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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PEREGRINE SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 9, 1998
2:00 p.m.
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Peregrine Systems, Inc., a Delaware corporation (the "Company"), will be held
on Wednesday, September 9, 1998, at 2:00 p.m., local time, at the Company's
principal executive offices at 12670 High Bluff Drive, San Diego, California
92130 for the following purposes:
1. To elect directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected;
2. To approve an amendment to the Company's 1994 Stock Option Plan (the
"Stock Plan") to (i) increase the number of shares reserved for
issuance thereunder by 3,000,000 shares and (ii) provide for
additional automatic increases in the number of shares reserved for
issuance thereunder such that effective as of January 1 of each
calendar year, beginning January 1, 1999 and ending January 1, 2003,
the number of shares available for issuance under the Stock Plan but
not subject to outstanding options will be not less than the lesser of
4% of the Company's outstanding shares or 4,000,000, and to approve
the material terms of the Stock Plan, as amended;
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of
shares of the Company's Common Stock from 50,000,000 to 200,000,000;
4. To approve the restricted stock agreement entered between the Company
and its President and Chief Executive Officer, pursuant to which the
Company issued 50,000 shares of Common Stock, which are subject to
accelerated vesting over six years if the Company achieves certain
financial milestones;
5. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending March 31, 1999;
and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on July 24, 1998 are entitled to notice of and to vote at the meeting
and any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date, and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR
PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE ANNUAL MEETING. ANY STOCKHOLDER ATTENDING
THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
For the Board of Directors
PEREGRINE SYSTEMS, INC.
Richard T. Nelson
SECRETARY
San Diego, California
August 13, 1998
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YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
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<PAGE>
PEREGRINE SYSTEMS, INC.
_________________________________
PROXY STATEMENT FOR THE
1998 ANNUAL MEETING OF STOCKHOLDERS
_________________________________
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Peregrine Systems, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Wednesday, September 9, 1998, at 2:00 p.m., local time, or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Company's principal executive offices at 12670 High Bluff
Drive, San Diego, California 92130. The telephone number at that location is
(619) 481-5000. When proxies are properly dated, executed, and returned, the
shares they represent will be voted at the Annual Meeting in accordance with
the instructions of the stockholder. If no specific instructions are given,
the shares will be voted for the election of the nominees for directors set
forth herein; for an increase by 3,000,000 shares in the number of shares
reserved for issuance under the Company's 1994 Stock Option Plan (the "Stock
Plan"), for an amendment to the Stock Plan pursuant to which the number of
shares of Common Stock reserved for issuance thereunder may be increased at
the beginning of each calendar year, depending upon the number of shares then
available for issuance but not subject to outstanding options, and for the
approval of the material terms of the Stock Plan, as amended; for an
amendment to the Company's Amended and Restated Certificate of Incorporation
to increase the authorized number of shares of the Company's Common Stock
from 50 million to 200 million; for the approval of the issuance to the
Company's President and Chief Executive Officer of 50,000 restricted shares
of the Company's Common Stock, which are subject to accelerated vesting over
six years contingent upon the Company's achieving certain financial
milestones; for the ratification of the appointment of Arthur Andersen LLP as
independent public accountants as set forth herein; and at the discretion of
the proxy holders, upon such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Annual Report to
Stockholders for the year ended March 31, 1998, including financial
statements, were first mailed on or about August 13, 1998, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on July 24, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, the Company had issued and outstanding and entitled to
vote 19,581,143 shares of Common Stock, $.001 par value.
REVOCABILITY OF PROXIES
Any proxy given pursuant to the solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
(i) filing with the Secretary of the Company, at or before the taking of the
vote at the Annual Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of the Company at or before
the taking of the vote at the Annual Meeting, or (iii) attending the Annual
Meeting and voting in person (although attendance at the Annual Meeting will
not in and of itself constitute a revocation of a proxy). Any written notice
of revocation or subsequent proxy should be delivered to Peregrine Systems,
Inc. at 12670 High Bluff Drive, San Diego, California 92130, Attention:
Secretary, or hand-delivered to the Secretary of the Company at or before the
taking of the vote at the Annual Meeting.
VOTING
Each share of Common Stock outstanding on the Record Date is entitled to
one vote. Stockholders' votes will be tabulated by persons appointed by the
Board of Directors to act as inspectors of election for the Annual Meeting.
Abstentions are considered shares present and entitled to vote and,
therefore, have the same legal effect as a vote against a matter presented at
the Annual Meeting. Any shares held in street name for which the broker or
nominee receives no
<PAGE>
instructions from the beneficial owner, and as to which such broker or
nominee does not have discretionary voting authority under applicable New
York Stock Exchange rules, will be considered as shares not entitled to vote
and will therefore not be considered in the tabulation of the votes but will
be considered for purposes of determining the presence of a quorum.
SOLICITATION OF PROXIES
The expense of soliciting proxies in the enclosed form will be borne by
the Company. In addition, the Company may reimburse banks, brokerage firms,
and other custodians, nominees, and fiduciaries representing beneficial
owners of shares for their expenses in forwarding soliciting materials to
such beneficial owners. Proxies may also be solicited by certain of the
Company's directors, officers, and employees, personally or by telephone,
telegram, facsimile, or other means of communication. No additional
compensation will be paid for such services.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a
forthcoming meeting if they comply with the requirements of the proxy rules
promulgated by the Securities and Exchange Commission. Proposals of
stockholders of the Company intended to be presented for consideration at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
no later than April 15, 1999, in order that they may be included in the proxy
statement and form of proxy related to that meeting.
The attached proxy card grants the proxy holders discretionary
authority to vote on any matter raised at the Annual Meeting. If a
stockholder intends to submit a proposal at the 1999 Annual Meeting, which is
not eligible for inclusion in the proxy statement and form of proxy relating
to that meeting, the stockholder must do so no later than June 29, 1999. If
such a stockholder fails to comply with the foregoing notice provision, the
proxy holders will be allowed to use their discretionary voting authority
when the proposal is raised at the 1999 Annual Meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, a Board of seven directors will be elected, each
to hold office until his or her successor is elected and qualified, or until
his or her death, resignation, or removal. Shares represented by the
accompanying proxy will be voted for the election of the seven nominees
(recommended by the Board of Directors) who are named in the following table,
unless the proxy is marked in such a manner as to withhold authority so to
vote. The Company has no reason to believe that the nominees for election
will not be available to serve their prescribed terms. If any nominee for
any reason is unable to serve or will not serve, however, the proxy may be
voted for such substitute nominee as the persons appointed in the proxy may
in their discretion determine. The Board of Directors will consider the
names and qualifications of candidates for the Board submitted by
stockholders in accordance with the procedures set forth in "Deadline for
Receipt of Stockholder Proposals for 1999 Annual Meeting" above and in the
Bylaws of the Corporation. The following table sets forth certain
information concerning the nominees, which information is based on data
furnished to the Company by the nominees:
<TABLE>
<CAPTION>
NAME AGE POSITION(s) WITH THE COMPANY DIRECTOR SINCE
---- ---- ---------------------------- --------------
<S> <C> <C> <C>
Stephen P. Gardner . . . . . . 44 President, Chief Executive Officer, and Director 1998
David A. Farley. . . . . . . . 43 Vice President, Finance, Chief Financial Officer, and
Director 1995
John J. Moores (1) . . . . . . 53 Chairman of the Board of Directors 1989
Christopher A. Cole. . . . . . 44 Director 1981
Richard A. Hosley II (1) . . . 53 Director 1992
Charles E. Noell III (1)(2). . 46 Director 1992
Norris van den Berg (2). . . . 59 Director 1992
</TABLE>
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(1) Member of Compensation Committee.
(2) Member of Audit Committee.
There is no family relationship among any of the directors and executive
officers of the Company.
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STEPHEN P. GARDNER has served as the Company's President and Chief
Executive Officer and as a member of the Board of Directors since April 1998.
From January 1998 until April 1998, Mr. Gardner served as Executive Vice
President and the Company's Principal Executive Officer. From May 1997 until
January 1998, Mr. Gardner served as the Company's Vice President, Strategic
Acquisitions. From May 1996 until May 1997, Mr. Gardner was President of
Thunder & Lightning Company, an internet software company. From March 1995
until May 1996, Mr. Gardner was President of Alpharel, Inc., a document
management software company. From March 1993 until March 1995, Mr. Gardner
was Vice President of Data General Corporation, a manufacturer of multiuser
computer systems, peripheral equipment, communications systems, and related
products. From 1988 to 1993, Mr. Gardner served in various capacities with
Groupe Bull, most recently as founder and president of its Integris Business
Unit, a systems integration and software company owned by Groupe Bull of
France.
DAVID A. FARLEY has served as the Company's Vice President, Finance, and
Chief Financial Officer and as a member of the Board of Directors since
October 1995. Mr. Farley served as Secretary of the Company from October 1995
until February 1997. From November 1994 to November 1995, Mr. Farley was Vice
President, Finance, and Chief Financial Officer and a director of XVT
Software Inc., a development tools software company. From December 1984
until October 1994, Mr. Farley held various accounting and financial
positions at BMC Software, Inc., a vendor of software system utilities for
IBM mainframe computing environments ("BMC"), most recently as Chief
Financial Officer and as a director.
JOHN J. MOORES has served as Chairman of the Company's Board of
Directors since March 1990 and as a member of the Board of Directors since
March 1989. In 1980, Mr. Moores founded BMC and served as its President and
Chief Executive Officer from 1980 to 1986 and as Chairman of its Board of
Directors from 1980 to 1992. Since December 1994, Mr. Moores has served as
owner and Chairman of the Board of the San Diego Padres Baseball Club, L.P.
and since September 1991 as Chairman of the Board of JMI Services, Inc., a
private investment company. Mr. Moores also serves as a director of Homegate
Hospitality, Inc.
