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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT ON FORM 8-K DATED JULY 31, 1998
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 31, 1998
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PEREGRINE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 000-22209 95-3773312
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(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
12670 HIGH BLUFF DRIVE, SAN DIEGO, CALIFORNIA 92130
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(Address of principal executive offices of Registrant)
(619) 481-5000
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(Registrant's telephone number, including area code)
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EXPLANATORY NOTE
In October 1998, the Securities and Exchange Commission issued a letter
to the American Institute of Certified Public Accountants citing its views on
the proper procedures and practices that should be followed in purchase
accounting for acquired in-process research and development related to
corporate acquisitions. In this letter and in following public statements,
the Commission has affirmed its intention to require all companies to conform
to these announced views where purchase accounting for acquired in-process
research and development is involved.
As of the date of this amendment, the Company has completed five
corporate acquisitions which have been accounted for using the purchase
method of accounting and which have resulted in charges associated with the
valuation of acquired in-process research and development. These
acquisitions include United Software, Inc. during the second quarter of
fiscal 1998, Innovative Tech Systems, Inc. and certain technology and other
assets and liabilities of International Software Solutions, both in the
second quarter of fiscal 1999, Prototype, Inc. in the fourth quarter of
fiscal 1999 and FPrint UK Ltd. in the first quarter of fiscal 2000. The
Company believes that its periodic reports filed in fiscal 1998 and 1999,
which include charges for in-process research and development resulting from
those acquisitions that have been reported to date, were made in accordance
with generally accepted accounting principles and established industry
practices at the time. However, in response to and in conformance with the
Commission's announced guidelines on purchase accounting for acquired
in-process research and development, the Company is restating its financial
results for all periods extending back to the period ended September 30, 1997.
This amendment to the Company's current Report on Form 8-K, which sets
forth the Company's restated financial results for the period, does not
otherwise attempt to update the information included herein beyond the
original filing date of the report.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 5, 1998, the Company's Board of Directors approved the
acquisition of Innovative Tech Systems, Inc., an Illinois corporation
("ITS"), based in Warminster, Pennsylvania. Pursuant to an Agreement and
Plan of Reorganization dated as of May 7, 1998 (the "Merger Agreement") by
and among the Company, Homer Acquisition Corporation, a wholly-owned
subsidiary of the Company ("Merger Sub"), and ITS, and approved by the
shareholders of ITS as a special meeting held July 27, 1998, the Company
completed the acquisition of ITS by means of a merger of Merger Sub merged
with and into ITS (the "Merger"), with ITS remaining as the surviving
corporation and a wholly-owned subsidiary of the Company under the name
"Peregrine Systems Facilities Management, Inc." The Merger was completed
July 31, 1998.
Pursuant to the Merger Agreement, each share of Common Stock of ITS
("ITS Common Stock") outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) was converted into the right to receive
0.2341 shares of the Company's Common Stock (the "Exchange Ratio"). In
addition, all options to purchase the ITS Common Stock outstanding
immediately prior to the Effective Time were assumed by the Company, subject
only to adjustments to maintain the economic equivalence of the assumed
options on the basis of the Exchange Ratio.
In connection with the Merger, holders of outstanding redeemable
warrants to acquire shares of ITS Common Stock (the "ITS Warrants") approved
an amendment to the terms of the Warrant Agreement, dates as of July 26,
1994, as amended, governing the ITS Warrants whereby, at the Effective Time,
each ITS Warrant was exchanged and converted into the right to receive that
number of shares of Common Stock of the Company, based on the Exchange Ratio,
as would have been the case if the ITS Warrants had been exercised for ITS
Common Stock immediately prior to the Effective Time on a net issuance basis.
Additionally, in connection with the Merger certain other warrants to
acquire ITS Common Stock and/or ITS Warrants were exchanged for and converted
into the right to receive Common Stock of the Company.
