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Filed Pursuant to Rule 424(b)(4)
Registration File No.: 333-87557
723,987 Shares
ISS GROUP, INC.
Common Stock
This prospectus relates to the public offering, which is not being
underwritten, of 723,987 shares of our common stock which are held by some of
our current stockholders.
The prices at which such stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is quoted on the Nasdaq National Market under the
symbol "ISSX." On October 27, 1999, the last reported sale price for the common
stock was $38-1/4.
See "Risk Factors" on page 3.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is October 29, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from our web site at
http://www.iss.net or at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and later information filed with
the SEC will update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Section 13a, 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
our offering is completed.
o Annual Report on Form 10-K for the year ended December 31, 1998,
filed with the SEC on February 17, 1999, including certain
information in ISS Group's Definitive Proxy Statement in
connection with its 1999 Annual Meeting of Stockholders;
o ISS Group's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999, filed with the SEC on May 13,
1999 and August 13, 1999, respectively;
o ISS Group's Current Report on Form 8-K filed with the SEC on
September 15, 1999; and
o The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on March 13, 1998,
including any amendments or reports 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:
Richard Macchia
Chief Financial Officer
ISS Group, Inc.
6600 Peachtree-Dunwoody Road
300 Embassy Row, Suite 500
Atlanta, GA 30328
678-443-6000
You should rely only on the information incorporated by reference or
provided in this prospectus or the prospectus supplement. We have authorized no
one 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 that the information in this prospectus or the prospectus supplement is
accurate as of any date other than the date on the front of the document.
THE COMPANY
ISS's principal executive offices are located at 6600
Peachtree-Dunwoody Road, 300 Embassy Row, Suite 500, Atlanta, Georgia 30328.
ISS's telephone number is (678) 443-6000.
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RISK FACTORS
You should carefully consider the risks described below before you
decide to buy our common stock. The risks and uncertainties described below are
not the only ones facing our company. Additional risks and uncertainties may
also adversely impair our business operations. If any of the following risks
actually occur, our business, financial condition or results of operations
would likely suffer. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about us and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, as more fully
described in this section and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
WE ARE A YOUNG COMPANY THAT HAS INCURRED LOSSES
We began operations in April 1994 and have only achieved profitability
over the past two-quarter periods ended June 30, 1999. We cannot be certain
that we can sustain such profitability in any future period. You should be
aware that we have only a limited operating history upon which to evaluate our
business and prospects. We operate in a new and rapidly evolving market and
must, among other things:
o respond to competitive developments;
o continue to upgrade and expand our product and services
offerings; and
o continue to attract, retain and motivate our employees.
We cannot be certain that we will successfully address these risks.
OUR FUTURE OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY
As a result of our limited operating history, we cannot predict our
future revenues and operating results. However, we do expect our future
revenues and operating results to fluctuate due to a combination of factors,
including:
o the growth of private Internet-based networks (often referred to
as intranets);
o the extent to which the public perceives that unauthorized access
to and use of online information is a threat to network security;
o the volume and timing of orders, including seasonal trends in
customer purchasing;
o our ability to develop new and enhanced products and expand our
professional services;
o the growth in the acceptance of, and activity on, the Internet
and the World Wide Web, particularly by corporate, institutional
and government users;
o customer budgets which may limit their ability to purchase our
products;
o foreign currency exchange rates that affect our international
operations;
o the mix of distribution channels through which we sell our
products;
o product and price competition in our markets; and
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o general economic conditions, both domestically and in our foreign
markets.
We increasingly focus our efforts on sales of enterprise-wide security
solutions, which consist of our entire product suite and related professional
services, rather than on the sale of component products. As a result, we expect
that each sale may require additional time and effort from our sales staff. In
addition, the revenues associated with particular sales vary significantly
depending on the number of products licensed by a customer, the number of
devices used by the customer and the customer's relative need for our
professional services. Large individual sales, or even small delays in customer
orders, can cause significant variation in our license revenues and results of
operations for a particular period. The timing of large orders is usually
difficult to predict and, like many software companies, our customers typically
license most of our products in the last month of a quarter.
Our future operating expenses are expected to increase in future
periods as we intend to:
o expand our domestic and international sales and marketing
operations;
o increase our investments in product development and our
proprietary threat and vulnerability database;
o expand our professional services capabilities;
o seek acquisition candidates that will enhance our products and
market share; and
o improve our internal operating and financial systems.
We cannot predict our operating expenses based on our past results.
