FORM S-1

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

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 it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

This is an initial public offering of shares of common stock of SafeNet Holding Corporation. No public market currently exists for our common stock. We anticipate the initial public offering price per share will be between $ and $ per share.

We are selling shares of common stock and the selling stockholder is selling shares of common stock. We will not receive any of the proceeds from the shares of common stock sold by the selling stockholder.

We intend to apply to list our common stock on the NASDAQ Global Market under the symbol “SAFE.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 15.

The underwriters have a 30-day option to purchase up to an aggregate of additional shares of common stock from on the same terms set forth above.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on or about , 2010.

Our products provide persistent data-centric protection throughout the data lifecycle. As depicted in the diagram below, our solutions protect the identities of users, applications and machines, the transactions they perform and the data as it is created, accessed, shared, stored, moved and used, both within and beyond the organization’s network.

We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the underwriters and the selling stockholder are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Neither we, the selling stockholder, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

Until , 2010 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

We have registered the “SafeNet,” “Aladdin,” “DataSecure,” “eSafe,” “HASP,” “Luna,” and “Sentinel” trademarks in the U.S. in certain classes of goods and services applicable to our business and, in some cases, in certain other countries. Other of our unregistered trademarks and service marks in the U.S. include: “eToken,” “ProtectApp,” “ProtectDatabase,” “ProtectDrive,” “ProtectFile,” “Sentinel HASP,” “Sentinel RMS,” and “Sentinel EMS,” which are protected under common law. Third parties may use trademarks similar to our trademarks in other fields of use. This prospectus also contains trademarks of other persons.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. Therefore, you should read this entire prospectus carefully, including the “Risk Factors” section beginning on page 15 and our consolidated financial statements and the related notes. As described below in the sections entitled “—Company Information” and “—Corporate Reorganization,” we were incorporated in June 2010 as a Delaware corporation to become a holding company for SafeNet, Inc., which was founded in 1983. The reorganization was completed on June 30, 2010. Prior to and following the reorganization, our operations were and will continue to be conducted through SafeNet, Inc. and its consolidated subsidiaries. Unless the context requires otherwise, the words “we,” “us,” “our” and “SafeNet” refer to SafeNet, Inc. and its consolidated subsidiaries prior to the reorganization and refer to SafeNet Holding Corporation and its consolidated subsidiaries following the reorganization.

SAFENET HOLDING CORPORATION

Overview

SafeNet is a leading provider of high-end data protection solutions to both commercial enterprises and government agencies. Customers trust our comprehensive and flexible solutions to protect their most valuable information assets, including electronic banking transfers, personally identifiable information, electronic medical records, software and intellectual property assets and classified information that is critical for national security. We combine leading-edge commercial technologies with the expertise and credibility developed through our long-standing leadership in the government sector. We offer a lifecycle approach to data protection that:

•

protects the identities of users, applications and machines;

•

secures transactions that are performed by authenticated users;

•

encrypts data when it is created and while it is accessed, shared, stored and moved;

•

encrypts the communications channels through which data travels;

•

controls users’ rights to access software and digital assets; and

•

includes management solutions that enable our products to work together.

In 2007^*, 2008, 2009 and the first quarter of 2010, our total revenue was $300.2* million, $329.0 million, $403.7 million and $107.8 million; our net loss was $88.1^* million, $126.5 million, $49.7 million and $7.4 million and our adjusted EBITDA was $40.4* million, $57.5 million, $85.9 million and $20.6 million. Adjusted EBITDA is not a recognized presentation under accounting principles generally accepted in the United States, or GAAP. For an explanation of the elements of adjusted EBITDA and a full reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP measure, see “—Summary Historical Financial Data—Definition of Adjusted EBITDA” and “—Summary Historical Financial Data—Definition of Adjusted EBITDA—Reconciliation of Adjusted EBITDA to Net Loss.”

Our consolidated statement of operations data for the calendar year ended December 31, 2007 is presented on a combined basis to reflect our activity in both the Predecessor Period and Successor Period during that year. For further information on this presentation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Presentation of Financial Statements—Predecessor and Successor Entities.”

Industry Background

Several key trends are driving the need for high-end data protection solutions.

Proliferation of digital data and increase in high-value digital assets and transactions. Organizations are experiencing an unprecedented and sustained growth in digital assets and electronic transactions, which involves increasingly valuable information such as financial transactions, corporate, state and national security secrets, intellectual property and personal information.

Organizational deployment of new technologies has led to increased vulnerabilities. Innovations in technology have changed the ways in which organizations create, use, store and move their valuable information assets. As organizations deploy new technologies to increase productivity, they also introduce additional security and compliance risks and increase the vulnerability of valuable digital information and assets. Several examples include the increased use of:

•

collaboration within and across organizations;

•

extended enterprise and workforce mobility resources;

•

virtualization and cloud computing;

•

consumer technologies and personal devices in information technology environments; and

•

software-as-a-service, or SaaS.

Security threats are becoming more frequent, sophisticated and severe. There has been a significant increase in frequency, sophistication and severity of threats, originating inside and beyond an organization’s perimeter, that can compromise national security and lead to severe reputational and financial loss for organizations.

Cyber security has become a top government priority. Cyber security has become a top priority of the U.S. government as cyber attacks on the federal government have increased in volume and sophistication. Such attacks could be catastrophic to national security, defense, financial systems and critical infrastructure.

Government regulations, industry standards and internal risk management policies mandate increased protection of data. Governments are enacting legislation to ensure that individuals and organizations are informed of and protected from losses due to data breaches. In addition, organizations are increasingly implementing internal compliance policies to ensure that their data and underlying information technology, or IT, infrastructure remain protected yet available to authorized users.

The market opportunity for protecting digital assets is large. As organizations continue to increase their spending to protect their high-value digital assets, a large market opportunity has developed for high-end data security solutions. This opportunity includes portions of the broader IT, security, software rights management and government cyber security markets.

Traditional approaches are insufficient for comprehensive data protection. As a result of these trends, there is an increasing need to protect data throughout its lifecycle, which includes establishing the identities of users, applications and machines, verifying electronic transactions, and securing the access, storage, sharing and movement of data. As protection evolves, there is also an increasing need for integrated management systems to coordinate protection across these lifecycle processes. Current solutions are a combination of network perimeter defenses that do not provide comprehensive security and control and point security solutions that do not protect high-value information throughout its lifecycle.

Our Competitive Strengths

We believe our products and services address the increased security challenges that organizations face with respect to their digital assets and the limitations associated with existing security solutions. Our product families provide persistent protection with integrated, centralized management designed to protect the digital information throughout its lifecycle. Our competitive strengths include:

•

Comprehensive lifecycle approach to data security. Our products provide persistent data-centric protection throughout the data lifecycle. We protect the identities of users, applications and machines, the transactions they perform and the data as it is created, accessed, shared, stored, moved and used, both within and beyond the organization’s network. We believe that this comprehensive lifecycle approach to data security differentiates us from our competitors.

•

Proven solutions trusted by customers to protect their most valuable information assets. We have highly sophisticated customers that trust us to protect their most valuable information assets, such as classified information that is critical for national security, electronic banking transfers, proprietary corporate data, personally identifiable information, electronic medical records, software and intellectual property assets. Many of our products have achieved global certifications such as Common Criteria and governmental certifications such as those under the U.S. Federal Information Processing Standard, or FIPS, and National Security Agency Type 1, or Type 1.

•

Security solutions engineered to evolve with business needs. Our data-centric security solutions are based on an extensible data protection architecture that is engineered to be adaptable to changing security threats, technologies, business requirements and compliance mandates. Our solutions are modular and integrate with other products and applications in heterogeneous IT environments. This enables customers to leverage existing infrastructure and increase their data security, starting with a single product for a specific use-case and expanding to incorporate additional products and solutions as their security needs evolve.

•

Combining the best in commercial and government security. Due to our significant presence in both commercial enterprises and the government sector, we are well positioned to combine leading-edge commercial technologies with the expertise and credibility that we have developed through our leadership in the government sector.

•

Highly experienced team with significant security expertise. Our management team has 300 years of combined security and technology industry experience; our sales teams are comprised of subject matter experts; our products are engineered by a world-class research and development organization of over 550 security engineers; and over 300 of our employees hold security clearances.

We believe that the combination of these strengths creates a significant competitive advantage.

Our Growth Strategy

Our objective is to be the leading provider of comprehensive data protection solutions that protect high-value information throughout its lifecycle. The following are key elements of our strategy:

•

Continue to develop innovative high-end data protection solutions. We intend to leverage our proven development capabilities and expertise from government and commercial sectors to develop new security technologies that broaden our protection footprint by creating more secure, adaptive and comprehensive solutions.

•

Broaden our global distribution by continuing to expand our channel networks and other relationships. We intend to strengthen our existing channel by establishing new product reseller and distribution partnerships that will enable us to extend our customer reach and to target new verticals and geographic regions.

•

Continue to increase our sales to new commercial and government customers. We plan to continue to invest in our direct sales force and to leverage our existing global solution partners and channel sales organizations to drive additional sales to new customers.

•

Further expand sales into our existing large customer base. We intend to extend our leadership within the U.S. government and the commercial sector by advancing new use cases to our existing customer base and selling new products.

•

Capture near term opportunities related to government cyber security initiatives and cloud computing deployments. We intend to continue to focus our resources on capturing increases in spending by our government customers on cyber security related projects and new and existing customers on evolving their IT infrastructure to shared computing environments.

•

Pursue selective acquisitions. We have a successful track record of making and integrating acquisitions over time, and intend to continue to pursue selective acquisitions that we expect will enhance our competitive position and financial performance.

Our Products and Solutions

Our comprehensive and flexible data protection solutions include the following product family portfolios:

•

Identity protection. We offer our customers identity protection tools that enable them to manage access rights to sensitive information. Our products in this area include USB authenticators, smart cards, one-time-password authenticators and software/mobile authenticators.

•

Transaction protection. Our transaction protection solutions provide our commercial enterprise and government customers with a fast, secure and easy way to integrate application and transaction security. Our products in this area include our Luna family of hardware security modules, or HSMs.

•

Data encryption and control. Our data encryption and control solutions provide our customers with a unified platform that delivers adaptive data protection and control for information assets. Our products in this area include our DataSecure data center and endpoint product suites.

•

Communication protection. We offer high-speed encryptor solutions that combine the highest levels of performance and integrated management capability. Our products in this area include our ethernet and synchronous optical networking encryptors.

•

Software rights management. We offer an integrated enforcement and management platform for software licenses and entitlements that has been designed to support a variety of deployment and licensing models. Our products in this area include our Sentinel line of products.

Finally, each of our comprehensive data protection solutions has a management product through which an authorized administrator provisions, manages and controls deployments across the respective product families.

Our Customers

We serve more than 25,000 customers across both commercial enterprises and government agencies and in over 100 countries. Examples of customer uses of our products and solutions include:

•

a major global interbank network using our HSMs, authenticators and high-speed encryptors to protect its communications and financial transactions;

•

a large government agency using our data encryption product suites to share data with other agencies and outside parties;

•

a prominent global airline using our DataSecure family of products to enable compliance with standards for protecting its customers’ personally identifiable information; and

•

a leading European-based software provider using our Sentinel solutions to manage licenses for its solutions.

Risks Related to Our Business

Investing in our common stock involves risk. You should carefully consider all the information in this prospectus prior to investing in our common stock. These risks are discussed more fully in the section entitled “Risk Factors” immediately following this prospectus summary. These risks and uncertainties include, but are not limited to, the following:

•

our business depends in significant part on sales to U.S. government agencies and changes in U.S. government fiscal policies and appropriations could have a material adverse effect on our business;

•

losses, delays or reductions in scope of our primary customer relationships will materially reduce our revenue and profitability;

•

we face intense competition in our market, both from larger, better-known companies and more targeted competitors;

•

if functionality similar to that offered by our products is incorporated into existing infrastructure products, organizations may decide against adding our solutions to their IT networks;

•

defects or vulnerabilities in our products or the failure of our products to adequately prevent a security breach or protect software assets could harm our reputation and divert resources; and

•

if we do not accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs and develop corresponding products, our competitive position and prospects will be harmed.

Recent Developments

Acquisition by an Affiliate of Vector Capital

In April 2007, we were acquired by Vector Stealth Holdings II, L.L.C., or Vector Stealth, a Delaware limited liability company and an affiliate of Vector Capital, a San Francisco-based private equity investment firm specializing in the technology sector. As a result of this going-private transaction, we ceased to be a public reporting company. As a private company, we began a series of steps to improve our growth, profitability and internal controls. Included in these actions were changes in our board of directors and management personnel, including reconstituting our board such that all of our board members have joined our board since 2007, and the appointment of a new chief executive officer in July 2009, a new chief financial officer in October 2009, and a new senior vice president and general counsel in February 2010. In 2009, we began implementation of a new enterprise resource planning system to further improve our efficiency and internal controls.

Strategic Repositioning

As a private company, we made a series of strategic acquisitions and divestitures that enhanced our competitive position. In 2008, we acquired Ingrian Networks, Inc., an enterprise data protection and privacy solutions provider. In 2009, we acquired Assured Decisions, LLC, a cyber security consultancy and provider of high-value solutions for securely sharing confidential information across government agencies.

Most notable among our recent activity was the acquisition on March 24, 2009 of Aladdin Knowledge Systems Ltd., or Aladdin, a developer of data security and software rights management solutions, by an entity affiliated with Vector Capital. Vector Capital placed Aladdin under common control with us at that time. On March 31, 2010, we formally acquired the entity that had acquired Aladdin, which resulted in Aladdin becoming a wholly owned subsidiary of SafeNet, Inc. Combining the two companies enhanced our presence in our target markets, increased our geographic diversity, expanded our reseller and distribution channels and improved operating efficiencies through the reduction or elimination of overlapping products and functions.

In 2009, we divested MediaSentry, which provided network monitoring for copyright enforcement. In 2010, we divested assets of our custom embedded products line that we marketed to network equipment manufacturers, ASIC vendors and mobile device providers.

Through these acquisitions and divestitures, we have focused our business on providing integrated high-end data protection solutions that address data security throughout its lifecycle. We unified our marketing and sales focus and targeted our development efforts on the most valuable assets in our portfolio.

Company Information

We were incorporated in 2010 as a Delaware corporation and on June 30, 2010 became a holding company for SafeNet, Inc., a company that was formed in 1983 as a Delaware corporation. As of May 28, 2010, SafeNet, Inc. employed 1,605 people in 24 countries. Our headquarters are located at 4690 Millennium Drive, Belcamp, Maryland 21017 and our telephone number is (410) 931-7500. You can access our Web site at www.safenet-inc.com. Information contained on our Web site is not part of this prospectus and is not incorporated in this prospectus by reference.

Corporate Reorganization

Prior to and following June 30, 2010, we have conducted our business through SafeNet, Inc. and its subsidiaries. SafeNet, Inc. was most recently a wholly owned subsidiary of Vector Stealth, a Delaware limited liability company and an affiliate of Vector Capital. Vector Stealth held no material assets other than SafeNet, Inc. and does not engage in any business operations. Pursuant to the terms of our recent corporate reorganization that was completed on June 30, 2010. Vector Stealth exchanged all of its ownership interest in SafeNet, Inc. for a 100% interest in SafeNet Holding Corporation. As a result of this reorganization, SafeNet, Inc. is wholly owned by SafeNet Holding Corporation, and SafeNet Holding Corporation is wholly owned by Vector Stealth. Certain of our executive officers hold economic interests in Vector Stealth. See “Certain Relationships and Related Person Transactions—Vector Stealth Unit Award Agreements.”

The corporate reorganization does not affect our operations, which we continue to conduct through SafeNet, Inc. and its consolidated subsidiaries, including Aladdin.

The following diagram provides a summary illustration of our ownership and organizational structure immediately after the corporate reorganization and immediately after giving effect to this offering:

LOGO

*	Percentages calculated excluding the effects of outstanding compensatory stock options to purchase shares of our common stock, which will amount to approximately % of our fully diluted shares following this offering.

†

Percentages give effect to the sale of shares of common stock by us and the selling stockholder in this offering based on the amount of shares expected to be sold by us and the selling stockholder as indicated on the front cover of this prospectus (excluding the exercise of any over allotment option held by the underwriters).

About Vector Capital

Vector Capital is a leading global private equity firm specializing in spinouts, buyouts and recapitalizations of established technology businesses in both the private and public capital markets. Vector Capital strives to actively partner with management teams to develop and execute new financial and business strategies designed to materially improve the competitive standing of those businesses and enhance value for employees, customers and stockholders.

THE OFFERING

Common stock offered by us

Common stock offered by the selling stockholder

Total common stock offered

Common stock outstanding after this offering

Use of proceeds

We estimate that we will receive net proceeds of approximately $ million from the sale of the shares offered by us in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds received by us in connection with this offering for the following purposes and in the following amounts:

•

approximately $ million will be used to repay a portion of the amount outstanding under our senior secured credit arrangements, a portion of which is held by an affiliate of Vector Stealth; however, the selection of which indebtedness obligations, the amounts to be repaid with respect to these specific indebtedness obligations, the timing of repayment and the particular method by which we effect repayment, have not yet been determined and will depend, among other things, on market conditions;

•

approximately $ million will be paid to Vector Capital Partners III, L.P., an affiliate of Vector Stealth, in connection with the termination of our management services agreement pursuant to its terms; and

•

the remainder for working capital and other general corporate purposes, which may include the acquisition of other complementary businesses, products or technologies; however, we do not have commitments for any acquisitions at this time.

