9, 2000; and (iv) the description
of our common stock contained in the registration statement filed under the 1934
Act registering such common stock under Section 12 of the 1934 Act.
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the 1934 Act after the date of this prospectus and prior to the termination of
the offering of the securities offered in this prospectus shall be deemed to be
incorporated by reference in this prospectus.
We will undertake to provide without charge to each person, including
any beneficial owner, to whom a copy of this prospectus has been delivered, upon
the written or oral request of such person, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
prospectus by reference, other than exhibits to such documents which are not
specifically incorporated by reference into the information that this prospectus
incorporates. Requests for such copies should be directed to: Chief Financial
Officer, Secure Computing Corporation, One Almaden Blvd., Suite 400, San Jose,
California 95113 (408) 918-6100.
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SELLING STOCKHOLDER
On December 17, 1999, we entered into the investment agreement with
the selling stockholder, Westgate International, L.P., and on that date, we sold
5,000 shares of Series D preferred stock to Westgate for $5,000,000. In
addition, on December 31, 1999 pursuant to the investment agreement Westgate
purchased an additional 2,500 shares of our Series D preferred stock for
$2,500,000. Westgate has converted all of the Series D preferred stock into a
total of 793,205 shares of common stock.
On February 11, 2000, we sold 8,750 shares of Series E preferred stock
to Westgate under the put/call agreement for $8,750,000. This prospectus covers
the common stock issued upon conversion of the Series D preferred stock and the
common stock issuable upon conversion of 8,750 shares of Series E preferred
stock. The terms of the put/call agreement and the Series E preferred stock are
summarized below under "Description of Capital Stock - Preferred Stock."
REGISTRATION RIGHTS AGREEMENTS.
On December 17, 1999 we entered into a registration rights agreement
with Westgate. That agreement requires that we register 793,205 of the shares of
common stock covered by this prospectus. We will prepare and file such
amendments and supplements to the registration statement as may be necessary in
accordance with the Securities Act, and the rules and regulations promulgated
thereunder.
On January 26, 2000, we entered into another registration rights
agreement with Westgate. That agreement requires that we register the common
stock issuable upon conversion of the Series E preferred stock. This prospectus
also covers 1,196,581 shares of common stock issuable upon conversion of the
8,750 shares of Series E preferred stock issued to Westgate on February 11, 2000
under the put/call agreement.
We are subject to compensatory payments if we do not fulfill our
obligations under the registration rights agreements. For example, our stock
must be quoted on the Nasdaq Stock Market and the registration statements
covering the resale of the common stock issued or issuable upon conversion of
the Series D and Series E preferred stock must be effective. The potential
compensatory payments generally consists of a cash payment equal to
approximately 1% of the purchase price of the preferred stock for the first 30
days that we fail to satisfy our obligations and 2% for each 30 day period
thereafter. The holders of Series E preferred stock may also demand redemption
if we do not satisfy certain of our obligations under the registration rights
agreement. See "Description of Capital Stock - Preferred Stock" below.
HOLDINGS OF SELLING STOCKHOLDER.
The following table sets forth the aggregate number of shares of
common stock held by the selling stockholder and offered by the selling
stockholder and the percentage of all shares of common stock held by the selling
stockholder after giving effect to the offering (based on an estimated
23,629,489 shares of common stock outstanding as of January 31, 2000).
Other than its ownership of our securities pursuant to the following
agreements, the selling stockholder has not had any material relationship with
us within the past three years:
* On December 17, 1999 we entered into an investment agreement
with Westgate pursuant to which we sold 7,500 shares of
Series D preferred stock to Westgate, all of which have been
converted into common stock.
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* On January 26, 2000 we entered into the put/call agreement
with Westgate, as described above.
The number of shares beneficially owned by Westgate includes an
estimated (i) 925,505 shares of common stock owned by Westgate as of the date of
this prospectus and (ii) 598,291 shares of common stock issuable to Westgate
upon conversion of 8,750 shares of Series E preferred stock outstanding on the
date of this prospectus.
The number of shares issuable upon conversion of the Series E preferred
stock is estimated assuming that the 8,750 shares of Series E preferred stock
sold to Westgate on February 11, 2000 are converted at a conversion price of
$14.625, which is the closing price of our common stock on February 14, 2000. We
have chosen to register approximately 200% of the number of shares we estimate
to be currently issuable upon conversion of the 8,750 shares of Series E
preferred stock currently outstanding so that a sufficient number of shares are
registered in the event that the conversion price of the Series E preferred
stock declines after the date of this prospectus.
Under our agreements with Westgate and Manchester, they are prohibited
from beneficially owning more than an aggregate of 9.99% of our common stock.