Instead, we establish our spending levels based in large part on our expected
future revenues. As a result, if our actual revenues in any future period fall
below our expectations, our operating results likely will be adversely affected
because very few of our expenses vary with our revenues. Because of the factors
listed above, we believe that our quarterly and annual revenues, expenses and
operating results likely will vary significantly in the future.
WE FACE INTENSE COMPETITION IN OUR MARKET
The market for network security monitoring, detection and response
solutions is intensely competitive, and we expect competition to increase in
the future. We cannot guarantee that we will compete successfully against our
current or potential competitors, especially those with significantly greater
financial resources or brand name recognition. Our chief competitors generally
fall within one of four categories:
o internal information technology departments of our customers and
the consulting firms that assist them in formulating security
systems;
o relatively smaller software companies offering relatively limited
applications for network and Internet security;
o large companies, including Axent Technologies and Network
Associates, that sell competitive products and offerings, as well
as other large software companies that have the technical
capability and resources to develop competitive products; and
o software or hardware companies that could integrate features that
are similar to our products into their own products.
Mergers or consolidations among these competitors, or acquisitions of
small competitors by larger companies, would make such combined entities more
formidable competitors to us. Large companies may have advantages over us
because of their longer operating histories, greater name recognition, larger
customer bases or greater financial, technical and marketing resources. As a
result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. They can also devote greater resources to
the promotion and sale of their products than we can. In addition, these
companies have reduced, and could continue to reduce, the price of their
security monitoring, detection and response products, which increases pricing
pressures within our
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market. In addition, large companies with broad product offerings, such as
Network Associates, have bundled their security products with their other
products, and we expect them to continue to do so in the future. These
companies may develop security monitoring, detection and response products that
are better than our current or future products and this may render our products
obsolete.
Several companies currently sell software products (such as
encryption, firewall, operating system security and virus detection software)
that our customers and potential customers have broadly adopted. Some of these
companies sell products which perform the same functions as some of our
products. In addition, vendors of operating system software or networking
hardware may enhance their products to include the same kinds of functions that
our products currently provide. The widespread inclusion of comparable features
to our software in operating system software or networking hardware could
render our products obsolete, particularly if such features are of a high
quality. Even if security functions integrated into operating system software
or networking hardware are more limited than those of our software, a
significant number of customers may accept more limited functionality to avoid
purchasing additional software.
For the above reasons, we may not be able to compete successfully
against our current and future competitors. Increased competition may result in
price reductions, reduced gross margins and loss of market share.
WE FACE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY AND FREQUENT INTRODUCTIONS
OF NEW PRODUCTS
Rapid changes in technology pose significant risks to us. We do not
control nor can we influence the forces behind these changes, which include:
o the extent to which businesses and others seek to establish more
secure networks;
o the extent to which hackers and others seek to compromise secure
systems;
o evolving computer hardware and software standards;
o changing customer requirements; and
o frequent introductions of new products and product enhancements.
To remain successful, we must continue to change, adapt and improve
our products in response to these and other changes in technology. Our future
success hinges on our ability to both continue to enhance our current line of
products and professional services and to introduce new products that address
and respond to innovations in computer hacking, computer technology and
customer requirements. We cannot be sure that we will successfully develop and
market new products that do this. Any failure by us to timely develop and
introduce new products, to enhance our current products or to expand our
professional services capabilities in response to these changes could adversely
affect our business, operating results and financial condition.
Our products involve very complex technology, and as a consequence,
major new products and product enhancements require a long time to develop and
test before going to market. Because this amount of time is difficult to
estimate, we have had to delay the scheduled introduction of new and enhanced
products in the past and may have to delay the introduction of new products and
product enhancements in the future.
The techniques computer hackers use to gain unauthorized access to or
to sabotage networks and intranets are constantly evolving and increasingly
sophisticated. Furthermore, because new hacking techniques are usually not
recognized until used against one or more targets, we are unable to anticipate
most new hacking techniques. To the extent that new hacking techniques harm our
customers' computer systems or businesses, affected customers may believe that
our products are ineffective, which may cause them or prospective customers to
reduce or avoid purchases of our products.
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WE MUST EFFECTIVELY MANAGE OUR RAPID GROWTH
Our business has grown rapidly in the last three years, with total
revenues increasing from $4.5 million in 1996 to $32.9 million in the first six
months of 1999. During this period, our workforce has also rapidly expanded,
increasing from seven employees in January 1996 to 433 at June 30, 1999. This
growth has strained, and if continued, will further strain our management
resources and systems. We intend to continue to expand both our business and
workforce for the foreseeable future to pursue existing and potential market
opportunities. However, if the market for our solutions fails to grow or grows
more slowly than we currently anticipate, our business, operating results and
financial condition would be materially and adversely affected.
