<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
</TABLE>
COMMISSION FILE NUMBER: 000-22209
------------------------
PEREGRINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3773312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices, including zip code)
(858) 481-5000
(Registrant's Telephone Number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on March 31,
2000, as reported on the Nasdaq National Market, was approximately
$6,636,446,655. Shares of Common Stock held by each executive officer and
director and by each person who may be deemed to be an affiliate of the
Registrant have been excluded from this computation. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. As of March 31, 2000, the Registrant had 109,501,146 shares of Common
Stock, $0.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PEREGRINE SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I..................................................................... 3
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II.................................................................... 16
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Consolidated Financial Data........................ 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 36
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 36
PART III................................................................... 37
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 44
Item 13. Certain Relationships and Related Transactions.............. 45
PART IV.................................................................... 46
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 46
Signatures............................................................. 49
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS
CONCERNING OUR FUTURE OPERATIONS, FINANCIAL CONDITION AND PROSPECTS, AND OUR
BUSINESS STRATEGIES. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE" AND OTHER
SIMILAR EXPRESSIONS GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS. INVESTORS IN
OUR COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
SUBSTANTIAL RISKS AND UNCERTAINTIES THAT COULD CAUSE OUR FUTURE BUSINESS,
FINANCIAL CONDITION, OR RESULTS OF OPERATIONS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR CURRENTLY ANTICIPATED RESULTS. INVESTORS SHOULD CAREFULLY
REVIEW THE INFORMATION CONTAINED UNDER THE CAPTION "FACTORS THAT MAY EFFECT
FUTURE RESULTS" IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO,
THIS REPORT.
OVERVIEW
Peregrine refers to itself as "The Infrastructure Management Company." We
offer business organizations an integrated suite of packaged infrastructure
resource management application software. In addition, we have recently
introduced additional products designed to automate the processes associated
with the procurement and use of infrastructure assets. These software
applications are designed to manage the various aspects of organizational
infrastructure from the moment an asset is leased, acquired, or taken from
existing inventory until the moment it is taken out of service. Infrastructure
assets include computers, computer networks, telecommunication assets, physical
plant and facilities, corporate car or truck fleets, and many other assets. Our
products are designed to help businesses answer the following questions about
each item of corporate infrastructure:
- What assets does my business own?
- Where are each of these assets located?
- How well are each of these assets working?
- What is the total cost of owning each asset (I.E., the cost of acquiring,
maintaining, servicing, and disposing of each asset)?
- How well is each asset supporting my business?
CORPORATE BACKGROUND
We were incorporated in California in 1981 and reincorporated in Delaware in
1994. Our principal executive offices are located at 12670 High Bluff Drive, San
Diego, California 92130. Our telephone number at that address is (858) 481-5000.
INDUSTRY BACKGROUND
Until recently, automated management of organizational infrastructure was
not a priority for many companies. Rather, organizations tended to focus their
information technology spending on automating external business functions that
involve interactions with customers, suppliers, distributors, and other third
parties. These applications included building networks for voice and data and
implementing software solutions for enterprise resource planning (ERP), customer
supply chain management (CSCM), and customer relationship management (CRM).
Organizations have become increasingly dependent on these networks, systems, and
applications to provide core products and services, and we believe they are now
critical components of an organization's operating infrastructure.
3
<PAGE>
Organizational infrastructure has also become larger and more complex.
Modern businesses now depend on an array of systems and applications to provide
electronic mail and Internet and Intranet services, to manage documents, and to
support mission critical ERP, CSCM, and CRM applications. In addition, the
various components of infrastructure, including desktop computers, networks, and
telecommunications assets, are increasingly linked. In turn, these internal
networks and systems depend on a physical infrastructure comprised of cable and
wiring in walls, floors, and ceilings that are ultimately part of the buildings
and campuses that comprise the larger organizational infrastructure.
We believe that the operational effectiveness of an organization ultimately
depends on the efficient acquisition, management, and disposal of these
infrastructure assets. Threats to infrastructure pose substantial business
risks. Issues raised in connection with Year 2000 remediation, European currency
conversion, computer viruses, major facilities relocations, and changes in
network environments have resulted in increased awareness of infrastructure
dependency by senior business executives and information technology managers.
Accordingly, we believe that opportunities exist for providers of an integrated
suite of infrastructure resource management software that can assist
organizations to acquire, deploy, maintain, and operate infrastructure assets
efficiently throughout their life cycle--from the time an organization starts to
contemplate purchase or lease of a new asset to the moment the asset is removed
from service and sold or disposed. We attempt to manage the following major
stages in the lifecycle of an asset:
- procurement or lease
- maintenance in inventory
- installation
- data collection
- taking and implementing a service or upgrade request
- asset relocation
- problem management and resolution
- performance tracking
- correlation of performance to service level agreements
- contract management
- removal from service
- disposition or re-use
Until recently, our products focused principally on problem management for
an organization's information technology infrastructure. Our principal product
suite, SERVICECENTER, is an integrated, enterprise service desk software
solution that assists information technology departments to manage and maintain
their internal computer networks and related assets. Since 1997, however, we
have made several acquisitions intended to broaden our infrastructure resource
management product suite beyond management of network help desks.
- In September 1997, we acquired ASSETCENTER, our first asset management
product through the acquisition of Apsylog, S.A., a French corporation,
and its U.S. parent company.
- In July 1998, we acquired Innovative Tech Systems, a leading provider of
facilities management software. Innovative's SPAN-FM product line became
our FACILITYCENTER product line.
- In September 1998, we acquired technologies and other assets from related
entities operating as International Software Solutions. These technologies
expanded the ability of our products to help manage information technology
assets by permitting network help desk analysts to interface with users
over the corporate network without on-site visits.
- In March 1999, we acquired Prototype, a provider of software products for
managing corporate vehicle and equipment fleets.
- In April 1999, we acquired fPrint, a British provider of software used to
discover and inventory software located on the computers of individual
users on a corporate network.
4
<PAGE>
- In September 1999, we acquired Knowlix, a developer of knowledge
management software that assists help desk analysts by managing the
intangible technical information and know-how required to assist callers.
- In December 1999, we acquired advanced and light rail management software
for the passenger and freight rail industries from KKO & Associates.
- In March 2000, we acquired Telco Research, a provider of software products
that help manage telecommunications assets, and Barnhill Management Group,
a services and solutions delivery partner with extensive experience in the
telecommunications industry.
PRODUCTS
We currently offer over forty infrastructure management and e-procurement
software products. The following discussion summarizes our principal product
families.
SERVICECENTER
SERVICECENTER is a set of applications intended to maintain the
effectiveness and functionality of an organization's information technology
infrastructure. ServiceCenter offers a number of gateway products to the
software tools and applications of other vendors. These gateway products include
interfaces to system and network management products such as Hewlett-Packard
Openview, Computer Associates Unicenter, and Tivoli TME10. In addition, gateways
to enterprise resource planning applications are supported to products such as
SAP R3, PeopleSoft, and Oracle.
PRIMARY SERVICECENTER APPLICATIONS
PROBLEM MANAGEMENT. The problem management application automates the
process of reporting and tracking specific problems or classes of problems
associated with a business enterprise's network computing environment. Help
desk personnel open problem tickets using templates specific to the class of
problem reported.
PROBLEM RESOLUTION. The problem management application works together
with our IR EXPERT, a text search expert system that employs advanced
technology to allow network operators to retrieve relevant information. This
application assists in problem solving, based on prior solutions. The IR
EXPERT reduces a user's question, or query, to a number of "terms," refining
the query to fit knowledge in the database and then searches resolution
databases using related terms. This application is self-learning, so the
customer does not have to perform any work to keep the knowledge base up to
date.
CHANGE MANAGEMENT. The change management application provides a
functional framework for proposing, accepting, scheduling, approving,
reviewing and coordinating network changes.
CONTRACT MANAGEMENT. The contract management application provides
information system departments with the tools they need to track all costs
associated with infrastructure problems or change.
INVENTORY CONFIGURATION MANAGEMENT. The inventory configuration
management application provides the service desk with a central repository
of information about inventories of networked devices and applications as
well as information concerning end-users. Easy access to inventory
information permits the service desk to respond to end-user problems, to
plan changes and services, and to create accurate reports about the
network's status and environmental trends.
REQUEST MANAGEMENT. The request management application automates and
tracks an organization's equipment and services ordering process from
initial request through installation and follow-up. Using SERVICECENTER, an
end-user identifies and orders products or services from a catalog
5
<PAGE>
of items. SERVICECENTER then consolidates requests, forwards orders through
an organization's standard approval and order processing procedures, and
consolidates orders by vendor. End-users can track the status of requests
through SERVICECENTER at all times.
SERVICE LEVEL AGREEMENT MANAGEMENT. Service level agreements are used
by companies to relate the availability and performance of infrastructure to
the business mission performed by the infrastructure. Service level
agreement management is designed to simplify the task of managing these
contracts.
SERVICECENTER INSIGHT. ServiceCenter Insight is a data mining tool
which facilities the ability of the customer to make queries and prepare
reports about information in the infrastructure repositories.
SERVICE MANAGEMENT. Service management is a comprehensive call
management tool. The service desk operator uses service management to assess
an incoming call and determine whether it is an information request, a call
requiring problem management, a request for action to assist an individual
or a requirement for a change which would affect multiple elements of the
infrastructure.
WORK MANAGEMENT. Work management is designed to help managers better
balance the demands for service and support based on the priority of tasks
and the skill set of the workforce. Work management will automatically
allocate unassigned or incomplete problem tickets to individuals. The
manager can also assign new work, view progress on assigned items, or
reassign work based on changing properties using the drag and drop
interface.
E-SERVICECENTER is the Internet-hosted version of SERVICECENTER, which
offers a subset of the SERVICECENTER application set to help desk managers on an
application service provider basis. If the customer elects this option, we act
as the system administrator and operator for the customer. Their users connect
to our software over the Internet and receive the benefit of the application
without the administrative burden of actually running the server portion of the
application. The product is sold in two models. We may enter a perpetual license
agreement with the customer and recognize license revenue at the time of initial
sale, as with a standard SERVICECENTER license, and recognize maintenance,
hosting operations and administration revenues as a recurring payment stream.
Alternatively, we may provide a limited-term, noncancelable subscription to use
E-SERVICECENTER, where we recognize revenue for license, maintenance, hosting
operations and administration on a periodic basis.
ASSETCENTER
ASSETCENTER is a set of applications intended to manage financial
information relating to an organization's portfolio of information technology
infrastructure investments. Like SERVICECENTER, ASSETCENTER supports gateways to
enterprise resource planning and desktop inventory discovery tools.
PRIMARY ASSETCENTER APPLICATIONS
ASSET MANAGEMENT. The asset management application provides a
comprehensive inventory of an organization's equipment, users, suppliers,
and contracts. The application provides detailed descriptions of software
licenses acquired and their associated rights in order to reconcile them
with the software actually installed.
LEASE MANAGEMENT. Lease management manages the contractual aspects of
leasing and rental by returning, updating and renewing equipment through
alarm and messaging features. The application also includes a wide range of
methods for calculating lease terms and permits users to evaluate different
financing alternatives.
PROCUREMENT MANAGEMENT. This application manages the acquisition of
information technology products including assets, consumables and services.
Procurement management covers the entire
6
<PAGE>
purchasing cycle: request, approval, estimate, issuance of purchase orders,
delivery and receipt. The application allows users to set up authorization
procedures as well as automatic reordering based on user-defined restocking
criteria.
COST MANAGEMENT. Cost management features analytic and budgetary
functions that allow tracking, control, and allocation of information
technology related expenses. The application allows users to track costs
related to each asset, including both capital and operational expenses
(E.G., training, service calls) and to measure the costs of ownership for
each asset. The application also allows users to compare accounting and
physical inventories to determine the correct valuation of balance sheet
assets.
INFRACENTER FOR WORKGROUPS
INFRACENTER FOR WORKGROUPS is a comprehensive asset management technology
targeted at the midrange market. INFRACENTER FOR WORKGROUPS offers functionality
and applications similar to those offered with our ASSETCENTER product suite. In
addition, Infratools desktop discovery provides complete, accurate, and timely
intelligence about desktop users on a network. The premium offering of
INFRACENTER FOR WORKGROUPS bundles our InfraTools Remote Control product, a
graphical remote control application. InfraTools Remote Control is designed for
everything from help desk and remote support to teaching applications and
network management.
FACILTYCENTER
FACILITYCENTER is a set of applications and multiple gateways that are
designed to manage assets related to physical plant and facilities.
FACILITYCENTER includes space planning, facilities management, work order
management, stacking, maintenance management, facilities help desk, cable plant
management, computer aided design integrator, data collection, and real estate
lease management. Like SERVICECENTER and ASSETCENTER, FACILITYCENTER also
supports gateways to external products.
The FACILITYCENTER product suite offers solutions specifically designed to
automate facilities, real estate and operations, and maintenance management.
E-FACILITYCENTER is the Internet-hosted version of FACILITYCENTER. It offers the
FACILITYCENTER application set to real estate and facilities managers on a
hosted application service provider basis.
PRIMARY FACILITYCENTER APPLICATIONS
FACILITYCENTER SOLUTION FOR FACILITIES MANAGEMENT. FACILITYCENTER
projects occupancy demand and supply scenarios to enable efficient move
planning and reduce costs. By interfacing to popular computer-aided-design
products, users can view information graphically and manage facilities using
a top down approach. The FACILITYCENTER application can also manage project
bids, costs and budgets.
FACILITYCENTER SOLUTION FOR OPERATIONS AND MAINTENANCE. OUR
FACILITYCENTER solution for operations and maintenance enables preventive
maintenance workflow to be streamlined and managed from a single point. It
allows managers to automatically schedule preventive maintenance, obtain
work order cost estimates, schedule work orders, and obtain information
about the status of work orders. Purchasing, receiving and shipping
functions can also be administered automatically.
FACILITYCENTER SOLUTION FOR REAL ESTATE. The FACILITYCENTER real
estate management solution helps real estate professionals optimize the use
of available space, reduce overall occupancy costs and implement continuous
improvement strategies and policy tactics. The application tracks owned and
leased property including space configuration and utilization.
7
<PAGE>
FLEETANYWHERE
FLEETANYWHERE is a comprehensive, Internet-enabled, fully integrated,
Windows-based fleet management system. It is capable of tracking an unlimited
number of equipment units and supporting an unlimited number of workstations
from any number of locations. FLEETANYWHERE tracks all functions related to the
maintenance of equipment fleets, including processing repair and work orders,
tracking operating expenses such as for fuel, oil, and licensing, and tracking
and billing for equipment usage. Optional modules offer functionality related to
bar coding on the shop floor, online employee labor capture, motor pool
reservations tracking, shop scheduling, service level agreement tracking,
replacement analysis, tire tracking, and fleet optimization.
E.FLEET is the Internet-hosted version of FLEETANYWHERE. It offers the full
FLEETANYWHERE application set to fleet managers on an application service
provider basis.
GET.IT!
GET.IT! is our employee self-service product suite. The GET.IT! solution
offers employee self-service applications designed to improve employee
productivity and reduce operating expenses.
GET.IT! APPLICATIONS
GET.RESOURCES! Get.Resources! assists the traditional asset
procurement process by allowing businesses to evaluate total lifecycle costs
of an asset. Using a web interface, employees can buy, lease, or take from
existing stock needed resources or services. The workflow engine in
Get.Resources! routes requisitions through the organization based on local
business rules, thereby streamlining the process and reducing cycle time.
Get.Resources! is an open e-procurement application that allows
organizations to purchase products and resources through CommerceOne's
MarketSite or via direct, point-to-point links with suppliers from
e-catalogs hosted on either the buyer or supplier site.
GET.ANSWERS! Get.Answers! is a portal interface for accessing and
distributing information throughout an organization. With an easy-to-use web
interface, Get.Answers! lets any employee tap into the same information base
used by information technology support and other infrastructure
professionals. The reporting feature in Get.Answers! lets administrators
know who is using the system and what information is being used.
GET.SERVICE! Get.Service! automates the employee service request
process through a centralized portal for requesting services ranging from
training services to providing lunches for meetings.
COMMANYWHERE
COMMANYWHERE is a communications equipment management system that tracks
mobile and portable radios, base and fixed equipment, microwave equipment,
console and remote equipment, and 800 megahertz trunked radio system equipment.
KNOWLIX
KNOWLIX is our knowledge management product suite for help desks and
customer support centers. KNOWLIX assists help desk and call center analysts by
managing the technical information and know-how required to assist callers.
8
<PAGE>
TELEPHONY AND DATA MANAGEMENT SOLUTIONS
In March 2000, we completed our acquisition of Telco Research Corporation
Limited, a provider of software products that help manage telecommunications
assets. The Telco Research product suite combines hardware and software
solutions that help organizations accurately accumulate and allocate
telecommunications cost, measure system health and performance, enforce
policies, manage security, and control fraudulent use of corporate phone
systems.
DATA COLLECTION DEVICES. We offer intelligent data collectors that monitor
and collect the information produced by network switching equipment. These data
collectors provide a solution for monitoring and filtering alarms, collecting
call detail records and traffic data and obtaining secure access into telephone
switches from a central point. These collection devices provide call detail
record storage, polling, toll fraud & real-time information concerning the
operating status of telecommunications systems.
VOICE SOLUTIONS. We offer solutions to manage the voice communications
network for companies of all sizes. This family of products provides customers
the ability to understand and control cost and usage, monitor network operating
status and maintain network integrity.
PRODUCT INTEGRATION
We have completed numerous acquisition of businesses and technologies since
late 1997. As a result, our research and development personnel have focused
substantial effort on integrating the acquired products and technologies into a
single product suite with a common data repository. In April 1998, we announced
and shipped the Peregrine Repository Interface Manager, which we market as PRIM.
PRIM integrates common elements between the data schema of SERVICECENTER and
ASSETCENTER. We are continuing to expend resources to improve the integration of
SERVICECENTER and ASSETCENTER and are beginning the integration of
FACILITYCENTER, a product we acquired in connection with the acquisition of
Innovative Tech Systems in July 1998. Integration of products of this number and
complexity can be costly and time consuming, could result in the diversion of
resources from development of new or enhanced products and technologies, and
exposes us to a number of risks which are described in greater detail under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Factors That May Affect Future Results" beginning on page 24.
PRODUCT DEVELOPMENT; PRODUCT AUTHORSHIP MODEL
We believe that attracting and retaining talented software developers is an
important component of our product development activities. To this end, we have
instituted a product authorship incentive program that rewards our developers
with commissions based on the market success of the applications designed,
written, marketed, and supported by them. Our product authorship program is
designed to encourage our developers to evaluate the effectiveness of a product
in the actual user environment.
We believe that the ability to deliver new and enhanced products to
customers is a key success factor. We have historically developed our products
through a consultative process with existing and potential customers. We expect
that continued dialogue with existing and potential customers may result in
enhancements to existing products and the development of new products. We have
in the past devoted and expect to continue to devote a significant amount of
resources to developing new and enhanced products. We currently have a number of
product development initiatives underway. We cannot predict, however, whether
any enhanced products, new products, or product suites will be embraced by
existing or new customers. The failure of any of these products to achieve
market acceptance would have a material adverse effect on our business, results
of operations and financial condition.
Our research and development expenditures in fiscal 2000, 1999, and 1998
were $28.5 million, $13.9 million, and $8.4 million, respectively, representing
11%, 10%, and 14% of total revenues in the
9
<PAGE>
respective periods. See "Peregrine Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20.
The market for our products is subject to rapid technological change,
changing customer needs, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, our position in existing markets or other markets that we may enter
could be eroded rapidly by product advances. The life cycles of our products are
difficult to estimate. Our growth and future financial performance will depend
in part on our ability to enhance existing applications, develop and introduce
new applications that keep pace with technological advances, meet changing
customer requirements and respond to competitive products. Our product
development efforts are expected to continue to require substantial investment
by us. There can be no assurance that we will have sufficient resources to make
the necessary investment. We have in the past experienced development delays,
and there can be no assurance that we will not experience development delays in
the future. There can be no assurance that we will not experience difficulties
that could delay or prevent the successful development, introduction, or
marketing of new or enhanced products. In addition, there can be no assurance
that any new or enhanced products will achieve market acceptance, or that our
current or future products will conform to industry requirements. Our inability,
for technological or other reasons, to develop and introduce new and enhanced
products in a timely manner could have a material adverse effect on our
business, results of operations, and financial condition.
TECHNOLOGY
Our products rely on a number of standard, commercially available
technologies for relational database storage and retrieval and client/server
communications. They are designed to support a range of implementations of
infrastructure management applications and enterprise service desks within
medium sized to large organizations. We have developed other technologies
designed to provide a comprehensive environment to build, deploy, and customize
a range of applications.
N-TIERED ARCHITECTURE. N-tiered architecture applications permit the
separation of multiple clients, multiple application servers, and multiple
database servers in a single cohesive application implementation. Our database,
business rules, and presentation technologies create an N-tiered client/server
architecture intended to provide scalability and flexibility. The tiers are
logically separated, allowing changes to the database design or the graphical
interface to be made without requiring changes to the business rules or other
related tiers.
EASY CUSTOMIZATION/EXTENSION. In order to make our software fit customers'
needs, our products provide a number of tools that enable customers to customize
and extend SERVICECENTER, ASSETCENTER, FACILITYCENTER and FLEETANYWHERE. The
design of the database, the contents and appearance of the user interface, and
the business rules can be modified using the standard tools that we provide with
the system.
RAPID APPLICATION DEVELOPMENT ENVIRONMENT. We have created a
"fill-in-the-blanks" development environment for building and deploying
applications. All SERVICECENTER applications are implemented using our rapid
application development environment. If a customer requires more extensive
modification, the system can be customized by changing the applications that we
provide or by implementing new applications using the rapid application
development environment. In fiscal 1999, we introduced an advanced graphical
workflow engine in ASSETCENTER, along with technology for simplified tailoring
of the application. These technologies are expected to be introduced in future
applications.
DISTRIBUTED SERVICES. We have distributed a database technology that
provides replication services and the capability to move work from one
SERVICECENTER system to another. These services are database vendor independent
and contain knowledge of the application schema.
ADAPTERS. We provide adapters to industry standard application programming
interfaces, such as SMTP e-mail, and leading vendors products. These adapters
expand the reach of our products by allowing
10
<PAGE>
them to interact with other products currently in the customer's environment. We
also have created adapters that permit the system to communicate using e-mail,
beepers, facsimile and Lotus Notes. The adapters also provide communication with
third party network management tools such as Hewlett-Packard's OpenView,
Computer Associates Unicenter, Tivoli's TME, Cabletron's Spectrum, Sun's SunNet
Manager and others. In addition, we have created an open application programming
interface permitting software developed by third parties, end-users or our
professional services group to be integrated into the system.
INTELLIGENT AGENTS. We provide intelligent agents that gather and feed
information to SERVICECENTER. The agents provide automated inventory gathering
and problem determination data for use in problem resolution and management of
an information technology environment. The agents permit help desk personnel to
open, update, and close trouble tickets based on criteria provided by the
customers.
JAVA CLIENT. We introduced a Java SERVICECENTER graphical user interface
client in fiscal 1999. The Java client duplicates the functionality of the
SERVICECENTER graphical user interface, allowing access to the entire
SERVICECENTER system via the Internet. The Java client is designed for use by
production or "heavy" users of the system, while the web client, available for
SERVICECENTER, ASSETCENTER, FACILITIES CENTER, and FLEETANYWHERE is designed for
the casual user requiring easy, simple access to basic system functions.
SALES AND MARKETING
We sell our software and services in North America and internationally
primarily through a direct sales force. A large number of our sales force is
based at our San Diego headquarters, but we also have North American sales
personnel located in, or in close proximity to, most major cities in the United
States and Canada. Our international sales force is located in the metropolitan
areas of Amsterdam, Frankfurt, London, Milan, Copenhagen, Munich, Paris,
Singapore and Sydney. Our sales model combines telephone and Internet
communications for product demonstrations with travel to customer locations to
pursue a consultative sales process. In addition to our direct sales strategy,
we continue to pursue indirect distribution channels. In the Pacific Rim and
Latin America, we have established a network of channel partners. In North
America, we have established a network of regional and national systems
integrators and channel partners. When sold through direct channels, the sales
cycle for our products typically ranges from six to nine months, depending on a
number of factors, including the size of the transaction and the level of
competition we encounter in our sales activities.
In recent periods, we have devoted significant resources to building our
marketing organization and infrastructure. We have significantly expanded
product marketing, marketing communications, alliance marketing, telemarketing
and sales training. The primary focus of our marketing department is to generate
qualified leads for the worldwide direct sales force and to create market
awareness programs for Peregrine and our products. As part of our strategy, we
have invested significantly in the Internet, developing a new corporate web site
during fiscal 2000 and executing an array of web-based marketing programs. In
addition, during fiscal 2000, we established an executive briefing center in
order to focus our sales efforts at senior levels within our prospective
customer's organizations.
We have significantly increased the size of our sales force over the last
year and expect to continue hiring sales personnel, both domestically and
internationally, over the next twelve months. Competition for qualified sales
personnel is intense in the software industry. We also expect to increase the
number of our regional, national, system integrator and channel partners, both
domestically and internationally. Any failure to expand our direct sales force
or other distribution channels could have a material adverse effect on our
business, results of operations, and financial condition.
We believe that our continued growth and profitability will require
expansion of our international operations, particularly in Europe, Latin
America, and the Pacific Rim. We intend to expand international operations and
to enter additional international markets, either directly or through
international distribution or similar arrangements, which will require
significant management attention and financial resources.
11
<PAGE>
Competition for suitable distribution partners is intense in many markets
outside North America. There can be no assurance that we will be successful in
attracting and retaining qualified international distributors or that we will be
successful in implementing direct sales programs in selected international
markets. If we are unable to obtain qualified international distribution
partners or are otherwise unable to successfully penetrate important
international markets, our business, results of operations, and financial
condition would be materially and adversely affected.
In addition, continued international expansion poses a number of risks
associated with conducting business outside the United States, including
fluctuations in currency exchange rates, longer payment cycles, difficulties in
staffing and managing international operations, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world, increases in tariffs, duties, price controls, or other restrictions on
foreign currencies, and trade barriers imposed by foreign countries, any of
which could have a material adverse effect on our business, operating results
and financial condition. In addition, we have only limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. There can be no assurance that we will be able to
successfully localize, market, sell, and deliver products internationally. If we
are unable to expand our international operations successfully and in a timely
manner, our future revenues could decline or grow at a slower rate, and our
results of operations and financial condition could be impaired.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services group provides technical consulting and training
to assist customers and business partners in implementing our products.
Our basic consulting services include analyzing user requirements and
providing the customer with a starter system that will quickly demonstrate
significant benefits of our products. More advanced consulting services include
providing turn-key implementations using our Advanced Implementation
Methodology, which begins with a structured analysis to map the customer's
business rules onto our service desk tools, continues with the technical design
and construction, and finishes with system roll out. Implementation assistance
frequently involves a modest level of process reengineering and the development
of interfaces between our products and legacy systems and other tools or
systems.
We offer training courses in the implementation and administration of our
products. On a periodic basis, we offer product training at our facilities in
San Diego, Orlando, Washington D.C., London, Paris, Frankfurt, Amsterdam and
Tokyo for customers and business partners. Customer-site training is also
available.
We maintain a staff of customer support and customer care personnel, who
provide technical support and periodic software updates to our customers and
partners. We offer complete technical support services 24 hours a day, five days
per week, with critical care services offered 24 hours a day, seven days a week
via toll free lines through our local offices in Europe and San Diego. In
addition to telephone support, we provide support via facsimile, e-mail, and a
web server.
COMPETITION
The markets for our products are highly competitive and diverse. The
technology for infrastructure management and e-procurement software products can
change rapidly. New products are frequently introduced and existing products are
continually enhanced. Competitors vary in size and in the scope and breadth of
the products and services offered. In the last few years, we have experienced
substantial competition from new competitors of all types and sizes, and we do
not foresee a change in the rate of increasing competition.
12
<PAGE>
SOURCES OF EXISTING COMPETITION
We face competition from a number of sources in the markets for our
infrastructure resource management and e-procurement software solutions.
- In the markets for our infrastructure resource management products, we
face competition from:
- providers of internal help desk software applications, such as Remedy
Corporation and Tivoli Systems, that compete with our enterprise
service desk software
- providers of asset management software, including Remedy, MainControl,
and Janus Technologies
- providers of facilities management software, including Archibus,
Facilities Information Systems, and Assetworks (a division of
CSI-Maximus)
- providers of transportation management software that competes with our
fleet management and rail management software, including Control
Software (a division of CSI-Maximus) and Project Software and
Development Inc.
- information technology and systems management companies such as IBM,
Computer Associates, Network Associates, Hewlett-Packard, and Microsoft
- numerous start-up and other entrepreneurial companies offering products
that compete with the functionality offered by one or more of our
infrastructure management products
- the internal information technology departments of those companies with
infrastructure management needs
- In the markets for procurement and e-procurement solutions, we face
competition from:
- established competitors in the business-to-business internet commerce
solution market, such as Ariba and CommerceOne; and
- established providers of enterprise resource planning software that are
entering the market for procurement and e-procurement solutions,
including Oracle and SAP.
SOURCES OF FUTURE COMPETITION
Because competitors can easily penetrate the software market, we anticipate
additional competition from other established and new companies as the market
for enterprise infrastructure management applications develops. In addition,
current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties.
Large software companies may acquire or establish alliances with our smaller
competitors. We expect that the software industry will continue to consolidate.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
Increased competition may result from acquisitions of other infrastructure
management or e-procurement software vendors by system management companies. The
results of increased competition including price reductions of our products,
reduced gross margins, and reduction of market share, could materially adversely
affect our business, operating results, and financial condition. In several of
our market segments, we believe there is a distinct trend by competitors toward
securing market share at the expense of profitability. This could have an impact
on the mode and success of our ongoing business in these segments.
13
<PAGE>
GENERAL COMPETITIVE FACTORS IN OUR INDUSTRY
Some of our current and many of our potential competitors have much greater
financial, technical, marketing, and other resources. As a result, they may be
able to respond more quickly than we can to new or emerging technologies and
changes in customer needs. They may also be able to devote greater resources to
the development, promotion, and sale of their products. We may not be able to
compete successfully against current and future competitors. In addition,
competitive pressures that we face may materially and adversely affect our
business, operating results, and financial condition.
We believe that the principal competitive factors affecting markets include
product features such as adaptability, scalability, ability to integrate with
third party products, functionality, ease of use, product reputation, quality,
performance, price, customer service and support, effectiveness of sales and
marketing efforts and company reputation. Although we believe that we currently
compete favorably with respect to these factors, there can be no assurance that
we will maintain our competitive position against current and potential
competitors, especially those with greater financial, marketing, service,
support, technical, and other resources than us. In addition, we believe that
our future financial performance will depend in large part on our success in
continuing to expand our product line of infrastructure management and
e-procurement solutions and to create organizational awareness of the benefits
when purchasing these integrated solutions from a single vendor.
INTELLECTUAL PROPERTY
Our success depends heavily on our ability to maintain and protect our
proprietary technology. We rely primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights, which offer only limited
protection. We attempt to protect our intellectual property rights by limiting
access to the distribution of our software, documentation and other proprietary
information. In addition, we enter into confidentiality agreements with our
employees and certain customers, vendors, and strategic partners. These steps
may fail to prevent the misappropriation of our intellectual property,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. Other parties may independently develop
competing technology. Attempts may be made to copy aspects of our products or to
obtain and use information that we regard as proprietary. Despite precautions we
may take, it may be possible for unauthorized third parties to copy aspects of
our current or future products or to obtain and use information that we regard
as proprietary. In particular, we may provide our licensees with access to our
data model and other proprietary information underlying our licensed
applications.
We employ a variety of intellectual property in the development and sale of
our products. We believe that the loss of all or a substantial portion of our
intellectual property rights would have a material adverse effect on our results
of operations. Our intellectual property protection measures might not be
sufficient to prevent misappropriation of our technology. From time to time, we
may desire or be required to renew or obtain licenses from others in order to
further develop and effectively market commercially viable products effectively.
Any necessary licenses might not be available on reasonable terms, if at all,
and the associated license fees could increase our expenses and impair our
results of operations.
Litigation concerning intellectual property is common among technology
companies. In the future, third parties may claim that we infringe their
products or technologies. These claims and any resulting lawsuit, if successful,
could subject us to significant liability for damages and invalidate our
proprietary rights. These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation could also force us to
do one or more of the following:
- cease selling, incorporating, or using products or services that
incorporate the infringed intellectual property;
14
<PAGE>
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not
available on acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of our competitors. These
claims could result in costly litigation and the diversion of our technical and
management personnel's time and attention. As a result, our operating results
could suffer, and our financial condition could be harmed.
EMPLOYEES
As of March 31, 2000, we employed 1,433 persons, including 555 in sales and
marketing, 160 in customer support, 257 in professional services, 243 in
research and development and 218 in finance and administration. Of our
employees, 441 are located outside North America, principally in Europe. None of
our employees is represented by a labor union (other than by statutory unions or
workers' committees required by law in some European countries). We have not
experienced any work stoppages and consider our relations with our employees to
be good.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, support, research and
development and training functions are located at our headquarters facility in
San Diego, California. We currently occupy 127,110 square feet of space in San
Diego, and the underlying leases extend through August 2003. An additional
13,310 square feet of leased space at the San Diego headquarters is subleased to
JMI Services, Inc., an affiliate of the Company.
In June 1999, we entered into a series of leases covering up to
approximately 540,000 square feet of office space in San Diego, including an
option on approximately 118,000 square feet of office space. Excluding the
exercise of the option, the leases require minimum lease payments of
approximately $124 million over their term, which is approximately twelve years.
This office space (including the option) is intended for a five building campus
setting in San Diego, California. Initially, we expect to occupy three of the
buildings and sublet the remaining two buildings. We currently occupy one of the
three buildings and expect to occupy the balance sometime during the summer of
2000. As part of the relocation to the new campus facility, we intend to sublet
our currently leased space on High Bluff Drive for the remaining period of our
lease.
We also lease office space for sales, marketing, and professional services
staff in most major metropolitan areas of the United States and Canada. In
connection with our recent acquisition of Telco Research Corporation Limited, we
assumed leases for approximately 37,000 square feet of office space in
Nashville, Tennessee and 17,000 square feet of office space in Toronto, Ontario.
In Europe, we lease space in the metropolitan areas of Amsterdam, Copenhagen,
Dublin, Frankfurt, London, Milan and Paris. In the Pacific Rim, we lease space
in Singapore, Sydney and Tokyo.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims,
either asserted or unasserted, which arise in the ordinary course of business.
Our management has reviewed pending legal matters and believes that the
resolution of such matters will not have a significant adverse effect on our
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No stockholder votes took place during the fourth quarter of the year ended
March 31, 2000.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on the Nasdaq National Market under the
symbol "PRGN" since our initial public offering in April 1997. Prior to April
1997, there was no established public trading market for our common stock. The
following table sets forth for the periods indicated, the high and low closing
prices reported on the Nasdaq National Market. All prices have been adjusted to
reflect two-for-one stock splits of our common stock effected as stock dividends
in February 1999 and February 2000.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal Year Ended March 31, 2000:
Fourth Quarter............................................ $79.500 $36.625
Third Quarter............................................. 45.875 19.156
Second Quarter............................................ 20.563 12.813
First Quarter............................................. 17.344 8.563
Fiscal Year Ended March 31, 1999:
Fourth Quarter............................................ $16.813 $10.625
Third Quarter............................................. 11.594 7.109
Second Quarter............................................ 10.344 5.844
First Quarter............................................. 7.130 4.563
</TABLE>
As of March 31, 1999, there were 109,501,146 shares of of our common stock
issued and outstanding held by 1,298 stockholders of record. We estimate that
there are approximately 8,500 beneficial stockholders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended March 31, 2000, we issued shares of Peregrine
common stock in connection with the following transactions that did not involve
registration under the Securities Act of 1933. All share numbers give effect to
a two-for-one stock split effected in the form of a dividend in February 2000.
In March 2000, we issued approximately 191,267 shares of common stock in
connection with our acquisition of Barnhill Management Group, Inc. The shares
were issued in reliance upon Section 4(2) of the Securities Act of 1933.
In March 2000, we issued approximately 2,560,000 shares of common stock in
connection with our acquisition of Telco Research Corporation Limited. The
shares were issued in reliance upon Section 3(a)(10) of the Securities Act.
In February 2000, in connection with our investment in SupplyAccess, Inc.,
we issued 206,304 shares of common stock at a price of $53.09 per share to
SupplyAccess. The shares were issued in reliance upon Section 4(2) of the
Securities Act of 1933 and Regulation D thereunder.
In December 1999, we issued 2,243,932 shares of our common stock in exchange
for 5,395,642 shares of the common stock of Goldmine Software Corporation,
representing approximately 10% of the outstanding Goldmine common stock on a pro
forma basis. The shares were issued in reliance upon Section 4(2) of the
Securities Act of 1933 and Regulation D thereunder.
16
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Our selected consolidated financial data is presented below as of March 31,
1996, 1997, 1998, 1999 and 2000 and for each of the years in the five-year
period ended March 31, 2000, and derives from the consolidated financial
statements of Peregrine Systems, Inc. and its subsidiaries, which financial
statements have been audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial statements as of March 31, 1999 and 2000
and for each of the years in the three-year period ended March 31, 2000, and the
report of independent public accountants thereon, are included elsewhere in this
report. The selected consolidated financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, the Consolidated
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
report.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Licenses.................................................. $168,467 $ 87,362 $38,791 $20,472 $11,642
Services.................................................. 84,833 50,701 23,086 14,563 12,124
-------- -------- ------- ------- -------
Total revenues.......................................... 253,300 138,063 61,877 35,035 23,766
Costs and expenses:
Cost of licenses.......................................... 1,426 1,020 326 215 415
Cost of services.......................................... 51,441 31,561 10,326 4,661 3,526
Sales and marketing....................................... 101,443 50,803 22,728 15,778 11,820
Research and development.................................. 28,517 13,919 8,394 5,877 7,742
General and administrative................................ 19,871 10,482 6,077 3,816 4,529
Amortization of intangibles............................... 34,753 18,012 3,168 -- --
Acquired in-process research and development.............. 24,505 26,005 6,955 -- --
-------- -------- ------- ------- -------
Total costs and expenses................................ 261,956 151,802 57,974 30,347 28,032
-------- -------- ------- ------- -------
Operating income (loss)..................................... (8,656) (13,739) 3,903 4,688 (4,266)
Interest income (expense) and other......................... 38 664 839 (478) (286)
-------- -------- ------- ------- -------
Income (loss) from continuing operations before income
taxes..................................................... (8,618) (13,075) 4,742 4,210 (4,552)
Income tax expense (benefit)................................ 16,452 10,295 5,358 (1,592) --
-------- -------- ------- ------- -------
Income (loss) from continuing operations.................... (25,070) (23,370) (616) 5,802 (4,552)
Loss from discontinued operations...........................
Loss from operations...................................... -- -- -- -- 781
Loss on disposal.......................................... -- -- -- -- 1,078
-------- -------- ------- ------- -------
Loss from discontinued operations....................... -- -- -- -- (1,859)
-------- -------- ------- ------- -------
Net income (loss)........................................... $(25,070) $(23,370) $ (616) $ 5,802 $(6,411)
======== ======== ======= ======= =======
Net income (loss) per share--diluted........................ $ (0.24) $ (0.27) $ (0.01) $ 0.10 $ (0.13)
======== ======== ======= ======= =======
Shares used in per share calculation........................ 102,332 87,166 69,520 59,856 49,324
======== ======== ======= ======= =======
<CAPTION>
MARCH 31,
----------------------------------------------------
2000 1999 1998 1997
-------- -------- -------- -------- 1996
(IN THOUSANDS) --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments........ $ 33,511 $ 23,545 $21,977 $ 305 $ 437
Working capital (deficit)................................. 20,510 25,302 23,779 (4,065) (9,697)
Total assets.............................................. 523,430 207,713 83,568 19,738 13,817
Total debt................................................ 1,331 649 1,117 3,866 5,208
Stockholders' equity (deficit)............................ 411,850 150,781 55,639 (2,849) (8,450)
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FOWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT.