CHRISTOPHER A. COLE has served as a member of the Company's Board of
Directors since founding the Company in 1981. He also served as its President
and Chief Executive Officer from 1986 until 1989. Since 1992, Mr. Cole has
served as President and Chief Executive Officer of Questrel, Inc., a software
development company.
RICHARD A. HOSLEY II has served as a member of the Company's Board of
Directors since January 1992. Prior to retiring from full-time employment,
Mr. Hosley served as President and Chief Executive Officer of BMC. Mr. Hosley
also serves as a director of Logic Works, Inc. and as a director and member
of the compensation committee of Axent Technologies, Inc.
CHARLES E. NOELL III has served as a member of the Company's Board of
Directors since January 1992. Since January 1992, Mr. Noell has served as
President and Chief Executive Officer of JMI Services, Inc., a private
investment company, and as a General Partner of JMI Equity Partners, L.P.
("JMI Equity Partners"). JMI Equity Partners is the General Partner of JMI
Equity Fund, L.P., a venture capital investment firm ("JMI Equity Fund"). Mr.
Noell also serves as a director of Expert Software, Inc. and Transaction
Systems Architects, Inc. and as a director and member of the compensation
committee of Homegate Hospitality, Inc.
NORRIS VAN DEN BERG has served as a member of the Company's Board of
Directors since January 1992. Mr. van den Berg has served as a General
Partner of JMI Equity Partners since July 1991. JMI Equity Partners is the
General Partner of JMI Equity Fund. Mr. van den Berg also serves as a member
of the Board of Directors of Prism Solutions, Inc.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Directors will be elected by a plurality of the votes of the shares
present and entitled to vote at the Annual Meeting and entitled to vote on
the election of directors. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE FOREGOING SLATE OF NOMINEES AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES LISTED ABOVE.
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors held six meetings during the fiscal year
ended March 31, 1998. No incumbent director during fiscal 1998 attended fewer
than seventy-five percent (75%) of the aggregate of (i) the total number of
meetings of the Board of Directors held during the period for which such person
was a director and (ii) the total number of meetings held by all committees of
the Board of Directors on which such person served (during the period such
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person served). The Board of Directors has standing Audit and Compensation
Committees. The Board of Directors does not have a Nominating Committee.
The Audit Committee was comprised of Charles E. Noell III and Norris van
den Berg during fiscal 1998. The Audit Committee held one meeting during
fiscal 1998. The purposes of the Audit Committee are to review with the
Company's management and independent accountants such matters as internal
accounting controls and procedures, the plan and results of the annual audit,
and suggestions of the accountants for improvements in accounting procedures;
to nominate independent accountants; and to provide such additional
information as the committee may deem necessary to make the Board of
Directors aware of significant financial matters which require the Board's
attention.
The members of the Compensation Committee during fiscal 1998 were John
J. Moores, Richard A. Hosley II, and Charles E. Noell III. The Compensation
Committee held one meeting during fiscal 1998. The purposes of the
Compensation Committee are to review and approve the compensation to be paid
or provided to the Company's executive officers, the aggregate compensation
of all employees of the Company, and the terms of compensation plans of all
types.
DIRECTOR COMPENSATION
The Company reimburses each member of the Company's Board of Directors
for out-of-pocket expenses incurred in connection with attending Board
meetings. Prior to fiscal 1999, no member of the Board of Directors received
any additional cash compensation. Beginning in fiscal 1999, each
non-employee member of the Board will receive $2,000 for each meeting of the
Board and $1,000 for each meeting of a committee on which he serves, if
attended in person, and $500 for any Board or committee meeting attended
telephonically. In May 1992, the Company granted each of directors
Christopher A. Cole, Richard A. Hosley II, Charles E. Noell III and Norris
van den Berg options to acquire 45,000 shares of Common Stock under the
Company's 1991 Nonqualified Stock Option Plan at an exercise price of $1.34,
the per share fair market value of the Company's Common Stock on the date of
grant. All such options vested in annual installments over four years, are
now fully exercisable, and expire if not exercised prior to May 2002. In
addition, in December 1990, the Company granted Christopher A. Cole an option
to acquire 225,000 shares of Common Stock under the Company's Nonqualified
Stock Option Plan at an exercise price of $0.51 per share, the per share fair
market value of the Company's Common Stock on the date of grant. Following
Mr. Cole's resignation as an executive officer of the Company and in
consideration of his continuing service as a member of the Board of
Directors, the Company extended the exercisability of such option with
respect to 56,250 vested shares for so long as Mr. Cole remains a member of
the Board of Directors but no later than December 2000.
The Company's 1997 Director Option Plan (the "Director Plan") provides
that options will be granted to non-employee directors, other than
non-employee directors who hold or are affiliated with a holder of three
percent or more of the outstanding Common Stock of the Company, pursuant to
an automatic nondiscretionary grant mechanism. Each new non-employee
director is automatically granted an option to purchase 25,000 shares of the
Company's Common Stock at the time he or she is first elected to the Company
Board. Each non-employee director will subsequently be granted an option to
purchase 5,000 shares of Company Common Stock at each annual meeting of
stockholders beginning with the 1998 Annual Meeting of Stockholders. Each
such option will be granted at the fair market value of the Common Stock on
the date of grant. Options granted to non-employee directors under the
Director Plan will become exercisable over four years, with 25% of the shares
vesting after one year and the remaining shares vesting in quarterly
installments thereafter. Assuming approval of Proposal Two herein relating
to amendments to the Stock Plan, non-employee directors may also be granted
options under such plan. See "Proposal Two--Participation in the Stock
Option Plan; New Plan Benefits."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of directors Richard A.
Hosley II, John J. Moores and Charles E. Noell III. The Company's Chief
Executive Officer participates in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants of the
Company, except that he is excluded from discussions regarding his own salary
and incentive compensation. No interlocking relationship exists between any
member of the Company's Compensation Committee and any member of any other
company's board of directors or compensation committee.
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PROPOSAL TWO
AMENDMENT OF 1994 STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve amendments to the Company's 1994 Stock Option Plan (the "Stock Plan")
to (i) increase the number of shares of Common Stock reserved for issuance
thereunder by 3,000,000 shares from 3,148,000 to 6,148,000; (ii) authorize an
amendment to the Stock Plan to provide for automatic annual increases in the
number of shares reserved for issuance thereunder such that, effective on
January 1 of each calendar year beginning January 1, 1999 and ending January
1, 2003, the number of shares available for issuance under the Stock Plan but
not subject to outstanding options will be not less than the lesser of (A)
four percent (4%) of the aggregate number of shares of the Company's Common
Stock then issued and outstanding or (B) 4,000,000 shares; and (iii) approve
the material terms of the Stock Plan, including an amendment to the
eligibility requirements of the Stock Plan to permit option grants to
non-employee directors of the Company. Previously, non-employee directors
were not eligible to receive option grants under the Stock Plan.
The Stock Plan was adopted by the Company's Board of Directors in
January 1994 and approved by the Company's stockholders in April 1994. In
December 1997, the Board of Directors approved a 1,842,000 share increase in
the number of shares reserved for issuance under the Stock Plan, and in July
1998, approved an additional 1,158,000 share increase in the total share
reserve as well as the automatic share increase mechanism referenced above,
in each case subject to stockholder approval. As of the Record Date and
giving effect to the share increases approved by the Board, options to
purchase an aggregate of 2,880,169 shares of the Company's Common Stock were
outstanding under the Stock Plan, and 1,963,418 shares were available for
future grant. In addition, 1,304,413 shares of the Company's Common Stock
had been purchased pursuant to the exercise of stock options granted under
the Stock Plan.
The Stock Plan, as amended, authorizes the Board of Directors (or
Compensation Committee of the Board of Directors pursuant to its delegated
authority) to grant stock options to eligible employees, non-employee
directors, and consultants of the Company. The Stock Plan is structured to
allow the Board of Directors broad discretion in creating equity incentives
in order to assist the Company in attracting, retaining, and motivating the
best available personnel for the successful conduct of the Company's
business. The Company has had a long-standing practice of linking employee
compensation to corporate performance because it believes that such
incentives increase employee motivation to improve stockholder value. The
Company has, therefore, consistently included equity incentives as a
significant component of compensation for the Company's employees at all
levels of responsibility.
The Company's Board of Directors believes that the remaining shares
available for grant under the Stock Plan are insufficient to accomplish the
purposes of the Stock Plan described above. The Company anticipates there
will be a need to hire additional development, sales and marketing, and
management personnel during fiscal 1999 and in future periods, and it will be
necessary to offer equity incentives to attract and motivate these
individuals, particularly in the extremely competitive job market in the
software and technology industries. In addition, the Company has recently
completed two substantial acquisitions, which have resulted in substantial
increases in the size of the Company's employee base. In order to continue
to attract and retain the services of valuable employees, including those of
acquired companies, and outside directors with relevant industry experience,
it will be necessary to provide option grants to new employees and outside
directors and additional options as older options become fully vested.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares of the Company's Common
Stock present or represented and voting at the Annual Meeting will be
required to approve the amendments to and material terms of the Stock Plan.
FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE FOREGOING AMENDMENTS TO THE STOCK PLAN AND "FOR"
APPROVAL OF THE MATERIAL TERMS OF THE STOCK PLAN, AS AMENDED.
