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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ______ to ______.
Commission File Number: 0-28100
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AXENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 87-0393420
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 Research Boulevard
Suite 200
Rockville, Maryland 20850
(Address of principal executive offices)
(301) 258-5043
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No______
-----
As of May 10, 1999, there were 27,840,872 shares outstanding of the Registrant's
Common Stock, par value $.02 per share.
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<PAGE>
AXENT TECHNOLOGIES, INC.
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INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of 4
March 31, 1999 (unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations for the 5
three months ended March 31, 1999 (unaudited) and 1998
(unaudited)
Condensed Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1999 (unaudited) and 1998
(unaudited)
Condensed Consolidated Statements of Comprehensive 7
Loss for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Security and Use of Proceeds 17
Item 6. Exhibits 17
SIGNATURES 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The financial statements set forth below at March 31, 1999 and for the three
month periods ended March 31, 1999 and 1998 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations.
These financial statements should be read in conjunction with the latest audited
consolidated financial statements and the notes thereto for the fiscal year
ended December 31, 1998, which are included in the Company's Annual Report on
Form 10-K as filed with the SEC on March 31, 1999.
3
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AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 92,818 $ 80,035
Marketable securities 19,033 31,774
Accounts receivable, net 26,608 28,300
Other current assets 4,202 4,128
--------------- --------------
Total current assets 142,661 144,237
Property and equipment, net 11,113 7,482
Goodwill and other intangible assets 30,355 2,630
Other assets 10,028 6,927
--------------- --------------
Total assets $ 194,157 $ 161,276
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 25,464 $ 15,764
Deferred revenue 14,075 11,184
--------------- --------------
Total liabilities 39,539 26,948
--------------- --------------
Stockholders' equity:
Common stock, par value $0.02: 27,831,343 and 26,163,284
shares issued and outstanding, respectively 557 523
Additional paid-in capital 188,639 161,386
Accumulated deficit (33,836) (27,211)
Accumulated comprehensive income and other (742) (370)
--------------- --------------
Total stockholders' equity 154,618 134,328
--------------- --------------
Total liabilities and stockholders' equity $ 194,157 $ 161,276
=============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Net revenues:
Product licenses $ 15,186 $ 16,283
Services 6,258 4,048
----------------- ----------------
Total net revenues 21,444 20,331
Cost of net revenues 3,294 2,118
----------------- ----------------
Gross profit 18,150 18,213
Operating expenses:
Sales and marketing 13,656 9,141
Research and development 6,294 4,158
General and administrative 2,702 1,482
Acquisition-related charges 3,753 17,422
----------------- ----------------
Total operating expenses 26,405 32,203
----------------- ----------------
Loss before royalties, interest and taxes (8,255) (13,990)
Interest income and other 1,068 1,452
Royalty income -- 569
Income tax benefit 1,119 2,105
----------------- ----------------
Net loss $ (6,068) $ (9,864)
================= ================
Net loss per common share (basic): $ (0.23) $ (0.40)
================= ================
Number of shares used in computing net loss per common share
outstanding (basic) 26,292 24,404
================= ================
Net loss per common share (diluted): $ (0.23) $ (0.40)
================= ================
Number of shares used in computing net loss per
common share outstanding (diluted) 26,292 24,404
================= ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
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AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH INFLOWS (OUTFLOWS)
Operating activities:
Net loss $ (6,068) $ (9,864)
Non-cash items:
Depreciation and amortization 1,035 675
Provision for losses on accounts receivable 150 30
Compensation expense on equity issuances -- 363
Deferred income taxes (1,415) --
Accretion of discount on marketable securities (140) (22)
Gain on sale of marketable securities -- (389)
Write-off of in process research and development 2,000 --
Change in assets and liabilities 3,973 7,104
--------------- ---------------
Net cash used by operating activities (465) (2,103)
--------------- ---------------
Investing activities:
Capital expenditures (1,681) (1,862)
Proceeds from the sale of marketable securities -- 389
Purchases of short-term investments (1,783) (30,093)
Maturity of short-term investments 14,524 14,649
Cash received from business acquisitions, net of payments 227 --
--------------- ---------------
Net cash provided (used) by investing activities 11,287 (16,917)
--------------- ---------------
Financing activities:
Proceeds from issuance of common stock 2,333 3,125
--------------- ---------------
Net cash provided by financing activities 2,333 3,125
--------------- ---------------
Effect of exchange rate changes on cash (372) (41)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 12,783 (15,936)
Cash and cash equivalents, beginning of period 80,035 51,618
--------------- ---------------
Cash and cash equivalents, end of period $ 92,818 $ 35,682
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
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AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Net loss $ (6,068) $ (9,864)
Other comprehensive loss;
Realization of gain on marketable securities -- (238)
Currency translation effects (372) (41)
-------------- ------------
Comprehensive loss $ (6,440) $ (10,143)
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
7
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AXENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Basis Of Presentation
AXENT Technologies, Inc. and its wholly owned subsidiaries (collectively, the
"Company" or "AXENT") develop, market, license and support enterprise-wide
information security solutions for client/server computing environments and
provide related services.
The Company's condensed consolidated financial statements have been restated to
reflect the acquisition of Internet Tools, Inc. ("ITI"), which was accounted for
as a pooling of interests and consummated on January 12, 1999, in accordance
with APB No. 16. AXENT's historical financial statements and related financial
information included in this report have been restated to combine earlier
financial statements of AXENT and ITI.
The accompanying unaudited condensed consolidated financial statements reflect
all the adjustments, consisting of normal recurring adjustments, that, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. The results for the three month period ended
March 31, 1999 may not necessarily be indicative of the results for the entire
year or any future period. The December 31, 1998 condensed consolidated balance
sheet was derived from audited financial statements as of the same date but does
not include all disclosures required by generally accepted accounting
principles.
These financial statements should be read in conjunction with the Company's
annual audited financial statements for the year ended December 31, 1998, which
are included in the Company's Form 10-K filed with the SEC on March 31, 1999.
Business Combinations
On March 31, 1999, the Company completed the acquisition of United Kingdom-based
CKS Limited, the parent of PassGO(TM) Technologies ("PassGo"). In conjunction
with the acquisition, the Company issued 1,486,146 shares of common stock to
holders of shares and warrants of CKS Limited and agreed to exchange stock
options to purchase 63,854 AXENT shares for all outstanding CKS Limited stock
options. The transaction was accounted for using the purchase method of
accounting and accordingly, the net assets of PassGo have been included in the
accompanying financial statements from the date of acquisition. The purchase
price, including transaction costs, was approximately $30.96 million. The
allocation of the purchase price was based on the results of an independent
third party valuation and allocated to assets acquired and liabilities assumed,
based on their respective fair values at the acquisition date. The purchase
price allocation resulted in goodwill and other intangibles of approximately
$28.31 million, which is being amortized, on a straight-line basis over their
useful lives, of between three and seven years. The Company anticipates
incurring amortization expense associated with the goodwill and other
intangibles of approximately $1.20 million per quarter, or approximately $4.80
million per year. The Company recorded a charge for acquired in-process research
and development of approximately $2.0 million for the three months ended March
31, 1999. The charge reflects technology acquired for which technological
feasibility has not been reached and for which there is no alternative future
use.
On January 12, 1999, the Company consummated its merger with ITI in which it
acquired 100% of the outstanding stock of ITI for 703,194 shares of AXENT common
stock and assumed stock options covering a total of 46,806 shares of AXENT
common stock. The Company incurred approximately $1.75 million in
acquisition-related transaction and other related costs in connection with the
merger. The business combination was accounted for by the pooling of interests
method of accounting and, accordingly, the assets, liabilities, and
stockholders' equity of ITI were combined with the Company's respective accounts
at recorded values. Prior period financial statements have been restated to give
effect to the merger.
On July 21, 1998, the Company completed the acquisition of Secure Network
Consulting, Inc. ("SNCI"), a privately held information security consulting
firm. In conjunction with the acquisition, the Company issued 85,000 shares of
8
<PAGE>
common stock to SNCI's stockholders. The transaction was accounted for using the
purchase method of accounting. The purchase price, including transaction costs,
was $2.3 million. This amount exceeded the fair value of assets acquired by
approximately $2.1 million, which is being treated as goodwill and amortized, on
a straight-line basis, over seven years and is included in goodwill and other
intangible assets. The operating results of SNCI have been included in the
accompanying financial statements from the date of acquisition.
During 1998, the Company consummated its merger with Raptor in which it acquired
100% of the outstanding stock of Raptor for 10,952,380 shares of AXENT common
stock and exchanged stock options covering a total of 1,725,988 shares of AXENT
common stock. The Company incurred approximately $17.42 million in
acquisition-related transaction and other costs in connection with the merger.
