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FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION STATEMENT NO. 333-25935
251,644 SHARES
MCAFEE ASSOCIATES, INC.
COMMON STOCK
_________________
This Prospectus relates to the public offering, which is not being
underwritten, of 251,644 shares (the "Shares") of Common Stock, $0.01 par value
(the "Common Stock") of McAfee Associates, Inc. ("McAfee" or the "Company").
The Shares are outstanding shares that may be sold from time to time by or on
behalf of certain stockholders of the Company (the "Selling Stockholders").
The Selling Stockholders acquired the Shares in private transactions in which
the Company acquired all of the outstanding stock of Kabushiki Kaisha Jade, a
Japanese corporation ("Jade") and a controlling interest in FSA Corporation, an
Alberta, Canada corporation ("FSA").
The Shares may be offered by the Selling Stockholders from time to
time in transactions on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholder. In addition, the Company has agreed to
indemnify a certain Selling Stockholder against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
On April 25, 1997, the closing bid price of the Company's Common Stock
on the Nasdaq National Market was $48.125 per share. The Common Stock is traded
under the Nasdaq symbol "MCAF."
_______________________________
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
_______________________________
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
SECURITIES OFFERED HEREBY.
_______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________________________
The date of this Prospectus is April 28, 1997
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AVAILABLE INFORMATION
McAfee is subject to the informational requirements of the Exchange
Act and, in accordance therewith, it files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials may be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The Commission's
Internet address is http://www.sec.gov. The Commission web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission. McAfee Common Stock
is quoted on the Nasdaq National Market, and the reports, proxy statements and
other information referred to above can also be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration
statement on Form S-3, including this Prospectus and other information (herein,
together with all amendments, exhibits and schedules, referred to as the
"Registration Statement"), under the Securities Act, with respect to the Shares
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. Statements made in this Prospectus as to the contents of any
document referred to are not necessarily complete. With respect to each such
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedules thereto, may
be inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
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INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-20558) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 filed with the Commission on March 28, 1997;
2. The Company's Current Reports on Form 8-K dated and filed with the
Commission on September 24, 1996 and March 14, 1997,
respectively; and
3. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission
on August 21, 1992, including any amendments or reports filed for
the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus but
prior to the termination of the offering to which this Prospectus relates shall
be deemed to be incorporated by reference in this Prospectus and to be part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge
to each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
herein). Requests for such documents should be submitted to Prabhat K. Goyal,
Secretary, at the principal executive offices of the Company in writing at
McAfee Associates, Inc., 2710 Walsh Avenue, Santa Clara, California 95051 or by
telephone at (408) 988-3832.
THE COMPANY
McAfee develops, markets, distributes and supports network security
and management software products. The Company provides network security
products for anti-virus protection as well as client/server network management
tools. Many of the Company's network management products are available as
individual software modules as well as integrated product suites. The Company
is also a leader in electronic software distribution, which is the principal
channel through which it distributes its products to large corporations,
institutions and government entities. The Company generally utilizes a two-year
subscription licensing model for this distribution method.
The Company is a Delaware corporation incorporated in August 1992.
The Company's principal executive offices are located at 2710 Walsh Avenue,
Santa Clara, California 95051. Its telephone number at that address is (408)
988-3832. The Company's Internet address is http://www.mcafee.com.
Information contained on the Company's World Wide Web site shall not be deemed
part of this Prospectus. As used in this Prospectus, references to the
"Company," "McAfee" or the "Registrant" include McAfee Associates, Inc. and its
subsidiaries.
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RISK FACTORS
This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus or incorporated by
reference herein that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document or incorporated by
reference herein are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus.
The following risk factors should be considered in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and the other information included and incorporated by reference in this
Prospectus before purchasing the Common Stock offered hereby.
Rapid Technological Change; Risks Associated with Product Development
and Acquisitions. The network security and management market is highly
fragmented and is characterized by ongoing technological developments, evolving
industry standards and rapid changes in customer requirements. McAfee's
success depends upon its ability to offer a broad range of network security and
management software products, to continue to enhance existing products, to
develop and introduce in a timely manner new products that take advantage of
technological advances, and to respond promptly to new customer requirements.
