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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999.
REGISTRATION NO. 333-__________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ISS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 58-2362189
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
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6600 PEACHTREE-DUNWOODY ROAD
300 EMBASSY ROW, SUITE 500
ATLANTA, GEORGIA 30328
(678) 443-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------
THOMAS E. NOONAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ISS GROUP, INC.
6600 PEACHTREE-DUNWOODY ROAD
300 EMBASSY ROW, SUITE 500
ATLANTA, GEORGIA 30328
TELEPHONE: (678) 443-6000
FACSIMILE: (678) 443-6477
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
CARMELO M. GORDIAN, P.C.
NATHAN T. DOOLEY, ESQ.
BROBECK, PHLEGER & HARRISON LLP
301 CONGRESS AVENUE, SUITE 1200
AUSTIN, TEXAS 78701
TELEPHONE: (512) 477-5495
FACSIMILE: (512) 477-5813
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and from
time to time thereafter.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF SHARES TO BE AMOUNT TO BE REGISTERED PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED AGGREGATE PRICE PER AGGREGATE OFFERING REGISTRATION FEE
UNIT(1) PRICE(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 723,987 shares $28.41 $20,568,470.67 $5,718.04
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
===============================================================================
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1999
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 is 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 September 17, 1999, the last reported sale price for the common
stock was $28 3/8.
See "Risk Factors" on page 3.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is , 1999.
<PAGE> 3
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.
- 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;
- 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;
- ISS Group's Current Report on Form 8-K filed with the SEC on September
15, 1999; and
- 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:
- respond to competitive developments;
- continue to upgrade and expand our product and services offerings; and
- 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:
- the growth of private Internet-based networks (often referred to as
intranets);
- the extent to which the public perceives that unauthorized access to
and use of online information is a threat to network security;
- the volume and timing of orders, including seasonal trends in customer
purchasing;
- our ability to develop new and enhanced products and expand our
professional services;
- the growth in the acceptance of, and activity on, the Internet and the
World Wide Web, particularly by corporate, institutional and government
users;
- customer budgets which may limit their ability to purchase our
products;
- foreign currency exchange rates that affect our international
operations;
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- the mix of distribution channels through which we sell our products;
- product and price competition in our markets; and
- 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:
- expand our domestic and international sales and marketing operations;
- increase our investments in product development and our proprietary
threat and vulnerability database;
- expand our professional services capabilities;
- seek acquisition candidates that will enhance our products and market
share; and
- 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:
- internal information technology departments of our customers and the
consulting firms that assist them in formulating security systems;
- relatively smaller software companies offering relatively limited
applications for network and Internet security;
- 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
- 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
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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 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:
- the extent to which businesses and others seek to establish more secure
networks;
- the extent to which hackers and others seek to compromise secure
systems;
- evolving computer hardware and software standards;
- changing customer requirements; and
- 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
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believe that our products are ineffective, which may cause them or prospective
customers to reduce or avoid purchases of our products.
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:
- the difficulty in managing an organization spread over various
countries located across the world;
- unexpected changes in regulatory requirements in countries where we do
business;
- excess taxation due to overlapping tax structures;
- fluctuations in foreign currency exchange rates, which may be
aggravated in European markets by the recent introduction of the Euro
currency;
- import and export licensing requirements;
- trade restrictions;
- changes in tariff and freight rates; and
- 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.
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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:
- original equipment manufacturers that bundle our products with products
that they sell to their customers;
- managed service providers, such as telecommunications companies and
Internet service providers, that host networking and Internet
operations for business customers; and
- 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.
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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.
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.
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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 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:
- 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;
- the existence of large amounts of authorized but unissued common stock
and preferred stock;
- staggered, three-year terms for our board of directors;
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- supermajority voting requirements to effect certain amendments to our
certificate of incorporation and bylaws;
- limitations on who may call special meetings of stockholders;
- prohibition of stockholder action by written consent; and
- 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.
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.
10
<PAGE> 12
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. Gravelli
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 our common stock through
our September 1999 acquisition of Intelligent Shopping, Inc. Messrs. Hammond
and Gingher and Ms. Gravelli 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 Gravelli 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.
11
<PAGE> 13
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:
- 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,
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,
- an exchange distribution in accordance with the rules of such exchange,
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and
- 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.
12
<PAGE> 14
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:
- the name of each such Selling Stockholder and of the participating
broker-dealer(s),
- the number of shares involved,
- the price at which such shares were sold,
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
- that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, and
- 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.
13
<PAGE> 15
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.
14
<PAGE> 16
===============================================================================
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, 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.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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............................................................... 14
Table of Contents..................................................... 15
</TABLE>
===============================================================================
ISS GROUP, INC.