The business combination was accounted for by the pooling of interests method of
accounting and, accordingly, the assets, liabilities, and stockholders' equity
of Raptor were combined with the Company's respective accounts at recorded
values. Prior period financial statements have been restated to give effect to
the merger.
Net Income Per Common Share
During 1997, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings per Share," ("SFAS 128") to calculate net income per share.
Basic earnings per common share have been computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares outstanding plus an assumed increase in common
shares outstanding for dilutive securities. Potentially dilutive securities
consist of options and warrants to acquire common stock for a specified price
and their dilutive effect is measured using the treasury method. Potentially
dilutive securities are not included in the diluted earnings per share
calculations for the periods presented as their inclusion would be anti-dilutive
to the basic loss per share calculations.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (the "AICPA") issued SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 became effective January 1, 1999. The Company adopted
SOP 98-1 on January 1, 1999.
In December 1998, the AICPA issued Statement of Position (SOP) 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." SOP 98-9 modifies SOP 97-2 by requiring revenue to be recognized
using the "residual method" if certain conditions are met. SOP 98-9 will be
effective for the Company's 2000 financial statements. Management does not
believe that SOP 98-9 will have a material impact on the Company's results of
operations or financial condition.
Information Concerning Business Segments
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 established standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.
The Company's approach to information security is to develop, market and support
security software products that perform a broad range of security functions and
to provide consulting services to address customers' security needs. As such,
the Company has two reportable segments: a software product segment and a
consulting services segment. The software product segment includes products
which provide security assessment and policy management, host and network based
intrusion detection, systems and network access control, data confidentiality,
user administration, activity monitoring, secure authentication solutions for
remote network access and virtual private networking capabilities for remote
users and remote sites. The consulting services segment includes training and
"Lifecycle Security Services" designed to help organizations develop a framework
and roadmap for assessing potential
9
<PAGE>
vulnerabilities; developing security policies, guidelines, practices and
metrics; selecting and implementing solutions; conducting training; and ensuring
appropriate monitoring and compliance.
The Company evaluates the performance of its operating segments based on income
before royalty, interest, taxes and gains on the sale of marketable securities.
Intersegment sales and transfers are not significant.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The "Other" column includes the consulting
services segment as it is below the quantitative thresholds, corporate related
items and, as it relates to segment profit(loss), income and expense not
allocated to reportable segments.
<TABLE>
<CAPTION>
Software
Products Other Total
--------------- ------------------ ------------------
<S> <C> <C> <C>
For the three months ended March 31, 1999
Net revenues 20,085,000 1,359,000 21,444,000
Segment operating profit (loss) (1,946,000) (6,309,000) (8,255,000)
Total assets 43,698,000 150,459,000 194,157,000
For the three months ended March 31, 1998
Net revenues 19,715,000 616,000 20,331,000
Segment operating profit (loss) 4,623,000 (18,613,000) (13,990,000)
Total assets 26,577,000 98,594,000 125,171,000
</TABLE>
The Company's areas of operations are principally in the United States.
Operations outside of the United States are worldwide but primarily in the
United Kingdom, Europe and Asia. No single foreign country is significant to the
consolidated operations. Foreign operations' revenue, profit and identifiable
assets are shown in the following table.
<TABLE>
<CAPTION>
U.S. International Total
---------------- ------------------- ------------------
<S> <C> <C> <C>
For the three months ended March 31, 1999
Net revenues 16,023,000 5,421,000 21,444,000
Profit (loss) (6,022,000) (46,000) (6,068,000)
Total assets 177,083,000 17,074,000 194,157,000
For the three months ended March 31, 1998
Net revenues 16,061,000 5,172,000 20,331,000
Profit (loss) (9,497,000) (367,000) (9,864,000)
Total assets 122,177,000 2,994,000 125,171,000
</TABLE>
Subsequent Event
On May 12, 1999, a venture capital entity and a small former stockholder owning
a less than majority share of CKS Limited, the parent company of PassGo
Technologies, commenced an action in the Suffolk County Superior Court in
Boston, Massachusetts against AXENT and its directors. The action alleges
violations of the Massachusetts Uniform Securities Act, negligent
misrepresentations, and unfair trade practices. The Company believes the claims
are without merit and intends to defend the action vigorously.
10
<PAGE>
Item 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of
1933, which involve risk and uncertainties. These forward-looking statements are
identified by the use of the words "believes", "expects", "anticipates", "will",
"would" or similar expressions that contemplate future events. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those identified in "Certain Factors Affecting Future
Performance" (see below) and those discussed in the "Risk Factors" set forth in
the Company's Prospectus/Joint Proxy Statement dated January 2, 1998, as filed
with the SEC on January 5, 1998. The Company assumes no obligation to update or
correct forward-looking statements due to events or changes after the date of
this report.
Three Months Ended March 31, 1999 Compared to
Three Months Ended March 31, 1998
Net Revenues
The Company's net revenues from product licenses decreased approximately 6.7%,
or $1.10 million, from $16.28 million for the three months ended March 31, 1998
to $15.19 million for the three months ended March 31, 1999. For those periods
in 1998 and 1999, net revenues from product licenses represented 80.1% and
70.8%, respectively, of total net revenues. The Company's revenues are subject
to a number of risks and uncertainties, including but not limited to, the level
of demand for the Company's products, the volume and timing of customer orders,
many of which come at the end of a quarter; product and price competition; the
Company's ability to maintain and expand its domestic and international sales
and marketing organizations; the Company's ability to develop new and enhanced
products; the availability of personnel and the Company's ability to attract and
retain key personnel; the mix of distribution channels through which the
Company's products are sold; the extent to which unauthorized access and use of
online information is perceived as a threat to information security; customer
budgets and priorities; Year 2000 issues; seasonal trends in customer
purchasing; foreign currency exchange rates; general economic factors; and
risks associated with the rapid change in technology. In addition, the value of
individual transactions as a percentage of the Company's actual or anticipated
quarterly revenues can be substantial and the inability to close such
transactions may have a material adverse impact on the operating results of the
Company.
The Company's net revenues from services increased approximately 54.6%, or $2.21
million, from $4.05 million for the three months ended March 31, 1998 to $6.26
million for the three months ended March 31, 1999. The increase in services
revenues is primarily attributable to the increases in implementation consulting
services, customer training courses and customers under maintenance contracts.
For those periods in 1998 and 1999, net revenues from services represented 19.9%
and 29.2%, respectively, of total net revenues.
The Company's net revenues from North American and international operations were
75% and 25% of total revenues, respectively, for the three months ended March
31, 1999 as compared to 82% and 18%, respectively, for the same period in 1998.
The increase in the international revenues as a percentage of total revenue from
1998 to 1999 is attributable to increased sales due to the expansion of the
Company's operations in European and Asian markets.
Cost Of Net Revenues
The Company's cost of net revenues includes cost of media, product packaging,
documentation and other production costs, amortization of purchased software
costs, product royalties, and the direct and indirect costs of providing
technical support, training and consulting services to the Company's customers.
Cost of net revenues increased approximately 55.5%, or $1.18 million, from $2.12
million for the three months ended March 31, 1998 to $3.29 million for the three
months ended March 31, 1999. For those periods in 1998 and 1999, cost of net
revenues represented 10.4% and 15.4% of net revenues, respectively. The
increase in the cost of net revenues is primarily attributable to the increase
in staff of the Company's customer support and consulting services operations
necessary
11
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to support a larger installed customer base as well as additional products
offered by the Company. The increase in the cost of net revenues as a percentage
of revenues is primarily attributable to the increased costs associated with
consulting services, which have lower margins. Cost of net revenues, as a
percentage of revenues, may fluctuate from period to period due to a change in
the mix of license revenues and consulting service revenues, a change in the
number or size of transactions recorded in a quarter, integration of acquired
operations or products, or an increase or decrease in licenses of royalty-
bearing products.
Sales And Marketing
Sales and marketing expenses consist primarily of personnel costs, including
commissions, salaries, benefits and bonuses, travel, telephone, costs of
advertising, public relations seminars and trade shows. Sales and marketing
expenses increased 49.4%, or $4.52 million, from $9.14 million for the three
months ended March 31, 1998 to $13.66 million for the three months ended March
31, 1999. For those periods in 1998 and 1999, sales and marketing expenses
represented 45.0% and 63.7% of total net revenues, respectively. The increase
in dollar amount was due to an increase in staff and marketing programs to
support the Company's sales and marketing activities. The increase in sales and
marketing expenses as a percentage of total net revenues was due primarily to
the decrease in license revenues in the first quarter of 1999. The Company
currently anticipates that the dollar amount of sales and marketing expenses
will increase as the Company continues to hire additional staff and expand its
marketing activities to promote expansion of the Company's business.