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In connection with the Merger, the Company issued or reserved an
aggregate of approximately 3,470,000 shares of Common Stock, including shares
issued upon conversion of the above described warrants and the shares
issuable upon exercise of outstanding options. The Common Stock of the
Company issued in the Merger was registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement on
Form S-4 (File NO. 333-57459) which the Securities and Exchange Commission
(the "Commission") declared effective on June 24, 1998. The Common Stock of
the Company issuable upon exercise of options to purchase ITS Common Stock
was registered under the Securities Act pursuant to a Registration Statement
on Form S-8 which was filed with the Commission on July 31, 1998.
The Merger constitutes a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended, and will be accounted for as a
"purchase" by the Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(i) The audited consolidated balance sheets of Innovative Tech
Systems, Inc. as of January 31, 1997 and 1998, the audited consolidated
statements of operations, of changes in shareholders' equity and cash flows
of Innovative Tech Systems, Inc. for the years ended January 31, 1996, 1997
and 1998, the notes related thereto, and the Reports of Independent Public
Accountants thereon are set forth at pages F-35 through F-51 of the ITS
Shareholder Proxy Statement and Warrant Holder Information
Statement/Peregrine Prospectus dated June 24, 1998 included in the
Registrant's Registration Statement on Form S-4 (No. 333-57459). Such
financial statements, notes and reports set forth at such pages are
incorporated herein by reference.
(ii) The unaudited consolidated balance sheet of Innovative Tech
Systems, Inc. as of April 30, 1998, the unaudited consolidated statements
of operations, of changes in shareholders' equity and cash flows of
Innovative Tech Systems, Inc. for the three months then ended and the notes
related thereto are set forth at pages F-35 through F-51 of the ITS
Shareholder Proxy Statement and Warrant Holder Information Statement/
Peregrine Prospectus dated June 24, 1998 included in the Registrant's
Registration Statement on Form S-4 (No. 333-57459). Such balance sheet
and notes set forth at such pages are incorporated herein by reference.
(b) PRO FORMA FINANCIAL INFORMATION.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial information
assumes a business combination between Peregrine and Innovative accounted for
as a purchase and is based on the respective historical consolidated
financial statements and the notes thereto, which are incorporated by
reference in this Current Report from the Proxy Statement/Prospectus. The
pro forma combined condensed balance sheet combines Peregrine's March 31,
1998 consolidated balance sheet with Innovative's January 31, 1998
consolidated balance sheet. The pro forma statement of operations combines
Peregrine's and Innovative's historical results for each of the periods
indicated below.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had occurred as of the date
or during the periods presented, nor is it necessarily indicative of future
operating results or financial positions.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical consolidated financial statements, and the
related notes thereto, of Peregrine and Innovative incorporated by reference
in this Current Report from the Proxy Statement/Prospectus.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
March 31, 1998
AFTER GIVING EFFECT TO THE MERGER
(IN THOUSANDS)
<TABLE>
<CAPTION>
PEREGRINE INNOVATIVE PRO FORMA PRO FORMA
SYSTEMS TECH SYSTEMS ADJUSTMENTS COMBINED
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<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 14,950 $ 3,438 $ -- $18,388
Short-term investments......................................... 7,027 -- -- 7,027
Accounts receivable, net....................................... 16,761 4,350 -- 21,111
Inventory...................................................... -- 314 -- 314
Deferred tax assets............................................ 7,297 152 -- 7,449
Other current assets........................................... 2,905 282 -- 3,187
------- --- ------- --------
Total current assets........................................... 48,940 8,536 -- 57,476
Property and equipment, net........................................ 5,455 1,340 -- 6,795
Computer software, net............................................. -- 1,139 (1,139)(F) --
Intangible assets and other........................................ 29,173 86 58,022 (B,C) 87,281
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$ 83,568 $11,101 $56,883 $151,552
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $2,337 $745 $ -- $ 3,082
Accrued expenses............................................... 11,103 945 9,750 (A) 21,798
Deferred revenue............................................... 11,570 1,750 -- 13,320
Current portion of long-term debt.............................. 151 155 -- 306