In addition, our ability to manage future growth will require us to
continually improve our financial and management controls, reporting systems
and procedures, to implement new systems as necessary and to expand, train and
manage our employees. We cannot assure investors in our common stock that we
will be able to manage successfully any future expansion. Our inability to do
so would materially and adversely affect our business, operating results and
financial condition.
RISKS ASSOCIATED WITH OUR GLOBAL OPERATIONS
The expansion of our international operations includes the maintenance
of sales offices in dispersed locations throughout the world, including
throughout Europe and the Asia/Pacific and Latin America regions. Our
international presence and expansion exposes us to risks not present in our
U.S. operations, such as:
o the difficulty in managing an organization spread over various
countries located across the world;
o unexpected changes in regulatory requirements in countries where
we do business;
o excess taxation due to overlapping tax structures;
o fluctuations in foreign currency exchange rates, which may be
aggravated in European markets by the recent introduction of the
Euro currency;
o import and export licensing requirements;
o trade restrictions;
o changes in tariff and freight rates; and
o depressed regional and economic conditions, such as those
currently affecting many regions in Asian markets.
Despite these risks, we believe that we must continue to expand our
operations in international markets to support our growth. To this end, we
intend to establish additional foreign sales operations, expand our existing
offices, hire additional personnel, expand our international sales channels and
customize our products for local markets. If we fail to execute this strategy,
our international sales growth will be limited, which, in turn, could
materially and adversely affect our business, operating results and financial
condition.
To date, we have primarily denominated our revenues from international
operations in United States dollars; however, we will increasingly denominate
sales in local foreign currencies in the future. An increase in the value of
the United States dollar relative to foreign currencies would make our products
more expensive and, therefore, potentially less competitive in foreign markets.
In addition, even if we successfully expand our international operations, we
may not be able to maintain or increase international market demand for our
products.
WE RELY ON INDIRECT DISTRIBUTION CHANNELS
Although our direct sales have accounted for a majority of our
revenues in 1998, we expect to continue to license a significant percentage of
our products to end users through indirect distribution channels in the future.
Our indirect distribution channel partners include:
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o original equipment manufacturers that bundle our products with
products that they sell to their customers;
o managed service providers, such as telecommunications companies
and Internet service providers, that host networking and Internet
operations for business customers; and
o consultants and systems integrators that incorporate our products
into customized solutions that they have implemented for their
customers.
Our future performance will also depend, in part, on our ability to
attract new channel partners to market and support our products effectively,
especially in new markets. While no one channel partner accounted for more than
10% of our consolidated revenues in 1998, we cannot assure you that revenue
from channel partners that accounted for significant revenues in past periods
will continue or, if continued, will reach or exceed past levels. In addition,
we often depend upon our channel partners to install and support our products
for end users. If our channel partners fail to provide adequate installation
and support, end users of our products could cease using, or improperly
implement and operate, our products. Such a failure could substantially
increase our customer support costs and materially and adversely affect our
business, operating results and financial condition.
POTENTIAL FUTURE ACQUISITIONS OR INVESTMENTS
As part of our growth strategy, we have acquired, and may continue to
acquire or make investments in, companies with products, technologies or
professional services capabilities complementary to our solutions. In acquiring
companies in the future, we could encounter difficulties in assimilating their
personnel and operations into our company. These difficulties could disrupt our
ongoing business, distract our management and employees, increase our expenses
and adversely affect our results of operations. These difficulties could also
include accounting requirements, such as amortization of goodwill or in-process
research and development expense. We cannot be certain that we will
successfully overcome these risks with respect to any future acquisitions or
that we will not encounter other problems in connection with our prior or any
future acquisitions. In addition, any future acquisitions may require us to
incur debt or issue equity securities. The issuance of equity securities could
dilute the investment of our existing stockholders.
WE DEPEND ON OUR KEY PERSONNEL
Our future success also depends on our continuing ability to attract
and retain highly qualified engineers, managers and sales and professional
services personnel. The competition for employees at all levels of the software
industry, especially those with experience in the relatively new discipline of
security software, is increasingly intense. If we do not succeed in attracting
new employees or retaining and motivating our current employees, our business
could suffer significantly.