- --------------------------------------------------------------------------------
Percent of
Name of Selling Number of Shares Outstanding Number of
Stockholder Beneficially Owned Common Stock Shares Offered
- --------------------------------------------------------------------------------
Westgate International, 1,523,795 6.4% 1,989,786
L.P.
- --------------------------------------------------------------------------------
We have agreed to indemnify Westgate against liabilities arising under
the Securities Act. The registration rights agreement provides that we will
reimburse Westgate for expenses it incurs in connection with investigating or
defending against claims based upon untrue statements (or alleged untrue
statements) or omission (or alleged omissions) of material facts in Secure
Computing's filings with the SEC. In addition, we will indemnify Westgate
against claims based on Secure Computing's violation (or alleged violation) of
the Securities Act or other federal or state securities regulations.
As explained in the "Plan of Distribution", we have agreed to bear
certain expenses (other than broker discounts and commissions, if any) in
connection with the registration statement.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
offered by this prospectus. Westgate will receive all such proceeds. The
proceeds from the sale of the Series E preferred stock to Westgate will be used
for working capital purposes.
PLAN OF DISTRIBUTION
All or a portion of the shares offered hereby by Westgate may be
delivered and/or sold in transactions from time to time on the over-the-counter
market, on the Nasdaq National Market, in negotiated transactions, sales on any
market where our stock is traded, any other legal method of disposition,
delivery of shares in settlement of option/short sales transactions, block
trades, or a combination of such methods of sale, at market prices prevailing at
the time, at prices related to such prevailing prices or at negotiated prices.
Westgate may effect such transactions by selling to or through one or more
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from Westgate. Any
broker-dealer that participates in the distribution may under certain
circumstances be deemed to be "underwriter" within the meaning of the Securities
Act, and any commissions such broker-dealer receives and any profits it realizes
on the resale of shares may be deemed to be underwriting discounts and
commissions under the Securities Act. Secure Computing has agreed to indemnify
Westgate with respect to the shares offered hereby against
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certain liabilities, including, without limitation, certain liabilities under
the Securities Act, or, if such indemnity is unavailable, to contribute toward
amounts required to be paid in respect of such liabilities.
Any broker-dealer participating in such transactions as agent may
receive commissions from Westgate (and, if it acts as agent for the purchaser of
such shares, from such purchaser). Broker-dealers may agree with Westgate to
sell a specified number of shares at a stipulated price per share, and, to the
extent such a broker-dealer is unable to do so acting as agent for Westgate, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to Westgate. Broker-dealers who acquire shares as
principal may thereafter resell such shares from time to time in transactions
(which may involve crosses 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 such resales may pay to or receive from the purchasers of such
shares commissions computed as described above. To the extent required under the
Securities Act, a supplemental prospectus will be filed, disclosing:
* the name of any such broker-dealers;
* the number of shares involved;
* the price at which such shares are to be sold;
* the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
* that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus, as supplemented; and
* other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale of shares may not
simultaneously engage in market making activities with respect to the common
stock of Secure Computing for a period of two business days prior to the
commencement of such distribution. In addition, Westgate will be subject to
applicable provisions of the Exchange Act, and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of shares of Secure Computing's common
stock by the selling stockholder.
Westgate will pay all commissions, transfer taxes, and certain other
expenses associated with the sale of securities by them. The shares offered
hereby are being registered pursuant to contractual obligations of Secure
Computing, and Secure Computing has paid the expenses of the preparation of this
prospectus.
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, the authorized capital stock of
Secure Computing consists of 50,000,000 shares of common stock, $0.01 par value,
and 2,000,000 shares of preferred stock, $0.01 par value.
COMMON STOCK
As of January 26, 2000, there were 23,629,489 shares of common stock
outstanding held of record by approximately 542 registered stockholders. We
believe however, that many beneficial holders of our common stock have
registered their shares in nominee or street name. The holders of common
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stock are entitled to one vote per share on all matters to be voted on by
stockholders, except that holders may cumulate their votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, common stockholders are entitled to receive ratably such
dividends as may be declared by the Board of Directors in its discretion from
funds legally available therefor. In the event of a liquidation, dissolution, or
winding up of Secure Computing common stockholders are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding preferred stock. Common stockholders have no
preemptive rights and have no rights to convert their common stock into any
other securities. The outstanding shares of common stock are fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any further vote or action by the stockholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of Secure Computing or making removal of management more
difficult without further action by the shareholders and could adversely affect
the rights and powers, including voting rights, of the holders of common stock.
These provision could also affect the market price of our common stock.