Research And Development
Research and development expenses consist primarily of personnel costs,
including salaries, benefits and bonuses, travel and other personnel-related
expenses of the employees engaged in ongoing research and development projects
and third-party development contracts. Costs related to research and
development of products are expensed as incurred. Research and development
expenses increased 51.4%, or $2.14 million, from $4.16 million for the three
months ended March 31, 1998 to $6.29 million for the three months ended March
31, 1999. For those periods in 1998 and 1999, research and development expenses
represented 20.5% and 29.4% of total net revenues, respectively. The increase
in dollar amount resulted from the addition of staff and the use of outside
consultants needed to develop, maintain and enhance the Company's software
products. The increase as a percentage of total net revenues was a result of
the decline in license revenues. The Company currently anticipates that the
dollar amount of research and development expenses will increase as the Company
continues to commit substantial resources to research and development in future
periods.
General And Administrative
General and administrative expenses consist primarily of personnel costs,
including salaries, benefits and bonuses and related costs for management,
finance and accounting, legal and other professional services. General and
administrative expenses increased 82.3%, or $1.22 million, from $1.48 million
for the three months ended March 31, 1998 to $2.70 million for the three months
ended March 31, 1999. For those periods in 1998 and 1999, general and
administrative expenses represented 7.6% and 12.6% of total net revenues,
respectively. The increase in dollar amount is primarily a result of additional
staff and investments in corporate infrastructure and information systems needed
to support the Company's operations. This increase is also the result of
expenses incurred in connection with several uncompleted acquisitions in the
first quarter of 1999. The Company currently anticipates that the dollar amount
of general and administrative expenses will increase as the Company continues to
invest in the corporate infrastructure.
Acquisition-Related Charges
In the three months ended March 31, 1999, the Company incurred charges of
approximately $1.75 million for legal and accounting fees and other costs
related to the merger with ITI, and approximately $2.00 million of in-process
research and development expense in connection with the acquisition of PassGo.
In the three months ended March 31, 1998, the Company incurred a charge of
$17.42 million, $13.3 million net of taxes, for severance, investment banking,
legal and accounting fees, and other costs related to the merger with Raptor.
12
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Income (Loss) Before Royalties, Interest And Taxes
Loss from continuing operations before royalties, interest and taxes decreased
$5.74 million from a loss of $13.99 million for the three months ended March 31,
1998 to a loss of $8.26 million for the three months ended March 31, 1999. The
decrease is primarily attributable to the decrease in non-recurring charges
offset by increases in other operating expenses.
Royalty Income
Royalty income in 1998 consisted of amounts payable to AXENT pursuant to the
Exclusive Distributor License Agreement with Raxco Software, Inc. ("Raxco")
related to certain OpenVMS utility software products owned by AXENT. Raxco has
experienced declining revenues for these products as a result of the erosion of
market share that the OpenVMS platform has experienced world-wide. Royalty
income declined to zero from $569,000 for the three months ended March 31, 1999
and 1998, respectively, as a result of the transfer of those products and all
related liabilities to Raxco and termination of the Exclusive Distributor
License Agreement.
Interest Income And Other
Interest income and other decreased 26%, or $384,000, from $1.45 million for the
three month period ended March 31, 1998 to $1.07 million for the three month
period ended March 31, 1999. The decrease is primarily attributable to the
decrease in the gain on the sale of marketable securities. Interest income and
other may fluctuate from period to period due to changes in investment mix,
varying cash balances and fluctuations in interest rates.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities for financial statement purposes and their
respective tax basis. The Company's subsidiaries have a history of net operating
losses making the realization of its tax credit carryforwards uncertain.
Accordingly, the Company placed a partial valuation allowance against the
deferred tax assets of its subsidiaries.
The Company recorded a tax benefit related to its taxable loss from continuing
operations of $2.11 and $1.12 for the three months ended March 31, 1998 and
1999, respectively.
Income (Loss)
As a result of the above, the Company recorded a loss of $6.07 million for the
three months ended March 31, 1999 compared to a loss of $9.86 million for the
three months ended March 31, 1998.
Certain Risks And Uncertainties
- -------------------------------
Year 2000
The Company is assessing the impact of Year 2000 compliance on the current and
prior versions of its products, internal information systems, other internal
computer systems and equipment containing embedded systems, and is implementing
corrective actions, which are complete or substantially complete in many
instances. The Company is using an approach to Year 2000 compliance that
involves preparing an inventory of all business disruption problems that the
Company regards as reasonably possible, prioritizing those possible problems to
allocate appropriate resources to the most critical areas, remediating or
replacing systems and equipment to solve or mitigate Year 2000 problems and, if
necessary, developing contingency plans if the Company or its key distributors,
resellers and suppliers will not be Year 2000 compliant and such noncompliance
is expected to have a material adverse effect on the Company's operations.
13
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The Company is substantially complete in its process of assessing Year 2000
compliance of its software products. The Company believes that the current
version of each of its products has been designed and tested to process Year
2000 date data without interruption or error, and that the current version of
each of its product offerings is Year 2000 compliant assuming no error after
1999 in the operating system or other management software products operating on
the same computer system as the Company's product. The Company expects to
continue Year 2000 testing of the current and new versions of its products and
of any products it acquires or distributes.
The Company believes it has identified its equipment and systems that are
critical to its operations, such as communications and networking equipment,
related software and certain hardware and software systems, and has completed
its assessment of the Year 2000 compliance of substantially all of such
equipment and systems, although it is continuing to assess and test. The
Company also is continuing to assess and test the Year 2000 compliance of
various items of equipment, computer systems, applications software, and
equipment containing embedded systems that the Company does not consider
critical to its operations. The Company has replaced or is replacing several
internal information systems critical to its operations as part of its normal
development and expansion or salesforce automation, accounting and customer
service-related information systems. The Company has received product
warranties that those systems are Year 2000 compliant, and expects that
installation and Year 2000 testing will be completed by September 1999.
The Company is continuing to assess the Year 2000 compliance of systems used by
distributors, resellers and suppliers, whom the Company expects may be material
to its business after 1999. This assessment process generally consists of
obtaining completed questionnaires or written assurances regarding anticipated
Year 2000 compliance. The Company expects that this process will continue
through 1999.
The Company anticipates that costs to be incurred in Year 2000 testing and
remediation or replacement of noncompliant systems will not be material to its
financial condition or results of operations. The cost of continued testing of
the Company's products will be included in the Company's research and
development expenses, and testing of internal equipment, hardware and software
systems generally will be included in general and administrative expense.
Even with those efforts, there can be no assurance that undetected errors or
defects may not cause Year 2000 problems in the Company's products. The Company
provides limited warranties as to Year 2000 compliance on current versions of
its products, but the Company does not believe that it is legally responsible
otherwise for costs incurred by its customers in achieving Year 2000 compliance.
Year 2000 problems in or affecting the Company's products probably would result
in litigation and contractual claims by customers and increased expenses
negatively affecting the Company's future operating results. In the worst case,
litigation, claims and increased expenses could have a material adverse effect
on the Company's business, results of operations and financial condition,
although the Company currently believes such a result to be unlikely. In
addition, Year 2000 problems in older versions of the Company's products may
result in increased expense levels for the Company and defocus in development of
new products and enhancement of existing products. The Company expects that
Year 2000 issues may alter the purchasing patterns of some of its customers or
prospective customers, which could have a material adverse effect on the
Company's business and results of operations.
There also can be no assurance that equipment, hardware and software systems
used internally in the Company's business will be free of Year 2000 problems.
Failure of internal information systems, equipment or other vendors' software to
operate properly after 1999 could disrupt or interfere with the Company's
business and result in unanticipated expense, which could adversely affect the
Company's business, operating results and financial condition. Year 2000
problems experienced by distributors, resellers and suppliers of the Company may
result in disruption of the Company's business and may require the Company to
obtain alternative sources of distribution and supply, if possible.
The Company is developing certain contingency plans in the event of Year 2000
problems in its products, critical equipment, hardware and software systems and
equipment with embedded systems, or in the event that key distributors or
resellers or critical suppliers experience Year 2000 problems. The Company
expects to continue development and focus of those contingency plans throughout
1999.
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The foregoing statements are based upon management's best estimates at the
present time, which were derived utilizing numerous assumptions of future events
and conditions. There can be no assurance that these assumptions will be
accurate and that estimates will be achieved. The Company's evaluation and
assessment is ongoing and it expects that new or different information may
become available as its assessment and evaluation continue.
Euro Currency
The European Union's adoption of the Euro currency raises a variety of issues
associated with the Company's European operations. Although the transition from
national currencies to the Euro will be phased in over several years, the Euro
became the single currency for most European countries on January 1, 1999. The
Company is assessing Euro issues related to its treasury operations, product
pricing, contracts and accounting systems. Although the evaluation of these
issues is still in process, management currently believes that the Company's
existing or planned hardware and software systems will accommodate the
transition to the Euro and any required operating changes will not have a
material effect on future results of operations or financial condition.