The essential terms of the Stock Plan are summarized below. The
following discussion is qualified in its entirety by reference to the Stock
Plan, as amended.
GENERAL
The Stock Plan, as amended, provides for the grant to eligible
employees, directors, and consultants of the Company or any subsidiary of the
Company of stock options, which may be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-statutory stock options, at the
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discretion of the Board of Directors of the Company and as reflected in the
terms of the written option agreement. The Stock Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended (ERISA).
PURPOSES
The purposes of the Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to employees, directors, and consultants of the Company
and its subsidiaries, to promote the success of the Company's business, and
to align the interests of eligible employees directly with those of
stockholders.
ADMINISTRATION
The Stock Plan may be administered by the Board of Directors of the
Company or by a Committee of the Board. The Stock Plan is currently being
administered by the Compensation Committee of the Board of Directors, except
that grants to executive officers are approved by the Compensation Committee,
the Board of Directors, or other committees thereof to the extent required
for the grants to be considered as being from a discretionary plan pursuant
to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or to the extent that the options are intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code. The Board or the committee appointed to administer the
Stock Plan are referred to in this description as the "Administrator." The
Administrator determines the terms of options granted, including the exercise
price, the number of shares subject to option, and the exercisability
thereof. All questions of interpretation of the Stock Plan are determined by
the Administrator, whose decisions are final and binding upon all
participants. Members of the Board or its committees receive no additional
compensation for their services in connection with the administration of the
Stock Plan.
ELIGIBILITY AND LIMITATIONS
The Stock Plan provides that either incentive or nonqualified stock
options may be granted to employees (including officers and employee
directors) of the Company or any of its designated subsidiaries. In addition,
the Stock Plan, as amended, provides that nonqualified stock options may be
granted to consultants of the Company or any of its designated subsidiaries
and to nonemployee directors of the Company. The Administrator selects the
optionees and determines the number of shares subject to each option. In
making its determination, the Administrator considers the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company
and other relevant factors.
No employee will be granted, in any fiscal year of the Company, options
to purchase more than 400,000 shares of Common Stock. The foregoing
limitation, which will be adjusted proportionately in connection with any
change in the Company's capitalization, is intended to satisfy the
requirements applicable to options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code. In addition,
there is a limit of $100,000 on the aggregate fair market value of shares
subject to all incentive stock options which are exercisable for the first
time in any calendar year by any employee.
TERMS OF OPTIONS
Each option granted pursuant to the Stock Plan is evidenced by a written
stock option agreement between the Company and the optionee to whom such
option is granted and is subject to the following additional terms and
conditions:
(1) EXERCISE OF THE OPTION; FORM OF CONSIDERATION. The Administrator
determines when options granted under the Stock Plan may be exercisable.
Options granted under the Stock Plan generally vest and become exercisable
over four years. An option is exercised by giving written notice of exercise
to the Company, specifying the number of shares of Common Stock to be
purchased and tendering payment to the Company of the purchase price. The
Stock Plan permits payment for the shares issued upon exercise of an option
to be made by cash, check, or delivery of shares of the Company's Common
Stock previously owned for at least six months or that were not acquired from
the Company, subject to certain additional conditions. In addition, an
optionee may make payment by a cashless exercise procedure under which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
Options may be exercised at any time
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<PAGE>
on or following the date the options are first exercisable but in no event
later than the expiration of the option as set forth in the Notice of Grant.
An option may not be exercised for a fraction of a share.
(2) OPTION PRICE. The option price of non-qualified options granted
under the Stock Plan is determined by the Administrator, provided that
non-qualified options intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code must be granted with an
exercise price equal to the fair market value of the Company's Common Stock
on the date of grant. Incentive stock options granted under the Stock Plan
must be granted with an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant, except in the case of grants of
incentive stock options granted to employees who, at the time of grant, own
stock representing more than 10% of the voting power of all outstanding
classes of the Company's capital stock. In such cases, the applicable
exercise price of incentive stock options granted to such employees cannot be
less than 110% of the fair market value of the Company's Common Stock on the
date of grant. The Stock Plan provides that, because the Company's Common
Stock is currently traded on the Nasdaq National Market, the fair market
value per share will be the closing price on the Nasdaq National Market on
the date of grant of the option, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable.
(3) TERMINATION OF EMPLOYMENT. The Stock Plan provides that if the
optionee's continuous status as an employee, director, or consultant of the
Company is terminated for any reason, other than death or disability, options
may be exercised within 90 days of the date of termination, to the extent
they were exercisable on the date of termination, but in no event later than
the expiration date of the term of such option as set forth in the Notice of
Grant. Notwithstanding the foregoing, the Administrator may, in its
discretion, extend the period of exercisability beyond such 90 day period
until a date not later than the expiration of the term of the option. In
addition, the Administrator may in its discretion extend the termination date
of vesting accrual to a date beyond the actual termination date but not later
than the expiration date of the option.
(4) DEATH. If an optionee should die while an employee, director, or
consultant of the Company, options may be exercised at any time within twelve
months following the date of death (but in no event later than the expiration
date of the option as set forth in the Notice of Grant) by the optionee's
estate or by a person who acquired the right to exercise the option by
bequest or inheritance. In such event, the option will be exercisable only
to the extent it was exercisable on the date of death.
(5) DISABILITY. If an optionee's continuous status as an employee,
director, or consultant is terminated due to disability, options may be
exercised to the extent they were exercisable on the date of termination at
any time within six months from the date of such termination but in no event
later than the expiration of the term of such option as set forth in the
Notice of Grant.
(6) TERMINATION OF OPTIONS. Options granted under the Stock Plan expire
no later than ten years from the date of grant. However, incentive stock
options granted to an optionee who, immediately before the grant of such
option, owned more than 10% of the total combined voting power of all classes
of stock of the Company or a parent or subsidiary corporation, may not have a
term of more than five years. No option may be exercised by any person after
expiration.
(7) NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, options are not transferable by the optionee, other than by
will or the laws of descent and distribution, and are exercisable only by the
optionee during his or her lifetime or, in the event of death, by the
optionee's estate or a person who acquires the right to exercise the option
by bequest or inheritance. If the Administrator makes an option
transferable, such option shall contain such additional terms and conditions
as the Administrator deems appropriate.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR MERGER
In the event any change, such as a stock split or stock dividend, is
made in the Company's capitalization which results in an increase or decrease
in the number of outstanding shares of Common Stock, without receipt of
consideration by the Company, an appropriate adjustment shall be made in the
option price and in the number of shares subject to each option. In the
event of the proposed dissolution or liquidation of the Company, the Board is
required to notify holders of options under the Stock Plan at least 15 days
prior to the proposed action, and all outstanding options not previously
exercised will terminate automatically upon such dissolution or liquidation.
In the event of (i) a merger or consolidation of the Company with or
into another corporation in which the outstanding voting securities of the
Company immediately prior to such merger or consolidation represent less than
fifty
-7-
<PAGE>
percent (50%) of the total voting power of the surviving or resulting entity,
(ii) the sale of all or substantially all of the assets of the Company, or
(iii) the sale or other transfer by John Moores and any stockholder
affiliated (within the meaning of the Securities Act of 1933, as amended)
with Mr. Moores, in a single transaction or a series of related transactions,
of shares of the Company's Common Stock constituting more than fifty percent
(50%) of the then outstanding Common Stock of the Company, to any person or
entity not affiliated with Mr. Moores or the Company, then, upon such event,
options outstanding under the Stock Plan will fully vest and become
exercisable for all the shares subject thereto, including shares as to which
such options would not otherwise have been vested or exercisable.
AMENDMENT AND TERMINATION
The Board of Directors may amend, alter, suspend, or terminate the Stock
Plan at any time or may terminate it without approval of the stockholders.
Stockholder approval is required for any amendment to the Stock Plan to the
extent necessary or desirable to comply with Rule 16b-3 promulgated under the
Exchange Act or Section 422 of the Code, or any successor rule or statute or
other applicable law, including the requirements of any exchange or automatic
quotation system on which the Company's Common Stock may then be listed. No
action by the Board of Directors or stockholders may, without the consent of
the optionee, alter or impair any option previously granted under the Stock
Plan. Unless terminated earlier, the Stock Plan will terminate in January
2004.
TAX INFORMATION
Options granted under the Stock Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonqualified options.
INCENTIVE STOCK OPTIONS
The Code provides favorable federal income tax treatment to holders of
options qualifying as incentive stock options. Even if designated as
incentive stock options in the applicable option agreement, any options in
excess of the $100,000 limit on exercisability in any calendar year will be
deemed to be nonqualified stock options and treated as described under the
caption "Nonqualified Stock Options." If an option granted under the Stock
Plan is treated as an incentive stock option, the optionee will recognize no
income upon grant of the option and will recognize no income upon exercise of
the option unless the alternative minimum tax rules apply. The Company will
not be allowed a deduction for federal tax purposes in connection with the
exercise of an incentive stock option.
Upon the sale or exchange of shares issued more than two years after
grant of the incentive stock option and one year after exercise of the option
(the "Incentive Stock Option Holding Periods"), any gain or loss will be
treated as long-term capital gain or loss. For dispositions occurring after
July 28, 1997, long-term capital gains will be taxed at a rate of 10% (for
persons in the 15% tax bracket) or 20% (for other individuals), if the stock
was held for more than 18 months from the date of exercise. A rate of 28%
will apply in the case of stock held more than one year after exercise but
not more than 18 months. If the Incentive Stock Option Holding Periods are
not satisfied (I.E., the optionee makes a disqualifying disposition), the
optionee will recognize ordinary income at the time of sale or exchange equal
to the difference between the exercise price and the lower of (i) the fair
market value of the shares at the date of the option exercise or (ii) the
sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. Generally, the Company
will be entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss,
depending on the holding period.