We will not receive any proceeds from the sale of shares by the selling stockholder, including from sales of its shares in the event that the underwriters exercise their option to purchase an additional shares of our common stock from the selling stockholder. See “Use of Proceeds” and “Certain Relationships and Related Person Transactions—Transactions and Relationships with Vector Stealth and its Affiliates.”

Proposed NASDAQ Global Market symbol

SAFE

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

The number of shares of common stock that will be outstanding after this offering is based on the number of shares outstanding as of , 2010. This number:

•

assumes that the underwriters will not exercise their option to purchase additional shares;

•

excludes shares of common stock issuable upon exercise of options outstanding at a weighted-average exercise price of $ per share under our 2007 Equity Plan; and

•

excludes shares of common stock reserved for future issuance under our 2010 Equity Incentive Plan.

Unless otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option in this offering to purchase additional shares to cover over-allotments.

SUMMARY HISTORICAL FINANCIAL DATA

You should read the summary historical financial data set forth below in conjunction with our consolidated financial statements, the notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

Pursuant to our acquisition on April 12, 2007 by Vector Stealth, our consolidated financial statements and notes included elsewhere and referenced in this prospectus present information relating to both a “Successor” and “Predecessor” entity. We refer to the period prior to April 12, 2007 as the “Predecessor Period” and the period from April 12, 2007 as the “Successor Period.” The historical financial data for the years ended December 31, 2007, 2008 and 2009 have been derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The historical financial data as of March 31, 2010 and for the three months ended March 31, 2009 and 2010 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have prepared this unaudited financial information on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for such period. Our historical results are not necessarily indicative of results to be expected for future periods. Results for the three months ended March 31, 2010 are not necessarily indicative of results expected for the full year.


	Predecessor Period			Successor Period
	Period from January 1, 2007 to April 11, 2007			Period from April 12, 2007 to December 31, 2007			Year Ended December 31,						Three Months Ended March 31,
	Period from January 1, 2007 to April 11, 2007			Period from April 12, 2007 to December 31, 2007			2008			2009			2009			2010
													(unaudited)
	(dollars in millions, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Products	$	63.7		$	197.2		$	283.6		$	348.7		$	70.5		$	88.3
Service and maintenance		10.1			29.2			45.4			55.0			10.9			19.5

Total revenues		73.8			226.4			329.0			403.7			81.4			107.8
Costs of revenues:
Products (excluding amortization and impairment of intangible assets)		34.1			91.1			128.7			141.9			30.8			37.9
Service and maintenance (excluding amortization and impairment of intangible assets)		2.5			7.1			11.5			10.4			2.3			3.8
Amortization and impairment of intangible assets		3.7			26.4			117.2			31.9			6.9			8.2

Total cost of revenues		40.3			124.6			257.4			184.2			40.0			49.9

Gross profit		33.5			101.8			71.6			219.5			41.4			57.9
Operating expenses:
Research and development expenses		19.3			34.0			47.9			60.6			12.6			13.8
Sales and marketing expenses		21.6			35.3			56.6			81.5			14.3			23.6
General and administrative expenses		41.1			33.8			47.2			81.0			17.4			15.5
Amortization of intangible assets		1.9			5.1			6.8			10.4			1.7			3.1
Impairment of goodwill		—			—			42.9			—			—			—
Loss on sale of business and net assets held for sale		—			—			—			2.5			1.5			0.4
Restructuring expenses		—			—			—			5.5			0.9			0.1

Operating (loss) income		(50.4	)		(6.4	)		(129.8	)		(22.0	)		(7.0	)		1.4
Foreign exchange (loss) gain		(0.3	)		—			(2.5	)		(0.9	)		0.3			0.4
Interest income (expense), net		0.9			(24.1	)		(34.2	)		(30.3	)		(7.2	)		(7.9	)
Other income (expense), net		—			0.2			0.8			2.6			2.3			(0.5	)

(Loss) before income taxes		(49.8	)		(30.3	)		(165.7	)		(50.6	)		(11.6	)		(6.6	)
Income tax expense (benefit)		1.0			7.0			(39.2	)		(0.9	)		1.4			0.8

Net (loss)	$	(50.8	)	$	(37.3	)	$	(126.5	)	$	(49.7	)	$	(13.0	)	$	(7.4	)

Net loss per common share:
Basic and diluted	$	(2.41	)	$	(0.38	)	$	(1.05	)	$	(0.33	)	$	(0.09	)	$	(0.05	)
Weighted average common shares outstanding:
Basic and diluted		21,107,000			99,127,000			120,325,000			151,762,000			151,762,000			151,762,000

The following table sets forth summary unaudited consolidated balance sheet data as of March 31, 2010 and as adjusted to give effect to the issuance of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range on the front cover of this prospectus, and application of proceeds from the offering as described in “Use of Proceeds.” The unaudited as adjusted consolidated balance sheet data is presented for informational purposes only and does not purport to represent what our consolidated financial position actually would have been had the transactions reflected occurred on the date indicated or to project our financial condition as of any future date or results of operations for any future period.


	March 31, 2010
	Actual		As Adjusted(1)
	(unaudited)
	(in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	32.2	$
Total current assets		160.3
Total assets		730.3
Total current liabilities		152.1
Long-term obligations		386.6
Total stockholder’s equity		125.8

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the front cover of this prospectus, would increase or decrease, as applicable, our as adjusted cash, cash equivalents and short-term investments, total current assets, total assets and stockholders’ equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table sets forth a number of key financial metrics that we believe are helpful in evaluating growth trends, measuring the effectiveness and efficiency of our operations and gauging our cash generation.


	Year Ended December 31,									Three Months Ended March 31,
	2007*			2008			2009			2009			2010
										(unaudited)
	(dollars in millions)
Products revenues	$	260.9		$	283.6		$	348.7		$	70.5		$	88.3
Service and maintenance revenues	$	39.3		$	45.4		$	55.0		$	10.9		$	19.5
Total revenue	$	300.2		$	329.0		$	403.7		$	81.4		$	107.8
Gross profit margin of products revenues (excluding amortization and impairment of intangible assets)†		52.0	%		54.6	%		59.3	%		56.3	%		57.0	%
Gross profit margin of service and maintenance revenues (excluding amortization and impairment of intangible assets)†		75.7	%		74.7	%		81.1	%		78.6	%		80.6	%
Total gross profit margin		45.1	%		21.8	%		54.4	%		50.9	%		53.7	%
Operating expenses	$	192.1		$	201.4		$	241.5		$	48.4		$	56.5
Operating (loss) income	$	(56.8	)	$	(129.8	)	$	(22.0	)	$	(7.0	)	$	1.4
Net cash provided by (used in) operating activities	$	19.6		$	8.0		$	17.5		$	(1.9	)	$	2.6
Adjusted EBITDA	$	40.4		$	57.5		$	85.9		$	14.0		$	20.6

Key financial metrics for the calendar year ended December 31, 2007 are presented on a combined basis to reflect our activity in both the Predecessor Period and Successor Period during that year. For further information on this presentation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Presentation of Financial Statements—Predecessor and Successor Entities.”

†

For further discussion of our presentation of gross profit margin, including by products revenues (excluding amortization and impairment of intangible assets) and service and maintenance revenues (excluding amortization and impairment of intangible assets), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Operations—Gross Profit and Gross Profit Margins.”

Definition of Adjusted EBITDA

We define adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus: (i) interest (income) expense, net; (ii) income tax (benefit) expense; (iii) depreciation; (iv) amortization of acquired intangible assets; (v) impairment of acquired intangible assets and goodwill; (vi) stock-based compensation expense; (vii) transaction costs related to acquisitions; (viii) purchase accounting adjustments; (ix) restructuring expenses; (x) principal stockholder management fees; (xi) investigation and restatement related charges; and (xii) costs and benefits of litigation settlements.

Adjusted EBITDA is a performance measure that is not calculated in accordance with GAAP. The table immediately following this discussion provides a reconciliation of this non-GAAP measure to net loss, the most directly comparable measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income, income from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments, the reasons we consider them appropriate and the material limitations of adjusted EBITDA as described in “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Key Metrics—Definition of Adjusted EBITDA—Material Limitations of Adjusted EBITDA.”

Our management uses adjusted EBITDA:

•

as a measure of operating performance;

•

as a factor when determining management’s compensation;

•

for planning purposes, including the preparation of our annual operating budget;

•

to allocate resources of our business; and

•

to evaluate the effectiveness of our business strategies.

We believe that the use of adjusted EBITDA provides consistency and comparability with our past financial performance and facilitates period to period comparisons of our operating results by management and investors. Although calculation of adjusted EBITDA may vary from company to company, our detailed presentation may facilitate analysis and comparison of our operating results by management and investors with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results in their public disclosures.

Reconciliation of Adjusted EBITDA to Net Loss

The following table presents a reconciliation of adjusted EBITDA to net loss, the most comparable GAAP measure, for each of the periods identified.


	Year Ended December 31,									Three Months Ended March 31,
	2007*			2008			2009			2009			2010
	(unaudited)
	(in millions)
Net (loss)	$	(88.1	)	$	(126.5	)	$	(49.7	)	$	(13.0	)	$	(7.4	)
Interest (income) expense, net		23.2			34.2			30.3			7.2			7.9
Income tax expense (benefit)		8.0			(39.2	)		(0.9	)		1.4			0.8
Depreciation expense		6.9			6.9			9.0			1.9			2.3
Amortization of acquired intangibles		37.1			41.9			42.3			8.6			11.3
Impairment of acquired intangibles and goodwill		—			125.0			—			—			—
Stock-based compensation expense		23.9			2.4			1.2			0.4			0.8
Transaction costs related to acquisitions		15.2			3.9			6.1			5.0			1.0
Purchase accounting adjustments		3.6			1.7			9.1			0.5			1.1
Restructuring expense		—			—			4.6			0.9			0.1
Management fees		1.4			2.0			2.5			0.5			0.8
Investigation and restatement related charges		8.0			5.2			6.0			0.6			1.9
Costs and benefits of litigation settlements		1.2			—			25.4			—			—

Adjusted EBITDA	$	40.4		$	57.5		$	85.9		$	14.0		$	20.6

Our results of operations for the calendar year ended December 31, 2007 are presented on a combined basis to reflect our activity in both the Predecessor Period and Successor Period during that year. For further information on this presentation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Presentation of Financial Statements—Predecessor and Successor Entities.”

An investment in our common stock offered by this prospectus involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide to purchase shares of our common stock. The occurrence of any of the following risks could materially adversely affect our business, financial condition or operating results. In that case, the trading price of our common stock could decline, and you may lose part or all of your investment.

Our business depends in significant part on sales to U.S. government agencies, and changes in U.S. government fiscal policies could have a material adverse effect on our business.

We have historically derived, and expect to continue to derive, a significant portion of our revenues from sales to agencies of the U.S. federal government, either directly by us or through systems integrators and other resellers, and we believe that the success and growth of our business will continue to depend on successful procurement of government business. For example, approximately 50%, 43% and 36% of our revenue in the years ended December 31, 2008 and 2009 and the three months ended March 31, 2010 was derived from our direct or indirect sales to agencies, offices and departments of the U.S. federal government, of which the substantial majority was to the Department of Defense. Some or all of the following could cause government agencies to delay or refrain from purchasing products and services that we offer in the future or otherwise have an adverse effect on our business, financial condition and results of operations:

Even though some of our U.S. government transactions involve fixed minimum commitments, other commitments are subject to annual Congressional appropriations and, as a result, U.S. government agencies may not continue to fund these contracts at current or anticipated levels. For example, in fourth quarter 2009, we experienced general delays in U.S. government purchasing following the delay of the approval of the U.S. federal budget until December 2009. In addition, although we anticipate that the U.S. government agencies will continue to purchase from us in the future or after the expiration of any existing contracts, we cannot assure you that those purchases will continue at historic levels or at all, or that there will not be gaps between the expiration of a prior agreement and entry into any new agreement. If U.S. government agencies terminate, significantly reduce in scope or suspend any of their business with us, or change their policies, priorities, or funding levels, our business, financial condition and results of operations would be materially and adversely affected.

Losses, delays or reductions in scope of our primary customer relationships will materially reduce our revenue and profitability.

We depend on a small number of key customer relationships for a significant portion of our revenues. Our top twenty customers represented over half of our total revenue for the year ended December 31, 2009. In addition, approximately 50%, 43% and 36% of our revenue in the years ended December 31, 2008 and 2009 and the three months ended March 31, 2010 was derived from our direct or indirect sales to agencies, offices and departments of the U.S. federal government, of which the substantial majority was to the Department of Defense. An important part of our growth strategy is to increase sales of our products to existing and new large enterprises,

service providers and government entities. Sales to enterprises, service providers and government entities involve risks that may not be present (or that are present to a lesser extent) with sales to small-to-mid-sized entities. These risks include:

Large enterprises, service providers and government entities often undertake significant evaluation processes that result in lengthy sales cycles, in some cases over twelve months. Due to the lengthy nature, the size and scope, and stringent requirements of these evaluations, we may spend substantial time, effort and money in our sales efforts without being successful in producing any sales. If we are unsuccessful in converting these evaluations into sales, we may experience an increased inventory of used products and potential increased write-offs. In addition, product purchases by enterprises, service providers and government entities are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. Finally, enterprise, service providers and government entities typically have longer implementation cycles; require greater product functionality and scalability and a broader range of services, including design services; demand that vendors take on a larger share of risks; sometimes require acceptance provisions that can lead to a delay in revenue recognition; and expect greater payment flexibility from vendors. All these factors can add further risk to business conducted with these customers. If sales expected from a large end-customer for a particular quarter are not realized in that quarter or at all, our business, operating results and financial condition could be materially and adversely affected.

We face intense competition in our market, both from larger, better-known companies and from more targeted competitors; we may lack sufficient financial or other resources to maintain or improve our competitive position.

The market for high-end data protection solutions is intensely competitive, and we expect competition to intensify in the future. Although we are not aware of a competitor that offers the same array of solutions that we provide, we compete with several companies in various areas of our business. Many competitors that specialize in providing protection from a narrow variety of security threats are often able to deliver specialized security products to the market more quickly than we can.

In addition, large, more established competitors in similar markets with our own competitive space, such as RSA (a division of EMC), McAfee and Symantec may attempt to further expand their presence in the high-end data protection solutions market and compete more directly against more of our solutions.

Many of these existing and potential competitors enjoy substantial competitive advantages such as:

Some of our competitors have substantially larger installed customer bases beyond the high-end data protection solutions market and leverage their relationships based on other products or incorporate functionality into existing products in a manner that may discourage users from purchasing our products. These larger competitors may also have more diversified businesses that allow them to better withstand significant reduction in capital spending by end-customers in a number of markets.

Conditions in our markets could change rapidly and significantly as a result of technological advancements or continuing market consolidation. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources and product offerings in the markets we address. In addition, current or potential competitors may be acquired by third parties with greater available resources. As a result of such acquisitions, our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, and more readily develop and expand their product and service offerings. These competitive pressures in our market or our failure to compete effectively may adversely affect our operating results and market share.

If functionality similar to that offered by our products is incorporated into existing infrastructure products, organizations may decide against adding our solutions to their network, which would have an adverse effect on our business.

Providers of services and products outside the data protection market may bundle products and services competitive with ours with existing products and services. For example, large, well-established providers of network and storage equipment, such as Cisco Systems or Hewlett-Packard Company, offer and may continue to introduce, security features that compete with our products, either in stand-alone security products or as additional features in their network infrastructure products. The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our data protection and security solutions in existing products that are already generally accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products. Furthermore, even if the functionality offered by infrastructure providers is more limited than our products, a significant number of customers may elect to accept such functionality in lieu of adding solutions from an additional vendor. Many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with providers of networking products, which may make them reluctant to add new components to their networks, particularly from other vendors such as us. In addition, an organization’s existing vendors or new vendors with a broad product offering may be able to offer sales concessions that we are not able to match due to our product offering or more limited resources. If organizations are reluctant to add additional data protection and security solutions from new vendors or otherwise decide to work with their existing vendors, our business, financial condition and results of operations will be adversely affected.

Defects or vulnerabilities in our products or the failure of our products to adequately prevent a security breach or protect software assets could harm our reputation and divert resources.

Because our products are complex, they have contained and may contain defects, errors or vulnerabilities that are not detected until after their release and deployment by our customers despite our efforts to test those products prior to release. Defects, errors or vulnerabilities may make our products susceptible to hacking or electronic break-ins or otherwise cause them to fail to help secure data. Because the techniques used by attackers to access or sabotage data change frequently and generally are not recognized until launched against a target, we may be unable to anticipate all of these techniques. Our products may also experience technical failures and downtime or fail to meet the increased requirements of a growing customer base. Any such technical failure, downtime, or failures in general may temporarily or permanently expose our end-customers’ data, leaving their data unprotected against the latest security threats.