Financial Condition-Liquidity and Capital Resources
- ----------------------------------------------------
The Company's overall cash and cash equivalents were $92.82 million at March 31,
1999, an increase of approximately $12.78 million from $80.04 million at
December 31, 1998. During the three month periods ended March 31, 1998 and
1999, respectively, the Company financed its operations primarily through cash
reserves and available working capital. The Company's operating
activities used cash of $2.10 million and $465,000 for the three month periods
ended March 31, 1998 and 1999, respectively. Net cash used by operating
activities in the three months ended March 31, 1999 was primarily a result of
the payments for transaction related costs associated with the acquisitions of
Raptor and ITI.
The Company made capital expenditures of approximately $1.86 million and $1.68
million for the three month periods ended March 31, 1998 and 1999, respectively.
These purchases have generally consisted of computer workstations, networking
equipment, office furniture and equipment. The Company had no firm commitments
for capital expenditures as of March 31, 1999.
During the three month period ended March 31, 1999, the Company's cash position
was also affected by the following: 1) the Company had cash outlays of
approximately $448,000 and $1.06 million for transaction costs associated with
the acquisitions of Raptor and ITI, respectively; 2) the Company received
proceeds of $2.33 million from the issuance of common stock upon stock option
exercises and under its employee stock purchase plan; 3) the Company purchased
$1.78 million of marketable securities; 4) the Company received $14.52 million
from the maturity of short-term investments; and 5) the Company received
$227,000 for acquired cash offset by transaction costs related to the PassGo
business acquisition.
The Company believes that cash generated from operations, together with existing
sources of liquidity, will be sufficient to meet its capital expenditures,
working capital and other cash requirements for the next twelve months.
Certain Factors Affecting Future Performance
- --------------------------------------------
Factors Affecting the Company's Business and Prospects
Although the Company historically has experienced significant growth in revenues
from its software products, the Company does not believe prior growth rates and
past performance are necessarily indicative of future operating results. The
Company expects increased competition and intends to invest significantly in
product development, sales, marketing and administrative functions as it pursues
its business strategy. As a result, there can be no assurance that the Company
will be profitable on a quarterly or annual basis. Due to the Company's
relatively limited operating history with respect to many of its software
products, predictions as to future operating results are difficult. Future
operating results may fluctuate due to, but not limited to, factors such as:
demand for the Company's products; the size and timing of customer orders; the
number of competitors and the breadth and functionality of their product
offerings; the introduction of new products and product enhancements by the
Company or its competitors; the budgeting cycle of customers; changes in the
proportion of revenues attributable to license fees and consulting services; the
availability of services personnel to demonstrate, install, configure and
15
<PAGE>
implement products; seasonal trends in customer purchasing; changes in the level
of operating expenses; competitive conditions in the industry; and changes in
technologies affecting computing, networking, communications, systems and
applications management and data security.
The Company's future operating results and financial condition may also be
affected if it fails to recognize the anticipated benefits of its acquisitions
on the timetable projected by the Company. Those benefits include, among
others, integration of product offerings and coordination of their sales,
marketing and research and development teams without disruption or unanticipated
expense, elimination of duplicative functions and increased name and product
recognition. The Company's future results of operations and financial condition
may also be adversely affected if the anticipated integration of operations of
acquired companies produces unexpected expenses, delays, inefficiencies, loss of
key personnel, loss of resellers or distributors or loss of consultants or if it
leads to adverse effects on customer purchasing decisions.
The market for the Company's software products is highly competitive, and the
Company expects that it will face increasing pricing pressures from its current
competitors and new market entrants. As a result of increasing consolidation in
the information security industry, the Company expects that it will become
subject to increased competition, which may negatively impact existing
collaborative, marketing, reselling, distribution or marketing agreements or
relationships and thereby materially adversely affect the Company's financial
condition and results of operations. Any material reduction in the price of the
Company's software products would negatively affect gross margins and could
materially adversely affect the Company's financial condition and results of
operations.
The licensing of many of the Company's software products generally involve
significant testing by and education of prospective customers as well as a
commitment of resources by both parties. For these and other reasons, the sales
cycle associated with the enterprise-wide licensing of the Company's security
software products is typically long and subject to a number of significant risks
over which the Company has little or no control and, as a result, may expend
significant resources pursuing potential sales that will not be consummated.
Many of the Company's operating expenses are based on anticipated revenue levels
and are fixed or cannot quickly be adjusted if the anticipated level of revenues
are not achieved. Therefore delays in the receipt of orders or the failure to
achieve the anticipated level of revenues can cause a significant variation in
the operating results of the Company from quarter to quarter. The Company also
may choose to increase spending in response to competition or to pursue new
market opportunities, which may significantly reduce its operating results.
Factors Affecting International Operations
The Company anticipates that international sales will continue to represent a
significant percentage of revenue in the foreseeable future. International
sales are subject to a number of risks, including unexpected changes in
regulatory requirements, export limitations on encryption technologies, import
restrictions, tariffs and other trade barriers, political and economic
instability in foreign markets, difficulty in the staffing, management and
integration of foreign operations, longer payment cycles, greater difficulty in
accounts receivable collection, currency fluctuations and potentially adverse
tax consequences. The uncertainty of the monetary exchange values has caused,
and may in the future cause, some foreign customers to delay new orders or delay
payment for existing orders. These factors may, in the future, contribute to
fluctuations in the Company's financial condition and results of operations.
Although the Company's results of operations have not been materially adversely
affected to date as a result of currency fluctuations, the long-term impact of
currency fluctuations, including any possible effect on the business outlook in
other developing countries, cannot be predicted.
Factors Affecting Marketable Securities
The fair value of the Company's investments in marketable securities at March
31, 1999 was $19.0 million. The Company's investment policy is to manage its
marketable securities portfolio to preserve principal and liquidity while
maximizing the return on the investment portfolio through the full investment of
available funds. The Company diversifies the marketable securities portfolio by
investing in multiple types of investment-grade securities. The Company's
marketable securities portfolio is primarily invested in short-term securities
with at least an investment grade rating to minimize interest rate and credit
risk as well as to provide for an immediate source of
16
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funds. Although changes in interest rates may affect the fair value of the
marketable securities portfolio and cause unrealized gains or losses, such gains
or losses would not be realized unless the investments are sold.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Response to this item is included in "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
that May Affect Future Performance" above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- ------ -----------------
On May 12, 1999, a venture capital entity and a small former stockholder owning
a less than majority share of CKS Limited, the parent company of PassGo
Technologies, commenced an action in the Suffolk County Superior Court in
Boston, Massachusetts against AXENT and its directors. The action alleges
violations of the Massachusetts Uniform Securities Act, negligent
misrepresentations, and unfair trade practices. The Company believes the claims
are without merit and intends to defend the action vigorously.
Item 2. Changes In Securities And Use Of Proceeds.
- ------ -----------------------------------------
As of January 12, 1999, AXENT issued 703,194 shares of its common stock in
exchange for all outstanding shares of ITI and a debt instrument issued by ITI.
AXENT issued those shares pursuant to Section 4(2) of the Securities Act of 1933
and provisions of Regulation D promulgated thereunder. AXENT also assumed stock
options issued by ITI covering a total of 46,806 shares of AXENT common stock,
which were registered on Form S-8 prior to issuance.
As of March 31, 1999, AXENT issued 1,486,146 shares of its common stock in
exchange for all outstanding shares and warrants to purchase shares of CKS
Limited, the parent of the PassGo Technologies entities. AXENT issued those
shares pursuant to Regulation S promulgated under the Securities Act of 1933,
Section 4(2) of that act and provisions of Regulation D promulgated thereunder.
AXENT also issued stock options in exchange for stock options issued by CKS
Limited; those options cover a total of 63,854 shares of AXENT common stock,
which will be registered on Form S-8 prior to issuance.
Item 6. Exhibits And Reports On Form 8-k.
- ------ --------------------------------
(a) The following exhibits are filed or incorporated by reference, as stated
below:
Exhibit Number Description
- -------------- -----------
3.1 (1) Amended and Restated Certificate of Incorporation of AXENT.
3.2 (2) Amended and Restated Bylaws of AXENT.
4.1 (1) Specimen stock certificate for shares of Common Stock of
AXENT.
10.1 (1) AXENT's 1991 Amended and Restated Stock Option Plan.
10.2 (3) AXENT's 1996 Amended and Restated Stock Option Plan.
10.3 (3) AXENT's 1996 Amended and Restated Directors' Stock Option
Plan.
10.9 (1) Form of Indemnification Agreement between AXENT and its
directors and executive officers.
10.11 (1) Lease Agreement dated as of September 6, 1995, by and
between Research Grove Associates and AXENT.
10.11A Second Amendment dated September 18, 1998 to Lease Agreement
by and between Research Grove Associates and AXENT.