NONQUALIFIED STOCK OPTIONS
All options which do not qualify as incentive stock options are referred
to as nonqualified stock options. Nonqualified stock options granted under
the Stock Plan will not qualify for any special tax benefits to the optionee.
An optionee will not recognize any taxable income at the time he or she is
granted a nonqualified option. If shares subject to a repurchase option of
the Company (I.E., unvested shares) are purchased upon exercise of a
nonqualified option, however, no tax will be imposed at the time of exercise
with respect to such unvested shares (and the optionee's long-term capital
gain holding period will not begin at such time) unless the optionee files an
election with the Internal Revenue Service pursuant to Section 83(b) of the
Code within 30 days after the date of exercise. In the absence of such
election, the optionee is taxed (and the long-term capital gain holding
period begins) at the time at which the shares vest (I.E., the time at which
the repurchase option lapses with respect to such shares), and the optionee
recognizes compensation income
-8-
<PAGE>
in the amount of the difference between the value of the shares at that time
and the option exercise price. If a Section 83(b) election is timely filed,
the unvested shares will be treated for federal income tax purposes as if
they had been vested at the time of exercise. Taxation upon exercise of the
option may also be deferred (unless a Section 83(b) election is filed) in the
case of an optionee who is subject to Section 16(b) of the Exchange Act.
Upon the exercise of an option, the optionee will recognize ordinary
income generally measured as the excess of the then fair market value of the
shares purchased over the purchase price. Generally, the Company will be
entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee with respect to shares acquired upon exercise of a
nonqualified option. Any taxable income recognized in connection with an
option exercise by an optionee who is also an employee of the Company will be
subject to tax withholding by the Company. Upon a resale of the shares
issued upon exercise of a nonqualified option, any difference between the
sales price and the fair market value of the shares on the date of exercise
of the nonqualified option (or the fair market value of the shares on the
date they become vested, if a Section 83(b) election has not been timely
filed) will be treated as capital gain or loss. Under current law, the
federal tax rate on net capital gain is capped at 28%. Capital losses are
allowed in full against capital gains plus $3,000 of other income.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to
alternative minimum tax ("AMT") under Section 55 of the Code. The AMT is
calculated by applying a tax rate of 26% to alternative minimum taxable income
("AMTI") up to $175,000, and 28% to AMTI above $175,000. AMTI is equal to
(i) taxable income adjusted for certain items (including the difference between
the exercise price and the fair market value of shares underlying an incentive
stock option at exercise), plus (ii) items of tax preference, less (iii) an
exclusion of $45,000 for joint returns and $33,750 for individual returns
(including the difference between the exercise price and the fair market value
of shares underlying an incentive stock option at exercise). However, these
exclusion amounts are reduced by an amount equal to 25% of the amount by which
the taxpayer's AMTI exceeds $150,000 and $112,500 for joint and individual
filers, respectively. Under certain circumstances, an optionee may affect the
timing and measurement of AMTI by filing an election with the Internal Revenue
Service under Section 83(b) within 30 days after the date of exercise of an
incentive stock option.
TAX SUMMARY
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Stock Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PARTICIPATION IN THE STOCK PLAN; NEW PLAN BENEFITS
The grant of options under the Stock Plan to consultants, non-employee
directors and executive officers, including the officers named in the Summary
Compensation Table below, is subject to the discretion of the Administrator. As
of the date of this proxy statement, there has been no determination by the
Administrator with respect to future awards under the Stock Plan to any
executive officer of the Company. Accordingly, future awards are not
determinable. The table of option grants under "Executive Compensation and
Other Matters--Option Grants in Last Fiscal Year" provides information with
respect to the grant of options to the chief executive officer and the other
executive officers named in the Summary Compensation Table below during fiscal
1998.
Non-employee directors were not eligible to participate in the Stock
Plan in fiscal 1998. Information regarding options previously granted to
non-employee Directors under predecessor plans is discussed under the caption
"Director Compensation" in Proposal 1 of this Proxy Statement.
During fiscal 1998, all current executive officers as a group and all other
employees as a group received options to purchase 685,000 shares and 911,700
shares, respectively, pursuant to the Stock Plan.
-9-
<PAGE>
PROPOSAL THREE
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
Article FOURTH of the Company's Amended and Restated Certificate of
Incorporation currently authorizes the Company to issue up to 50,000,000
shares of its common stock, par value $0.001 per share, and 5,000,000 shares
of undesignated Preferred Stock, par value $0.001 per share. The authorized
common stock is all of a single class, with equal voting, distribution,
liquidation, and other rights. As of the Record Date, 19,581,143 shares of
the Company's Common Stock were issued and outstanding, and no shares of the
Company's authorized Preferred Stock were outstanding. The Board of
Directors of the Company has approved an amendment to Article FOURTH of the
Articles of Incorporation to increase the number of shares of Common Stock
authorized for issuance from 50,000,000 to 200,000,000.
During fiscal 1998, the company issued approximately 1,700,000 shares of
its Common Stock in connection with the acquisition of Apsylog S.A. through
its parent, United Software, Inc., and anticipates issuing approximately
3,400,000 additional shares of its common stock in connection with the recent
acquisition of Innovative Tech Systems, Inc. Although the Company has no
immediate plans to issue additional shares of Common Stock (other than upon
exercise of outstanding options and in connection with the acquisition of
Innovative), the Company anticipates that it may in the future issue
additional shares in connection with other acquisitions and corporate
transactions, including stock splits or stock dividends; financing
transactions, including public offerings of Common Stock or convertible
securities; pursuant to its stock incentive plans; or otherwise for corporate
purposes that have not yet been identified.
In order for the Board of Directors to respond to growth of the
Company's business which may occur in the future, the Company must have a
sufficient number of authorized shares to permit the Company to engage in
such corporate transactions without obtaining a stockholder vote. An
increase in the number of authorized shares of Common Stock will provide the
Company the certainty and flexibility to undertake such transactions without
stockholder action. Under Delaware law, for example, the Board of Directors
cannot approve a stock dividend unless sufficient authorized shares are
available. Since there are currently over 19,000,000 issued and outstanding
shares of the Company's Common Stock, 3,400,000 are anticipated to be issued
in connection with the acquisition of innovative, and approximately 4,000,000
are reserved for future issuance to holders under all the Company's stock
incentive plans, the number of shares of Common Stock currently authorized
for issuance is insufficient to permit the Board of Directors sufficient
flexibility to continue the Company's growth. If, for example, the Company
were to declare a 2-for-1 stock split, typically effected in the form of a
stock dividend, the Company would not have sufficient authorized shares
available for issuance absent stockholder approval of an increase in the
number of authorized shares. Although the Company is not currently
contemplating any stock split or stock dividend, any additional authorized
shares will provide the board with the flexibility to undertake such action
without impairing the Company's ability to engage in other transactions.
If this amendment is adopted, the additional shares of Common Stock may
be issued by direction of the Company's Board of Directors at such times, in
such amounts, and upon such terms as the Board of Directors of the Company
may determine, without further approval of the stockholders unless, in any
instance, such approval is expressly required by regulatory agencies, The
NASDAQ Stock Market (or any other exchange or quotation service on which the
company's common stock may then be listed), or otherwise. Stockholders of
the Company will have no preemptive rights to purchase additional shares.
The adoption of the amendment will not of itself cause any change in the
capital accounts of the Company. The issuance of additional shares of Common
Stock could dilute the existing stockholders' equity interest in the Company,
however.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock will be required to approve this
proposal. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL AND
RECOMMENDS THE STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION TO SET THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK AT 200,000,000.
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<PAGE>
PROPOSAL FOUR
APPROVAL OF RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY
AND CHIEF EXECUTIVE OFFICER
The Company and Stephen P. Gardner, its President and Chief Executive
Officer and a member of the Board of Directors, are parties to a restricted
stock agreement, dated November 1, 1997, pursuant to which the Company issued
Mr. Gardner 50,000 shares of Peregrine Common Stock. The shares issued to
Mr. Gardner vest incrementally over 10 years, subject to accelerated vesting
over 6 years contingent upon the Company's achieving certain financial
milestones relating to targets for earnings per share. In the event Mr.
Gardner remains employed with the Company and the Company achieves the
earning targets specified in the agreement, the shares would become fully
vested in six equal installments ending at the end of the respective fiscal
year of the Company. In the event the Company fails to achieve the earnings
target in a given year and, as a result, no shares become vested, such
increment may become vested if the Company achieves the earnings target for
the subsequent year (at which time vesting would accelerate with respect to
the share increments for both the subsequent fiscal year and the prior fiscal
year). In the event Mr. Gardner's employment should terminate as a result of
his death or permanent disability, his shares would continue to vest based on
the Company's achieving the financial targets established in the Agreement.
In any event, all shares will become fully vested in the event of a merger or
change in control transaction involving another party. The restricted stock
agreement permits Mr. Gardner to surrender shares to satisfy withholding tax
obligations that arise as the shares vest. Accordingly, in connection with
the vesting of 8,333 shares of restricted stock in April 1998, Mr. Gardner
surrendered 2,955 shares to satisfy withholding tax obligations.