17,500 shares of Preferred Stock have been designated as Series E
preferred stock, 8,750 of which are outstanding on the date of this prospectus.
All of the shares of Series E preferred stock have been reserved for issuance to
Westgate pursuant to the put/call agreement. Under the terms of the put/call
agreement, we have the "put" right to sell, and Westgate also has the "call"
right to buy, up to a total of 17,500 shares of Series E preferred stock for
$1,000 per share in two equal tranches, the first of which was closed on
February 11, 2000.
Our right to sell, and Westgate's right to purchase, the shares of
Series E preferred stock in the second tranche expires on November 1, 2000.
Westgate can, however, exercise its call right after this date if the
registration statement covering the resale of the common shares issuable upon
conversion of the Series E preferred stock issued in the first tranche is not
declared effective by the time period required by the put/call agreement. Before
we can sell stock under either a put or call, we must satisfy certain conditions
set forth in the put/call agreement. Those conditions include, for example, the
requirement that our representations and warranties are accurate, that we are in
compliance with our other agreements with Westgate and Manchester, that our
common stock is listed for trading and other conditions set forth in the
put/call agreement.
There are also a number of limitations on our ability to sell stock
under the put/call agreement. For example, we cannot sell stock to Westgate if
the market price of our common stock is less that $5.00. Additionally, we cannot
sell stock to Westgate under our put right in an amount that exceeds 6% of our
market capitalization. Similarly, Westgate cannot exercise its call right to buy
our stock in an amount that exceeds 9% of our market capitalization.
The terms of the Series E preferred stock are summarized below.
CONVERSION: Each share of Series E preferred stock has a face value of
$1000 and is convertible, at the election of the holder, into that number of
shares of our common stock equal to $1000 divided by the conversion price. The
conversion price is equal to the lower of:
* an amount equal to 20% above the average closing price of
our common stock for a five day trading period before the
date that notice is given to sell the Series E preferred
stock
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to Westgate in each tranche (or, if lower in the event of a
put by us, 20% above the average closing price of our common
stock for a five day trading period after the date that
notice is given to sell the Series E preferred stock); and
* an amount equal to the average of the two lowest daily
trading prices for the 12 trading days before the day of
conversion.
The following are examples of how the conversion price works, assuming
that the average closing price of the common stock is $20 for the five trading
day period around the date that notice is given to sell the Series E preferred
stock.
EXAMPLE 1: If the average closing price for the 12 trading
day period immediately prior to the conversion
date is $10 then each share of Series E
preferred stock would convert into approximately
100 shares of our common stock.
EXAMPLE 2: If the average closing price for the 12 day
period immediately prior to conversion is $15
then each share of Series E preferred stock
would convert into approximately 66 2/3 shares
of our common stock.
EXAMPLE 3: If the average closing price for the 12 trading
day period immediately prior to the conversion
date is $30 then each share of Series E
preferred stock would convert into approximately
41 2/3 shares of our common stock. In this
example the conversion price is equal to 20%
above the average closing price of the common
stock on the five days around the date of the
notice to sell stock ($20) since that amount is
lower than the $30 average market price.
The above averages will be adjusted and recalculated based on each
separate conversion date.
The significance of having conversion factors based upon average
closing prices of our common stock is that it allows the holder to receive a
greater number of shares of common stock if our common stock price declines. The
significance of having the conversion price set at 20% above the average closing
prices is that the holder will receive at least a minimum number of shares upon
conversion if our stock price rises above that amount.
The conversion price of the Series E preferred stock is subject to
modification and adjustment. For example, the conversion price will be adjusted
in connection with stock splits, distributions and certain issuances of
securities below the then existing conversion price.
The Series E preferred stock has a liquidation preference equal to the
face value, and is senior to any other preferred stock in respect of the right
to receive dividend payments and liquidation preferences.
The Series E preferred stock is also subject to mandatory conversion
into common stock four months after the registration statement covering the
resale of the common stock issuable upon conversion of the Series E preferred
stock becomes effective. Mandatory conversion will be deferred, however, for the
number of days that any of the following events have occurred:
* the registration statement is not declared effective within
60 days of the closing of any tranche;
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* there are not a sufficient number of shares of common stock
issuable upon conversion of the Series E preferred stock;
* we have refused to honor conversions of Series E preferred
stock; and
* there is any other limitation on the ability of the holders
of Series E preferred stock to sell shares of common stock
received upon conversion of the Series E preferred stock.