WE DEPEND ON OUR INTELLECTUAL PROPERTY RIGHTS AND USE LICENSED TECHNOLOGY
We rely primarily on copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our
proprietary rights. We also believe that the technological and creative skills
of our personnel, new product developments, frequent product enhancements, our
name recognition, our professional services capabilities and delivery of
reliable product maintenance are essential to establishing and maintaining our
technology leadership position. We cannot assure you that our competitors will
not independently develop technologies that are similar to ours.
We seek to protect our software, documentation and other written
materials under the trade secret and copyright laws, which afford only limited
protection. We have also submitted two United States patent applications.
Patents may not issue from these applications or, if issued, may not provide
any meaningful competitive advantages to us.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult. While we cannot determine the extent to which piracy of
our software products occurs, we expect software piracy to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States
and many foreign countries do not enforce these laws as diligently as U.S.
government agencies and private parties.
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We are not aware that any of our products infringes the proprietary
rights of others, but it is conceivable that our current or future products may
infringe the proprietary rights of others. In fact, in July 1998 Network
Associates, one of our competitors, filed a lawsuit against us alleging that
our Real Secure product violated a patent claim for intrusion detection
technology held by Network Associates. The parties resolved this lawsuit in
July 1999 without any material affect on our business, operating results or
financial condition.
We expect the number of intellectual property infringement lawsuits
against software companies to increase. Any such claims, with or without merit,
could be time consuming, result in costly litigation, cause product shipment
delays or require us to enter into royalty or licensing agreements.
WE LACK CERTAIN TRADEMARK PROTECTION
We currently cannot obtain trademark protection on the name "Internet
Security Systems" due to its general use in a variety of security-related
applications. We have in the past asserted and intend to continue to assert our
rights to the name "Internet Security Systems". In addition, we have in the
past taken and will continue to take action against any use of that name in a
manner that may create confusion for our products in our current or future
markets. However, we may not be successful in these efforts, which could have a
material adverse effect upon our business, operating results and financial
condition.
WE FACE POTENTIAL PRODUCT LIABILITY EXPOSURE AND PRODUCT DEFECTS
Many organizations use our products for critical functions of
monitoring and enhancing network security. As a result, we risk product
liability and related claims for our products if they do not adequately perform
this function. In our licensing agreements, we typically seek to limit our
liability for special, consequential or incidental damages, but these
provisions may not in all cases be enforceable under applicable laws. In
addition, we currently have $2.0 million of product liability insurance
coverage that, subject to customary exclusions, covers claims resulting from
failure of our products or services to perform their intended function or to
serve their intended purpose. A product liability claim, to the extent not
covered by our insurance, could materially and adversely affect our business,
operating results and financial condition.
Complex software products such as ours may contain undetected "bugs"
that, despite our testing, are discovered only after installation and use by
our customers. The occurrence of these bugs could result in adverse publicity,
loss of or delay in market acceptance or claims by customers against us, any of
which could have a material adverse effect upon our business, operating results
and financial condition. Customers who deploy or use our products improperly or
incompletely may experience temporary disruptions to their computer networking
systems, which could damage our relationship with them and our reputation. Our
current products may not be error-free and it is extremely doubtful that our
future products will be error-free. Furthermore, computers are manufactured in
a variety of different configurations with different operating systems, such as
Windows, Unix, Macintosh and OS/2, and embedded software. As a result, it is
very difficult to comprehensively test our software products for programming or
compatibility errors. Errors in the performance of our products, whether due to
our design or their compatibility with products of other companies, could
hinder the acceptance of our products.
GOVERNMENTS MAY REGULATE OUR TECHNOLOGY EXPORTS
Governments, including the United States government, from time to time
have imposed controls, export license requirements and restrictions on the
export of certain technology, especially encryption technology. Certain of our
products incorporate advanced encryption technology and, as a consequence, we
have been required to modify the relative sophistication of the encryption
technology used in these products in order to license them to customers in
certain foreign markets. Our inability to export our domestic version of these
products to such customers may reduce our competitiveness in such markets,
which may adversely affect our sales. Moreover, any further expansion of export
regulations would further restrict our ability to export our products.
YEAR 2000 RISKS
Many currently installed computer systems and software products accept
only two-digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, computer systems and software used by many
companies and governmental agencies may need to
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be upgraded to comply with such "Year 2000" requirements. Noncompliant computer
systems or software may cause system failure or result in miscalculations that
will cause disruptions of normal business activities. Although we have designed
all of the products that we currently offer to be Year 2000 compliant, we
cannot assure you that our products contain all necessary date code changes, or
that, in the year 2000, our products will be compatible with third-party
software that may be integrated or used in conjunction with our products.