OVERVIEW
Peregrine Systems, Inc. is a leading provider of infrastructure management
and e-infrastructure software products and solutions. Our products help
businesses to deploy, maintain, and dispose of numerous aspects of their
corporate infrastructure. Using common shared data, our products help to manage
information technology assets as well as assets relating to corporate facilities
and vehicle fleets. In addition, we have recently introduced products for rail
management and Internet-based asset procurement.
Until late 1997, our product offerings focused principally on managing
information technology assets through a consolidated enterprise service desk
that provided support to users of our customers' information technology systems
and networks. During fiscal 1998, we determined that our customers required a
more comprehensive solution to control and manage their infrastructure assets,
including information technology assets as well as the numerous other assets
that make up business infrastructures. Among other things, we determined that
businesses needed to be able to manage the availability of their assets,
minimize their investments and expense, consolidate data about infrastructure
assets, and interface their asset management solutions to enterprise
applications. Accordingly, we refocused our product development and marketing
strategies to focus on an "infrastructure resource management" strategy.
In order to execute on our infrastructure resource management strategy, we
have completed a number of acquisitions since late 1997. These acquisitions have
been designed to broaden our infrastructure resource management product suite.
- In September 1997, we acquired Apsylog S.A., a provider of asset
management software focused principally on managing information technology
assets.
- In July 1998, we acquired Innovative Tech Systems, a provider of software
products that address management of corporate facilities.
- In September 1998, we acquired technologies and other assets from related
entities operating as International Software Solutions. These technologies
expanded the ability of our products to help manage information technology
assets by permitting network help desk analysts to interface with users
over the corporate network.
- In March 1999, we acquired Prototype, a provider of software products for
managing corporate vehicle fleets.
- In April 1999, we acquired fPrint, a British provider of software used to
discover and inventory software located on the computers of individual
users on a corporate network.
- In September 1999, we acquired Knowlix, a developer of knowledge
management software that assists network help desk analysts by managing
the intangible technical information and know-how required to assist
callers.
18
<PAGE>
- In March 2000, we acquired Telco Research, a provider of software products
that help manage telecommunications assets, and Barnhill Management Group,
a services and solutions delivery partner of Peregrine with extensive
experience in the telecommunications industry.
Our software products are currently available on most major computer
operating platforms; however, for the past several years, over 85% of our
license sales have been attributable to the UNIX and Windows NT platforms.
Our revenues are derived from product licensing and services. Services are
comprised of maintenance, professional services, and training. License fees are
generally due upon the granting of the license and typically include a one-year
maintenance and warranty period as part of the license agreement. We also
provide ongoing maintenance services, which include technical support and
product enhancements, for an annual fee based upon the current price of the
product.
Revenues from license agreements are recognized currently, provided that all
of the following conditions are met: a noncancelable license agreement has been
signed, the product has been delivered, there are no material uncertainties
regarding customer acceptance, collection of the resulting receivable is deemed
probable and the risk of concession is deemed remote, and no other significant
vendor obligations exist. Revenues from post-contract support services are
recognized ratably over the term of the support period, generally one year.
Maintenance revenues which are bundled with license agreements are unbundled
using vendor-specific objective evidence. Consulting revenues are primarily
related to implementation services most often performed on a time and material
basis under separate service agreements for the installation of our products.
Revenues from consulting and training services are recognized as the respective
services are performed.
We currently derive a substantial portion of our license revenues from the
sale of our infrastructure resource management applications and our
e-infrastructure solutions. We expect these products to account for a
substantial portion of our revenues for the foreseeable future. As a result, our
future operating results are dependent upon continued market acceptance of our
infrastructure resource management strategy and applications, including future
product enhancements. Substantially all of our license revenues are derived from
granting a non-exclusive perpetual license to use our products. Factors
adversely affecting the pricing of, demand for or market acceptance of the
infrastructure resource management applications, such as competition or
technological change, manner of distribution or licensing, and related method of
revenue recognition could have a material adverse effect on our business,
operating results, and financial condition.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
consolidated statements of operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses......................................... 66.5% 63.3% 62.7%
Services......................................... 33.5 36.7 37.3
----- ----- -----
Total revenues............................... 100.0 100.0 100.0
Costs and expenses:
Cost of licenses................................. 0.6 0.7 0.5
Cost of services................................. 20.3 22.9 16.7
Sales and marketing.............................. 40.0 36.8 36.7
Research and development......................... 11.3 10.1 13.6
General and administrative....................... 7.8 7.6 9.8
Amortization of intangible assets................ 13.7 13.1 5.1
Acquired in-process research and development..... 9.7 18.8 11.3
----- ----- -----
Total costs and expenses..................... 103.4 110.0 93.7
----- ----- -----
Operating income (loss)............................ (3.4) (10.0) 6.3
Interest income and other.......................... -- 0.5 1.3
Income (loss) from before income taxes............. (3.4) (9.5) 7.6
Income tax expense................................. 6.5 7.4 8.7
----- ----- -----
Net loss........................................... (9.9)% (16.9)% (1.1)%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998
REVENUES
REVENUES. Total revenues were $253.3 million, $138.1 million and
$61.9 million for fiscal year end 2000, 1999 and 1998, representing
period-to-period increases of 83% and 123% for the fiscal 2000 and 1999 periods.
The reasons for the revenue increases are more fully discussed below.
LICENSES. License revenues were $168.4 million, $87.4 million and
$38.8 million in fiscal 2000, 1999 and 1998, representing 67% of total revenues
in fiscal 2000 and 63% in both fiscal 1999 and 1998. Total license revenues
increased 93% and 125% period-to-period for fiscal 2000 and 1999. Domestic
license revenues increased 73% in fiscal 2000 and 135% in fiscal 1999, while
international license revenues increased 125% and 111% in fiscal 2000 and 1999.
The increases in license revenues are attributable to increased demand for new
and additional licenses of our infrastructure resource management applications,
from new and existing customers, larger transaction sizes, expansion of our
domestic and international sales forces, and acquisitions. We expect larger
transaction sizes from a limited number of customers to account for a large
percentage of license revenues for the foreseeable future. Management believes
these trends will fluctuate period to period in absolute dollars and as a
percentage of total revenues.
During the past three years, we have increased the number of channels that
we use to distribute our products. The majority of our products are distributed
through our direct sales organization. The balance is derived through indirect
sales channels and alliance partners, including value added resellers and
systems integrators. Revenues derived through indirect channel sales now
comprise a significant portion of our total license revenues. We have
substantially less ability to manage our sales through indirect channels and
less visibility about our partners' success in selling the products that they
have purchased from us. To
20
<PAGE>
the extent indirect sales continue to increase as a percentage of total revenue,
we could experience unforseen variability in our future revenues and operating
results if our partners are unable to sell our products.
SERVICES. Services revenues consist of support, consulting and training
services. Service revenues were $84.8 million, $50.7 million and $23.1 million
for fiscal years 2000, 1999 and 1998, representing 33% of total revenues in
fiscal 2000 and 37% in both fiscal 1999 and 1998. Total services revenues
increased 67% and 120% period to period for fiscal 2000 and 1999. Domestic
services increased 63% in fiscal 2000 and 111% in fiscal 1999, while
international services revenues increased 78% and 140% in fiscal 2000 and 1999,
respectively. The dollar increases are attributable to maintenance agreements
and related billings from our expanded installed base of customers and an
increase in consulting and training revenues related to the implementation of
our software from initial license agreements and related expansion. While these
revenues are increasing in absolute dollars, we expect these trends to fluctuate
as a percentage of total revenues.
COSTS AND EXPENSES
COST OF LICENSES. Cost of licenses were $1.0 million, $0.3 million and
$0.2 million in fiscal years 2000, 1999 and 1998, each representing less than 1%
of total revenues in these periods. Cost of software licenses includes
third-party software royalties, product packaging, documentation and production.
These costs are expected to remain the same or increase as a percentage of total
revenues.
COST OF SERVICES. Cost of services were $51.4 million, $31.6 million and
$10.3 million in fiscal years 2000, 1999 and 1998, representing 20%, 23% and 17%
of total revenues in the respective periods. Cost of services primarily consists
of personnel, facilities and system costs in providing support, consulting and
training services. The dollar increases are attributable to an increase in
personnel related costs in order to support the related activities. Cost of
services increased as a percentage of related revenues due largely to a greater
percentage growth in lower margin consulting revenue compared to support
revenue. Consulting and training services generally have lower margins as
compared to support services.
SALES AND MARKETING. Sales and marketing expenses were $101.4 million,
$50.8 million and $22.7 million in fiscal years 2000, 1999 and 1998,
representing 40% of total revenues in fiscal 2000 and 37% of total revenues in
both fiscal 1999 and 1998. Sales and marketing expenses consists primarily of
personnel related costs, including commissions and bonuses, facilities and
system costs and travel and entertainment. The dollar increases in sales and
marketing expenses are attributable to the significant expansion of both the
North American and international sales forces, a large increase in general and
product specific marketing expenses, much of which related to our e-commerce
initiatives, the effect of combining the sales and marketing operations of the
acquisitions made during fiscal 2000 and 1999, and the effect of certain
operating expense increases. We expect that sales and marketing expenses will
continue to increase in absolute dollars as we continue to expand our sales and
marketing efforts and establish additional sales offices around the world. If we
experience a decrease in sales force productivity or for any other reason a
decline in revenues, it is likely that our operating margins will decline as
well.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$28.5 million, $13.9 million and $8.4 million in fiscal years 2000, 1999 and
1998, representing 11%, 10% and 14% of total revenues in those periods. Research
and development expenses consist primarily of employee salaries, developer
bonuses, quality assurance activities and consulting costs. The dollar increases
in research and development are due primarily to an increase in the number of
personnel conducting research and development, new product initiatives and
quality assurance efforts. These costs are expected to increase in absolute
dollars but remain relatively the same as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$19.9 million, $10.5 million and $6.1 million in fiscal years 2000, 1999 and
1998, representing 8% of total revenues in fiscal 2000 and
21
<PAGE>
1999 and 10% of total revenues in fiscal 1998. General and administrative
expenses consists primarily of employee salaries and overhead for administrative
personnel. The dollar increases from year to year are attributable to costs
associated with administrative personnel additions and infrastructure expansion
to support our growth. These costs are expected to increase in absolute dollars
but remain relatively the same as a percentage of total revenues.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of intangibles
and other assets were $34.8 million, $18.0 million and $3.2 million in fiscal
years 2000, 1999 and 1998, representing 14%, 13% and 6% of total revenues in
those periods. The dollar and percentage increases are attributable to the
amortization of intangible assets and goodwill related to acquisitions made
during those respective periods. These costs in future periods will be subject
to future potential acquisitions and amortization periods. These costs are
typically amortized over a five year period. See Note 1 of Notes to Peregrine
Consolidated Financial Statements.
ACQUIRED RESEARCH AND DEVELOPMENT COSTS. Acquired in-process research and
development costs were $24.5 million, $26.0 million and $7.0 million in fiscal
years 2000, 1999 and 1998, representing 10%, 19% and 11% of total revenues in
those periods. The costs incurred in fiscal 2000 relate to one-time charges
associated with the acquisitions of FPrint, Knowlix, and Telco Research. The
costs incurred in fiscal 1999 and 1998 relate to one-time charges associated
with the acquisitions of Innovative and Apsylog and the acquisition of certain
technology and other assets from a group of affiliated entities conducting
business as International Software Solutions. These costs in future periods will
be subject to future potential acquisitions. See Note 2 of Notes to Peregrine
Consolidated Financial Statements.
The value of each acquisition's acquired in-process technology was computed
using a discounted cash flow analysis on the anticipated income stream of the
related product sales. The value assigned to acquired in-process technology was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from the projects and discounting the net cash flows to their present
value. With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of the companies
acquired prior to the close of each acquisition.
The nature of the efforts required to develop acquired in-process technology
into commercially viable products principally relates to the completion of all
planning, designing and testing activities that are necessary to establish that
the products can be produced to meet their design requirements, including
functions, features and technical performance requirements. If the research and
development project and technologies are not completed as planned, they will
neither satisfy the technical requirements of a changing market nor be cost
effective.
No assurance can be given, however, that the underlying assumptions used to
estimate expected product sales, development costs or profitability, or the
events associated with such projects, will transpire as estimated. We currently
believe that actual results have been consistent with forecasts with respect to
acquired in-process revenues. Because we do not account for expenses by product,
it is not possible to determine the actual expenses associated with any of the
acquired technologies. However, we believe that expenses incurred to date
associated with the development and integration of the acquired in-process
research and development projects are substantially consistent with our previous
estimates.
We have completed many of the original research and development projects in
accordance with our plans. We continue to work toward the completion of other
projects. The majority of the projects are on schedule, but delays may occur due
to changes in technological and market requirements for our products. The risks
associated with these efforts are still considered high and no assurance can be
made that any upcoming products will meet with market acceptance. Delays in the
introduction of certain products may adversely affect our revenues and earnings
in future quarters.
22
<PAGE>
PROVISION FOR INCOME TAXES
Income tax expenses were $16.5 million, $10.3 million and $5.4 million for
fiscal year 2000, 1999 and 1998. This increase in absolute dollars is
attributable to an increase in operating profits. Excluding the effect on net
income of the acquired in-process research and development costs and
amortization of intangibles, our effective tax rates were 32.5%, 34.0% and 36.0%
for those fiscal years. These costs are expected to increase in absolute dollars
but remain relatively the same as a percentage of operating profits.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and marketable equity securities increased to
$33.5 million in fiscal year end 2000 from $23.5 million in fiscal 1999. This
increase is attributable to cash provided through ongoing operations, sale or
assignment of accounts receivables and cash received as a result of the exercise
of stock options under our stock incentive plans. Our days sales outstanding in
accounts receivable was 83 as of March 31, 2000 as compared with 76 as of
March 31, 1999. Since March 31, 1999, we have expended significant funds to
strengthen our operating infrastructure, including payments related to our lease
commitments for our recently signed campus leases. These leases require a
minimum aggregate lease payment of approximately $124 million over their twelve
year term. In addition, we have expended significant funds acquiring companies
and technologies subsequent to fiscal year end 1999.
During July 1999, we entered into a $20 million senior credit facility for a
term of three years with a syndicate of financial institutions. The facility is
available for general corporate purposes including acquisitions. We believe that
our current cash, short-term investments, cash flow from operations, and amounts
available under our credit facility will be sufficient to meet our working
capital requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent we experience
growth in the future, our operating and investing activities may use cash.
Consequently, any such future growth may require us to obtain additional equity
or debt financing, which may not be available on commercially reasonable terms
or which may be dilutive. As of March 31, 2000, there were no amounts
outstanding with respect to the $20 million senior credit facility.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than forward-rate currency contracts described below, which are used
for hedging our foreign currency risk, we do not use derivative financial
instruments in our investment portfolio. Our financial instruments consist of
cash and cash equivalents, short-term investments, trade accounts and contracts
receivable, accounts payable, and long-term obligations. We consider investments
in highly liquid instruments purchased with a remaining maturity of 90 days or
less at the date of purchase to be cash equivalents. Our exposure to market risk
for changes in interest rates relates primarily to our short-term investments
and short-term obligations. As a result, we do not expect fluctuations in
interest rates to have a material impact on the fair value of these securities.
We conduct business overseas in a number of foreign currencies, principally
in Europe. These currencies have been relatively stable against the U.S. dollar
for the past several years. As a result, foreign currency fluctuations have not
had a material impact historically on our revenues or results of operations.
Although we currently derive no material revenues from highly inflationary
economies, we are expanding our presence in international markets outside
Europe, including the Pacific Rim and Latin America, whose currencies have
tended to fluctuate more relative to the U.S. dollar. There can be no assurance
that European currencies will remain stable relative to the U.S. dollar or that
future fluctuations in the value of foreign currencies will not have a material
adverse effect on our business, operating results, revenues and financial
condition. Currently, we attempt to mitigate our transaction currency risks
through our foreign currency hedging program. The hedging program consists
primarily of using forward-rate currency contracts of approximately one month in
length to minimize the short-term impact of foreign currency fluctuations.
Currency contracts are accounted for in accordance with SFAS No. 52 and receive
hedge
23
<PAGE>
accounting treatment. To the extent not properly hedged by obligations
denominated in local currencies, our foreign operations remain subject to the
risks of future foreign currency fluctuations, and there can be no assurances
that our hedging activities will adequately protect us against such risk.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS REPORT, INCLUDING THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING
STATEMENTS AND OTHER PROSPECTIVE INFORMATION RELATING TO FUTURE EVENTS. THESE
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:
RISKS RELATING TO PEREGRINE
WE HAVE A HISTORY OF LOSSES, CANNOT PREDICT OUR FUTURE OPERATING RESULTS,
AND CANNOT ASSURE OUR FUTURE PROFITABILITY. IN ADDITION, MANAGEMENT DOES NOT
BELIEVE RECENT REVENUE GROWTH RATES ARE NECESSARILY SUSTAINABLE.
Prediction of our future operating results is difficult, if not impossible,
and we have incurred substantial losses in recent years. If we continue to incur
losses, if our revenues decline or grow at a slower rate, or if our expenses
increase without commensurate increases in revenues, our operating results will
suffer and our stock price may fall. Through March 31, 2000, we had recorded
cumulative net losses of approximately $64.9 million, including approximately
$113.4 million related to the write-off of acquired in-process research and
development and the amortization of goodwill and other intangible assets in
connection with several acquisitions completed since late 1997. We have also
incurred, and expect to continue to incur, substantial expenses associated with
the amortization of intangible assets. In addition, our management does not
believe our recent growth rates are necessarily sustainable in the future or
indicative of future growth rates. If our revenue growth rates slow or our
revenues decline, our operating results could be seriously impaired because many
of our expenses are fixed and cannot be easily or quickly changed.
OUR REVENUES VARY SIGNIFICANTLY FROM QUARTER TO QUARTER FOR NUMEROUS REASONS
BEYOND OUR CONTROL. QUARTER-TO-QUARTER VARIATIONS COULD RESULT IN SUBSTANTIAL
DECREASES IN OUR STOCK PRICE IF OUR REVENUES OR OPERATING RESULTS ARE LESS THAN
MARKET ANALYSTS ANTICIPATE.
Our revenues or operating results in a given quarter could be substantially
less than anticipated by market analysts, which could result in substantial
declines in our stock price. In addition, quarter-to-quarter variations could
create uncertainty about the direction or progress of our business, which could
also result in stock price declines. Our revenues and operating results will
vary from quarter to quarter for many reasons beyond our control. As a result,
our quarterly revenues and operating results are not predictable with any
significant degree of accuracy. Reasons for variability of our revenues and
operating results include the following:
- SIZE, TIMING, AND CONTRACTUAL TERMS OF ORDERS. Our revenues in a given
quarter could be adversely affected if we are unable to complete one or
more large license agreements, if the completion of a large license
agreement is delayed, or if the contract terms prevent us from recognizing
revenue during that quarter. In addition, when negotiating large software
licenses, many customers tend to time their negotiations until quarter-end
in an effort to improve their ability to negotiate more favorable pricing
terms. As a result, we tend to recognize a substantial portion of our
revenues in the last month or weeks of a quarter, and license revenues in
a given quarter will substantially depend on orders booked during the last
month or weeks of a quarter. Our revenue growth in recent periods has been
attributable in part to an increase in the number of large license
transactions we completed in a given period. We expect our reliance on
these large transactions to continue for the forseeable future. If we are
unable to complete a large license transaction in a
24
<PAGE>
particular quarter, our revenues and operating results could be materially
below the expectations of market analysts, and our stock price could fall.
- ANNOUNCEMENTS BY PEREGRINE OR OUR COMPETITORS. Announcements of new
products or releases by us or our competitors could cause customers to
delay purchases pending the introduction of the new product or release. In
addition, announcements by us or our competitors concerning pricing
policies could have an effect on our revenues in a given quarter.
- CUSTOMER BUDGETING CYCLES. Our quarter-to-quarter revenues will depend on
customer budgeting cycles. If customers change their budgeting cycles, or
reduce their capital spending on technology, our revenues could decline.
- CHANGES IN PRODUCT MIX. Changes in our product mix could adversely affect
our operating results because some products provide higher margins than
others. For example, margins on software licenses tend to be higher than
margins on maintenance services.
- CHANGES IN METHOD OF SALE. Our profit margins will tend to vary based on
whether a sale was made through our direct sales force or through a
reseller or other strategic partner. Sales through indirect channels tend
to be less profitable, and if sales through indirect channels increased
relative to direct sales, our operating results could be harmed. Sales
through indirect channels, including distributors, third party resellers,
and system integrators, represent a significant percentage of our total
sales. We expect this trend to continue in the future. As a result, we
could experience a shortfall in our revenues, or a substantial decline in
our rate of revenue growth, if sales through our indirect channels were to
decrease or were to increase at a slower rate. We have less ability to
manage our sales through indirect channels and less visibility about our
channel partners' success in selling our products. As a result, we could
experience unforeseen variability in our revenues and operating results
for a number of reasons, including the following:
- inability of our channel partners to sell our products;
- a decision by our channel partners to favor products that compete with
Peregrine's;
- inability of our channel partners to manage the timing of their
purchases from Peregrine against their sales to end-users, resulting in
substantial inventories of unsold licenses held by our channel
partners; or
- our inability to increase the number of channel partners that sell our
products and to maintain relationships with existing channel partners.
- CANCELLATION OF LICENSES OR MAINTENANCE AGREEMENTS. Cancellations of
licenses or maintenance contracts could reduce our revenues and harm our
operating results. In particular, our customers tend to renew their
maintenance contracts on an annual basis. Substantial cancellations of
maintenance agreements, or a substantial failure to renew maintenance
contracts, would reduce our revenues and harm our operating results.
THE LONG SALES CYCLE FOR OUR PRODUCTS MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN
OUR REVENUES AND OPERATING RESULTS.
Delays in customer orders could result in our revenues being substantially
below the expectations of market analysts. In addition, we may incur substantial
sales and marketing expenses during a particular period in an effort to obtain
orders. If we are unsuccessful in generating offsetting revenues during that
period, our revenues and earnings could be substantially reduced or we could
experience a large loss. We are likely to experience delays in customer orders
because the sales cycle for our products is long and unpredictable.
Specifically, our customers' planning and purchase decisions involve a
significant commitment of resources and a lengthy evaluation and product
qualification process. The sales cycle for our products requires us to engage in
a sales cycle that, if it results in a sale, takes six to nine months to
25
<PAGE>
complete. The length of the sales cycle may be extended beyond six or nine
months due to factors over which we have little or no control, including the
size of the transaction and the level of competition we encounter in our sales
activities. During the sales cycle, we typically provide a significant level of
education to prospective customers regarding the use and benefits of our
products. Any delay in the sales cycle of a large license or a number of smaller
licenses could have an adverse effect on our results of operation and financial
condition.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY RESULT IN A PERIODIC
REDUCTION IN OUR REVENUES AND IMPAIRMENT OF OUR OPERATING RESULTS.
Seasonality in our business could result in our revenues in a given period
being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events,
seasonality could have an adverse impact on our results of operations.
Historically, our revenues and operating results in our December quarter have
tended to benefit, relative to our June and September quarters, from purchase
decisions made by the large concentration of customers with calendar year-end
budgeting requirements. Revenues and operating results in our March quarter have
tended to benefit from the efforts of our sales force to meet fiscal year-end
sales quotas. These historical patterns may change over time, however,
particularly as our operations become larger and the sources of our revenue
change or become more diverse. For example, our international operations have
expanded significantly in recent years, particularly in Europe. We also have an
international presence in the Pacific Rim and Latin America. We may experience
variability in demand associated with seasonal buying patterns in these foreign
markets. As an example, the September quarter is typically weaker in Europe for
many technology companies, including Peregrine, due to the European summer
holiday season.
IF A MARKET FOR OUR INFRASTRUCTURE RESOURCE MANAGEMENT SOFTWARE AND ASSET
PROCUREMENT SOLUTIONS DOES NOT DEVELOP, WE WILL BE UNABLE TO SELL OUR PRODUCTS
OR INCREASE OUR REVENUES. THE MARKET FOR OUR PRODUCTS IS STILL RELATIVELY NEW
AND UNPROVEN.
If the market for our infrastructure management software products does not
continue to develop as we anticipate, our business and operating results would
be adversely affected, and our financial condition could deteriorate. Until
recently, our product strategy focused on providing software products that help
to manage business computer networks and other information technology assets.
Beginning in late 1997, we began to broaden our product line to offer products
capable of managing multiple aspects of a business enterprise's infrastructure,
including its physical plant and facilities, its telecommunications networks,
its distribution systems, and its corporate car and rail fleets. Prior to our
introduction of these products, an integrated software solution for managing
corporate infrastructure assets did not exist in the market. Rather,
corporations purchased software to manage specific components of their
infrastructure. In the second half of fiscal 2000, we attempted to further
expand our infrastructure management product line by introducing GET.IT!, a line
of employee self-service products that facilitate the acquisition and use of
infrastructure assets, services, and information. As a result, the market for
our products is still new and unproven and is continuing to develop. If a market
for infrastructure management solutions fails to develop, or develops in ways we
do not anticipate, our business would be seriously impaired. In particular, our
revenues and operating results would decrease, and we could experience losses.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY
STANDARDS, OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS,
SALES OF OUR PRODUCTS MAY DECREASE.
As a result of rapid technological change in our industry, our competitive
position in existing markets, or in markets we may enter in the future, can be
eroded rapidly by product advances and technological changes. We may be unable
to improve the performance and features of our products as necessary to respond
to these developments. In addition, the life cycles of our products are
difficult to estimate. Our growth and future financial performance depend in
part on our ability to improve existing products and develop and introduce new
products that keep pace with technological advances, meet changing customer
needs, and respond to competitive products. Our product development efforts will
continue to require
26
<PAGE>
substantial investments. We may not have sufficient resources to make these
investments. In addition, if we are required to expend substantial resources to
respond to specific technological or product changes, our operating results
would be adversely affected.
IF WE CANNOT ATTRACT EXPERIENCED SALES PERSONNEL, SOFTWARE DEVELOPERS, AND
HIGHLY-TRAINED CUSTOMER SERVICE PERSONNEL, WE WILL NOT BE ABLE TO SELL AND
SUPPORT OUR PRODUCTS.
If we are not successful in attracting and retaining qualified sales
personnel, software developers, and customer service personnel, our revenue
growth rates could decrease, or our revenues could decline, and our operating
results could be materially harmed. Our products and services require a
sophisticated selling effort targeted at several key people within our
prospective customers' organizations. This process requires the efforts of
experienced sales personnel as well as specialized consulting professionals. In
addition, the complexity of our products, and issues associated with installing
and maintaining them, require highly trained customer service and support
personnel. We intend to hire a significant number of these personnel in the
future and train them in the use of our products. We believe our success depends
in large part on our ability to attract and retain these key employees.
Competition for these employees is intense, and we have in the past experienced
difficulty recruiting qualified employees.
OUR BUSINESS WOULD BE HARMED IF ONE OR MORE MEMBERS OF OUR SENIOR MANAGEMENT
TEAM CHOSE TO LEAVE US.
The loss of the services of one or more our executive officers or key
employees, or the decision of one or more of these individuals to join a
competitor, could adversely affect our business and harm our operating results
and financial condition. Our success depends to a significant extent on the
continued service of our senior management and other key sales, consulting,
technical, and marketing personnel. None of our senior management is bound by an
employment agreement. In addition, only a few employees who were significant
shareholders of businesses we acquired are bound by noncompetition agreements.
We do not maintain key man life insurance on any of our employees.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, THIS WILL PLACE A SIGNIFICANT
STRAIN ON OUR MANAGEMENT AND OPERATIONAL RESOURCES.
Our recent growth rates have placed a significant strain on our management
and operational resources. We have expanded our operations rapidly in recent
years and intend to continue to expand in order to pursue market opportunities
that our management believes are attractive. Our customer relationships could be
strained if we are unable to devote sufficient resources to them as a result of
our growth, which could have an adverse effect on our future revenues and
operating results.
NEW PRODUCT INTRODUCTIONS OR ENHANCEMENTS OF EXISTING PRODUCTS BY OUR
COMPETITORS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS.
If we cannot compete effectively in our market by offering products that are
comparable in functionality, ease of use, and price to those of our competitors,
our revenues will decrease, and our operating results would be adversely
affected. The market for our products is highly competitive and diverse, and the
technologies for infrastructure management software products can change rapidly.
New products are introduced frequently and existing products are continually
enhanced.
We face competition from a number of sources in the markets for our
infrastructure resource management and e-procurement software solutions.
- In the markets for our infrastructure resource management solutions, we
face competition from:
- providers of internal help desk software applications for managing
information technology service desks, such as Remedy Corporation and
Tivoli Systems, that compete with our enterprise service desk software;
- providers of asset management software, including Remedy, MainControl,
and Janus Technologies;
27
<PAGE>
- providers of facilities management software, including Archibus,
Facilities Information Systems, and Assetworks (a division of
CSI-Maximus);
- providers of transportation management software that competes with our
fleet management and rail management software, including Control
Software (a division of CSI-Maximus) and Project Software and
Development Inc.;
- information technology and systems management companies such as IBM,
Computer Associates, Network Associates, Hewlett-Packard, and
Microsoft;
- numerous start-up and other entrepreneurial companies offering products
that compete with the functionality offered by one or more of our
infrastructure management products; and
- the internal information technology departments of those companies with
infrastructure management needs.
- In the markets for procurement and e-procurement solutions, we have
experienced competition from:
- established competitors in the business-to-business internet commerce
solution market, such as Ariba and CommerceOne; and
- established providers of enterprise resource planning software that are
entering the market for procurement and e-procurement solutions,
including Oracle and SAP.
Many of our current and potential competitors have substantially greater
financial, technical, marketing, and other resources than we have. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer needs. They may also be able to devote greater resources
than we can to the development, promotion, and sale of their products. We may
not be able to compete successfully against current and future competitors,
which could have an adverse effect on our future revenues and operating results.
NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR OUR
ABILITY TO RETAIN AND EXPAND OUR MARKET SHARE.
Additional competition from new entrepreneurial companies or established
companies entering our markets could have an adverse effect on our business,
revenues, and operating results. In addition, alliances among companies that are
not currently direct competitors could create new competitors with substantial
market presence. Because few barriers to entry exist in the software industry,
we anticipate additional competition from new and established companies as well
as business alliances. We expect that the software industry will continue to
consolidate. In particular, we expect that large software companies will
continue to acquire or establish alliances with our smaller competitors, thereby
increasing the resources available to these competitors. These new competitors
or alliances could rapidly acquire significant market share at our expense.
SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE INFRASTRUCTURE MANAGEMENT AND/OR
HELP DESK SOFTWARE COMPANIES AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, HARMING
OUR ABILITY TO SELL OUR PRODUCTS.
If large system management providers close their systems to our products,
our revenues and operating results would be seriously harmed. Our ability to
sell our products depends in large part on our products' compatibility with and
support by providers of system management products, including Tivoli, Computer
Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have acquired
providers of help desk software products. These large, established providers of
system management products and services may decide to close their systems to
competing vendors like us. They may also decide to bundle the products that
compete with our products with other products for enterprise licenses for
promotional purposes or as part of a long-term pricing strategy. If that were to
happen, our ability to sell our products could be
28
<PAGE>
adversely affected. Increased competition may result from acquisitions of help
desk and other infrastructure management software vendors by system management
companies. Increased competition could result in price reductions, reductions in
our gross margins, or reductions in our market share. Any of these events would
adversely affect our business and operating results.
WE MAY BE UNABLE TO EXPAND OUR BUSINESS AND INCREASE OUR REVENUES IF WE ARE
UNABLE TO EXPAND OUR DISTRIBUTION CHANNELS.
If we are unable to expand our distribution channels effectively, our
business, revenues, and operating results could be harmed. In particular, we
will need to expand our direct sales force and establish relationships with
additional system integrators, original manufacturers, and other third party
channel partners who market and sell our products. If we cannot establish these
relationships, or if our channel partners are unable to market our products
effectively or provide cost-effective customer support and service, our revenues
and operating results will be harmed. Even where we are successful in
establishing a new third-party relationship, our agreement with the third party
may not be exclusive. As a result, our partner may carry competing product
lines.
IF WE ARE UNABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS,
REVENUES, AND OPERATING RESULTS COULD BE HARMED.
In order to grow our business, increase our revenues, and improve our
operating results, we believe we must expand internationally. If we expend
substantial resources pursuing an international strategy and are not successful,
our revenues would be less than we or market analysts anticipate, and our
operating results would suffer. International revenues represented approximately
36.0% of Peregrine's business in each of fiscal 1998 and 1999 and approximately
41.0% of Peregrine's business in fiscal 2000. We have several international
sales offices in Europe as well as offices in Japan, Singapore, and Australia.
International expansion will require significant management attention and
financial resources, and we may not be successful expanding our international
operations. We have limited experience in developing local language versions of
our products or in marketing our products to international customers. We may not
be able to successfully translate, market, sell, and deliver our products
internationally.
CONDUCTING BUSINESS INTERNATIONALLY POSES RISKS THAT COULD AFFECT OUR
FINANCIAL RESULTS.
Even if we are successful in expanding our operations internationally,
conducting business outside North America poses many risks that could adversely
affect our operating results. These include the following:
- gains and losses resulting from fluctuations in currency exchange rates,
for which hedging activities may not adequately protect us;
- longer payment cycles;
- difficulties in staffing and managing international operations;
- problems in collecting accounts receivable; and
- the adverse effects of tariffs, duties, price controls, or other
restrictions that impair trade.
IF IMMIGRATION LAWS LIMIT OUR ABILITY TO RECRUIT AND EMPLOY SKILLED
TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, OUR BUSINESS AND OPERATING RESULTS
COULD BE HARMED.
Limitations under United States immigration laws could prevent us from
recruiting skilled technical personnel from foreign countries, which could harm
our business if we do not have sufficient personnel to develop new products and
respond to technological changes. This inability to hire technical personnel
could lead to future decreases in our revenues, or decreases in our revenue
growth rates, either of which would adversely affect our operating results.
Because of severe shortages for qualified technical personnel in the United
States, many companies, including Peregrine, have recruited engineers and other
technical
29
<PAGE>
personnel from foreign countries. Foreign computer professionals such as those
we have employed typically become eligible for employment in the United States
by obtaining a nonimmigrant visa. The number of nonimmigrant visas is limited
annually by federal immigration laws. In recent years, despite increases in the
number of available visas, the annual allocation has been exhausted well before
year end.
WE HAVE MADE SUBSTANTIAL CAPITAL COMMITMENTS THAT COULD HAVE AN ADVERSE
EFFECT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION IF OUR BUSINESS DOES NOT
GROW.
We have made substantial capital commitments as a result of recent growth in
our business that could seriously harm our financial condition if our business
does not grow and we do not have adequate resources to satisfy our obligations.
In June 1999, we entered into a series of leases providing us with approximately
540,000 square feet of office space and an option to lease 118,000 square feet.
Even excluding the exercise of the option, the leases require a minimum
aggregate lease payment of approximately $124.0 million over the twelve year
term of the leases. The office space (including the option) is intended for a
five building campus in San Diego, California. We plan to fully occupy three of
these buildings by the summer of 2000 and for the present time to sublease the
remaining two buildings. The capital commitments, construction oversight, and
movement of personnel and facilities involved in a transaction of this type and
magnitude present numerous risks, including:
- failure to properly estimate the future growth of our business;
- inability to sublease excess office space if we underestimate future
growth;
- disruption of operations; and
- inability to match fixed lease payments with fluctuating revenues, which
could impair our earnings or result in losses.
PRODUCT DEVELOPMENT DELAYS COULD HARM OUR COMPETITIVE POSITION AND REDUCE
OUR REVENUES.
If we experience significant product development delays, our position in the
market would be harmed, and our revenues could be substantially reduced, which
would adversely affect our operating results. We have experienced product
development delays in the past and may experience delays in the future. In
particular, we may experience product development delays associated with the
integration of recently acquired products and technologies. Delays may occur for
many reasons, including an inability to hire sufficient number of developers,
discovery of bugs and errors, or a failure of our current or future products to
conform to industry requirements.
ERRORS OR OTHER SOFTWARE BUGS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT
EXPENDITURES TO REMEDY OR CORRECT THE ERRORS OR BUGS.
If we are required to expend significant amounts to correct software bugs or
errors, our revenues could be harmed as a result of our inability to deliver the
product, and our operating results could be impaired as we incur additional
costs without offsetting revenues. Errors can be detected at any point in a
product's life cycle. We have experienced errors in the past that resulted in
delays in product shipment and increased costs. Discovery of errors could result
in any of the following:
- loss of or delay in revenues and loss of customers or market share;
- failure to achieve market acceptance;
- diversion of development resources and increased development expenses;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
30
<PAGE>
WE COULD EXPERIENCE LOSSES AS A RESULT OF OUR STRATEGIC INVESTMENTS.
If our strategic investments in other companies are not successful, we could
incur losses. We have made and expect to continue to make minority investments
in companies with businesses or technologies that we consider to be
complementary with our business or technologies. These investments have
generally been made by issuing shares of our common stock or to a lesser extent
with cash. Many of these investments are in companies where operations are not
yet sufficient to establish them as profitable concerns. Adverse changes in
market conditions or poor operating results of underlying investments could
result in our incurring losses or an inability to recover the carrying value of
its investments.
WE COULD BE COMPETITIVELY DISADVANTAGED IF WE WERE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY.
If we fail to adequately protect our proprietary rights, our competitors
could offer similar products relying on technologies developed by us,
potentially harming our competitive position and decreasing our revenues. We
attempt to protect our intellectual property rights by limiting access to the
distribution of our software, documentation, and other proprietary information
and by relying on a combination of copyright, trademark, and trade secret laws.
In addition, we enter into confidentiality agreements with our employees and
certain customers, vendors, and strategic partners. In some circumstances,
however, we may, if required by a business relationship, provide our licensees
with access to our data model and other proprietary information underlying our
licensed applications.
Despite precautions that we take, it may be possible for unauthorized third
parties to copy aspects of our current or future products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of software
is difficult, and some foreign laws do not protect our proprietary rights to the
same extent as United States laws. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, or to
determine the validity and scope of the proprietary rights of other. If we are
required to pursue litigation to enforce our proprietary rights, we could incur
substantial costs, and management attention could be diverted, either of which
could adversely affect our revenues and operating results.
IF WE BECOME INVOLVED IN A PROTRACTED INTELLECTUAL PROPERTY DISPUTE, OR ONE
WITH A SIGNIFICANT DAMAGES AWARD, OR WHICH REQUIRES US TO CEASE SELLING OUR
PRODUCTS, WE COULD BE SUBJECT TO SIGNIFICANT LIABILITY AND THE TIME AND
ATTENTION OF OUR MANAGEMENT COULD BE DIVERTED.
In recent years, there has been significant litigation in the United States
involving intellectual property rights, including companies in the software
industry. Intellectual property claims against us and any resulting lawsuit, if
successful, could subject us to significant liability for damages and invalidate
what we currently believe are our proprietary rights. These lawsuits, regardless
of their success, would likely be time-consuming and expensive to resolve and
could divert management's time and attention. Any potential intellectual
property litigation could also force us to do one or more of the following:
- cease selling, incorporating, or using products or services that
incorporate the infringed intellectual property;
- obtain from the holder of the infringed intellectual property a license to
sell or use the relevant technology, which license may not be available on
acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology, which could result in substantial unanticipated development
expenses.
If we are subject to a successful claim of infringement and we fail to
develop noninfringing technology or license the infringed technology on
acceptable terms and on a timely basis, our revenues could decline or our
expenses could increase.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights
31
<PAGE>
of competitors. These claims could result in costly litigation and the diversion
of technical and management personnel's attention.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN
SIGNIFICANT COSTS.
If we are held liable for damages incurred as a result of our products, our
operating results could be significantly impaired. Our license agreements with
our customers typically contain provisions designed to limit exposure to
potential product liability claims. These limitations may not be effect under
the laws of some jurisdictions, however. Although we have not experienced any
product liability claims to date, the sale and support of our products entails
the risks of these claims.