Our products must also successfully interoperate with products from other vendors. As a result, it may be difficult to identify the sources of problems that may arise through operation. The occurrence of hardware and software errors, whether or not caused by our products, could delay or reduce market acceptance of our products, and have an adverse effect on our business and financial performance, and any necessary revisions may cause us to incur significant expenses.

An actual or perceived security breach of the data of one of our end-customers or our own systems, regardless of whether the breach is attributable to the failure of our products to prevent the security breach, could adversely affect the market’s perception of our security products. We may not be able to correct defects, errors or vulnerabilities promptly, or at all. Any defects, errors or vulnerabilities in our products could result in:

Although we have limitation of liability provisions in our standard terms and conditions of sale, they may not fully or effectively protect us from claims as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries. In addition, some of our customer agreements may require us to indemnify our customers for any claims or losses resulting from defects, errors or vulnerabilities in our products. The sale and support of our products also entail the risk of product liability claims. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.

The data security market is rapidly evolving and the complex technology incorporated in our products makes them difficult to develop. If we do not accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs and develop corresponding products, our competitive position and prospects will be harmed.

Our future success depends on our ability to respond to the rapidly changing needs of our customers by developing or introducing new products, product upgrades, and services in a timely manner. We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. New product development and introduction involves a significant commitment of time and resources and is subject to a number of risks and challenges including:

In addition, the data security market has evolved and is expected to continue to evolve rapidly. Many of our end-customers operate in dynamic and rapidly changing markets that require them to continuously evolve their IT infrastructure, including add numerous network access points and adapt increasingly complex enterprise networks, incorporating a variety of hardware, software applications, operating systems and networking protocols. In addition to the rapidly changing network environments, computer hackers and others who try to attack networks are employing increasingly sophisticated techniques to gain access to and attack systems and networks. In order to remain competitive, we need to accurately anticipate changes in IT infrastructure that our end-customers will deploy, the security vulnerabilities of such infrastructure as well as likely attack techniques, and to continue to develop and introduce solutions that successfully address the evolving threats while minimizing the impact on IT infrastructure performance.

Although the market expects rapid development and commercial introduction of new products or product enhancements to respond to changing infrastructure and evolving threats, the development of these products is difficult and the timeline for their release and availability can be uncertain. Additionally, some of our new products and enhancements may require us to develop new hardware architectures and application-specific integrated circuits, or ASICs, that involve complex, expensive and time consuming research and development processes. We have in the past and may in the future experience unanticipated delays in the availability of new products and services and fail to meet previously announced timetables for such availability. If we do not quickly respond to the rapidly changing and rigorous needs of our end-customers by timely developing and releasing new products and services or enhancements that can respond adequately to new security threats, our competitive position and business prospects will be harmed.

In addition, for certain customers and environments we must obtain certifications for our products such as U.S. Federal Information Processing Standard, or FIPS, or Common Criteria. While we have successfully obtained the requisite certifications for our products in the past, there can be no assurance that we will be able to obtain such certifications on a timely basis or at all for new products. The failure to obtain certifications would preclude us from selling our products to certain customers or for certain applications which could harm our competitive position and our business.

Failure to comply with laws or regulations applicable to our business could cause us to lose U.S. government customers or our ability to contract with the U.S. government

A significant portion of our revenue is derived from sales to U.S. government agencies. In connection with this business, we must comply with laws and regulations relating to the formation, administration and performance of U.S. government contracts. These laws and regulations are complex, and may impose added costs on our business. The failure to comply with these laws and regulations, or violations of other laws and regulations such as those relating to export or the U.S. Foreign Corrupt Practices Act, could lead to claims for damages, penalties, termination of contracts, suspension or debarment from doing business with the U.S. government or loss of export rights. In addition, some of the work we perform in connection with our U.S. government business requires us to maintain securities clearances for both the individuals involved in the work as well as the facilities in which such work is performed. The loss of the requisite securities clearances could exclude us from conducting business with agencies of the U.S. government from which we have in the past received significant business. Any such damages, penalties, disruption or limitation in our ability to do business with the U.S. federal government could have a material adverse effect on our business, operating results and financial condition.

In addition, U.S. government agencies, including the Defense Contract Audit Agency and the Department of Labor, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The U.S. government also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, loss of intellectual property rights, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. In addition, our reputation could suffer serious harm if allegations of impropriety were made against us.

Adverse conditions in the national and global economies and financial markets may adversely affect our business and financial results.

National and global economies and financial markets have experienced a prolonged downturn stemming from a multitude of factors, including adverse credit conditions impacted by the sub-prime mortgage crisis, slower or receding economic activity, concerns about inflation and deflation, fluctuating energy costs, high unemployment, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns and other factors. The severity or length of time these economic and financial market conditions may persist is unknown. During challenging economic times, periods of high unemployment and in tight credit markets, many customers may delay or reduce technology purchases. This could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies, lower renewal rates, and increased price competition. These results may persist even if a number of economic conditions improve. Specific economic trends, such as declines or softness in government or corporate information technology spending, would have a more direct impact on our business. Any of these events would likely harm our business, operating results, cash flows and financial condition.

We have a history of losses, and we are unable to predict the extent of any future losses or when, if ever, we will achieve profitability in the future.

We have incurred net losses in recent fiscal years, including net losses of $50.8 million in the Predecessor Period of 2007, $37.3 million in the Successor Period of 2007, $126.5 million in 2008, $49.7 million in 2009 and $7.4 million in the first three months of 2010. As a result, we had an accumulated deficit of $221.0 million at March 31, 2010. Although we have been profitable in certain periods in the past, we may not be able to achieve or sustain profitability in future periods. Achieving profitability will require us to increase revenue, manage our cost structure, including the borrowing costs on our debt, and not experience unanticipated liabilities. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our products or services, increasing competition, a decrease in the growth of our overall market, or if we fail for any reason to continue to capitalize on growth opportunities. Any failure by us to return to and sustain profitability, or to continue our revenue growth, could cause the price of our common stock to materially decline.

Our quarterly operating results are likely to vary significantly and be unpredictable, which could cause the trading price of our stock to decline.

In addition to uncertainty about our future profitability, our financial results may not be consistent from period to period. Our financial results could vary significantly from period to period as a result of a variety of factors, many of which are outside of our control, such as:

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly operating results. This variability and unpredictability could result in our failing to meet our revenue or operating results expectations or those of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on our profitability in the short term.

Our sales cycle is long and unpredictable, and our sales efforts require considerable time. As a result, our revenues are difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate.

Our operating results may fluctuate, in part, because of the intensive nature of our sales efforts, as well as the length and variability of the sales cycle. Because decisions to purchase products such as ours frequently involve significant capital commitments by customers, potential customers generally have our products evaluated at multiple levels within an organization or government entity, each often having specific and conflicting requirements. As a result, the sales cycle for our products may be lengthy or may vary significantly. Our sales efforts involve educating our customers, who are frequently relatively unfamiliar with our brand and the value of our products, including their technical capabilities and potential value to the organization. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce any sales.

The length of our sales cycle is dependent on the product line and market segment from initial evaluation to delivery. and varies substantially from customer to customer. Overall, the sales cycle for our products is typically six months but can extend to more than one year. We typically recognize about half of our product revenues in the last four weeks of a quarter. It is difficult to predict exactly when, or even if, we will actually complete a sale with a potential customer. As a result, large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or delay of one or more large product transactions in a quarter would impact our operating results for that quarter and any future quarters into which revenues from that transaction are delayed. As a result of these factors, it increases the difficulty for us to accurately forecast product revenues in any quarter. Because a substantial portion of our expenses are relatively fixed in the short term, our operating results will suffer if revenues fall below our expectations in a particular period, which could cause the price of our common stock to materially decline.

We have grown, and may continue to grow, through acquisitions that give rise to risks and challenges that could adversely affect our future financial results.

We have in the past acquired, and we expect to acquire in the future, other businesses, business units, and technologies, including most recently, Ingrian Networks in 2008 and Aladdin Knowledge Systems and Assured Decisions in 2009. Acquisitions can involve a number of special risks and challenges, including:

Integrating acquired businesses has been and will continue to be a complex, time consuming, and expensive process, and can also impact the effectiveness of our internal control over financial reporting. To integrate acquired businesses, we must implement our technology systems in the acquired operations and integrate and manage the personnel of the acquired operations. We also must effectively integrate the different cultures of acquired business organizations into our own in a way that aligns various interests, and may need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions.

Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability from acquired businesses or to realize other anticipated benefits of such acquisitions. In addition, because acquisitions of high technology companies are inherently risky, no assurance can be given that our previous or future acquisitions will be successful and will not adversely affect our business, operating results, or financial condition.

We are dependent on contract manufacturers and changes to those relationships, expected or unexpected, may result in delays or disruptions that could cause us to lose revenue and damage our customer relationships.

We rely entirely on contract manufacturers to manufacture and assemble our products. This gives us less control over the manufacturing process and exposes us to significant risks, including limited control over capacity, late delivery, quality and costs. Moreover, because our products are very complex to manufacture, transitioning manufacturing activities from one location to another, or from one manufacturing partner to another, is complicated. Although we have contracts with our contract manufacturers, those contracts do not require them to manufacture our products on a long-term basis in any specific quantity or at any specific price. In addition, it is time consuming and costly to qualify and implement additional contract manufacturer relationships. Moreover, manufacturing of Type 1 products may only be performed in facilities that meet certain security requirements and locating and qualifying alternative contract manufacturers for these products would require additional time and resources. Therefore, if we fail to effectively manage our contract manufacturer relationships or if one or more of them should experience delays, disruptions or quality control problems, or if we had to change or add additional contract manufacturers or contract manufacturing sites, our ability to ship products to our customers could be delayed. The occurrence of any of these events would be disruptive to us and could seriously harm our business. Any interruption or delay in the supply of any of these parts or components would harm our ability to meet our scheduled product deliveries to our distributors, resellers and end-customers. This could harm our relationships with our channel partners and end-customers and could cause delays in shipment of our products and adversely affect our results of operations.

Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our customers and may result in the loss of sales and customers.

Several key parts and components used in our products such as microcontrollers and integrated circuits, field-programmable gate arrays, or FPGAs, power supplies and batteries are available only from a single source. In addition, many of our products incorporate application-specific integrated circuits, or ASICs, that are manufactured by sole-source third-parties.

We have faced component shortages in the past and are subject to the risk of shortages in supply of these components in the future. We are also subject to the risk that component suppliers may discontinue or modify

components used in our products, which could require us to expend significant resources to incorporate these new components into our products or to find alternative suppliers and components which can be time-consuming and expensive. Other risks of relying on sole-source suppliers include:

The occurrence of any of these would be disruptive to us and could seriously harm our business. Any interruption or delay in the supply of any of these parts or components would harm our ability to meet our scheduled product deliveries to our distributors, resellers and end-customers. This could harm our relationships with our channel partners and end-customers and could cause delays in shipment of our products and adversely affect our results of operations.

In the future, we may not be able to secure financing necessary to operate and grow our business as planned.

We expect that the net proceeds from this offering, together with our current cash and cash equivalents, should be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, our business and operations may consume resources faster than we anticipate. We also may require additional funding to expand our sales and marketing and research and development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our sales and marketing and research and development efforts or take advantage of acquisition or other opportunities, which could seriously harm our business and operating results. If we issue debt, the debt holders would have rights senior to common stockholders to make claims on our assets and the terms of any debt could impose restrictions on our operations and impose limits on our liquidity. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock.

In addition, we are subject to certain restrictions on our ability to raise additional capital pursuant to our credit agreements and our stockholder agreement with Vector Stealth. We are restricted from incurring additional indebtedness without prior approval from our lenders in many cases. We are also prohibited pursuant to our stockholder agreement with Vector Stealth from incurring additional indebtedness (excluding working capital revolvers and the refinancing of any then existing debt) of greater than $50.0 million in excess of our existing indebtedness following the application of proceeds from this offering to the repayment of a portion of our debt as described in “Use of Proceeds” without prior approval from Vector Stealth.

If we are unable to attract and retain qualified employees, lose key personnel, fail to integrate replacement personnel successfully, or fail to manage our employee base effectively, we may be unable to develop new and enhanced products and services, effectively manage or expand our business, or increase our revenues.

Our future success depends upon our ability to recruit and retain our key management, technical, sales, marketing, finance, and other critical personnel to execute on our business plan, and to identify and pursue new opportunities and product innovations. The loss of services of senior management, particularly Mark A. Floyd, our chief executive officer, and Chris Fedde, our president and chief operating officer, could significantly delay or prevent the achievement of our development and strategic objectives. Our officers and other key personnel are “at-will” employees, and we cannot assure you that we will be able to retain them. Competition for people with the specific skills and in some cases, security clearances, that we require is significant. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a competitive compensation package, including cash and equity-based incentives. Stock price volatility may from time to time adversely affect our ability to recruit or retain employees. As a result, we may be impaired in our efforts to attract and

retain necessary personnel. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business and operating results could be adversely affected.

If we fail to further develop and manage our distribution channels, our revenues could decline and our growth prospects could suffer.

We derive a significant portion of our revenues from sales of our products and related services through channel partners, such as resellers and systems integrators, amounting to over 13% and 17% of our revenue in 2008 and 2009 and over 21% of our revenue in the three months ended March 31, 2010. In particular, systems integrators are an important source of sales for us in the U.S. public sector, as government agencies often rely on them to meet IT needs. We also use resellers to augment our internal resources in international markets and, to a lesser extent, domestically. We anticipate that we will continue to derive a substantial portion of our sales through channel partners, including parties with which we have not yet developed relationships. We expect that channel sales will represent a substantial portion of our U.S. government and international revenues for the foreseeable future and, we believe, a growing portion of our U.S. commercial revenues. We may be unable to recruit additional channel partners and successfully expand our channel sales program. If we do not successfully execute our strategy to increase channel sales, particularly to further penetrate the mid-market and sell our products, our growth prospects may be materially and adversely affected.

Our agreements with our channel partners are generally non-exclusive and many of our channel partners have more established relationships with our competitors. If our channel partners do not effectively market and sell our products, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our customers, our ability to grow our business and sell our products may be adversely affected, particularly in the public sector, the mid-market and internationally. Similarly, the loss of a substantial number of our channel partners, which may cease marketing our products and services with limited or no notice and with little or no penalty, and our possible inability to timely replace them, the failure to recruit additional channel partners, or any reduction or delay in their sales of our products and services or conflicts between channel sales and our direct sales and marketing activities could materially and adversely affect our results of operations. In addition, changes in the proportion of our revenues attributable to sales by channel partners, which involve different costs and risks than our direct sales, may cause our operating results to fluctuate from period to period.

Managing inventory of our products and product components is complex; insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

Overall, the sales cycle for our products is typically six months but can extend to more than one year. As such, it is difficult to predict exactly when, or even if, we will actually complete a sale with a potential customer. As a result, we may have substantial difficulty accurately predicting the levels of inventory we may require at a given time. Although we believe we have sufficient capacity with our existing contract manufacturers to meet demand, we typically require as many as three months lead time to substantially increase production.

In addition, our channel partners may increase orders during periods of product shortages, or delay or cancel orders if their inventory is too high in anticipation of new products. They also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in end-customer demand. Management of our inventory is further complicated by the significant number of different products that we sell.

Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to effectively manage inventory. Inventory management remains an area of focus as we balance the need to maintain inventory levels for timely customer shipment against the risk of inventory obsolescence because of rapidly changing technology and customer requirements. If we ultimately determine that we have excess

inventory, we may have to write-down inventory, which in turn would result in lower gross margins. Alternatively, insufficient inventory levels may lead to shortages that result in delayed revenue or loss of sales opportunities altogether as potential end-customers turn to competitors’ products that are readily available. If we are unable to effectively manage our inventory and that of our distribution partners, our results of operations could be adversely affected.

Our business may be adversely affected if we encounter difficulties as we implement an enterprise resource planning system.

We are in the process of implementing an ERP system. However, we do not have substantial experience with the numerous processes and procedures required for the effective use of this system or with running our business using this system. Because we are still in the process of implementing this system and because we lack this experience with using the system, this ERP implementation poses a risk to our internal controls over financial reporting and to our business operations. Disruptions or difficulties in implementing this system or the related procedures or controls could adversely affect both our internal and disclosure controls and harm our business, including our ability to forecast or make sales, manage our supply chain and collect our receivables. Moreover, such a disruption could result in unanticipated costs or expenditures and a diversion of management’s attention and resources.

Establishing, maintaining and improving our financial controls and the requirements of being a public company may strain our resources and divert management’s attention, and if we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the NASDAQ Stock Market LLC. As a privately held company, we have not been subject to these reporting requirements, and so have not yet performed procedures to determine our compliance with Section 404 of the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.