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Total current liabilities...................................... 25,161 3,595 9,750 38,506
Long-term debt, net of current portion............................. 966 620 -- 1,586
Deferred revenue, net of current portion........................... 1,802 -- -- 1,802
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Total liabilities.............................................. 27,929 4,215 9,750 41,894
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Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000,000 and 200,000,000
shares authorized, respectively, no shares issued or
outstanding.................................................. -- -- -- --
Common Stock, $0.001 and $0.0185 par value, 50,000,000 and
100,000,000 shares authorized, 18,700,000 and 10,888,000
shares issued and outstanding, actual, respectively and
19,930,000 Pro Forma outstanding............................. 19 202 (199)(A,D) 22
Additional paid-in capital..................................... 74,351 7,410 65,513 (A,D) 147,274
Warrants....................................................... -- 1,641 (1,641)(D) --
Accumulated deficit............................................ (16,423) (2,367) (16,540)(B,D,E)(35,330)
Unearned portion of deferred compensation...................... (1,493) -- -- (1,493)
Cumulative translation adjustment.............................. (553) -- -- (553)
Treasury stock, at cost........................................ (262) -- -- (262)
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Total stockholders' equity..................................... 55,639 6,886 47,133 109,658
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$ 83,568 $11,101 $56,883 $151,552
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</TABLE>
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PEREGRINE SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
AFTER GIVING EFFECT TO THE MERGER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEREGRINE INNOVATIVE PRO FORMA PRO FORMA
SYSTEMS TECH SYSTEMS ADJUSTMENTS COMBINED
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<S> <C> <C> <C> <C>
ASSETS
Revenues:
Licenses.......................................... $ 38,791 $ 8,101 $ -- $ 46,892
Hardware.......................................... -- 2,280 -- 2,280
Maintenance and services.......................... 23,086 4,702 -- 27,788
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Total revenues................................. 61,877 15,083 -- 76,960
Costs and Expenses:
Cost of licenses.................................. 326 512 -- 838
Cost of hardware.................................. -- 1,311 -- 1,311
Cost of maintenance and services.................. 10,326 2,473 -- 12,799
Sales and marketing............................... 22,728 5,674 -- 28,402
Research and development.......................... 8,394 1,105 -- 9,499
General and administrative........................ 6,077 3,056 -- 9,133
Amortization of intangible assets................. 3,168 -- 11,604 (G) 14,772
Acquired in-process research and development costs 6,955 -- -- 6,955
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Total costs and expenses....................... 57,974 14,131 11,604 83,709
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Operating income (loss)........................ 3,903 952 (11,604) (6,749)
Interest income and other............................. 839 24 -- 863
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Income from continuing operations before income tax... 4,742 976 (11,604) (5,886)
Income tax expense.................................... 5,358 65 -- 5,423
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Net income (loss)..................................... $ (616) $ 911 $(11,604) $(11,309)
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Net income (loss) per share diluted:
Net income (loss) per share........................... $(0.04) $0.08 $ (0.57)
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Shares used in diluted per share computation.......... 17,380 11,583 19,930
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Net income (loss) per share basic:
Net income (loss) per share........................... $(0.04) $0.08 $ (0.57)
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Shares used in basic per share computation............ 17,380 10,888 19,930
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SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma financial statements of Peregrine Systems,
Inc. ("PSI") have been prepared based on the historical statements of PSI for
the year ended March 31, 1998 and for Innovative Tech Systems, Inc.
("Innovative") for the year ended January 31, 1998, considering the effects
of the acquisition under the purchase method. The pro forma balance sheet of
PSI at March 31, 1998 has been prepared as if the Merger had been consummated
at March 31, 1998. The pro forma statement of operations for the year ended
March 31, 1998 has been prepared as if the Merger had been consummated on
April 1, 1997.