CONTROL BY OUR OFFICERS AND DIRECTORS MAY LIMIT OUR STOCKHOLDERS' ABILITY TO
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DELAY OR PREVENT A
CHANGE IN CONTROL, WHICH COULD PREVENT OUR STOCKHOLDERS FROM REALIZING A PREMIUM
IN THE MARKET PRICE OF THEIR COMMON STOCK.
The concentration of ownership of our common stock by our officers and
directors could delay or prevent a change in control or discourage a potential
acquiror from attempting to obtain control of us. This could cause the market
price of our common stock to fall or prevent the stockholders from realizing a
premium in the market price of our common stock in the event of an acquisition.
As of March 31, 2000, our officers and directors owned approximately 12,061,678
shares of common stock (including shares issuable upon exercise of options
exercisable within 60 days of March 31, 2000), representing approximately 11.0%
of our total shares outstanding. Assuming the issuance of approximately
30 million shares of our common stock in connection with our contemplated merger
with Harbinger Corporation, our officers and directors will own approximately
8.6% of our outstanding common stock (not including shares held by those
officers and directors of Harbinger who will become officers and directors of
Peregrine after the merger). For information about the ownership of common stock
by our executive officers and stockholders, see "Peregrine Principal
Stockholders."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE
POTENTIAL ACQUISITION BIDS FOR US AND MAY PREVENT CHANGES IN OUR MANAGEMENT THAT
OUR STOCKHOLDERS OTHERWISE WOULD APPROVE.
Some provisions of our charter documents eliminate the right of stockholders
to act by written consent without a meeting and impose specific procedures for
nominating directors and submitting proposals for consideration at a stockholder
meeting. These provisions are intended to increase the likelihood of continuity
and stability in the composition of our board of directors and the policies
established by the board of directors. These provisions also discourage some
types of transactions, which may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. As a result, these provisions could discourage
potential acquisition proposals and could delay or prevent a change of control
transaction. These provisions are also intended to discourage common tactics
that may be used in proxy fights. As a result, they could have the effect of
discouraging third parties from making tender offers for our shares. These
provisions may prevent the market price of our common stock from reflecting the
effects of actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preference, privileges, and restrictions of this preferred stock without
any further vote or action by our stockholders. The issuance of preferred stock
allows us to have flexibility in connection with possible acquisitions and for
other corporate purposes. The issuance of preferred stock, however, may delay or
prevent a change in control transaction. As a result, the market price of our
common stock and other rights of holders of our common stock may be adversely
affected, including the loss of voting control to others.
32
<PAGE>
ADDITIONAL RISKS RELATING TO THE PROPOSED ACQUISITION OF HARBINGER
On April 5, 2000, we announced that we had signed a definitive merger
agreement with Harbinger Corporation, a provider of business-to-business
electronic commerce products and services. If the merger is completed, we will
issue 0.75 of a share of our common stock for each outstanding share of
Harbinger common stock and will assume all outstanding options and warrants to
acquire Harbinger common stock (the number and exercise price of which will be
adjusted based on the exchange ratio). We expect to issue approximately 35.6
million shares of our common stock in exchange for all the outstanding equity
securities of Harbinger. We expect the acquisition will be accounted for using
the purchase method of accounting and will be treated as a tax-free
reorganization. The definitive agreement has been approved by the boards of
directors of both Harbinger and Peregrine. Closing of the merger is subject to
approval by Peregrine's and Harbinger's stockholders, regulatory approvals, and
customary closing conditions.
In connection with the proposed merger, we expect to file a proxy statement
and Registration Statement on Form S-4 with the SEC, and Harbinger expects to
file a proxy statement with the SEC. We expect that Harbinger and Peregrine will
mail a Joint Proxy Statement/Prospectus to stockholders of Harbinger and
Peregrine containing additional information about the proposed merger. Investors
and security holders are urged to read the registration statement and the Joint
Proxy Statement/Prospectus carefully when they are available. The registration
statement and the Joint proxy Statement/Prospectus will contain important
information about Harbinger, Peregrine, the proposed merger, risks related to
the merger, the persons soliciting proxies relating to the proposed merger,
their interests in the proposed merger, and related matters.
WE MAY EXPERIENCE PROBLEMS INTEGRATING THE BUSINESSES OF PEREGRINE AND
HARBINGER. ANY INTEGRATION PROBLEMS COULD CAUSE US TO INCUR SUBSTANTIAL
UNANTICIPATED COSTS AND EXPENSES, WHICH WOULD HARM OUR OPERATING RESULTS.
If we fail to integrate our businesses successfully, we will incur
substantial costs, which will increase our expenses and reduce any earnings or
potentially result in losses, and we will fail to achieve the expected synergies
and cost reductions of the merger. In addition, integration problems could
divert management's attention from other business opportunities, which could
result in slower revenue growth than anticipated or in declines in revenue.
Integrating our business with Harbinger's business will be complex,
time-consuming, and expensive. It may disrupt both companies' businesses if not
completed in a timely and efficient manner. Peregrine and Harbinger are both
global companies with substantial operations throughout the world, and
integrating geographically separate and dispersed organizations may be
difficult. We have never attempted to integrate an acquisition of a company as
large as Harbinger.
Specific integration challenges faced by Peregrine and Harbinger include the
following:
- retaining existing customers and strategic partners;
- retaining and integrating management and other key employees of both
companies;
- combining product offerings and product lines effectively and quickly,
including technical integration by our respective engineering teams;
- integrating sales efforts so that customers can easily do business with
the combined company;
- transitioning multiple locations around the world to common systems,
including common information technology systems;
- persuading employees that the business cultures of the two companies are
compatible;
- successfully developing and promoting a unified brand strategy and
marketing it to existing and prospective customers; and
- developing and maintaining uniform standards, controls, procedures, and
policies.
33
<PAGE>
THE MERGER COULD IMPAIR EXISTING RELATIONSHIPS WITH SUPPLIERS, CUSTOMERS,
STRATEGIC PARTNERS, AND EMPLOYEES, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR
INDIVIDUAL AND COMBINED BUSINESSES AND FINANCIAL RESULTS.
The public announcement of the merger could substantially impair important
business relationships of either company. Impairment of these business
relationships could reduce our revenues or increase our expenses, either of
which would harm our financial results. Specific examples of situations in which
we could experience problems include the following:
- suppliers, distributors, or customers of either Peregrine or Harbinger
could decide to cancel or terminate existing arrangements, or fail to
renew those arrangements, as a result of the merger;
- potential customers who are currently negotiating with Peregrine or
Harbinger with respect to the purchase or license of their products and
services may delay purchases, or defer or terminate negotiations, as a
result of uncertainty about the merger;
- customers of Harbinger who use our competitors' products could terminate
or delay orders with Harbinger because they question Harbinger's continued
commitment to provide products and enhancements, or to support products,
used in conjunction with products of our competitors;
- key employees of Harbinger, particularly those for whom vesting of options
or other benefits will accelerate as a result of the merger, may decide to
terminate their employment; and
- other current or prospective employees of Peregrine and Harbinger may
experience uncertainty about their future roles with the combined company,
which could adversely affect our ability to attract and retain key
management, sales, marketing, and technical personnel.
THE MERGER COULD RESULT IN SLOWER REVENUE GROWTH RATES FOR THE COMBINED
COMPANY THAN THOSE APPLICABLE TO US PRIOR TO THE MERGER, WHICH COULD ADVERSELY
AFFECT THE OPERATING RESULTS OF THE COMBINED COMPANY AND LEAD TO A DECLINE IN
ITS STOCK PRICE. HARBINGER'S REVENUES AND PROFITS COULD DECREASE AS IT
TRANSITIONS TO A BUSINESS MODEL THAT EMPHASIZES RECURRING SERVICES REVENUES.
We may not be able to maintain our recent revenue growth rates after the
merger, which could have an adverse effect on our operating results and could
lead to a decline in our stock price. Our revenues grew from $62 million in
fiscal 1998 to $138 million in fiscal 1999 and $253 million in fiscal 2000.
Harbinger has experienced substantially slower growth rates than we have in
recent periods, with revenues growing from $118 million in fiscal 1997 to
$135 million in fiscal 1998 to $156 million in fiscal 1999. Harbinger is
currently changing its business model by creating and supporting internet-based
trading solutions that assist companies to automate their procurement process
and by providing customers with the ability to use Harbinger's products on a
hosted subscription basis. If the merger does not create the product and
financial synergies management currently anticipates, and particularly if
Harbinger's business transition is not successful, the combined company's
revenue growth rates could be substantially lower than our recent growth rates.
In particular, if we and Harbinger experience integration problems, our
management's attention could be diverted from our existing core business and
lead to slower revenue growth rates for that business. Even if the merger is not
completed, our management does not believe that our historical growth rates can
necessarily be maintained. A more detailed discussion of our business and
associated risks is contained under the caption "Risks related to Peregrine."
HARBINGER AND SOME OF ITS CURRENT AND FORMER OFFICERS AND DIRECTORS ARE
DEFENDANTS IN SHAREHOLDER LITIGATION FOR WHICH HARBINGER IS NOT INSURED. THE
OUTCOME OF THIS LITIGATION, IF DETERMINED ADVERSELY TO HARBINGER, COULD HAVE AN
ADVERSE EFFECT ON THE COMBINED COMPANY'S FINANCIAL CONDITION AFTER THE MERGER.
If outstanding shareholder litigation against Harbinger were decided
adversely to Harbinger, or Harbinger were required to settle this litigation for
a substantial sum, our financial condition as a combined company after the
merger could be materially and adversely affected. In September 1999, a
complaint was filed against Harbinger and some of its current and former
officers and directors in the
34
<PAGE>
United States District Court for the Northern District of Georgia. The complaint
alleges causes of action for misrepresentation and violations of federal
securities laws. An amended complaint was filed in March 2000, alleging
additional causes of action, including allegations relating to accounting
improprieties. The complaints relate to actions by Harbinger during the period
from February 1998 to October 1998. Harbinger did not maintain directors' and
officers' liability insurance during this period. As a result, Harbinger is not
insured with respect to any potential liability of Harbinger or any officer or
director of Harbinger. Harbinger is, however, obligated under agreements with
each of its officers and directors to indemnify them for the costs incurred in
connection with defending themselves against this litigation and is obligated to
indemnify them to the maximum extent permitted under applicable law if they are
held liable.
The pending litigation is still in the early stages. As a result, we are
unable to estimate the damages, or range of damages, that Harbinger or the
combined company might incur in connection with this litigation. In addition,
defending the litigation will involve substantial direct expenses and will
likely result in a diversion of management's time and attention away from
business operations, which could have an adverse effect on the results of
operations of Harbinger or the combined company.
OUR REPORTED FINANCIAL RESULTS WILL SUFFER AS A RESULT OF PURCHASE
ACCOUNTING TREATMENT OF THE MERGER AND THE AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS.
Purchase accounting treatment of the merger will result in a net loss for us
for the foreseeable future, which could have a material and adverse effect on
the market price of our common stock. Under purchase accounting, we will record
the following as an asset on its balance sheet:
- the fair value of the consideration given for Harbinger's outstanding
common stock;
- the fair value of the consideration given for outstanding options and
warrants to purchase Harbinger common stock, which we will assume in
connection with the merger; and
- merger-related direct transaction costs, including the fees of our legal,
accounting, and financial advisors.
We will allocate these costs to individual Harbinger assets acquired and
liabilities assumed. These assets and liabilities will include various
identifiable intangible assets such as acquired technology, acquired trademarks
and tradenames, and acquired workforce. Intangible assets, including goodwill,
will be amortized over a five year period. In addition, we will allocate a
portion of the purchase price for acquiring Harbinger to in-process research and
development. In-process research and development, which is currently estimated
at $66.1 million for Harbinger, will be expensed in the quarter in which the
merger is completed.
The amount of purchase cost allocated to goodwill and other intangibles is
estimated to be approximately $1.3 billion. If goodwill and other intangible
assets were amortized in equal annual amounts following completion of the
merger, the accounting charge attributable to these items would be approximately
$250.0 million per fiscal year.
OUR STOCKHOLDERS MAY NOT REALIZE A BENEFIT FROM THE MERGER COMMENSURATE WITH
THE OWNERSHIP DILUTION THEY WILL EXPERIENCE IN CONNECTION WITH THE MERGER.
If the combined company is unable to realize the strategic and financial
benefits currently anticipated from the merger, our stockholders will have
experienced substantial dilution of their ownership interest without receiving
any commensurate benefit. In connection with the merger, we anticipate that we
will issue approximately 35.6 million shares of our common stock (including
options being assumed), representing approximately 32.5% of our outstanding
common stock prior to the merger.
35
<PAGE>
FAILURE TO COMPLETE THE MERGER COULD HAVE A NEGATIVE IMPACT ON OUR STOCK
PRICE AS WELL AS A NEGATIVE IMPACT ON OUR BUSINESSES AND FINANCIAL RESULTS.
If the merger is not completed for any reason, we may be subject to a number
of material risks, including the following:
- the price of our common stock may decline to the extent that the relevant
current market price reflects a market assumption that the merger will be
completed. Our stock price may also decline because of uncertainty
concerning our stand-alone prospects; and
- some costs related to the merger, such as legal, accounting, financial
advisory, and financial printing fees must be paid even if the merger is
not completed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth in the section entitled
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" beginning on page 18.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in the Company's
Financial Statements and Notes thereto beginning at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers and directors as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --------- --------------------------------------------------------
<S> <C> <C>
Stephen P. Gardner................... 46 President, Chief Executive Officer and Director
David A. Farley...................... 44 Senior Vice President, Finance and Administration, Chief
Financial Officer, and Director
Matthew C. Gless..................... 34 Vice President, Finance, and Chief Accounting Officer
William G. Holsten................... 63 Senior Vice President, Customer Service
Frederic B. Luddy.................... 45 Vice President, Research and Development
Douglas S. Powanda................... 43 Executive Vice President, Worldwide Operations
Richard T. Nelson.................... 40 Vice President, Corporate Development and Secretary
Eric P. Deller....................... 39 Vice President and General Counsel
John J. Moores(2).................... 55 Chairman of the Board of Directors
Christopher A. Cole.................. 45 Director
Richard A. Hosley II(1)(2)........... 55 Director
Charles E. Noell III(1)(2)........... 47 Director
Norris van den Berg(1)............... 61 Director
Thomas G. Watrous, Sr.(2)............ 58 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
STEPHEN P. GARDNER has served as our president and chief executive officer
and as a director since April 1998. From January 1998 until April 1998,
Mr. Gardner served as executive vice president and principal executive officer.
From May 1997 until January 1998, he served as 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.
DAVID A. FARLEY has served as our senior vice president, finance and
administration since August 1998, and as our chief financial officer and as a
director since October 1995. Mr. Farley served as vice president, finance from
October 1995 until August 1998 and as our secretary 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, most recently as chief financial officer and as a
director.
37
<PAGE>
MATTHEW C. GLESS has served as our vice president, finance and chief
accounting officer since October 1998. From April 1996 until October 1998,
Mr. Gless served as our corporate controller. From 1990 to April 1996,
Mr. Gless held various accounting and financial management positions at BMC
Software, Inc.
WILLIAM G. HOLSTEN has served as our senior vice president, worldwide
professional services since August 1998. Mr. Holsten served as vice president,
professional services from November 1995 until August 1998. From July 1994 until
November 1995, Mr. Holsten was director of professional services for XVT
Software Inc.
FREDERIC B. LUDDY has served as our vice president, North American research
and development and chief technology officer since January 1998. From
April 1990 until January 1998, Mr. Luddy served as product architect for our
SERVICECENTER product suite.
DOUGLAS S. POWANDA has served as our executive vice president, worldwide
operations since April 1999. From August 1999 until April 1999, Mr. Powanda
served as senior vice president, worldwide sales and from January 1998 until
August 1998, as vice president, worldwide sales. From September 1995 until
January 1998, Mr. Powanda served as vice president, international sales.
RICHARD T. NELSON has served as our vice president, corporate development,
since March 2000 and as our corporate secretary since February, 1997.
Mr. Nelson served as our vice president and general counsel from November 1995
to March 2000. From August 1991 until November 1995, Mr. Nelson was an associate
in the Houston, Texas office of Jackson & Walker LLP, a law firm.
ERIC P. DELLER has served as our vice president and general counsel since
March 2000. From May 1999 until March 2000, Mr. Deller served as our associate
general counsel. From February 1997 to April 1999, Mr. Deller served as
Executive Vice President and General Counsel of PeakCare LLC, an internet based
provider of health care products. During the same period, he also served as
general counsel of The Leeds Group, Inc., an investment and development firm
that held a controlling interest in PeakCare. From February 1995 until February
1997, Mr. Deller was an associate at the law firm of McKenna & Cuneo.
JOHN J. MOORES has served as chairman of the our board of directors since
March 1990 and as a member of our board of directors since March 1989. In 1980,
Mr. Moores founded BMC Software, Inc. 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 serves as a director and member of the
compensation committees of Bindview Development Corp. and Neon Systems, Inc.
Mr. Moores also serves as a director of Mission Critical Software, Inc. and LEAP
Wireless International.
CHRISTOPHER A. COLE has served as a member of our 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., Ur Studios, Inc., and
Headlamp, Inc., each a software development company.
RICHARD A. HOSLEY II has served as a member of our board of directors since
January 1992. Prior to retiring from full-time employment, Mr. Hosley served as
president and chief executive officer of BMC Software, Inc. Mr. Hosley also
serves as a director of Bindview Development Corp.
CHARLES E. NOELL III has served as a member of our 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., Mr. Noell also serves as a
director of Transaction Systems Architects, Inc., and as a director and member
of the compensation committee of Neon Systems. Inc.
38
<PAGE>
NORRIS VAN DEN BERG has served as a member of our board of directors since
January 1992. Mr. van den Berg has served as a general partner of JMI Equity
Partners since July 1991. Mr. van den Berg also serves as director of Neon
Systems, Inc.
THOMAS G. WATROUS, SR. has served as a member of our board of directors
since January 1999. Prior to retiring from full-time employment in
September 1999, Mr. Watrous was a senior partner with the management consulting
firm of Andersen Consulting.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Executive officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of the copies of such
forms that we have received, or written representations from reporting persons,
we believe that during the fiscal year ending March 31, 2000, except as
described below, all executive officers, directors and greater than ten percent
stockholders complied with all applicable filing requirements. John J. Moores,
one of our directors, inadvertently failed to timely file a Form 4. Frederic B.
Luddy, one of our officers, inadvertently failed to timely file a Form 5.
ITEM 11. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
regarding the compensation of our Chief Executive Officer and our five next most
highly compensated executive officers for the fiscal year ended March 31, 2000
for services rendered in all capacities for the years indicated.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL ------------------------
COMPENSATION(1) RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(#) COMPENSATION(9)
- --------------------------- -------- -------- -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Gardner.......................... 2000 $250,000 $137,500(1) -- 291,850 $ 2,697
President and 1999 250,040 343,750 -- 730,000 2,599
Chief Executive Officer 1998 139,000 210,000 775,000(7) 150,000 5,156
Frederic B. Luddy........................... 2000 150,000 605,532(2) -- 313,212 3,385
Vice President, North American 1999 150,000 555,726 -- 112,564 3,143
Research and Development 1998 150,000 729,060 -- 25,000 2,837
Douglas S. Powanda.......................... 2000 225,000 326,250(3) -- 600 2,788
Executive Vice President, 1999 180,000 359,991 -- 400,000 3,143
Worldwide Operations 1998 150,000 309,523 -- 75,000 3,946
Richard T. Nelson........................... 2000 180,000 213,037(4) -- 80,600 3,282
Vice President, 1999 180,000 83,790 -- -- 4,751
Corporate Development 1998 180,000 54,000 -- 120,000 3,218
William G. Holsten.......................... 2000 180,000 137,812(5) -- 82,600 6,060
Senior Vice President, 1999 150,000 210,868 -- -- 428
Customer Service 1998 90,000 159,547 -- -- 127
Steven S. Spitzer........................... 2000 151,154 536,358(6) -- -- 597
Vice President, Alliances 1999 150,000 247,960 -- -- 428
1998 99,519 46,250 -- 420,000(8) 127
</TABLE>
- ------------------------------
(1) Bonus compensation for 2000 consists of (i) $50,000 earned and paid in
fiscal 2000 and (ii) $87,500 earned in fiscal 2000 to be paid in fiscal
2001. Bonus compensation for 1999 consists of (i) $93,750 earned and paid in
fiscal 1999 and (ii) $250,000 earned in
39
<PAGE>
fiscal 1999 and paid in fiscal 2000. Bonus compensation for fiscal 1998
includes $50,000 earned in fiscal 1998 and paid in fiscal 1999.
(2) Bonus compensation for 2000 consists of (i) $270,692 of product author
commission and $6,000 of bonus earned and paid in fiscal 2000 and
(ii) $253,839 of product author commission and $75,000 of bonus earned in
fiscal 2000 to be paid in fiscal 2001. Bonus compensation for 1999 consists
of (i) $381,406 of product author commission and $11,250 of bonus earned and
paid in fiscal 1999 and (ii) $148,070 of product author commission and
$15,000 of bonus earned in fiscal 1999 and paid in fiscal 2000. 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 and paid in
fiscal 1999.
(3) Bonus compensation for 2000 consists of (i) $55,875 of commission and
$50,000 of bonus compensation earned and paid in fiscal 2000 and
(ii) $45,375 of commission and $175,000 of bonus compensation earned in
fiscal 2000 to be paid in fiscal 2001. Bonus compensation for 1999 consists
of (i) $91,648 of commission and $80,551 of bonus earned and paid in fiscal
1999 and (ii) $87,792 of commission and $100,000 of bonus earned in fiscal
1999 and paid in fiscal 2000. 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 and paid in fiscal 1999.
(4) Bonus compensation for 2000 consists of (i) $43,037 earned and paid in
fiscal 2000 and (ii) $170,000 earned in fiscal 2000 to be paid in fiscal
2001. Bonus compensation for 1999 consists of (i) $20,790 earned and paid in
fiscal 1999 and (ii) $63,000 earned in fiscal 1999 and paid in fiscal 2000.
Bonus compensation for 1998 was all earned and paid in fiscal 1998.
(5) Bonus compensation for 2000 consists of (i) $56,250 of bonus compensation
earned and paid in fiscal 2000 and (ii) $81,562 earned in fiscal 2000 to be
paid in fiscal 2001. Bonus compensation for 1999 consists of (i) $94,900
earned and paid in fiscal 1999 and (ii) $115,938 earned in fiscal 1999 and
paid in fiscal 2000. Bonus compensation for 1998 consists of (i) $144,547
earned and paid in fiscal 1998 and (ii) $15,000 earned in fiscal 1998 and
paid in fiscal 1999.
(6) Bonus compensation for 2000 consists of (i) $262,817 of commission and
$30,000 of bonus earned and paid in fiscal 2000, (ii) $206,354 of commission
and $20,000 of bonus earned in fiscal 2000 to be paid in fiscal 2001, and
(iii) $17,187 of bonus earned in fiscal 1999 and paid in fiscal 2000. Bonus
compensation for 1999 consists of (i) $56,195 of commission and $19,875 of
bonus earned and paid in fiscal 1999 and (ii) $89,077 of commission and
$82,813 of bonus earned in fiscal 1999 and paid in fiscal 2000. Bonus
compensation for 1998 was earned and paid in fiscal 1998.
(7) In November 1997, we issued Mr. Gardner 200,000 shares of common stock
pursuant to a restricted stock agreement. The closing sale price of our
common stock on the Nasdaq National Market on October 31, 1997, the last
trading date prior to the date of issuance was $3.875 (as adjusted for
subsequent stock splits). Such shares vest incrementally over ten years,
subject to earlier vesting over six years if we achieve certain financial
milestones.
(8) Includes an option to purchase 200,000 shares subsequently canceled.
(9) Consists of group life insurance excess premiums and matching contributions
under our 401(k) plan.
(b) OPTION GRANTS IN FISCAL YEAR 2000
The following table provides information relating to stock options to
purchase common stock granted to each of the executive officers named in the
compensation table above during our fiscal year ended March 31, 2000. All of
these options were granted under our 1994 stock plan and have a term of
10 years, subject to earlier termination in the event the optionee's services to
us cease.
The exercise price of the options we grant are equal to the fair market
value of our common stock based on the closing sales price of our common stock
in trading on the Nasdaq National Market on the trading day prior to the date of
grant. The exercise price may be paid by cash or check. Alternatively, optionees
may exercise their shares under a cashless exercise program. Under this program,
the optionee may provide irrevocable instructions to sell the shares acquired on
exercise and to remit to us a cash amount equal to the exercise price and all
applicable withholding taxes. The options granted under our 1994 stock plan vest
over a four year period. Twenty-five percent will vest on the first anniversary
of the date of grant. The balance of the option will vest over the remaining
three years at the rate of 6.25% every three months.
On May 5, 1999, we granted each employee, including each officer, an option
to acquire 600 shares of our common stock at an exercise price of $8.56. These
options were to vest on the earlier to occur of May 5, 2000 or the date we
achieve certain financial milestones. These options are now fully vested.
40
<PAGE>
The potential realizable value of options is calculated by assuming that the
price of our common stock increases from the exercise price at assumed rates of
stock appreciation of 5% and 10%, compounded annually over the 10 year term of
the option, and subtracting from that result the total option exercise price.
These assumed appreciation rates comply with the rules of the Securities and
Exchange Commission and do not represent our prediction of the performance of
our stock price.
All share numbers and exercise prices have been adjusted to reflect a
two-for-one stock split effected in the form of a dividend in February 2000.
During fiscal 2000, we granted options to acquire 4,293,434 shares of common
stock to employees and consultants under our 1994 stock plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUES AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTIONS TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL 2000 PER SHARE DATE 5% 10%
- ---- ---------- ---------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Gardner.... 600 * $ 8.56 05/05/09 $ 3,230 $ 8,185
91,250 2.13% 19.16 10/28/09 1,108,688 2,786,775
200,000 4.66% 36.63 01/13/10 4,608,000 11,675,751
Frederic B. Luddy..... 600 * 8.56 05/05/09 3,230 8,185
100,000 2.33% 8.56 05/05/09 538,000 1,364,000
212,612 4.95% 19.16 10/28/09 2,583,236 6,493,170
Douglas S. Powanda.... 600 * 8.56 05/05/09 3,230 8,185
Richard T. Nelson..... 600 * 8.56 05/05/09 3,230 8,185
40,000 * 19.16 10/28/09 486,000 1,221,600
40,000 * 36.63 01/13/10 921,600 2,335,200
William G. Holsten.... 600 * 8.56 05/05/09 3,230 8,185
120,000 2.79% 36.65 01/13/10 2,764,800 7,005,600
Steven S. Spitzer..... 600 * 8.56 05/05/09 3,230 8,185
2,000 * 8.56 05/05/09 10,760 27,280
40,000 * 19.16 10/28/09 486,000 1,221,600
40,000 * 36.63 01/13/10 921,600 2,335,200
</TABLE>
- ------------------------
* Less than 1%
(c) AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information relating to option exercises by the
executive officers identified in the summary compensation table during the
fiscal year ended March 31, 2000. In addition, it indicates the number and value
of vested and unvested options held by these executive officers as of March 31,
2000.
The "Value Realized" on option exercises is equal to the difference between
the fair market value of our common stock on the date of exercise less the
exercise price. The "Value of Unexercised In-the-Money Options at March 31,
2000" is based on $67.0625 per share, the closing sales price of our common
stock in trading on the Nasdaq National Market on March 31, 2000, less the
exercise price, multiplied by the aggregate number of shares subject to
outstanding options.
41
<PAGE>
All share numbers and exercise prices have been adjusted to reflect a
two-for-one stock split effected in the form of a dividend in February 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 2000 MARCH 31, 2000
ACQUIRED VALUE --------------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Gardner...... 468,352 $11,897,053 312,898 1,370,600 $19,306,778 $77,797,083
Frederic B. Luddy....... 167,500 4,117,200 14,102 536,738 886,200 29,791,184
Douglas S. Powanda...... 262,500 8,805,294 125,596 738,100 7,565,180 44,981,564
Richard T. Nelson....... 150,000 2,270,563 60,000 178,100 3,900,375 9,414,964
William G. Holsten...... 75,000 1,680,111 35,000 302,600 2,237,637 17,350,630
Steven S. Spitzer....... 202,500 4,042,842 20,000 218,100 1,300,129 9,933,464
</TABLE>
(d) EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We do not currently have any employment contracts in effect with any of the
executive officers named in the compensation table above.
We are parties to a restricted stock agreement dated November 1, 1997 with
Stephen P. Gardner, our chief executive officer, pursuant to which we issued
Mr. Gardner 100,000 shares of common stock. We are parties with David A. Farley,
our chief financial officer, to a substantially equivalent restricted stock
agreement dated November 1, 1995 pursuant to which we issued Mr. Farley 400,000
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 our 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 lapsing of restrictions on 16,666 shares in April 1999, Mr. Gardner
surrendered 16,666 shares subject to his restricted stock agreement. In
connection with the lapsing of restrictions on 66,000 shares in April 1999,
Mr. Farley surrendered 33,000 shares subject to his restricted stock agreement.
In the event of our merger or change in control, all such shares will become
automatically vested.
Under our 1994 stock plan, in the event of our merger or our change in
control, vesting of options outstanding under our 1994 stock plan will
automatically accelerate such that outstanding options will become fully
exercisable, including with respect to shares for which such options would be
otherwise unvested.
(e) DIRECTOR COMPENSATION
Each member of our board who is not also an employee receives $2,000 for
each board meeting and $1,000 for each committee meeting he attends in person.
We pay members of our board $500 for telephonic attendance at a board or
committee meetings. Directors receive compensation for attendance at committee
meetings only if they are members of the applicable committee.
In September 1998, we granted each of Mr. Cole, Mr. Hosley, Mr. Noell, and
Mr. van den Berg an option to acquire 50,000 shares of our common stock under
our 1994 stock plan. The exercise price for these option grants was $7.50. These
options become exercisable over four years, with 25% vesting after one year and
the remaining shares vesting in quarterly installments thereafter. These grants
expire if not exercised prior to September 2008.
In May 1992, we granted each of Mr. Cole, Mr. Hosley, Mr. Noell, and
Mr. Van den Berg an option to acquire 180,000 shares of common stock under our
1991 nonqualified stock option plan at an exercise price of $0.335, the per
share fair market value of our common stock on the date of grant. Each of these
options vested in annual installments over four years, are now fully
exercisable, and expire if not exercised prior to
42
<PAGE>
May 2002. In addition, in December 1990, we granted Mr. Cole an option to
acquire 450,000 shares of our common stock under a separate nonqualified stock
option plan at an exercise price of $0.255 per share, the per share fair market
value of our common stock on the date of grant. Following Mr. Cole's resignation
as an executive officer of Peregrine and in consideration of his continuing
service as a director, we extended the exercisability of the option with respect
to 112,500 vested shares for so long as Mr. Cole remains a director of Peregrine
but no later than December 2000.
In addition to the option grants described above, directors who are not also
employees receive automatic option grants under our 1997 director option plan.
Nonemployee directors who hold or are affiliated with a holder of three percent
or more of our outstanding common stock do not receive these automatic option
grants. Each new nonemployee director is automatically granted an option to
purchase 50,000 shares of our common stock at the time he or she is first
elected to our board of directors. Each nonemployee director receives a
subsequent option grant to purchase 10,000 shares of our common stock at each
annual meeting of our stockholders. All options granted under the director
option plan are granted at the fair market value of our common stock on the date
of grant. Options granted to nonemployee directors under the director plan
become exercisable over four years, with 25% of the shares vesting after one
year and the remaining shares vesting in quarterly installments thereafter.
(f) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of Peregrine. It also administers various incentive compensation and
benefit plans. Our compensation committee consist of Mr. Hosley, Mr. Moores,
Mr. Noell, and Mr. Watrous. Our president and chief executive officer
participates in all discussions and decisions regarding salaries and incentive
compensation for all employees and consultants. He is excluded, however, from
discussions regarding his own salary and incentive compensation. No interlocking
relationship exists between any member of the our compensation committee and any
member of any other company's board of directors or compensation committee.
43
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information relating to the beneficial
ownership of our common stock as of March 31, 2000 by:
- each stockholder known by us to own beneficially more than 5% of its
common stock;
- each of our executive officers named in the summary compensation table
above;
- each of our directors; and
- all our directors and executive officers as a group.
Beneficial ownership is determined based on the rules of the Securities and
Exchange Commission. The column captioned "Number of Shares Beneficially Owned"
excludes the number of shares of our common stock subject to options held by
that person that are currently exercisable or will become exercisable on or
before May 31, 2000. The number of shares subject to options that each
beneficial owner has the right to acquire on or before May 31, 2000 is listed
separately under the column "Number of Shares Underlying Options." These shares
are not deemed exercisable for purposes of computing the beneficial ownership of
any other person. Percent of beneficial ownership is based upon 109,501,146
shares of our common stock outstanding as of March 31, 2000. The address for
those individuals for which an address is not otherwise provided is c/o
Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego, California, 92130.
Unless otherwise indicated, we believe the stockholders listed have sole voting
or investment power with respect to all shares, subject to applicable community
property laws.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF OUTSTANDING
SHARES SHARES TOTAL SHARES SHARES
BENEFICIALLY UNDERLYING BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OPTIONS OWNED OWNED
- ---------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
Pilgrim Baxter & Associates, Ltd.(1)......... 7,140,400 -- 7,140,400 6.52%
825 Duportail Road
Wayne, Pennsylvania 19087
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
Stephen P. Gardner........................... 195,688 436,768 632,456 *
David A. Farley.............................. 2,337,632 400,600 2,738,232 2.49
Christopher A. Cole.......................... 1,721,284 26,250 1,747,534 1.60
William G. Holsten........................... 50,000 20,600 70,600 *
Richard A. Hosley II......................... -- 26,250 26,250 *
Frederic B. Luddy............................ -- 60,023 60,023 *
John J. Moores(2)............................ 5,752,986 -- 5,752,986 5.23
Richard T. Nelson............................ 278,000 60,600 338,600 *
Charles E. Noell III......................... 54,428 116,250 170,678 *
Stephen S. Spitzer........................... -- 63,600 63,600 *
Douglas S. Powanda........................... 4 194,946 194,950 *
Norris van den Berg.......................... 38,744 76,250 114,994 *
Thomas G. Watrous, Sr........................ 10,000 16,250 26,250 *
All current executive officers and directors
as a group (15 persons)...................... 10,542,016 1,519,662 12,061,678 10.86
</TABLE>
- ------------------------
* Less than 1%
(1) Based solely on a Schedule 13G, dated February 8, 1999, filed with the
Securities and Exchange Commission on February 9, 1999.
(2) Includes 1,352,590 shares held by Mr. Moores as trustee under various
trusts, substantially all of which were established for members of
Mr. Moores' family.
44
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are parties with JMI Services, Inc., an investment management company, to
a sublease under which we sublease approximately 13,310 square feet of office
space in San Diego, California 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. John J. Moores, the chairman of our board of directors, also
serves as chairman of the board of JMI Services. Charles E. Noell, III, one of
our directors, serves as president and chief executive officer of JMI Services.
We believe that the terms of the sublease are at competitive market rates.
We lease 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. Mr. Moores has
served as owner and chairman of the board of the Padres since December 1994. Our
annual payments for the suite and game tickets total approximately $50,000.
We are parties to restricted stock agreements with Stephen P. Gardner, our
president and chief executive officer, and David A. Farley, our senior vice
president and chief financial officer. Under these agreements, we issued
1,000,000 shares of common stock. These agreements are discussed in detail under
the caption "Employment agreements and change in control arrangements."
During fiscal year 2000, we issued options to purchase common stock to
certain directors under our 1994 stock option plan. These grants are discussed
in detail under the caption "Director Compensation."
During fiscal year 1999, we purchased a golf club membership for business
entertainment use by Douglas S. Powanda, our executive vice president, worldwide
operations, at a cost of $70,000. Mr. Powanda and Peregrine have agreed that
upon termination of his employment with Peregrine, he may purchase the
membership from us at our original cost. During fiscal year 2000, we purchased a
similar membership at $70,000 under a similar agreement with Mr. Gardner.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED ADDITIONS AT END
OF PERIOD TO EXPENSE ACQUIRED DEDUCTIONS OF PERIOD
------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 2000
Allowance for doubtful accounts......... $1,248 $635 $ 430 $ (134) $ 2,179
Accrued acquisition costs............... $3,379 $ -- $19,555 $ (7,810) $15,124
Year ended March 31, 1999
Allowance for doubtful accounts......... $ 485 $516 $ 325 $ (78) $ 1,248
Accrued acquisition costs............... $1,112 $ -- $13,510 $ (11,243) $ 3,379
Year ended March 31, 1998
Allowance for doubtful accounts......... $ 220 $168 $ 97 $ -- $ 485
Accrued acquisition costs............... $ -- $ -- $ 3,500 $ (2,388) $ 1,112
</TABLE>
46
<PAGE>
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- ------------------------------------------------------------
<C> <C> <S>
2.1 (a) Agreement and Plan of Merger and Reorganization by and among
Peregrine Systems, Inc., Soda Acquisition Corporation and
Harbinger Corporation, dated as of April 5, 2000.
3.1 (c) Amended and Restated Certificate of Incorporation as filed
with the Secretary of the State of Delaware on February 11,
1997.
3.2 (c) Bylaws, as amended.
4.1 (c) Specimen Common Stock Certificate.
10.1 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.2 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.3(a) (f) 1994 Stock Option Plan, as amended through July 1998.
10.3(b) (f) 1995 Stock Option Plan for French Employees (a supplement to
the 1994 Stock Option Plan).
10.4 (d) Form of Stock Option Agreement under the 1994 Stock Option
Plan, as amended through February 6, 1997.
10.5 (d) 1997 Employee Stock Purchase Plan and forms of participation
agreement thereunder.
10.6 (d) 1997 Director Option Plan.
10.7 (c) Form of Indemnification Agreement for directors and
officers.
10.8 (a) Credit Agreement dated as of July 30, 1999 by and between
the Registrant and Bank of America, N.A., Banc of America
Securities LLC and Bank Boston, N.A.
10.9 (c) Sublease between the Registrant and JMI Services, Inc.
10.10 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notifications of Assignment dated June 14,
1996 and December 9, 1996 for the Registrant's headquarters
at 12670 High Bluff Drive, San Diego, CA.
10.11 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notification of Assignment dated December
9, 1996 for the Registrant's headquarters at 12680 High
Bluff Drive, San Diego, CA.
10.14 (c) XVT Stock Option Agreement dated January 18, 1995 between
the Registrant and Christopher Cole, as amended on October
3, 1996.
10.16 (d) Restricted Stock Agreement dated November 1, 1995 between
the Registrant and David Farley.
10.17 (c) Stock Option Agreement dated as of December 7, 1990 between
the Registrant and Christopher Cole, as amended on October
26, 1995.
10.18 (c) Form of Stock Option Agreement under 1995 Stock Option Plan
for French Employees.
10.19 (c) Form of Stock Option Agreement under 1997 Director Option
Plan.
10.22 (b) Executive Officer Incentive Program and Form of Restricted
Stock Agreement.
10.24 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 1 of the Registrant's
future campus in San Diego, CA.
10.25 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 2 of the Registrant's
future campus in San Diego, CA.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- ------------------------------------------------------------
<C> <C> <S>
10.26 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 3 of the Registrant's
future campus in San Diego, CA.
10.27 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 5 of the Registrant's
future campus in San Diego, CA.
10.28 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 4 of the Registrant's
future campus in San Diego, CA.
10.29 (a) 1999 Nonstatutory Stock Option Plan.
21.1 (a) Peregrine Systems, Inc. Subsidiaries.
23.1 (a) Consent of Arthur Andersen LLP, Independent Public
Accountants (relating to financial statements for Peregrine
Systems).
27.1 (a) Financial Data Schedule for Peregrine Systems, Inc.
</TABLE>
- ------------------------
(a) Filed herewith.
(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-39891), which the Securities and Exchange Commission declared effective
on November 19, 1997.
(c) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-21483), which the Securities and Exchange Commission declared effective
on April 8, 1997.
(d) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1997.
(e) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(f) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-8 (Registration Statement
333-65541) which became effective upon its filing on October 9, 1998.