The approval by the Company's stockholders of the issuance of the
Company's Common Stock to Mr. Gardner pursuant to the foregoing restricted
stock agreement is required by the rules of The Nasdaq Stock Market governing
corporations with securities listed on the Nasdaq National Market. As set
forth in this proxy statement under the caption "Report of the Compensation
Committee of the Board of Directors," the Company believes that the
restricted stock arrangement with Mr. Gardner effectively implements its
compensation philosophy of aligning management interests with stockholder
interests. The financial milestones in Mr. Gardner's agreement were
established at levels the Board of Directors determined to be aggressive yet
realizable based on information available at the time of grant concerning the
Company's prospects. The Company believes that such targets remain effective
incentives for Mr. Gardner.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the Company's
Common Stock present or represented and voting at the Annual Meeting will be
required to approve this proposal. THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THIS PROPOSAL AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND MR. GARDNER.
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to audit the financial statements of the Company for the current
fiscal year ending March 31, 1999. The Company expects that a representative
of Arthur Andersen LLP will be present at the Annual Meeting, will have the
opportunity to make a statement if he or she desires to do so, and will be
available to answer any appropriate questions.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented and voting at the Annual
Meeting will be required to approve this proposal. THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THIS PROPOSAL AND RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by (i) each person or entity who is
known by the Company to own beneficially 5% or more of the Company's outstanding
Common Stock; (ii) each member of the Company's Board of Directors; (iii) each
of the Named Executive Officers (as defined in the Summary Compensation Table
appearing on page 14); and (iv) all current directors and executive officers of
the Company as a group. All information contained in the table below is based on
beneficial ownership as of May 31, 1998.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (2)
-----------------------
PERCENTAGE
NAME AND ADDRESS (1) NUMBER OWNERSHIP
- -------------------- ------------ -----------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Putnam Investments, Inc. (3)
One Post Office Square
Boston, Massachusetts 02109 . . . . . . . . . . 1,063,401 5.5%
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
Stephen P. Gardner (4) . . . . . . . . . . . . . . 77,045 *
David A. Farley (5). . . . . . . . . . . . . . . . 504,408 2.6
William G. Holsten (6) . . . . . . . . . . . . . . 78,194 *
Frederic B. Luddy (7). . . . . . . . . . . . . . . 83,674 *
Douglas S. Powanda (8) . . . . . . . . . . . . . . 71,150 *
John J. Moores (9) . . . . . . . . . . . . . . . . 9,524,167 49.4
Norris van den Berg (10) . . . . . . . . . . . . . 102,336 *
Christopher A. Cole (11) . . . . . . . . . . . . . 630,821 3.3
Richard A. Hosley II (12). . . . . . . . . . . . . -- *
Charles E. Noell III (13). . . . . . . . . . . . . 99,587 *
All current executive officers and directors as a
group (14 persons) (14). . . . . . . . . . . . . . 11,123,244 58.6%
FORMER EXECUTIVE OFFICERS
Alan H. Hunt (15). . . . . . . . . . . . . . . . . 409,408 2.1
Douglas F. Garn (16) . . . . . . . . . . . . . . . 12,500 *
</TABLE>
___________
* Less than 1%
(1) The persons named in the table above have sole voting and investment power
with respect to all shares of the Company's Common Stock shown as
beneficially owned by them, subject to applicable community property laws,
and to the information contained in footnotes to this table. Unless
otherwise indicated, the address for each listed stockholder is
c/o Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego, California
92130.
(2) Applicable percentage ownership is based on 19,264,932 shares of Company
Common Stock outstanding as of May 31, 1998. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities subject to community property laws, where applicable. Shares
of the Company's Common Stock subject to options that are presently
exercisable or exercisable within 60 days of May 31, 1998 are deemed to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person. To the extent that any shares are issued upon exercise of
options, warrants or other rights to acquire the Company's capital stock
that are presently outstanding or granted in the future or reserved for
future issuance under the Company's stock plans, there will be further
dilution to new investors.
(3) Based solely on a Schedule 13G, dated January 16, 1998, filed with the
Commission on January 21, 1998.
(4) Includes 25,000 shares of Company Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998 and 47,045 shares subject to a
restricted stock agreement. Mr. Gardner is the Company's President and
Chief Executive Officer and a member of the Board of Directors.
(5) Includes 200,000 shares subject to a restricted stock agreement. Mr. Farley
is the Company's Vice President, Finance, and Chief Financial Officer and a
member of the Board of Directors.
(6) Includes 57,194 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. Mr. Holsten is the Company's
Vice President, Professional Services.
(7) Includes 81,250 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. Mr. Luddy is the Company's Vice
President, North American Research and Development.
(8) Includes 71,149 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. Mr. Powanda is the Company's
Vice President, Worldwide Sales.
(9) Includes 3,623,700 shares held by Mr. Moores as trustee under various
trusts, substantially all of which were established for members of
Mr. Moores's family. Mr. Moores is Chairman of the Board of Directors.
(10) Includes 45,000 shares of Company Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. Mr. van den Berg is a member of
the Board of Directors.
(11) Mr. Cole is a member of the Board of Directors.
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<PAGE>
(12) Mr. Hosley is a member of the Board of Directors.
(13) Includes 45,000 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. Mr. Noell is a member of the
Board of Directors.
(14) Includes 391,125 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998.
(15) Includes 65,000 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998 and 344,408 shares subject to a
restricted stock agreement. In connection with his resignation as the
Company's President and Chief Executive Officer in January 1998, Mr. Hunt
and the Company entered into an agreement pursuant to which 215,000 shares
of Common Stock subject to options held by Mr. Hunt will continue to vest
through January 1999 (such that 115,000 shares would be fully vested as of
January 31, 1999 assuming Mr. Hunt does not elect to exercise any
additional vested options prior to such time) and remain exercisable until
May 1, 1999. In addition, 344,408 shares of Common Stock subject to
Mr. Hunt's restricted stock agreement will continue to vest through
March 31, 1998 (such that 142,408 shares will be fully vested on March 31,
1998).
(16) Includes 12,500 shares of Common Stock issuable upon exercise of
outstanding stock options which are presently exercisable or will become
exercisable within 60 days of May 31, 1998. In connection with his
resignation as the Company's Vice President, North American sales in
January 1998, Mr. Garn and the Company entered into an agreement pursuant
to which 12,500 shares of Common Stock subject to outstanding options held
by Mr. Garn will continue to vest through July 1, 1998 (such that all
12,500 shares will be fully vested as of July 1, 1998) and remain
exercisable until September 29, 1998.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth in summary form information concerning
the compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during the fiscal years ended March 31, 1996, 1997,
and 1998 respectively by (i) the Company's President and Chief Executive
Officer and (ii) the Company's next five most highly compensated executive
officers whose salary and bonus for fiscal 1998 exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
-----------------------------
ANNUAL COMPENSATION (1) RESTRICTED SECURITIES
FISCAL ---------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(#) COMPENSATION
- ----------------------------------- ----------- ------------ -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Stephen P. Gardner(2).............. 1998 $139,000 $210,000(8) $775,000(15) 150,000 $5,156(18)
President and 1997 -- -- -- -- --
Chief Executive Officer 1996 -- -- -- -- --
David A. Farley(3)................. 1998 150,000 296,490(9) -- -- 3,337(19)
Vice President, Finance, 1997 150,000 126,240 -- -- 2,712
and Chief Financial Officer 1996 120,000 73,146 468,000(16) 200,000 100,321
William G. Holsten(4).............. 1998 90,000 159,547(10) -- 30,000 4,723(20)
Vice President, 1997 90,000 120,000 -- 50,000 4,481
Professional Services 1996 90,000 201,574 -- 100,000 35,387
Frederic B. Luddy(5)............... 1998 150,000 729,060(11) -- 25,000 3,946(21)
Vice President, North 1997 150,000 211,925 -- -- 2,712
American Research and 1996 150,000 133,920 -- 25,000 2,712
Development
Douglas S. Powanda................. 1998 150,000 309,523(12) -- 75,000 3,946(22)
Vice President, 1997 150,000 104,300 -- 50,000 2,885
Worldwide Sales 1996 106,000 179,127 -- -- 7,704
FORMER EXECUTIVE OFFICERS
Alan H. Hunt(6).................... 1998 187,500 560,336(13) -- -- 57,102(23)
President and Chief 1997 225,000 225,160 -- -- 4,862
Executive Officer 1996 192,500 130,557 936,000(17) 400,000 16,968
Douglas F. Garn(7)................. 1998 122,747 153,257(14) -- -- 7,845(24)
Vice President, North 1997 150,000 197,324 -- 200,000 18,788
American Sales 1996 -- -- -- -- --
</TABLE>
___________
(1) Other than the salary and bonus described herein, the Company did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during either fiscal 1998, fiscal
1997, or fiscal 1996.
(2) Mr. Gardner became the Company's President and Chief Executive Officer and
a member of the Board of Directors in April 1998. From January 1998 to
April 1998, Mr. Gardner served as the Company's Executive Vice President
and Principal Executive Officer and from May 1997 to January 1998 as the
Company's Vice President, Strategic Acquisitions.
(3) Mr. Farley became the Company's Vice President, Finance, and Chief
Financial Officer in October 1995. Mr. Farley's salary and bonus for fiscal
1996 include amounts paid to him as Vice President, Finance, and Chief
Financial Officer of XVT. The Company acquired XVT in October 1995.
(4) Mr. Holsten became the Company's Vice President, Professional Services in
November 1995. Mr. Holsten's salary and bonus for fiscal 1996 include
amounts paid to him as Director, Professional Services, of XVT.
(5) Mr. Luddy became the Company's Vice President, North American Research and
Development in January 1998. Mr. Luddy's salary and bonus for fiscal 1998,
1997, and 1996 include amounts paid to him as Chief Architect of the
Company's SERVICECENTER product line.