10.12 (1) Lease of Real Property dated as of March 7, 1995, by and
between TNK Associates and AXENT.
10.17 (4) Memorandum of Understanding regarding certain compensation
and severance matters relating to Richard A. Lefebvre, dated
July 22, 1997.
10.17A* First Amendment to Memorandum of Understanding relating to
Richard Lefebvre.
10.21 (1) Exclusive Distributor License Agreement, effective as of
December 31, 1995, between
17
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AXENT and Raxco Software, Inc.
10.22 (1) Administrative Services Agreement effective as of December
31, 1995, between the Company and Raxco Software, Inc.
10.24 (1) Agreement and Plan of Separation, effective as of December
31, 1995, between AXENT and Raxco Software, Inc.
10.29 (3) Amended Agreement and Plan of Merger among AXENT,
Axquisition, Inc., and AssureNet Pathways, Inc, dated as of
January 6, 1997 and amended February 26, 1997.
10.30 (5) AXENT's 1998 Employee Stock Purchase Plan.
10.31 (5) AXENT's 1998 Incentive Stock Plan.
10.32 (5) AXENT's Exchange Option Plan for Optionees of Raptor
Systems, Inc.
10.33 (5) Agreement and Plan of Merger among AXENT, Axquisition Two,
Inc. and Raptor Systems, Inc. dated as of December 1, 1997.
10.34 (6) AXENT's Executive Severance General Guidelines.
10.35 (6) Lease Agreement dated as of April 23, 1998 by and between
Pracvest and AXENT.
10.36 (6) Lease Agreement dated as of May 6, 1997 by and between CC&F
Second Avenue Trust and Raptor Systems, Inc.
10.36A (6) First Amendment to Lease dated as of December 15, 1997 by
and between CC&F Second Avenue Trust and Raptor Systems,
Inc.
10.37 (7) Share Exchange Agreement dated as of March 29, 1999 by and
during AXENT and the holders of all of the shares of capital
stock, share capital and warranty of CKS Limited.
10.38* Software Product Purchase and License Agreement dated as of
March 31, 1999 by and between AXENT and Raxco Software, Inc.
21.1 (8) Subsidiaries of the Registrant.
27.1 * Financial Data Schedule
27.2* Financial Data Schedule (1998 Restated)
- --------------------------------------------------------------------------------
(1) Previously filed as an exhibit to AXENT's Registration Statement on Form
S-1 (File No. 333-01368) and incorporated herein by reference.
(2) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1996.
(3) Previously filed as an exhibit to AXENT's Registration Statement on Form
S-4 (File No. 333-20207) and incorporated herein by reference.
(4) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1997.
(5) Previously filed as an exhibit to AXENT's Registration Statement on Form
S-4 (File No. 444-43265) and incorporated herein by reference.
(6) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 and incorporated herein by reference.
(7) Previously filed as an exhibit to AXENT's Current Report on Form 8-K filed
in April 1999 and incorporated herein by reference.
(8) Previously filed as an exhibit to AXENT's Annual Report on Form 10-K for
the year ended December 31, 1998 (File No. 0-28100) and incorporated herein
by reference.
* Filed herewith.
(b) AXENT filed no reports on Form 8-K during the three month period ended
March 31, 1999. A report on Form 8-K was filed in April 1999 reporting
information under item 2 regarding the acquisition of CKS Limited and the PassGo
entities; item 7 financial statements will be filed by amendment to that report
by June 15, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXENT TECHNOLOGIES, INC.
Date: May 14, 1999 By: __________________________
Robert B. Edwards, Jr.
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT 10.17A
FIRST AMENDMENT TO MEMORANDUM OF UNDERSTANDING
AXENT Technologies, Inc. ("AXENT"), Richard A. Lefebvre and the Compensation
Committee of the AXENT Board of Directors, on behalf of the AXENT Board, have
entered into this First Amendment to Memorandum of Understanding ("Amendment")
on November 25, 1998 to amend the Memorandum of Understanding dated July 22,
1997 ("MOU") by and among them.
Rich Lefebvre desires to provide for and facilitate the anticipated appointment
of John Becker to serve as Chairman of the Board of AXENT by relinquishing that
position on December 31, 1998. He agrees to continue to serve as a member of
AXENT's Board and to provide executive, supervisory and management functions and
duties as may be assigned to him from time to time by AXENT's Board or the
Chairman of the Board.
AXENT and its Board agree that Rich Lefebvre will cease to serve as Chairman of
the Board of AXENT on December 31, 1998 and will continue to receive the
compensation described in paragraph 3 of the MOU and the benefits described in
paragraphs 4 through 7 of the MOU with the following three modifications: (a)
at its option at any time, AXENT may accelerate on fifteen (15) days' prior
notice all future payments that may be due to Rich Lefebvre under paragraph 3 of
the MOU and agree to pay COBRA premiums as necessary to continue his medical,
dental and vision coverage through July 31, 2000 without any liability or
penalty and (b) any stock options granted to Rich Lefebvre shall continue to
vest so long as he serves as a member of AXENT's Board (but shall accelerate in
full immediately if he is asked to resign from the Board or is not re-elected)
and shall be exercisable until the earlier of the stated expiration date of such
option or ninety (90) days after Rich Lefebvre ceases to serve as a member of
AXENT's Board.
The parties ratify and affirm all provisions of the MOU not expressly amended
hereby, which shall continue in full force and effect. The parties have
executed this Amendment as of its date intending legally to be bound.
AXENT Technologies, Inc.
/S/ RICHARD A. LEFEBVRE By: /S/ JOHN C. BECKER
- ------------------------------ --------------------------------------
Richard A. Lefebvre John C. Becker, President and CEO
Members of AXENT's Compensation Committee:
/S/ JOHN F. BURTON /S/ GABRIEL A. BATTISTA
- ---------------------------- --------------------------------------
John F. Burton Gabriel A. Battista
20
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EXHIBIT 10.38
SOFTWARE PRODUCT PURCHASE AND LICENSE AGREEMENT
-----------------------------------------------
THIS SOFTWARE PRODUCT PURCHASE AND LICENSE AGREEMENT (this "Agreement") is
made and entered into as of the 31st day of March, 1999 by (i) AXENT
Technologies, Inc., a Delaware corporation ("AXENT") with its principal place of
business at 2400 Research Boulevard, Suite 200, Rockville, Maryland 20850, and
(ii) Raxco Software, Inc., a Delaware corporation ("Raxco") with its principal
place of business at 6 Montgomery Village Avenue, Suite 500, Gaithersburg,
Maryland 20879.
WHEREAS, AXENT is owner of those certain computer software products set
forth on Exhibit A (individually and collectively, the "Assigned Product");
WHEREAS, AXENT and Raxco entered into that certain Exclusive Distributor
License Agreement dated December 31, 1995 (the "EDA"), whereby AXENT granted
Raxco the exclusive, worldwide right to demonstrate, promote, market, license
and support the Assigned Product, and Raxco assumed certain rights and
obligations of AXENT with regard to the Assigned Product;
WHEREAS, Raxco desires to purchase all rights of AXENT and assume all
obligations associated with the Assigned Product;
WHEREAS, AXENT desires to sell the Assigned Product to Raxco;
WHEREAS, AXENT desires to license to Raxco, and Raxco desires to license
from AXENT, the source code and all of the trade secrets, formulae, procedures,
processes, and related documentation, and any all rights relating to the
software products set forth on Exhibit B (the "Licensed Product").
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:
1. Assigned Product:
----------------
A. Assigned Product shall include all intellectual property rights
directly related to the Assigned Product that are owned by AXENT. Assigned
Product shall also include the following to the extent they are directly related
to the Assigned Product and owned by AXENT:
a. all operator's manuals, user documentation, installation
guides, system programmers' and administrators'
documentation and manuals, narrative descriptions,
flowcharts, program component descriptions, design
specifications, file layouts and logic flow diagrams;
b. all current, previous, enhanced and developmental versions
of the source code, object, runtime and executable code, job
control language, macros, algorithms, objects, procedures,
functions and modules comprising the Assigned Product ; and
existing as of the date hereof;
c. all error and support logs, databases, output reports, test
and other data relating to the installation, checkout and
operation of the Assigned Product;
d. all advertising, marketing and public relations material and
information for the Assigned Product;
e. all copyright and patent rights, applications and
registrations relating to the foregoing;
f. all droits moral and other authors' rights relating to the
foregoing;
g. all rights, applications and registrations relating to all
trade names, trademarks and service marks relating to the
Assigned Product;
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h. all rights of recovery and reimbursement for and against
third parties with respect to their use, copying and
possession of any Assigned Product, all rights to sue and
obligations to defend and all other claims and causes of
action relating to the foregoing;
i. the goodwill associated with or appurtenant to any and all
of the foregoing; and
j. the absolute, unrestricted and exclusive right to use all of
the foregoing throughout the world (subject to domestic and
foreign laws), including the right to modify, enhance sell,
lease, rent, license and otherwise exploit and dispose of
any and all aspects of the foregoing.