(g) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1999.
(b) REPORTS ON FORM 8-K
We filed a Current Report on Form 8-K in April 2000 in connection with our
acquisition of Telco Research Corporation Limited.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this annual report on Form 10-K to be signed on its
behalf by the undersigned thereunto duly authorized in the City of San Diego,
California, this May 8, 2000.
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
By /s/ STEPHEN P. GARDNER
-----------------------------------------
Stephen P. Gardner
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
By /s/ DAVID A. FARLEY
-----------------------------------------
David A. Farley
SENIOR VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER
AND DIRECTOR (PRINCIPAL FINANCIAL OFFICER)
By /s/ MATTHEW C. GLESS
-----------------------------------------
Matthew C. Gless
VICE PRESIDENT, FINANCE AND
CHIEF ACCOUNTING OFFICER
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
49
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS STEPHEN P. GARDNER AND DAVID A. FARLEY AND
EACH OF THEM ACTING INDIVIDUALLY, AS HIS OR HER ATTORNEY-IN-FACT, EACH WITH FULL
POWER OF SUBSTITUTION, FOR HIM OR HER IN ANY AND ALL CAPACITIES, TO SIGN ANY AND
ALL AMENDMENTS TO THIS REPORT ON FORM 10-K, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING
PERSONS AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN P. GARDNER President, Chief Executive Officer,
-------------------------------------- and Director (Principal Executive May 8, 2000
(Stephen P. Gardner Officer)
Senior Vice President, Finance and
/s/ DAVID A. FARLEY Administration, Chief Financial
-------------------------------------- Officer and Director (Principal May 8, 2000
(David A. Farley) Financial Officer)
/s/ JOHN J. MOORES
-------------------------------------- Chairman of the Board of Directors May 8, 2000
(John J. Moores)
/s/ CHRISTOPHER A. COLE
-------------------------------------- Director May 8, 2000
(Christopher A. Cole)
/s/ RICHARD A. HOSLEY II
-------------------------------------- Director May 8, 2000
(Richard A. Hosley II)
/s/ CHARLES E. NOELL III
-------------------------------------- Director May 8, 2000
(Charles E. Noell III)
/s/ NORRIS VAN DEN BERG
-------------------------------------- Director May 8, 2000
(Norris van den Berg)
/s/ THOMAS G. WATROUS, SR.
-------------------------------------- Director May 8, 2000
(Thomas G. Watrous, Sr.)
</TABLE>
50
<PAGE>
PEREGRINE SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Peregrine Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Peregrine
Systems, Inc. (a Delaware corporation) and subsidiaries as of March 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
March 31, 2000. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peregrine Systems, Inc. and
subsidiaries as of March 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2000 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
San Diego, California
April 25, 2000
F-2
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 33,511 $ 21,545
Short-term investments...................................... -- 2,000
Accounts receivable, net of allowance for doubtful accounts
of $2,179 and $1,248, respectively........................ 69,940 38,947
Deferred tax assets......................................... 4,024 5,798
Other current assets........................................ 18,802 10,370
-------- --------
Total current assets.................................... 126,277 78,660
Property and equipment, net................................. 29,537 15,895
Intangible assets, investments and other, net............... 367,616 113,158
-------- --------
$523,430 $207,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 19,850 $ 6,795
Accrued expenses.......................................... 49,064 26,460
Deferred revenue.......................................... 36,779 20,048
Current portion of long-term debt......................... 74 55
-------- --------
Total current liabilities............................... 105,767 53,358
Long-term debt, net of current portion...................... 1,257 594
Deferred revenue, net of current portion.................... 4,556 2,980
-------- --------
Total liabilities........................................... 111,580 56,932
-------- --------
Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000 shares authorized,
no shares issued or outstanding........................... -- --
Common stock, $0.001 par value, 200,000 shares authorized,
109,501 and 97,106 shares issued and outstanding,
respectively.............................................. 110 97
Additional paid-in capital.................................. 480,957 193,739
Accumulated deficit......................................... (64,863) (39,793)
Unearned portion of deferred compensation................... (678) (1,019)
Accumulated other comprehensive loss........................ (666) (518)
Treasury stock, at cost..................................... (3,010) (1,725)
-------- --------
Total stockholders' equity.................................. 411,850 150,781
-------- --------
$523,430 $207,713
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $168,467 $ 87,362 $38,791
Services.................................................. 84,833 50,701 23,086
-------- -------- -------
Total revenues.......................................... 253,300 138,063 61,877
-------- -------- -------
Costs and Expenses:
Cost of licenses.......................................... 1,426 1,020 326
Cost of services.......................................... 51,441 31,561 10,326
Sales and marketing....................................... 101,443 50,803 22,728
Research and development.................................. 28,517 13,919 8,394
General and administrative................................ 19,871 10,482 6,077
Amortization of intangible assets......................... 34,753 18,012 3,168
Acquired in-process research and development costs........ 24,505 26,005 6,955
-------- -------- -------
Total costs and expenses................................ 261,956 151,802 57,974
-------- -------- -------
Income (loss) from operations............................... (8,656) (13,739) 3,903
Interest income, net........................................ 38 664 839
-------- -------- -------
Income (loss) from operations before income taxes........... (8,618) (13,075) 4,742
Income taxes................................................ 16,452 10,295 5,358
-------- -------- -------
Net loss.................................................. $(25,070) $(23,370) $ (616)
======== ======== =======
Net loss per share--basic and diluted:
Net loss per share........................................ $ (0.24) $ (0.27) $ (0.01)
======== ======== =======
Shares used in computation................................ 102,332 87,166 69,520
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
NUMBER OF ADDITIONAL PORTION OF OTHER
SHARES COMMON PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
OUTSTANDING STOCK CAPITAL DEFICIT COMPENSATION LOSS
----------- -------- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997.............. 51,680 $ 52 $ 15,042 $(15,807) $(1,748) $(388)
Net loss............................. -- -- -- (616) -- --
Issuance of common stock in IPO, net
of issuance costs of $1,181........ 9,200 9 18,062 -- -- --
Stock options exercised and
restricted stock granted (net)..... 6,616 6 2,788 -- -- --
Stock issued for Apsylog
Acquisition........................ 7,664 8 30,498 -- -- --
Stock option tax benefit............. -- -- 7,905 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 414 --
Deferred compensation related to
options granted.................... -- -- -- -- (159) --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- (165)
------- ---- -------- -------- ------- -----
Balance, March 31, 1998.............. 75,160 75 74,295 (16,423) (1,493) (553)
Net loss............................. -- -- -- (23,370) -- --
Stock options exercised.............. 7,018 7 7,914 -- -- --
Stock issued for acquisitions........ 14,928 15 105,434 -- -- --
Stock option tax benefit............. -- -- 6,096 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 474 --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- 35
------- ---- -------- -------- ------- -----
Balance, March 31, 1999.............. 97,106 97 193,739 (39,793) (1,019) (518)
Net loss............................. -- -- -- (25,070) -- --
Stock options exercised.............. 7,345 5 23,422 -- -- --
Stock issued for acquisitions........ 5,050 5 169,643 -- -- --
Stock issued for strategic
investments........................ -- 3 83,558 -- -- --
Stock option tax benefit............. -- -- 10,595 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 341 --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- (148)
------- ---- -------- -------- ------- -----
Balance, March 31, 2000.............. 109,501 $110 $480,957 $(64,863) $ (678) $(666)
======= ==== ======== ======== ======= =====
<CAPTION>
TOTAL
STOCKHOLDERS'
TREASURY EQUITY COMPREHENSIVE
STOCK (DEFICIT) INCOME (LOSS)
-------- ------------- --------------
<S> <C> <C> <C>
Balance, March 31, 1997.............. $ $ (2,849) $ --
Net loss............................. -- (616) (616)
Issuance of common stock in IPO, net
of issuance costs of $1,181........ -- 18,071
Stock options exercised and
restricted stock granted (net)..... -- 2,794
Stock issued for Apsylog
Acquisition........................ -- 30,506
Stock option tax benefit............. -- 7,905
Compensation expense related to
restricted stock and options....... -- 414
Deferred compensation related to
options granted.................... -- (159)
Stock repurchased.................... (262) (262)
Equity adjustment from foreign
currency translation............... -- (165) (165)
------- -------- --------
Balance, March 31, 1998.............. (262) 55,639 (781)
========
Net loss............................. -- (23,370) (23,370)
Stock options exercised.............. -- 7,921
Stock issued for acquisitions........ -- 105,449
Stock option tax benefit............. -- 6,096
Compensation expense related to
restricted stock and options....... -- 474
Stock repurchased.................... (1,463) (1,463)
Equity adjustment from foreign
currency translation............... -- 35 35
------- -------- --------
Balance, March 31, 1999.............. (1,725) 150,781 (23,335)
========
Net loss............................. -- (25,070) (25,070)
Stock options exercised.............. -- 23,427
Stock issued for acquisitions........ -- 169,648
Stock issued for strategic
investments........................ -- 83,561
Stock option tax benefit............. -- 10,595
Compensation expense related to
restricted stock and options....... -- 341
Stock repurchased.................... (1,285) (1,285)
Equity adjustment from foreign
currency translation............... -- (148) (148)
------- -------- --------
Balance, March 31, 2000.............. $(3,010) $411,850 $(25,218)
======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................................... $(25,070) $(23,370) $ (616)
Adjustments to reconcile loss to net cash provided by
operating activities:
Depreciation and amortization........................... 43,788 21,776 4,901
Acquired in-process research and development costs...... 24,505 26,005 6,955
Increase (decrease) in cash resulting from changes,
net of business acquired, in:
Accounts receivable............................... (24,364) (18,984) (5,982)
Deferred tax asset................................ 1,774 1,499 (856)
Other current assets.............................. (289) (7,177) (1,116)
Accounts payable.................................. 4,755 2,939 674
Accrued expenses.................................. 6,733 6,390 (1,767)
Deferred revenue.................................. 12,467 4,874 1,361
Other assets...................................... 2,717 (245) 534
-------- -------- --------
47,016 13,707 4,088
-------- -------- --------
Net cash used by discontinued business...................... -- -- (170)
-------- -------- --------
Net cash provided by operating activities....... 47,016 13,707 3,918
-------- -------- --------
Cash flows from investing activities:
Technology acquisitions................................... (22,351) -- --
Purchases of short-term investments....................... -- (49,000) (45,732)
Maturities of short-term investments...................... 2,000 54,027 38,705
Equity investments purchased.............................. (11,291) -- --
Purchases of property and equipment....................... (20,713) (12,426) (2,427)
Cash expenditures related to acquisitions................. (7,752) (11,231) (2,410)
Other investing activities................................ 145 103 582
-------- -------- --------
Net cash used in investing activities........... (59,962) (18,527) (11,282)
-------- -------- --------
Cash flows from financing activities:
Repayments of bank line of credit, net.................... -- -- (3,387)
Repayments of long-term debt.............................. (7,832) (1,174) (2,541)
Issuance of common stock.................................. 34,022 14,017 28,770
Treasury stock purchased.................................. (1,285) (1,463) (262)
Principal payments under capital lease obligation......... -- -- (406)
-------- -------- --------
Net cash provided by financing activities....... 24,905 11,380 22,174
-------- -------- --------
Effect of exchange rate changes on cash..................... 7 35 (165)
-------- -------- --------
Net increase in cash and cash equivalents................... 11,966 6,595 14,645
Cash and cash equivalents, beginning of period.............. 21,545 14,950 305
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 33,511 $ 21,545 $ 14,950
======== ======== ========
Cash paid during the period for:
Interest.................................................. $ 451 $ 26 $ 38
Income taxes.............................................. $ 3,015 $ 155 $ 622
Supplemental Disclosure of Noncash Investing and Financial
Activities:
Stock issued and other noncash consideration for
acquisitions............................................ $169,648 $105,449 $ 30,506
Stock issued for strategic investments.................... $ 83,561 $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Peregrine Systems, Inc. (unless otherwise noted, "Peregrine Systems," "we,"
"PSI," "us," or "our" refers to Peregrine Systems, Inc.) is a leading provider
of Infrastructure Management and e-Infrastructure software solutions. Using
common shared data, our products help manage information technology assets as
well as assets relating to corporate facilities and fleets. In addition, we have
recently introduced products for rail management and internet-based asset
procurement. We sell our software and services in North America and
internationally through both a direct sales force and through business
partnerships.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PSI and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts previously reported have been
reclassified in order to ensure comparability among the years reported.
USE OF ESTIMATES
The preparation of our financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that may affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
We generate revenues from licensing the rights to use our software products
primarily to end users. We also generate revenues from post-contract support
(maintenance), consulting and training services performed for customers who
license our products. We do not provide professional services unrelated to our
products.
Revenues from direct and indirect license agreements are recognized
currently, provided that all of the following conditions are met: a
noncancelable license agreement has been signed, the product has been delivered,
there are no material uncertainties regarding customer acceptance, collection of
the resulting receivable is deemed probable, risk of concession is deemed
remote, and we have no other significant obligations associated with the
transaction. Revenues from post-contract support services are recognized ratably
over the term of the maintenance period, generally one year. Maintenance
revenues which are bundled with license agreements, are unbundled using vendor
specific objective evidence. Professional services revenues are primarily
related to implementation services most often performed on a time and material
basis under separate service agreements for the installation of our products.
Revenues from professional services and customer training are recognized as the
respective services are performed.
Cost of license revenues consists primarily of amounts paid to third-party
vendors, product media, manuals, packaging materials, personnel, and related
shipping costs. Cost of maintenance and services revenues consists primarily of
salaries, benefits, and allocated overhead costs incurred in providing telephone
support, professional services, and training to customers.
Deferred revenues primarily relates to maintenance fees, which have been
paid by our customers in advance of the performance of these services.
F-7
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS RISK AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which may subject us to concentrations of credit risk
consist principally of trade and other receivables. We perform ongoing credit
evaluations of our customers' financial condition. We believe that the
concentration of credit risk with respect to trade receivables is further
mitigated as our customer base consists primarily of large, well established
companies. We maintain reserves for credit losses and such losses historically
have been within our expectations.
A substantial portion of our license revenue is derived from the sale of our
Infrastructure Management applications and our e-Infrastructure solutions and is
expected to account for a substantial portion of revenues for the foreseeable
future. As a result, our future operating results are dependent upon continued
market acceptance of the Infrastructure Resource Management strategy and
applications, including future product enhancements and new product initiatives.
Factors adversely affecting the pricing, demand for, or market acceptance of our
Infrastructure Resource Management applications, such as competition or
technological change, could have a material adverse effect on our business,
operating results, and financial condition.
CASH AND CASH EQUIVALANTS
We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents primarily consist of
overnight repurchase agreements and money market accounts. The carrying amount
reported for cash and cash equivalents approximates its fair value.
SHORT-TERM INVESTMENTS
We account for our short-term investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Short-term investments consist of auction rate
preferred stock with original maturities at date of purchase beyond three
months. These securities are classified as available-for-sale and are carried at
market. Gross unrealized gains or gross unrealized losses as of March 31, 1999
were not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of our financial instruments, including
accounts receivable, accounts payable and accrued expenses approximates fair
value due to their short maturities. Based on borrowing rates currently
available to us for loans with similar terms, the carrying values of our notes
payable approximates the fair values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over estimated useful lives, generally three to five years for furniture
and equipment. Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the useful lives of the assets or the
terms of the related leases.
Maintenance and repairs are charged to operations as incurred. When assets
are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations for the applicable period.
F-8
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
We evaluate potential impairment of long-lived assets and long-lived assets
to be disposed of in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes procedures for review of
recoverability, and measurement of impairment, if necessary, of long-lived
assets and certain identifiable intangibles held and used by an entity. SFAS
No. 121 requires that those assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable based on expected undiscounted cash flows attributable to
that asset. The amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset. As of March 31,
2000, we believe that there has not been any impairment of our long-lived assets
or other identifiable intangibles.
STRATEGIC INVESTMENTS
During fiscal 2000, we entered into a strategic relationship with Goldmine
Software Corporation ("Goldmine"), a developer of service desk and customer
relationship management software, to collaborate on sales and distribution
efforts and in the development of marketing and software content. As part of the
agreement, we invested approximately $74.5 million of our Common Stock in
exchange for approximately a 10% ownership of Goldmine, subsequent to our
investment. Our investment in Goldmine is being accounted for using the cost
method.
During fiscal 2000, we entered into a strategic relationship with
SupplyAccess, Inc. ("SupplyAccess"), a business-to-business electronic
marketplace provider for information technology equipment, to collaborate on the
sales and distribution efforts surrounding the information technology equipment
procurement market. As part of the agreement, we invested approximately
$9.1 million of our Common Stock in exchange for approximately an 18% ownership
of SupplyAccess, subsequent to our investment. Our investment in SupplyAccess is
being accounted for using the cost method.
In addition, we have made several other strategic investments for aggregate
consideration of approximately $11.3 million during fiscal 2000, all of which
are being accounted for using the cost method.
Many of our investments are in companies whose operations are not yet
sufficient to establish them as profitable concerns. Adverse changes in market
conditions or poor operating results of underlying investments could result in
losses or an inability to recover the carrying value of our investments.
INTANGIBLE ASSETS
Intangible assets are comprised of purchase price in excess of identifiable
assets associated with our acquired businesses and purchased technology.
Intangible assets are carried at cost less accumulated amortization, which is
being amortized on a straight-line basis over generally five years.
CAPITALIZED COMPUTER SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", software development costs are capitalized from the time the
product's technological feasibility has been established until the product is
released for sale to the general public. During the three years in the period
ended March 31, 2000, no software
F-9
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development costs were capitalized as the costs incurred between achieving
technological feasibility and product release were minimal. Research and
development costs, including the design of product enhancements, are expensed as
incurred.
FOREIGN CURRENCY TRANSLATION AND RISK MANAGEMENT
Assets and liabilities of our foreign operations are translated into United
States dollars at the exchange rate in effect at the balance sheet date, and
revenue and expenses are translated at the average exchange rate for the period.
Translation gains or losses of our foreign subsidiaries are not included in
operations but are reported as other comprehensive income. The functional
currency of those subsidiaries is the primary currency in which the subsidiary
operates. Gains and losses on transactions in denominations other than the
functional currency of our foreign operations, while not significant in amount,
are included in the results of operations.
We enter into forward exchange contracts of approximately one month in
length to minimize the short-term impact of foreign currency fluctuations on
assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts are
designated and effective as a hedge and are inversely correlated to the hedged
item as required by generally accepted accounting principles.
Gains and losses on the contracts are included in other income and offset
foreign exchange gains or losses from the revaluation of intercompany balances
or other current assets and liabilities denominated in currencies other than the
functional currency of the reporting entity.
INCOME TAXES
Deferred taxes are provided for utilizing the liability method as prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Deferred tax assets are
reduced by a valuation allowance when, in our opinion, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
COMPUTATION OF NET LOSS PER SHARE
Our computation of net loss per share is performed in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). SFAS No. 128 requires companies to compute net income
(loss) per share under two different methods, basic and diluted per share data
for all periods for which an income statement is presented. Basic earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Potential dilutive common shares
are calculated using the treasury stock method and represent incremental shares
issuable upon exercise of our outstanding stock options. For the years ended
March 31, 2000, 1999, and 1998, the diluted loss per share calculation excludes
the effect of outstanding stock options as inclusion would be anti-dilutive.
F-10
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT
On January 20, 2000, our board of directors declared a two-for-one stock
split of our Common Stock, effected in the form of a stock dividend.
Stockholders of record as of the close of business on February 4, 2000 were
issued a certificate representing one additional share of our Common Stock for
each share of Common Stock held on the record date. All stock related data in
the consolidated financial statements and related notes reflect this stock split
for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in a
derivative's fair value be recognized currently in operations unless specific
hedge accounting criteria are met. SFAS No. 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We do not anticipate that the adoption of this amendment will have a
material impact on our financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101, as amended,
is effective no later than the second calendar quarter of fiscal 2001. We are in
the process of evaluating the potential impact of SAB No. 101, but we anticipate
that the impact to our consolidated financial statements, if any, will be
insignificant.
2. ACQUISITIONS
In September 1997, we completed the acquisition of all of the outstanding
stock of Apsylog, a developer of decision software solutions designed for asset
management. The consideration given for the stock of Apsylog included
approximately 7,664,000 shares of our Common Stock valued at a total purchase
price of $38.6 million, including merger costs and assumed liabilities.
On July 30, 1998, we completed the acquisition of Innovative Tech
Systems, Inc. ("Innovative"), a developer of facilities infrastructure
management software. This acquisition was structured as a tax-free
stock-for-stock exchange resulting in the issuance of approximately 11,837,000
shares of our Common Stock for all outstanding shares of Innovative Common Stock
valued at a total purchase price of $85.9 million, including merger costs and
assumed liabilities.
On September 23, 1998, we completed the acquisition of certain technology
and other assets and liabilities from International Software Solutions and
related persons and entities (collectively "ISS"), a developer of remote
management software. We issued approximately 1,569,000 shares of our Common
Stock in exchange for these assets valued at a total purchase price, including
merger costs, of $15.6 million.
On March 2, 1999, we completed the acquisition of Prototype, Inc.
("Prototype"), a developer of fleet infrastructure management software. We
issued approximately 1,522,000 shares of our Common Stock and $1.1 million in
cash for all of the outstanding shares of Prototype. The purchase price,
including merger costs and assumed liabilities, totaled $25.9 million.
F-11
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
On April 2, 1999, we completed the acquisition of F.Print UK Ltd.
("FPrint"), a developer of desktop inventory and asset discovery software. We
issued approximately 1,508,000 shares of our Common Stock and $1.3 million in
cash for all the outstanding shares of FPrint for a total purchase price,
including merger costs, of $26.2 million.
On September 29, 1999, we completed the acquisition of Knowlix Corporation
("Knowlix"), a developer of knowledge management software. We issued
approximately 706,000 shares of our Common Stock for all the outstanding shares
of Knowlix for a total purchase price, including merger costs, of
$17.8 million.
On March 23, 2000, we completed the acquisition of Telco Research
Corporation Limited ("Telco Research"), a developer of telephony infrastructure
management software and related ancillary products. We issued approximately
2,563,000 shares of our Common Stock for all of the outstanding shares of Telco
Research for a total purchase price, including merger costs, of $123.9 million.
On March 24, 2000, we completed the acquisition of Barnhill Management
Corporation ("Barnhill"), a provider of infrastructure management system
solutions and related professional services. We issued approximately 273,000
shares of our Common Stock for all of the outstanding shares of Barnhill for a
total purchase price, including merger costs and assumed liabilities, of
$32.2 million.
ACCOUNTING TREATMENT OF ACQUISITIONS
All of the transactions above were accounted for under the purchase method
of accounting and, accordingly, the assets, including in-process research and
development, and liabilities, were recorded based on their fair values, as
determined by independent appraisals, at the date of acquisition and the results
of operations for each of the acquisitions have been included in the financial
statements for the periods subsequent to acquisition.
F-12
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
We allocated each purchase price between acquired in-process research and
development, the fair value of the net assets acquired, and the purchase price
in excess of the acquired assets. The allocations of values are as follows (in
thousands):
<TABLE>
<CAPTION>
ACQUIRED
IN-PROCESS PURCHASE PRICE IN
RESEARCH AND FAIR VALUE OF NET EXCESS OF THE
DEVELOPMENT ASSETS ACQUIRED ACQUIRED ASSETS TOTAL
------------ ----------------- ----------------- --------
<S> <C> <C> <C> <C>
FISCAL 2000
Fprint........................... $ 4,194 $ -- $ 22,018 $ 26,212
Knowlix.......................... 2,852 -- 14,973 17,825
Barnhill......................... -- -- 32,192 32,192
Telco Research................... 17,459 7,520 98,934 123,913
------- ------ -------- --------
$24,505 $7,520 $168,117 $200,142
======= ====== ======== ========
FISCAL 1999
Innovative....................... $18,907 $ -- $ 67,032 $ 85,939
ISS.............................. 2,959 -- 12,614 15,573
Prototype........................ 4,139 -- 21,728 25,867
------- ------ -------- --------
$26,005 $ -- $101,374 $127,379
======= ====== ======== ========
FISCAL 1998
Apsylog.......................... $ 6,955 $ -- $ 31,684 $ 38,639
------- ------ -------- --------
$ 6,955 $ -- $ 31,684 $ 38,639
======= ====== ======== ========
</TABLE>
The value of each acquisition's acquired in-process technology was computed
using a discounted cash flow analysis on the anticipated income stream of the
related product sales. The value assigned to acquired in-process technology was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from the projects and discounting the net cash flows to their present
value. With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of the companies
acquired prior to the close of each acquisition.
The nature of the efforts required to develop acquired in-process technology
into commercially viable products principally relates to the completion of all
planning, designing and testing activities that are necessary to establish that
the products can be produced to meet their design requirements, including
functions, features and technical performance requirements. If the research and
development project and technologies are not completed as planned, they will
neither satisfy the technical requirements of a changing market nor be cost
effective.
No assurance can be given, however, that the underlying assumptions used to
estimate expected product sales, development costs or profitability, or the
events associated with such projects, will transpire as estimated. We currently
believe that actual results have been consistent with forecasts with respect to
acquired in-process revenues. Because we do not account for expenses by product,
it is not possible to determine the actual expenses associated with any of the
acquired technologies. However, we believe that
F-13
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
expenses incurred to date associated with the development and integration of the
acquired in-process research and development projects are substantially
consistent with our previous estimates.
We have completed many of the original research and development projects in
accordance with our plans. We continue to work toward the completion of other
projects. The majority of the projects are on schedule, but delays may occur due
to changes in technological and market requirements for our products. The risks
associated with these efforts are still considered high and no assurance can be
made that any upcoming products will meet with market acceptance. Delays in the
introduction of certain products may adversely affect our revenues and earnings
in future quarters.
During fiscal years 2000, 1999, and 1998 we expended $7.8 million, $11.2
million, and $2.4 million, respectively, for acquisition costs and liabilities
assumed related to the acquisitions detailed above. These expenditures relate to
advisory fees (investment bankers, attorneys, accountants and other consultant
fees); employee severance and relocation costs; costs associated with the
reduction of duplicate facilities, equipment and efforts; and other merger
related costs (e.g. filing fees, travel costs, etc.).
Acquisition related liabilities of $3.4 million at March 31, 1999 related
principally to severance, relocation and lease termination costs. These amounts
were expended in fiscal 2000 in amounts approximating the recorded liability.
With respect to the acquisition related liabilities at March 31, 2000, we
have both approved and preliminary plans of integration and consolidation. These
plans include the steps we believe will be necessary within the year to
integrate the operations of these acquisitions. The plans provide for the
consolidation of duplicate facilities and infrastructure assets and the
elimination of duplicative efforts and positions within the combined company. In
connection with the integration plans we have accrued approximately $15.1
million in merger related costs comprised principally of the following
components (in thousands):
<TABLE>
<CAPTION>
ESTIMATED LIABILITY
-------------------
<S> <C>
Estimated advisory fees..................................... 3,650
Employee severance and relocation........................... 5,854
Duplicative facilities, equipment and efforts............... 4,991
Other merger related costs.................................. 629
-------
$15,124
=======
</TABLE>
This accrual represents our best estimate, based on information available as
of March 31, 2000, of the identifiable and quantifiable charges that we may
incur as a result of the acquisition and integration plans, however these
estimates may change. Any changes in the estimates during the next year will
increase or decrease goodwill as appropriate. We believe substantially all of
the above costs will be paid for within the next year.
In addition to the costs included in the accrual for our acquisition and
integration plans we will incur other incremental costs as a direct result of
our integration efforts. These costs will be accounted for as incurred in future
periods. To the extent these costs become significant they could have a material
adverse effect on our future operating results.
F-14
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION
The following table presents the unaudited pro forma results assuming we had
acquired each of Telco Research and Innovative at the beginning of fiscal years
2000 and 1999, as applicable. Net loss and diluted loss per share amounts have
been adjusted to exclude acquired in process research and development write-offs
of $24.5 million and $26.0 million in fiscal years 2000 and 1999, respectively
and to include goodwill amortization of $51.9 million and $35.2 million in
fiscal years 2000 and 1999, respectively. This information may not necessarily
be indicative of our future combined results.
The unaudited pro forma results of operations exclude the results of
operations of certain acquisitions consummated during fiscal 2000 and 1999. The
inclusion of the results associated with these acquisitions would not materially
affect the pro forma financial information presented below.
In thousands, except per share data:
<TABLE>
<CAPTION>
PRO FORMA RESULTS
FOR THE YEARS ENDED
MARCH 31,
-------------------
(UNAUDITED)
2000 1999
-------- --------
<S> <C> <C>
Revenues................................................ $283,911 $174,409
Net loss................................................ $(40,874) $(52,014)
Basic and diluted loss per share........................ $ (0.40) $ (0.58)
</TABLE>
3. SENIOR CREDIT FACILITY
In July 1999, we entered into a $20 million senior credit facility for a
term of three years with a syndicate of financial institutions. Any borrowings
under the credit facility are secured by substantially all assets and shall bear
interest at a rate equal to LIBOR plus the applicable margin rate. Proceeds of
the senior credit facility may be used for general corporate purposes, including
acquisitions.
4. BALANCE SHEET COMPONENTS
Other current assets consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Prepaid expenses.......................................... $ 8,505 $ 4,928
Other..................................................... 10,297 5,442
------- -------
$18,802 $10,370
======= =======
</TABLE>
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Furniture and equipment................................. $ 44,197 $ 23,075
Leasehold improvements.................................. 8,830 5,035
-------- --------
53,027 28,110
Less accumulated depreciation........................... (23,490) (12,215)
-------- --------
$ 29,537 $ 15,895
======== ========
</TABLE>
F-15
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET COMPONENTS (CONTINUED)
Intangible assets, net and other consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Strategic investments................................... $ 94,852 --
Intangible assets and purchased technology.............. 323,957 133,550
Other................................................... 4,740 788
-------- --------
423,549 134,338
Less accumulated amortization........................... (55,933) (21,180)
-------- --------
$367,616 $113,158
======== ========
</TABLE>
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Employee compensation..................................... $ 6,146 $ 7,370
Commissions............................................... 11,673 6,066
Taxes..................................................... 8,340 5,030
Acquisition related liabilities........................... 15,124 3,379
Other..................................................... 7,781 4,615
------- -------
$49,064 $26,460
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Note payable to lessor. Unsecured; interest at 8%. Monthly
Payments of principal and interest of $4 through November
2003...................................................... $ 158 $194
Note payable to lessor. Unsecured; interest at 8%. Monthly
Payments of principal and interest of $4 through September
2003...................................................... 129 --
Note payable to shareholders of an acquired company.
Secured; interest at 7%. Specified Payments of principal
and interest through December 2001........................ 700 --
Note payable to third party. Unsecured; interest at 9%.
Monthly payments of principal and interest of $3 through
April 2004................................................ 180 --
French Government Agency loans and other.................... 164 455
------ ----
1,331 649
Less current portion........................................ (74) (55)
------ ----
$1,257 $594
====== ====
</TABLE>
F-16
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Scheduled fiscal year principal payments on long-term debt due as of
March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
FUTURE SCHEDULED
PRINCIPAL PAYMENTS
------------------
<S> <C>
2001........................................................ $ 74
2002........................................................ 1,015
2003........................................................ 134
2004........................................................ 106
2005........................................................ 2
------
$1,331
======
</TABLE>
6. INCOME TAXES
The geographic distribution of income (loss) before taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $(23,275) $(21,041) $ (772)
Foreign......................................... 14,657 7,966 5,514
-------- -------- ------
Total........................................... $ (8,618) $(13,075) $4,742
======== ======== ======
</TABLE>
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current
Federal......................................... $ 9,670 $ 5,304 $5,197
State........................................... 925 792 1,017
Foreign......................................... 4,083 2,700 --
------- ------- ------
Total current..................................... 14,678 8,796 6,214
------- ------- ------
Deferred
Federal......................................... 1,265 1,262 (728)
State........................................... 331 188 (128)
Foreign......................................... 178 49 --
------- ------- ------
Total deferred.................................... 1,774 1,499 (856)
------- ------- ------
Total provision................................... $16,452 $10,295 $5,358
======= ======= ======
</TABLE>
We realize an income tax benefit from disqualifying dispositions of certain
stock options. This benefit results in a decrease in current income taxes
payable and an increase in additional paid-in capital at the time the benefit is
realized. The amount of the benefit realized for the years ended March 31, 2000,
1999, and 1998 was $10,595,000, $6,096,000 and $7,905,000, respectively.
F-17
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of expected income taxes using the statutory federal income
tax rate to the effective income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Federal tax provision (benefit) at the statutory
rate............................................ $(3,016) $(4,446) $1,612
State tax provision (benefit), net of federal
effect.......................................... (345) (654) 237
Effect of foreign earnings taxed at different
rates........................................... (437) (912) --
Foreign sales corporation......................... (985) -- --
Tax credits....................................... (1,184) (860) --
Non-deductible acquired R&D and amortization of
intangibles..................................... 21,792 14,023 3,943
Other............................................. 78 1 16
Change in valuation allowance..................... 549 3,143 (449)
------- ------- ------
Total income tax provision........................ $16,452 $10,295 $5,359
======= ======= ======
</TABLE>
The amounts stated in the table above for the years ended March 31, 2000,
1999, and 1998 are based upon income before taxes which include expenses (a
significant portion of which are not tax deductible) of $59,258,000,
$44,017,000, and $10,123,000, respectively, related to the acquisition of
in-process research and development and amortization of purchased intangibles.
Excluding these acquisition-related expenses, the effective tax rate for the
years ended March 31, 2000, 1999, and 1998 was 32.5, 33.3 and 37.0 percent,
respectively.
U.S. income taxes and foreign withholding taxes were not provided for on a
cumulative total of approximately $14.7 million of undistributed earnings for
certain non-U.S. subsidiaries. We intend to reinvest these earnings indefinitely
in operations outside of the U.S.
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,197 $ 3,148
Intangible Assets....................................... 5,192 3,143
Deferred maintenance revenue............................ 1,576 2,752
Other................................................... 726 1,030
------- -------
Total gross deferred tax assets........................... 8,691 10,073
Deferred tax liabilities:
Depreciation............................................ (167) (324)
Net deferred tax asset prior to valuation allowance....... 8,524 9,749
Valuation allowance....................................... (4,500) (3,951)
------- -------
Net deferred tax assets................................... $ 4,024 $ 5,798
======= =======
</TABLE>
F-18
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
As of March 31, 2000, we had total net operating loss carryforwards of
approximately $66.8 million for domestic federal income tax reporting purposes,
which expire beginning in 2012. Approximately $63.7 million of the net operating
loss carryforwards (excluded from the table above) relate to disqualifying
dispositions of stock options which will result in an increase in additional
paid-in capital and a decrease in income taxes payable at such time that the tax
benefit is realized. In certain circumstances, as specified in the Internal
Revenue Code, an ownership change of fifty percent or more by certain
combinations of our stockholders during any three year period could result in an
annual limitation on our ability to utilize portions of our domestic net
operating loss carryforwards.
A valuation allowance in the amount set forth in the table above has been
recorded to properly reserve for a portion of the deferred tax assets due to
uncertainties surrounding their realization. We evaluate on a quarterly basis
the recoverability of the deferred tax assets and the amount of the valuation
allowance. At such time as it is determined that it is more likely than not that
the deferred tax assets are realizable, the valuation allowance will be reduced.
7. COMMITMENTS AND CONTINGENCIES
We lease certain buildings and equipment under noncancelable operating lease
agreements. The leases generally require us to pay all execution costs such as
taxes, insurance and maintenance related to the leased assets. Certain of the
leases contain provisions for periodic rate escalations to reflect
cost-of-living increases. Rent expense for such leases totaled approximately
$9.1 million, $4.6 million, and $2.6 million in fiscal years 2000, 1999, and
1998, respectively.
Future minimum lease payments under noncancelable operating leases, at
March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2001........................................................ $ 14,257
2002........................................................ 18,362
2003........................................................ 18,578
2004........................................................ 17,291
2005........................................................ 13,535
Thereafter.................................................. 105,746
--------
Total minimum lease payments................................ $187,769
========
</TABLE>
We sublease office space at our corporate headquarters to an affiliated
company. The term of the sublease is from June 1996 to October 2003 and requires
monthly rental payments of approximately $17,000.
On June 9, 1999, we entered into a series of leases covering up to
approximately 540,000 square feet of office space in San Diego, including an
option on approximately 118,000 square feet of office space. We have moved into
a portion of the completed new facilities with the remaining uncompleted space
currently scheduled for completion over the next four years. The future minimum
lease commitments detailed above contain our future commitments associated with
these leases. To the extent we do not require all of the space under these
leases, we have the right to sublet excess space.
F-19
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
We pay commissions to employees who have authored certain of our products
based on a percentage of the respective product's sales. Commissions paid under
such agreements are included in research and development expense in the
accompanying consolidated statements of operations and were approximately,
$3.6 million, $3.2 million and $1.7 million for fiscal years 2000, 1999, and
1998, respectively.
On March 31, 2000, we had outstanding forward contracts to buy foreign
currencies totaling $19.6 million U.S. Dollars. Additionally, we had outstanding
forward contracts to sell foreign currencies totaling $11.8 million U.S.
Dollars. These hedging exposures are consistent with transaction flows with
respect to our international operations. These contracts typically expire within
one month.
From time to time we are involved in various legal proceedings and claims
arising in the ordinary course of business, none of which, in our opinion, is
expected to have a material adverse effect on our consolidated financial
position or results of operations.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
We have authorized 5,000,000, $0.001 par value, undesignated preferred
shares, none of which were issued or outstanding at March 31, 2000 and 1999. Our
board of directors has the authority to issue the preferred stock in one or more
series, and to fix the price, rights, preferences, privileges, and restrictions,
including dividend rights and rates, conversion and voting rights, and
redemption terms and pricing without any further vote or action by our
shareholders.
STOCK OPTIONS
We have five stock option plans, the 1990 Nonqualified Stock Option Plan
("1990 Plan"), the 1991 Nonqualified Stock Option Plan ("1991 Plan"), the 1994
Stock Option Plan ("1994 Plan"), the 1997 Director Option Plan (the "Director
Plan") and the 1999 Nonqualified Stock Option Plan ("the 1999 Plan").
We may no longer grant options under the 1990 and 1991 Plans. We may grant
up to 32,553,000, 600,000, and 2,000,000 options under the 1994 Plan, Director
Plan and the 1999 Plan, respectively. All options granted pursuant to the plans
have an exercise price determined by our board of directors on a per-grant
basis, which may not be less than fair market value on the date of grant. Option
grants under all five stock option plans generally vest over four years. During
December 1996, we recorded $631,000 in deferred compensation related to the
grant of 740,000 options. This deferred compensation is being amortized on a
straight-line basis to expense over the options' four year vesting period.
F-20
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes our five stock option plans at March 31,
2000, 1999, and 1998 as well as changes during the periods then ended.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE PER SHARE
---------------- ------------------------
(IN THOUSANDS)
<S> <C> <C>
Balances, March 31, 1997................... 16,213.1 $ 0.52
Options granted............................ 6,514.9 3.40
Options exercised.......................... (7,290.6) 0.39
Options canceled........................... (1,142.5) 3.05
-------- ------
Balances, March 31, 1998................... 14,294.9 1.70
Options granted............................ 14,067.4 6.57
Options exercised.......................... (7,201.5) 0.96
Options canceled........................... (1,715.6) 1.52
-------- ------
Balances, March 31, 1999................... 19,445.2 5.52
Options granted............................ 5,989.6 19.01
Options exercised.......................... (4,791.0) 4.22
Options canceled........................... (776.1) 8.35
-------- ------
Balances, March 31, 2000................... 19,867.7 $ 9.79
======== ======
</TABLE>
As of March 31, 2000, 1999 and 1998 exercisable options outstanding were
4,064,000, 2,329,000 and 4,660,000, respectively, with weighted average exercise
prices of $5.21, $2.00, and $0.68, respectively.
We have adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Accordingly, we continue to account for stock options using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25.