In management's opinion, all material adjustments necessary to
reflect the effects of the acquisition have been made. The unaudited pro
forma financial statements are not necessarily indicative of the actual
financial position at March 31, 1998, or what the actual results of
operations of PSI would have been assuming the acquisition had been completed
as of April 1, 1997, nor are they indicative of the financial position or
results of operations for future periods. The pro forma financial statements
should be read in conjunction with the historical financial statements and
notes thereto of PSI and Innovative.
2. Pro Forma Adjustments and Assumptions
(A) The purchase price for the completion of the Innovative
acquisition was determined by combining the value of PSI Common Stock issued
to Innovative stockholders (2,662,000 common shares valued at $22.875 per
share plus $12,033 related to the value of outstanding options and warrants
assumed), the net assets acquired of Innovative and the estimated
transactions costs for the acquisition. The estimated direct transaction
costs to be incurred by the Combined Company include sign-on bonuses,
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. The purchase price for the completion of
the Innovative Tech Systems, Inc. acquisition is summarized below (in
thousands):
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<S> <C>
Common stock and value of option and warrants assumed............... $72,926
Estimated transaction costs......................................... 9,750
Net assets acquired, excluding (F).................................. (5,747)
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$76,929
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(B) Allocation of the purchase price for the completion of the
Innovative acquisition was determined as follows (in thousands):
<TABLE>
<S> <C>
Acquired in-process technology ..................................... $18,907
Intangible assets................................................... $58,022
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$76,929
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(C) Amortization of the intangible assets for Innovative will be on
the straight-line method over five years and will be included in depreciation
and amortization expense.
(D) Elimination of Innovative stockholders' equity amounts.
(E) The pro forma statement of operations excludes the charge of
$18.9 million for purchased in-process technology, which arose from the
acquisition. These charges will be included in the Combined Company's
consolidated financial statements for the three-month period ending September
30, 1998.
(F) Reflects the effect of the elimination of the acquiree's
computer software pending completion of valuation of the capitalized asset.
(G) Reflects the amortization of intangible assets beginning April
1, 1997.
The purchase price for the Innovative acquisition was allocated to
the tangible and intangible assets of Innovative based on preliminary
estimates of the fair market value of those assets. The evaluation of the
underlying technology acquired considered the inherent difficulties and
uncertainties in completing
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the development, and thereby achieving technological feasibility, and the
risks related to the viability of and potential changes in future target
markets that the acquired technology has any alternative future uses.
(c) EXHIBITS.
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
2.1* Agreement and Plan of Reorganization, dated as of May 7, 1998,
among Peregrine Systems, Inc, Homer Acquisition Corporation,
Innovative Tech Systems, Inc., and related exhibits. (The
disclosure letter of Innovative Tech Systems, Inc. delivered to
Peregrine, which cites to certain factual matters as exceptions
to the contractual representations of ITS in the Agreement and
Plan of Reorganization has been omitted. The Company agrees to
supplementally furnish a copy of such disclosure schedule to the
Commission upon request.)
23.1 Consent of PricewaterhouseCoopers LLP.
99.1* Press release of Peregrine Systems, Inc., dated July 31, 1998.
99.2* Pages F-35 through F-51 of the ITS Shareholder Proxy Statement
and Warrant Holder Information Statement/Peregrine Prospectus
dated June 24, 1998 included in the Registrant's Registration
Statement on Form S-4 (No. 333-57459).
</TABLE>
*Filed with the Company's original Current Report on Form 8-K dated July 31,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned hereunto duly authorized.
PEREGRINE SYSTEMS, INC.
Dated: May 10, 1999 By:__________________________________
Richard T. Nelson, Vice President,
Secretary and General Counsel
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-37105, No. 333-44699, No. 333-60423) of
Peregrine Systems, Inc. of our reports dated April 2, 1996 and April 27, 1998
relating to the consolidated financial statements of Innovative Tech Systems,
Inc., which are included as Exhibit 99.2 of this Current Report on Form 8-K/A.
PricewaterhouseCoopers LLP
Philadelphia, PA
May 10, 1999