Section 404 of the Sarbanes-Oxley Act requires that beginning with our annual report for the year ended December 31, 2011, management report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control and financial reporting environment. Prior to this offering, we have not been required to comply with Section 404 of the Sarbanes-Oxley Act. As a result, we have not evaluated our compliance with Section 404 of the Sarbanes-Oxley Act, although we have separately identified a significant deficiency and a material weakness as further described in the immediately following risk factor. There can be no assurance that we will not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. The presence of material weaknesses could result in financial statement errors which, in turn, could require us to restate our operating results. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to expend significant resources and provide significant management oversight. We have a substantial effort ahead of us to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their operation. As a result, management’s attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts will also involve substantial accounting-related costs. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to remain listed on the NASDAQ Global Market.

Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and

take a significant period of time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results, our stock price could decline and may potentially subject us to litigation.

We have identified a significant deficiency and a material weakness in our internal controls over financial reporting. If we fail to remediate these items or any significant deficiencies or material weaknesses that may arise in the future, and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect our business, operating results and financial condition.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2009, we identified a significant deficiency in our internal controls over financial reporting for the year ended December 31, 2009. In addition, we identified a control deficiency that represented a material weakness in our internal controls over financial reporting with respect to the three months ended March 31, 2010. Our failure to implement and maintain effective internal controls in our business could have a material adverse effect on our business, financial condition, results of operations and stock price. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected.

The significant deficiency in our internal controls over financial reporting was as follows:

The material weakness in our internal controls over financial reporting was as follows:

Although we are taking steps designed to remediate these control deficiencies, including increased staffing and training, as well as the use of improved analytics in our accounting function, there are no assurances that the measures we are taking to remediate these internal control deficiencies will be completely effective or that similar or other deficiencies will not occur, either before or following completion of this offering.

Our inability to effectively manage our expected headcount growth and expansion and our additional obligations as a public company could seriously harm our ability to effectively run our business.

Our historical growth has placed, and our intended future growth is likely to continue to place, a significant strain on our management, financial, personnel and other resources. We have grown from 1,040 employees at January 12, 2007 to over 1,600 employees at May 28, 2010. Since January 1, 2007, we have acquired several businesses and have significantly expanded our operations. In addition to managing our expected growth, we will have substantial additional obligations and costs as a result of being a public company. These obligations include investor relations, preparing and filing periodic Securities and Exchange Commission, or SEC, reports, developing and maintaining internal controls over financial reporting and disclosure controls, compliance with corporate governance rules and other requirements imposed on public companies by the SEC and the NASDAQ Global Market. Fulfilling these additional obligations will make it more difficult to operate a growing company.

Any failure to effectively manage growth or fulfill our obligations as a public company could seriously harm our ability to respond to customers, the quality of our software and services and our operating results. To effectively manage growth and operate a public company, we will need to implement additional management information systems, improve our operating, administrative, financial and accounting systems and controls, train new employees and maintain close coordination among our executive, engineering, accounting, finance, marketing, sales and operations organizations. Additionally, we cannot be assured that implementation of such changes will not encounter unforeseen delays or challenges that may adversely affect the existing business.

Our directors and executive officers may have conflicts of interest because of their ownership of equity interests of, and their employment with, our parent company and our affiliates.

A number of our directors and executive officers hold equity ownership interests in our parent company, Vector Stealth. Ownership interests in our parent company by our directors and officers could create, or appear to create, potential conflicts of interest when our directors and officers are faced with decisions that could have different implications for us and for Vector Stealth or its affiliates. We cannot assure you that any conflicts of interest will be resolved in our favor.

For a further description of our relationship with Vector Stealth, see “Certain Relationships and Related Party Transactions—Transactions and Relationships with Vector Stealth and its Affiliates.”

We sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographies outside of the United States.

Sales to customers located outside of the United States, including in North America, South America, Europe, the Middle East, Asia and Australia, accounted for approximately 23% and 30% of our total revenue in the years ended December 31, 2008 and 2009 and approximately 35% of our total revenue in the three months ended March 31, 2010. We are subject to risks associated with having worldwide operations, including:

In addition, we are exposed to foreign currency exchange movements versus the U.S. dollar, particularly the euro, British pound, Israeli shekel and Japanese yen. With respect to revenue, our primary exposure exists during the period between execution of a purchase order denominated in a foreign currency and collection of the related receivable. During this period, changes in the exchange rates of the foreign currency to the U.S. dollar will affect

our revenue, cost of sales and operating margins and could result in exchange gains or losses. We incur a variety of costs in foreign currencies, including some of our manufacturing costs, component costs and sales costs. Therefore, as we expand our operations outside the U.S., we may become more exposed to a strengthening of currencies in the region against the U.S. dollar. At this time, we use a limited number of derivative instruments in an attempt to hedge our foreign currency exchange risk, and we may increase the use of derivative instruments in the future to help further manage foreign currency exchange rate risk.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

Certain of our products incorporate encryption technology and are therefore subject to export controls and may be exported outside the U.S. only with the required export license or through an export license exception. If we were to fail to comply with U.S. export licensing, U.S. Customs regulations, U.S. economic sanctions and other laws we could be subject to substantial civil and criminal penalties, including fines for the Company and incarceration for responsible employees and managers, and the possible loss of export or import privileges. In addition, if our channel partners fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected, through reputational harm and penalties. Obtaining the necessary export license for a particular sale may be time-consuming, and may result in the delay or loss of sales opportunities.

Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent our products from being shipped to U.S. sanctions targets, our products could be shipped to those targets by our channel partners, despite such precautions. Any such shipment could have negative consequences including government investigations, penalties and reputational harm. In addition, various countries regulate the import of certain encryption technology, including import permitting/licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products globally or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.

Our government contracts may limit our ability to move development activities overseas, which may impair our ability to optimize our software development costs and compete for non-government contracts.

Increasingly, software development is being shifted to lower-cost countries, such as India. However, some contracts with U.S. government agencies require that at least 50% of the components of each of our products be of U.S. origin. Consequently, our ability to optimize our research and development by conducting it overseas may be hampered. Some of our competitors do not rely on contracts with the U.S. government to the same degree as we do and may develop software off-shore. If we are unable to develop our commercial products and solutions as cost-effectively as our competitors, our ability to compete for our non-government customers may be materially and adversely affected.

Our business in countries with a history of corruption and transactions with foreign governments increases the risks associated with our international activities.

As we operate and sell internationally, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. We

have operations, deal with and make sales to governmental customers in countries known to experience corruption, particularly certain emerging countries in East Asia, Eastern Europe, the Middle East and South America. Our activities in these countries create the risk of illegal or unauthorized payments or offers of payments or other things of value by our employees, consultants, sales agents or channel partners that could be in violation of applicable anti-corruption laws including the FCPA, even though these parties are not always subject to our control. We have taken certain actions to discourage and prevent illegal practices and are in the process of implementing anti-corruption compliance policies and procedures. However, the actions taken to safeguard against illegal practices, and any future improvements in our anti-corruption compliance policies and procedures, may not be effective, and our employees, consultants, sales agents or channel partners may engage in illegal conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, including suspension or debarment from U.S. government contracting, and we may be subject to other liabilities and significant costs for investigations, litigation and fees, which could negatively affect our business, operating results and financial condition. In addition, the failure to create and maintain accurate books and records or the failure to maintain a system of internal accounting controls may subject us to sanctions.

We have and may in the future continue to have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business, including our ability to incur additional indebtedness.

As of March 31, 2010, our total indebtedness pursuant to our senior secured credit agreements was $389.3 million. Following this offering and the application of its net proceeds to the repayment of certain of our debt obligations, we expect to have total indebtedness of $ million on a pro forma basis as of March 31, 2010. Our substantial amount of indebtedness increases the possibility that we may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness.

Our substantial indebtedness could have other important consequences for you, including:

Our credit facilities contain a number of restrictions and covenants that, among other things, limit our ability to incur additional indebtedness, make investments, pay dividends or make distributions to our stockholders, grant liens on our assets, sell assets, enter into a new or different line of business, enter into transactions with our affiliates, merge or consolidate with other entities or transfer all or substantially all of our assets, and enter into sale and leaseback transactions. In addition, our credit facilities require us to comply with a quarterly maximum permitted leverage ratio at any time amounts are outstanding under our revolving credit facility. Credit market turmoil, adverse events affecting our business or industry, the tightening of lending standards or other factors could negatively impact our ability to obtain future financing or to refinance our outstanding indebtedness on terms acceptable to us or at all. For further discussion of our credit facilities, see “Management’s Discussion and Analysis and Results of Operations and Financial Condition—Liquidity and Capital Resources—Financing Activities—Secured Credit Agreements.”

Our ability to comply with these restrictions and covenants in the future is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. Our failure to comply with any of the restrictions and covenants under our credit facilities could result in a default under such facilities, which could cause all of our existing indebtedness to be immediately due and payable. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. In addition, in the event of an acceleration, our lenders could proceed against the collateral securing our credit facilities, which includes nearly all of our assets, including the shares of capital stock of our subsidiaries. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our indebtedness is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these restrictions and covenants may also cause us to take actions that are not favorable to our stockholders and may make it more difficult for us to successfully execute our business plan and compete against companies that are not subject to such restrictions and covenants.

We face numerous risks relating to the enforceability of our intellectual property rights and our use of third-party intellectual property, many of which could result in the loss of our intellectual property rights as well as other material adverse impacts on our business and financial results and condition.

We rely on a combination of contractual rights, trademarks, trade secrets, patents and copyrights to establish and protect our intellectual property rights in our technology and products. However, despite these measures, our intellectual property rights could be challenged, invalidated, circumvented or misappropriated. Competitors may independently develop technologies or products that are substantially equivalent or superior to our products or that inappropriately incorporate our proprietary technology into their products. Competitors may hire our former employees who may misappropriate our proprietary technology. Certain jurisdictions may not provide adequate legal infrastructure for effective protection of our intellectual property rights. Changing legal interpretations of liability for unauthorized use of our technologies or products or lessened sensitivity by corporate, government or institutional users to refraining from intellectual property piracy or other infringements of intellectual property could also harm our business. We also rely on key technologies developed or licensed by third parties, and we may not be able to obtain or renew such licenses from these third parties at all or on reasonable terms.

With respect to some of our proprietary technologies, we have filed patent applications and obtained patents to protect our intellectual property rights in these technologies as well as the interests of our licensees. There can be no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property rights, or that such patents will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable.

We rely on several registered and unregistered trademarks to protect our brand. Third parties may use trademarks similar to our trademarks in different fields of use and any potential confusion as to the source of goods or services could have an adverse effect on our financial condition and results of operation.

The frequency, expense and risks of intellectual property litigation in the security market are increasing. Litigation may be necessary to enforce and protect our trade secrets, patents and other intellectual property rights. Similarly, we may be required to defend against claimed infringement.

In order to enforce and protect our intellectual property rights, it may be necessary for us to initiate litigation against third parties, such as patent infringement suits or interference proceedings. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert counterclaims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may adversely affect our financial condition and results of operations.

Some of our products have been, and in the future could be, alleged to infringe existing patents of third parties. Even if we believe that such claims are without merit, we cannot be certain that we will prevail in any intellectual property dispute. Although we have been able to resolve some prior claims or potential claims without a material adverse affect on us, other claims have resulted in adverse decisions or settlements. For a further discussion of certain intellectual property disputes that are currently pending, see “Business—Legal Proceedings.”

The costs of defending litigation, and engaging in intellectual property litigation generally, may be substantial regardless of the merit of the claim or the outcome. Defending such intellectual property litigation can also distract management’s attention and resources. Successfully prosecuted claims of intellectual property infringement against us might also cause us to lose our proprietary rights, prevent us from manufacturing or selling our products, redesign affected products, require us to enter into costly settlement agreements or to obtain licenses to patents or other intellectual property rights that our products are alleged to infringe (licenses may not be available on reasonable commercial terms or at all), and subject us to significant liabilities, any of which would adversely affect our business, financial condition and results of operations.

The security technology industry has increasingly been subject to patent and other intellectual property rights litigation, particularly from special purpose or so-called “non-practicing” entities that seek to monetize their intellectual property rights by asserting claims against others. We expect this trend to continue and, as we become a larger and more visible company, we expect this trend may accelerate. The litigation process is costly and subject to inherent uncertainties, so we may not prevail in litigation matters regardless of the merits of our position.

In addition, because we incorporate technology from third parties in our products, our exposure to infringement actions may increase because we must rely upon these third parties to verify the origin and ownership of such technology. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology at all or on reasonable terms, or substitute similar technology from another source, our revenue and earnings could be adversely impacted.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our products could be adversely affected.

In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our employees, consultants, scientific advisors and third parties. However, these agreements may be inadequate to protect our proprietary information and intellectual property rights. Moreover, those agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our intellectual property rights and adversely affect our financial condition.

We may be subject to claims that our employees or we have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers of our employees.

We employ individuals who were previously employed at other technology companies, including our competitors or potential competitors. Therefore, we face exposure to infringement actions if those employees inadvertently or deliberately incorporate proprietary technology of our competitors into our products despite efforts by our competitors and us to prevent such misuse. Litigation may be necessary to defend against such claims, which could be costly and divert management’s attention.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.

Our agreements with customers and channel partners include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement and, in some cases, for damages caused by us to property or persons. The term of these indemnity provisions is generally perpetual after execution of the corresponding product sale agreement. Large indemnity payments could harm our business, operating results and financial condition. From time to time, we are requested by customers to indemnify them for matters that may involve our products even when there was no contractual obligation. Although we have not historically agreed to such requests, the existence of such a dispute with a customer may have adverse effects on our customer relationships and reputation.

Our tentative settlement of a stockholder class action suits requires the court’s preliminary and final approval, and may not be approved by the court.

In August 2006, certain of our former stockholders brought class action lawsuits against us in connection with prior alleged stock option backdating. Defending such litigation has been costly and has required significant management attention. On July 9, 2010, we entered into a binding term sheet that tentatively settles and resolves the consolidated class actions in exchange for a payment in the amount of $25.0 million. This tentative settlement requires preliminary and final approval of the court before it becomes final. If the court does not approve the tentative settlement, the parties may elect or be required to continue litigating the matter. For a further description of these lawsuits, see “Business—Legal Proceedings.” There can also be no assurance that we would not be subject to similar lawsuits in the future.

Pending or future litigation could have a material adverse impact on our results of operation, financial condition and liquidity.

In addition to intellectual property litigation, from time to time, we have been, and may be in the future, subject to other litigation including stockholder derivative actions or actions brought by current or former employees. If we continue to make acquisitions in the future, we also are more likely to be subject to acquisition related stockholder derivative actions and actions resulting from the use of earn-outs, purchase price escrow holdbacks and other similar arrangements. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that an adverse liability resulting from such litigation is probable, we record a related liability. To date, we have accrued only approximately $3.4 million related to currently pending litigation matters. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of the inherent uncertainties relating to litigation, the amount of our estimates could be wrong. In addition to the related cost and use of cash, pending or future litigation could cause the diversion of management’s attention. Managing, defending and indemnity obligations related to these actions have caused significant diversion of management’s and the board of directors’ time and resulted in material expense to us. See “Business—Legal Proceedings” for additional information with respect to certain currently pending legal matters.

Some of our products contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Certain of our products are distributed with software licensed by its authors or other third parties under “open source” licenses. Some of these licenses contain requirements that we make available our proprietary source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If we combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors generally do not provide

warranties or controls on origin of the software. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source, but we cannot be sure that all open source is submitted for approval prior to use in our products. In addition, many of the risks associated with usage of open source cannot be eliminated, as use of open source in our products could inadvertently occur, in part because open source license terms are often ambiguous. Companies that incorporate open source software into their products have, in the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open source software incorporated into their products. Defending such claims or being required to disclose or make available our proprietary source code pursuant to an open source license could adversely affect our business.

Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates.

Forecasts of our income tax position and effective tax rate for financial accounting purposes are complex and subject to uncertainty because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination or other reorganization or financing transaction. To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction. If the mix of profits and losses, our ability to use tax credits, or effective tax rates by jurisdiction is different than those estimated, our actual tax rate could be materially different than forecasted, which could have a material impact on our results of business, financial condition and results of operations.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses, the tax regulations and tax holidays in each geographic region, the availability of tax credits and carry-forwards, and the effectiveness of our tax planning strategies. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.

In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. If tax authorities challenge the relative mix of U.S. and international income, our future effective income tax rates could be adversely affected. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our business, financial condition and results of operations.

We may not be able to utilize a significant portion of our net operating loss carry-forwards, which could adversely affect our operating results.

Due to losses recognized for federal and state income tax purposes in prior periods, we have generated significant federal and state net operating loss carry-forwards that may expire before we are able to utilize them. In addition, under U.S. federal and state income tax laws, if over a rolling three-year period, the cumulative change in our ownership exceeds 50%, our ability to utilize our net operating loss carry-forwards to offset future taxable income may be limited. Changes in ownership can occur due to transactions in our stock or the issuance of additional shares of our common stock or, in certain circumstances, securities convertible into our common stock. We have exceeded this 50% cumulative change threshold in prior periods, which has limited our ability to

use a portion of our net operating loss carry-forwards. The effect of these transactions or future transactions on our cumulative change in ownership may further limit our ability to utilize our net operating loss carry-forwards to offset future taxable income. Furthermore, it is possible that transactions in our stock that may not be within our control may cause us to exceed the 50% cumulative change threshold and may impose a limitation on the utilization of our net operating loss carry-forwards in the future. Also, the existing net operating loss carry-forwards of corporations we have acquired may be subject to substantial limitations arising from ownership changes prior to or in connection with their acquisition by us or may expire prior to our ability to utilize them. In the event the usage of our net operating loss carry-forwards is subject to limitation and we are profitable, our operating results could be adversely affected.