(6) Mr. Hunt resigned as the Company's President and Chief Executive Officer in
January 1998. Mr. Hunt's salary and bonus for fiscal 1996 include amounts
paid to him as President and Chief Executive Officer of XVT.
(7) Mr. Garn resigned as the Company's Vice President, North American Sales, in
January 1998.
(8) Bonus compensation for fiscal 1998 includes $50,000 earned in fiscal 1998
to be paid in fiscal 1999.
-14-
<PAGE>
(9) Bonus compensation for fiscal 1998 includes $90,925 earned in fiscal 1998
to be paid in fiscal 1999. Bonus compensation for fiscal 1997 includes
$156,240 earned in fiscal 1997 but paid in fiscal 1998. Bonus compensation
for fiscal 1996 includes $35,000 earned in fiscal 1996 but paid in fiscal
1998.
(10) Bonus compensation for fiscal 1998 includes $15,000 earned in fiscal 1998
to be paid in fiscal 1999.
(11) Bonus compensation for fiscal 1998 consists of (i) $555,519 of product
authorship commission income earned and paid in fiscal 1998 and
(ii) $173,541 of product authorship commission income earned in fiscal 1998
to be paid in fiscal 1999. Bonus compensation for fiscal 1997 and 1996
consists entirely of product authorship commissions.
(12) Bonus compensation for fiscal 1998 consists of (i) $10,000 of bonus
compensation and $195,053 of commission income earned and paid in fiscal
1998 and (ii) $115,570 of commission income earned in fiscal 1998 to be
paid in fiscal 1999. Bonus compensation for fiscal 1997 consists of
(i) $32,531 of bonus compensation and $26,769 of commission income earned
and paid in fiscal 1997 and (ii) $34,000 of bonus compensation and $11,000
of commission income earned in fiscal 1997 but paid in fiscal 1998. Bonus
compensation for fiscal 1996 consists of (i) $131,492 of bonus compensation
and $4,725 of commission income earned and paid in fiscal 1996 and
(ii) $37,351 of bonus compensation and $5,559 of commission income earned
in fiscal 1996 but paid in fiscal 1997.
(13) Bonus compensation for fiscal 1997 includes $136,500 earned in fiscal 1997
but paid in fiscal 1998. Bonus compensation for fiscal 1996 includes
$65,000 earned in fiscal 1996 but paid in fiscal 1997.
(14) Bonus compensation for fiscal 1998 consists of $46,602 of bonus
compensation and $106,646 in commission income. Bonus compensation for
fiscal 1997 consists of (i) $68,426 of bonus compensation and $75,898 of
commission income earned and paid in fiscal 1997 and (ii) $33,000 of bonus
compensation and $20,000 of commission income earned in fiscal 1997 but
paid in fiscal 1998.
(15) In October 1997, the Company issued Mr. Gardner an aggregate of 50,000
shares of Common Stock pursuant to a restricted stock agreement. The
closing sale price of the Company's Common Stock on the Nasdaq National
Market on October 31, 1997, the last trading date prior to the date of
issuance, was $15.50. Such shares vest incrementally over ten years,
subject to earlier vesting over six years contingent upon the Company's
achieving certain financial milestones.
(16) In November 1995, the Company issued Mr. Farley an aggregate of 200,000
shares of Common Stock pursuant to a restricted stock agreement in
connection with his initial employment. The estimated fair value of such
shares at the time of issuance was $2.34 per share. Such shares vest
incrementally over ten years subject to earlier vesting over six years
contingent upon the Company's achieving certain financial milestones.
(17) In November 1995, the Company issued Mr. Hunt an aggregate of 400,000
shares of Common Stock pursuant to a restricted stock agreement in
connection with his initial employment. The estimated fair value of such
shares at the time of issuance was $2.34 per share. Pursuant to an
agreement entered into with Mr. Hunt in connection with his resignation as
the Company's President and Chief Executive Officer in January 1998, the
shares of Company Common Stock subject to such restricted stock agreement
will continue to vest through March 31, 1998.
(18) Represents $281 in group life insurance excess premiums and $4,875 in
matching contribution under the Company's 401(k) paid by the Company in
fiscal 1998.
(19) Represents $337, $337 and $84 in group life insurance excess premiums paid
by the Company in fiscal 1998, 1997 and 1996, respectively; $3,000, $2,375
and $1,875 in matching contributions under the Company's 401(k) plan paid
by the Company in fiscal 1998, 1997 and 1996, respectively; and $98,362 in
relocation expenses paid by the Company in fiscal 1996.
(20) Represents $2,317, $2,106 and $509 in group life insurance excess premiums
paid by the Company in fiscal 1998, 1997 and 1996, respectively; $2,406,
$2,375 and $594 in matching contributions under the Company's 401(k) plan
paid by the Company in fiscal 1998, 1997 and 1996, respectively; and
$34,284 in relocation expenses paid by the Company in fiscal 1996.
(21) Represents $337, $337 and $337 in group life insurance premiums paid by the
Company in fiscal 1998, 1997 and 1996, respectively and $2,500, $2,375 and
$2,375 in matching contributions under the Company's 401(k) plan paid by
The Company in fiscal 1998, 1997 and 1996, respectively.
(22) Represents $337, $337 and $248 in group life insurance excess premiums paid
by the Company in fiscal 1998, 1997 and 1996, respectively; $3,609, $2,548
and $2,340 in matching contributions under the Company's 401(k) plan paid
by the Company in fiscal 1998, 1997 and 1996, respectively; and $5,116 in
relocation expenses paid by the Company in fiscal 1996.
(23) Represents $1,114, $1,084 and $238 in group life insurance excess premiums
paid by the Company in fiscal 1998, 1997 and 1996, respectively; $2,628,
$3,778 and $844 in matching contributions under the Company's 401(k) plan
paid by the Company in fiscal 1998, 1997 and 1996, respectively; $37,500
and $15,860 in consulting services and accrued vacation payments,
respectively, paid by the Company in fiscal 1998; and $15,886 in relocation
expenses paid by the Company in fiscal 1996. Amounts paid for consulting
were made in accordance with the terms of Mr. Hunt's severance arrangements
with the Company.
(24) Represents $163 and $218 in group life insurance excess premiums paid by
the Company in fiscal 1998 and 1997, respectively; $896 and $4,604 in
matching contributions under the Company's 401(k) plan paid by the Company
in fiscal 1998 and 1997, respectively; $6,786 in accrued vacation payments
paid by the Company in fiscal 1998; and $13,966 in relocation expenses paid
by the Company in fiscal 1997.
-15-
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth certain information relating to stock
options awarded to each of the Named Executive Officers during the fiscal year
ended March 31, 1998. All such options were awarded under the Company's 1994
Stock Option Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUES AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTIONS TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL 1998 (2) SHARE (3)(4) DATE (5) 5% 10%
- ------------------------------ ----------- ---------------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Stephen P. Gardner............. 100,000 6.26% $ 9.00 05/12/07 $566,005 $1,434,368
50,000 3.13 12.50 01/23/08 393,059 996,089
David A. Farley................ -- -- -- -- -- --
William G. Holsten............. 30,000 1.88 18.00 03/31/08 339,603 860,621
Fredric B. Luddy............... 25,000 1.57 12.50 01/23/08 196,530 498,045
Douglas S. Powanda............. 75,000 4.70 12.50 01/23/08 589,589 1,494,134
FORMER EXECUTIVE OFFICERS
Alan H. Hunt................... -- -- -- -- -- --
Douglas F. Garn................ -- -- -- -- -- --
</TABLE>
_______________
(1) Potential realizable value is based on the assumption that the Company's
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future prices for
the Company Common Stock.
(2) Based on options to acquire 1,596,700 shares granted under the Company's
1994 Stock Option Plan during fiscal 1998. All options granted to the
Company's Named Executive Officers during fiscal 1998 are governed by the
Company's 1994 Stock Option Plan.
(3) Options were granted at an exercise price equal to the closing sales of the
Company's Common Stock on the date of grant as reported by the Nasdaq
National Market.
(4) Exercise price may be paid in cash, check, by delivery of already-owned
shares of the Company's Common Stock subject to certain conditions, or
pursuant to a cashless exercise procedure under which the optionee provides
irrevocable instructions to a brokerage firm to sell the purchased shares
and to remit to the Company, out of the sale proceeds, an amount equal to
the exercise price plus all applicable withholding taxes.
(5) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the Company's 1994 Stock Option Plan become vested on the
first anniversary of the date of grant, and the remaining shares vest over
three years at the rate of 6.25% of the shares subject to option at the end
of each three-month period thereafter.
-16-
<PAGE>
AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the
exercise of options by the Named Executive Officers during the fiscal year
ended March 31, 1998 and stock options held as of March 31, 1998 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 1998 MARCH 31, 1998 (2)
ACQUIRED VALUE ----------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED ($)(1) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- -------------- ------------ --------------- --------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Stephen P. Gardner........ -- -- -- 150,000 -- 1,343,750
David A. Farley........... 112,500 1,202,375 -- 87,500 -- 1,468,688
William G. Holsten........ 25,000 291,500 47,819 108,125 800,848 1,345,078
Frederic B. Luddy......... -- -- 81,250 43,750 1,463,681 477,844
Douglas S. Powanda........ 25,101 362,217 122,399 127,500 2,069,467 1,378,088
FORMER EXECUTIVE OFFICERS
Alan H. Hunt(3)........... -- -- 225,000 175,000 3,776,625 2,937,375
Douglas F. Garn(4)........ 87,500 1,316,188 -- 112,500 -- 1,888,318
</TABLE>
____________
(1)Based on the fair market value of Peregrine Common Stock on the date of
exercise minus the exercise price.