723,987 SHARES
OF
COMMON STOCK
--------------
PROSPECTUS
--------------
, 1999
===============================================================================
15
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant connection
with the sale of common stock being registered. All amounts are estimates,
except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee....................... $ 5,681.76
Nasdaq National Market listing fee......... 22,500.00
Printing expenses.......................... 10,000.00
Legal fees and expenses.................... 30,000.00
Accounting fees and expenses............... 5,000.00
Blue sky fees and expenses................. 1,000.00
Miscellaneous.............................. 2,000.00
----------
Total............................. $76,181.76
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the Delaware General Corporation Law
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the defense
of any such action, suit or proceeding referred to in subsections (a) and (b)
of Section 145 or in the defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
which the indemnified party may be entitled; that indemnification provided by
Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
II-1
<PAGE> 18
Section 102(b)(7) of the Delaware General Corporation Law provides
that a certificate of incorporation may contain a provision eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of the
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Eleventh of the registrant's charter provides that, to the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or as it may hereafter be amended, no director of the registrant shall
be personally liable to the registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director.
Section 6.1 of the registrant's bylaws further provides that the
registrant shall, to the maximum extent and in the manner permitted by the
Delaware General Corporation Law indemnify each of its directors and officers
against expenses (including attorneys' fees), judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent
of the registrant.
The registrant has entered into indemnification agreements with each
of its directors and executive officers that provide for indemnification and
expense advancement to the fullest extent permitted under the Delaware General
Corporation Law.
The registrant has purchased officers' and directors' liability
insurance.
The registrant has agreed to indemnify certain directors and officers
against certain liabilities, including liabilities under the Securities Act of
1933 (the "Securities Act"), pursuant to Section 7 of the Amended and Restated
Rights Agreement.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
4.1* -- Specimen common stock certificate.
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Brobeck, Phleger & Harrison LLP (included in the opinion
filed as Exhibit 5.1).
24.1 -- Power of attorney pursuant to which amendments to this registration
statement may be filed (included on the signature page in Part II
hereof).
</TABLE>
- ---------------
* Incorporated by reference to the registrant's registration statement
on Form S-1, Registration No. 333-44529.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section 10(a)
(3) of the Securities Act;
(ii) to reflect in the Prospectus any facts of events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which,
II-2
<PAGE> 19
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
commission pursuant to Rule 424(b) if, in the
aggregate, the charges in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement; and
(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 (1) (i) and (1) (ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to section
13 or section 15(d) of the Exchange Act 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the Delaware General Corporation
Law, the charter or the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered hereunder, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424 (b) (1) or (4)
or 497 (h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus 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.
II-3
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on this day of September 22, 1999.
ISS GROUP, INC.
By: /s/ Richard Macchia
-----------------------------------------
Richard Macchia
Vice President and Chief
Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Thomas E. Noonan and Richard Macchia and
each of them, his true and lawful attorney-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in fact and
agents, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ Thomas E. Noonan Chairman, President and Chief September 22, 1999
- ------------------------------------ Executive (Principal Executive Officer)
Thomas E. Noonan
/s/ Christopher W. Klaus Chief Technology Officer, Secretary September 22, 1999
- ------------------------------------ and Director
Christopher W. Klaus
/s/ Richard Macchia Vice President and Chief Financial September 22, 1999
- ------------------------------------ Officer (Principal Financial and
Richard Macchia Accounting Officer)
/s/ Richard S. Bodman Director September 22, 1999
- ------------------------------------
Richard S. Bodman
/s/ Robert E. Davoli Director September 22, 1999
- ------------------------------------
Robert E. Davoli
/s/ Kevin J. O'Connor Director September 22, 1999
- ------------------------------------
Kevin J. O'Connor
/s/ David N. Strohm Director September 22, 1999
- ------------------------------------
David N. Strohm
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
September 22, 1999
ISS Group, Inc.
6600 Peachtree-Dunwoody Road
300 Embassy Row, Suite 500
Atlanta, Georgia 30328
Re: ISS Group, Inc. Registration Statement on Form S-3 for
Resale of 723,469 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to ISS Group, Inc., a Delaware corporation
(the "Company"), in connection with the registration for resale of 723,469
shares of Common Stock (the "Shares"), as described in the Company's
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents, the corporate
proceedings taken by the Company in connection with the original issuance and
sale of the Shares, and a certificate of a Company officer regarding, among
other things, the Company's receipt of consideration upon the original issuance
and sale of the Shares. Based on such review, we are of the opinion that the
Shares are duly authorized, validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
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 ISS Group, Inc. for
the registration of 723,987 shares of its common stock and to the incorporation
by reference therein of our report dated January 15, 1999, with respect to the
consolidated financial statements and schedule of ISS Group, Inc. 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
Atlanta, GA
September 22, 1999