Pursuant to SFAS No. 123, we are required to disclose the pro forma effects
on net income (loss) and net income (loss) per share data as if we had elected
to use the fair value approach to account for all of our employee stock-based
compensation plans. Had compensation cost for our plans been determined
F-21
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
consistent with the fair value approach enumerated in SFAS No. 123, our net
income (loss) and net income (loss) per share for the years ended March 31,
2000, 1999, and 1998 would have been as indicated below:
In thousands, except per share data:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss:
As reported.................................. $(25,070) $(23,370) $ (616)
Pro forma expense effect of SFAS No. 123..... (15,216) (5,546) (1,300)
-------- -------- --------
Pro forma after giving effect to SFAS No.
123........................................ $(40,286) $(28,916) $ (1,916)
======== ======== ========
Basic and diluted pro forma net loss per share
As reported.................................. $ (0.24) $ (0.27) $ (0.01)
Pro forma expense effect of SFAS No. 123..... (0.15) (0.06) (0.02)
-------- -------- --------
Pro forma after giving effect to SFAS No.
123........................................ $ (0.39) $ (0.33) $ (0.03)
======== ======== ========
</TABLE>
The fair value of options was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for option grants:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate....................... 6.38% 5.65% 6.11%
Expected life (in years)...................... 4 4 4
Expected volatility........................... 89.03% 78.92% 63.06%
</TABLE>
RESTRICTED STOCK
During fiscal 1996, we granted 2,400,000 shares of nontransferable Common
Stock under restricted stock agreements to certain employees. These shares were
valued at a fair value of $0.59. The restrictions lapse on the shares ten years
from the date of grant or, if we achieve certain objectives for earnings growth
from fiscal 1997 through fiscal 2002, or, on a change in control of PSI. The
unearned portion of restricted stock is included in stockholders' equity and is
being amortized as compensation expense on a straight-line basis over the
vesting period. During fiscal 1998, 808,000 of the above shares were canceled.
During fiscal year 1998, we granted an additional 200,000 shares of
nontransferable Common Stock under restricted stock agreements valued at $3.16.
These shares vest over a six-year term and deferred compensation of $631,000 is
currently being amortized as compensation expense over this term.
1997 EMPLOYEE STOCK PURCHASE PLAN
In February 1997, our board of directors adopted, and the stockholders
approved, the 1997 Employee Stock Purchase Plan ("Purchase Plan"). We have
reserved 1,000,000 shares of common stock for issuance under the Purchase Plan.
The Purchase Plan enables eligible employees to purchase common stock at 85% of
the lower of the fair market value of the Company's common stock on the first or
last day of each option
F-22
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
purchase period, as defined. During fiscal years 2000, 1999, and 1998 we issued
100,000, 124,000, and 140,000 shares, respectively, pursuant to the Purchase
Plan.
DIRECTOR OPTION PLAN
In February 1997, our board of directors adopted, and the stockholders
approved, the 1997 Director Option Plan ("Director Plan"). We have reserved
600,000 shares of our Common Stock for issuance under the Director Plan. The
Director Plan provides each new eligible outside PSI director an initial option
grant to purchase 50,000 shares of our Common Stock upon election to our board
of directors. In addition, commencing with the 1998 Annual Stockholders meeting,
such eligible outside directors are granted an option to purchase 10,000 shares
of our Common Stock at each annual meeting. The exercise price per share of all
options granted under the Director Plan will be equal to the fair market value
of our Common Stock on the date of grant. Options may be granted for periods up
to ten years and generally vest over four years. No grants were made under the
Director Plan during fiscal 1998. We granted 50,000 and 100,000 shares of our
Common Stock under the Director Plan in fiscal 2000 and 1999, respectively.
9. EMPLOYEE BENEFIT PLAN
We have a 401(k) Employee Savings Plan ("Plan") covering substantially all
employees. The Plan provides for savings and pension benefits and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. Those
employees who participate in the Plan are entitled to make contributions of up
to 20 percent of their compensation, limited by IRS statutory contribution
limits. In addition to employee contributions, we may also contribute to the
Plan by matching 25% of employee contributions. Amounts we contributed to the
Employee Savings Plan during fiscal 2000, 1999, and 1998, were $905,000,
$467,000, and $200,000, respectively.
10. GEOGRAPHIC OPERATIONS
We operate exclusively in the Infrastructure Resource Management software
industry. A summary of our operations by geographic area is presented below:
<TABLE>
<CAPTION>
NORTH EUROPE &
AMERICA OTHER CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Year ended March 31, 2000
Revenues.................................... $149,582 $103,718 $253,300
Identifiable assets......................... $503,237 $ 20,193 $523,430
Year ended March 31, 1999
Revenues.................................... $ 88,649 $ 49,414 $138,063
Identifiable assets......................... $179,376 $ 28,337 $207,713
Year ended March 31, 1998
Revenues.................................... $ 39,512 $ 22,365 $ 61,877
Identifiable assets......................... $ 72,434 $ 11,134 $ 83,568
</TABLE>
Amounts included in Europe and Other above relate principally to our European
operations.
F-23
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY INFORMATION (UNAUDITED)
The following unaudited quarterly financial information includes, in our
opinion, all normal and recurring adjustments (in thousands) necessary to fairly
state our consolidated results of operations and related information for the
periods presented.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 2000
License revenues.................................... $ 32,092 $ 37,102 $ 46,524 $ 52,749
Services revenues................................... 19,513 20,705 21,020 23,595
Total costs and expenses............................ (53,093) (56,006) (63,233) (89,624)
-------- -------- -------- --------
Income (loss) from operations....................... (1,488) 1,801 4,311 (13,280)
Interest income (expense) and other................. 86 7 5 (60)
Income tax expense.................................. 3,439 4,042 4,183 4,788
-------- -------- -------- --------
Net income (loss)................................... $ (4,841) $ (2,234) $ 133 $(18,128)
======== ======== ======== ========
Basic income (loss) per share....................... $ (0.05) $ (0.02) $ -- $ (0.17)
======== ======== ======== ========
Diluted income (loss) per share..................... $ (0.05) $ (0.02) $ -- $ (0.17)
======== ======== ======== ========
FISCAL 1999
License revenues.................................... $ 13,882 $ 17,375 $ 26,064 $ 30,041
Services revenues................................... 7,868 12,279 14,485 16,069
Total costs and expenses............................ (18,432) (49,960) (37,051) (46,359)
-------- -------- -------- --------
Income (loss) from operations....................... 3,318 (20,306) 3,498 (249)
Interest income (expense) and other................. 260 193 100 111
Income tax expense.................................. 1,742 2,209 2,969 3,375
-------- -------- -------- --------
Net income (loss)................................... $ 1,836 $(22,322) $ 629 $ (3,513)
======== ======== ======== ========
Basic income (loss) per share....................... $ 0.03 $ (0.26) $ 0.01 $ (0.04)
======== ======== ======== ========
Diluted income (loss) per share..................... $ 0.02 $ (0.26) $ 0.01 $ (0.04)
======== ======== ======== ========
</TABLE>
12. SUBSEQUENT EVENT
On April 5, 2000 we entered into an Agreement and Plan of Merger and
Reorganization with Harbinger Corporation ("Harbinger"), a Georgia corporation,
in which each outstanding share of Harbinger common stock will be converted into
the right to receive 0.75 of a share of our Common Stock (the "Merger"), or
approximately 36 million shares, inclusive of approximately 5 million shares
associated with Harbinger's outstanding stock options.
The Merger is intended to constitute a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended, and is to be accounted for as
a purchase transaction. Consummation of the Merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
our stockholders, the stockholders of Harbinger and certain regulatory agencies.
F-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
2.1 (a) Agreement and Plan of Merger and Reorganization by and among
Peregrine Systems, Inc., Soda Acquisition Corporation and
Harbinger Corporation, dated as of April 5, 2000.
3.1 (c) Amended and Restated Certificate of Incorporation as filed
with the Secretary of the State of Delaware on February 11,
1997.
3.2 (c) Bylaws, as amended.
4.1 (c) Specimen Common Stock Certificate.
10.1 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.2 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.3(a) (f) 1994 Stock Option Plan, as amended through July 1998.
10.3(b) (f) 1995 Stock Option Plan for French Employees (a supplement to
the 1994 Stock Option Plan).
10.4 (d) Form of Stock Option Agreement under the 1994 Stock Option
Plan, as amended through February 6, 1997.
10.5 (d) 1997 Employee Stock Purchase Plan and forms of participation
agreement thereunder.
10.6 (d) 1997 Director Option Plan.
10.7 (c) Form of Indemnification Agreement for directors and
officers.
10.8 (a) Credit Agreement dated as of July 30, 1999 by and between
the Registrant and Bank of America, N.A., Banc of America
Securities LLC and Bank Boston, N.A.
10.9 (c) Sublease between the Registrant and JMI Services, Inc.
10.10 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notifications of Assignment dated June 14,
1996 and December 9, 1996 for the Registrant's headquarters
at 12670 High Bluff Drive, San Diego, CA.
10.11 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notification of Assignment dated December
9, 1996 for the Registrant's headquarters at 12680 High
Bluff Drive, San Diego, CA.
10.14 (c) XVT Stock Option Agreement dated January 18, 1995 between
the Registrant and Christopher Cole, as amended on October
3, 1996.
10.16 (d) Restricted Stock Agreement dated November 1, 1995 between
the Registrant and David Farley.
10.17 (c) Stock Option Agreement dated as of December 7, 1990 between
the Registrant and Christopher Cole, as amended on October
26, 1995.
10.18 (c) Form of Stock Option Agreement under 1995 Stock Option Plan
for French Employees.
10.19 (c) Form of Stock Option Agreement under 1997 Director Option
Plan.
10.22 (b) Executive Officer Incentive Program and Form of Restricted
Stock Agreement.
10.24 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 1 of the Registrant's
future campus in San Diego, CA.
10.25 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 2 of the Registrant's
future campus in San Diego, CA.
10.26 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 3 of the Registrant's
future campus in San Diego, CA.
10.27 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 5 of the Registrant's
future campus in San Diego, CA.
10.28 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 4 of the Registrant's
future campus in San Diego, CA.
10.29 (a) 1999 Nonstatutory Stock Option Plan.
21.1 (a) Peregrine Systems, Inc. Subsidiaries.
23.1 (a) Consent of Arthur Andersen LLP, Independent Public
Accountants (relating to financial statements for Peregrine
Systems).
27.1 (a) Financial Data Schedule for Peregrine Systems, Inc.
</TABLE>
- ------------------------
(a) Filed herewith.
<PAGE>
(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-39891), which the Securities and Exchange Commission declared effective
on November 19, 1997.
(c) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-21483), which the Securities and Exchange Commission declared effective
on April 8, 1997.
(d) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1997.
(e) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(f) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-8 (Registration Statement
333-65541) which became effective upon its filing on October 9, 1998.
(g) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1999.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
PEREGRINE SYSTEMS, INC.
SODA ACQUISITION CORPORATION
AND
HARBINGER CORPORATION
DATED AS OF APRIL 5, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER.................................................. 1
1.1 The Merger.................................................. 1
1.2 Effective Time; Closing..................................... 2
1.3 Effect of the Merger........................................ 2
1.4 Articles of Incorporation; Bylaws........................... 2
1.5 Directors and Officers...................................... 2
1.6 Effect on Capital Stock..................................... 2
1.7 Surrender of Certificates................................... 3
1.8 No Further Ownership Rights in Company Common Stock......... 5
1.9 Lost, Stolen or Destroyed Certificates...................... 5
1.10 Tax and Accounting Consequences............................. 5
1.11 Taking of Necessary Action; Further Action.................. 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY................... 5
2.1 Organization and Qualification; Subsidiaries................ 6
2.2 Articles of Incorporation and Bylaws........................ 6
2.3 Capitalization.............................................. 6
2.4 Authority Relative to this Agreement........................ 8
2.5 No Conflict; Required Filings and Consents.................. 8
2.6 Compliance; Permits......................................... 9
2.7 SEC Filings; Financial Statements........................... 9
2.8 No Undisclosed Liabilities.................................. 9
2.9 Absence of Certain Changes or Events........................ 10
2.10 Absence of Litigation....................................... 10
2.11 Employee Benefit Plans...................................... 10
2.12 Labor Matters............................................... 12
2.13 Registration Statement/Joint Proxy Statement/Prospectus..... 13
2.14 Restrictions on Business Activities......................... 13
2.15 Title to Property........................................... 13
2.16 Taxes....................................................... 13
2.17 Environmental Matters....................................... 15
2.18 Brokers..................................................... 15
2.19 Intellectual Property....................................... 15
2.20 Agreements, Contracts and Commitments....................... 18
2.21 Insurance................................................... 19
2.22 Opinion of Financial Advisor................................ 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
2.23 Board Approval.............................................. 19
2.24 Vote Required............................................... 19
2.25 State Takeover Statutes..................................... 19
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 20
ARTICLE III
3.1 Organization and Qualification; Subsidiaries................ 20
3.2 Certificate of Incorporation and Bylaws..................... 20
3.3 Capitalization.............................................. 20
3.4 Parent Common Stock......................................... 20
3.5 Authority Relative to this Agreement........................ 20
3.6 SEC Filings; Financial Statements........................... 21
3.7 No Undisclosed Liabilities.................................. 21
3.8 Compliance; Permits......................................... 21
3.9 Absence of Certain Changes or Events........................ 22
3.10 Absence of Litigation....................................... 22
3.11 Registration Statement; Joint Proxy Statement/Prospectus.... 22
3.12 Brokers..................................................... 23
3.13 Opinion of Financial Advisor................................ 23
3.14 Board Approval.............................................. 23
3.15 Vote Required............................................... 23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... 23
4.1 Conduct of Business by Company.............................. 23
4.2 Conduct of Business by Parent............................... 25
ARTICLE V ADDITIONAL AGREEMENTS....................................... 26
5.1 Joint Proxy Statement/Prospectus; Registration Statement.... 26
5.2 Shareholder and Stockholder Meetings........................ 27
5.3 Confidentiality; Access to Information...................... 27
5.4 No Solicitation............................................. 27
5.5 Public Disclosure........................................... 29
5.6 Reasonable Efforts; Notification............................ 29
5.7 Third Party Consents........................................ 30
5.8 Stock Options and Employee Benefits; Warrants............... 30
5.9 Form S-8.................................................... 31
5.10 Indemnification............................................. 31
5.11 Nasdaq Listing.............................................. 32
5.12 Affiliates.................................................. 32
5.13 Regulatory Filings; Reasonable Efforts...................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.14 Parent Board of Directors................................... 32
5.15 Shareholder Litigation...................................... 32
ARTICLE VI CONDITIONS TO THE MERGER.................................... 33
Conditions to Obligations of Each Party to Effect the
6.1 Merger.................................................... 33
6.2 Additional Conditions to Obligations of Company............. 33
Additional Conditions to the Obligations of Parent and
6.3 Merger Sub................................................ 34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... 34
7.1 Termination................................................. 34
7.2 Notice of Termination; Effect of Termination................ 35
7.3 Fees and Expenses........................................... 36
7.4 Amendment................................................... 37
7.5 Extension; Waiver........................................... 37
ARTICLE VIII GENERAL PROVISIONS.......................................... 37
8.1 Survival of Representations and Warranties.................. 37
8.2 Notices..................................................... 37
8.3 Interpretation; Definitions................................. 38
8.4 Counterparts................................................ 39
8.5 Entire Agreement; Third Party Beneficiaries................. 39
8.6 Severability................................................ 39
8.7 Other Remedies; Specific Performance........................ 40
8.8 Governing Law............................................... 40
8.9 Rules of Construction....................................... 40
8.10 Assignment.................................................. 40
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 Form of Company Voting Agreement
Exhibit 2 Form of Parent Voting Agreement
Exhibit B Form of Stock Option Agreement
Exhibit C Form of Affiliate Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of April 5, 2000, among Peregrine Systems, Inc., a Delaware corporation
("PARENT"), Soda Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Harbinger Corporation, a
Georgia corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Georgia Business
Corporation Code ("GEORGIA LAW") and the Delaware General Corporation Law
("DELAWARE LAW"), Parent and Company intend to enter into a business combination
transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its shareholders, (ii) has unanimously approved and declared advisable this
Agreement, and has approved the Merger (as defined in Section 1.1) and the other
transactions contemplated by this Agreement, and (iii) has determined to
recommend that the shareholders of Company adopt and approve this Agreement and
approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and is fair to, and in the best interests of, Parent and its stockholders,
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement, and (iii) has determined to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock (as
defined below) pursuant to the Merger (the "SHARE ISSUANCE").
D. Concurrently with the execution of this Agreement, (i) as a condition and
inducement to Parent's willingness to enter into this Agreement, each affiliate
of Company is entering into Voting Agreements in the form attached hereto as
EXHIBIT A-1 (the "COMPANY VOTING AGREEMENTS") and (ii) as a condition and
inducement to Company's willingness to enter into this Agreement, certain
affiliates of Parent are entering into Voting Agreements in the form attached
hereto as EXHIBIT A-2 (the "PARENT VOTING AGREEMENT").
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Company
shall execute and deliver a Stock Option Agreement in favor of Parent in the
form attached hereto as EXHIBIT B (the "STOCK OPTION AGREEMENT").
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Georgia Law and Delaware Law, Merger Sub shall be
merged with and into Company (the "MERGER"), the separate corporate existence of
Merger Sub shall cease, and Company shall continue as the surviving corporation
and as a wholly-owned subsidiary of Parent. Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."
1
<PAGE>
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger with the Secretary of State of the State of Georgia in
accordance with the relevant provisions of Georgia Law (the "CERTIFICATE OF
MERGER") and a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of Delaware Law (the
"DELAWARE CERTIFICATE OF MERGER") (the time of the later of such filings (or
such later time as may be agreed in writing by Company and Parent and specified
in the Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable
on or after the Closing Date (as herein defined). The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050
at a time and date to be specified by the parties, which shall be no later than
the second business day after the satisfaction or waiver of all of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Georgia
Law and Delaware Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers, and franchises of Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Company and Merger Sub
shall become the debts, liabilities, and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of Company, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving
Corporation.
(b) The Bylaws of Company, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified. The initial officers of
the Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock,
par value $.0001 per share, of Company (the "COMPANY COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any
shares of Company Common Stock to be cancelled pursuant to Section 1.6(b),
will be cancelled and extinguished and automatically converted (subject to
Sections 1.6(e) and (f)) into the right to receive that number of shares of
Common Stock, $0.001 par value per share, of Parent (the "PARENT COMMON
STOCK") equal to 0.75 (the "EXCHANGE RATIO") upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.9). If any shares of Company Common Stock
outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition under
any applicable restricted stock purchase agreement or other agreement with
the Company, then the shares of Parent Common Stock issued in
2
<PAGE>
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends. The Company shall
take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option or
other right set forth in any such restricted stock purchase agreement or
other agreement.
(b) CANCELLATION OF PARENT-OWNED STOCK. Each share of Company Common
Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior
to the Effective Time shall be cancelled and extinguished without any
conversion thereof.
(c) STOCK OPTIONS; WARRANTS; EMPLOYEE STOCK PURCHASE PLANS. At the
Effective Time, each outstanding Warrant (as defined in Section 2.3), all
options to purchase Company Common Stock and stock appreciation rights then
outstanding under Company's Amended and Restated 1989 Stock Option Plan (the
"1989 PLAN"), Company's 1996 Stock Option Plan, as amended, (the "INCENTIVE
PLAN"), Company's 1993 Stock Option Plan for Nonemployee Directors (the
"DIRECTOR PLAN" and, together with the 1989 Plan and the Incentive Plan, the
"COMPANY OPTION PLANS"), and each of the Company Option Plans shall be
assumed by Parent in accordance with Section 5.8 hereof. Purchase rights
outstanding under Company's Amended and Restated Employee Stock Purchase
Plan (the "ESPP") shall be treated as set forth in Section 5.8.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, $0.001
par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of Common Stock,
$0.001 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect proportionately and equitably the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Common Stock), reorganization, recapitalization, reclassification or other
like change with respect to Parent Common Stock or Company Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof, each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock that otherwise would be received by such holder)
shall, upon surrender of such holder's Certificates(s) (as defined in
Section 1.7(c)), receive from Parent an amount of cash (rounded to the
nearest whole cent), without interest, equal to the product of (i) such
fraction and (ii) the average closing price of Parent Common Stock for the
five trading days immediately preceding the last full trading day prior to
the Effective Time, as reported on the Nasdaq National Market System
("NASDAQ").
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Within five (5) business days
after the Effective Time, Parent shall make available to the Exchange Agent,
for exchange in accordance with this Article I, (i) the shares of Parent
Common Stock issuable pursuant to Section 1.6 in exchange for outstanding
shares of Company Common Stock and (ii) cash in an amount sufficient for
payment in lieu of
3
<PAGE>
fractional shares pursuant to Section 1.6(f) and any dividends or
distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.7(d).
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record
(as of the Effective Time) of a certificate or certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into
the right to receive shares of Parent Common Stock pursuant to Section 1.6,
cash in lieu of any fractional shares pursuant to Section 1.6(f), and any
dividends or other distributions pursuant to Section 1.7(d), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain such other provisions
as Parent may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock, cash in lieu of any fractional shares
pursuant to Section 1.6(f) and any dividends or other distributions pursuant
to Section 1.7(d). Upon surrender of Certificates for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which
their shares of Company Common Stock were converted at the Effective Time,
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d), and the Certificates so surrendered
shall forthwith be cancelled. Until so surrendered, outstanding Certificates
will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.7(d) as to the payment of dividends, to
evidence only the ownership of the number of full shares of Parent Common
Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6(f) and any dividends
or distributions payable pursuant to Section 1.7(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificate(s) with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificate(s) shall surrender such Certificate(s).
Subject to applicable law, following surrender of any such Certificate(s),
the Exchange Agent shall deliver to the record holders thereof, without
interest, a certificate(s) representing whole shares of Parent Common Stock
issued in exchange therefor along with payment in lieu of fractional shares
pursuant to Section 1.6(f) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable with
respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate representing shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid any transfer or other taxes
required by reason of the issuance of certificates representing shares of
Parent Common Stock in any name other than that of the registered holder of
the Certificates surrendered, or established to the satisfaction of Parent
or any agent designated by it that such tax has been paid or is not payable.
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, Parent, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of
4
<PAGE>
state, local or foreign tax law or under any other applicable legal
requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having
been paid to the person to whom such amounts would otherwise have been paid.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither of the Exchange Agent, Parent, the Surviving
Corporation, or any party hereto shall be liable to a holder of shares of
Parent Common Stock or Company Common Stock for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat, or
similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Shares of Company
Common Stock in accordance with the terms hereof (together with any cash paid in
respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificate shall have been lost, stolen, or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen, or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 1.6, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to
Section 1.7(d); PROVIDED, HOWEVER, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash, and other distributions, require the owner of such
lost, stolen, or destroyed Certificate to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation, or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall be
treated as a purchase for accounting purposes.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title, and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub are fully authorized in the manner of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof and as of the Closing Date, Company represents and
warrants to Parent and Merger Sub, subject to such exceptions as are
specifically disclosed in writing in the disclosure schedules, dated as of the
date hereof delivered by Company to Parent (the "COMPANY SCHEDULE"), as follows.
The Company Schedule shall be arranged in sections corresponding to the numbered
sections contained in this
5
<PAGE>
Article and the disclosure in any paragraph shall qualify other sections in this
Article only to the extent it is reasonably apparent from a reading of such
disclosure that it also qualifies such other sections.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. Each of Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("APPROVALS") necessary to own, lease and operate the properties it purports
to own, operate or lease and to carry on its business as it is now being
conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
Each of Company and its subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated
by it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and
in good standing that would not, either individually or in the aggregate,
have a Material Adverse Effect on Company.
(b) Company has no subsidiaries except for the corporations identified
in Section 2.1(b) of the Company Schedule. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor be bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or as may hereafter be in effect (a
"CONTRACT") under which it may become obligated to make, any future
investment in or capital contribution to any other entity. Neither Company
nor any of its subsidiaries directly or indirectly owns any equity or
similar interest in or any interest convertible, exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business, association or entity, other than passive
investments in equity interests of public companies constituting less than
5% interests therein as part of Company's cash management program
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Company has previously furnished
to Parent a complete and correct copy of its Articles of Incorporation and
Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of 100,000,000
shares of Company Common Stock, par value $0.0001 per share, and 20,000,000
shares of Preferred Stock, without par value ("COMPANY PREFERRED STOCK"). At
the close of business on March 31, 2000, (i) 40,057,369 shares of Company
Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable; (ii) 4,323,050 shares of Company Common Stock
were held in treasury by Company or by subsidiaries of Company;
(iii) 233,633 shares of Company Common Stock were available for future
issuance pursuant to Company's ESPP; (iv) 6,505,987 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding options to
purchase Company Common Stock under the Incentive Plan; (v) 346,874 shares
of Company Common Stock were reserved for issuance upon the exercise of
outstanding options to purchase Company Common Stock under the Director
Plan; (vi) 266,168 shares of Company Common Stock were reserved for issuance
upon the exercise of outstanding options to purchase Company Common Stock
under the 1989 Plan; (vii) 8,007,468 shares of Company Common Stock were
reserved for issuance upon the exercise of the Stock Option Agreement;
(viii) 43,200 shares of Company Common Stock were reserved for issuance upon
the
6
<PAGE>
exercise of outstanding warrants to purchase Company Common Stock (the
"WARRANTS"); (ix) 106,473 shares of Company Common Stock were available for
future grant under the Incentive Plan; (x) 83,814 shares of Company Common
Stock were available for future grant under the Director Plan; and (xi) no
shares of Company Common Stock were reserved for future grant under the 1989
Plan. As of the date hereof, no shares of Company Preferred Stock were
issued or outstanding. There are no commitments or agreements of any
character to which the Company is bound obligating the Company to accelerate
the vesting of any Company Stock Option as a result of the Merger.
(b) Section 2.3(b) of the Company Schedule sets forth the following
information with respect to each Company Stock Option (as defined in
Section 5.8) outstanding as of the date of this Agreement: (i) the name and
address of the optionee; (ii) the particular plan pursuant to which such
Company Stock Option was granted; (iii) the number of shares of Company
Common Stock subject to such Company Stock Option; (iv) the exercise price
of such Company Stock Option; (v) the date on which such Company Stock
Option was granted; (vi) the applicable vesting schedule; and (vii) the date
on which such Company Stock Option expires. Company has made available to
Parent accurate and complete copies of all stock option plans pursuant to
which the Company has granted such Company Stock Options that are currently
outstanding and the form of all stock option agreements evidencing such
Company Stock Options. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified
in the instrument pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
(c) All outstanding shares of Company Common Stock, all outstanding
Company Stock Options, and all outstanding shares of capital stock of each
subsidiary of the Company have been issued and granted in compliance with
(i) all applicable securities laws and other applicable Legal Requirements
(as defined below) and (ii) all requirements set forth in applicable
Contracts. For the purposes of this Agreement, "LEGAL REQUIREMENTS" means
any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Entity (as defined below) and (ii) all
requirements set forth in applicable contracts, agreements, and instruments.
(d) Section 2.3(d) of the Company Schedule describes the interests of
all persons in the subsidiaries of Company, other than interests held by the
Company or any other of its subsidiaries and other than interests of
subsidiaries held by certain nominee holders as required by the laws of a
subsidiary's jurisdiction of incorporation (which interests do not
materially affect the Company's control of such subsidiary).
(e) Except as set forth in Section 2.3(d) and except for the Stock
Option Agreement, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any
character to which Company or any of its subsidiaries is a party or by which
it is bound obligating Company or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition of,
any shares of capital stock, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to grant, extend, accelerate the vesting
of or enter into any such subscription, option, warrant, equity security,
call, right, commitment or agreement. As of the date of this Agreement,
except as contemplated by this Agreement, there are no registration rights
and there is, except for the Company Voting Agreements, no voting trust,
proxy, rights plan, antitakeover plan or other agreement or understanding to
which the Company or any of its subsidiaries is a party or by which they are
bound with respect to any equity security of any class of the Company or
with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries. Shareholders of
the Company will not be entitled to dissenters' rights under Georgia Law in
connection with the Merger.
7
<PAGE>
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement and to perform its obligations hereunder and thereunder
and, subject to obtaining the approval of the shareholders of Company of the
Merger, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement by
Company and the consummation by Company of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of Company, and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement and the Stock Option Agreement
or to consummate the transactions so contemplated (other than, with respect to
the Merger, the approval and adoption of this Agreement by holders of a majority
of the outstanding shares of Company Common Stock in accordance with Georgia
Law, the Company Charter Documents) and duly adopted resolutions of the Board of
Directors of Company. This Agreement and the Stock Option Agreement have been
duly and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitute legal
and binding obligations of Company, enforceable against Company in accordance
with their respective terms.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement and the
Stock Option Agreement by Company will not, (i) conflict with or violate the
Company Charter Documents or the equivalent organizational documents of any
of Company's subsidiaries; (ii) subject to obtaining the approval of
Company's shareholders of the Merger and compliance with the requirements
set forth in Section 2.5(b) below, conflict with, or result in any violation
of, any law, rule, regulation, order, judgment or decree applicable to
Company or any of its subsidiaries or by which either Company or any of its
subsidiaries or any of their respective properties is bound or affected; or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or impair
Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a
party or by which Company or any of its subsidiaries or its or any of their
respective properties are bound or affected. Except where such conflict,
violation, breach, default, impairment or other effect could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
(b) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement by
Company will not, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any court, administrative
agency, commission, governmental or regulatory authority, domestic or
foreign (a "GOVERNMENTAL ENTITY"), except (A) for applicable requirements,
if any, of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state
securities laws ("BLUE SKY LAWS"), the pre-merger notification requirements
(the "HSR APPROVAL") of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), the rules and regulations of Nasdaq, and
the filing and recordation of the Certificate of Merger as required by
Georgia Law and the Delaware Certificate of Merger as required by Delaware
Law and (B) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the parties hereto, prevent consummation of the
Merger or otherwise prevent the parties hereto from performing their
obligations under this Agreement.
8
<PAGE>
2.6 COMPLIANCE; PERMITS.
(a) Neither Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment
or decree applicable to Company or any of its subsidiaries or by which its
or any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except for
any conflicts, defaults or violations that (individually or in the
aggregate) would not cause the Company to lose any material benefit or incur
any material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to the knowledge of Company,
threatened against Company or its subsidiaries, nor has any governmental or
regulatory body or authority indicated an intention to conduct the same,
other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of the Company
or any of its subsidiaries, any acquisition of material property by the
Company or any of its subsidiaries or the conduct of business by the Company
or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities, the absence
of which could not reasonably be expected to have a Material Adverse Effect
on Company (collectively, the "COMPANY PERMITS"). Company and its
subsidiaries are in compliance in all material respects with the terms of
the Company Permits.
2.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Company with the Securities and Exchange Commission ("SEC") since
December 31, 1999 (the "COMPANY SEC REPORTS"), which are all the forms,
reports and documents required to be filed by Company with the SEC since
December 31, 1999. The Company SEC Reports (A) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (B) did not at the time they were filed (and if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of Company's subsidiaries is required to
file any reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited financial statements, do not contain footnotes as permitted by the
SEC on Form 10-Q, Form 8-K or any successor form under the Exchange Act) and
each fairly presents the consolidated financial position of Company and its
subsidiaries at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to be material in amount.
(c) Company has previously furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.8 NO UNDISCLOSED LIABILITIES. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which, individually or in the aggregate, could reasonably be
9
<PAGE>
expected to have a Material Adverse Effect on Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Company's balance sheet as of
December 31, 1999 and (ii) liabilities incurred since December 31, 1999 in the
ordinary and usual course of business, consistent with past practice. None of
the liabilities described in the foregoing sections (i) or (ii) could reasonably
be expected, individually or in the aggregate, to have a Material Adverse Effect
on Company.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999, there
has not been: (i) any Material Adverse Effect on Company; (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock, or property) in respect of, any of Company's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
Company of any of Company's capital stock or any other securities of Company or
its subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements; (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' capital stock; (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash compensation to non-officer employees in the
ordinary and usual course of business consistent with past practice, or any
payment by Company or any of its subsidiaries of any bonus, except for bonuses
made to non-officer employees in the ordinary course of business consistent with
past practice, or any granting by Company or any of its subsidiaries of any
increase in severance or termination pay or any entry by Company or any of its
subsidiaries into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Company of the nature contemplated hereby; (v) entry by
Company or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any Intellectual Property (as
defined in Section 2.19) other than licenses in the ordinary and usual course of
business, consistent with past practice, or any amendment or consent with
respect to any licensing agreement filed or required to be filed by Company with
the SEC; (vi) any material change by Company in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP; or
(vii) any material revaluation by Company of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable or any sale of assets of the Company other than
in the ordinary and usual course of business, consistent with past practice.
2.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory investigation pending or
threatened) against Company or any of its subsidiaries or any properties or
rights of Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign which, if decided adversely to Company, could reasonably be expected to
have a Material Adverse Effect on Company.
2.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, material fringe or benefit
plans, programs, policies, commitments or other arrangements or remuneration
of any kind (whether or not set forth in a written document and including,
without limitation, all "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) for the benefit of any active, former employee, director
or consultant of Company ("EMPLOYEE"), any domestic subsidiary of Company or
any trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (a "PLAN AFFILIATE"), or with respect to
which Company has or may in the future have liability, are listed in
Section 2.11(a) of the Company Schedule (the "PLANS"); PROVIDED, HOWEVER,
consulting agreements not material to the Company's business or operations
are not listed on Schedule 2.11(a). Company has made available to Parent
correct and complete copies of all (i) documents embodying each Plan
including (without limitation) all amendments thereto, all related
10
<PAGE>
trust documents, and all material written agreements and contracts relating
to each such Plan; (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Plan;
(iii) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Plan; (iv) all Internal Revenue Service ("IRS") or
United States Department of Labor ("DOL") determination, opinion,
notification and advisory letters; (v) all material correspondence to or
from any governmental agency relating to any Plan; (vi) all COBRA (as
defined below) forms and related notices (or such forms and notices as
required under comparable law); (vii) all discrimination tests for each Plan
for the most recent three (3) plan years; (viii) the most recent annual
actuarial valuations, if any, prepared for each Plan; (ix) if the Plan is
funded, the most recent annual and periodic accounting of Plan assets;
(x) all material written agreements and contracts relating to each Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (xi) all material
communications to employees or former employees regarding in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability under any Plan or
proposed Plan; (xii) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Plan; and (xiii) all
registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with any Plan.
(b) Each Plan has been established, maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code, which are
applicable to such Plans. No suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Plan activities) is
pending, or to the knowledge of Company, threatened, against or with respect
to any such Plan. There are no audits, inquiries or proceedings pending or,
to the knowledge of Company, threatened by the IRS or DOL with respect to
any Plan. All contributions, reserves or premium payments required to be
made or accrued as of the date hereof to the Plans have been timely made or
accrued. Any Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or
still has a remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such letter and to make any
amendments necessary to obtain a favorable determination and
(ii) incorporates or has been amended to incorporate all provisions required
to comply with the Tax Reform Act of 1986 and subsequent legislation enacted
on or before December 6, 1994. Company does not have any plan or commitment
to establish any new Plan, to modify any Plan (except to the extent required
by law or to conform any such Plan to the requirements of any applicable
law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any new Plan. Each Plan
(including any stock option plan in respect of future stock grants) can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, Company or any of
its Plan Affiliates (other than ordinary administration expenses).
(c) Neither Company nor any Plan Affiliate has at any time ever
maintained, established, sponsored, participated in, or contributed to any
plan subject to Title IV of ERISA or Section 412 of the Code or to any
multiple employer plan, or to any plan described in Section 413 of the Code,
at no time has Company or any Plan Affiliate contributed to or been
obligated to contribute to any "multiemployer plan," as such term is defined
in ERISA. Neither Company, nor any of its Plan Affiliates, nor any officer
or director of Company or any of its Plan Affiliates is subject to any
liability, penalty or tax under Sections 4975 through 4980B of the Code or
Title I of ERISA. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and
11
<PAGE>
not otherwise exempt under Section 408 of ERISA (or any administrative class
exemption thereunder) or Section 4975 of the Code, has occurred with respect
to any Plan.
(d) Neither Company nor any Plan Affiliate has, prior to the Effective
Time and in any material respect, violated any of the health continuation
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), the requirements of the Family Medical Leave Act of
1993, as amended, the requirements of the Women's Health and Cancer Rights
Act, as amended, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, as amended, or any similar provisions of state law
applicable to Employees of the Company or any of its Plan Affiliates. None
of the Plans promises or provides retiree health benefits to any person
except as required by applicable law, and neither Company nor any of its
Plan Affiliates has represented, promised or contracted (whether in oral or
written form) to provide such retiree benefits to any employee, former
employee, director, consultant or other person, except to the extent
required by statute.
(e) Neither Company nor any of its subsidiaries is bound by or subject
to (and none of its respective assets or properties is bound by or subject
to) any arrangement with any labor union. No employee of Company or any of
its subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Company, no
campaign to establish such representation is in progress. There is no
pending or, to the knowledge of Company, threatened labor dispute involving
Company or any of its subsidiaries and any group of its employees nor has
Company or any of its subsidiaries experienced any labor interruptions over
the past three (3) years, and Company and its subsidiaries consider their
relationships with their employees to be good. The Company and its
subsidiaries are in compliance in all material respects with all applicable
material foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any shareholder, director or employee of
Company or any of its subsidiaries under any Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Plan, or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits. Without limiting the foregoing, no payment or benefit which
will or maybe made by the Company with respect to any person as a result of
the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
(g) Each employee compensation, incentive, fringe or benefit plans,
program, policy, commitment or other remuneration of any kind (whether or
not set forth in a written document) that has been adopted or maintained by
Company or any Plan Affiliate, whether informally or formally, or with
respect to which Company or any Plan Affiliate will or may have any
liability, for the benefit of Employees who perform services outside the
United States (each an "INTERNATIONAL EMPLOYEE PLAN") has been established,
maintained and administered in compliance with its terms and conditions and
with the requirements prescribed by any and all statutory or regulatory laws
that are applicable to such International Employee Plan. Furthermore, no
International Employee Plan has unfunded liabilities, that as of the
Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent Company or Parent
from terminating or amending any International Employee Plan at any time for
any reason without liability to Company or its Plan Affiliates (other than
ordinary administration expenses or routine claims for benefits).
2.12 LABOR MATTERS. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective employees
that would reasonably be expected, individually or in the aggregate, to have a
12
<PAGE>
Material Adverse Effect on Company; (ii) as of the date of this Agreement,
neither Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Company or its subsidiaries nor does Company or its subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees; and (iii) as of the date of this Agreement, neither Company nor any
of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of Company or any of its subsidiaries.
2.13 REGISTRATION STATEMENT/JOINT PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by Company for inclusion or incorporation
by reference in (i) the registration statement on Form S-4 to be filed with the
SEC by Parent in connection with the issuance of the Parent Common Stock in or
as a result of the Merger (the "S-4") will, at the time the S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading; and (ii) the joint proxy
statement/prospectus to be filed with the SEC by Company pursuant to
Section 5.1 hereof (the "JOINT PROXY STATEMENT/PROSPECTUS") will, at the dates
mailed to the shareholders of Company, at the times of the shareholders meeting
of Company (the "COMPANY SHAREHOLDERS' MEETING") in connection with the
transactions contemplated hereby, at the dates mailed to the stockholders of
Parent, at the times of the stockholders' meeting of Parent (the "PARENT
STOCKHOLDERS' MEETING") in connection with the Share Issuance and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries as currently
conducted.
2.15 TITLE TO PROPERTY. Neither Company nor any of its subsidiaries owns
any material real property. Company and each of its subsidiaries have good and
valid title to all of their material properties and assets, free and clear of
all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby; and all leases pursuant to which Company or any of
its subsidiaries lease from others material real or personal property are in
good standing, valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing material default or
event of default (or any event which with notice or lapse of time, or both,
would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.16 TAXES.
(a) For the purposes of this Agreement, "TAX" or "TAXES" refers to any
and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture,
13
<PAGE>
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts and any obligations under
any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(b) (i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements
and reports ("RETURNS") relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority, except Returns
which are not material to the Company. Such returns are true and correct in
all material respects and have been completed in accordance with applicable
law, and the Company and each of its subsidiaries have paid all Taxes shown
to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes
required to be withheld, except Taxes which are not material to the
Company.