If we fail to comply with environmental requirements, our business, financial condition, operating results and reputation could be adversely affected.

We are subject to various environmental laws and regulations including laws governing the hazardous material content of our products and laws relating to the recycling of electrical and electronic equipment. The laws and regulations to which we are subject include the European Union’s, or EU, Restriction of Hazardous Substances Directive, or RoHS, and Waste Electrical and Electronic Equipment Directive, or WEEE, as implemented by EU member states. Similar laws and regulations exist or are pending in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.

RoHS restricts the use of certain hazardous materials, including lead, mercury and cadmium, in the manufacture of certain electrical and electronic products, including some of our products. We have incurred, and expect to incur in the future, costs to comply with these laws, including research and development costs, costs associated with assuring the supply of compliant components and costs associated with writing off noncompliant inventory. Certain of our products are eligible for an exemption for lead used in network infrastructure equipment. If this exemption is revoked, or if there are other changes to RoHS (or its interpretation) or if similar laws are passed in other jurisdictions, we may be required to reengineer our products to use components compatible with these regulations. This reengineering and component substitution could result in additional costs to us or disrupt our operations or logistics.

WEEE requires producers of electrical and electronic equipment to be responsible for the collection, reuse, recycling and treatment of their products. Currently, our supply channel partners and suppliers are generally responsible for this requirement as they are often the importer of record. However, changes to WEEE and existing or future laws similar to WEEE may require us to incur additional costs in the future.

Any failure to comply with current and future laws could result in the incurrence of fines or penalties and could adversely affect the demand for or sales of our products.

Because Vector Capital, through its ownership of Vector Stealth as well as through our related stockholders agreement, will continue to hold a controlling interest in us, the influence of our public stockholders over significant corporate actions will be limited.

After this offering, affiliates of Vector Capital will directly or indirectly own approximately % of our outstanding common stock through their ownership of Vector Stealth. As a result, after this offering, Vector Capital will continue to have the power to:

In addition, prior to the completion of this offering, we and Vector Stealth will enter into a stockholders’ agreement related to a number of board of director, stockholder and related governance matters. Such stockholders’ agreement will provide that Vector Stealth will have the right to designate a majority of the director nominees to our board of directors, subject to their beneficial ownership of at least 40% or more of the total outstanding shares of our capital stock. Vector will continue to have a right to designate director nominees to our board of directors to a lesser degree if their ownership percentage is between 7.5% and 40% of the total outstanding shares of our capital stock. In addition, stockholders will only be allowed to remove directors for cause, and our board of directors shall designate appointees to fill vacancies (subject to Vector Stealth’s rights to designate members of our board of directors). Furthermore, such stockholders’ agreement will also provide that the following actions by us or any of our subsidiaries require the approval of Vector Stealth for so long as Vector Stealth owns at least 30% or more of our outstanding shares of common stock:

Vector Stealth is not prohibited from selling a controlling interest in us to a third party.

Accordingly, our ability to engage in significant transactions, such as a merger, acquisition or liquidation, is limited without the consent of members of Vector Capital. Conflicts of interest could arise between us and Vector Capital, and any conflict of interest may be resolved in a manner that does not favor us. Vector Capital may continue to retain control of us for the foreseeable future and may decide not to enter into a transaction in which you would receive consideration for your common shares that is much higher than the cost to you or the then-current market price of those shares. In addition, Vector Capital could elect to sell a controlling interest in us and you may receive less than the then-current fair market value or the price you paid for your shares. Any decision regarding their ownership of us that Vector Capital may make at some future time will be in their absolute discretion.

In addition, pursuant to the terms of our certificate of incorporation, Vector Stealth and its affiliates have the right to, and have no duty to abstain from, exercising such right to, engage or invest in the same or similar business as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees. If Vector Stealth and its affiliates or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty to offer such corporate opportunity to us, our stockholders or affiliates. We have renounced any interest or expectancy in, or in being offered an opportunity to participate in, such corporate opportunities in accordance with Section 122(17) of the Delaware General Corporation Law. In the event that any of our directors and officers who is also a director, officer or employee of Vector Stealth or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as our director or officer and such person acted in good faith, then such person is deemed to have fully satisfied such person’s fiduciary duty and is not liable to us if Vector Stealth or its affiliates pursues or acquires such corporate opportunity or if such person did not present the corporate opportunity to us.

Provisions in our certificate of incorporation and bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that our stockholders may deem advantageous. These provisions include:

We will be a “controlled company” within the meaning of the NASDAQ Marketplace rules and, as a result, will qualify for and will rely on exemptions from certain corporate governance requirements.

After completion of this offering, Vector Capital will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Stock Market LLC. Under NASDAQ Marketplace rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain corporate governance requirements of the NASDAQ Stock Market LLC, including the requirements that:

Following this offering, we intend to elect to be treated as a controlled company and utilize these exemptions, including the exemption for a board of directors composed of a majority of independent directors. In addition, although we will have adopted charters for our audit, nominating and corporate governance and compensation committees and intend to conduct annual performance evaluations for these committees, none of these committees will be composed entirely of independent directors immediately following the completion of this offering. We will rely on the phase-in rules of the SEC and the NASDAQ Stock Market LLC with respect to the audit committee. These rules permit us to have an audit committee that has one member that is independent upon the effectiveness of the registration statement of which this prospectus forms a part, a majority of members that are independent within 90 days thereafter and all members that are independent within one year thereafter. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market LLC.

We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.

Prior to this offering, there was no public trading market for our common stock, and we cannot assure you that a liquid trading market will develop or be sustained after this offering. If such a market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade.

The initial public offering price for our common stock will be determined through our negotiations with the underwriters, and may not bear any relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, many of which are beyond our control and may not be related to our operating performance. It is possible that, in future quarters, our operating results may be below the expectations of securities analysts or investors. As a result of these and other factors, the price of our common stock may decline, possibly materially. These fluctuations could cause you to lose all or part of your investment in our common stock. The public trading price for our common stock after this offering will be affected by a number of factors, including:

In addition, the stock prices of many technology companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation, which could result in substantial costs and divert our management’s attention and resources from our business.

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also 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.

Upon completion of this offering, we will have outstanding shares of common stock based on the number of shares outstanding on March 31, 2010 and assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options after March 31, 2010. The shares sold pursuant to this offering will be immediately tradable without restriction. Of the remaining shares:

We and all of our directors and officers, as well as the selling stockholder, have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. This agreement is subject to certain exceptions, and is also subject to extension for up to an additional 34 days, as set forth in the section entitled “Underwriters.”

The representatives of the underwriters may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreement. After the closing of this offering, we intend to register approximately shares of common stock that have been reserved for future issuance under our stock incentive plans.

No later than upon the expiration of the lock-up agreements entered into in connection with this public offering or 181 days after this initial public offering, whichever date is later, we shall file a shelf registration statement

with the SEC covering the resale of all of our registrable securities held by Vector Stealth. We shall use our best efforts to cause such shelf registration statement to become effective on or prior to the 90th day following the filing of the shelf registration statement and to keep such shelf registration statement in effect until all of the registrable securities held by Vector Stealth have been resold. In addition, beginning six months after the completion of this initial public offering, Vector Stealth will have two (2) demand registration rights, which, when and if exercised, will require us to register shares of the common stock held by Vector Stealth with the SEC for sale by them to the public. We are not obligated to file a registration statement relating to any request to register shares pursuant to such demand registration rights within a period of 180 days after the effective date of any other registration statement we file pursuant to such demand registration rights (including the registration statement of which this prospectus is a part). In addition, we are required to give notice of registration of shares held by Vector Stealth to all members of our executive management who receive shares of common stock in exchange for their interests in Vector Stealth formerly held by them, and such persons have so-called “piggyback” registration rights providing them the right to have us include the shares of common stock owned by them in any such registration.

The filing of this shelf registration statement and the existence or exercise of these registration rights may result in the perception of or actual sales of substantial amounts of our common stock in the public market following this offering, which may make it difficult for us to raise additional capital.

Our management will have broad discretion over the use of the proceeds from this offering and may not apply the proceeds of this offering in ways that increase the value of your investment.

Our management will have broad discretion to use the net proceeds we receive from this offering, and you will be relying on its judgment regarding the application of these proceeds. We expect to use the net proceeds from this offering as described under the heading “Use of Proceeds.” However, management may not apply the net proceeds of this offering in ways that increase the value of your investment.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution of $ per share based on an assumed initial public offering price of $ per share, the mid-point of the range shown on the cover of this prospectus, because the price that you pay will be substantially greater than the net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon the exercise of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under these plans or if we otherwise issue additional shares of our common stock. See “Dilution.”

Since we do not expect to pay any dividends for the foreseeable future, investors in this offering may be forced to sell their stock in order to realize a return on their investment.

We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our board of directors and will depend on our financial condition, capital requirements, legal requirements, earnings and other factors. Our ability to pay dividends is restricted by the terms of our senior secured credit facilities and might be restricted by the terms of any indebtedness that we incur in the future. Consequently, you should not rely on dividends in order to receive a return on your investment. See “Dividend Policy.”

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This prospectus contains forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, capital expenditures, use of proceeds from this offering, introduction of new products, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology. Actual events or results may differ from those expressed in these forward-looking statements, and these differences may be material and adverse.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise. Potential investors should not place undue reliance on our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of any of the events described in the “Risk Factors” section and elsewhere in this prospectus could harm our business, prospects, operating results and financial condition.

This prospectus also contains estimates and other information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications, surveys and forecasts, including those generated by IDC and INPUT. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause actual results to differ from those expressed in these publications, surveys and forecasts.

We estimate that the net proceeds we receive in this offering will be approximately $ million, based on an assumed initial public offering price of $ per share, the mid-point of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If we were to price the offering at $ per share, the low end of the range on the cover of this prospectus, we estimate that we would receive net proceeds of $ million, assuming the total number of shares offered by us remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If we were to price the offering at $ per share, the high end of the range on the cover of this prospectus, then we estimate that we would receive net proceeds of $ million, assuming the total number of shares offered by us remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ option to purchase additional shares in this offering from us is exercised, our estimated net proceeds will be approximately $ million after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from any sale of shares of our common stock by the selling stockholder in this offering.

We currently intend to use the net proceeds of this offering for the following purposes and in the following amounts:

See “Certain Relationships and Related Person Transactions—Transactions and Relationships with Vector Stealth and its Affiliates.”

An underwriter holds a portion of our senior secured credit arrangements. As a result, such underwriter or its affiliates may receive part of the proceeds of the offering by reason of the repayment of a portion of the amount outstanding under our senior secured credit arrangements. See “Underwriting.”

We expect to use the remainder of the net proceeds for working capital and general corporate purposes. We may also use a portion of the proceeds to expand our current business through acquisitions or investments in other complementary strategic businesses, products or technologies. We have no commitments with respect to any acquisitions at this time. We will have broad discretion in the way we use the net proceeds.

We intend to invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government, pending their use as described above.

Prior to our acquisition by Vector Stealth in April 2007, we had not paid dividends on our capital stock. We have not declared or paid recurring dividends since that date. However, our board of directors declared special dividends on our outstanding common stock of $9.0 million in 2008 and $3.0 million in 2009 with cash generated from operations.

Following completion of this offering, we have no current plans to pay any cash dividends on our common stock for the foreseeable future and instead may retain earnings, if any, for future operation, expansion and debt repayment. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends is currently limited by covenants in our secured credit agreements.

The following table sets forth our cash and cash equivalents and our overall capitalization as of March 31, 2010:

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

The preceding table is based on the number of shares of our common stock outstanding as of March 31, 2010. This table does not reflect:

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering. Our net tangible book value as of March 31, 2010 was $(392.5) million, or $(2.59) per share of common stock. Net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. After giving effect to the sale by us of shares of our common stock in this offering at the assumed initial public offering price of $ per share, the mid-point of the range on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and our estimated offering expenses, our as adjusted net tangible book value as of March 31, 2010 would have been $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to our new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis:

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the mid-point of the price range on the front cover of this prospectus, would increase (decrease) our as adjusted net tangible book value per share after this offering by $ and increase (decrease) the dilution to new investors in this offering by $ .

The following table illustrates the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering based on an assumed initial public offering price of $ per share, the mid-point of the range on the front cover of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses as of March 31, 2010 on an as adjusted basis.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the mid-point of the price range on the front cover of this prospectus, would increase (decrease) total consideration paid by new investors in this offering and by all investors by $ , and would increase (decrease) the average price per share paid by new investors by $1.00, assuming the number of shares of common stock offered by us, as set forth on the front cover of this prospectus, remains the same and without deducting the estimated underwriting discounts and offering expenses payable by us in connection with this offering.

If the underwriters exercise their over-allotment option in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will be increased to , or approximately % of the total number of shares of our common stock outstanding after this offering.

The following unaudited pro forma condensed consolidated financial information for the period indicated below have been derived by the application of pro forma adjustments that give effect to (a) the March 24, 2009 acquisition by us of all the ordinary issued and outstanding share capital of Aladdin for $164.1 million in cash and (b) borrowings of $50.0 million by us to finance the acquisition of Aladdin. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 gives effect to the acquisition of Aladdin as if it occurred on January 1, 2009.

The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2009 has been prepared based on our historical condensed consolidated statement of operations for the year ended December 31, 2009 and the historical condensed consolidated statement of operations of Aladdin from January 1, 2009 through March 23, 2009. The unaudited pro forma adjustments are based upon available information and assumptions that we believe are reasonable under the circumstances.

The unaudited pro forma condensed consolidated financial information is presented for informational purposes only and does not purport to represent the financial position and results of operations that would have been achieved had the acquisition been completed as of the dates indicated or our future financial position or results of operations. The unaudited pro forma condensed consolidated financial information should be read in conjunction with our consolidated financial statements included elsewhere in this prospectus. Note 3 of the our consolidated financial statements includes further description of the accounting for the acquisition of Aladdin, assumptions used to value the acquired assets and liabilities and recorded goodwill.

The following pro forma adjustments are included in our unaudited pro forma condensed consolidated statements of operations:

You should read the selected consolidated financial data set forth below in conjunction with our consolidated financial statements, the notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

The financial data as of December 31, 2008 and 2009, for the period from January 1 through April 11, 2007 of the Predecessor Period, for the period from April 12 through December 31, 2007 of the Successor Period and for the years ended December 31, 2008 and 2009 have been derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected historical consolidated financial data as of December 31, 2006 and 2007 and for the year ended December 31, 2006 have been derived from audited consolidated financial information not included in this prospectus.

Selected consolidated financial data as of December 31, 2005 and for the year ended December 31, 2005 has not been included in this prospectus. We intend to include such information, which will be derived from our unaudited consolidated financial statements that will not be included elsewhere in this prospectus, in the first amendment to the registration statement of which this prospectus is a part.

The financial data as of March 31, 2010 and for the three months ended March 31, 2009 and 2010 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have prepared this unaudited financial information on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for such period. Our historical results are not necessarily indicative of results to be expected for future periods. Results for the three months ended March 31, 2010 are not necessarily indicative of results expected for the full year.

The as adjusted basic net income per share data are unaudited and give effect to the issuance of common stock in this offering and the application of proceeds from the offering as described in “Use of Proceeds” as if it had occurred on January 1, 2009.

The following table presents consolidated balance sheet data as of December 31, 2005, 2006, 2007, 2008 and 2009 and March 31, 2010.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements.”

We are a leading provider of high-end data protection solutions to both commercial enterprises and government agencies. Customers trust our comprehensive and flexible solutions to protect their most valuable information assets, including electronic banking transfers, personally identifiable information, electronic medical records, software and intellectual property assets and classified information that is critical for national security. We combine leading-edge commercial technologies with the expertise and credibility developed through our long-standing leadership in the government sector. We offer a lifecycle approach to data protection that:

Several key trends are driving the need for our high-end data protection solutions. Organizations are experiencing an unprecedented and sustained growth in digital assets and electronic transactions, which has increased the amount of high-value information that needs to be protected. Additionally, organizations are continually evolving how they communicate and organize their workforce and IT infrastructure, including increasing their use of collaboration among and within organizations, enabling workforce mobility, adopting virtualization and cloud computing based resources, opening networks for personal computing devices, and the adoption of Software as a Service, or SaaS, applications. These initiatives have introduced additional security and compliance risks and increased the vulnerability of valuable information. At the same time, the significant increase in frequency, sophistication and severity of threats to data security is causing tangible, far-reaching monetary and reputational damage to organizations of all types, both from external threats, such as hackers and espionage, and from internal threats, both malicious and inadvertent. As cyber attacks on the federal government have also increased in volume and sophistication, cyber security has become a top priority of the U.S. government. Government agencies have responded to the increased threat environment by enacting regulations mandating increased protection of data and corresponding notifications upon data breaches.