Additionally, the holders of Series E preferred are not obligated to
convert the Series E preferred stock into common stock unless all of the
following conditions are satisfied:
* we cannot be in material default or breach of our agreements
with Westgate, including the registration rights agreements
related to the registration of the common stock upon
conversion of the Series E preferred stock;
* we must be in compliance with the terms of the Certificate
of Designations related to the Series E preferred stock;
* we must be solvent; and
* the conversion to common stock must not result in Westgate
and its affiliates beneficially owning more than 9.99% of
our outstanding common stock.
REDEMPTION: The Series E preferred stock is subject to redemption at a
premium three days following a written request by the selling stockholder. The
selling stockholder can request redemption upon the occurrence of events
described in the transaction documents, including for example:
* if we undergo a change in control;
* if the registration related to the resale of the common
stock issuable upon conversion of the Series E preferred
stock is not declared effective within 120 days of the
closing of either tranche;
* if we fail to maintain the listing of our common stock on
the Nasdaq National Market;
* if we fail to maintain the effectiveness of the registration
statement related to the resale of the common stock issuable
upon conversion of the Series E preferred stock after a
specified grace period;
* our failure to reserve a sufficient number of shares of
common stock for issuance upon conversion of the Series E
preferred stock;
* our failure to pay certain of the penalties specified in the
transaction documents with Westgate; and
* our failure to comply with the terms of the warrant issued
to Manchester Securities Corp. on October 5, 1999.
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The dollar amount of the redemption is generally equal to the greater
of:
* 115% to 125% (depending on the event triggering the
redemption) of the price of shares of Series E preferred
stock requested to be redeemed plus accumulated dividends;
or
* the price of the Series E preferred stock requested to be
redeemed plus accumulated dividends, divided by the
conversion price on the redemption date and multiplied by
the greater of last closing price of our common stock on the
date that redemption is requested or the date on which the
event triggering the right to redeem first occurred.
DIVIDEND RIGHTS: Holders of Series E preferred stock are entitled to
cumulative dividends at the rate of 4% of the purchase price of the Series E
preferred stock. The dividends cumulate and are payable quarterly. The amount of
each dividend is added to the liquidation preference of the Series E preferred
stock, or at our election paid in cash.
VOTING RIGHTS: In addition to any requirements imposed by Delaware
law, the vote of the holders of two-thirds of the outstanding shares of Series E
preferred stock is required for:
* any amendment to the Certificate of Designations related to the
Series E preferred stock and for any amendment to our Certificate
of Incorporation that would adversely affect the rights,
preferences or privileges of the Series E preferred stock; and
* any merger, reclassification consolidation or reorganization.
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LEGAL MATTERS
The legality of the issuance of the securities being offered hereby is
being passed upon for Secure Computing by Heller Ehrman White & McAuliffe, A
Partnership of Professional Corporations, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates except for the Securities and Exchange Commission
Registration Fee.
Securities and Exchange Commission Registration Fee.... $7,781
Accounting Fees........................................ $10,000
Legal Fees and Disbursements........................... $50,000
Miscellaneous.......................................... $25,000
Placement Agent Fees................................... $250,000
--------
Total:........................................... $342,781
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
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.
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ITEM 16. EXHIBITS.
A. EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
4.1 Put/Call Agreement between Westgate International, L.P. and
Secure Computing Corporation dated as of January 26, 2000.*
5.1 Opinion of Heller Ehrman White & McAuliffe.
10.1 Registration Rights Agreement between Westgate
International, L.P. and Secure Computing Corporation dated
as of December 17, 1999.*
10.2 Registration Rights Agreement between Westgate
International, L.P. and Secure Computing Corporation dated
as of January 26, 2000.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Heller Ehrman White & McAuliffe (contained in
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
-------------------------------
* Incorporated by reference to the current report on Form 8-K filed by Secure
Computing on February 9, 2000.
ITEM 17. UNDERTAKINGS.
A. The undersigned Secure Computing Corporation hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (i) and (ii) 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 Secure Computing
Corporation pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
II-2
<PAGE>
B. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of Secure Computing Corporation's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Secure Computing Corporation pursuant to the provisions described
under Item 14 above, or otherwise, Secure Computing Corporation has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Secure Computing Corporation of
expenses incurred or paid by a director, officer or controlling person of Secure
Computing Corporation in the successful defense of any action, suit or
proceeding) is asserted against Secure Computing Corporation by such Director,
officer or controlling person in connection with the securities being
registered, Secure Computing Corporation 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 Act 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Secure
Computing Corporation certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in San Jose, State of California, on the 15th day of February
2000.
