8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 30, 2002

Internet Security Systems, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

0-23655
(Commission File Number)

58-2362189
(IRS Employer Identification Number)

6303 Barfield Road, Atlanta, Georgia 30328
(Address of principal executive offices)

Registrant’s telephone number, including area code: (404) 236-2600

Not applicable
(Former Name or Former Address, if Changed Since Last Report)

Item 2. Acquisition or Disposition of Assets

     On October 30, 2002, Internet Security Systems, Inc. (“ISS”) closed its previously announced acquisition of vCIS, Inc. (“vCIS”), a privately held California corporation based in Los Gatos, California. vCIS was merged with and into ISSVAC, Inc., a California corporation and a wholly owned subsidiary of ISS (“ISS Sub”). In the merger, each outstanding share of vCIS common stock, no par value, was converted into the right to receive .04770 shares of ISS common stock, par value $0.001 per share (“ISS Common Stock”). Additionally, each option to purchase shares of vCIS common stock was assumed by ISS in the merger and converted into an option to purchase shares of ISS Common Stock. ISS will issue an aggregate of approximately 1,000,000 shares of ISS Common Stock for the outstanding vCIS common stock and options assumed in the merger. The total consideration paid in the merger was determined through arm’s length negotiations between representatives of ISS and vCIS. Neither ISS, ISS Sub nor any of their affiliates had, nor, to the knowledge of ISS or ISS Sub, did any director or officer or associate of any such director or officer of ISS or ISS Sub have, any material relationship with vCIS prior to the merger.

     vCIS is a development-stage company focused on the development of software designed to enhance the security of a computing environment by detecting and defeating malicious code, including viruses, worms and trojans, in real-time using behavior analysis technology.

     The merger has been accounted for as a purchase, and, accordingly, the operating results of vCIS will be included in the consolidated financial statements of ISS from the date of acquisition. The press release announcing the closing of the merger is filed as Exhibit 99.1 hereto and is incorporated herein by reference.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

     (a)  - (b) Financial Statements of Businesses Acquired and Pro Forma Financial Information.

     In accordance with the instructions in Item 7(a)(4) and (b)(2) to Form 8-K, the historical financial statements of vCIS and the pro forma financial information required by Item 7 have not been filed herewith, but will be filed not later than 60 days after the initial due date of this report.

2

     (c)  Exhibits

99.1 Text of Press Release of ISS and vCIS, dated October 31, 2002.

3

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 31, 2002
		INTERNET SECURITY SYSTEMS, INC.
	By:	/s/ Thomas E. Noonan
		Thomas E. Noonan Chairman, President and Chief Executive Officer

4

EXHIBIT INDEX

Exhibit No.	Description
99.1	Text of Press Release of ISS and vCIS, dated October 31, 2002.