While McAfee believes that it currently offers one of the broadest product
lines in the network management and security market, this market is continuing
to evolve and customer requirements are continuing to change. As the market
evolves and competitive pressures increase, McAfee believes that it will need
to further expand its product offerings. McAfee has identified a number of
enhancements to its existing product offerings which it believes are important
to its continued success in the network security and management market. There
can be no assurance that McAfee will be successful in developing and marketing,
on a timely basis, enhancements to its existing products or new products, or
that its new products will adequately address the changing needs of the
marketplace. Failure by McAfee in any of these areas could materially and
adversely affect its business, financial condition and results of operations.
In addition, from time to time, McAfee or its competitors may announce new
products with capabilities or technologies. Such announcements of new products
could have the potential to replace or shorten the life cycles of McAfee's
existing products and to cause customers to defer purchasing McAfee's existing
products.
McAfee has in the past experienced delays in software development, and
there can be no assurance that McAfee will not experience delays in connection
with its current or future product development activities. Software products
as complex as those offered by McAfee may contain undetected errors or version
compatibility issues, particularly when first introduced or when new versions
are released, resulting in loss of or delay in market acceptance. For example,
McAfee's anti-virus software products have in the past falsely detected viruses
that did not actually exist. See " -- Risk of False Detection of Viruses."
Delays and difficulties associated with new product introductions, performance
or enhancements could have a material adverse effect on McAfee's business,
financial condition and results of operations.
In addition to developing new products, McAfee's internal development
staff is focused on developing upgrades and updates to existing products and
modifying and enhancing acquired products. Future upgrades and updates may,
among other things, include additional functionality, respond to user problems
or address issues of compatibility with changing operating systems and
environments. McAfee believes that the ability to provide these upgrades and
updates to users frequently and at a low cost is key to its success. In
particular, the proliferation of new and changing viruses makes it imperative
to update anti-virus products frequently in order for the products to avoid
obsolescence. Failure to release such upgrades and updates on a timely basis
could have a material adverse effect on McAfee's business, financial condition
and results of operations. There can be no assurance that McAfee will be
successful in these efforts. In addition, future changes in Windows 95, Windows
NT, NetWare or other popular operating systems may result in compatibility
problems with McAfee's products. McAfee's failure to introduce new products in
a timely manner that are compatible with operating systems and environments
preferred
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by desktop computer users would have a material adverse effect on McAfee's
business, financial condition and results of operations.
Competition. The market for McAfee's products is intensely
competitive and McAfee expects competition to increase in the future. McAfee
believes that the principal competitive factors affecting the market for its
products include performance, functionality, quality, customer support, breadth
of product line, frequency of upgrades and updates, brand name recognition,
company reputation and price. Certain of the criteria upon which the
performance and quality of McAfee's anti-virus software products compete
include the number and types of viruses detected, the speed at which the
products run and ease of use. Certain of McAfee's competitors have been in the
network management market longer than McAfee, and other competitors, such as
Symantec, Intel and Seagate, are larger and have greater name recognition than
McAfee. In addition, certain larger competitors such as Intel, Microsoft and
Novell have established relationships with hardware vendors related to their
other product lines. These relationships may provide them with a competitive
advantage in penetrating the OEM market with their network management products.
As is the case in many segments of the software industry, McAfee may encounter
increasing price competition in the future. This could reduce average selling
prices and, therefore, profit margins. Competitive pressures could result not
only in sustained price reductions but also in a decline in sales volume, which
could materially adversely affect McAfee's business, financial condition and
results of operations.
The network security and management market is highly fragmented with
products offered by many vendors. McAfee's principal competitor is the Peter
Norton Group of Symantec in the network security market and Intel's LanDesk in
the network management market. Other competitors include Computer
Associates/Cheyenne Software, Intel, Seagate and the Dr. Solomon Group, as well
as numerous smaller companies and shareware authors that may in the future
develop into stronger competitors or be consolidated into larger competitors.
McAfee also faces competition from large and established software companies
such as Microsoft and Novell which offer network management products as
enhancements to their network operating systems. McAfee believes that as the
network management market develops, McAfee may face increased competition from
these large companies, as well as other companies seeking to enter the market.