(iii) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material
Tax deficiency outstanding, proposed or assessed against the Company or
any of its subsidiaries, nor has the Company or any of its subsidiaries
executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company or any
of its subsidiaries by any Tax authority is presently in progress, nor
has the Company or any of its subsidiaries been notified of any request
for such an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company or any
of its subsidiaries has been proposed in writing formally or informally
by any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved
on the Company balance sheet dated December 31, 1999 in accordance with
GAAP, whether asserted or unasserted, contingent or otherwise, which is
material to the Company, other than any liability for unpaid Taxes that
may have accrued since June 30, 1999 in connection with the operation of
the business of the Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
the Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which the Company or any
of its subsidiaries is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned
by the Company or any of its subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) None of the Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
14
<PAGE>
2.17 ENVIRONMENTAL MATTERS. Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under Environmental
Laws the absence of which would have a Material Adverse Effect on Company; and
(ii) is in compliance in all material respects with all material terms and
conditions of such required permits, licenses and authorizations, and also is in
compliance in all material respects with all other material limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. "ENVIRONMENTAL LAWS" means all Federal,
state, local and foreign laws and regulations relating to pollution of the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. "HAZARDOUS MATERIALS"
means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive
and biological materials, asbestos-containing materials, hazardous substances,
petroleum and petroleum products or any fraction thereof, excluding, however,
Hazardous Materials contained in products typically used for office and
janitorial purposes properly and safely maintained in accordance with
Environmental Laws.
2.18 BROKERS. Except for fees payable to Goldman Sachs & Co. pursuant to
an engagement letter dated March 21, 2000, a copy of which has been provided to
Parent, Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated hereby
2.19 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, or arising out of: (i) all United States and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof ("PATENTS");
(ii) all inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of
the foregoing; (iii) all copyrights, copyright registrations and
applications therefor and all other rights corresponding thereto throughout
the world; (iv) all semiconductor and semiconductor circuit designs;
(v) all rights to all mask works and reticles, mask work registrations and
applications therefor; (vi) all industrial designs and any registrations and
applications therefor throughout the world; (vii) all trade names, logos,
common law trademarks and service marks; trademark and service mark
registrations and applications therefor and all goodwill associated
therewith throughout the world; (viii) all databases and data collections
and all rights therein throughout the world; (ix) all computer software
including all source code, object code, firmware, development tools, files,
records and data, all media on which any of the foregoing is recorded, all
Web addresses, sites and domain names; (x) any similar, corresponding or
equivalent rights to any of the foregoing; and (xi) all documentation
related to any of the foregoing
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that is
owned by or exclusively licensed to the Company or any of its subsidiaries.
Without in any way limiting the generality of the foregoing, Company
Intellectual Property includes all Intellectual Property owned or licensed
by the Company related to the Company's products, including without
limitation all rights in any design code, documentation, and tooling for
packaging of semiconductors in connection with all current products and
products in design and development.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to
15
<PAGE>
trademarks; (iii) registered copyrights and applications for copyright
registration; (iv) any mask work registrations and applications to register
mask works; and (v) any other Company Intellectual Property that is the
subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or
other public legal authority
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
of its subsidiaries.
(a) Section 2.19(a) of the Company Schedule is a complete and accurate
list of all Company Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of Company Registered
Intellectual Property has been issued or registered and lists any
proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority
anywhere in the world) related to any of the Company Registered Intellectual
Property.
(b) Company has made available to Parent a complete and accurate price
list of all products and services currently offered by Company or any of its
subsidiaries ("COMPANY PRODUCTS").
(c) No Company Intellectual Property or Company Product is subject to
any proceeding or outstanding decree, order, judgment, contract, license,
agreement, or stipulation restricting in any manner the use, transfer, or
licensing thereof by Company or any of its subsidiaries, or which may affect
the validity, use or enforceability of such Company Intellectual Property or
Company Product, except for provisions contained in the documents granting
licenses as ownership to any portion of the Company Intellectual Property or
Company Product and in amendments thereto and provisions of licenses granted
to customers of Company.
(d) Each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal
fees currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Company Registered Intellectual
Property.
(e) Company owns and has good and exclusive title to, each material item
of Company Intellectual Property free and clear of any lien or encumbrance
(excluding non-exclusive licenses and related restrictions granted in the
ordinary course). Without limiting the foregoing: (i) Company is the
exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of Company and its subsidiaries,
including the sale, distribution or provision of any Company Products by
Company or its subsidiaries; (ii) Company owns exclusively, and has good
title to, all copyrighted works that are Company Products or which Company
or any of its subsidiaries otherwise purports to own; and (iii) to the
extent that any Patents would be infringed by any Company Products, Company
is the exclusive owner of such Patents.
(f) To the extent that any technology, software or material Intellectual
Property has been developed or created independently or jointly by a third
party for Company or any of its subsidiaries or is incorporated into any of
the Company Products, Company has a written agreement with such third party
with respect thereto and Company thereby either (i) has obtained ownership
of, and is the exclusive owner of, or (ii) has obtained a perpetual,
non-terminable license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so.
16
<PAGE>
(g) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is or was material Company Intellectual Property,
to any third party, or permitted Company's rights in such material Company
Intellectual Property to lapse or enter the public domain.
(h) Section 2.19(h) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its
subsidiaries is a party: (i) with respect to Company Intellectual Property
licensed or transferred to any third party (other than end-user licenses in
the ordinary course); or (ii) pursuant to which a third party has licensed
or transferred any material Intellectual Property to Company.
(i) All material contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a third
party licensed to Company or any of its subsidiaries, are in full force and
effect. The consummation of the transactions contemplated by this Agreement
will neither violate nor result in the breach, modification, cancellation,
termination or suspension of such contracts, licenses and agreements. Each
of Company and its subsidiaries is in material compliance with, and has not
materially breached any term of any such contracts, licenses and agreements
and, to the knowledge of Company, all other parties to such contracts,
licenses and agreements are in compliance with, and have not materially
breached any term of, such contracts, licenses and agreements. Following the
Closing Date, the Surviving Corporation will be permitted to exercise all of
Company's rights under such contracts, licenses and agreements to the same
extent Company and its subsidiaries would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Company would otherwise be required to pay.
Neither this Agreement nor the transactions contemplated by this Agreement,
including the assignment to Parent or Merger Sub by operation of law or
otherwise of any contracts or agreements to which the Company is a party,
will result in (i) either Parent's or the Merger Sub's granting to any third
party any right to or with respect to any material Intellectual Property
right owned by, or licensed to, either of them, (ii) either the Parent's or
the Merger Sub's being bound by, or subject to, any non-compete or other
material restriction on the operation or scope of their respective
businesses, or (iii) either the Parent's or the Merger Sub's being obligated
to pay any royalties or other material amounts to any third party in excess
of those payable by Parent or Merger Sub, respectively, prior to the
Closing.
(j) The operation of the business of the Company and its subsidiaries as
such business currently is conducted, including (i) Company's and its
subsidiaries' design, development, manufacture, distribution, reproduction,
marketing or sale of the products or services of Company and its
subsidiaries (including Company Products) and (ii) the Company's use of any
product, device or process, has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(k) Neither Company nor any of its subsidiaries has received notice from
any third party that the operation of the business of Company or any of its
subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction.
(l) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(m) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade secrets
or confidential information of third parties provided to Company or any of
its subsidiaries, and, without limiting the foregoing, each of Company and
its subsidiaries has and enforces a policy requiring each employee and
contractor to execute a proprietary information/ confidentiality agreement
substantially in the form provided to Parent and all current and former
17
<PAGE>
employees and contractors of Company and any of its subsidiaries have
executed such an agreement, except where the failure to do so is not
reasonably expected to be material to Company.
2.20 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or member of Company's Board of Directors, other than those that
are terminable by Company or any of its subsidiaries on no more than thirty
(30) days' notice without liability or financial obligation to the Company
(other than termination provisions provided by law);
(b) any agreement or plan for the benefit of any director, employee or
consultant, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of software products in the ordinary course of business or guaranty
of a subsidiary's obligation by Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than Company's
subsidiaries;
(f) any dealer, distributor, joint marketing or development agreement
(other than reseller agreements not material to Company's business)
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety
(90) days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole (other than
(i) licenses granted in the ordinary course of business to the Company's
customers to use (but not to copy, sublicense, market, or otherwise
distribute) source code that do not in any way impair Company's ownership
interests in such source code and (ii) agreements requiring the Company to
place source code in escrow for the benefit of a customer in the event of
the Company's default, bankruptcy, insolvency, or similar event);
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Company product, service or
technology, or any agreement, contract or commitment currently in force to
sell or distribute any Company products, service or technology except
agreements with distributors or sales representative in the normal course of
business cancelable without penalty upon notice of ninety (90) days or less
and substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit in excess of $250,000 individually
or $500,000 in the aggregate, other than between Company and its
subsidiaries
18
<PAGE>
and except as disclosed in the Company's balance sheet as of December 31,
1999 or in the related footnotes;
(j) any settlement agreement entered into within three (3) years prior
to the date of this Agreement that involves a continuing material obligation
of Company; or
(k) any other agreement that has an aggregate value of (or represents
future aggregate obligations in excess of) $2,000,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Company or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Company Schedule (any such agreement, contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate), the effect of which would not,
individually or in the aggregate have a Material Adverse Effect on Company.
2.21 INSURANCE. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.22 OPINION OF FINANCIAL ADVISOR. Company has been advised by its
financial advisor, Goldman Sachs & Co., that in its opinion, as of the date of
this Agreement, the Exchange Ratio is fair to the shareholders of Company from a
financial point of view. Company shall provide Parent a copy of the written
confirmation of such opinion, dated as of the date of this Agreement, promptly
after receipt thereof.
2.23 BOARD APPROVAL. The Board of Directors of Company has, as of the date
of this Agreement, unanimously (i) approved and declared advisable this
Agreement and has approved the Merger and the other transactions contemplated
hereby, (ii) determined that the Merger is consistent with and in furtherance of
the long-term business strategy of Company and fair to, and in the best
interests of, Company and its shareholders and (iii) determined to recommended
that the shareholders of Company adopt and approve this Agreement and approve
the Merger.
2.24 VOTE REQUIRED. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock are entitled to vote
with respect to the Merger is the only vote of the holders of any class or
series of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.25 STATE TAKEOVER STATUTES. The Board of Directors of the Company has
approved the Merger, the Merger Agreement, the Stock Option Agreement, the
Company Voting Agreements and the transactions contemplated hereby and thereby,
and such approval is sufficient to render inapplicable to the Merger, the Merger
Agreement, the Stock Option Agreement, the Company Voting Agreements and the
transactions contemplated hereby and thereby the provisions of Code
Section 14-2-1110 et seq. and 14-2-1131 et seq. of the Georgia Law to the
extent, if any, such section is applicable to the Merger, the Merger Agreement,
the Stock Option Agreement, the Company Voting Agreements and the transactions
contemplated hereby and thereby. To Company's knowledge, no other state takeover
statute or similar statute or regulation applies to or purports to apply to the
Merger, the Merger Agreement, the Stock Option Agreement, the Company Voting
Agreements or the transactions contemplated hereby and thereby.
19
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure schedules dated as of the date hereof delivered by Parent to
Company (the "PARENT SCHEDULE"), as follows. The Parent Schedule shall be
arranged in sections corresponding to the numbered sections contained in this
Article and the disclosure in any paragraph shall qualify other sections in this
Article only to the extent it is reasonably apparent from a reading of such
disclosure that it also qualifies such other sections.
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws as amended to date (together, the "PARENT CHARTER
DOCUMENTS"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 200,000,000 shares of Parent Common Stock, and (ii) 5,000,000 shares of
Preferred Stock, $0.001 par value per share ("PARENT PREFERRED STOCK"). At the
close of business on March 31, 2000, (i) 109,228,419 shares of Parent Common
Stock were issued and outstanding, (ii) 157,472 shares of Parent Common Stock
were held in treasury by Parent or by subsidiaries of Parent, (iii) 609,764
shares of Parent Common Stock were reserved for future issuance pursuant to
Parent's employee stock purchase plan, and (iv) 19,853,100 shares of Parent
Common Stock were reserved for issuance upon the exercise of outstanding options
to purchase Parent Common Stock. As of the date hereof, no shares of Parent
Preferred Stock were issued or outstanding. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $0.001 per share,
all of which, as of the date hereof, are issued and outstanding.
3.4 PARENT COMMON STOCK. The Parent Common Stock to be issued pursuant to
the Merger has been duly authorized and will, when issued in accordance with
this Agreement be validly issued, fully paid, and unassessable and will not be
subject to any restrictions on resale under the Securities Act, other than
restrictions imposed by Rule 145 under the Securities Act.
3.5 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the
20
<PAGE>
part of Parent and Merger Sub, and no other corporate proceedings on the part of
Parent or Merger Sub are necessary to authorize this Agreement and the Stock
Option Agreement, or to consummate the transactions so contemplated, subject
only to the approval of the Share Issuance by Parent's stockholders and the
filing of the Certificate of Merger pursuant to Georgia Law and the Delaware
Certificate of Merger pursuant to Delaware Law. This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitute legal and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with their respective
terms.
3.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC on or after April 1, 1999 (the "PARENT SEC
REPORTS"), which are all the forms, reports and documents required to be
filed by Parent with the SEC since April 1, 1999. The Parent SEC Reports
(A) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and (B) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of Parent's subsidiaries is required to file any reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited statements, do not contain footnotes as permitted by
Form 10-Q of the Exchange Act) and each fairly presents the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are
not expected to be material in amount.
(c) Parent has previously furnished to Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.7 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent, or otherwise), which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole, except
(i) liabilities provided for in Company's balance sheet as of December 31, 1999;
(ii) liabilities provided for in the balance sheet as of October 31, 1999 of
Telco Research Corporation Limited ("TELCO"), a copy of which has been made
available to Company; (iii) liabilities of Barnhill Management Group, a Nevada
corporation acquired by Parent in March 2000 ("BARNHILL"), which liabilities are
not material to Parent and its subsidiaries, taken as a whole; and
(iv) liabilities incurred since December 31, 1999 by Parent and its subsidiaries
(including Telco and Barnhill) and liabilities incurred by Telco between
October 31, 1999 and December 31, 2000. None of the liabilities described in the
foregoing sections (i), (ii), (iii), or (iv) could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on Parent.
3.8 COMPLIANCE; PERMITS.
(a) Neither Parent nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment
or decree applicable to Parent or any of its subsidiaries or by which its or
any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or
21
<PAGE>
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any conflicts, defaults or
violations that (individually or in the aggregate) would not cause the
Parent to lose any material benefit or incur any material liability. No
investigation or review by any governmental or regulatory body or authority
is pending or, to the knowledge of Parent, threatened against Parent or its
subsidiaries, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each such case,
those the outcome of which could not, individually or in the aggregate,
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Parent or any of its subsidiaries, any
acquisition of material property by Parent or any of its subsidiaries or the
conduct of business by Parent or any of its subsidiaries.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities, the absence
of which could not reasonably be expected to have a Material Adverse Effect
on Parent (collectively, the "PARENT PERMITS"). Parent and its subsidiaries
are in compliance in all material respects with the terms of the Parent
Permits.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999, there
has not been: (i) any Material Adverse Effect on Parent, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's or any of its
subsidiaries' capital stock (other than a two-for-one stock split in the form of
a dividend effected in February 2000), or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Parent's or any of its subsidiaries' capital
stock, (iv) any material change by Parent in its accounting methods, principles
or practices, except as required by concurrent changes in GAAP, or (v) any
material revaluation by Parent of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off notes
or accounts receivable or any sale of assets of the Parent other than in the
ordinary course of business.
3.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Parent, threatened (or, to the
knowledge of Parent, any governmental or regulatory investigation pending or
threatened) against Parent or any of it subsidiaries or any properties or rights
of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which, if decided adversely to Parent, could reasonably be expected to
have a Material Adverse Effect on Parent.
3.11 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in (i) the S-4 will, at the time the S-4 becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading; and (ii) the Joint Proxy Statement/ Prospectus will, at
the dates mailed to the shareholders of Company and of Parent, at the time of
the Company Shareholders' Meeting, the time of the Parent Shareholders' Meeting
and as of the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated by the SEC thereunder. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.
22
<PAGE>
3.12 BROKERS. Except for fees payable to Deutsche Bank Securities, Inc.,
Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.13 OPINION OF FINANCIAL ADVISOR. Parent's Board of Directors has
received an opinion from Deutsche Bank Securities, Inc., dated as of the date
hereof, to the effect that as of the date hereof, the Exchange Ratio is fair to
Parent from a financial point of view.
3.14 BOARD APPROVAL. The Board of Directors of Parent has, as of the date
of this Agreement, unanimously (i) has determined that the Merger is consistent
with and in furtherance of the long-term business strategy of Parent and is fair
to, and in the best interests of, Parent and its stockholders; (ii) has approved
this Agreement, the Merger and the other transactions contemplated by this
Agreement; and (iii) has determined to recommend that the stockholders of Parent
approve the Share Issuance.
3.15 VOTE REQUIRED. The affirmative vote of a majority of the shares of
Parent Common Stock that cast votes regarding the Share Issuance in person or by
proxy at the Parent Stockholders' Meeting is the only vote of the holders of any
class or series of Parent's capital stock necessary to approve this Agreement
and the transactions contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the usual, regular and ordinary course and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due and pay or perform other material obligations when due, subject to good
faith disputes over such debts, taxes, and obligations, and use its commercially
reasonable efforts, consistent with past practices (except as set forth in
Schedule 4.1), and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings, except in each case as set forth in Section 4.1 of the Company
Schedule.
In addition, except as expressly permitted by the terms of this Agreement
and, except in each case as set forth in Section 4.1 of the Company Schedule,
without the prior written consent of Parent, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans except pursuant to plans and agreements existing as of the date
hereof the relevant terms of which are described in the Company Schedule;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights, other
than in the ordinary course of business consistent with past practices,
provided
23
<PAGE>
that in no event shall Company license to any person or entity on an
exclusive basis or sell any Company Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance delivery
and/or sale of (i) shares of Company Common Stock pursuant to the exercise
of stock options outstanding as of the date of this Agreement or granted
pursuant to clause (y) hereof, and (ii) shares of Company Common Stock
issuable to participants in the ESPP consistent with the terms thereof and
(y) the granting of non-discretionary stock options to non-employee
directors under the Director Plan in an amount not to exceed options to
purchase 135,000 shares in the aggregate;
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets or enter into any joint ventures, strategic
partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory or non-exclusive licenses of
Company intellectual property in the ordinary course of business consistent
with past practice and, except for the sale, lease or disposition (other
than through licensing) of property or assets which are not material,
individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or arrangement, any
employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer
letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors,
officers, employees or consultants;
(l) (i) Pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the
24
<PAGE>
date of this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, or liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) of Company included in the Company SEC Reports or incurred since
the date of such financial statements, or (ii) waive the benefits of, agree
to modify in any manner, terminate, release any person from or fail to
enforce any confidentiality or similar agreement to which Company or any of
its subsidiaries is a party or of which Company or any of its subsidiaries
is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business (other than payments to financial, legal,
accounting or other professional service advisors not in excess of the
estimates thereof set forth in Section 4.1 of the Company Schedule);
(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(o) Enter into or materially modify any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by
third parties of Company's products or products licensed by Company on an
exclusive basis;
(p) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment outside of
the ordinary course of business calling for payments by Company in excess of
$350,000 individually;
(r) Engage in any action that could cause the Merger to fail to qualify
as a "reorganization" under Section 368(a) of the Code, whether or not
otherwise permitted by the provisions of this Article IV;
(s) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(t) Make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or any of its subsidiaries or settle
or compromise any material income tax liability; or
(u) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (t) above.
4.2 CONDUCT OF BUSINESS BY PARENT. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Declare, set aside, or pay any dividends or make any other
distributions (whether in cash, stock, equity securities or property) in
respect to Parent's capital stock, except where (i) an adjustment is made to
the Exchange Ratio in accordance with Section 1.6(e) or (ii) the holders of
Company Common Stock will otherwise receive an equivalent, proportional
dividend or distribution (based on the Exchange Ratio, as adjusted pursuant
to Section 1.6(e)) in connection with the Merger as if they had been holders
of Parent Common Stock on the record date for such dividend or distribution;
(b) Purchase, redeem, or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries in any amounts that
would adversely affect Parent's financial condition or liquidity;
25
<PAGE>
(c) Effect any amendment to the Company's Certificate of Incorporation
that would have an adverse effect on the rights of holders of Parent's
Common Stock (including the Parent Common Stock to be issued pursuant to
this Agreement);
(d) Engage in any action that could cause the Merger to fail to qualify
as a "reorganization" under Section 368(a) of the Code, whether or not
otherwise permitted by the provisions of this Article IV;
(e) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(f) Following the filing of the S-4, acquire or agree to acquire any
business or any corporation, partnership, association or other business
organization or division if such acquisition or agreement would require the
inclusion in the S-4 of proforma financial information regarding such
acquisition; or
(g) Agree in writing or otherwise to take any of the actions described
in Section 4.1(a) through (f) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and shall file with the SEC a
document or documents that will constitute (i) the S-4 and (ii) the Joint
Proxy Statement/Prospectus. Each of the parties hereto shall use
commercially reasonable efforts to cause the S-4 to become effective as
promptly as practicable after the date hereof, and, prior to the effective
date of the S-4, the parties hereto shall take all action required under any
applicable Laws in connection with the issuance of shares of Parent Common
Stock pursuant to the Merger. Parent or Company, as the case may be, shall
furnish all information concerning Parent or Company as the other party may
reasonably request in connection with such actions and the preparation of
the S-4 and the Joint Proxy Statement/Prospectus. As promptly as practicable
after the effective date of the S-4, the Joint Proxy Statement/Prospectus
shall be mailed to the shareholders of Company and of Parent. Each of the
parties hereto shall cause the Joint Proxy Statement/Prospectus to comply as
to form and substances to such party in all material respects with the
applicable requirements of (i) the Exchange Act, (ii) the Securities Act,
(iii) the rules and regulations of the Nasdaq.
(b) The Joint Proxy Statement/Prospectus shall include the approval of
this Agreement and the Merger and the recommendation of the Board of
Directors of Company to Company's shareholders that they vote in favor of
approval of this Agreement and the Merger, subject to the right of the Board
of Directors of the Company to withdraw its recommendation and to recommend
a Superior Proposal determined to be such in compliance with Section 5.4 of
this Agreement; PROVIDED, HOWEVER, that the Board of Directors of Company
shall submit this Agreement to Company's shareholders whether or not at any
time subsequent to the date hereof such board determines that it can no
longer make such recommendation. The Joint Proxy Statement/Prospectus shall
also include the approval of the Share Issuance and the recommendation of
the Board of Directors of Parent to Parent's stockholders that they vote in
favor of approval of the Share Issuance.
(c) No amendment or supplement to the Joint Proxy Statement/Prospectus
or the S-4 shall be made without the approval of Parent and Company, which
approval shall not be unreasonably withheld or delayed. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the S-4 has become effective or any
supplement or amendment has been filed, of the issuance of any stop order,
of the suspension of the qualification of
26
<PAGE>
the Parent Common Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or of any request by the SEC for amendment of
the Joint Proxy Statement/Prospectus or the S-4 or comments thereon and
responses thereto or requests by the SEC for additional information.
5.2 SHAREHOLDER AND STOCKHOLDER MEETINGS. Company shall call and hold the
Company Shareholders' Meeting and Parent shall call and hold the Parent
Stockholders' Meeting as promptly as practicable after the date hereof for the
purpose of voting upon the adoption and approval of this Agreement and the
approval of the Merger (in the case of the Company Shareholders' Meeting) and
the Share Issuance (in the case of the Parent Stockholders' Meeting) pursuant to
the Joint Proxy Statement/Prospectus, and Company and Parent shall use all
reasonable efforts to hold the Parent Stockholders' Meeting and the Company
Shareholders' Meeting on the same day and as soon as practicable after the date
on which the S-4 becomes effective. Nothing herein shall prevent Company or
Parent from adjourning or postponing the Company Shareholders' Meeting or the
Parent Stockholders' Meeting, as the case may be, if there are insufficient
shares of Company Common Stock or Parent Common Stock, as the case may be,
necessary to conduct business at their respective meetings of the shareholders
or stockholders. The Board of Directors of Company shall submit this Agreement
and the Merger for shareholder approval pursuant to Section 14-2-1103(c) of
Georgia Law subject only to the condition of shareholder approval as described
in Section 2.24. Unless Company's Board of Directors has withdrawn its
recommendation of this Agreement and the Merger in compliance with Section 5.4,
Company shall use commercially reasonable efforts to solicit from its
shareholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger pursuant to the Joint Proxy Statement/Prospectus and
shall take all other commercially reasonable action necessary or advisable to
secure the vote or consent of shareholders required by Georgia Law or applicable
stock exchange requirements to obtain such approval. Parent shall use
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the Share Issuance pursuant to the Joint Proxy Statement/Prospectus and
shall take all other commercially reasonable action necessary or advisable to
secure the vote or consent of stockholders required by the Delaware Law or
applicable stock exchange requirements to obtain such approval. Company shall
call and hold the Company Shareholders' Meeting for the purpose of voting upon
the adoption and approval of this Agreement and the approval of the Merger
whether or not Company's Board of Directors at any time subsequent to the date
hereof determines that this Agreement is no longer advisable or recommends that
Company's shareholders reject it.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have previously
executed a Confidentiality Agreement, dated as of March 1, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue
in full force and effect in accordance with its terms.
(b) Each of the Company and Parent will afford the other and the other's
accountants, counsel and other representatives reasonable access to its
properties, books, records and personnel during the period prior to the
Effective Time to obtain all information concerning its business as such
other party may reasonably request. No information or knowledge obtained in
any investigation pursuant to this Section 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as defined
below), (ii) participate in any discussions or negotiations regarding, or
furnish to any
27
<PAGE>
person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or
would reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any Acquisition
Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or
(v) enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction (as defined below); PROVIDED, HOWEVER, that nothing
contained in this Section 5.4 shall prohibit the Board of Directors of
Company from (i) complying with Rule 14d-9 or 14e-2(a) promulgated under the
Exchange Act with regard to a tender or exchange offer or (ii) in response
to an unsolicited, bona fide written Acquisition Proposal that Company's
Board of Directors reasonably concludes constitutes a Superior Offer (as
defined below), engaging in discussions or participating in negotiations
with and furnishing information to the party making such Acquisition
Proposal to the extent (A) the Board of Directors of the Company determines
in good faith after consultation with its outside legal counsel that failure
to take such action would be inconsistent with its fiduciary obligations
under applicable law, (B) (x) at least two business days prior to furnishing
any such nonpublic information to, or entering into discussions or
negotiations with, such party, Company gives Parent written notice of
Company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such party and (y) Company receives from
such party an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such party by or on behalf of Company, and
(C) contemporaneously with furnishing any such nonpublic information to such
party, Company furnishes such nonpublic information to Parent (to the extent
such nonpublic information has not been previously furnished by the Company
to Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth
in this Section 5.4 by any officer, director or employee of Company or any
of its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4 by Company.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 15% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the Company
pursuant to which the shareholders of the Company immediately preceding such
transaction hold less than [85]% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
assets of the Company; or (C) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company; and (C) "SUPERIOR
PROPOSAL" shall mean an Acquisition Proposal with respect to which (x) if any
cash consideration is involved, shall not be subject to any financing
contingency (or, after consultation with Company's financial advisors, the Board
of Directors shall have determined in good faith that such financing is
reasonably likely to be obtained by such acquiring party on a timely basis), and
with respect to which Company's Board of Directors shall have determined in good
faith (after consultation with Company's financial advisors) that the acquiring
party is capable of consummating the proposed Acquisition Transaction on the
terms proposed, and (y) Company's Board of Directors shall have
28
<PAGE>
determined in good faith that the proposed Acquisition Transaction provides
greater value to the shareholders of Company than the Merger (taking into
account the advice of Company's independent financial advisors).
(b) In addition to the obligations of Company set forth in paragraph
(a) of this Section 5.4, Company as promptly as practicable, and in any
event within 24 hours, shall advise Parent orally and in writing of any
request for information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with
respect to or which Company reasonably believes would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Acquisition Proposal or inquiry. Company will keep
Parent informed in all material respects of the status and terms (including
material amendments or proposed amendments) of any such request, Acquisition
Proposal or inquiry. In addition to the foregoing, Company shall
(i) provide Parent with at least 48 hours prior notice (or such lesser prior
notice as provided to the members of Company's Board of Directors but in no
event less than eight hours) of any meeting of Company's Board of Directors
at which Company's Board of Directors is reasonably expected to consider an
Acquisition Proposal and (ii) provide Parent with at least 48 hours prior
written notice (or such lesser prior notice as provided to the members of
the Company's Board of Directors but in no event less than eight hours) of a
meeting of Company's Board of Directors at which Company's Board of
Directors is reasonably expected to recommend a Superior Offer to its
shareholders and together with such notice a copy of the definitive
documentation relating to such Superior Offer.
5.5 PUBLIC DISCLOSURE. Parent and Company will consult with each other and
agree before issuing any press release or otherwise making any public statement
with respect to the Merger, this Agreement or an Acquisition Proposal and will
not issue any such press release or make any such public statement prior to such
agreement, except as may be required by law or any listing agreement with a
national securities exchange, in which case reasonable efforts to consult with
the other party will be made prior to any such release or public statement. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement (including the provisions of Section 5.4), each of the parties
agrees to use commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using commercially reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed and (v) the execution or delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry
out the purposes of, this Agreement. In connection with and without limiting
the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable
to the Merger, this Agreement or any of the transactions contemplated by
this Agreement, use commercially reasonable efforts to ensure that the
Merger and
29
<PAGE>
the other transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the
Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement
shall be deemed to require Parent or Company or any subsidiary or affiliate
thereof to agree to any divestiture by itself or any of its affiliates of
shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to
conduc their business or to own or exercise control of such assets,
properties and stock.
(b) Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3(a) or 6.3(b) would not be satisfied; PROVIDED,
HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Parent or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 STOCK OPTIONS AND EMPLOYEE BENEFITS; WARRANTS.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock (each, a "COMPANY STOCK OPTION") under the Company
Option Plans, whether or not vested, shall by virtue of the Merger be
assumed by Parent. Each Company Stock Option and Warrant so assumed by
Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions of such options or Warrant immediately prior to
the Effective Time (including, without limitation, any repurchase rights or
vesting provisions of outstanding options), except that (i) each Company
Stock Option and Warrant will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock
that were issuable upon exercise of such Company Stock Option and Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Stock Option and Warrant will
be equal to the quotient determined by dividing the exercise price per share
of Company Common Stock at which such Company Stock Option and each
outstanding Warrant was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded up to the nearest whole cent.
30
<PAGE>
(b) ESPP. Prior to the Effective Time, outstanding purchase rights
under Company's ESPP shall be exercised in accordance with Sections 14 and
16 of the ESPP and each share of Company Common Stock purchased pursuant to
such exercise shall by virtue of the Merger, and without any action on the
part of the holder thereof, be converted into the right to receive a number
of shares of Parent Common Stock equal to the Exchange Ratio without
issuance of certificates representing issued and outstanding shares of
Company Common Stock to ESPP participants. Company agrees that it shall
terminate the ESPP immediately following the aforesaid purchase of shares of
Company Common Stock thereunder.
(c) 401(k) PLANS. Company and its Plan Affiliates, as applicable,
shall each terminate (i) any and all group severance, separation or salary
continuation plans, programs, or arrangements and (ii) any and all 401(k)
plans, effective as of the day immediately preceding the Closing Date.
Parent shall receive from Company evidence that Company's and each Plan
Affiliate's, as applicable, program(s) have been terminated pursuant to
resolutions of each such entity's Board of Directors (the form and substance
of such resolutions shall be subject to review and approval of Parent),
effective as of the day immediately preceding the Effective Time.
(d) SERVICE CREDIT. To the extent permitted by Parent's employee
benefit plan and applicable law, Parent will use reasonable efforts, or will
cause Company to use reasonable efforts, give individuals who are employed
by Company and its subsidiaries as of the Effective Time ("AFFECTED
EMPLOYEES") full credit for purposes of eligibility, vesting, benefit
accrual (excluding, however, benefit accrual under any defined benefit
pension plans) and determination of the level of benefits under any employee
benefit plans or arrangements maintained by Parent or any subsidiary of
Parent for such Affected Employees' service with Company or any subsidiary
of the Company to the same extent recognized by Company immediately prior to
the Effective Time. To the extent permitted by Parent's employee benefit
plans and applicable law, Parent will, or will cause Company to (i) waive
all limitations as to preexisting conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Affected Employees under any welfare benefit plans that such employees may
be eligible to participate in after the Effective Time, other than
limitations or waiting periods that are already in effect with respect to
such employees and that have not been satisfied as of the Effective Time
under any welfare plan maintained for the Affected Employees immediately
prior to the Effective Time, and (ii) provide each Affected Employee with
credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under
any welfare plans that such employees are eligible to participate in after
the Effective Time.
5.9 FORM S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Stock Options as soon as is reasonably practicable (and in any event within
twenty business days) after the Effective Time.
5.10 INDEMNIFICATION.
(a) From and after the Effective Time, Parent will, and will cause the
Surviving Corporation to, fulfill and honor in all respects the obligations
of Company pursuant to any indemnification agreements between Company and
its directors and officers in effect immediately prior to the Effective Time
and any indemnification provisions under the Company Charter Documents as in
effect on the date hereof. The Certificate of Incorporation and Bylaws of
the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
indemnified parties thereunder (the "INDEMNIFIED PARTIES") as those
contained in the Company Charter Documents as in effect on the date hereof,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of the Indemnified Parties, unless
such modification is required by law.
31
<PAGE>
(b) For a period of six years after the Effective Time, Parent will, and
will cause the Surviving Corporation to, use its commercially reasonable
efforts to maintain in effect directors' and officers' liability insurance
covering those persons or classes of persons who are currently covered by
Company's directors' and officers' liability insurance policy with coverage
in an amount and scope at least as favorable as that applicable to the
current directors and officers of Company; PROVIDED, HOWEVER, that in no
event will Parent or the Surviving Corporation be required to expend an
annual premium for such coverage in excess of 150% of the annual premium
most recently paid by Company (the "PREMIUM CAP"); PROVIDED, FURTHER, that
if the annual premium for such coverage would at any time exceed the Premium
Cap, then the Surviving Corporation shall maintain insurance policies that
provide the maximum coverage available at an annual premium equal to the
Premium Cap.
(c) The provisions of this Section 5.10 are intended to be in addition
to the rights otherwise available to the Indemnified Parties by law,
charter, statute, bylaw or agreement, and shall operate for the benefit of,
and shall be enforceable by, each of the Indemnified Parties.
5.11 NASDAQ LISTING. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.12 AFFILIATES. Set forth in Section 5.12 of the Company Schedule is a
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "COMPANY AFFILIATE"). Company will provide Parent with
such information and documents as Parent reasonably requests for purposes of
reviewing such list. Company will use its commercially reasonable efforts to
deliver or cause to be delivered to Parent, as promptly as practicable on or
following the date hereof, from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as EXHIBIT C (the "COMPANY
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. Parent will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Agreement.
5.13 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Company and Parent each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; PROVIDED,
HOWEVER, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.14 PARENT BOARD OF DIRECTORS. The Board of Directors of Parent will take
all actions necessary such that two members of Company's Board of Directors
reasonably acceptable to Parent, at least one of whom is an independent director
of the Company's Board of Directors, shall be appointed to Parent's Board of
Directors as of the Effective Time with a term expiring at the next annual
meeting of Parent's stockholders.
5.15 SHAREHOLDER LITIGATION. Until the earlier of termination of this
Agreement in accordance with its terms or the Effective Time, Company shall give
Parent the opportunity to participate in the defense or settlement of any
shareholder litigation against Company or members of its Board of Directors
relating to
32
<PAGE>
this Agreement and the transactions contemplated hereby or otherwise, and shall
not settle any such litigation without Parent' prior written consent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) SHAREHOLDER AND STOCKHOLDER APPROVALS. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable law, by the shareholders of Company. The
Share Issuance shall have been approved by the requisite vote under
applicable Nasdaq rules by the stockholders of Parent.
(b) REGISTRATION STATEMENT EFFECTIVE; JOINT PROXY STATEMENT. The SEC
shall have declared the S-4 effective. No stop order suspending the
effectiveness of the S-4 or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Joint Proxy Statement/Prospectus, shall be pending or shall then be
threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) TAX OPINIONS. Parent and Company shall each have received written
opinions from their respective tax counsel, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn; PROVIDED, HOWEVER, that if the
counsel to either Parent or Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such
party if counsel to the other party renders such opinion to such party. The
parties to this Agreement agree to make such reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct on and as of the Closing Date with the
same force and effect as if made on the Closing Date except, in the case of
each of clauses (i) and (ii), (A) for such failures to be true and correct
that do not in the aggregate constitute a Material Adverse Effect on Parent
and Merger Sub, and (B) for those representations and warranties which
address matters only as of a particular date (which representations shall
have been true and correct (subject to the qualifications set forth in the
preceding clause (A)) as of such particular date) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Parent Schedule made or purported to have been made
after the date of this
33
<PAGE>
Agreement shall be disregarded). Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
in all material respects as of the date of this Agreement and (ii) shall be
true and correct on and as of the Closing Date with the same force and
effect as if made on and as of the Closing Date except, in the case of each
of clauses (i) and (ii), (A) for such failures to be true and correct that
do not in the aggregate constitute a Material Adverse Effect on the Company
PROVIDED, HOWEVER, such Material Adverse Effect qualifier shall be
inapplicable with respect to representations and warranties contained in
Section 2.3(a), 2.3(e), 2.23, and 2.24, which shall be true and correct in
all material respects, and (B) for those representations and warranties
which address matters only as of a particular date (which representations
shall have been true and correct (subject to the qualifications set forth in
the preceding clause (A)) as of such particular date) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Company Schedule made or purported to have been made
after the date of this Agreement shall be disregarded). Parent shall have
received a certificate with respect to the foregoing signed on behalf of
Company by an authorized officer of Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
(c) CONSENTS. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Schedule 6.3(c).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
shareholders of Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent, by written notice to the other, if the
Merger shall not have been consummated by October 31, 2000 for any reason;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach
of this Agreement;
34
<PAGE>
(c) by either Company or Parent, by written notice to the other, if a
Governmental Entity shall have issued an order, decree or ruling or taken
any other action that has the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger and is final and nonappealable;
(d) by either Company or Parent, by written notice to the other, if
(i) the required approval of the shareholders of Company contemplated by the
first sentence of Section 6.1(a) of this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of Company shareholders duly convened therefor or at any adjournment or
postponement therefor or (ii) the required approval by the stockholders of
Parent of the Share Issuance required under applicable Nasdaq rules shall
not have been obtained by reason of the failure to obtain the required vote
at a meeting of Parent stockholders duly convened therefor or at any
adjournment or postponement thereof;
(e) by Company, by written notice to Parent, upon a breach of any
representation, warranty, covenant or agreement on the part of Parent set
forth in this Agreement, or if any representation or warranty of Parent
shall have become untrue, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, PROVIDED, that if such inaccuracy in Parent's representations
and warranties or breach by Parent is curable by Parent, then Company may
not terminate this Agreement under this Section 7.1(e) for thirty (30) days
after delivery of written notice from Company to Parent of such breach,
provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Company may not terminate this
Agreement pursuant to this paragraph (e) if such breach by Parent is cured
during such thirty (30)-day period);
(f) by Parent, by written notice to Company, upon a breach of any
representation, warranty, covenant or agreement on the part of Company set
forth in this Agreement, or if any representation or warranty of Company
shall have become untrue, in either case such that the conditions set forth
in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, PROVIDED, that if such inaccuracy in Company's
representations and warranties or breach by Company is curable by Company,
then Parent may not terminate this Agreement under this Section 7.1(f) for
thirty (30) days after delivery of written notice from Parent to Company of
such breach, provided Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Parent may not
terminate this Agreement pursuant to this paragraph (f) such breach by
Company is cured during such thirty (30)-day period); or
(g) by Parent, by written notice to Company, if (i) the Board of
Directors of Company withdraws, modifies or changes its recommendation of
this Agreement or the Merger in a manner adverse to Parent or its
stockholders, (ii) the Board of Directors of Company shall have recommended
to the shareholders of Company an Acquisition Proposal, (iii) the Company
fails to comply with Section 5.4, (iv) a bona fide Acquisition Proposal
shall have been publicly announced or otherwise become publicly known and
the Board of Directors of Company shall have (A) failed to recommend against
acceptance of such by its shareholders (including by taking no position, or
indicating its inability to take a position, with respect to the acceptance
by its shareholders of an Acquisition Proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and recommendation
of this Agreement and the transactions contemplated hereby within ten
business days thereafter, or (v) the Board of Directors of Company resolves
to take any of the actions described above.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto
(or such later time as may be required by Section 7.1). In the event of the
35
<PAGE>
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 7.2,
Section 5.3(a), Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and
Company shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses, incurred in relation to the printing and
filing of the Joint Proxy Statement/Prospectus (including any preliminary
materials related thereto) and the S-4 (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) TERMINATION FEE.