SECURE COMPUTING CORPORATION
By: /S/TIMOTHY MCGURRAN
--------------------------------------
Timothy P. McGurran,
Senior Vice President of
Operations and Chief Financial Officer
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John McNulty and Timothy McGurran, or
either of them, with the power of substitution, her or his attorney in fact, to
sign any amendments to this Registration Statement (including post-effective
amendments), 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 attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
February 14, 2000 /S/JOHN MCNULTY
-----------------------------------------------
John McNulty
Chief Executive Officer (Principal Executive
Officer) and Chairman of the Board of Directors
February 14, 2000 /S/TIMOTHY MCGURRAN
-----------------------------------------------
Timothy McGurran
Senior Vice President of Operations and Chief
Financial Officer (Principal Financial and
Accounting Officer)
February 14, 2000 /S/STEVEN M. PURICELLI
-----------------------------------------------
Steven M. Puricelli
Director
February 14, 2000 /S/ERIC P. RUNDQUIST
-----------------------------------------------
Eric P. Rundquist
Director
February 14, 2000 /S/ROBERT J. FRANKENBERG
-----------------------------------------------
Robert J. Frankenberg
Director
February 14, 2000 /S/ALEXANDER ZAKUPOWSKY, JR.
-----------------------------------------------
Alexander Zakupowsky, Jr.
Director
II-5
<PAGE>
SECURE COMPUTING CORPORATION
EXHIBIT INDEX
A. EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
4.1 Put/Call Agreement between Westgate International, L.P. and
Secure Computing Corporation dated as of January 26, 2000.*
5.1 Opinion of Heller Ehrman White & McAuliffe.
10.1 Registration Rights Agreement between Westgate
International, L.P. and Secure Computing Corporation dated
as of December 17, 1999.*
10.2 Registration Rights Agreement between Westgate
International, L.P. and Secure Computing Corporation dated
as of January 26, 2000.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Heller Ehrman White & McAuliffe (contained in
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
-------------------------------
* Incorporated by reference to the current report on Form 8-K filed by Secure
Computing on February 9, 2000.
HELLER EHRMAN ATTORNEYS
EXHIBIT 5.1
February 14, 2000
Secure Computing Corporation
One Alameda Blvd., Suite 400
San Jose, California 95113
Ladies and Gentlemen:
We have acted as counsel to Secure Computing Corporation, a Delaware
corporation (the "COMPANY"), in connection with the Registration Statement on
Form S-3 (the "REGISTRATION STATEMENT") which the Company intends to file with
the Securities and Exchange Commission (the "COMMISSION) for the purpose of
registering under the Securities Act of 1933, as amended, 1,989,786 Shares of
its Common Stock, par value $.01 (the "SHARES").
We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
records, documents and instruments submitted to us as copies.
In rendering our opinion, we have examined the following records,
documents and instruments:
(a) The Certificate of Incorporation of the Company, certified by the
Delaware Secretary of State as of October 8, 1999, and the
Certificates of Designations certified by the Delaware Secretary of
State as of December 17, 1999 and January 26, 2000 and certified to us
by an officer of the Company as being complete and in full force as of
the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this
opinion;
(c) A Certificate of an officer of the Company (i) attaching records
certified to us as constituting all records of proceedings and actions
of the Board of Directors, including any committee thereof, and
stockholders of the Company relating to the Shares, and the
Registration Statement, and (ii) certifying as to certain factual
matters;
(d) The Registration Statement;
(e) A letter from NorWest Shareowner Services, the Company's transfer
agent, dated October 12, 1999, as to the number of shares of the
Company's Common Stock that were outstanding on October 11, 1999.
This opinion is limited to the federal law of the United States of
America and the General Corporation Law of the State of Delaware, and we
disclaim any opinion as to the laws of any other jurisdiction. We further
disclaim any opinion as to any other statute, rule, regulation, ordinance, order
or other promulgation of any other jurisdiction or any regional or local
governmental body or as to any related judicial or administrative opinion.
Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement
1
<PAGE>
HELLER EHRMAN ATTORNEYS
becomes and remains effective during the period when the Shares are offered and
sold, (ii) the full consideration stated in the Preferred Stock Investment
Agreement pursuant to which the Shares will be purchased, and when purchased,
will be fully paid for each Share and that such consideration in respect of each
Share will include payment of cash or other lawful consideration at least equal
to the par value thereof, (iii) appropriate certificates evidencing the Shares
will be executed and delivered by the Company, and (iv) all applicable
securities laws are complied with, it is our opinion that, when issued and sold
by the Company, the Shares will be legally issued, and fully paid and
nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any change of law that occurs, or any facts of
which we may become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
2
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of Secure Computing
Corporation for the registration of 1,989,786 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 (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 10, 2000