The trend toward enterprise-wide network management and security solutions may
result in a consolidation of the network management and security market around
a smaller number of vendors who are able to provide the necessary software and
support capabilities. With the acquisition of Vycor Corporation, the Company
faces new competition from vendors in the help desk market. The Company's
principal competitors in the help desk market are Remedy Corporation and
Software Artistry. The Company also faces significant competition in the
storage management market. There can be no assurance that McAfee will continue
to compete effectively against existing and potential competitors, many of whom
have substantially greater financial, technical, marketing and support
resources and name recognition than McAfee. In addition, there can be no
assurance that software vendors who currently use traditional distribution
methods will not in the future decide to compete more directly with McAfee by
utilizing electronic software distribution.
The competitive environment for anti-virus software internationally is
similar to that in North America, although local competitors in specific
foreign markets present stronger competition and shareware authors control a
more significant portion of the European market. The international market for
network management software has developed more slowly than the North American
market, although larger competitors such as Intel and Symantec have begun to
penetrate European markets. Asian markets have significantly lagged behind
North America and Europe in their adoption of networking technology. There can
be no assurance that McAfee will be able to compete successfully in
international markets.
Risk of Inclusion of Network Security and Management Functionality in
System Software. In the future, vendors of operating system software may
continue to enhance their products to include functionality that is currently
provided most often by network security and management software. The
widespread inclusion of the functionality of McAfee's products, and of the
functionality of the network security or management products, as standard
features of operating system software could, particularly if the quality of
such functionality were comparable to that of McAfee's products, render
McAfee's products obsolete and unmarketable. Furthermore, even if the network
security and/or management functionality provided as standard features by
operating systems is more limited than that of McAfee's products, there can be
no assurance that a significant number of customers would not elect to accept
such functionality in lieu of purchasing additional software. If McAfee was
unable to develop new
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network security and management products to further enhance operating systems
and to replace successfully any obsolete products, McAfee's business, financial
condition and results of operations would be materially adversely affected.
McAfee's Dependence on Anti-Virus Product Revenue. McAfee derived a
substantial majority of its net revenue in 1996 from licensing its anti-virus
software products, and these products are expected to continue to account for a
substantial portion of McAfee's net revenue for the foreseeable future. Because
of this concentration of revenue, a decline in demand for, or in the prices of,
McAfee's anti-virus software products as a result of competition, technological
change or otherwise, could have a material adverse effect on McAfee's business,
financial condition and results of operations. In addition, while McAfee will
continue to focus on growing its anti-virus revenue, factors such as increased
competition or technological change may affect McAfee's future rate of growth.
Dependence on Emergence of Network Management Market. The market for
McAfee's network management products is evolving, and its growth depends upon
broader market acceptance of network management software, including help desk
software. Although the number of LAN-attached personal computers ("PCs") has
increased dramatically, the network management market continues to be an
emerging market and there can be no assurance that the market will continue to
develop or that further market development will be rapid enough to
significantly benefit McAfee. In addition, there are a number of potential
approaches to network management, including management tools incorporated into
network operating systems. Therefore, even if network management tools gain
broader market acceptance, there can be no assurance that McAfee's products
will be chosen by organizations which acquire network management tools.
Furthermore, to the extent that the network management market does continue to
develop, McAfee expects that competition will increase. See " -- Competition"
and " -- Risk of Inclusion of Network Security and Management Functionality in
System Software."
Variability of Quarterly Operating Results. McAfee's licensing
activity and results of operations can fluctuate significantly on a quarterly
basis. Causes of such fluctuations may include the volume and timing of new
orders and renewals, the introduction of new products, upgrades or updates by
McAfee or its competitors, changes in product prices, changes in product mix,
seasonality, trends in the computer industry, general economic conditions,
extraordinary events such as acquisitions or litigation and the occurrence of
unexpected events. Because of the nature of its distribution methods, McAfee
generally cannot predict when a user will license its products. Historically,
renewals have accounted for a significant portion of McAfee's net revenue;
however, there can be no assurance that McAfee will be able to sustain historic
renewal rates in the future.
McAfee historically recognized substantially all license revenue
ratably over a two-year license period, during which time users generally
received all product upgrades, updates and technical support at no additional
charge. As a result, quarterly fluctuations in licensing activity have had a
reduced quarter-to-quarter impact on McAfee's net revenue and net income.
However, since July 1, 1995, McAfee generally recognizes 80% of its revenue
from subscription licenses at the time of the initial licensing transaction,
which more directly impacts net revenue and net income in the quarters in which
the licensing activity occurs. Furthermore, since McAfee's cost of net revenue
is low, and operating expenses are relatively fixed, any revenue shortfall in a
quarter will result in a substantially similar shortfall in net income. As a
result of this change in revenue recognition in July 1995, McAfee believes that
period-to-period comparisons of its financial results should not be relied upon
as an indication of future performance.