LIMITED PRIOR MARKET FOR OUR COMMON STOCK AND POSSIBLE VOLATILITY OF OUR STOCK
PRICE
Our common stock has only been publicly traded since our initial
public offering on March 24, 1998. We cannot guarantee to purchasers of our
shares that the market price of our common stock will be maintained or that the
volume of trading in our shares will increase.
The risks detailed in this prospectus may significantly adversely
affect the market price of our common stock after the offering. In particular,
the stock prices for many high technology companies, especially those that base
their businesses on the Internet, recently have experienced wide fluctuations
and extreme volatility which have often been unrelated to the operating
performance of such companies. Such fluctuations have adversely affected and
may in the future adversely affect the market price of our common stock.
Furthermore, following periods of volatility in the market price of a
company's securities, securities class action claims frequently are brought
against the subject company. To the extent that the market price of our shares
falls dramatically in any period of time, stockholders likely will bring
claims, with or without merit, against us. Such litigation would be very
expensive to defend and would divert management attention and resources
regardless of outcome.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain the following
provisions that may deter a takeover, including one on terms that many of our
stockholders might consider favorable:
o authority of our board of directors to issue common stock and
preferred stock and to determine the price, rights (including
voting rights), preferences, privileges and restrictions of each
series of preferred stock, without any vote or action by our
stockholders;
o the existence of large amounts of authorized but unissued common
stock and preferred stock;
o staggered, three-year terms for our board of directors;
o supermajority voting requirements to effect certain amendments to
our certificate of incorporation and bylaws;
o limitations on who may call special meetings of stockholders;
o prohibition of stockholder action by written consent; and
o advance notice requirements for board of directors nominations and
for stockholder proposals.
The rights and preferences of any series of preferred stock could
include a preference over the common stock on the distribution of our assets
upon a liquidation or sale of our company, preferential dividends, redemption
rights, the right to elect one or more directors and other voting rights. The
rights of the holders of any series of preferred stock that may be issued in
the future may adversely affect the rights of the holders of the common stock.
We have no current plans to issue preferred stock. In addition, certain
provisions of Delaware law and our stock option plan may also discourage, delay
or prevent a change in control of our company or unsolicited acquisition
proposals.
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SHARES ELIGIBLE FOR FUTURE SALE AND REGISTRATION RIGHTS
If our stockholders sell substantial additional amounts of common
stock (including shares issued upon the exercise of outstanding stock options)
in the public market following this offering, the market price of our common
stock could fall. Such sales also could make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
Certain stockholders may have the right, subject to certain
conditions, to include their shares in certain registration statements relating
to our securities. By exercising their registration rights and causing a large
number of shares to be registered and sold in the public market, these holders
may cause the price of our common stock to fall. In addition, any demand by
holders of registration rights to include shares of common stock held by them
in a registration initiated by us could adversely affect our ability to raise
needed capital.
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
common stock by the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth the number of shares owned by each of
the Selling Stockholders. None of the Selling Stockholders has had a material
relationship with ISS Group within the past three years other than as a result
of the ownership of the shares or other securities of ISS Group. The shares
offered by this prospectus may be offered from time to time by the Selling
Stockholders named below.
The individuals listed below acquired the shares being offered hereby
in connection with three transactions we entered into in August and September
1999. Messrs. Sims, Sappington, Idema and Pawlus acquired the shares listed
below in connection with our August 1999 acquisition of Netrex, Inc. in a
stock-for-stock merger. After consummation of that merger, Messrs. Sims and
Sappington became our employees. Messrs. Hammond and Gingher and Ms. Granelli
acquired the shares listed below in connection with our September 1999
acquisition of NJH Security Consulting, Inc. in a stock-for-stock merger, and
Mr. Hammond acquired an additional 1,852 shares of Company Common Stock through
our September 1999 acquisition of Intelligent Shopping, Inc. Messrs. Hammond
and Gingher and Ms. Granelli became our employees following these September
1999 transactions.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP(2)
------------
NUMBER OF SHARES NUMBER OF SHARES BEFORE AFTER
NAME OF SELLING STOCKHOLDER BENEFICIALLY OWNED(1) OFFERED HEREBY OFFERING OFFERING(3)
- --------------------------- --------------------- -------------- -------- -----------
<S> <C> <C> <C> <C>
Andrew Gingher 208 59 * *
Amy Granelli 139 39 * *
Nicolas Hammond 141,132 39,517 * *
Matthew Idema 594 167 * *
Brian Pawlus 2,676 750 * *
Michael J. Sappington 642,343 179,857 1.6% 1.1%
Mark Sims 1,798,561 503,598 4.4% 3.2%
</TABLE>
- ---------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus
upon the exercise of options. Each beneficial owner's percentage ownership
is determined by assuming that options and warrants that are held by such
person (but not those by any other person) and that are exercisable within
60 days from the date of this prospectus have been exercised.