5 EX-99.1 3 g78818exv99w1.txt TEXT OF PRESS RELEASE, DATED OCTOBER 30, 2002 EXHIBIT 99.1 CONTACTS: Media: Investor/Financial Analysts: Ashley Vandiver Heidi Jennison Internet Security Systems Internet Security Systems 404-236-4053 404-236-2796 avandiver@iss.net hjennison@iss.net Adam Paige Industry Analysts: Cohn & Wolfe Player Pate 212-798-9833 Internet Security Systems adam_paige@nyc.cohnwolfe.com 404-236-4018 ppate@iss.net FOR IMMEDIATE RELEASE INTERNET SECURITY SYSTEMS COMPLETES ACQUISITION OF VCIS INC. ~ NEW PATENT-PENDING TECHNOLOGY PREVENTS MALICIOUS CODE FROM EXECUTING BEFORE IT REACHES THE ENTERPRISE NETWORK PROVIDING DEFENSE IN DEPTH ~ ATLANTA, GA. -- OCTOBER 31, 2002 -- Internet Security Systems, Inc. (Nasdaq: ISSX) today completed the acquisition of privately held vCIS Inc. of Santa Clara, California. On August 23, 2002 ISS announced a definitive agreement to acquire vCIS, the developer of patent-pending, next-generation, pre-emptive behavioral inspection technology. The technology prevents malicious code from executing and causing damage before it has an opportunity to interact with the enterprise network. The acquisition of vCIS will add another essential protection technology customers require to effectively implement an enterprise-wide "defense-in-depth" strategy to protect against continuously evolving "hybrid" threats. "Behavioral inspection is an extremely valuable protection layer and increases the depth of our comprehensive solution," said Tom Noonan, president and chief executive officer of Internet Security Systems. "The acquisition of this behavioral analysis technology will help our customers protect their infrastructures from unknown threats during their most vulnerable time when a new threat emerges." The vCIS protection technology will allow Internet Security Systems to enhance the application protection feature in RealSecure(R) Desktop Protector solution as well as the company's server protection offerings. The integrated pre-emptive behavioral technology is expected to be available for the desktop in the first quarter of 2003. With these combined technologies, customers will be able to control - via policy - how known programs operate on their host systems while effectively preventing unknown or untrusted applications from executing. The combination affords strong proactive application controls, serving as an adjunct to deploying and managing signatures, and dramatically reduces false positives. The acquisition advances our strategy of offering threat protection solutions that actively detect, prevent and respond to security risks at every potential point of compromise on desktops, servers and networks. Internet Security Systems will issue or reserve approximately one million shares of Internet Security Systems' common stock in the transaction. Shares will be issued to holders of vCIS stock, convertible notes and warrants. Shares will be reserved for future exercise of stock options outstanding under the vCIS stock option plan assumed in the transaction. The closing of this transaction was considered in the company's recently published guidance for the quarter ending December 31, 2002 of revenues in the range of $64,000,000 to $68,000,000 and pro forma earnings in the range of $0.14 to $0.16 per diluted share. Assuming achievement of these expectations, revenues for the year ending December 31, 2002 will be in the range of $244,000,000 to $248,000,000 and pro forma earnings of $0.47 to $0.49 per diluted share. The quarterly and annual pro forma per share amounts exclude the non-cash acquisition related charges, gain related to the use of subsidiary shares in an acquisition and any in-process research and development charge related to this vCIS acquisition, which may be a significant part of the acquisition cost of approximately $20 million. The guidance is based on current expectations for the fourth quarter and fiscal 2002 regarding revenues and earnings per share. These statements are forward-looking, and actual results may differ materially. The public can continue to rely on this guidance, unless Internet Security Systems publishes a notice stating otherwise or until the company's "quiet period" when Internet Security Systems and its representatives will not comment concerning previously published financial expectations. The company disclaims any obligation to update during the quiet period and the public should not rely on previously published expectations during the quiet period. Internet Security Systems' quiet period at the end of the fourth quarter is expected to run from December 15, 2002 until earnings are released in January 2003. ABOUT INTERNET SECURITY SYSTEMS, INC. Internet Security Systems (ISS) (Nasdaq: ISSX) is a world leader in software and services that protect critical information assets from an ever-changing spectrum of threats and misuse. Software from Internet Security Systems dynamically detects, prevents and responds to sophisticated threats to networks, servers and desktops. Services include 24/7 system monitoring, emergency response and access to the X-Force, Internet Security Systems' renowned research and development team. Internet Security Systems is the trusted security provider for more than 10,000 corporate customers, including all of the Fortune 50, the top 10 largest U.S. securities firms, 10 of the world's largest telecommunications companies and major agencies and departments within U.S. local, state and federal governments. Headquartered in Atlanta, GA, Internet Security Systems has additional operations throughout the Americas, Asia, Australia, Europe and the Middle East. For more information, visit the Internet Security Systems Web site at www.iss.net or call 888-901-7477. # # # FORWARD LOOKING STATEMENTS This release, other than historical information, includes forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements include those related to availability and performance of development stage products and revenue and earnings guidance. The risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: the company's ability to develop new and enhanced products; the company's ability to assimilate recent and potential future acquisitions or investments, including vCIS; the level of demand for the company's products; the volume and timing of orders; product and price competition; customer budgets; the company's ability to expand its domestic and international sales and marketing organizations; the company's ability to attract and retain key personnel; reliance on distribution channels through which the company's products are sold; the growth in the acceptance and use of the Internet and of private Internet-based networks or "intranets"; the extent to which unauthorized access to and use of online information is perceived as a threat to network security; the assertion of infringement claims with respect to the company's intellectual property; foreign currency exchange rates; risks concerning the rapid change of technology; and general economic factors. These risks and others are discussed in the company's periodic filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. These filings can be obtained either by contacting ISS Investor Relations or through the Securities and Exchange Commission's Web site at "http://www.sec.gov". Internet Security Systems is a trademark and RealSecure a registered trademark of Internet Security Systems, Inc. All other companies and products mentioned are trademarks and property of their respective owners. -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    EXHIBIT 99.1


CONTACTS:         Media:                          Investor/Financial Analysts:
                  Ashley Vandiver                 Heidi Jennison
                  Internet Security Systems       Internet Security Systems
                  404-236-4053                    404-236-2796
                  avandiver@iss.net               hjennison@iss.net

                  Adam Paige                      Industry Analysts:
                  Cohn & Wolfe                    Player Pate
                  212-798-9833                    Internet Security Systems
                  adam_paige@nyc.cohnwolfe.com    404-236-4018
                                                  ppate@iss.net


FOR IMMEDIATE RELEASE

         INTERNET SECURITY SYSTEMS COMPLETES ACQUISITION OF VCIS INC.

         ~ NEW PATENT-PENDING TECHNOLOGY PREVENTS MALICIOUS CODE FROM EXECUTING
BEFORE IT REACHES THE ENTERPRISE NETWORK PROVIDING DEFENSE IN DEPTH ~

         ATLANTA, GA. -- OCTOBER 31, 2002 -- Internet Security Systems, Inc.
(Nasdaq: ISSX) today completed the acquisition of privately held vCIS Inc. of
Santa Clara, California. On August 23, 2002 ISS announced a definitive agreement
to acquire vCIS, the developer of patent-pending, next-generation, pre-emptive
behavioral inspection technology. The technology prevents malicious code from
executing and causing damage before it has an opportunity to interact with the
enterprise network. The acquisition of vCIS will add another essential
protection technology customers require to effectively implement an
enterprise-wide "defense-in-depth" strategy to protect against continuously
evolving "hybrid" threats.