The operating results of many software companies reflect seasonal
trends, and McAfee's business, financial condition and results of operations
may be affected by such trends in the future. Such trends may include higher
net revenue in the fourth quarter as many customers complete annual budgetary
cycles, and lower net revenue in the summer months when many businesses
experience lower sales, particularly in the European market.
Volatility of Stock Price. The trading price of McAfee Common Stock
has historically been subject to wide fluctuations in response to quarterly
variations in financial performance, shortfalls in revenue or earnings from
levels forecast by securities analysts, changes in estimates by such analysts,
market conditions in the computer software or hardware industries, product
introductions by McAfee or its competitors, announcements of
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extraordinary events such as acquisitions or litigation or general economic
conditions. In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many high technology and emerging
growth companies, often unrelated to the operating performance of the specific
companies. On several occasions during 1995 and 1996, the closing sales prices
for McAfee Common Stock on successive days fluctuated in excess of 10%. There
can be no assurance that such fluctuations in McAfee's Common Stock price will
not continue in the future.
Risks Associated with Failure to Manage Growth; Potential Future
Acquisitions. McAfee has undergone a period of rapid growth and expansion due
in part to acquisitions. McAfee has also experienced significant growth in its
employee base, including growth through such acquisitions. McAfee's ability to
compete effectively and execute its strategies will depend in part upon its
ability to continue to improve its operational, management and financial
systems and controls. The failure of McAfee's management team to effectively
manage any further growth could have a material adverse effect on McAfee's
business, financial condition and results of operations.
McAfee may in the future undertake acquisitions that could present
challenges to McAfee's management, such as integrating and incorporating new
operations, product lines, technologies and personnel. If McAfee's management
is unable to manage these challenges, McAfee's business, financial condition
and results of operations could be materially adversely affected. Any
acquisition, depending on its size, could result in the use of a significant
portion of McAfee's available cash, or if such acquisition is made utilizing
McAfee's securities, could result in significant dilution to McAfee's
stockholders. Furthermore, there can be no assurance that any products
acquired in connection with such acquisitions will gain acceptance in McAfee's
markets.
Reliance on Indirect Channels of Distribution. McAfee markets a
significant portion of its products to end-users through distributors. In
particular, Ingram Micro Devices has accounted for 17%, 12% and 12% of net
revenue in 1996, 1995 and 1994, respectively. These distributors also sell
other products that are complementary to, or compete with, those of McAfee.
While McAfee encourages its distributors to focus on their respective products
through marketing and support programs, there can be no assurance that these
distributors will not give greater priority to products of other suppliers,
including competitors. Distributors have no long-term obligations to purchase
products from McAfee. In addition, McAfee has begun to recognize revenue for
products sold through distributors upon sales to distributors. Since McAfee's
agreements with its distributors provide for a right of return, revenue
recognized upon sales to distributors is subject to a reserve for returns.
There can be no assurance that any future reserves for returns will be
adequate.
Proprietary Technology. McAfee's success is heavily dependent upon
its proprietary software technology. McAfee relies on a combination of
contractual rights, trademarks, trade secrets and copyrights to establish and
protect proprietary rights in its software. McAfee has not to date applied for
or obtained any patents or registered any of its copyrights and has only
registered selected trademarks. SABER is a trademark of a subsidiary of the
SABRE Group, Inc. and is licensed to McAfee pursuant to a non-exclusive
worldwide, royalty free license. McAfee is not otherwise affiliated with the
SABRE Group, Inc. or SABRE Travel Information Network. In the event that the
license of the trademark were to expire, or be terminated, McAfee could be
required to cease using the trademark on its products, which could involve
significant expense and the possibility of customer confusion. Any loss of
McAfee's ability to use this trademark could have a material adverse effect on
McAfee's business, financial condition and results of operations.
McAfee does not typically obtain signed license agreements from its
corporate, government and institutional customers who license products directly
from McAfee. McAfee includes an electronic version of a "shrink-wrap" license
in all of its electronically distributed software and a printed license in the
box for its products distributed through traditional distribution channels in
order to protect its copyrights and trade secrets in those products. Since
none of these licenses are signed by the licensee, many authorities believe
that they may not be enforceable under many state laws and the laws of many
foreign jurisdictions.