(i) In the event that (A) Parent shall terminate this Agreement
pursuant to Section 7.1(g), or (B) this Agreement shall be terminated (x)
pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and, in
the case of clause (B)(x) or clause (B)(y), (1) prior to such
termination, a bona fide Acquisition Proposal shall have been announced
or shall otherwise have become publicly known and (2) within 12 months
after such termination, Company shall enter into a definitive agreement
providing for any Company Acquisition or any Company Acquisition shall be
consummated, then, in the case of clause (A) or (B), respectively,
Company shall pay to Parent cash and issue to Parent shares of Company
Common Stock, in such combination as Company may elect (provided that the
cash component must be at least $20 million) with an aggregate value
(such shares of Company Common Stock to be valued at $24.125 per share
for all purposes of this Section 7.3(b)(i)) of $50 million (the
"TERMINATION FEE"). In the event this Agreement shall be terminated as
set forth in clause (A), the Termination Fee shall be payable in two
installments of equal value, the first of which shall be paid
contemporaneously with the termination of this Agreement pursuant to
Section 7.1(g), and the second of which shall be due and payable on the
30th day after such termination. In the event this Agreement shall be
terminated as set forth in clause (B), the Termination Fee shall be
payable in two installments of equal value, the first of which shall be
paid contemporaneously with the execution of a definitive agreement
providing for the Company Acquisition, and the second of which shall be
due and payable on the earlier to occur of (i) the consummation of such
Company Acquisition and (ii) the 90th days after the date of execution of
the definitive agreement relating to such Company Acquisition. If Company
satisfies its obligation to pay the Termination Fee in part by delivering
to Parent shares of Company Common Stock (the "TERMINATION FEE SHARES"),
then Parent shall be entitled to registration rights with respect to such
shares as described in the Option Agreement (treating the Termination Fee
Shares for all purposes of Section 7 of the Option Agreement as if they
were Option Shares (as defined in the Option Agreement)).
(ii) The Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not
enter into this Agreement; accordingly, if the Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in
order to obtain such payment, Parent makes a claim that results in a
judgment against the Company for the amounts set forth in this
Section 7.3(b), the Company shall pay to Parent its actual out-of-pocket
costs and expenses (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set
forth in this Section 7.3(b) at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made. Payment of the
fees
36
<PAGE>
described in this Section 7.3(b) shall not be in lieu of damages incurred
in the event of fraud in connection with or willful breach of this
Agreement.
(iii) In the event that Parent shall terminate this Agreement pursuant
to Section 7.1(f), then Company shall promptly reimburse Parent for
Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(iv) For the purposes of this Agreement, "COMPANY ACQUISITION" shall
mean any of the following transactions (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the shareholders of
the Company immediately preceding such transaction hold less than 60% of
the aggregate equity interests in the surviving or resulting entity of
such transaction, (ii) a sale or other disposition by the Company of
assets representing in excess of 40% of the aggregate fair market value
of the Company's business immediately prior to such sale or (iii) the
acquisition by any person or "group" (as defined under Section 13(d) of
the Exchange Act) (including by way of a tender offer or an exchange
offer or issuance by the Company), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares
representing in excess of 40% of the voting power of the then outstanding
shares of capital stock of the Company.
(v) For purposes only of this Section 7.3(b), each reference to "15%"
in the definition of Acquisition Transaction set forth in Section
5.4(a) shall be deemed to be "40%," and the reference to "85%" in such
definition shall be deemed to be "60%."
(vi) In the event that Company shall terminate this Agreement
pursuant to Section 7.1(e), then Parent shall promptly reimburse Company
for Company's costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and Company.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: Richard Nelson
Eric Deller
Telecopy No.: (858) 794-5057
37
<PAGE>
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Douglas H. Collom
Telecopy No.: (650) 493-6811
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort
Telecopy No.: (415) 947-2099
(b) if to Company, to:
Harbinger Corporation
1277 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: James Travers
Loren B. Wimpfheimer
Telecopy No.: (404) 848-2864
and (404) 467-3476
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Telecopy No.: (650) 496-2885 and (650) 496-2777
and
Morris Manning & Martin LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, Georgia 30326
Attention: John C. Yates
Telecopy No.: (404) 365-9532
8.3 INTERPRETATION; DEFINITIONS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
38
<PAGE>
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party hereto, with
respect to any matter in question, knowledge of the executive officers of
such party after reasonable inquiry;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection with
an entity means any change, event, violation, inaccuracy, circumstance or
effect, individually or when aggregated with other such changes, events,
violations, inaccuracies, circumstances or effects, that is materially
adverse to the business, assets, liabilities, financial condition or
results of operations of such entity and its subsidiaries taken as a
whole; PROVIDED, HOWEVER, in no event shall either of the following,
alone or in combination, be deemed to constitute, nor shall either of the
following be taken into account in determining whether there has been or
will be a Material Adverse Effect on any entity: (A) any change in such
entity's stock price or trading volume or the failure to meet or exceed
Wall Street research analysts' or such entity's internal earnings or
other estimates or projections in and of itself constitute a Material
Adverse Effect or (B) any change, event, violation, inaccuracy,
circumstance or effect that such entity successfully bears the burden of
proving results from (x) changes affecting the industry in which such
entity operates generally (which changes do not disproportionately affect
such entity), (y) changes affecting the United States economy generally
or (z) the public announcement or pendency of the transactions
contemplated hereby;
(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization, entity or
Governmental Entity; and
(iv) the term "SUBSIDIARY" shall mean any corporation, association,
joint venture, partnership, or similar business arrangement or entity in
which Company or Parent, as the case may require, owns 50% or more of the
outstanding voting interests.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.10.
8.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a
39
<PAGE>
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. Except to the extent mandatorily governed by Georgia
Law, this Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
****
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Reorganization to be executed by their duly authorized respective officers as
of the date first written above.
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
a Delaware corporation
By: /s/ STEPHEN P. GARDNER
--------------------------------------
Name: Stephen P. Gardner
--------------------------------------
Title: President
--------------------------------------
SODA ACQUISITION CORPORATION
a Georgia corporation
By: /s/ ERIC P. DELLER
--------------------------------------
Name: Eric P. Deller
--------------------------------------
Title: Secretary
--------------------------------------
HARBINGER CORPORATION
a Georgia corporation
By: /s/ JAMES M. TRAVERS
--------------------------------------
Name: James M. Travers
--------------------------------------
Title:
--------------------------------------
</TABLE>
41
<PAGE>
================================================================================
CREDIT AGREEMENT
among
PEREGRINE SYSTEMS, INC.
as Borrower,
BANK OF AMERICA, N.A.
as Administrative Agent,
BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager,
BANKBOSTON, N.A.
as Syndication Agent,
and
the Lenders named herein
July 30, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions...........................................................................................1
Section 1.1 Definitions............................................................................1
Section 1.2 Other Definitional Provisions.........................................................17
Section 1.3 Accounting Terms and Determinations...................................................17
Section 1.4 Time of Day...........................................................................18
ARTICLE 2 - Revolving Credit Facility............................................................................18
Section 2.1 Revolving Commitments.................................................................18
Section 2.2 Notes.................................................................................18
Section 2.3 Repayment of Revolving Loans..........................................................18
Section 2.4 Use of Proceeds.......................................................................18
Section 2.5 Revolving Commitment Fee..............................................................19
Section 2.6 Termination or Reduction of Revolving Commitments.....................................19
Section 2.7 Letters of Credit.....................................................................19
ARTICLE 3 - Interest and Fees....................................................................................23
Section 3.1 Interest Rate.........................................................................23
Section 3.2 Determinations of Margins. ..........................................................23
Section 3.3 Payment Dates.........................................................................24
Section 3.4 Default Interest......................................................................24
Section 3.5 Conversions and Continuations of Accounts.............................................24
Section 3.6 Computations..........................................................................25
ARTICLE 4 - Administrative Matters...............................................................................25
Section 4.1 Borrowing Procedure...................................................................25
Section 4.2 Minimum Amounts.......................................................................25
Section 4.3 Certain Notices.......................................................................25
Section 4.4 Prepayments...........................................................................27
Section 4.5 Method of Payment.....................................................................28
Section 4.6 Pro Rata Treatment....................................................................29
Section 4.7 Sharing of Payments...................................................................29
Section 4.8 Non-Receipt of Funds by Administrative Agent..........................................29
Section 4.9 Participation Obligations Absolute; Failure to Fund Participation. ..................30
ARTICLE 5 - Change in Circumstances..............................................................................30
Section 5.1 Increased Cost and Reduced Return.....................................................30
Section 5.2 Limitation on Libor Accounts..........................................................32
Section 5.3 Illegality. .........................................................................32
Section 5.4 Treatment of Affected Accounts........................................................32
Section 5.5 Compensation. .......................................................................33
</TABLE>
CREDIT AGREEMENT - Page i
<PAGE>
<TABLE>
<S> <C>
Section 5.6 Taxes.................................................................................33
Section 5.7 Withholding Tax Exemption.............................................................34
ARTICLE 6 - Security.............................................................................................35
Section 6.1 Collateral............................................................................35
Section 6.2 Guaranties............................................................................36
Section 6.3 New Subsidiaries, New Issuances of Capital Stock......................................36
Section 6.4 New Mortgaged Properties..............................................................37
Section 6.5 Release of Collateral.................................................................37
Section 6.6 Setoff................................................................................38
Section 6.7 Collateral and Guaranties of Foreign Subsidiaries.....................................38
ARTICLE 7 - Conditions Precedent.................................................................................39
Section 7.1 Initial Loan and Letter of Credit.....................................................39
Section 7.2 All Loans and Letters of Credit.......................................................43
ARTICLE 8 - Representations and Warranties.......................................................................44
Section 8.1 Corporate Existence...................................................................44
Section 8.2 Financial Condition...................................................................44
Section 8.3 Corporate Action; No Breach...........................................................44
Section 8.4 Operation of Business.................................................................45
Section 8.5 Litigation and Judgments..............................................................45
Section 8.6 Rights in Properties; Liens...........................................................45
Section 8.7 Enforceability........................................................................45
Section 8.8 Approvals.............................................................................46
Section 8.9 Debt..................................................................................46
Section 8.10 Taxes.................................................................................46
Section 8.11 Margin Securities.....................................................................46
Section 8.12 ERISA.................................................................................46
Section 8.13 Disclosure............................................................................46
Section 8.14 Subsidiaries; Capitalization..........................................................47
Section 8.15 Agreements............................................................................47
Section 8.16 Compliance with Laws..................................................................47
Section 8.17 Investment Company Act................................................................47
Section 8.18 Public Utility Holding Company Act....................................................47
Section 8.19 Environmental Matters.................................................................48
Section 8.20 Broker's Fees.........................................................................49
Section 8.21 Employee Matters......................................................................49
Section 8.22 Solvency..............................................................................49
Section 8.23 Year 2000 Compliance..................................................................49
ARTICLE 9 - Positive Covenants...................................................................................49
Section 9.1 Reporting Requirements................................................................49
Section 9.2 Maintenance of Existence; Conduct of Business.........................................51
Section 9.3 Maintenance of Properties.............................................................52
</TABLE>
CREDIT AGREEMENT - Page ii
<PAGE>
<TABLE>
<S> <C>
Section 9.4 Taxes and Claims......................................................................52
Section 9.5 Insurance.............................................................................52
Section 9.6 Inspection Rights.....................................................................53
Section 9.7 Keeping Books and Records.............................................................54
Section 9.8 Compliance with Laws..................................................................54
Section 9.9 Compliance with Agreements............................................................54
Section 9.10 Further Assurances....................................................................54
Section 9.11 ERISA.................................................................................55
Section 9.12 Unified Cash Management System........................................................55
Section 9.13 Year 2000 Compliance..................................................................55
ARTICLE 10 - Negative Covenants..................................................................................55
Section 10.1 Debt..................................................................................55
Section 10.2 Limitation on Liens and Restrictions on Subsidiaries..................................56
Section 10.3 Mergers, Acquisitions, Etc............................................................57
Section 10.4 Restricted Junior Payments............................................................58
Section 10.5 Investments...........................................................................59
Section 10.6 Limitation on Issuance of Capital Stock...............................................60
Section 10.7 Transactions With Affiliates..........................................................60
Section 10.8 Disposition of Assets.................................................................60
Section 10.9 Lines of Business.....................................................................60
Section 10.10 Limitations on Restrictions Affecting Subsidiaries....................................60
Section 10.11 Environmental Protection..............................................................61
Section 10.12 ERISA.................................................................................61
ARTICLE 11 - Financial Covenants.................................................................................61
Section 11.1 Maximum Leverage Ratio................................................................61
Section 11.2 Minimum EBITDA........................................................................61
Section 11.3 Minimum Quick Ratio...................................................................61
ARTICLE 12 - Default.............................................................................................62
Section 12.1 Events of Default.....................................................................62
Section 12.2 Remedies..............................................................................64
Section 12.3 Cash Collateral.......................................................................65
Section 12.4 Performance by Administrative Agent...................................................65
Section 12.5 Set-off...............................................................................65
Section 12.6 Continuance of Default................................................................66
ARTICLE 13 - Administrative Agent................................................................................66
Section 13.1 Appointment, Powers, and Immunities. ................................................66
Section 13.2 Reliance by Administrative Agent......................................................66
Section 13.3 Defaults. ...........................................................................67
Section 13.4 Rights as Lender......................................................................67
Section 13.5 Indemnification. .....................................................................67
Section 13.6 Non-Reliance on Agents and Other Lenders..............................................68
</TABLE>
CREDIT AGREEMENT - Page iii
<PAGE>
<TABLE>
<S> <C>
Section 13.7 Resignation of Administrative Agent...................................................68
Section 13.8 Administrative Agent Fee..............................................................69
Section 13.9 Several Revolving Commitments.........................................................69
ARTICLE 14 - Miscellaneous.......................................................................................69
Section 14.1 Expenses..............................................................................69
Section 14.2 Indemnification.......................................................................70
Section 14.3 Limitation of Liability...............................................................71
Section 14.4 No Duty...............................................................................71
Section 14.5 No Fiduciary Relationship.............................................................71
Section 14.6 Equitable Relief......................................................................71
Section 14.7 No Waiver; Cumulative Remedies........................................................71
Section 14.8 Successors and Assigns................................................................72
Section 14.9 Survival..............................................................................73
Section 14.10 Entire Agreement......................................................................74
Section 14.11 Amendments and Waivers................................................................74
Section 14.12 Maximum Interest Rate.................................................................75
Section 14.13 Notices...............................................................................75
Section 14.14 Governing Law; Venue; Service of Process..............................................76
Section 14.15 Counterparts..........................................................................77
Section 14.16 Severability..........................................................................77
Section 14.17 Headings..............................................................................78
Section 14.18 Construction..........................................................................77
Section 14.19 Independence of Covenants.............................................................77
Section 14.20 Waiver of Jury Trial..................................................................77
Section 14.21 Confidentiality.......................................................................77
</TABLE>
CREDIT AGREEMENT - Page iv
<PAGE>
INDEX TO EXHIBITS
Exhibit Description of Exhibit
------- ----------------------
"A" Revolving Note
"B" Assignment and Acceptance Agreement
"C" Compliance Certificate
"D" Subsidiary Guaranty
"E" Joinder Agreement
INDEX TO SCHEDULES *
Schedule Description of Schedule
-------- -----------------------
8.1 Corporate Existence
8.4 Operation of Business
8.5 Litigation and Judgments
8.6 Rights in Properties; Liens
8.9 Debt
8.14 Subsidiaries; Capitalization
8.15 Agreements
8.19 Environmental Matters
10.2 Liens
14.13 Address for Notices
* The schedules to the Credit Agreement have been omitted. Peregrine agrees
to supplementally furnish such schedules upon request of the Commission.
CREDIT AGREEMENT - Page v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("AGREEMENT"), dated as of July 30, 1999, is
among PEREGRINE SYSTEMS, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware ("BORROWER"), each of the banks or other
lending institutions which is or which may from time to time become a signatory
hereto or any successor or assignee thereof pursuant to SECTION 14.8(b) hereof
(individually, a "LENDER" and, collectively, the "LENDERS"), BANKBOSTON, N.A.,
as syndication agent (in its capacity as syndication agent, together with its
successors in such capacity, the "SYNDICATION AGENT") and BANK OF AMERICA, N.A.,
as Fronting Bank (as defined below) and as administrative agent for the Lenders
(in its capacity as administrative agent, together with its successors in such
capacity, "ADMINISTRATIVE AGENT").
R E C I T A L S:
Borrower has requested that Lenders extend credit to Borrower in the
form of a revolving credit facility and a letter of credit subfacility. Lenders
are willing to extend such credit to Borrower upon the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following terms
have the following meanings:
"ACCOUNT" means either a Base Rate Account or a Libor Account.
"ACCOUNT DEBTOR" means a Person who is obligated on a Receivable.
"ADJUSTED LIBOR RATE" means, for any Libor Account for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by Administrative Agent to be equal to the
quotient obtained by dividing (a) the Libor Rate for such Libor Account for such
Interest Period by (b) 1 minus the Reserve Requirement for such Libor Account
for such Interest Period.
"ADJUSTED NET INCOME" means, for any period and any Person, such
Person's consolidated net income (or loss) determined in accordance with GAAP,
but excluding: (a) the income of any other Person (other than its Subsidiaries)
in which such Person or any of its Subsidiaries has an ownership interest,
unless received by such Person or its Subsidiary in a cash distribution; and (b)
any after-tax gains or losses attributable to an asset disposition.
CREDIT AGREEMENT - Page 1
<PAGE>
"ADMINISTRATIVE AGENT" has the meaning set forth in the introductory
paragraph of this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person (a)
that directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that directly
or indirectly beneficially owns or holds ten percent (10%) or more of any class
of Voting Stock of such Person; or (c) ten percent (10%) or more of the Voting
Stock of which is directly or indirectly beneficially owned or held by the
Person in question. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of a Person, whether through the ownership of Voting
Stock, by contract, or otherwise; PROVIDED, HOWEVER, in no event shall the
Agents or any Lender be deemed an Affiliate of Borrower or any Subsidiary of
Borrower.
"AGENTS" means Administrative Agent and Syndication Agent,
collectively.
"AGREEMENT" has the meaning set forth in the introductory paragraph of
this Agreement, as the same may be amended or otherwise modified.
"APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of
Account, the "Lending Office" of such Lender (or of an Affiliate of such Lender)
designated for such Type of Account on the signature pages hereof or such other
office of such Lender (or an Affiliate of such Lender) as such Lender may from
time to time specify to Administrative Agent and Borrower by written notice in
accordance with the terms hereof as the office by which its Accounts of such
Type are to be made and maintained.
"APPLICABLE RATE" has the meaning set forth in SECTION 3.1.
"ASSET DISPOSITION" means, with respect to any Person, the disposition
of any asset of such Person (including, without limitation, the sale of any
Capital Stock of any Subsidiary of such Person) other than (i) sales of
Inventory in the ordinary course of business and (ii) dispositions of Equipment
no longer used or useful in such Person's business.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance, in
substantially the form of EXHIBIT "B", entered into by a Lender and an Eligible
Assignee and accepted by Administrative Agent pursuant to SECTION 14.8(b).
"AUTHORIZED REPRESENTATIVE" has the meaning set forth in SECTION
9.1(e).
"BANK OF AMERICA" means Bank of America, N.A., and its successors and
assigns.
"BANKRUPTCY CODE" has the meaning set forth in SECTION 12.1(e).
"BASE RATE" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate plus one-half of one percent (0.50%), or (b) the
Prime Rate. Any change in the Base
CREDIT AGREEMENT - Page 2
<PAGE>
Rate due to a change in the Prime Rate or the Federal Funds Rate shall be
effective on the effective date of such change in the Prime Rate or Federal
Funds Rate.
"BASE RATE ACCOUNT" means a portion of a Loan that bears interest at a
rate based upon the Base Rate.
"BASE RATE MARGIN" has the meaning set forth in SECTION 3.2.
"BORROWER" has the meaning set forth in the introductory paragraph of
this Agreement.
"BUSINESS DAY" means (a) any day excluding Saturday, Sunday, and any
day which either is a legal holiday under the laws of the State of California or
is a day on which banking institutions located in any such states are closed,
and (b), with respect to all borrowings, payments, Conversions, Continuations,
Interest Periods, and notices in connection with Loans subject to Libor
Accounts, any day which is a Business Day described in CLAUSE (a) above and
which is also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person according to GAAP. For purposes of this Agreement, the
amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CAPITAL STOCK" means corporate stock and any and all shares,
partnership interests, membership interests, equity interests, rights,
securities, or other equivalent evidences of ownership, or any options,
warrants, voting trust certificates, or other instruments evidencing an
ownership interest or a right to acquire an ownership interest in a Person
(however designated) issued by any entity (whether a corporation, partnership,
limited liability company, limited partnership, or other type of entity).
"CAPITAL EXPENDITURES" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets which
are not, in accordance with GAAP, treated as expense items for such Person in
the year made or incurred or as a prepaid expense applicable to a future year or
years.
"CASH INTEREST EXPENSE" means, for any period for any Person, that
portion of Interest Expense for such period which is actually paid in cash by
such Person.
"CASH TAXES" means, for any period for any Person, that portion of
Taxes for such period which is actually paid in cash by such Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of Borrower and its Subsidiaries
CREDIT AGREEMENT - Page 3
<PAGE>
taken as a whole to any "person" (as such term is used in Section 13(d) (3) of
the Securities Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of Borrower, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) first
occurring after the Closing Date the result of which is that any "person" (as
defined above), becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Securities Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is currently exercisable or
is exercisable only upon the occurrence of a subsequent condition), directly or
indirectly, of more than 50% of the Voting Stock of Borrower (measured by voting
power rather than number of shares), or (iv) the first day on which a majority
of the members of the Board of Directors of Borrower are not Continuing
Directors.
"CLOSING DATE" means July 30, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means all Property of any nature whatsoever upon which a
Lien is created or purported to be created by any Loan Document as security for
the Obligations or any portion thereof.
"COMMITMENT FEE RATE" has the meaning set forth in SECTION 3.2.
"COMMITMENT PERCENTAGE" means, with respect to each Lender, the
percentage equivalent of the amount of the Revolving Commitments of such Lender
divided by the aggregate amount of all the Revolving Commitments of all of the
Lenders.
"COMPLIANCE CERTIFICATE" means a certificate in substantially the form
of EXHIBIT "C", properly completed and executed by the chief financial officer
of Borrower.
"CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the
continuation pursuant to SECTION 3.5 of a Libor Account from one Interest Period
to the next Interest Period.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of Borrower who (i) was a member of such Board
of Directors on the Closing Date or (ii) was nominated for election or elected
to such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"CONTRACT RATE" has the meaning specified in SECTION 14.12(a).
"CONVERT", "CONVERSION", and "CONVERTED" shall refer to a conversion
pursuant to SECTION 3.5 or ARTICLE 5 of one Type of Account into another Type of
Account.
"DEBT" means, as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred
CREDIT AGREEMENT - Page 4
<PAGE>
purchase price of property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more
than ninety (90) days or that are being contested in good faith by appropriate
proceedings diligently pursued and for which adequate reserves have been
established to the satisfaction of Administrative Agent; (d) all Capital Lease
Obligations of such Person; (e) all Debt or other obligations of others
Guaranteed by such Person; (f) all obligations secured by a Lien existing on
property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non-recourse to the credit of such
Person; PROVIDED, HOWEVER, that the amount of such Debt of any Person described
in this CLAUSE (F) shall, for purposes of this Agreement, be deemed to be equal
to the lesser of (i) the aggregate unpaid amount of such Debt or (ii) the fair
market value of the property or asset encumbered, as determined by
Administrative Agent in its reasonable discretion; (g) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds, and similar
instruments (including, without limitation, those outstanding with respect to
Letters of Credit); (h) all liabilities of such Person in respect of unfunded
vested benefits under any Plan (excluding obligations to deliver stock in
respect of stock options or stock ownership plans); and (i) all vested
obligations of such Person for the payment of money under any noncompete,
consulting, or similar arrangements providing for the deferred payment of the
purchase price for an acquisition consummated prior to the date hereof.
"DEFAULT" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"DEFAULT RATE" means, in respect of any principal of any Loan, any
Reimbursement Obligation, or any other amount payable by Borrower under any Loan
Document, a rate per annum during the period specified in SECTION 3.4, equal to
the sum of two percent (2%), PLUS the Applicable Rate for Base Rate Accounts as
in effect from time to time (PROVIDED, that if such amount is subject to a Libor
Account and the due date is a day other than the last day of an Interest Period
therefor, the "Default Rate" for such amount shall be, for the period from and
including the due date and to but excluding the last day of the Interest Period
therefor, two percent (2%), PLUS the interest rate for such Account for such
Interest Period as provided in SECTION 3.1, and, thereafter, the rate provided
for above in this definition).
"DOLLARS" and "$" mean lawful money of the U.S.
"DOMESTIC SUBSIDIARY" means each direct or indirect Subsidiary of
Borrower formed under the laws of the U.S. or any state thereof.
"EBITDA" means, for any period and any Person, the total of the
following calculated without duplication for such Person on a consolidated basis
for such period: (a) Adjusted Net Income; PLUS (b) any provision for (or less
any benefit from) income or franchise taxes deducted in determining Adjusted Net
Income; PLUS (c) Interest Expense deducted in determining Adjusted Net Income;
PLUS (d) amortization and depreciation expense deducted in determining Adjusted
Net Income; PLUS (e) costs and expenses incurred in connection with acquired
in-process research and development; PLUS (f) transaction costs incurred in
connection with any merger and/or acquisition permitted by SECTION 10.3 to the
extent such costs and expenses arise during the Fiscal Quarter in
CREDIT AGREEMENT - Page 5
<PAGE>
which any such merger and/or acquisition is completed deducted in determining
Adjusted Net Income.
"ELIGIBLE ASSIGNEE" has the meaning specified in SECTION 14.8(b)(i).
"ENVIRONMENTAL LAWS" means any and all federal, state, and local laws,
regulations, and requirements regulating health, safety, or the environment, as
such laws, regulations, and requirements may be amended or supplemented from
time to time.
"ENVIRONMENTAL LIABILITIES" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses, (including,
without limitation, all reasonable fees, disbursements, and expenses of counsel,
expert and consulting fees, and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability, or criminal or civil statute, including, without
limitation, any Environmental Law, permit, order, or agreement with any
Governmental Authority or other Person, arising from environmental, health, or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations issued thereunder.
"ERISA AFFILIATE" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as any Loan Party or is under common control (within
the meaning of Section 414(c) of the Code) with any Loan Party.
"EVENT OF DEFAULT" has the meaning specified in SECTION 12.1.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to Administrative
Agent (in its individual capacity) on such day on such transactions as
determined by Administrative Agent.
"FISCAL QUARTERS" means the three (3) month periods falling in each
Fiscal Year ending June 30, September 30, December 31, and March 31.
"FISCAL YEAR" means a twelve (12) month period ending March 31.
CREDIT AGREEMENT - Page 6
<PAGE>
"FOREIGN SUBSIDIARY" means each direct or indirect Subsidiary of
Borrower that is not a Domestic Subsidiary, including, without limitation,
Stringfield Limited, an Irish company, and Peregrine Company of Canada, a
Canadian company.
"FRONTING BANK" means Bank of America or such other Lender which is a
commercial bank as Borrower and Bank of America may mutually designate from time
to time which agrees to be the issuer of a Letter of Credit.
"FUNDED DEBT" means, with respect to any Person for such Person and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP, at the
time of determination, the sum of all Debt other than: (a) Debt or other
obligations of others guaranteed by such Person and its Subsidiaries; (b) all
Reimbursement Obligations (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds, and similar
instruments (including, without limitation, those outstanding with respect to
Letters of Credit); and (c) all liabilities in respect of unfunded vested
benefits under any Plan.
"GAAP" means generally accepted accounting principles, applied on a
"consistent basis" (as such phrase is interpreted in accordance with SECTION 1.3
hereof), as set forth in Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and/or in statements of the
Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"GRANTING DOMESTIC SUBSIDIARY" means each Domestic Subsidiary of the
Borrower, as identified on SCHEDULE 8.14, whose Net Worth exceeds two percent
(2%) of the aggregate Net Worth of the Borrower and its Subsidiaries determined
on a consolidated basis as of the Closing Date.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person or indemnifying such other Person for an obligation and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect the obligee against loss in
respect thereof (in whole or in part), PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Guarantee of any guaranteeing Person shall be deemed
to be the lesser of (i) an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee is made or (ii) the
maximum amount for which such guaranteeing Person may be liable pursuant to the
terms of the instrument embodying such Guarantee, unless such primary obligation
and the maximum amount for which such guaranteeing
CREDIT AGREEMENT - Page 7
<PAGE>
Person may be liable are not stated or determinable, in which case the amount of
such Guarantee shall be such guaranteeing Person's maximum reasonably
anticipated liability in respect thereof as mutually determined by Borrower and
Administrative Agent in good faith. The term "Guarantee" used as a verb has a
corresponding meaning.
"GUARANTY" means each of the Subsidiary Guaranties, and any and all
amendments, modifications, supplements, renewals, extensions, or restatements
thereof, and "GUARANTIES" means the Subsidiary Guaranties, collectively.
"HAZARDOUS MATERIAL" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law as a result
of its hazardous or toxic nature.
"HEDGE AGREEMENTS" means any and all agreements, devices, or
arrangements designed to protect Borrower from the fluctuations of interest
rates, exchange rates, or forward rates applicable to its assets, liabilities,
or exchange transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap, swap or collar protection agreements, and forward
rate currency or interest rate options, as the same may be amended or modified
and in effect from time to time, and any and all cancellations, buy backs,
reversals, terminations, or assignments of any of the foregoing.
"INTELLECTUAL PROPERTY" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including, without limitation, unregistered names and
marks), trademark and service mark registrations and applications, copyrights
and copyright registrations and applications, inventions, invention disclosures,
protected formulae, formulations, processes, methods, trade secrets, computer
software, computer programs and source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"INTEREST EXPENSE" means, for any period and for any Person, the sum of
(a) interest expense of such Person calculated without duplication on a
consolidated basis for such period in accordance with GAAP, PLUS (b) expenses
paid under Hedge Agreements during such period, MINUS (c) payments received
under Hedge Agreements during such period.
"INTEREST PERIOD" means with respect to any Libor Account, each period
commencing on the date such Account is established or Continued, or the last day
of the next preceding Interest Period with respect to such Libor Account, and
ending on the numerically corresponding day in the first calendar month
thereafter, as Borrower may select as provided in SECTION 3.5 or SECTION 4.1,
except that each such Interest Period which commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month. Notwithstanding
the foregoing: (a) each Interest Period which would otherwise end on a day which
is not a Business Day shall end on the next succeeding Business Day (or if such
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); (b) any
CREDIT AGREEMENT - Page 8
<PAGE>
Interest Period which would otherwise extend beyond the Termination Date shall
end on the Termination Date; (c) no more than five (5) Interest Periods shall be
in effect at the same time; and (d) no Interest Period for any Libor Account
shall have a duration of less than one (1) month and, if the Interest Period
would otherwise be a shorter period, the related Libor Account shall not be
available hereunder.
"INVENTORY" means all inventory now owned or hereafter acquired by
Borrower or any Subsidiary of Borrower wherever located and whether or not in
transit, which is or may at any time be held for sale or lease, or furnished
under any contract (exclusive of leases of real Property) for service or held as
raw materials, work in process, or supplies or materials used or consumed in the
business of Borrower or any Subsidiary of Borrower.
"INVESTMENTS" has the meaning specified in SECTION 10.5.
"JOINDER AGREEMENT" means an agreement which has been or will be
executed by a Subsidiary adding it as a party to the Guaranty and certain
Security Documents, in substantially the form of EXHIBIT "E", as the same may be
amended or otherwise modified.
"LAW" means, collectively, all international, foreign, federal, state
and local statutes, treaties, rules, guidelines, regulations, ordinances, codes
and administrative or judicial precedents or authorities, including, without
limitation, the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration
thereof, in each case whether or not having the force of law.
"LEAD ARRANGER" means Banc of America Securities LLC, as sole lead
arranger and sole book manager.
"LENDER" has the meaning set forth in the introductory paragraph of
this Agreement.
"LETTER OF CREDIT LIABILITIES" means, at any time, the sum of (a) the
aggregate undrawn face amount of all outstanding Letters of Credit, PLUS (b) all
unreimbursed drawings under Letters of Credit.
"LETTERS OF CREDIT" has the meaning specified in SECTION 2.7(a).
"LETTER OF CREDIT AGREEMENT" means, with respect to each Letter of
Credit to be issued by the Fronting Bank therefor, the letter of credit
application and reimbursement agreement which such Fronting Bank requires to be
executed by Borrower in connection with the issuance of such Letter of Credit.
"LEVERAGE RATIO" means, for any period, the ratio of Borrower's Funded
Debt to EBITDA for the four (4) Fiscal Quarter period then ending.
"LIBOR ACCOUNT" means any portion of a Loan that bears interest at a
rate based upon the Adjusted Libor Rate.
CREDIT AGREEMENT - Page 9
<PAGE>
"LIBOR RATE" means, for any Libor Account for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Dow Jones Market Services (formerly known as Telerate)
display page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Libor Rate" shall mean, for any Libor Account for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates (rounded upwards, if necessary,
to the nearest 1/100 of 1%).
"LIBOR RATE MARGIN" has the meaning set forth in SECTION 3.2.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
charge, hypothecation, assignment, preference, priority, or other encumbrance of
any kind or nature whatsoever (including, without limitation, any conditional
sale or title retention agreement), whether arising by contract, operation of
law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the Letter of Credit Agreements, the Joinder
Agreements, any Hedge Agreement between Borrower or any Subsidiary of Borrower
and any Lender and all other agreements, documents, and instruments now or
hereafter executed and/or delivered pursuant to or in connection with any of the
foregoing, and any and all amendments, modifications, supplements, renewals,
extensions, or restatements thereof (including, without limitation, any
amendment that increases the amount of any Obligations due thereunder).
"LOAN PARTY" means (a) Borrower, (b) the Granting Domestic
Subsidiaries, (c) each Subsidiary acquired or created after the Closing Date and
(d) any other Person who is or becomes a party to any agreement, document, or
instrument that Guarantees or secures payment or performance of the Obligations
or any part thereof.
"LOANS" means Revolving Loans.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, any
material adverse effect, or the occurrence of any event or the existence of any
condition that could reasonably be expected to have a material adverse effect,
on (a) the prospects, business or financial condition, or performance of such
Person and its Subsidiaries, taken as a whole, (b) the ability of such Person to
pay and perform the obligations for which such Person is responsible when due,
or (c) the validity or enforceability of (i) any of the Loan Documents, (ii) any
Lien created or purported to be created by any of the Loan Documents or the
required priority of any such Lien, or (iii) the rights and remedies of
Administrative Agent or the Lenders under any of the Loan Documents.
CREDIT AGREEMENT - Page 10
<PAGE>
"MAXIMUM RATE" means, at any time and with respect to any Lender, the
maximum rate of nonusurious interest under applicable Law that such Lender may
charge Borrower. The Maximum Rate shall be calculated in a manner that takes
into account any and all fees, payments, and other charges contracted for,
charged, or received in connection with the Loan Documents that constitute
interest under applicable Law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to Borrower at the time of such change in the
Maximum Rate.
"MORTGAGED PROPERTY" means, any Property consisting of real property or
interests therein which becomes or is required to become subject to a Mortgage
pursuant to SECTION 6.4, and "MORTGAGED PROPERTIES" means all of such real
property or interests, collectively.
"MORTGAGE" means any (if any) deed of trust, leasehold deed of trust,
mortgage, leasehold mortgage, collateral assignment of leases, or other real
estate security document executed and delivered pursuant to this Agreement by
any Loan Party in favor of Administrative Agent for the benefit of the Agents
and the Lenders with respect to any Mortgaged Property, and any and all
amendments, modifications, supplements, renewals or restatements thereof, and
"MORTGAGES" means all of such Mortgages, collectively.
"MULTIEMPLOYER PLAN" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by any Loan Party
or any ERISA Affiliate at any time within the six (6) year period preceding the
date hereof or hereafter and which is covered by Title IV of ERISA.
"NET PROCEEDS" means (i) in connection with any disposition of assets
of any Loan Party, the cash proceeds received by such Loan Party from such
disposition (including, without limitation, payments under notes or other debt
Securities received in connection with any such disposition, but only as and
when received) net of (a) the costs of such disposition (including reasonable,
out-of-pocket professional fees and expenses, taxes, notarial fees, survey
costs, title insurance premiums, required escrow deposits, and purchase price
adjustments and other customary fees and expenses, in each case attributable to
and actually paid in connection with such disposition), and (b) amounts applied
to repayment of Debt (other than the Obligations) secured by a lien, security
interest, claim or encumbrance on the asset or property disposed and (ii) in
connection with issuance of any equity Securities, the cash proceeds received
from such issuance, net of all costs of such issuance (including reasonable,
out-of-pocket professional fees and expenses, notarial fees, underwriting
discounts and commissions, and other customary fees and expenses) actually paid.
"NET WORTH" means with respect to any Person, such Person's total
shareholders' equity (including, without limitation, capital stock, additional
paid-in capital and retained earnings, after deducting treasury stock, or other
form of equity (i.e., partner's capital, membership interests, etc.)) which
would appear as such on a balance sheet of such Person prepared in accordance
with GAAP.
"NON-GRANTING DOMESTIC SUBSIDIARY" means any Domestic Subsidiary of
Borrower whose Net Worth is equal to or less than two percent (2%) of the
aggregate Net Worth of the Borrower and its Subsidiaries determined on a
consolidated basis as of the Closing Date; PROVIDED, HOWEVER, in no
CREDIT AGREEMENT - Page 11
<PAGE>
event shall the aggregate Net Worth of all Non-Granting Domestic Subsidiaries
determined on a consolidated basis exceed ten percent (10%) of the aggregate Net
Worth of the Borrower and its Subsidiaries determined on a consolidated basis as
of the Closing Date.
"NOTES" means the Revolving Notes referred to in SECTION 2.2.
"OBLIGATIONS" means any and all (a) obligations, indebtedness, and
liabilities of Borrower to the Agents and the Lenders, or any of them, arising
pursuant to any of the Loan Documents, whether now existing or hereafter
arising, whether direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several, including, without limitation, the
obligation of Borrower to repay the Loans, the Reimbursement Obligations,
interest on the Loans and Reimbursement Obligations, and all fees, costs, and
expenses (including, without limitation, attorneys' fees) provided for in the
Loan Documents, and (b) indebtedness, liabilities, and obligations of any Loan
Party under any Hedge Agreement that it may enter into with the Administrative
Agent or any other Person if and to the extent that such Hedge Agreement is
permitted in accordance with SECTION 10.1(h).
"OTHER TAXES" has the meaning specified in SECTION 5.6(b).