2. Licensed Product
----------------
A. Licensed Product shall include all intellectual property rights
directly related to the Licensed Product that are owned by AXENT. Licensed
Product shall also include the following to the extent they are directly related
to the Licensed Product and owned by AXENT:
a. all operator's manuals, user documentation, installation
guides, system programmers' and administrators'
documentation and manuals, narrative descriptions,
flowcharts, program component descriptions, design
specifications, file layouts and logic flow diagrams;
b. all current, previous, enhanced and developmental versions
of the source code, object, runtime and executable code, job
control language, macros, algorithms, objects, procedures,
functions and modules comprising the Licensed Product and
existing as of the date hereof;
c. all error and support logs, databases, output reports, test
and other data relating to the installation, checkout and
operation of the Licensed Product;
d. all advertising, marketing and public relations material and
information for the Licensed Product;
e. all copyright and patent rights, applications and
registrations relating to the foregoing;
f. all droits moral and other authors' rights relating to the
foregoing;
g. all rights, applications and registrations relating to all
trade names, trademarks and service marks relating to the
Assigned Product;
h. the absolute and unrestricted right to use all of the
foregoing throughout the world (subject to domestic and
foreign laws), including the right to modify, enhance sell,
lease, rent, license and otherwise exploit of any and all
aspects of the foregoing.
3. Delivery. Raxco shall deliver a copy of the current version of the
--------
source code, object code, documentation and other items relating to the Assigned
Product and Licensed Product to AXENT within five (5) days of execution of this
Agreement. AXENT shall retain possession of the source code, object code and
documentation of Assigned Product until all payments due under the Note (as such
term is defined in Section 5B below) have been paid in full.
4. Sale and Purchase of the Assigned Product; License of Licensed Product
----------------------------------------------------------------------
A. Sale of the Assigned Product. Upon the terms and subject to the
----------------------------
conditions of this Agreement, AXENT hereby sells, transfers, assigns, conveys
and delivers, and Raxco hereby purchases, without exclusion, all right, title,
and interest of AXENT in and to all versions of the Assigned Product existing as
of the date hereof, and Raxco hereby assumes any and all obligations of AXENT
relating to the Assigned Product. Full and exclusive right, title and ownership
in all versions of the Assigned Product existing as of the date hereof,
including, without limitation, any and all versions of the Assigned Product, and
any related patents, copyrights, trademarks, trade names, service marks or trade
secrets which AXENT possesses or is entitled to, together with the goodwill
associated therewith or appurtenant thereto, shall vest in Raxco upon execution
of this Agreement. Upon execution of this Agreement, AXENT shall execute and
deliver to Raxco a Bill of Sale and Assignment in the form of Exhibit C attached
hereto and made a part hereof.
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B. Marketing of the Assigned Product Process. To the extent within
-----------------------------------------
AXENT's power, AXENT hereby acknowledges and agrees that Raxco, as a consequence
of this sale, shall have the exclusive right to market, license and sell,
directly or through its subsidiaries and marketing agents or both, the Assigned
Product in all markets throughout the world. Except as Raxco has agreed with
Illusion Themes, Ltd. or others, Raxco shall have the sole right to manage and
to conduct the marketing of the Assigned Product and any and all other aspects
of the Assigned Product, including, but not limited to, the right to determine
the method of marketing, the prices to be charged, the terms and conditions
under which the Assigned Product and any and all other aspects of the Assigned
Product is advertised, and any and all other methods, techniques, procedures or
policies to be made with respect to the marketing of the foregoing.
C. Exclusive Rights Transferred. AXENT hereby covenants and agrees
----------------------------
not to in any way, unless pursuant to Raxco's breach or default under this
Agreement, undertake to sell, lease, rent, market, license, sublicense, transfer
or otherwise use the Assigned Product or to assist any other person or entity in
so doing. AXENT represents that this Agreement transfers exclusive use and
ownership of the Assigned Product except as Raxco has agreed with Illusion
Themes, Ltd. or others.
D. No Restrictions on Future Use. Nothing in this Agreement shall
-----------------------------
restrict Raxco from modifying, enhancing or developing new versions of the
Assigned Product or from offering, at a single price, the Assigned Product as
part of a package containing the Assigned Product and Raxco's modifications or
enhancements thereto or any other computer program of Raxco or any third party.
AXENT acknowledges and agrees that Raxco shall have the right to design,
develop, market and license additions to, and new versions of, the Assigned
Product.
E. Assignment of Existing Agreements. AXENT hereby assigns to Raxco
---------------------------------
all of its right, title and interest in and to any and all agreements, licenses,
leases and other arrangements regarding or relating to the Assigned Product and
Raxco hereby assumes any and all obligations of AXENT relating to any and all
agreements, licenses, leases and other arrangements regarding or relating to the
Assigned Product, including, without limitation, all such arrangements specified
in Exhibit D attached hereto and made a part hereof, and any and all revenues
therefrom including, without limitation, any revenues from any sale, lease,
rental, license or other conveyance of the Assigned Product and any maintenance,
product support and enhancement services collected by AXENT subsequent to
execution of this Agreement unless subsequent to Raxco's default under this
Agreement. AXENT hereby covenants and agrees to transfer and pay over to Raxco
any and all revenues, proceeds and other funds which may be received by AXENT at
any time from and after the date hereof from any source and which relate to any
sale, lease, rental, license or other conveyance of the Assigned Product or from
any maintenance, product support or enhancement services relating to the
Assigned Product unless subsequent to Raxco's uncured breach or default under
this Agreement. Nothing in this Section 4E shall be deemed or construed to grant
to AXENT any right, title or interest in or to the Assigned Product, all of
which shall vest in Raxco unless subsequent to Raxco's uncured breach or default
under this Agreement.
F. Instruments. After the date hereof, AXENT agrees to execute and
-----------
deliver, at its own expense, such other instruments of conveyance and transfer
and take such other action(s) as Raxco may reasonably request to more
effectively convey and transfer to and vest in Raxco the Assigned Product, or to
evidence the same. Should Raxco or any of its agents or representatives seek to
obtain or transfer a patent, trademark, copyright or other statutory protection
for all or any part of the Assigned Product, including, without limitation, any
version or versions of the Assigned Product, AXENT agrees to provide reasonable
cooperation in providing information that is available to AXENT, completing
forms and obtaining the necessary signatures and assignments required in order
for Raxco to obtain or be assigned such patents, trademarks, copyrights or such
other statutory protection together with the goodwill associated therewith or
appurtenant thereto. Raxco agrees to bear all expense in connection with
obtaining such protection, provided such payment or expense is not required
because of a breach of any covenant, representation, warranty, agreement or
undertaking given herein by AXENT. Furthermore, AXENT covenants and agrees
that, at any time and from time to time, it shall execute and deliver to Raxco
all documents and instruments as Raxco shall reasonably request as shall be
necessary to assign to Raxco any and all rights of AXENT under any agreement,
license, lease or other arrangements regarding or relating to the Assigned
Product.
G. Assumption by Raxco. Raxco hereby assumes all obligations, debts
-------------------
or liabilities of any nature whatsoever of AXENT regarding Assigned Product
including, without limitation, all obligations to William R. Davy and in
accordance with the EDA. Raxco hereby agrees promptly after execution of this
Agreement to enter
23
<PAGE>
into agreements directly with William R. Davy by which Raxco shall directly
assume such obligations, debts or liabilities to William R. Davy and absolve
AXENT of any liability or responsibility therefor, in any capacity.
H. License of the Licensed Product. AXENT hereby grants to Raxco a
-------------------------------
perpetual, irrevocable, non-exclusive, paid-up license to use the Licensed
Product for any and all purposes, including, without limitation, the purposes of
copying, distributing, displaying, performing, modifying, making derivative
works, marketing and licensing the Licensed Product. Raxco shall perform all
obligations to its third party end-users, resellers and distributors of the
Licensed Product existing on or after the date of this Agreement. Any
derivative works of the Licensed Product created or developed by Raxco shall be
the property of Raxco.
5. Payment. The purchase price for the sale, transfer and delivery of
-------
the Assigned Product to Raxco and the license of the Licensed Product to Raxco
shall be Two Million One Hundred Thousand Dollars ($2,100,000) (the "Purchase
Price"). The Purchase Price shall be payable by Raxco as follows:
A. Cash Payment. Raxco shall pay to AXENT, on or before March 31,
------------
1999 in immediately available funds, One Hundred Thousand Dollars ($100,000).