We were founded in 1983 and have developed our core encryption and data protection technology into comprehensive and integrated solutions focused on the protection of high-value information assets. Many of our products are certified to the highest security standards. We have established a global channel of over 1,000 resellers, original equipment manufacturers, or OEMs, value-added resellers, or VARs, and systems integrators and over 200 application and solution providers that provide us extensive geographic reach across multiple commercial verticals including the financial services, retail, healthcare, software and technology industries. We serve more than 25,000 commercial enterprises and government agencies in over 100 countries. As of May 28, 2010, we had 1,605 employees. We have grown both organically and through a series of complementary

acquisitions, including the acquisitions of Ingrian Networks in April 2008, Aladdin Knowledge Systems in March 2009 and Assured Decisions in December 2009.

Our company was originally founded in 1983 as Information Resource Engineering, Inc. We conducted an initial public offering in 1989, and our common stock subsequently traded on the NASDAQ Stock Market until April 2007. From 1983 to 1995, our business was focused on data security for the financial services industry. We released our first broad-based commercial product offering, a virtual private network system called SafeNet, in 1995. In 1999, we renamed our company SafeNet, Inc. Between 2002 and 2005, we acquired several other information security providers including Cylink, Securelink, Rainbow Technologies, Datakey and MediaSentry, all of which resulted in significant growth of our overall business and our range of product and service offerings.

In 2006, several then-members of our management and board of directors were named in stock option backdating and earnings management investigations. These individuals have since left our company. We have incurred substantial expenses in connection with investigations by the U.S. Securities and Exchange Commission as well as certain stockholder lawsuits arising out of these matters against our company and against those former officers and directors with whom we have contractual obligations to provide indemnification. For example, in 2009, we incurred approximately $6.0 million in legal, accounting and professional services fees and related expenses due to these investigations and resulting restatement. In November 2009, the SEC settled its claims against SafeNet and certain of our former employees of the company arising out of these matters. We continue to be subject to certain legal proceedings related to those events. For more information on these matters, see “Business—Legal Proceedings.”

In April 2007, we were acquired by Vector Stealth, an affiliate of Vector Capital, a San Francisco-based private equity investment firm specializing in the technology sector. As a result of this going-private transaction, we ceased to be a public reporting company. As a private company, we began a series of steps to improve our growth, profitability and internal controls. Included in these actions were changes in our board of directors and management personnel, including reconstituting our board such that all of our board members have joined our board since 2007, and the appointment of a new chief executive officer in July 2009, a new chief financial officer in October 2009 and a new senior vice president and general counsel in February 2010. We also embarked on a thorough review of our accounting policies, practices and systems resulting in significant administrative expenses in 2007, 2008 and 2009. In 2009, we began implementation of a new ERP system to further improve our efficiency and internal controls.

Most notable among our recent activity was the March 24, 2009 acquisition of Aladdin Knowledge Systems Ltd., or Aladdin, a developer of data security and software rights management solutions, by a fund affiliated with Vector Capital. Vector Capital placed Aladdin under common control with us at that time. On March 31, 2010, we formally acquired the entity that had acquired Aladdin, which resulted in Aladdin becoming a wholly owned subsidiary of SafeNet, Inc. Combining the two companies enhanced our presence in our target markets, increased our geographic diversity, expanded our reseller and distribution channels, and improved operating efficiencies through the reduction or elimination of overlapping products and functions.

Our revenues have grown from $286.9 million for the year ending December 31, 2006 to $403.7 million for the year ending December 31, 2009. Our revenues for the three months ended March 31, 2010 were $107.8 million. The growth in our revenues during this period was primarily the result of acquisitions, including those of Aladdin, Ingrian Networks and Assured Decisions. These acquisitions complemented our core business and allowed us to increase our sales to existing customers, add new customer sales, drive sales of new products and solutions and increase our sales outside of the U.S.

Our revenue growth from 2006 through 2009 demonstrated the resiliency of our product portfolio and diversity of our customer base. During 2007 and early 2008, revenue growth continued across our product portfolio despite the global economic turmoil beginning in 2008. The general downturn in sales of enterprise software in the latter half of 2008 and 2009 had a corresponding effect on sales of our software rights management products. Sales of our commercial data protection products grew at a slower rate during this time frame as well. Despite the slowdown in these areas, sales to U.S. government customers continued apace throughout 2008 and into 2009. In addition, our acquisitions during this time period bolstered our growth rates by providing a broader product portfolio and enhanced our sales resources and distribution channels.

We have one business and operate in one industry: developing, marketing, distributing and supporting security data solutions for commercial enterprises and government agencies. We sell our products and services in the Americas, EMEA and Asia Pacific.

Pursuant to our acquisition on April 11, 2007 by Vector Stealth, our consolidated financial statements and notes included elsewhere and referenced in this prospectus present information relating to both a “Predecessor” and “Successor” entity. We refer to the period prior to April 12, 2007 as the “Predecessor Period” and the period from April 12, 2007 as the “Successor Period.” For the purposes of the discussion of our operating activities included in the section titled “Results of Operations—Year Ended December 31, 2008 as Compared to Year Ended December 31, 2007,” we have described our operations on a combined basis for the Predecessor Period and Successor Period during the calendar year ended December 31, 2007.

The combined presentation of the Predecessor Period and Successor Period for the year ended December 31, 2007, which does not include pro forma adjustments to give effect to our acquisition by Vector Stealth, is not a recognized presentation under GAAP. However, we believe presenting the combined presentation of the Predecessor Period and Successor Period for the year ended December 31, 2007 is more meaningful for several reasons, including:

A reconciliation of the Predecessor Period and Successor Period in the year ended December 31, 2007 to the combined presentation of the Predecessor Period and Successor Period for the calendar year ended December 31, 2007 follows:

The initial investment in Aladdin was accomplished using an entity affiliated with Vector Capital that was established in 2008 and subsequently placed under common control with us. This entity subsequently acquired all of the outstanding shares of Aladdin on March 24, 2009. Accordingly, the financial statements, analysis and management discussion included in this prospectus include our standalone financials through 2007, incorporate the entity affiliated with Vector Capital beginning in 2008 and include Aladdin in its entirety from its date of acquisition on March 24, 2009. On March 31, 2010, we formally acquired the entity that had acquired Aladdin, which resulted in Aladdin becoming a wholly owned subsidiary of SafeNet. For further information, see Note 3 of our consolidated financial statements included elsewhere in this prospectus.

We monitor a number of key financial metrics as shown below to help us evaluate growth trends, measure the effectiveness and efficiency of our operations and gauge our cash generation. We discuss revenue, gross profit margin, operating expense in the “—Components of Operating Results” and discuss net cash provided by operating activities under “—Liquidity and Capital Resources.” Adjusted EBITDA is not a recognized presentation under GAAP. An explanation of the elements of adjusted EBITDA and a full reconciliation of adjusted EBITDA to net loss, net income, the most directly comparable GAAP measure, as well as a discussion of the material limitations of adjusted EBITDA, follows the table below.

We define adjusted EBITDA as net income (loss), calculated in accordance with GAAP plus: (i) interest expense (income), net; (ii) income tax (benefit) expense; (iii) depreciation; (iv) amortization of acquired intangible assets; (v) impairment of acquired intangible assets and goodwill; (vi) stock-based compensation expense; (vii) transaction costs related to acquisitions; (viii) purchase accounting adjustments; (ix) restructuring expenses; (x) principal stockholder management fees; (xi) investigation and restatement related charges; and (xii) costs and benefits of litigation settlements.

We believe that the use of adjusted EBITDA provides consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results by management and investors. Although calculation of adjusted EBITDA may vary from company to company, our presentation of adjusted EBITDA may facilitate analysis and comparison of our operating results by management and investors with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results in their public disclosures. While we believe adjusted EBITDA is a useful measure for our management and investors in evaluating our operating performance and business trends, there are material limitations to the use of adjusted EBITDA. For a further discussion of these limitations, see “—Material Limitations of Adjusted EBITDA.”

We believe that it is useful to exclude non-cash charges for depreciation, amortization of acquired intangible assets, impairment of acquired intangible assets and goodwill and stock-based compensation from adjusted EBITDA because (i) the amount of such non-cash expenses in any specific period may not directly correlate to the underlying operational performance of our business and (ii) such expenses can vary significantly between periods as a result of new acquisitions, the application of impairment tests in a given period, full amortization of previously acquired intangible assets or the timing of new stock-based awards.

More specifically, we believe it is useful in evaluating our financial performance to exclude stock-based compensation expense from adjusted EBITDA because non-cash equity grants made at various points in time based on the value of our stock do not necessarily reflect how our business is performing at any particular time. While we believe that investors should have information about any dilutive effect of outstanding options and the cost of that compensation, we also believe that investors should have the ability to view adjusted EBITDA as a non-GAAP financial measure that excludes these costs. The determination of stock-based compensation expense is based on many subjective inputs at a point in time and many of these inputs are not necessarily directly related to the performance of our business. Due to subjective assumptions that underlie valuation methodologies used in the calculation of this expense and the variety of stock award types that companies employ, as well as the impact of non-operational factors such as our share price, on the magnitude of this expense, management believes that providing adjusted EBITDA as a non-GAAP financial measure that excludes this stock-based compensation expense allows investors to make meaningful comparisons between our operating results and those of other companies.

We believe it is useful to exclude depreciation and amortization from adjusted EBITDA because depreciation is a function of our capital expenditures, while amortization reflects other asset acquisitions and their associated costs made at a prior point or points in time. In analyzing the performance of our business currently, management believes it is helpful also to consider the business without taking into account costs or benefits accruing from historical decisions on infrastructure and capacity. While these expense and related investments affect the overall financial health of our company, they are separately evaluated and relate to historic decisions. Further, depreciation and amortization do not result in ongoing cash expenditures. Investors should note that the use of assets being depreciated or amortized contributed to revenues earned during the periods presented and will continue to contribute to future period revenues. This depreciation and amortization expense will recur in future periods for GAAP purposes.

We believe it is useful to exclude impairment of intangible assets and goodwill from adjusted EBITDA because these charges relate to specific past events. In analyzing the performance of our business currently, management believes it is helpful also to consider the business without taking into account costs or benefits accruing from historical decisions or acquisitions. Further, these charges do not result in ongoing cash expenditures.

We believe it is useful to exclude certain transaction costs related to acquisitions and divestitures when evaluating our ongoing business performance. These items vary significantly in size and amount and are excluded by our management when evaluating and predicting earnings trends because these charges are unique to specific acquisitions or divestitures. We therefore exclude these charges when presenting non-GAAP earnings. These charges include transaction costs such as transaction fees, due diligence costs, retention bonuses, severance charges and legal costs.

We believe it is useful to exclude certain purchase accounting adjustments related to our acquisitions and divestitures as well. Acquisition-related adjustments include purchase accounting adjustments such as revaluation of deferred revenue. This deferred revenue generally results from annual (or longer) maintenance contracts wherein deferred revenue is established upon sale and revenue is recognized over the term of the contract. Upon acquisition, GAAP requires that this deferred revenue be recorded at its fair value, which is typically less than the book value. In presenting non-GAAP earnings we add back the reduction in revenue that results from this revaluation on the expectation that the vast majority of these maintenance contracts will be renewed in the future and therefore the revaluation is not helpful in predicting our ongoing revenue trends. Divestiture-related adjustments also include the gain or loss on sale or disposal of assets or entire businesses. Often these transactions will result in sale prices that are different from the total carrying cost of the assets or business, resulting in a gain or loss in the period of sale or when the asset is identified as held for sale. Our management excludes these gains or losses when evaluating the ongoing performance of our business and believes it is useful to investors to highlight the specific impact of these amounts on its operating results.

We believe it is useful to exclude restructuring charges from adjusted EBITDA because these charges relate to specific actions taken at a point in time to address our ongoing business operations. We exclude these costs when evaluating our ongoing performance and predicting our earnings trends and therefore exclude these charges when presenting adjusted EBITDA. Restructuring charges include excess facility and asset-related restructuring charges as well as severance costs resulting from reductions of personnel. These charges are generally driven by modifications to our business strategy, which may include acquisitions or divestitures.

We believe it is useful to exclude management fees paid to our principal stockholders because these charges relate to fees under our management services agreement that do not correlate to our operating activities. These fees are presently payable to an entity affiliated with Vector Capital, and are expected to terminate upon the completion of this offering. We exclude these costs when evaluating our ongoing performance and predicting our earnings trends and therefore exclude these charges when presenting non-GAAP financial measures.

We believe it is useful to exclude investigation and restatement related expenses when evaluating our ongoing business performance. These are charges related to discrete and unusual events which have resulted in significant expenses that are, in management’s view, not part of the ordinary course of operations. This expense category specifically includes the legal and settlement expenses associated with the SEC’s investigation into stock option backdating and earnings management, which was concluded in November 2009. It also includes the ongoing legal expenses associated with stockholder litigation arising out of these matters. In addition, this category includes the restatement-related fees associated with preparing our 2006 financial statements and significant expenses associated with preparing our 2007 and 2008 financial statements.

We believe it is useful to exclude costs and benefits of other litigation settlements when evaluating our ongoing business performance as the timing of such settlements is not predictable and does not correlate with our operating activities. These represent the cost or benefit to us of settlement for certain significant legal matters.

We exclude these costs and benefits when evaluating our ongoing performance and predicting our earnings trends and therefore exclude these amounts when presenting adjusted EBITDA.

Although adjusted EBITDA measures are frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA measures each have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under GAAP.

A number of the material limitations of our use and presentation of adjusted EBITDA include:

Management addresses the inherent limitations associated with using the adjusted EBITDA measure through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net loss. Further, management also reviews GAAP measures, and evaluates individual measures that are not included in adjusted EBITDA such as our level of capital expenditures and interest expense, among other items.

The following table presents a reconciliation of adjusted EBITDA to net loss, the most comparable GAAP measure, for each of the periods identified.

We derive our revenue from product sales and services and maintenance contracts, which are sold by our direct sales force and indirect channels, including distributors, value-added resellers, system integrators and strategic outsourcers.

Our customers typically deploy our products in high-end, mission critical applications, where security is of paramount importance. As a result, while the markets for data security and software rights management products are competitive, pricing is often secondary to functionality for our customers.

When selling certain products to the U.S. government, GAAP requires that cost of product revenue include certain items that would traditionally be categorized as sales, marketing, development and general and administrative expenses in a comparable non-government transaction. As a result of this accounting treatment, our government sales contracts result in higher costs of revenues and lower gross profit margins than a non-government transaction. However, such government transactions also result in correspondingly lower operating expense and thus no net difference in operating income as a result of this accounting treatment.

Gross profit as a percentage of revenue, or gross profit margin, has been and will continue to be affected by a variety of factors, including the average sales price of our products, manufacturing and support costs, the mix of revenue between products and service and maintenance contracts, the mix of revenue between government and commercial sales, any excess inventory write-offs, and currency fluctuations.

Our product mix and resulting gross profit margins have changed as a result of acquisitions in recent periods. For example, our acquisition of Aladdin in March 2009 increased the percentage of high-margin products in our product mix. This resulted in an increase in our overall gross profit margin.

In addition to total gross profit and total gross profit margin, we discuss the gross profit margin for product revenue separately from the gross profit margin for services and maintenance revenue in the section titled “—Results of Operations.” In calculating these measures, we include only those costs attributable to delivering the product or service, irrespective of past investments in intangible assets, excluding both amortization and impairment of intangible assets. We identify the cost of revenue resulting from amortization and impairment of intangible assets separately in these measurements since they do not vary directly with revenue and are not affected by the factors mentioned above.

We calculate our gross profit and gross margin of product revenues by subtracting cost of product revenues (excluding amortization and impairment of intangibles) from product revenues. We calculate our gross profit and gross margin of service and maintenance revenues by subtracting cost of service and maintenance revenues (excluding amortization and impairment of intangibles) from service and maintenance revenues. We believe that

the use of these gross profit and gross margin measures allows the comparison of gross profit contribution of our product revenues, which carry significantly lower margins, to that of our service and maintenance revenues, which carry higher margins.

Our operating expenses include research and development, sales and marketing and general and administrative expenses. Personnel costs are the primary component of each of these operating expense categories. Personnel costs consist of cash-based personnel costs such as salaries, benefits, bonuses and non-cash stock-based compensation. In addition, allocated costs of facilities and information technology, travel and professional services are included in each of these operating expense items. In addition to each of these elements, our operating expense items consist of the following:

In addition to the above categories, we also incur expenses for amortization of intangible assets. Our acquisition by Vector Stealth, along with the acquisitions of Ingrian Networks in 2008, Aladdin in 2009 and Assured Decisions in 2009 resulted in certain intangible assets that we generally amortize over three to seven years. Part of the amortization of these intangible assets is appropriately applied to our operating expenses. Absent additional acquisitions, we expect modest declines in amortization of intangible assets expense as certain intangible assets are fully amortized in coming quarters.