         "Behavioral inspection is an extremely valuable protection layer and
increases the depth of our comprehensive solution," said Tom Noonan, president
and chief executive officer of Internet Security Systems. "The acquisition of
this behavioral analysis technology will help our customers protect their
infrastructures from unknown threats during their most vulnerable time when a
new threat emerges."

         The vCIS protection technology will allow Internet Security Systems to
enhance the application protection feature in RealSecure(R) Desktop Protector
solution as well as the company's server protection offerings. The integrated
pre-emptive behavioral technology is expected to be available for the desktop in
the first quarter of 2003. With



these combined technologies, customers will be able to control - via policy -
how known programs operate on their host systems while effectively preventing
unknown or untrusted applications from executing. The combination affords strong
proactive application controls, serving as an adjunct to deploying and managing
signatures, and dramatically reduces false positives.

         The acquisition advances our strategy of offering threat protection
solutions that actively detect, prevent and respond to security risks at every
potential point of compromise on desktops, servers and networks.

         Internet Security Systems will issue or reserve approximately one
million shares of Internet Security Systems' common stock in the transaction.
Shares will be issued to holders of vCIS stock, convertible notes and warrants.
Shares will be reserved for future exercise of stock options outstanding under
the vCIS stock option plan assumed in the transaction.

         The closing of this transaction was considered in the company's
recently published guidance for the quarter ending December 31, 2002 of revenues
in the range of $64,000,000 to $68,000,000 and pro forma earnings in the range
of $0.14 to $0.16 per diluted share. Assuming achievement of these expectations,
revenues for the year ending December 31, 2002 will be in the range of
$244,000,000 to $248,000,000 and pro forma earnings of $0.47 to $0.49 per
diluted share. The quarterly and annual pro forma per share amounts exclude the
non-cash acquisition related charges, gain related to the use of subsidiary
shares in an acquisition and any in-process research and development charge
related to this vCIS acquisition, which may be a significant part of the
acquisition cost of approximately $20 million.

         The guidance is based on current expectations for the fourth quarter
and fiscal 2002 regarding revenues and earnings per share. These statements are
forward-looking, and actual results may differ materially. The public can
continue to rely on this guidance, unless Internet Security Systems publishes a
notice stating otherwise or until the company's "quiet period" when Internet
Security Systems and its representatives will not comment concerning previously
published financial expectations. The company disclaims any obligation to update
during the quiet period and the public should not rely on previously published
expectations during the quiet period. Internet Security Systems'



quiet period at the end of the fourth quarter is expected to run from December
15, 2002 until earnings are released in January 2003.

ABOUT INTERNET SECURITY SYSTEMS, INC.

         Internet Security Systems (ISS) (Nasdaq: ISSX) is a world leader in
software and services that protect critical information assets from an
ever-changing spectrum of threats and misuse. Software from Internet Security
Systems dynamically detects, prevents and responds to sophisticated threats to
networks, servers and desktops. Services include 24/7 system monitoring,
emergency response and access to the X-Force, Internet Security Systems'
renowned research and development team. Internet Security Systems is the trusted
security provider for more than 10,000 corporate customers, including all of the
Fortune 50, the top 10 largest U.S. securities firms, 10 of the world's largest
telecommunications companies and major agencies and departments within U.S.
local, state and federal governments. Headquartered in Atlanta, GA, Internet
Security Systems has additional operations throughout the Americas, Asia,
Australia, Europe and the Middle East. For more information, visit the Internet
Security Systems Web site at www.iss.net or call 888-901-7477.

                                      # # #

FORWARD LOOKING STATEMENTS

This release, other than historical information, includes forward-looking
statements made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Some of these forward-looking
statements include those related to availability and performance of development
stage products and revenue and earnings guidance. The risks and uncertainties
which could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, the following: the
company's ability to develop new and enhanced products; the company's ability to
assimilate recent and potential future acquisitions or investments, including
vCIS; the level of demand for the company's products; the volume and timing of
orders; product and price competition; customer budgets; the company's ability
to expand its domestic and international sales and marketing organizations; the
company's ability to attract and retain key personnel; reliance on distribution
channels through which the company's products are sold; the growth in the
acceptance and use of the Internet and of private Internet-based networks or
"intranets"; the extent to which unauthorized access to and use of online
information is perceived as a threat to network security; the assertion of
infringement claims with respect to the company's intellectual property; foreign
currency exchange rates; risks concerning the rapid change of technology; and
general economic factors. These risks and others are discussed in the company's
periodic filings with the Securities and Exchange Commission, including the
company's Annual Report on Form 10-K for the year ended December 31, 2001 and
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. These filings
can be obtained either by contacting ISS Investor Relations or through the
Securities and Exchange Commission's Web site at "http://www.sec.gov".

Internet Security Systems is a trademark and RealSecure a registered trademark
of Internet Security Systems, Inc. All other companies and products mentioned
are trademarks and property of their respective owners.