(2) Based on 40,618,751 shares of Common Stock outstanding as of September 20,
1999.
(3) Assumes the sale of all shares being offered by the selling stockholder in
this prospectus. This registration statement also shall cover any
additional shares of common stock which become issuable in connection with
the shares registered for sale hereby by reason of any stock divided,
stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in the
number of outstanding shares of our common stock.
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PLAN OF DISTRIBUTION
We are registering all 723,987 shares on behalf of certain of our
stockholders. All of the shares originally were issued by us with three
transactions we entered into in August and September 1999, which are described
under the caption "Selling Stockholders." The selling stockholders named in the
table above, or pledgees, donees, transferees or other successors-in-interest
selling shares received from a named selling stockholder as a gift, partnership
distribution or other non-sale related transfer after the date of this
prospectus, may sell the shares from time to time. In this document, we refer
to all these people, collectively, as the "Selling Stockholders." The Selling
Stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. The sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Selling Stockholders may effect such
transactions by selling the shares to or through broker-dealers. The shares may
be sold by one or more of, or a combination of, the following:
o a block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction,
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,
o an exchange distribution in accordance with the rules of such
exchange,
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
o in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate in the resales.
The Selling Stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with Selling Stockholders. The
Selling Stockholders also may sell shares short and redeliver the shares to
close out such short positions. The Selling Stockholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The Selling Stockholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell
the shares so loaned, or upon a default the broker-dealer may sell the pledged
shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders. Broker-dealers
or agents may also receive compensation from the purchasers of the shares for
whom they act as agents or to whom they sell as principals, or both.
Compensation as to a particular broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated in connection with the
sale. Broker-dealers or agents and any other participating broker-dealers or
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act in connection with sales of the shares.
Accordingly, any such commission, discount or concession received by them and
any profit on the resale of the shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act. Because Selling
Stockholders may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, the Selling Stockholders will be subject to the
prospectus delivery requirements of the Securities Act. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 promulgated under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. The Selling Stockholders have advised us that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. There is
no underwriter or coordinating broker acting in connection with the proposed
sale of shares by Selling Stockholders.
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The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares may not simultaneously engage
in market making activities with respect to our common stock for a period of
two business days prior to the commencement of such distribution. In addition,
each Selling Stockholder will be subject to applicable provisions of the
Exchange Act and the associated rules and regulations under the Exchange Act,
including Regulation M, which provisions may limit the timing of purchases and
sales of shares of our common stock by the Selling Stockholders. We will make
copies of this prospectus available to the Selling Stockholders and have
informed them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act upon being notified by a Selling
Stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:
o the name of each such Selling Stockholder and of the participating
broker-dealer(s),
o the number of shares involved,
o the price at which such shares were sold,
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, and
o other facts material to the transaction.
In addition, upon being notified by a Selling Stockholder that a donee
or pledgee intends to sell more than 500 shares, we will file a supplement to
this prospectus.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The Selling Stockholders will bear all commissions
and discounts, if any, attributable to the sales of the shares. The Selling
Stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. The
Selling Stockholders have agreed to indemnify certain persons, including
broker-dealers and agents, against certain liabilities in connection with the
offering of the shares, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
ISS by Brobeck, Phleger & Harrison LLP, Austin, Texas.
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 on their report, which is
incorporated by reference in this prospectus and 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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We have not authorized any person to make a statement that differs from what is
in this prospectus. If any person does make a statement that differs from what
is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, ISS GROUP, INC. these
securities in any state in which the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of its date, but the
information may change after that date.
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TABLE OF CONTENTS
PAGE
Where You Can Find More Information.......................................2
The Company...............................................................2
Risk Factors..............................................................3
Use of Proceeds..........................................................11
Selling Stockholders.....................................................11
Plan of Distribution.....................................................12
Legal Matters............................................................13
Experts..................................................................13
ISS GROUP, INC.
723,987 SHARES
OF
COMMON STOCK
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PROSPECTUS
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October 29, 1999
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