B. Promissory Note. Simultaneously with the execution of this
---------------
Agreement, Raxco shall execute and deliver to AXENT a promissory note (the
"Note") in the amount of Two Million Dollars ($2,000,000), which shall bear
interest at the rate of eight percent (8%) per annum, such Note to be
--- -----
substantially in the form of Exhibit E attached hereto, and a Security Agreement
("Security Agreement") pursuant to which Raxco grants AXENT a first priority
security interest, subject to an agreement by AXENT to subordinate its security
interest to certain of Raxco's commercial lenders, in and to the Assigned
Product and to all accounts receivable related to the Assigned Product or the
Licensed Product to secure payment of the Note, such Security Agreement to be
substantially in the form of Exhibit G attached hereto.
C. Transfer Taxes. In the event that any sales, use or similar taxes
--------------
are due to any governmental authority or as a result of the transfer and sale of
all or any part of the Assigned Product hereunder, AXENT hereby agrees to pay
any and all sales, use and similar taxes (and all penalties and interest, if
any, thereon) arising from such sale and transfer from AXENT to Raxco. In the
event that Raxco shall be required to pay an amount of taxes and applicable
interest and penalties (unless AXENT disputes such taxes, interest and
penalties), AXENT shall promptly reimburse Raxco after receipt of evidence that
such taxes, interest or penalties have been paid.
6. Representations and Warranties of AXENT. AXENT hereby makes the
---------------------------------------
following representations and warranties to Raxco, each of which shall survive
the execution, delivery and performance hereof and without which Raxco would not
enter into this Agreement:
A. Corporate Existence. AXENT is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware.
B. Authorization of Agreement. The execution, delivery and
--------------------------
performance of this Agreement, the licenses granted hereunder and all other
agreements and instruments contemplated hereby have been duly and validly
authorized actions of AXENT. AXENT has full power and legal right and power to
execute, deliver and perform this Agreement and all other agreements and
instruments contemplated hereby. There are no consents of any person, entity or
governmental agency required for the execution, delivery and performance of this
Agreement and all other agreements and instruments contemplated hereby by AXENT.
This Agreement and all other agreements and instruments contemplated hereby
constitute valid and legally binding obligations of AXENT, enforceable in
accordance with their respective terms and conditions.
C. Ownership of Assigned Product Process. To the knowledge of John
-------------------------------------
Becker, Bob Edwards and Gary Ford ("AXENT's Knowledge"), AXENT has full and
exclusive right, title and ownership in and to the Assigned Product. To AXENT's
Knowledge, AXENT has full and exclusive right, title and ownership of all
patents, copyrights, know-how, trademarks, trade names, service marks,
registrations and applications therefor, and trade secrets relating to the
Assigned Product sold hereunder, and the goodwill associated therewith or
appurtenant thereto, free and clear of all copyright and other intellectual
property rights of third parties, liabilities, charges,
24
<PAGE>
obligations, security interests and other encumbrances. To AXENT's Knowledge, a
true and correct list of all registered patents, copyrights, trademarks, trade
names, service marks and registrations and applications therefor is attached
hereto as Exhibit F and made a part hereof.
D. No Broker. No broker, agent or finder has been employed or
---------
authorized by AXENT to act on its behalf with respect to the matters
contemplated by this Agreement nor is AXENT aware of any broker, agent or finder
purporting to act on its behalf.
E. No Conflicts. The execution and delivery of this Agreement and
------------
the consummation of the transactions contemplated hereby does not conflict with,
violate or constitute a default under the charter or bylaws of AXENT or, to
AXENT's Knowledge, any contract, agreement or other instrument to which AXENT is
a party or by which AXENT is bound.
F. Litigation. To AXENT's Knowledge, there is no litigation, claim,
----------
proceeding or investigation pending or threatened with respect to the Assigned
Product or the Licensed Product.
G. Agreements; Taxes. To AXENT's Knowledge, AXENT is not in breach
-----------------
of or in default under any license, lease or resale arrangement, and AXENT has
not received notice of any claim by any user of the Assigned Product. AXENT has
previously provided to Raxco or its counsel accurate, complete and true copies
of all agreements, leases or arrangements listed in Exhibit D, with all
amendments, modifications or renewals thereof. To the extent AXENT was required
to collect and/or pay sales tax with respect to any license, lease or sale of
the Assigned Product prior to the date hereof, AXENT has done so and has
remitted the same on a timely basis to the appropriate taxing authorities,
together with all appropriate tax returns.
H. Source Code. To AXENT's Knowledge, AXENT has never provided part
------------
or all of the source code of any version of the Assigned Product to any third
party, other than (i) developers and consultants performing services on Assigned
Products, (ii) escrow agents, and (iii) Raxco.
I. Non-Infringement. To AXENT's Knowledge, there is no claim by
----------------
third parties of infringement of any third party intellectual property rights as
a result of the development and marketing of the Assigned Product by AXENT. In
case of breach of the foregoing representation by AXENT, AXENT shall cooperate
with Raxco in procuring for Raxco and the customers of Raxco, at no additional
cost to Raxco, the right to continue to use the infringing Assigned Product, or
AXENT shall cooperate with Raxco in replacing or modifying the same in order to
make it noninfringing, provided such modification or change does not adversely
affect Raxco's or its customers' use of the Assigned Product.
7. Representations and Warranties of Raxco. Raxco hereby makes the
---------------------------------------
following representations and warranties to AXENT, each of which shall survive
the execution, delivery and performance hereof and without which AXENT would not
enter into this Agreement:
A. No Conflicts. The execution and delivery of this Agreement and
------------
the consummation of the transactions contemplated hereby does not conflict with,
violate or constitute a default under the charter or bylaws of Raxco or, to
Robert Nolan's knowledge, any contract, agreement or other instrument to which
Raxco is a party or by which Raxco is bound or subject to.
B. No Infringement. To Robert Nolan's knowledge, there is no claim
---------------
by third parties of infringement of any third party intellectual property rights
as a result of the development and marketing of the Assigned Product or Licensed
Product by Raxco. In case of breach of the foregoing representation by Raxco,
Raxco shall procure, at no additional cost to AXENT, the right to continue to
use the infringing Assigned Product or Licensed Product, or Raxco shall replace
or modify the same in order to make it noninfringing, provided such modification
or change does not adversely affect its customers' use of the Assigned Product
or Licensed Product.
C. Other Agreements; Taxes. To Robert Nolan's knowledge, Raxco is
-----------------------
not in breach of or in default under any license pursuant to the EDA, and Raxco
has not received notice of any breach or default by any user of the Assigned
Product or Licensed Product. To the extent Raxco was required to collect and/or
pay sales tax with respect to any license, lease or sale of the Assigned Product
and Licensed Product prior to the date hereof,
25
<PAGE>
whether under the EDA or otherwise, Raxco has done so and has remitted the same
on a timely basis to the appropriate taxing authorities, together with all
appropriate tax returns.
D. Product Compliance. Raxco is familiar with Assigned Product and
------------------
Licensed Product and accepts them "as is." Raxco agrees to respond to and use
commercially reasonable efforts to resolve all year 2000 issues raised by
customers of the Assigned Product and Licensed Product.
E. Corporate Existence. Raxco is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware.
F. Authorization of Agreement. The execution, delivery and
--------------------------
performance of this Agreement and all other agreements and instruments
contemplated hereby have been duly and validly authorized actions of Raxco,
including approval of its board of directors and, to the extent necessary, its
stockholders. Raxco has full power and legal right and power to execute,
deliver and perform this Agreement and all other agreements and instruments
contemplated hereby. There are no consents of any person, entity or
governmental agency required for the execution, delivery and performance of this
Agreement and all other agreements and instruments contemplated hereby by Raxco.
This Agreement and all other agreements and instruments contemplated hereby
constitute valid and legally binding obligations of Raxco, enforceable in
accordance with their respective terms.
G. Solvency. To Robert Nolan's knowledge, Raxco is solvent as it
--------
currently has the ability to pay its debts as they become due. To Robert
Nolan's knowledge, neither Raxco nor any creditor of Raxco has instituted by
petition, application, answer, consent or otherwise, any bankruptcy, insolvency,
readjustment of debts, liquidation or similar proceeding relating to Raxco, and
Raxco has not made any arrangement for the benefit of any creditor. To Robert
Nolan's knowledge ,no creditor of Raxco has applied for a receiver, trustee or
similar officer with respect to Raxco or any property of Raxco.