In addition, the laws of some foreign countries either do not protect
McAfee's proprietary rights or offer only limited protection for those rights.
Furthermore, McAfee has obtained only one foreign registration of its
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"McAfee" trademark, and publication in two jurisdictions, due to the
significant costs involved. As a result, McAfee may not be able to prevent a
third party from using its trademarks in many foreign jurisdictions.
There can be no assurance that the steps taken by McAfee to protect
its proprietary software technology will be adequate to deter misappropriation
of this technology. McAfee is aware that a substantial number of users of its
anti-virus products have not paid any registration or license fees to McAfee.
Changing legal interpretations of liability for unauthorized use of McAfee's
software, or lessened sensitivity by corporate, government or institutional
users to avoiding copyright infringement, would have a material adverse effect
on McAfee's business, financial condition and results of operations.
There has also been substantial industry litigation regarding
intellectual property rights of technology companies. Although McAfee does not
believe that it has knowingly infringed the intellectual property rights of
others, it receives claims from time to time, and McAfee has in the past been
subject to litigation related to its intellectual property. There can be no
assurance that such claims will not be asserted against McAfee in the future or
that the outcome of any such claims would not have a material adverse effect on
McAfee's business, financial condition and results of operations. In addition,
as McAfee may acquire a portion of the software included in its future products
from third parties, its exposure to infringement actions may increase because
McAfee must rely upon such third parties for information as to the origin and
ownership of any software being acquired. In the future, litigation may be
necessary to enforce and protect trade secrets and other intellectual property
rights owned by McAfee. McAfee may also be subject to litigation to defend it
against claimed infringement of the rights of others or to determine the scope
and validity of the proprietary rights of others. Any such litigation could be
costly and cause diversion of management's attention, either of which could
have a material adverse effect on McAfee's business, financial condition and
results of operations. Adverse determinations in such litigation could result
in the loss of McAfee's proprietary rights, subject McAfee to significant
liabilities, require McAfee to seek licenses from third parties or prevent
McAfee from manufacturing or selling its products, any one of which could have
a material adverse effect on McAfee's business, financial condition and results
of operations. Furthermore, there can be no assurance that any necessary
licenses will be available on reasonable terms, or at all.
Risks Related to International License Revenue. In 1996, 1995 and
1994 net revenue from international licenses (license revenue from outside the
United States and Canada) represented approximately 19%, 29% and 23%,
respectively, of McAfee's net revenue. McAfee expects that net revenue from
international licenses will continue to account for a significant portion of
net revenue. With the acquisition of European distributors in late 1995, a
significant portion of McAfee's international revenue in 1997 is expected to be
denominated in local currency. The Company has not engaged in any material
attempt to offset or "hedge" U.S. foreign currency transaction exposure. To
date, the Company's results of operations have not been significantly affected
by currency fluctuation, however, there can be no assurance that the Company's
future results of operations will not be adversely affected by such
fluctuations. Risks inherent in McAfee's international revenue generally
include the impact of fluctuating exchange rates, longer payment cycles,
greater difficulty in accounts receivable collection, unexpected changes in
regulatory requirements, seasonality due to the slowdown in European business
activity during the third quarter, and tariffs and other trade barriers. There
can be no assurance that these factors will not have a material adverse effect
on McAfee's future international license revenue. Further, in countries with a
high incidence of software piracy, McAfee may experience a higher rate of
piracy of its products.
In addition, a significant portion of McAfee's international revenue
is generated through independent agents. Since these agents are not employees
of McAfee and are not required to offer McAfee's products exclusively, there
can be no assurance that they will continue to market McAfee's products. Also,
McAfee currently has limited control over its agents. For example, McAfee is
dependent upon its international agents to provide it with information
regarding licensees and there can be no assurance that McAfee will be able to
obtain sufficient information to contact such licensees, if necessary,
regarding renewal. In addition, McAfee may be unaware of the nature and scope
of the representations made to customers by these agents. For example,
independent agents could make representations to customers about McAfee's
current and future products which are inaccurate or incomplete, which could
result in the products not meeting customers' expectations or requirements.
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Dependence upon Key Personnel. McAfee's success will depend to a
significant extent upon a number of key technical and management employees.