(2)Amounts reflecting gains on outstanding stock options are based on the
closing price of the Company's Common Stock on March 31, 1998 of $19.125.
(3)In April 1998, Mr. Hunt exercised options to purchase an aggregate of
185,000 shares of the Company's Common Stock, which resulted in an
aggregate realized value of $4,238,968.
(4)In May 1998, Mr. Garn exercised options to purchase 12,500 shares of the
Company's Common Stock, which resulted in an aggregate realized value of
$245,750.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not currently have any employment contracts in effect with
any Named Executive Officer.
The Company and Stephen P. Gardner, its Chief Executive Officer, are
parties to a restricted stock agreement dated November 1, 1997 pursuant to which
the Company issued Mr. Gardner 50,000 shares of Common Stock. The Company and
David A. Farley, its Chief Financial Officer, are parties to a substantially
equivalent restricted stock agreement dated November 1, 1995 pursuant to which
the Company issued Mr. Farley 200,000 shares of Common Stock. The shares
issued to each of Messrs. Gardner and Farley vest incrementally over ten years,
subject to earlier vesting over six years contingent upon the Company's
achieving certain financial milestones. The restricted stock agreements permit
either Mr. Gardner or Mr. Farley to surrender shares to satisfy withholding tax
obligations that arise as the shares vest. In connection with the vesting of
8,333 shares in April 1998, Mr. Gardner surrendered 2,955 shares subject to his
restricted stock agreement. In the event of a merger or change in control of
the Company, all such shares will become automatically vested.
The Company is also party to a restricted stock agreement dated November 1,
1995 with Alan H. Hunt, who resigned in January 1998 as the Company's President
and Chief Executive Officer and as a member of the its Board. Pursuant to the
restricted stock agreement with Mr. Hunt, the Company issued Mr. Hunt 400,000
shares of Company Common Stock. Such shares were to vest incrementally over ten
years, subject to earlier vesting over six years contingent upon the Company
achieving certain financial milestones. In connection with the vesting of
66,000 shares in each of April 1997 and April 1998, Mr. Hunt surrendered 28,296
and 27,296 shares, respectively, to satisfy withholding tax obligations as
permitted by his restricted stock agreement. In January 1998, in connection
with his resignation, the Company and Mr. Hunt entered a separate agreement
pursuant to which the Company retained Mr. Hunt as consultant through
January 1999 at a monthly fee of $18,750. In addition, the agreement provides
that options held by Mr. Hunt to acquire 215,000 shares of Company Common Stock
under the Stock Plan will continue to vest through January 1999 (such that
115,000 shares would be fully vested as of January 31, 1999) and remain
exercisable until May 1, 1999. In addition, the shares subject to the
restricted stock agreement between the Company and Mr. Hunt will also continue
to vest through March 31, 1999 (such that 142,408 shares will be vested on
March 31, 1999, subject to the Company's achieving the financial milestones set
forth in the original restricted stock agreement). In connection with his
resignation, Mr. Hunt also agreed not to engage in any activities that are
competitive with those of the Company for a period of three years ending
January 2001.
-17-
<PAGE>
In connection with his resignation as the Company's Vice President,
North American Sales in January 1998, Douglas F. Garn and the Company entered
into an agreement whereby Mr. Garn agreed not to engage in activities that
are competitive with those of the Company for a period of one year ending
January 1999. Pursuant to the terms of Mr. Garn's agreement, the Company has
agreed that the options under the Stock Plan to acquire 12,500 shares of
Company Common Stock held by Mr. Garn will continue to vest until July 1,
1998 (such that such options would be vested with respect to all 12,500
shares at such date) and remain exercisable until September 29, 1998.
Under the Stock Plan, in the event of a merger or a change in control of
the Company, vesting of options outstanding under the Stock Plan will
automatically accelerate such that outstanding options will become fully
exercisable, including with respect to shares for which such options would be
otherwise unvested.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, THIS
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS SHALL NOT BE
DEEMED "FILED" WITH THE COMMISSION OR "SOLICITING MATERIAL" UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS.
The Compensation Committee of the Board of Directors (the "Committee")
establishes the general compensation policies of the Company and the
compensation plans and the specific compensation levels for senior
executives, including the Company's Chief Executive Officer.
GENERAL COMPENSATION PHILOSOPHY
The primary objectives of the Company's executive compensation policies
include the following:
- To attract, motivate, and retain a highly qualified executive
management team;
- To link executive compensation to the Company's financial
performance as well as to defined individual management
objectives established by the Committee;
- To compensate competitively with the practices of similarly
situated technology companies; and
- To create management incentives designed to enhance stockholder
value.
The Company competes in an aggressive and dynamic industry and, as a
result, believes that finding, motivating, and retaining quality employees,
particularly senior managers, sales personnel, and technical personnel are
key factors to the Company's future success. The Committee's compensation
philosophy seeks to align the interests of stockholders and management by
tying compensation to the Company's financial performance, either directly in
the form of salary and bonuses paid in cash or indirectly in the form of
appreciation of stock options and in certain instances, restricted stock
granted to principal executive officers of the Company.
CASH COMPENSATION
The Company seeks to provide cash compensation to its executive officers,
including base salary and an annual cash bonus, at levels that are commensurate
with cash compensation of executives with comparable responsibility at similarly
situated technology companies. Annual increases in base salary are determined
on an individual basis based on market data and a review of the officer's
performance and contribution to various individual, departmental, and corporate
objectives. Cash bonuses are intended to provide additional incentives to
achieve such objectives.
The salaries and cash bonuses of each of the executive officers of the
Company, other than the Chief Executive Officer, were determined by the Board of
Directors, upon the recommendation of the Chief Executive Officer. The Chief
Executive Officer's base salary was determined by the Board of Directors, upon
the recommendation of the Committee. Alan H. Hunt served as the Company's
President and Chief Executive Officer from November 1995 to January 1998.
During each of fiscal 1996 and fiscal 1997, Mr. Hunt's base annual salary was
$225,000. In January 1998, Stephen P. Gardner became the Company's Executive
Vice President and Principal Executive Officer and in April 1998 became the
Company's President and Chief Executive Officer. The Board of Directors has set
Mr. Gardner's base annual salary for fiscal 1999 at $250,000.
-18-
<PAGE>
In addition to annual salary, cash bonuses for the Company's President
and Chief Executive Officer and its Chief Financial Officer are allocated on
a mutually agreed basis from a bonus pool established by the Board of
Directors. Cash bonuses may also be earned by operational vice presidents
based on their divisional financial performance. Cash bonuses of $560,336
and $296,490 were paid to Messrs. Hunt and Farley, respectively, during
fiscal 1998 as a result of the Company's achieving various financial and
operational targets, including improvements in financial performance and the
successful completion of its initial public offering. The Company paid bonus
compensation of $210,000 to Mr. Gardner during fiscal 1998 in connection with
his responsibilities as Vice President-Strategic Acquisitions and, beginning
in January 1998, as Executive Vice President and Principal Executive Officer.
Based on a review of public company proxy data, compensation data
supplied by independent executive compensation research and consulting firms,
and other relevant market data, the Committee believes that cash compensation
paid to the Company's executive officers, including those individuals who
served as its Chief Executive Officer, were generally consistent with amounts
paid to officers with similar responsibilities at similarly situated software
companies. The Company notes that competition for qualified management and
technical personnel in the technology industry is extremely intense, and the
Company expects such competition to remain intense for the foreseeable
future. As a result, in order to insure access to qualified personnel, the
Company believes that it will continue to be necessary to provide
compensation packages, consisting of cash compensation and equity incentives,
that are at least competitive with, and in certain instances superior to,
compensation paid by other technology companies.
EQUITY-BASED COMPENSATION
RESTRICTED STOCK. In November 1995, the Company granted Alan H. Hunt,
then President and Chief Executive Officer, and David A. Farley, its Chief
Financial Officer, in connection with their becoming officers of the Company,
400,000 shares and 200,000 shares, respectively, of Common Stock pursuant to
restricted stock agreements. The shares issued to Messrs. Hunt and Farley
under the restricted stock agreements vest incrementally over ten years,
subject to earlier vesting over six years, contingent upon the Company's
achieving certain financial milestones.
The Company believes that such restricted stock arrangements effectively
implement its philosophy of aligning management interests with stockholder
interests. Both Mr. Hunt and Mr. Farley joined the Company prior to its
initial public offering. At the time, the Company had incurred substantial
operating losses, and the Board of Directors charged them with improving the
Company's financial condition and operating performance. Because
restrictions on the shares issued under the restricted stock agreements lapse
early if the Company achieves certain targeted financial performance
milestones, the Board of Directors believed that such grants provided an
effective incentive to the Chief Executive Officer and Chief Financial
Officer to take the necessary actions to improve the Company's financial
performance. The financial targets in the restricted stock agreements were
intended to be aggressive yet realizable. As a result of measurable
improvement in the Company's financial performance and condition in both
fiscal 1997 and fiscal 1998, restrictions have lapsed with respect to an
aggregate of 132,000 shares for Mr. Hunt and 66,000 shares for Mr. Farley.
In addition, the restricted stock agreements permit the stockholder to
surrender shares to satisfy withholding tax obligations that arise as the
restrictions lapse. In connection with the lapse of vesting restrictions,
Mr. Hunt surrendered 28,296 shares in April 1997 and 27,296 shares in April
1998.