Finally, we have also incurred operating expenses primarily related to our acquisition and disposition activities. We have classified these as separate elements of our operating expenses on our statement of operations included elsewhere in this prospectus. A description of the elements of these expenses is as follows:

Our other income and expenses consists principally of foreign exchange gain or loss and interest income and expense.

In addition, total other income and expense includes gains or losses on marketable securities held by us in certain years.

We are subject to taxation in the United States as well as other jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current U.S. income tax. In particular, the Aladdin acquisition increased our non-U.S. revenues and profits, resulting in increased foreign taxes. In addition, our decision in April 2010 to outsource our manufacturing activity in Israel resulted in the loss of certain tax benefits in Israel, which is expected to increase our overall foreign tax rate in future periods.

Our effective tax rates differ from the statutory rate primarily due to the valuation allowance on our deferred taxes, state taxes, foreign taxes and nondeductible compensation. For periods subsequent to the date on which we fully reverse our deferred tax asset valuation allowance, we expect our effective tax rate will be less than or approximate to the U.S. federal statutory tax rates before adjusting for the effects of state taxes.

As of December 31, 2009, we had $129.5 million of federal and $51.1 million of state net operating loss carry-forwards available to reduce future taxable income. These net operating loss carry-forwards begin to expire in 2017 for both U.S. federal and state income tax purposes, respectively, and may fully expire by 2028. Our ability to use our net operating loss carry-forwards to offset any future taxable income may currently, or in the future be subject to limitations in the event that we experience a change of ownership as defined by Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

In addition, as of December 31, 2009, we had $32.6 million of non-U.S. net operating loss carry-forwards available to reduce future taxable income in certain foreign jurisdictions. These net operating loss carry-forwards begin to expire in 2011, and as many as $16.5 million will expire by 2015. The remaining balance is not subject to expiration.

We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially affected. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement in the periods in which the adjustment is determined to be required.

Under current tax law, if cash and cash equivalents and investments held outside the United States are distributed to the United States in the form of dividends or otherwise, we may be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

For further information, see Note 16 of our consolidated financial statements included elsewhere in this prospectus.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our key estimates include those related to revenue recognition, stock-based compensation, inventory and reserves for obsolescence, excess and slow moving goods, derivative financial instruments, goodwill and other intangible assets and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

We believe that of our significant accounting policies that are described in Note 2 of our consolidated financial statements included elsewhere in this prospectus, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.

We derive revenue from sales of software and technology licenses, products, maintenance agreements (post-contract customer support), hardware- and software-based products that contain a software content that is more than incidental to the product as a whole, development arrangements and services. Software and technology licenses and certain product sales typically contain multiple elements, including the product or license, maintenance and/or other services. For arrangements that include multiple elements, the revenue is allocated to the various elements based on vendor specific objective evidence of fair value for software and technology licenses or objective and reliable evidence of the fair value of the undelivered items for other multiple element arrangements, collectively referred to as VSOE, regardless of any separate prices stated within the contract for each element.

If VSOE does not exist for all delivered elements, but VSOE exists for the undelivered elements, we apply the residual method, provided that: (i) all other applicable revenue recognition criteria are met; and (ii) the fair value of all of the undelivered elements is less than the arrangement fee. Under the residual method, the arrangement fee is recognized as follows: (i) the total fair value of the undelivered elements, as indicated by VSOE, is deferred, and (ii) the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Generally, in our software and software related arrangements, we have established VSOE for maintenance and therefore recognize revenue under these arrangements using the residual method when the only remaining undelivered element is maintenance.

Multiple contracts with a single customer that are determined to be so closely related that they are in effect part of a single arrangement are accounted for as one multiple-element arrangement.

Product revenue consists primarily of sales of hardware appliances, software licenses and solutions that combine SafeNet software with industry-standard hardware. For product arrangements that include our software, where:

we recognize revenue for the delivered elements using the residual method. For arrangements containing multiple elements where VSOE does not exist for all undelivered elements, we defer the revenue for the delivered and undelivered elements until VSOE exists or all elements have been delivered.

License revenue is comprised of perpetual and term license fees, which are derived from arrangements with end users, OEMs and resellers or partners. We are generally able to recognize license revenue based on the residual method as discussed above. License revenue is primarily derived from perpetual licenses, but some licenses involve a fixed term. Revenue derived from term licenses sold with software maintenance is recognized ratably over the license term.

We enter into certain arrangements with respect to product development. Based on their terms and conditions, these transactions are categorized into one of the following categories:

Revenues that are earned under certain long-term contracts to develop customer specific technology are recognized using contract accounting and are included in product revenue. Revenue from these arrangements is generally recognized using the percentage-of-completion method. Progress to completion is principally measured using either labor hours or contract milestones based on our determination of which would be the best available measure of progress on the contracts. Any estimated losses are provided for in their entirety in the period they are first identified. Where reasonably dependable estimates cannot be made or where inherent hazards make estimates doubtful, we use the completed-contract method.

Certain products are designed, developed and produced for use in U.S. government and commercial enterprise applications that consist of application specific integrated circuits, modules, electronic assemblies and stand-alone products to protect information. Catalog product revenues and revenues under certain fixed-price contracts are recognized as deliveries are made, provided all other revenue recognition criteria have been met. Revenues under cost-reimbursement contracts are recognized as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Certain contracts are awarded on a fixed-price incentive fee basis. Incentive fees on such contracts are considered when estimating revenues and profit rates are

recognized when the amounts can reasonably be determined. The costs attributed to units delivered under fixed- price contracts are based on the estimated average cost per unit at contract completion. Profits expected to be realized on long-term contracts are based on total revenues and estimated costs at completion. Revisions to contract profits are recorded in the accounting period in which the revisions are known. Estimated losses on contracts are recorded when identified. We recognize contract earnings using the percentage-of-completion method for cost-plus-fee type contracts.

We enter into arrangements where funding is received from others to offset the cost of research and development activities. As a result, we do not recognize research and development expense incurred as a direct result of such funding. In these agreements we generally retain ownership of the intellectual property being developed. The funding party generally receives the right to use the developed product royalty-free or receives a royalty when we sell the product. Provided that technological feasibility has not been established prior to entering into the arrangement, funding which is potentially refundable based on the outcome of the research and development is deferred until such time as the outcome of the development has been determined. Funding which is not potentially refundable is recognized as an offset to research and development expenses as such expenses are incurred. Funding received in these arrangements in excess of costs incurred is deferred until such costs are incurred.

During 2007, 2008, 2009 and the three months ended March 31, 2010, we recorded $1.7 million, $6.4 million, $5.5 million and $0.2 million, respectively, of funding as an offset to research and development expenses. Approximately $2.7 million, $0.4 million, $0.4 million and $1.1 million of funding was deferred pending incurrence of costs or the outcome of the development project at December 31, 2007, 2008, and 2009 and March 31, 2010, respectively.

We also enter into certain development arrangements that generate revenue and gross profit. These arrangements are classified as Non-Recurring Engineering, or NRE, arrangements with subsequent manufacturing and may or may not include additional minimum purchase commitments. NRE arrangements with subsequent manufacturing occur when we create a product for a customer either from inception or develop a new product based on an already existing product within our product portfolio. In situations in which we retain all rights to the developed product and the customer enters into an arrangement to purchase a minimum quantity of products once development effort has been completed, we defer all revenue and cost associated with the NRE and recognize the revenue and cost based on a units delivered methodology over the minimum quantity commitment. The basis for this determination is that the value of the transaction, from the customer perspective, is in the final developed units. In such situations, the customer does not typically have the ability to, at any point, terminate the contract and enter into an arrangement with another vendor to produce the transacted unit since the customer does not have rights to our product or developed intellectual property. Where no minimum order quantity exists, revenue and related costs generally are recognized straight line over the remaining term of the agreement, once development has been completed.

Maintenance revenue is derived from support arrangements. Maintenance arrangements provide technical customer support and the right to unspecified upgrades on an if-and-when-available basis. The maintenance term is typically one year in duration and maintenance revenue is recognized ratably over the maintenance term. Maintenance arrangements can be renewed for additional periods. Unrecognized maintenance fees are included in “deferred revenue” in our consolidated balance sheets included elsewhere in this prospectus.

Other service revenue is primarily comprised of fees associated with consulting and training services. These revenues, when provided on a stand-alone basis, are recognized as the services are provided to the customer. If

such services are provided as part of a multi-element arrangement, and are the only remaining undelivered element, revenue from the entire arrangement is deferred until the earlier of (i) the establishment of the applicable measurement of fair value for the services; or (ii) as the services are delivered.

Certain of our software products are bundled with maintenance and post-contract support services that provide for numerous updates to the software within a short period of time over the term of the arrangement. These arrangements are accounted for as “in-substance” subscription arrangements in accordance with applicable accounting guidance. Revenue for such arrangements is recognized ratably over the subscription period beginning with the delivery of the software.

We recognize stock-based compensation expense for stock-based compensation awards granted to our employees, consultants and other service providers that can be settled in shares of our common stock or in equity interests in Vector Stealth, our sole stockholder. Prior to our reorganization in June 2010, compensatory stock options that can presently be settled in shares of our common stock could be settled in SafeNet, Inc., our wholly owned subsidiary. For a further description of our benefit plans and compensatory arrangements with our named executive officers, see the section titled “Executive Compensation—Benefit Plans.”

Compensation expense for all stock-based compensation awards granted is based on the grant date fair value estimate for each award. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally four years. As stock-based compensation expense recognized is based on awards ultimately expected to vest, such expense is reduced for estimated forfeitures. Stock-based compensation expense related to employee stock options that can be settled in our common stock during 2007 Predecessor Period, 2007 Successor Period, the years ended December 31, 2008 and 2009 and the three months ended March 31, 2010 was $23.8 million, $0.1 million, $1.3 million, $0.8 million and $0.3 million, respectively. The sizable charge in 2007 Predecessor Period related to the automatic acceleration in vesting of then-unvested options to purchase our common stock in connection with our acquisition by Vector Stealth. In addition, we recorded compensation expense of $1.1 million, $0.4 million and $0.5 million during the years ended December 31, 2008 and 2009 and the three months ended March 31, 2010, respectively, relating to awards to certain of our management that can be settled in equity interests in our sole stockholder, Vector Stealth.

As of March 31, 2010 there was approximately $3.9 million of unrecognized stock-based compensation expense related to non-vested stock option awards that we expect to be recognized over a weighted average vesting period of 2.6 years.

We estimate the fair value of stock-based compensation awards as of the date of grant applying the Black-Scholes-Merton option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and are freely transferable, and using the assumptions in the following table. The Black-Scholes-Merton option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. The fair values generated by the model may not be indicative of the actual fair values of our awards as it does not consider other factors important to those share-based payment awards, such as continued employment, periodic vesting requirements and limited transferability.

As of each stock option grant date, we considered the fair value of the underlying common stock, determined as described below, in order to establish the option fair value. As of each stock option grant date, we reviewed an average of the disclosed year-end volatility of a group of companies that we considered peers based on a number of factors including, but not limited to, similarity to us with respect to industry, business model, stage of growth, financial risk and other factors, to determine the appropriate volatility. The expected life was based on the average of the vesting period and the contractual life of the options as we have no historical experience with the exercise of options to purchase our common stock. The risk-free interest rate was determined by reference to the then applicable United States Treasury rates with the remaining term approximating the expected life assumed at the date of grant. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those options expected to vest. We estimate the forfeiture rate based on our historical employee attrition experience. Further, to the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.

The following table sets forth information for all stock option grants since January 1, 2009 through March 31, 2010:

Since our common stock is not publicly traded, we considered numerous objective and subjective factors in valuing our common stock at each valuation date in accordance with the guidance in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. These objective and subjective factors included, but were not limited to:

We estimated the fair value of our common stock by taking the average value calculated under two different valuation approaches, the income approach and market approach, with each method weighted equally. The equal weighting of these two approaches reflects our view that both these valuation methods provide a reasonable estimate of fair value, are equally reliable and resulted in similar values.

The resulting fair value obtained by averaging the values calculated under the income approach and the market approach was then discounted for the lack of marketability of the common stock for being a private company.

The exercise price for stock option grants has equaled or exceeded the fair value for our common stock on each grant date. At each grant date subsequent to our acquisition by Vector Stealth, our board of directors considered the objective and subjective factors described above and determined that the fair value of our common stock was not greater than $2.64 per share on the grant date. Accordingly, on each grant date subsequent to our acquisition by Vector Stealth, our board of directors established $2.64 as the exercise price for stock option grants.

Assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, the intrinsic value of stock options outstanding at March 31, 2010, was $ , of which $ related to the options that were vested and $ related to the options that were not vested.

Inventories are stated at the lower of cost or market. Cost is primarily determined based on the first-in first-out method, or FIFO, with the exception of costs associated with our government solutions business, which was acquired in 2004 and has consistently applied the weighted-average method, which has historically approximated FIFO, and Aladdin, which has consistently applied the moving-average cost method.

We establish reserves for slow moving, excess and obsolete inventory. The amounts of the required reserves are estimated based on past experience, sales projections and other factors such as potential technological obsolescence and market acceptance.

Our credit facilities provide for a variable interest rate and require our use of a variable-for-fixed interest rate swap arrangement in order to reduce the volatility associated with fluctuating interest rates for a portion of the total debt outstanding under such credit facilities. Derivative instruments for hedging activities such as our interest rate swap are recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income (loss) and recognized in the consolidated statement of operations when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for, and we have applied hedge accounting treatment.

When applying hedge accounting, our policy is to designate, at a derivative’s inception, the specific assets, liabilities or future commitments being hedged, and to assess the hedge’s effectiveness at inception and on an ongoing basis. We may elect not to designate the derivative as a hedging instrument where the same financial effect is achieved in the financial statements. We do not enter into or hold derivatives for trading or speculative purposes.

The fair value of the interest rate swap agreements is determined using an income approach pricing model prescribed by the Financial Accounting Standards Board, or FASB, based on market-observable inputs, including interest rate curves and market-observable indices. To comply with the provisions of the amended FASB guidance, we have incorporated credit valuation adjustments to appropriately reflect our nonperformance risk.

We review our indefinite-lived intangible assets for impairment at least annually or more frequently if indicators of impairment exist. Goodwill is currently our only indefinite-lived intangible asset. Our goodwill impairment test requires the use of fair-value techniques, which are inherently subjective. We estimate fair value using an equal weighting of the income and market value approaches for our company. The equal weighting of these two approaches reflects our view that both these valuation methods provided a reasonable estimate of fair value and were equally reliable methods.

Under the income approach, we calculate the fair value based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue and earnings for comparable publicly traded companies. The estimates and assumptions used in our calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash flows, expected tax rates and an estimated discount rate to determine present value of expected cash flows. These estimates are based on historical experience, our projections of future operating activity and our weighed average cost of capital based on returns on interest bearing debt and common stock.

The valuation of goodwill could be affected if actual results differ substantially from our estimates. Circumstances that could affect the valuation of goodwill include, among other things, a significant change in our business climate and buying habits of our customers along with increased costs to provide our products and services. Based on our analysis in the fourth quarter of 2008, we recorded an impairment of goodwill of $42.9 million, which was included in operating expenses for the year ended December 31, 2008. Based on our analysis in the fourth quarter of 2009, no impairment of goodwill was indicated for the year ended December 31, 2009.

We also evaluate the recoverability of our long-lived assets. GAAP requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. We recognize impairment, if any, in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset. Based on our analysis, we recorded an impairment of approximately $82.1 million in cost of revenues—amortization and impairment of intangible assets for the year ended December 31, 2008. We did not identify a similar impairment in 2009.

As of March 31, 2010, based on our projections and performance of our business, there is no indication that we will need to perform an impairment assessment prior to the fourth quarter of 2010.

We use the asset and liability method in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined on the difference between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The calculation of our tax assets and liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on the two-step process prescribed by applicable accounting principles. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the relevant period.

As of December 31, 2009, we had $129.5 million of federal and $51.1 million of state net operating loss carry-forwards available to reduce future taxable income. These net operating loss carry-forwards begin to expire in 2017 for both U.S. federal and state income tax purposes and may fully expire by 2028. Our ability to use our net operating loss carry-forwards to offset any future taxable income may currently or in the future be subject to limitations in the event we experience a change of ownership as defined by Section 382 of the Internal Revenue Code.

As of December 31, 2009 and 2008, we recorded valuation allowances against certain deferred tax assets of $52.6 million and $31.4 million, respectively. At December 31, 2009 and 2008, the valuation allowances were primarily related to our inability to recognize tax benefits associated with U.S. net operating losses and certain non-U.S. net operating losses.

Prior to our acquisition by Vector Stealth in April 2007, we asserted that all investments in our foreign subsidiaries were permanent in nature and accordingly did not record deferred taxes. Subsequent to the acquisition, we reevaluated this assertion based on our debt servicing cash needs. As a result, from the period immediately following our acquisition until December 31, 2008, we reestablished deferred taxes for substantially all of the tax basis differences in foreign subsidiaries. Following December 31, 2008, we have deemed our earnings as permanently reinvested in those foreign subsidiaries, excluding those repatriated under other anti-deferral provisions of the Internal Revenue Code. Statutes of limitations and lack of liquid assets inhibited the ability to repatriate funds from these foreign subsidiaries in 2009. We will continue to evaluate future years to determine annually whether the outside basis differences in foreign subsidiaries give rise to additional deferred tax liabilities.