While McAfee's employees are required to sign standard agreements concerning
confidentiality and ownership of inventions, the employees are generally not
otherwise subject to employment agreements and McAfee employees are generally
not subject to noncompetition covenants. The loss of the services of any of
McAfee's key employees could have a material adverse effect on its business,
financial condition and results of operations. McAfee does not maintain life
insurance policies on its key employees. McAfee's success also depends in large
part upon its ability to attract and retain highly-skilled technical,
managerial, sales and marketing personnel. Competition for such personnel is
intense. There can be no assurance that McAfee will be successful in retaining
its existing key personnel and in attracting and retaining the personnel it
requires.
Risk of Sabotage. Given McAfee's high profile in the anti-virus
software market, McAfee has been a target of computer "hackers" who have
created viruses to sabotage McAfee's products. While to date these viruses
have been discovered quickly and their dissemination has been limited, there
can be no assurance that similar viruses will not be created in the future,
that they will not cause damage to users' computer systems and that demand for
McAfee's software products will not suffer as a result. In addition, since
McAfee does not control diskette duplication by distributors or its independent
agents, there can be no assurance that diskettes containing McAfee's software
will not be infected.
Risk of False Detection of Viruses. McAfee's anti-virus software
products have in the past and may at times in the future falsely detect viruses
that do not actually exist. Such "false alarms," while typical in the
industry, may impair the perceived reliability of McAfee's products and may
therefore adversely impact market acceptance of McAfee's products. In
addition, McAfee has in the past been subject to litigation claiming damages
related to a false alarm, and there can be no assurance that similar claims
will not be made in the future.
Effect of Certain Provisions; Anti-Takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law; Limitation of Liability of Directors.
The McAfee Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by its stockholders. The rights of the holders of McAfee Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of McAfee. McAfee has no present plans to issue
shares of Preferred Stock. Further, certain provisions of Delaware law and
McAfee's Certificate of Incorporation and Bylaws, such as a classified board,
could delay or make more difficult a merger, tender offer or proxy contest
involving McAfee. While such provisions are intended to enable the McAfee
Board of Directors to maximize stockholder value, they may have the effect of
discouraging takeovers which could be in the best interest of certain
stockholders. There is no assurance that such provisions will not have an
adverse effect on the market value of McAfee Common Stock in the future. In
addition, McAfee's charter provides that its directors shall not be personally
liable to McAfee or its stockholders for monetary damages in the event of a
breach of fiduciary duty to the extent permitted by Delaware law.
9
<PAGE> 10
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders, the number of
shares of the Company's Common Stock which each owned or had the right to
acquire as of March 31, 1997, the number of shares of the Company's Common
Stock expected to be sold by each, and the number and the percentage of the
shares of the Company's Common Stock which each will own or have the right to
acquire after the offering pursuant to the Registration Statement, assuming the
sale of all the Shares expected to be sold. The Shares are being registered to
permit public secondary trading of the Shares, and the Selling Stockholders may
offer the Shares for resale from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholders were acquired
from the Company in connection with the Company's acquisition of either (i) all
of the outstanding stock of Kabushiki Kaisha Jade (the "Jade Acquisition") or
(ii) a controlling interest in FSA Corporation (the "FSA Acquisition"). The
Jade Acquisition was accomplished pursuant to the terms of a Stock Exchange
Agreement, dated January 13, 1997, whereby all issued and outstanding shares of
par value stock of Jade were exchanged for an aggregate of 336,071 shares of
the Company's Common Stock. The FSA Acquisition was accomplished pursuant to
the terms of a Combination Agreement, dated August 16, 1996, whereby the
Company is obligated to issue an aggregate of 375,063 shares of its Common
Stock in exchange for Class F Exchangeable Shares of FSA (the "Exchangeable
Shares") issued to the former shareholder of FSA. As of March 31, 1997, the
Company had issued 50,001 shares of the Company's Common Stock to the former
shareholder of FSA in exchange for certain Exchangeable Shares.
