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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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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:
N/A
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[LOGO]
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") (i) to increase the number of shares
reserved for issuance thereunder by 3,000,000 shares and
(ii) to 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, 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 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 11, 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") and 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 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
auditors 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 11, 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 instructions from the beneficial owner, and as
to which such broker or nominee does not have discretionary voting
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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 13, 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 28, 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, 1995
and Director
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>
(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 Company 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 Company 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 Company
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 of the
Company's 1994 Stock Option Plan, non-employee directors may also be granted
options under such plan. See "Proposal Two - Participation in the Stock 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 and (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.
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.
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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 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:
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(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 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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 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.
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<PAGE>
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 1997.
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.
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 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.
-10-
<PAGE>
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.
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 earnings targets specified in the agreement, the shares subject
thereto 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
became 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
with the Company 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 of
control of the Company or if Mr. Gardner remains employed with the Company on
October 31, 2007.
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 his 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.
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<PAGE>
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.
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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
outstanding Company 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 15); 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).................................................. 1,063,401 5.5%
One Post Office Square
Boston, Massachusetts 02109
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.
(12) Mr. Hosley is a member of the Board of Directors.
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<PAGE>
(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 SERVICECENTER.
(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.
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<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.
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<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
NUMBER OF PERCENT OF VALUES AT ASSUMED
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.
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<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 Peregrine 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 Peregrine 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 Peregrine 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
Peregrine 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 1994 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
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<PAGE>
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.
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 1994 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 1994 Plan, in the event of a merger or a change in control
of the Company, vesting of options outstanding under the 1994 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
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<PAGE>
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.
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 shareholder 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
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<PAGE>
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.
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
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<PAGE>
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.
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., 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 S&P 500 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>
-22-
<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 11, 1998
-23-
<PAGE>
ANNEX A
PEREGRINE SYSTEMS, INC.
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH JULY 16, 1998)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or non-statutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Peregrine Systems, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship or directorship is not interrupted or
terminated by the Employee, Consultant or Director or the Company, or any Parent
or Subsidiary. Continuous Status as an Employee, Director, or Consultant shall
not be considered interrupted in the case of:
Page 1 of 11
<PAGE>
(i) any leave of absence approved by the Company, including sick leave,
military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed by
contract (including certain Company policies) or statute; provided, further,
that on the ninety-first (91st) day of any such leave (where reemployment is
not guaranteed by contract or statute) the Optionee's Incentive Stock Option
shall cease to be treated as an Incentive Stock Option and will be treated
for tax purposes as a Nonstatutory Stock Option; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries
or its successor.
(j) "DIRECTOR" shall mean a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System or the Nasdaq SmallCap Market of the Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported, as quoted on such exchange or
system for the last market trading day prior to the time of determination) as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
Page 2 of 11
<PAGE>
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of
the Option Agreement.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option.
(v) "OPTIONEE" means an Employee, Director, or Consultant who
receives an Option.
(w) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1994 Stock Option Plan, as amended.
(y) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(aa) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 6,148,000, plus an annual increase, effective January 1 of
each calendar year beginning January 1, 1999 and ending January 1, 2003, equal
to such number of additional Shares of Common Stock as may then be required to
fix the number of Shares of Common Stock then available for new Option grants at
an amount not less than the lesser of (i) four percent (4%) of the Company's
then issued and outstanding Common Stock or (ii) 4,000,000 Shares. The Shares
may be authorized, but unissued, or reacquired Common Stock.
Page 3 of 11
<PAGE>
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different Optionees.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority,
in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Consultants, Directors, and Employees
to whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to modify or amend each Option, including the
discretionary authority to extend the post-termination exercisability period
of Options longer than is otherwise provided for in the Plan;
Page 4 of 11
<PAGE>
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option of the
shares of Common Stock relating thereto, based in each case on such factors
as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9 instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(ix) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of
the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by an Optionee to have
Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;
(x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan; and
(xi) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules and regulations relating to subplans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations, and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees,
Directors, and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee, Director, or Consultant who has been granted an Option
may, if otherwise eligible, be granted additional Options.
Page 5 of 11
<PAGE>
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares underlying Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) in excess of $100,000, such excess shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company or service as a Director, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment, service as
a Director or consulting relationship at any time, with or without cause.
(e) LIMITATIONS.
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 450,000 Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11(a).
(iii) If an Option is canceled (other than in connection with
a transaction described in Section 11), the canceled Option will be counted
against the limit set forth in Section 5(e)(i). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. TERM OF PLAN. The Plan became effective upon its adoption by the
Board of Directors. It shall continue in effect for a term of ten (10) years
from such date, unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option the term shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
Page 6 of 11
<PAGE>
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. However, in the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan; (6) such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws, or (7) any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
Page 7 of 11
<PAGE>
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. All Options granted hereunder shall be exercisable at the rate of at least
20% per year over five years from the date the Option is granted. An Option may
not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such Shares promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR, OR
CONSULTANT. In the event that an Optionee's Continuous Status as an Employee,
Director, or Consultant terminates (but not in the event of a change of status
from Employee to Consultant (in which case an Employee's Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status) or from Consultant to Employee)
other than upon the Optionee's death or disability, the Optionee may exercise
his or her Option, within 90 days of the date of termination, and only to the
extent that the Optionee was entitled to exercise it at the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant); provided, however, that (i) the Administrator may
in its discretion extend the period of exercisability of the Option beyond a
termination of an Optionee's Continuous Status as an Employee, Director, or
Consultant until a date not later than the expiration of the term of such Option
as set forth in the Notice of Grant and (ii) the Administrator may in its
discretion extend the termination date for the purpose of vesting accrual to a
date beyond the actual termination date of employment (the "deemed termination
date") (but in no event may the deemed termination date be later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the event the Administrator shall exercise such discretion to extend the term of
an Option, such Option shall be exercisable
Page 8 of 11
<PAGE>
during such extended term to the extent it was exercisable at the date of
such termination or the deemed termination date, as applicable. Similarly,
in the event the Administrator shall exercise such discretion to extend the
termination date of an Optionee, such Option shall be exercisable during such
term (or such extended term if applicable) to the extent it would be
exercisable at the deemed termination date. If at the date of termination
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If after termination the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee, Director, or Consultant as a result
of his or her Disability, Optionee may, but only within six (6) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
To the extent that Optionee is not entitled to exercise the Option at the date
of termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such 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, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise, by the
Administrator, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
Page 9 of 11
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) MERGER, SALE OF ASSETS, OR STOCK TRANSFER. In the event of (i) a
merger or consolidation of the Company with or into another corporation
resulting in the outstanding voting securities of the Company immediately prior
thereto representing (either by remaining or by being converted into voting
securities of the surviving entity) less than fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
(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) with Mr. Moores, in a single transaction or a
series of related transactions, of shares of 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, the Optionee
shall fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. Notwithstanding the provisions of clause (iii) above, any such sale
or other transfer by Mr. Moores or any stockholder affiliated with Mr. Moores of
shares of Common Stock through a registered public offering of securities under
the Securities Act, or in compliance with the requirements of paragraphs (c),
(d), (e), and (f) of Rule 144 under the Securities Act, shall not cause the
Option to become fully vested and exercisable. If an Option becomes fully vested
and exercisable in the event of a merger or consolidation, sale of assets, or
sale or transfer of Common Stock by Mr. Moores as provided above, the
Page 10 of 11
<PAGE>
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Applicable Laws,
the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company. Termination of the Plan shall not affect the Administrator's ability to
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful
Page 11 of 11
<PAGE>
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws.
Page 12 of 11
<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 11, 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)
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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.
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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
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Signature
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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.)