In November 1997, the Company issued 50,000 shares of Common Stock to
Stephen P. Gardner, then the Company's Vice President-Strategic Acquisitions
and now the Company's President and Chief Executive Officer, under a
restricted stock agreement containing substantially similar terms to the
agreements previously entered between the Company and Messrs. Hunt and
Farley. The targeted financial milestones, however, were adjusted upward to
reflect the Company's improved financial performance but were again set at
levels the Board determined to be aggressive yet realizable based on
information available concerning the Company's prospects at the time of
grant. In connection with the lapse of vesting restrictions on 8,333 shares,
Mr. Gardner surrendered 2,955 shares in April 1998 to satisfy tax withholding
obligations.
STOCK OPTIONS. Stock options are periodically granted to provide
additional incentive to executives and other employees to maximize long-term
total return to the Company's stockholders. Stock options are a particularly
strong incentive because they are valuable to employees only if the fair market
value of the Company's Common Stock increases above the exercise price, which is
set at the fair market value of the Company Common Stock on the date the option
is granted. In addition, employees must remain employed with the Company for a
fixed period of time in order for the options to vest fully. Options generally
vest over a four year period to encourage option holders to continue in the
employ of the Company.
-19-
<PAGE>
All of the options granted in the year ended March 31, 1998 were
approved by the Committee, pursuant to its delegated authority, or the full
Board of Directors. In making its determinations, the Committee considers the
executive's position at the Company, such executive's individual performance,
the number of options held (if any) and the extent to which such options are
vested, and any other factors that the Committee may deem relevant.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits the federal income
tax deductibility of compensation paid to the Company's Chief Executive
Officer and to each of the other four most highly-compensated executive
officers. The Company may deduct such compensation only to the extent that
during any fiscal year the compensation paid to such individual does not
exceed $1 million or meet certain specified conditions (including stockholder
approval). Based on the Company's current compensation plans and policies
and proposed regulations interpreting this provision of the Code, the Company
and the Committee believe that, for the near future, there is little risk
that the Company will lose any significant tax deduction for executive
compensation.
THE COMPENSATION COMMITTEE
John J. Moores
Charles E. Noell III
Richard A. Hosley II
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than
10% of a registered class of the Company's equity securities to file reports
of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the
Securities and Exchange Commission (the "SEC"). Such officers, directors,
and 10% stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) reports they file. Based solely on its
review of the copies of such forms received by it, or written representations
from certain reporting persons, the Company believes that during fiscal 1998,
and with the exception of a Form 3 filed late inadvertently by Stephen P.
Gardner, all executive officers and directors of the Company complied with
all applicable filing requirements.
CERTAIN TRANSACTIONS
John J. Moores, the Chairman of the Company's Board of Directors and the
majority stockholder of the Company, was party to a Continuing and
Unconditional Guaranty dated November 13, 1995 (as subsequently amended) with
NationsBank of Texas, N.A., pursuant to which Mr. Moores guaranteed the
Company's obligations under its bank line of credit agreement and term loan.
Both the credit line and the term loan were repaid from proceeds of the
Company's April 1997 initial public offering, and the Company terminated the
line of credit agreement in September 1997. The Company's current line of
credit with another bank is not guaranteed by Mr. Moores.
The Company and JMI Services, Inc., an investment management company
("JMI Services"), are parties to a sublease pursuant to which the Company
subleases approximately 13,310 square feet of office space at its San Diego
headquarters to JMI Services. The term of the sublease is from June 1, 1996
through October 21, 2003. The sublease provides for initial monthly rental
payments of $16,638 to increase by $666 per month on each anniversary of the
sublease. Mr. Moores serves as Chairman of the Board of JMI Services, and
Charles E. Noell, III, a director of the Company, serves as President and
Chief Executive Officer of JMI Services. The Company believes that the terms
of the sublease are at competitive market rates.
The Company leases a suite at San Diego's Qualcomm Stadium at
competitive rates and on an informal basis from the San Diego Padres Baseball
Club, L.P. (the "Padres"). Mr. Moores has served as owner and Chairman of the
Board of the Padres since December 1994. The Company's annual payments for
such suite and game tickets total approximately $45,000.
From October 1993 through September 1994, the Company made various
short-term advances to Frederic B. Luddy, its Vice President, North American
Research and Development, totaling approximately $360,000. The advances were
non-interest bearing and were paid back each pay period, beginning in March
1994, at the rate of one half of Mr. Luddy's product authorship commission
amount payable for that pay period. On January 15, 1998, the final
installment was made, and the advance was repaid in full.
-20-
<PAGE>
Pursuant to an Acquisition Agreement dated November 29, 1995 among the
Company, Skunkware, Inc. ("Skunkware") and Peregrine/Bridge Transfer
Corporation, a database software subsidiary of the Company ("PBTC"), the
Company sold all the outstanding shares of PBTC to Skunkware. Under the
acquisition agreement, the Company receives a royalty on certain license
sales of PBTC and provides certain computer and administrative resources to
PBTC for a monthly fee of $37,500. JMI Equity Fund L.P. ("JMI Equity Fund")
is the controlling stockholder of Skunkware. Mr. Noell and Norris van den
Berg, a director of the Company, are general partners of JMI Equity Partners
L.P., which is general partner of JMI Equity Fund, and Mr. Moores is a
limited partner of JMI Equity Fund.
The Company is a party to restricted stock agreements with Messrs.
Farley, Gardner, and Hunt pursuant to which the Company had issued an
aggregate of 650,000 shares of Company Common Stock. In addition, the
Company has entered into agreements with Alan H. Hunt and Douglas F. Garn
relating to their resignation as officers of the Company. These agreements
are discussed in detail under the caption "Employment Agreements and Change
in Control Arrangements."
COMPANY PERFORMANCE
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, THE
FOLLOWING INFORMATION RELATING TO THE PRICE PERFORMANCE OF THE COMPANY'S COMMON
STOCK SHALL NOT BE DEEMED "FILED" WITH THE COMMISSION OR "SOLICITING MATERIAL"
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Company's registration statement covering the Company's initial public
offering became effective April 8, 1997, and the Company's Common Stock began
trading on the Nasdaq National Market on April 9, 1997. The following graph
shows a comparison, from April 9, 1997 through March 31, 1998, of cumulative
total return for the Company's Common Stock, the Standard & Poors 500 Index (the
"S&P 500"), and the Goldman Sachs Software Index (the "Goldman Index"). Such
returns are based on historical results and are not intended to suggest future
performance. Data for the Nasdaq Index and the Goldman Index assume
reinvestment of dividends. The Company has never paid dividends on its Common
Stock and has no present plans to do so.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PEREGRINE SYSTEMS, THE NASDAQ INDEX AND THE H&Q INDEX
<TABLE>
<CAPTION>
MEASUREMENT DATE PEREGRINE S&P GOLDMAN
- ---------------- --------- --- -------
<S> <C> <C> <C>
April 9, 1997 100.000 100.000 100.000
June 30, 1997 170.833 116.374 125.044
September 30, 1997 197.222 124.544 140.583
December 31, 1997 148.611 127.587 133.745
March 31, 1998 212.500 144.853 171.677
</TABLE>
__________________________
Assumes $100 invested on April 9, 1997 in the Company's Common Stock, the S & P
500, and the Goldman Index.
-21-
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
mark, sign, date, and return the accompanying proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose.
For the Board of Directors
PEREGRINE SYSTEMS, INC.
Richard T. Nelson
SECRETARY
Dated: August 13, 1998
-22-
<PAGE>
PEREGRINE SYSTEMS, INC.
PROXY FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of PEREGRINE SYSTEMS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated August 13, 1998, and hereby
appoints David A. Farley and Richard T. Nelson and each of them proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1998 Annual
Meeting of Stockholders of PEREGRINE SYSTEMS, INC. to be held on Wednesday,
September 9, 1998 at 2:00 p.m., local time at 12670 High Bluff Drive, San
Diego, California, and any adjournment(s) thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth on the reverse side.
1. Election of directors:
Nominees: Stephen P. Gardner, David A. Farley, John J. Moores,
Christopher A. Cole, Richard A. Hosley II, Charles E.
Noell III and Norris van den Berg
/ / FOR all nominees listed above / / WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed below
contrary below)
-----------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that name(s) of nominee(s) on the line above.
2. Proposal to amend the Company's 1994 Stock Option Plan to increase the
number of shares reserved for issuance thereunder by 3,000,000 shares and
to provide for additional automatic increases, subject to certain
conditions as described in the proxy statement, and to approve the material
terms of the Stock Plan, as amended.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of shares
of the Company's Common Stock from 50,000,000 to 200,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the restricted stock agreement entered between the
Company and its President and Chief Executive Officer, pursuant to which
the Company issued 50,000 shares of Common Stock, subject to accelerated
vesting over six years if the Company achieves certain financial milestones.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to ratify the appointment of Arthur Anderson LLP as
independent accountants for the fiscal year ending March 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any
adjournment(s) thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS; FOR THE
AMENDMENTS TO THE 1994 STOCK PLAN TO INCREASE THE SHARE RESERVE THEREUNDER
AND FOR APPROVAL OF THE MATERIAL TERMS OF THE 1994 STOCK PLAN, AS AMENDED; FOR
APPROVAL OF THE RESTRICTED STOCK AGREEMENT WITH THE COMPANY'S PRESIDENT AND
CEO; AND FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSON LLP AS
INDEPENDENT ACCOUNTANTS FOR THE 1999 FISCAL YEAR.
<PAGE>
Both of such attorneys or substitutes (if both are present and acting at said
meeting or any adjournment(s) thereof, or, if only one shall be present and
acting, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
Dated: --------------------------------, 1998
---------------------------------------------
Signature
---------------------------------------------
Signature
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