The Company has filed with the Commission, under the Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions. The Company has agreed to use
reasonable efforts to keep such Registration Statement effective for up to 90
days from the date of effectiveness of the Registration Statement on Form S-3,
of which this Prospectus forms a part, subject to certain restrictions, or, if
earlier, until the distribution contemplated in this Prospectus has been
completed.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Number of Number of Shares
Shares of of
Common Stock Common Stock to
Beneficially Number be Beneficially Percentage
Owned Prior of Shares Owned After Owned
Name of Selling Stockholder to the Offering to be Offered the Offering(2) After the Offering
--------------------------- --------------- ------------- --------------- --------
<S> <C> <C> <C> <C>
Seiji Murakami 164,675 98,805 65,870 *
Sanae Murakami 100,821 60,493 40,328 *
Atsuhiro Murakami 23,525 14,115 9,410 *
Takayuki Murakami 23,525 14,115 9,410 *
Kanako Murakami 23,525 14,115 9,410 *
Daniel Freedman(1) 375,063 50,001 325,062 *
- -----------------
</TABLE>
* Less than 1%
(1) Mr. Freedman was an executive officer of the Company from September
1996 to October 1996. The number of shares beneficially owned prior
to the offering includes 50,001 shares of the Company's Common Stock
and Exchangeable Shares which can be exchanged at any time for 325,062
shares of the Company's Common Stock. The number of shares
beneficially owned after the offering includes the number of shares of
Common Stock beneficially owned by Mr. Freedman that are issuable upon
exchange of the Exchangeable Shares.
(2) Assumes that all of the Selling Stockholders will sell all Shares
during the effective period.
10
<PAGE> 11
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling
Stockholders may be delivered and/or sold from time to time in transactions on
the Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. After the effectiveness of
the Registration Statement of which this Prospectus is a part, the Selling
Stockholders may make short sales of the Company's Common Stock and may use the
Shares to cover the resulting short positions. The Selling Stockholders may
effect such transactions by selling the Shares to or through broker-dealers and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
the Shares for whom such broker-dealers may act as agent or to whom they sell
as principal or both (which compensation to a particular broker-dealer might be
in excess of customary commissions). There is no assurance that any of the
Selling Stockholders will sell any or all of the Shares offered by them.
Any Selling Stockholder and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Each Selling
Stockholder may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company has agreed to indemnify in certain circumstances a certain Selling
Stockholder against certain liabilities, including liabilities arising under the
Securities Act and Exchange Act. That certain Selling Stockholder has agreed to
indemnify in certain circumstances the Company and certain related persons
against certain liabilities, including liabilities arising under the Securities
Act and Exchange Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from a Selling Stockholder (and, if it acts as agent for
the purchase of such Shares, from such purchaser). Broker-dealers may agree
with such Selling Stockholder to sell a specified number of Shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable
to do so acting as agent for such Selling Stockholder, to purchase as principal
any unsold Shares. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) on the Nasdaq National Market, in privately negotiated transactions, or
by a combination of such methods of sale, at fixed prices that may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices, and in connection with such
resales may pay to or receive from the purchasers of such Shares commissions
computed as described above.
Each Selling Stockholder will be subject to applicable provisions of
the Exchange Act, and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the time of bids for and
purchases of shares of the Company's Common Stock by such Selling Stockholder.
Each Selling Stockholder will pay all commissions and other expenses
associated with the sale of the Shares by such Selling Stockholder. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to bear certain expenses in connection with
the registration and sale of the Shares being offered by every such Selling
Stockholder. The Company has not made any underwriting arrangements with
respect to the sale of Shares offered hereby.
11
<PAGE> 12
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum
extent permitted by Delaware law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director. The
Company's Bylaws provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which are in
some respects broader than the specific indemnification provisions contained in
the Delaware General Corporation Law. The indemnification agreements require
the Company, among other things to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance, if available on reasonable terms. The
Company believes that these agreements are necessary to attract and retain
qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996
and 1995, and the consolidated statements of income, stockholders' equity, and
cash flows and the financial statement schedule for each of the years in the
three-year period ended December 31, 1996, incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants, and are incorporated herein by reference in
reliance upon the report of Coopers & Lybrand L.L.P., and upon the authority of
such firm as experts in accounting and auditing.
12
<PAGE> 13
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
TABLE OF CONTENTS
PAGE
Available Information 2
Additional Information 2
Information Incorporated by Reference 3
The Company 3
Risk Factors 4
Selling Stockholders 10
Plan of Distribution 11
Use of Proceeds 12
Indemnification of Directors and Officers 12
Legal Matters 12
Experts 12
251,644 SHARES
MCAFEE ASSOCIATES, INC.
Common Stock
_____________
April 28, 1997
_____________