8. Confidentiality.
---------------
A. Covenant Not to Disclose Confidential Information. Each of the
-------------------------------------------------
parties understands that it and its officers, employees, agents, or
representatives, in the course of performing this Agreement, will have access to
and come into contact with information including Assigned Product, Licensed
Product, computer software systems and programs, data, operational techniques
and methodology, ideas, concepts and documents and also business data including,
but not limited to, the terms of this Agreement, and other trade secrets of the
other party (hereinafter referred to collectively as "Confidential
Information"). All Confidential Information, unless otherwise specifically
declared to the receiving party, is deemed to have pecuniary value to the
disclosing party and to be confidential, proprietary, and trade secret in
nature. Each party agrees to protect and treat as confidential any Confidential
Information disclosed by the other party using the same care as it would in
protecting its own information of a similar nature but no less than reasonable
care, and not to disclose such Confidential Information to third parties or to
use such Confidential Information for any purposes whatsoever other than to
abide by this Agreement. Each party will (i) require each of its employees,
agents, consultants and representatives who have access to Confidential
Information of the other party to be bound by a written agreement prohibiting
disclosure of confidential information of others to which they have access,
(ii) advise each of them of their obligation to keep Confidential Information
confidential, and (iii) not cause or permit other persons or entities to have
access to such Confidential Information without the disclosing party's prior
written consent. Neither party shall have an obligation to maintain such
information in confidence provided, the receiving party can show that such
information (i) was in its possession without any obligation of confidence prior
to disclosure of such information by other party, (ii) is or becomes publicly
available through no fault of the receiving party, (iii) was developed by the
receiving party independent of the Confidential Information, or (iv) is required
to be disclosed pursuant to a valid court order or other governmental body or
political subdivision thereof, provided however, that the receiving party shall
first give written notice to the disclosing party, so that disclosing party can
seek appropriate legal remedies, including but not limited to a protective
order.
B. Injunctive Relief. The parties understand that irreparable harm
-----------------
will result from breaches any of obligation under Section 8A and that monetary
damages shall be inadequate compensation for such breach. Accordingly, the
parties agree that, in the event of a breach or threatened breach of any of the
provisions of Section 8A, in addition to and not in limitation of any other
rights, remedies and damages available at law or in equity, a
26
<PAGE>
temporary restraining order, preliminary injunction and permanent injunction to
prevent or to restrain any breach will be required.
9. Covenants of Raxco. Until the Note is paid or satisfied in full, Raxco
------------------
covenants and agrees that it shall not sell, transfer or assign any interest in
the ownership of any part of the Assigned Product or any other software product
owned in whole or part by Raxco to any person or entity, including, without
limitation, any subsidiary, joint venture or other affiliate of Raxco without
the express prior written consent of AXENT. Further, until the Note is paid or
satisfied in full, Raxco covenants and agrees that, without the express prior
written consent of AXENT, it shall not grant to any person or entity any right
(a) to distribute or resell the Assigned Product or the Licensed Product other
than royalty-bearing rights to resell object code copies of such products or (b)
to prepare derivative works of the Assigned Product or Licensed Product if the
ownership of such derivative works does not vest fully and completely in Raxco.
10. Default. In the event Raxco shall be in breach of any representation,
--------
warranty, covenant or agreement in this Agreement or the Security Agreement, or
in the event that Raxco shall be in breach of its obligations under the Note,
AXENT may, by written notice to Raxco, require the remedy of the breach or the
performance of the obligation and, if Raxco fails to remedy or cure a breach of
this Agreement, the Security Agreement or the Note to the satisfaction of AXENT
within thirty (30) calendar days after Raxco receives such notice, AXENT may, by
written notice, declare Raxco in default under this Agreement, terminate all
rights of Raxco with respect to the Licensed Product hereunder and require that
Raxco immediately return all copies of Confidential Information related to the
Licensed Product. In addition, AXENT shall be entitled to avail itself
cumulatively of any and all rights and remedies available under this Agreement,
the Note and the Security Agreement and at law or equity.
11. Miscellaneous.
-------------
A. Notices. All notices, demands or consents required or permitted
-------
to be given under this Agreement shall be in writing and shall be hand delivered
or sent by registered or certified mail, postage prepaid, return receipt
requested, or overnight delivery service with signature required:
If to Raxco:
Raxco Software, Inc.
6 Montgomery Village Avenue, Suite 500
Gaithersburg, MD 20879
Attention: Robert E. Nolan, President
with a copy to:
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: Thomas J. Knox, Esq.
If to AXENT:
AXENT Technologies, Inc.
2400 Research Boulevard, Suite 200
Rockville, MD 20850
Attention: Gary M. Ford, Esq., Vice President and
General Counsel
B. Entire Agreement; Waiver; Amendment or Modification. This
---------------------------------------------------
Agreement and the Exhibits hereto constitute the entire agreement between the
parties with respect to the matters set forth herein. No waiver, amendment or
modification of any provision hereof or of any right or remedy hereunder shall
be effective unless in
27
<PAGE>
writing and signed by the party against whom such waiver, amendment or
modification is sought to be enforced. No failure by any party to exercise, and
except as specified in this Agreement, no delay by any party in exercising, any
right, power or remedy with respect to the obligations set forth herein, shall
operate as a waiver of any such right, power or remedy.
C. Benefits and Burdens; Assignment. This Agreement shall be binding
--------------------------------
upon and inure to the benefit of the heirs, executors, administrators, personal
and legal representatives, successors and assigns of the parties hereto. Neither
this Agreement nor the rights, benefits and obligations hereunder shall be
assignable in full or in part by Raxco without the prior written consent of
AXENT until the Note has been paid or satisfied in full.
D. Governing Law; Severability; Venue. The validity, construction,
----------------------------------
enforcement, interpretation and performance of this Agreement and the rights,
obligations and liabilities of the parties hereto shall be governed by the
substantive laws of the State of Maryland. It is agreed by the parties hereto
that any action, suit, proceeding or dispute hereunder or relating to any term
or provision hereof shall be brought only in the courts of Montgomery County,
Maryland or the United States District Court for the District of Maryland, and
all parties hereto hereby stipulate and agree to submit to the personal
jurisdiction of any or all of such courts in the event that any such action,
suit or proceeding against it or them is commenced in such court and process is
served upon such party by any legal means. In the event that any provision of
this Agreement or the application of such provision shall be held by any court
to be contrary to such applicable law, the remaining provisions of this
Agreement shall remain in full force and effect.
E. Headings. The headings contained herein are for convenience and
--------
reference only and shall not be used in construing or interpreting any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AXENT:
-----
ATTEST: AXENT Technologies, Inc.,
a Delaware corporation
By: /S/ GARY M. FORD By: /S/ JOHN C. BECKER
------------------ --------------------------------
Secretary Name: John C. Becker
Title: Chairman and Chief Executive Officer
RAXCO:
-----
Raxco Software, Inc.,
a Delaware corporation
By: /S/ WILLIAM FOLLIN By: /S/ ROBERT E. NOLAN
-------------------- --------------------------------
Secretary Name: Robert E. Nolan
Title: President
28
<PAGE>
EXHIBIT A
ASSIGNED PRODUCT
1. PerfectCache
2. PerfectDisk
3. UltraDisk (also known as Fragment Fighter)
4. PerfectFile (RSU)
5. PerfectTune
6. RaxMaster
7. Diskit
29
<PAGE>
EXHIBIT B
LICENSED PRODUCT
1. Control
2. Raxco Support
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated balance sheet and statement of operations of AXENT Technologies,
Inc. as of and for the three months ended March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 92,818,000
<SECURITIES> 19,033,000
<RECEIVABLES> 29,304,000
<ALLOWANCES> 2,696,000
<INVENTORY> 449,000
<CURRENT-ASSETS> 4,202,000
<PP&E> 17,710,000
<DEPRECIATION> 6,597,000
<TOTAL-ASSETS> 194,157,000
<CURRENT-LIABILITIES> 39,539,000
<BONDS> 0
0
0
<COMMON> 557,000
<OTHER-SE> 154,061,000
<TOTAL-LIABILITY-AND-EQUITY> 194,157,000
<SALES> 0
<TOTAL-REVENUES> 21,444,000
<CGS> 0
<TOTAL-COSTS> 3,294,000
<OTHER-EXPENSES> 26,405,000
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,255,000)
<INCOME-TAX> 1,119,000
<INCOME-CONTINUING> (6,068,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,068,000)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated balance sheet and statement of operations of AXENT Technologies,
Inc. as of and for three months ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,682,000
<SECURITIES> 56,326,000
<RECEIVABLES> 18,497,000
<ALLOWANCES> 1,665,000
<INVENTORY> 100,000
<CURRENT-ASSETS> 5,440,000
<PP&E> 9,654,000
<DEPRECIATION> 4,738,000
<TOTAL-ASSETS> 125,171,000
<CURRENT-LIABILITIES> 28,105,000
<BONDS> 0
0
0
<COMMON> 497,000
<OTHER-SE> 96,569,000
<TOTAL-LIABILITY-AND-EQUITY> 125,171,000
<SALES> 0
<TOTAL-REVENUES> 20,331,000
<CGS> 0
<TOTAL-COSTS> 2,118,000
<OTHER-EXPENSES> 32,203,000
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,990,000)
<INCOME-TAX> 2,105,000
<INCOME-CONTINUING> (9,864,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,864,000)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