On January 1, 2009, we adopted the authoritative guidance issued by the FASB on business combinations. This guidance addresses the manner in which the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired business. This guidance also provides standards for recognizing and measuring the goodwill acquired in the business combination and for disclosure of information to enable users of the financial statements to evaluate the nature and financial effects of the business combination. We adopted this guidance for all business combinations completed as of January 1, 2009. The adoption of this guidance increased our losses due to required recognition of acquisition and restructuring costs through operating losses.

In April 2009, the FASB issued new guidance that redefines what constitutes an other-than-temporary impairment, defines credit and non-credit components of an other-than-temporary impairment, prescribes their financial statement treatment, and requires enhanced disclosures relating to such impairments. This guidance was effective for the interim and annual reporting periods ending after June 15, 2009, and was adopted as of the annual reporting period ending December 31, 2009. The adoption of this guidance did not have a material impact on our results of operations or financial position.

In June 2009, the FASB issued a new accounting standard related to the consolidation of variable interest entities. The standard eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This new standard also requires additional disclosures about an enterprise’s involvement in variable interest entities. We adopted this standard effective January 1, 2010. The adoption of this guidance did not materially impact our results of operations, financial position or related disclosures.

In August 2009, the FASB issued authoritative guidance to improve the consistency with which companies apply fair value measurements guidance to liabilities. This guidance is effective for interim and annual periods beginning after September 30, 2009. The adoption of this guidance did not materially impact our results of operations, financial position or related disclosures.

In September 2009, the FASB also ratified the final consensus reached by the EITF that modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. The guidance will be effective for our fiscal 2011 beginning January 1, 2011 with early adoption permitted. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. We are in the process of evaluating the effects, if any, the adoption of the guidance will have on our consolidated financial statements.

In January 2010, the FASB issued authoritative guidance for fair value measurements, which requires new disclosures regarding significant transfers in and out of Level 1 and 2 fair value measurements and gross presentation of activity within the reconciliation for Level 3 fair value measurements. The guidance also clarifies existing requirements on the level of disaggregation and required disclosures regarding inputs and valuation techniques for both recurring and nonrecurring Level 2 and 3 fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of gross presentation of Level 3 activity, which is effective for interim and annual reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material effect on our financial condition, or results of operations.

The combined presentation of the Predecessor Period and the Successor Period in the year ended December 31, 2007, which does not include pro forma adjustments to give effect to our acquisition by a fund affiliated with Vector Capital, is not a recognized presentation under GAAP. However, we believe presenting the combined presentation of the Predecessor Period and the Successor Period for the year ended December 31, 2007 is more meaningful for several reasons, including:

In addition, we present several measures in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that identify the specific effects of our acquisition on the Successor Period. For presentation of the GAAP results of operations for the Predecessor Period and Successor Period please refer to our audited consolidated financial statements and notes thereto included elsewhere in this prospectus.

The following table sets forth selected consolidated statements of operations data for each of the periods indicated.

The following table sets forth selected consolidated statements of operations data as a percentage of total revenues for each of the periods indicated.

Three Months Ended March 31, 2010 as Compared to Three Months Ended March 31, 2009

Products revenues increased for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009. Revenue derived from sales of our data protection products grew approximately $4.7 million, or 7.8%, to approximately $64.6 million for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009, driven by broad-based demand for our data protection products and the effects of the Aladdin acquisition. Revenues derived from sales of our software rights management products grew approximately $13.1 million, or 123.9%, to approximately $23.7 million for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009, driven by increased demand for our software rights management technologies and our acquisition of Aladdin. These increases were partially offset by the divestitures of our MediaSentry assets and our custom embedded products assets, the declining sales of a single mature product to the U.S. government and general delays in government purchasing following the delay of the approval of the U.S. federal budget until December 2009.

Total service and maintenance revenues increased for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009 as a result of the acquisitions of Aladdin and Assured Decisions.

As noted above, our year-over-year first quarter revenue growth was affected by several acquisitions and divestitures. Aladdin was acquired as of March 24, 2009, Assured Decisions was acquired on December 22, 2009, our MediaSentry assets were divested on March 30, 2009, and our custom embedded products assets were divested on February 26, 2010. Revenues of Aladdin included in our consolidated results of operations during the three months ended March 31, 2009 were approximately $5.3 million as compared to approximately $29.5 million during the three months ended March 31, 2010. No revenues of Assured Decisions were included in our consolidated results of operations during the three months ended March 31, 2009 as compared to approximately $1.4 million during the three months ended March 31, 2010. Revenues related to our MediaSentry assets included in our consolidated results of operations during the three months ended March 31, 2009 were approximately $1.1 million as compared to an immaterial amount during the three months ended March 31, 2010. Revenues related to our custom embedded products line included in our consolidated results of operations during the three months ended March 31, 2009 were approximately $6.3 million as compared to approximately $3.3 million during the three months ended March 31, 2010.



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price (1)(2)	Amount of Registration Fee
Common Stock, par value $0.001 per share	$300,000,000	$21,390


		Page
Prospectus Summary		1
Risk Factors		15
Cautionary Note Regarding Forward-Looking Statements and Industry Data		41
Use of Proceeds		42
Dividend Policy		43
Capitalization		44
Dilution		45
Unaudited Pro Forma Condensed Consolidated Financial Information		47
Selected Consolidated Financial Data		49
Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
Business		97
Management		120
Compensation Discussion and Analysis		128
Executive Compensation		135
Certain Relationships and Related Person Transactions		153
Principal and Selling Stockholders		157
Description of Capital Stock		159
Shares Eligible for Future Sale		162
Material United States Federal Income Tax and Estate Tax Consequences to Non-U.S. Holders		164
Underwriting		168
Legal Matters		175
Experts		175
Where You Can Find More Information		175
Index to Consolidated Financial Statements		F-1


	As of March 31, 2010
	Actual			As Adjusted(1)
	(in millions, except share and per share data)
	(Unaudited)
Cash and cash equivalents	$	32.2		$

Long-term obligations:
Revolving credit facility	$	15.0
First lien term loans		240.6
Second lien term loans		131.0

Stockholders’ equity (deficit):
Preferred stock, $0.001 par value per share; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding, as adjusted		—			—
Common stock, $0.001 par value per share; 200,000,000 shares authorized actual and as adjusted; and 151,761,840 shares issued and outstanding actual and shares issued and outstanding as adjusted		0.2
Additional paid-in capital		365.5
Accumulated other comprehensive loss		(18.9	)
Accumulated deficit		(221.0	)

Total stockholders’ equity (deficit)		125.8

Total capitalization	$	512.4		$


Assumed initial public offering price per share				$
Actual net tangible book value per share as of March 31, 2010	$	(2.59	)
Increase in actual net tangible book value per share attributable to this offering per share to existing investors

As adjusted net tangible book value per share after this offering

Dilution per share to new investors				$


	SafeNet Holding Corporation Twelve Months Ended December 31, 2009			Aladdin Period of January 1, to March 23, 2009			Pro Forma Adjustments			Notes	Pro Forma Consolidated
Net revenues	$	403.7		$	22.8		$	—			$	426.5
Cost of revenues		184.2			7.7			1.1		A		193.0

Gross profit		219.5			15.1			(1.1	)			233.5
Operating expenses		241.6			27.2			(6.9	)	B		261.9

Operating income (loss)		(22.1	)		(12.1	)		5.8				(28.4	)
Other (loss)		(28.5	)		(1.3	)		(2.9	)	C		(32.7	)

(Loss) before income taxes		(50.6	)		(13.4	)		2.9				(61.1	)
Income tax (benefit) expense		(0.9	)		(0.2	)		0.9		D		(0.2	)

Net (loss)	$	(49.7	)	$	(13.6	)	$	2.0			$	(61.3	)


Earnings per share

Basic and diluted											$	(0.40	)

Weighted average shares outstanding

Basic and diluted												151,762,000


	Predecessor Period							Successor Period
	Year Ended December 31,				Period from January 1,2007 to April 11, 2007			Period from April 12,2007 to December 31, 2007			Year Ended December 31,						Three Months Ended March 31,
	2005	2006			Period from January 1,2007 to April 11, 2007			Period from April 12,2007 to December 31, 2007			2008			2009			2009			2010
	(unaudited)																(unaudited)
	(dollars in millions, except per share data)							(dollars in millions, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Products		$	252.3		$	63.7		$	197.2		$	283.6		$	348.7		$	70.5		$	88.3
Service and maintenance			34.5			10.1			29.2			45.4			55.0			10.9			19.5

Total revenues			286.8			73.8			226.4			329.0			403.7			81.4			107.8
Costs of revenues:
Products (excluding amortization and impairment of intangible assets)			131.7			34.1			91.1			128.7			141.9			30.8			37.9
Service and maintenance (excluding amortization and impairment of intangible assets)			7.9			2.5			7.1			11.5			10.4			2.3			3.8
Amortization and impairment of intangibles assets			13.1			3.7			26.4			117.2			31.9			6.9			8.2

Total cost of revenues			152.7			40.3			124.6			257.4			184.2			40.0			49.9

Gross profit			134.2			33.5			101.8			71.6			219.5			41.4			57.9
Operating expenses:
Research and development expenses			39.8			19.3			34.0			47.9			60.6			12.6			13.8
Sales and marketing expenses			53.0			21.6			35.3			56.6			81.5			14.3			23.6
General and administrative expenses			53.3			41.1			33.8			47.2			81.0			17.4			15.5
Amortization of intangible assets			7.8			1.9			5.1			6.8			10.4			1.7			3.1
Impairment of goodwill			—			—			—			42.9			—			—			—
Loss on sale of business and net assets held for sale			—			—			—			—			2.5			1.5			0.4
Restructuring expenses			0.2			—			—			—			5.5			0.9			0.1

Operating (loss) income			(19.9	)		(50.4	)		(6.4	)		(129.8	)		(22.0	)		(7.0	)		1.4
Foreign exchange (loss) gain			(1.5	)		(0.3	)		—			(2.5	)		(0.9	)		0.3			0.4
Interest (expense) income, net			(5.6	)		0.9			(24.1	)		(34.2	)		(30.3	)		(7.2	)		(7.9	)
Other income (expense), net			5.7			—			0.2			0.8			2.6			2.3			(0.5	)

(Loss) before income taxes			(21.3	)		(49.8	)		(30.3	)		(165.7	)		(50.6	)		(11.6	)		(6.6	)
Income tax expense (benefit)			7.0			1.0			7.0			(39.2	)		(0.9	)		1.4			0.8

Net (loss)	$	$	(28.3	)	$	(50.8	)	$	(37.3	)	$	(126.5	)	$	(49.7	)	$	(13.0	)	$	(7.4	)

Net loss per common share:
Basic and diluted		$	(1.31	)	$	(2.41	)	$	(0.38	)	$	(1.05	)	$	(0.33	)	$	(0.09	)	$	(0.05	)

Weighted average common shares outstanding:
Basic and diluted			22,435,000			21,107,000			99,127,000			120,325,000			151,762,000			151,762,000			151,762,000
As adjusted net loss per common share:
Basic and diluted																	$			$
As adjusted weighted average common shares outstanding:
Basic and diluted


	Predecessor Period			Successor Period
	December 31,			December 31,						March 31, 2010
	2005	2006		2007		2008		2009		March 31, 2010
	(unaudited)									(unaudited)
	(in millions)			(in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	$	85.4	$	40.7	$	22.6	$	45.9	$	32.2
Total current assets			171.4		130.0		129.5		177.5		160.3
Total assets			624.6		738.4		589.1		759.3		730.3
Total current liabilities			87.5		98.8		115.8		153.2		152.1
Long-term obligations			1.1		366.9		364.0		407.5		386.6
Total stockholder’s equity			515.9		177.5		55.1		131.7		125.8


	Predecessor Period from January 1, 2007 to April 11, 2007			Successor Period from April 12, 2007 to December 31, 2007			Combined Year Ended December 31,
	Predecessor Period from January 1, 2007 to April 11, 2007			Successor Period from April 12, 2007 to December 31, 2007			2007
	(in millions, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Products	$	63.7		$	197.2		$	260.9
Service and maintenance		10.1			29.2			39.3

Total revenues		73.8			226.4			300.2
Costs of revenues:
Products (excluding amortization and impairment)		34.1			91.1			125.2
Service and maintenance (excluding amortization and impairment)		2.5			7.1			9.6
Amortization and impairment of intangibles		3.7			26.4			30.1

Total cost of revenues		40.3			124.6			164.9

Gross profit		33.5			101.8			135.3
Operating expenses:
Research and development expenses		19.3			34.0			53.3
Sales and marketing expenses		21.6			35.3			56.9
General and administrative expenses		41.1			33.8			74.9
Amortization of intangible assets		1.9			5.1			7.0

Operating (loss)		(50.4	)		(6.4	)		(56.8	)
Foreign exchange (loss)		(0.3	)		—			(0.3	)
Interest income (expense), net		0.9			(24.1	)		(23.2	)
Other income (expense), net		—			0.2			0.2

(Loss) before income taxes		(49.8	)		(30.3	)		(80.1	)
Income tax expense		1.0			7.0			8.0

Net (loss)	$	(50.8	)	$	(37.3	)	$	(88.1	)


	Successor Period
	Period from April 11, 2007 to December 31, 2007			Year Ended December 31,						Three Months Ended March 31,
	Period from April 11, 2007 to December 31, 2007			2008			2009			2010
Expected stock price volatility		66.00	%		60.00-66.00	%		60.00	%		60.00	%
Expected option life in years		5.78			5.62-6.08			6.02-6.11			6.11
Risk-free interest rate		3.70	%		3.23-3.32	%		2.26-3.27	%		2.90	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Weighted-average fair value of granted stock options	$	1.50		$	0.39-$1.48		$	0.27-$1.24		$	1.27


Grant Date	Number of Shares Underlying Options Granted	Exercise Price Per Share		Common Stock Fair Value Per Share at Grant Date		Intrinsic Value Per Share at Grant Date(1)
April 26, 2009	813,000	$	2.64	$	0.86	$	—
August 11, 2009	37,879		2.64		0.86		—
December 22, 2009	946,965		2.64		2.28		—
December 29, 2009	750,000		2.64		2.28		—
February 18, 2010	1,289,800		2.64		2.30		—


	Year Ended December 31,									Three Months Ended March 31,
	2007*			2008			2009			2009			2010
										(unaudited)
	(dollars in millions, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Products	$	260.9		$	283.6		$	348.7		$	70.5		$	88.3
Service and maintenance		39.3			45.4			55.0			10.9			19.5

Total revenues		300.2			329.0			403.7			81.4			107.8
Costs of revenues:
Products (excluding amortization and impairment of intangible assets)		125.2			128.7			141.9			30.8			37.9
Service and maintenance (excluding amortization and impairment of intangible assets)		9.6			11.5			10.4			2.3			3.8
Amortization and impairment of intangible assets		30.1			117.2			31.9			6.9			8.2

Total cost of revenues		164.9			257.4			184.2			40.0			49.9

Gross profit		135.3			71.6			219.5			41.4			57.9
Operating expenses:
Research and development expenses		53.3			47.9			60.6			12.6			13.8
Sales and marketing expenses		56.9			56.6			81.5			14.3			23.6
General and administrative expenses		74.9			47.2			81.0			17.4			15.5
Amortization of intangible assets		7.0			6.8			10.4			1.7			3.1
Impairment of goodwill		—			42.9			—			—			—
Loss on sale of business and net assets held for sale		—			—			2.5			1.5			0.4
Restructuring expenses		—			—			5.5			0.9			0.1

Operating (loss) income		(56.8	)		(129.8	)		(22.0	)		(7.0	)		1.4
Foreign exchange (loss) gain		(0.3	)		(2.5	)		(0.9	)		0.3			0.4
Interest (expense) income, net		(23.2	)		(34.2	)		(30.3	)		(7.2	)		(7.9	)
Other income (expense), net		0.2			0.8			2.6			2.3			(0.5	)

(Loss) before income taxes		(80.1	)		(165.7	)		(50.6	)		(11.6	)		(6.6	)
Income tax expense (benefit)		8.0			(39.2	)		(0.9	)		1.4			0.8

Net (loss)	$	(88.1	)	$	(126.5	)	$	(49.7	)	$	(13.0	)	$	(7.4	)

Net loss per common share:
Basic and diluted				$	(1.05	)	$	(0.33	)	$	(0.09	)	$	(0.05	)
Weighted average common shares outstanding:
Basic and diluted					120,325,000			151,762,000			151,762,000			151,762,000


(dollars in millions)	Three Months Ended March 31,				Change
(dollars in millions)	2009		2010		$		%
	(unaudited)
Products	$	70.5	$	88.3	$	17.8	25.2	%
Service and maintenance		10.9		19.5		8.6	78.9	%

Total revenue	$	81.4	$	107.8	$	26.4	32.4	%


Morgan Stanley		Goldman, Sachs & Co.		J.P. Morgan


BofA Merrill Lynch		Deutsche Bank Securities