"OUTSTANDING REVOLVING CREDIT" means, at any time of determination, the
sum of (a) the aggregate amount of Revolving Loans then outstanding; PLUS (b)
the aggregate amount of Letter of Credit Liabilities (or when calculated with
respect to any Lender, such Lender's pro rata share of the Revolving Loans then
outstanding and participation or other interest in such Letter of Credit
Liabilities).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERMITTED LIENS" means the Liens permitted by SECTION 10.2.
"PERSON" means any individual, corporation, limited liability company,
business trust, association, company, partnership, joint venture, Governmental
Authority, or other entity.
"PLAN" means any employee benefit plan established or maintained by any
Loan Party or any ERISA Affiliate and which is subject to Title IV of ERISA.
"PRIME RATE" means the per annum rate of interest established from time
to time by Bank of America, as its prime rate, which rate may not be the lowest
rate of interest charged by Bank of America to its customers.
"PRINCIPAL OFFICE" means the office of Administrative Agent, located at
1850 Gateway Boulevard, 5th Floor, Concord, California 94520.
"PROHIBITED TRANSACTION" means any transaction described in Section 406
or 407 of ERISA or Section 4975(c)(1) of the Code for which no statutory or
administrative exemption applies.
CREDIT AGREEMENT - Page 12
<PAGE>
"PROJECTIONS" means Borrower's forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all materially consistent with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"PROPERTY" means, for any Person, property or assets of all kinds,
real, personal or mixed, tangible or intangible (including, without limitation,
all rights relating thereto), whether owned or acquired on or after the Closing
Date.
"QUARTERLY PAYMENT DATE" means the last Business Day of March, June,
September and December of each year, the first of which shall be September 30,
1999.
"RECEIVABLE" or "RECEIVABLES" means, as at any date of determination
thereof, each and every "account" as such term is defined in article or chapter
9 of the UCC (or any successor statute) and includes, without limitation, the
unpaid portion of the obligation, as stated on the respective invoice, or, if
there is no invoice, other writing, of a customer of Borrower or any Subsidiary
of Borrower in respect of Inventory sold and shipped or services rendered by
Borrower or any Subsidiary of Borrower.
"REGISTER" has the meaning specified in SECTION 14.8(c).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended, modified, or supplemented
from time to time or any successor regulation therefor.
"REGULATORY CHANGE" means, with respect to any Lender, any change after
the date of this Agreement (other than with respect to taxes excluded by the
first sentence of SECTION 5.6(a)) in U.S. federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests (other than with respect to
taxes excluded by the first sentence of SECTION 5.6(a)) applying to a class of
lenders including such Lender of or under any U.S. federal or state, or any
foreign, laws or regulations (whether or not having the force of Law) by any
Governmental Authority or monetary authority charged with the interpretation or
administration thereof.
"REIMBURSEMENT OBLIGATIONS" means all indebtedness, liabilities, and
obligations of Borrower or any other Loan Party to reimburse Administrative
Agent or the Fronting Bank in accordance with SECTION 2.7(e) for any demand for
payment or drawing under a Letter of Credit.
"RELEASE" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching, or
migration of Hazardous Materials into the indoor or outdoor environment or into
or from property owned by such Person, including, without limitation, the
migration of Hazardous Materials through or in the air, soil, surface water,
ground water, or property in violation of Environmental Laws.
CREDIT AGREEMENT - Page 13
<PAGE>
"REMEDIAL ACTION" means all actions required under applicable
Environmental Laws to (a) cleanup, remove, treat, or otherwise address Hazardous
Materials in the indoor or outdoor environment, (b) prevent the Release or
threat of Release or minimize the further Release of Hazardous Materials, or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care; PROVIDED that "Remedial Action" shall not include such actions taken in
the normal course of business and in material compliance with Environmental
Laws.
"RENTAL EXPENSE" means, for any period and for any Person, the rental
or lease expense of such Person under operating leases calculated without
duplication on a consolidated basis for such period as determined in accordance
with GAAP.
"REQUIRED LENDERS" means any combination of Lenders having (a) more
than fifty percent (50%) of the Revolving Commitments or (b) if the Revolving
Commitments have terminated or have otherwise been fulfilled, more than fifty
percent (50%) of the outstanding principal amount of the Loans and
participations in the Letters of Credit.
"REPORTABLE EVENT" means any of the events set forth in Section 4043 of
ERISA for which the 30-day notice requirement has not been waived by the PBGC.
"RESERVE REQUIREMENT" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against, in the case of
Libor Accounts, "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by reference
to which the Adjusted Libor Rate is to be determined, or (ii) any category of
extensions of credit or other assets which include Libor Accounts. The Adjusted
Libor Rate shall be adjusted automatically on and as of the effective date of
any change in the Reserve Requirement.
"REVOLVING COMMITMENT" means, as to each Lender, the obligation of such
Lender to make advances of funds and purchase participation interests in (or
with respect to the Fronting Bank as a Lender, hold other interests in) Letters
of Credit in an aggregate principal amount at any one time outstanding up to but
not exceeding the amount set forth opposite the name of such Lender on the
signature pages hereto (or if applicable, the most recent Assignment and
Acceptance executed by it) under the heading "Revolving Commitment", as the same
may be reduced or terminated pursuant to SECTION 2.6, SECTION 4.4, or SECTION
12.2. The aggregate amount of all the Revolving Commitments as of the Closing
Date equals Twenty Million Dollars ($20,000,000).
"REVOLVING LOANS" means, as to any Lender, the advances made by such
Lender pursuant to SECTION 2.1, and, as to all Lenders making such Loans, all
such Loans made or held by such Lenders pursuant to SECTION 2.1.
"REVOLVING NOTES" means the promissory notes provided for by SECTION
2.2 and all amendments or other modifications thereof.
CREDIT AGREEMENT - Page 14
<PAGE>
"SECURITIES" means any stock, shares, options, warrants, voting trust
certificates, or other instruments evidencing an ownership interest or a right
to acquire an ownership interest in a Person or any bonds, debentures, notes, or
other evidences of indebtedness for borrowed money, secured or unsecured.
"SECURITY AGREEMENTS" means security agreements, pledge agreements,
securities pledge agreements, debenture pledge agreements, and other agreements,
documents or instruments evidencing or creating a Lien as security for the
Obligations or any portion thereof in form and substance satisfactory to
Administrative Agent executed by any of Borrower, each Domestic Subsidiary of
Borrower, and any other Loan Party, dated the Closing Date or a subsequent date
(in the case of Domestic Subsidiaries acquired after the Closing Date), in favor
of Administrative Agent, for the benefit of the Agents and the Lenders, and any
such agreement, document, or instrument executed pursuant to ARTICLE 6, and any
and all amendments, modifications, supplements, renewals, extensions, or
restatements thereof.
"SECURITY DOCUMENTS" means the Guaranties, the Security Agreements, and
the Mortgages, as such agreements may be amended, modified, supplemented,
renewed, extended, or restated from time to time, and any and all other
agreements, deeds of trust, mortgages, chattel mortgages, security agreements,
pledges, guaranties, assignments of proceeds, assignments of income, assignments
of contract rights, assignments of partnership interests, assignments of royalty
interests, or other collateral assignments, completion or surety bonds, standby
agreements, subordination agreements, undertakings, and other agreements,
documents, instruments, and financing statements now or hereafter executed
and/or delivered by any Loan Party in connection with or as security or
assurance for the payment or performance of the Obligations or any part thereof.
"SOLVENT" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations, and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"SUBORDINATED DEBT" means Debt of Borrower or its Subsidiaries
subordinated to the Obligations on terms and conditions satisfactory to
Administrative Agent in its absolute discretion.
CREDIT AGREEMENT - Page 15
<PAGE>
"SUBSIDIARY" means, (a) when used to determine the relationship of a
Person to another Person, a Person of which an aggregate of more than fifty
percent (50%) or more of the Capital Stock is owned of record or beneficially by
such other Person, or by one or more Subsidiaries of such other Person, or by
such other Person and one or more Subsidiaries of such Person, (i) if the
holders of such Capital Stock (A) are ordinarily, in the absence of
contingencies, entitled to vote for the election of a majority of the directors
(or other individuals performing similar functions) of such Person, even though
the right so to vote has been suspended by the happening of such a contingency,
or (B) are entitled, as such holders, to vote for the election of a majority of
the directors (or individuals performing similar functions) of such Person,
whether or not the right so to vote exists by reason of the happening of a
contingency, or (ii) in the case of Capital Stock which is not issued by a
corporation, if such ownership interests constitute a majority voting interest,
and (b) when used with respect to a Plan, ERISA, or a provision of the Code
pertaining to employee benefit plans, means, with respect to a Person, any
corporation, trade, or business (whether or not incorporated) which is under
common control with such Person and is treated as a single employer with such
Person under Section 414(b) or (c) of the Code and the regulations thereunder.
"SUBSIDIARY GUARANTY" means the guaranty of the Domestic Subsidiaries
of Borrower in favor of Administrative Agent, for the benefit of the Agents and
the Lenders, in substantially the form of EXHIBIT "D", as the same may be
modified pursuant to one or more Joinder Agreements and as the same may be
otherwise modified from time to time.
"SYNDICATION AGENT" has the meaning set forth in the introductory
paragraph if this Agreement.
"TAXES" has the meaning specified in SECTION 5.6.
"TERMINATION DATE" means July 30, 2002.
"TERMINATION EVENT" means (a) a Reportable Event, or (b) the filing of
a notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (c) the institution of proceedings
to terminate a Plan by the PBGC under Section 4042 of ERISA, or the appointment
of a trustee to administer any Plan.
"TYPE" shall mean either type of Account (i.e., a Base Rate Account or
Libor Account).
"UCC" means the Uniform Commercial Code as in effect in the State of
California and/or any other jurisdiction, the laws of which may be applicable to
or in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"UNFUNDED VESTED ACCRUED BENEFITS" means with respect to any Plan at
any time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Plan exceeds, (b) the fair market value of
all Plan assets allocable to such benefits; all determined as of the then most
recent valuation date for such Plan.
"U.S." means the United States of America.
CREDIT AGREEMENT - Page 16
<PAGE>
"VOTING STOCK" means Capital Stock of a Person having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
similar governing body) of such Person (irrespective of whether or not at the
time Capital Stock of any other class or classes of such Person shall have or
might have voting power by reason of the happening of any contingency).
"WHOLLY-OWNED GRANTING DOMESTIC SUBSIDIARY" means any Subsidiary that
(i) is owned 100% by Borrower and/or a Subsidiary of Borrower, (ii) is organized
under the laws of a state within the U.S., and (iii) is a Granting Domestic
Subsidiary.
"YEAR 2000 COMPLIANT" has the meaning set forth in SECTION 8.24 hereof.
"YEAR 2000 PROBLEM" has the meaning set forth in SECTION 8.24 hereof.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article, Section, and Schedule references pertain to Articles,
Sections, and Schedules of this Agreement. Terms used herein that are defined in
the UCC, unless otherwise defined herein, shall have the meanings specified in
the UCC.
Section 1.3 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to Administrative Agent and the
Lenders hereunder shall be prepared, in accordance with GAAP, on a "consistent
basis" with those used in the preparation of the financial statements referred
to in SECTION 8.2. All calculations made for the purposes of determining
compliance with the provisions of this Agreement shall be made by application of
GAAP, on a "consistent basis" with those used in the preparation of the
financial statements referred to in SECTION 8.2. Accounting principles are
applied on a "consistent basis" when the accounting principles applied in a
current period are comparable in all material respects to those accounting
principles applied in a preceding period. Changes in the application of
accounting principles which do not have a material impact on calculating the
financial covenants herein shall be deemed comparable in all material respects
to accounting principles applied in a preceding period. To enable the ready and
consistent determination of compliance by Borrower with its obligations under
this Agreement, Borrower will not, nor will it permit any other Loan Party to,
change the manner in which either the last day of its Fiscal Year or the last
days of the first three Fiscal Quarters of its Fiscal Years is calculated
without the prior written consent of the Required Lenders. In the event any
changes in accounting principles required by GAAP, recommended by Borrower's or
any other Loan Party's certified public accountants or requested by Borrower (or
that Borrower otherwise requests and Administrative Agent and the Required
Lenders agree to accept, such agreement not unreasonably to be denied) and
implemented by Borrower or any other Loan Party occur and such changes result in
a change in the method of the calculation of financial covenants under this
Agreement, then Borrower, Administrative Agent, and the Required Lenders agree
to enter into negotiations in order to amend such provisions of this Agreement
so as to equitably reflect such changes with the desired result that the
criteria for evaluating such covenants
CREDIT AGREEMENT - Page 17
<PAGE>
shall be the same after such changes as if such changes had not been made. Until
such time as such an amendment shall have been executed and delivered by
Borrower, Administrative Agent, and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such changes had not occurred.
Section 1.4 TIME OF DAY. Unless otherwise indicated, all references in
this Agreement to times of day shall be references to San Francisco, California
time.
ARTICLE 2
REVOLVING CREDIT FACILITY
Section 2.1 REVOLVING COMMITMENTS. Subject to the terms and conditions
of this Agreement, each Lender who has agreed to provide a Revolving Commitment
severally agrees to make advances to Borrower from time to time from and
including the Closing Date to but excluding the Termination Date in an aggregate
principal amount at any time outstanding up to but not exceeding the amount of
such Lender's Revolving Commitment as then in effect; PROVIDED, HOWEVER, (a) the
Outstanding Revolving Credit applicable to a Lender shall not at any time exceed
such Lender's Revolving Commitment and (b) the Outstanding Revolving Credit of
all of the Lenders shall not at any time exceed the aggregate Revolving
Commitments. Subject to the foregoing limitations, and the other terms and
provisions of this Agreement, Borrower may borrow, prepay, and reborrow
hereunder the amount of the Revolving Commitments and may establish Base Rate
Accounts and Libor Accounts thereunder and, until the Termination Date, Borrower
may Continue Libor Accounts established under the Revolving Loans or Convert
Accounts established under the Revolving Loans of one Type into Accounts of the
other Type. Accounts of each Type under the Revolving Loans made by each Lender
shall be established and maintained at such Lender's Applicable Lending Office
for Revolving Loans of such Type.
Section 2.2 NOTES. The Revolving Loans made by a Lender shall, if
requested by a Lender, be evidenced by a single promissory note of Borrower in
substantially the form of EXHIBIT "A", payable to the order of such Lender, in
the maximum principal amount equal to its Revolving Commitment as originally in
effect (or, if greater, its Revolving Commitment thereafter increased) and
otherwise duly completed.
Section 2.3 REPAYMENT OF REVOLVING LOANS. Borrower shall pay to
Administrative Agent, for the account of the Lenders, the outstanding principal
amount of all of the Revolving Loans on the Termination Date.
Section 2.4 USE OF PROCEEDS. Subject to the terms of this Agreement,
the proceeds of the Revolving Loans shall be used by Borrower for general
corporate purposes arising in the ordinary course of business of Borrower and
its Subsidiaries, the financing of working capital requirements and Capital
Expenditures of Borrower and its Subsidiaries, the payment of Reimbursement
Obligations, and for acquisitions permitted by SECTION 10.3.
CREDIT AGREEMENT - Page 18
<PAGE>
Section 2.5 REVOLVING COMMITMENT FEE. Borrower agrees to pay to Agent
for the account of each Lender a commitment fee on the daily actual unused
amount of such Lender's Revolving Commitment for the period from and including
the Closing Date to and including the Termination Date, at a per annum rate
equal to the Commitment Fee Rate, computed on the basis of a year of 360 days
and the actual number of days elapsed (including the first day but excluding the
last day) provided that for purposes of calculating such fee the amount of
outstanding Letters of Credit shall constitute use of the Revolving Commitment.
Accrued commitment fees under this SECTION 2.5 shall be payable in arrears on
the each Quarterly Payment Date and on the Termination Date.
Section 2.6 TERMINATION OR REDUCTION OF REVOLVING COMMITMENTS. Borrower
shall have the right to terminate fully or to reduce in part the unused portion
of the Revolving Commitments at any time and from time to time, PROVIDED that:
(a) Borrower shall give Administrative Agent at least five (5) Business Days
notice of each such termination or reduction as provided in SECTION 4.3 hereof;
(b) each partial reduction shall be in an aggregate amount at least equal to One
Million Dollars ($1,000,000) or any multiple One Million Dollars ($1,000,000) in
excess thereof; and (c) the Revolving Commitments may not be reduced below an
amount equal to the Letter of Credit Liabilities. The Revolving Commitments may
not be reinstated after they have been terminated or reduced.
Section 2.7 LETTERS OF CREDIT.
(a) COMMITMENT TO ISSUE. Borrower may utilize Revolving
Commitments by requesting that the Fronting Bank issue, and the
Fronting Bank, subject to the terms and conditions of this Agreement,
shall issue, standby and commercial letters of credit for Borrower's
account (such letters of credit being hereinafter referred to as the
"LETTERS OF CREDIT", which may be for the benefit of a Subsidiary of
Borrower); PROVIDED, HOWEVER, (i) the aggregate amount of outstanding
Letter of Credit Liabilities shall not at any time exceed Ten Million
Dollars ($10,000,000), (ii) the Outstanding Revolving Credit shall not
at any time exceed the maximum amount prescribed by SECTION 2.1, and
(iii) the Outstanding Revolving Credit applicable to any Lender shall
not at any time exceed the maximum amount for a Lender prescribed by
SECTION 2.1. Upon the date of issue of a Letter of Credit,
Administrative Agent shall be deemed, without further action by any
party hereto, to have sold to each Lender who holds a Revolving
Commitment, and each such Lender shall be deemed, without further
action by any party hereto, to have purchased from Administrative
Agent, a participation to the extent of such Lender's Commitment
Percentage in such Letter of Credit and the related Letter of Credit
Liabilities. Upon termination of the Revolving Commitments, any Letter
of Credit then outstanding which has been fully cash collateralized to
the satisfaction of Administrative Agent and the Fronting Bank shall no
longer be considered a "Letter of Credit" as defined in this Agreement
and any participating interest heretofore granted by the Fronting Bank
to the Lenders holding Revolving Commitments in such Letter of Credit
shall be deemed terminated but the letter of credit fees payable
hereunder shall continue to accrue to the Fronting Bank with respect to
such Letter of Credit until the expiry thereof.
CREDIT AGREEMENT - Page 19
<PAGE>
(b) LETTER OF CREDIT REQUEST PROCEDURE. Borrower shall give
Administrative Agent at least three (3) Business Days prior notice
(effective upon receipt) specifying the date of each Letter of Credit
and the nature of the transactions to be supported thereby. Upon
receipt of such notice Administrative Agent shall promptly notify the
Fronting Bank and each Lender who holds a Revolving Commitment of the
contents thereof and of such Lender's Commitment Percentage of the
amount of the proposed Letter of Credit. Unless otherwise agreed by
Administrative Agent and the Fronting Bank with the consent of all
Lenders (and provided that any such Letter of Credit is required to be
fully cash collateralized to the satisfaction of Administrative Agent
and the Fronting Bank no later than five (5) days prior to the
Termination Date), each Letter of Credit shall have an expiration date
that does not extend beyond a date which is thirty (30) days prior to
the Termination Date, shall be payable in Dollars, must support a
transaction entered into in the ordinary course of business of Borrower
or its Subsidiaries, must be satisfactory in form and substance to
Administrative Agent and the Fronting Bank, and shall be issued
pursuant to such documentation as Administrative Agent and the Fronting
Bank may require, including, without limitation, the Fronting Bank's
standard form Letter of Credit Agreement; PROVIDED, that, in the event
of any conflict between the terms of such agreement and the other Loan
Documents, the terms of the other Loan Documents shall control.
(c) LETTER OF CREDIT FEES. Borrower will pay to Administrative
Agent for the account of each Lender holding a Revolving Commitment a
fee on such Lender's Commitment Percentage of the daily actual amount
available for drawings under the Letters of Credit, such fee (i) to be
paid in arrears on the first Quarterly Payment Date occurring after the
date of the issuance of the first Letter of Credit and on each
Quarterly Payment Date thereafter until the date of expiration or
termination of all Letters of Credit and (ii) to be calculated at a
rate per annum equal to the Libor Rate Margin on the basis of a year of
360 days and the actual number of days elapsed (including the first day
but excluding the last day). After receiving any payment of any fees
under this CLAUSE (C), Administrative Agent will promptly pay to each
Lender that holds a Revolving Commitment the fees then due such Lender.
Borrower will also pay to the Fronting Bank, for its account only, a
fronting fee on the amount available to be drawn under each Letter of
Credit, such fronting fee (i) to be paid in arrears on the first
Quarterly Payment Date occurring after the date of the issuance of the
first Letter of Credit and on each Quarterly Payment Date thereafter
until the date of expiration or termination of all Letters of Credit
and (ii) to be calculated at a rate per annum equal to one-eighth of
one percent (0.125%) on the basis of a year of 360 days and the actual
number of days elapsed (including the first day but excluding the last
day). Borrower will also pay to the Fronting Bank, for its account
only, all customary fees for amendments to and processing of the
Letters of Credit.
(d) FUNDING OF DRAWINGS. Upon receipt from the beneficiary of
any Letter of Credit of any demand for payment or other drawing under
such Letter of Credit, the Fronting Bank shall promptly so notify
Administrative Agent and Administrative Agent shall promptly so notify
Borrower and each Lender that holds a Revolving Commitment as to the
amount to be paid as a result of such demand or drawing and the
respective payment date. Not later than 11:00 a.m. (San Francisco,
California time) on the applicable payment date if
CREDIT AGREEMENT - Page 20
<PAGE>
Borrower has not reimbursed the Fronting Bank for the amount paid as a
result of such demand or drawing, each Lender will make available to
Administrative Agent, at the Principal Office, in immediately available
funds, an amount equal to such Lender's Commitment Percentage of the
amount to be paid as a result of such demand or drawing which has not
been reimbursed even if the conditions to a Loan under ARTICLE 7 hereof
have not been satisfied and Administrative Agent shall promptly pay
such amounts to the Fronting Bank.
(e) REIMBURSEMENTS. Borrower shall be irrevocably and
unconditionally obligated to immediately reimburse the Fronting Bank
(through Administrative Agent) for any amounts paid by the Fronting
Bank upon any demand for payment or drawing under any Letter of Credit,
without presentment, demand, protest, or other formalities of any kind.
All payments on the Reimbursement Obligations shall be made to
Administrative Agent not later than 11:00 a.m. (San Francisco,
California time) on the date of the corresponding payment under the
Letter of Credit by the Fronting Bank; PROVIDED, that Administrative
Agent has provided notice to Borrower prior to 9:00 a.m. (San
Francisco, California time) on such day that such payment is due. In
the event such notice is received after 9:00 a.m. (San Francisco,
California time) on a Business Day, such payment shall be due not later
than 11:00 a.m. (San Francisco, California time) on the next succeeding
Business Day. Subject to the other terms and conditions of this
Agreement, such reimbursement may be made by Borrower requesting a
Revolving Loan in accordance with SECTION 4.1 hereof, the proceeds of
which shall be credited against Borrower's Reimbursement Obligations.
Administrative Agent will pay to each Lender participating in a Letter
of Credit such Lender's Commitment Percentage of all amounts received
from Borrower for application in payment, in whole or in part, to the
Reimbursement Obligation in respect of any Letter of Credit, but only
to the extent such Lender has made payment to Administrative Agent in
respect of such Letter of Credit pursuant to CLAUSE (d) of this SECTION
2.7.
(f) REIMBURSEMENT OBLIGATIONS ABSOLUTE. The Reimbursement
Obligations of Borrower under this Agreement shall be absolute,
unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of the Loan Documents under all circumstances
whatsoever and Borrower hereby waives any defense to the payment of the
Reimbursement Obligations based on any circumstance whatsoever,
including, without limitation, in either case, the following
circumstances: (i) any lack of validity or enforceability of any Letter
of Credit or any other Loan Document; (ii) the existence of any claim,
set-off, counterclaim, defense, or other rights which any Loan Party or
any other Person may have at any time against any beneficiary of any
Letter of Credit, the Fronting Bank, Administrative Agent, any Lender,
or any other Person, whether in connection with any Loan Document or
any unrelated transaction; (iii) any statement, draft, or other
documentation presented under any Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(iv) payment by the Fronting Bank under any Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; or (v) any other circumstance
whatsoever, whether or not similar to any of the foregoing.
CREDIT AGREEMENT - Page 21
<PAGE>
(g) ASSUMPTION OF RISK BY BORROWER. As among Borrower and the
Lenders, Borrower assumes all risks of the acts and omissions of, or
misuse of any of the Letters of Credit by, the respective beneficiaries
of such Letters of Credit. In furtherance and not in limitation of the
foregoing, subject to the provisions of the applications for the
issuance of Letters of Credit, the Lenders, the Fronting Bank (except
as otherwise set forth below in this Section 2.7(g)), and
Administrative Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy,
genuineness, or legal effect of any document submitted by any
Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters
of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent, or
forged;
(ii) the validity or sufficiency of any instrument
transferring or assigning, or purporting to transfer or
assign, any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason;
(iii) the failure of the beneficiary of any Letter of
Credit to comply duly with conditions required in order to
draw upon such Letter of Credit;
(iv) errors, omissions, interruptions, or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex, or otherwise, whether or not they be in
cipher;
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof;
(vii) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or
(viii) any consequences arising from causes beyond
the control of any Lender or the Fronting Bank, including,
without limitation, any act by a Governmental Authority.
None of the foregoing shall affect, impair, or prevent the vesting of any of the
Lenders, the Fronting Bank or Administrative Agent's rights or powers under this
SECTION 2.7. Borrower shall have a claim against the Fronting Bank, and the
Fronting Bank shall be liable to Borrower, to the extent of any direct (but not
indirect, consequential, remote, exemplary or punitive) damages suffered by
Borrower which Borrower proves in a final nonappealable judgment were caused by
(A) the Fronting Bank's willful misconduct or gross negligence in determining
whether documents presented under any Letter of Credit complied with the terms
thereof or (B) the Fronting Bank's willful failure to pay
CREDIT AGREEMENT - Page 22
<PAGE>
under any Letter of Credit after presentation to it of documentation strictly
complying with the terms and conditions of such Letter of Credit. The Fronting
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation.
ARTICLE 3
INTEREST AND FEES
Section 3.1 INTEREST RATE. Borrower shall pay to Administrative Agent,
for the account of each Lender, interest on the unpaid principal amount of each
Loan made by such Lender for the period commencing on the date of such Loan to
but excluding the date such Loan is due, at a fluctuating rate per annum equal
to the Applicable Rate. The term "APPLICABLE RATE" means:
(a) during the period that such Loans or portions thereof are
subject to a Base Rate Account, the Base Rate, PLUS the Base Rate
Margin; and
(b) during the period that such Loans or portions thereof are
subject to a Libor Account, the Adjusted Libor Rate, PLUS the Libor
Rate Margin.
Section 3.2 DETERMINATIONS OF MARGINS. The margins identified in
SECTION 3.1 hereof and the Commitment Fee Rate shall be defined and determined
as follows:
(a) "BASE RATE MARGIN" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below in this SECTION 3.2), zero
percent (0.00%) per annum; and (ii) thereafter the percent per annum
set forth in the table below in this SECTION 3.2 under the heading
"Base Rate Margin" opposite the Total Funded Debt to EBITDA ratio as
calculated in the Compliance Certificate most recently delivered as
required by SECTION 9.1(c) preceding the relevant Adjustment Date.
(b) "LIBOR RATE MARGIN" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below in this SECTION 3.2) one
percent (1.00%) per annum and (ii) thereafter the percent per annum set
forth in the table below in this SECTION 3.2 under the heading "LIBOR
Rate Margin", and opposite the Total Funded Debt to EBITDA Ratio as
calculated in the Compliance Certificate most recently delivered as
required by SECTION 9.1(c) preceding the relevant Adjustment Date.
(c) "COMMITMENT FEE RATE" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below in this SECTION 3.2),
three-tenths of one percent (0.30%) per annum; and (ii) thereafter the
percent per annum set forth in the table below in this SECTION 3.2
under the heading "Commitment Fee Rate" opposite the Total Funded Debt
to EBITDA Ratio as calculated in the Compliance Certificate most
recently delivered as required by SECTION 9.1(c) preceding the relevant
Adjustment Date.
CREDIT AGREEMENT - Page 23
<PAGE>
The following is the table referred to in CLAUSES (a), (b) and (c) of
this SECTION 3.2:
<TABLE>
<CAPTION>
Total Funded Debt to BASE RATE LIBOR RATE COMMITMENT
EBITDA Ratio MARGIN MARGIN FEE RATE
==================================================== ==================== =================== ===================
<S> <C> <C> <C>
Greater than or equal to 1.50 x 1.00% 2.25% 0.50%
- ---------------------------------------------------- -------------------- ------------------- -------------------
Greater than or equal to 1.00 x but less than 1.50 x 0.50% 1.75% 0.40%
- ---------------------------------------------------- -------------------- ------------------- -------------------
Greater than or equal to 0.50 x but less than 1.00 x 0.125% 1.375% 0.35%
- ---------------------------------------------------- -------------------- ------------------- -------------------
Less than 0.50 x 0% 1.00% 0.30%
==================================================== ==================== =================== ===================
</TABLE>
Upon delivery of the Compliance Certificate pursuant to SECTION 9.1(c),
commencing with such Compliance Certificate delivered for the Fiscal Quarter
ending June 30, 1999, the Base Rate Margin, Commitment Fee Rate and the Libor
Rate Margin shall automatically be adjusted in accordance with the Total Funded
Debt to EBITDA Ratio set forth in the table set forth above, such automatic
adjustment to take effect prospectively as of the second Business Day following
the date upon which such Compliance Certificate is delivered pursuant to said
SECTION 9.1(c). The term "ADJUSTMENT DATE" shall mean each such day as of which
such margins are deemed to change pursuant to the immediately prior sentence or
the next following sentence. If Borrower fails to deliver such Compliance
Certificate which sets forth the Total Funded Debt to EBITDA Ratio within the
period of time required by SECTION 9.1 (c): (i) the Base Rate Margin shall
automatically be adjusted to one percent (1.00%) per annum, (ii) the Libor Rate
Margin (for Interest Periods commencing after the applicable Adjustment Date)
shall automatically be adjusted to two and one quarter percent (2.25%) per
annum, and (iii) the Commitment Fee Rate shall automatically be adjusted to one
half of one percent (.50%) per annum. The automatic adjustments provided for in
the preceding sentence shall take effect retroactively as of the first day of
the then existing Fiscal Quarter and shall remain in effect until subsequently
adjusted in accordance herewith upon the delivery of such Compliance
Certificate.
Section 3.3 PAYMENT DATES. Accrued interest on the Loans shall be due
and payable as follows: (i) in the case of Loans subject to Base Rate Accounts,
on each Quarterly Payment Date and on the Termination Date; (ii) in the case of
Loans subject to Libor Accounts and with respect to each such Account, on (A)
the last day of the Interest Period with respect thereto, (B) in the case of an
Interest Period greater than three months, at three-month intervals after the
first day of such Interest Period, and (C) on the Termination Date.
Section 3.4 DEFAULT INTEREST. Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of
an Event of Default, Borrower will pay to Administrative Agent for the account
of each Lender interest at the Default Rate on any principal of any Loan made by
such Lender, any Reimbursement Obligation, and (to the fullest extent permitted
by Law) any other amount payable by Borrower under any Loan Document to or for
the account of Administrative Agent or such Lender.
Section 3.5 CONVERSIONS AND CONTINUATIONS OF ACCOUNTS. Subject to
SECTION 4.2 hereof, Borrower shall have the right from time to time to Convert
all or part of any Base Rate Account in existence under a Loan into a Libor
Account under the same Loan or to continue Libor Accounts in
CREDIT AGREEMENT - Page 24
<PAGE>
existence under a Loan as Libor Accounts under the same Loan, PROVIDED that: (a)
Borrower shall give Administrative Agent notice of each such Conversion or
Continuation as provided in SECTION 4.3 hereof; (b) subject to SECTION 5.3
hereof, a Libor Account may only be Converted on the last day of the Interest
Period therefor; and (c) except for Conversions into Base Rate Accounts, no
Conversions or Continuations shall be made without the consent of Administrative
Agent and the Required Lenders while a Default has occurred and is continuing.
Section 3.6 COMPUTATIONS. Interest and fees payable by Borrower
hereunder and under the other Loan Documents in respect of the interest and
fees, other than interest based on the Base Rate, shall be computed on the basis
of a year of 360 days and the actual number of days elapsed (including the first
day but excluding the last day) in the period for which interest is payable
unless such calculation would result in a rate that exceeds the Maximum Rate, in
which case interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be; interest based on the Base Rate shall be computed on
the basis of a 365 or 366 day year, as the case may be.
ARTICLE 4
ADMINISTRATIVE MATTERS
Section 4.1 BORROWING PROCEDURE. Borrower shall give Administrative
Agent, and Administrative Agent will give the Lenders, notice of each borrowing
under the Revolving Commitments in accordance with SECTION 4.3 hereof. Not later
than 11:00 a.m. (San Francisco, California time) on the date specified for each
borrowing under the applicable Revolving Commitment, each Lender obligated with
respect to such Revolving Commitment will make available the amount of the Loan
to be made by it on such date to Administrative Agent, at the Principal Office,
in immediately available funds, for the account of Borrower. The amounts
received by Administrative Agent shall, subject to the terms and conditions of
this Agreement, be made available to Borrower promptly at Borrower's direction
by transferring the same, in immediately available funds by wire transfer,
automated clearinghouse debit, or interbank transfer to (a) a bank account of
Borrower designated by Borrower in writing or (b) a Person or Persons designated
by Borrower in writing.
Section 4.2 MINIMUM AMOUNTS. Except for prepayments and Conversions
pursuant to SECTION 4.4(a) and ARTICLE 5 hereof, each Base Rate Account
applicable to a Loan and each prepayment of principal of a Loan shall be in a
minimum principal amount of One Million Dollars ($1,000,000) or increments of
Five Hundred Thousand Dollars ($500,000) in excess thereof. Each LIBOR Account
applicable to a Loan shall be in a minimum principal amount of One Million
Dollars ($1,000,000) or increments of Five Hundred Thousand Dollars ($500,000)
in excess thereof.
Section 4.3 CERTAIN NOTICES. Notices by Borrower to Administrative
Agent of terminations or reductions of Revolving Commitments, of borrowings and
prepayments of Loans and of Conversion and Continuations of Accounts shall be
irrevocable and shall be effective only if received by Administrative Agent not
later than 9:00 a.m. (San Francisco, California time) on the Business Day prior
to (or, with respect to Base Rate Accounts, on) the date of the relevant
termination, reduction, borrowing, Conversion, Continuation, or other repayment
specified below:
CREDIT AGREEMENT - Page 25
<PAGE>
<TABLE>
<CAPTION>
Notice Number of Business
Days Prior
========================================================================= =======================
<S> <C>
Termination or reduction of Revolving Commitments 5
- ------------------------------------------------------------------------- -----------------------
Borrowing of Loans subject to Base Rate Accounts, prepayment or
repayment of Loans subject to Base Rate Accounts, or Conversions 0
into Base Rate Accounts
- ------------------------------------------------------------------------- -----------------------
Borrowing, prepayment, or repayment of Loans subject to Libor 3
Accounts, Conversions into or Continuations as Libor Accounts
========================================================================= =======================
</TABLE>
Notwithstanding the foregoing, Borrower may give an effective notice of
borrowing of Revolving Loans subject to Base Rate Accounts in accordance with
SECTION 2.7(e) not later than 11:00 a.m. (San Francisco, California time) on the
Business Day of the proposed borrowing if the proceeds of such borrowing will be
used to satisfy Reimbursement Obligations. Any notices of the type described in
this SECTION 4.3 which are received by Administrative Agent after the applicable
time set forth above on a Business Day shall be deemed to be received and shall
be effective on the next Business Day. Each such notice of termination or
reduction shall specify the applicable Revolving Commitments to be affected and
the amount of the Revolving Commitments to be terminated or reduced. Each such
notice of borrowing, Conversion, Continuation, or prepayment shall specify (a)
the Loans to be borrowed or prepaid or the Accounts to be Converted or
Continued; (b) the amount (subject to SECTION 4.2 hereof) to be borrowed,
Converted, Continued, or prepaid; (c) in the case of a Conversion, the Type of
Account to result from such Conversion; (d) in the case of a borrowing, the Type
of Account or Accounts to be applicable to such borrowing and the amounts
thereof; (e) in the event a Libor Account is selected, the duration of the
Interest Period therefor; and (f) the date of borrowing, Conversion,
Continuation, or prepayment (which shall be a Business Day). Any notices by
Borrower of the type described in this SECTION 4.3 must be in writing and may be
transmitted by telecopy, provided that any such telecopy transmission must be
immediately confirmed telephonically by Borrower and promptly (which may be by
first class mail) followed by Administrative Agent's receipt of the original
copy of such notice executed by Borrower. Administrative Agent shall notify the
Lenders of the contents of each such notice on the date of its receipt of the
same or, if received on or after the applicable time set forth above on a
Business Day, on the next Business Day. In the event Borrower fails to select
the Type of Account applicable to a Loan, or the duration of any Interest Period
for any Libor Account, within the time period and otherwise as provided in this
SECTION 4.3, such Account (if outstanding as a Libor Account) will be
automatically Converted into a Base Rate Account on the last day of the
preceding Interest Period for such Account or (if outstanding as a Base Rate
Account) will remain as, or (if not then outstanding) will be made as, a Base
Rate Account. Borrower may not borrow any Loans subject to a Libor Account,
Convert any Base Rate Accounts into Libor Accounts, or Continue any Libor
Account as a Libor Account if the Applicable Rate for such Libor Accounts would
exceed the Maximum Rate.
CREDIT AGREEMENT - Page 26
<PAGE>
Section 4.4 PREPAYMENTS.
(a) MANDATORY.
(i) REVOLVING LOANS. If at any time the Outstanding
Revolving Credit exceeds the aggregate Revolving Commitments,
Borrower shall, within one (1) Business Day after the
occurrence thereof, prepay the outstanding Revolving Loans by
the amount of such excess.
(ii) PREPAYMENTS FROM ASSET DISPOSITIONS. Immediately
upon receipt by Borrower or any of its Subsidiaries of the Net
Proceeds of any Asset Disposition, Borrower shall make a
prepayment in respect of the Obligations equal to the amount
of such Net Proceeds and the Revolving Commitments shall be
permanently reduced by the amount of such prepayment;
PROVIDED, HOWEVER, that if no Default or Event of Default has
occurred and is continuing, Borrower shall not be required to
make such prepayment to the extent that the Net Proceeds from
such Asset Dispositions during any Fiscal Year of Borrower do
not exceed Five Million Dollars ($5,000,000) in the aggregate
and if they should exceed such amount, then the excess amount
only shall be required to be prepaid. Concurrently with the
making of any such payment, Borrower shall deliver to
Administrative Agent a certificate of Borrower's chief
financial officer demonstrating the calculations of the amount
required to be prepaid. Notwithstanding the foregoing, if no
Default or Event of Default has occurred and is continuing, or
would result therefrom, to the extent that the gross proceeds
from such Asset Dispositions during any Fiscal Year of
Borrower do not exceed, in the aggregate, Five Million Dollars
($5,000,000) if Borrower reasonably expects such proceeds to
be reinvested within six (6) months in productive assets of a
kind then used or useable in the business of Borrower or its
Subsidiaries and that are not subject to any Lien other than
in favor of Administrative Agent, for the benefit of the
Agents and the Lenders, then Borrower shall provide
Administrative Agent with notice of such intent in accordance
with SECTION 4.3, and (A) to the extent such proceeds do not
exceed the balance from time to time of the Revolving Loans,
such proceeds shall be applied to the repayment of the
outstanding balance of the Revolving Loans and Administrative
Agent shall, until such time as the reinvestment of such
proceeds, establish a reserve in the amount of the proceeds so
applied, and (B) to the extent such proceeds exceed the
balance from time to time of the Revolving Loans, Borrower
shall deposit such proceeds with Administrative Agent to be
held as cash collateral in which Administrative Agent, for the
ratable benefit of the Agents and the Lenders, shall have a
first priority security interest. Upon Borrower's or its
Subsidiaries' (as applicable) reinvestment of such proceeds as
described above, and provided that Borrower provides
Administrative Agent with copies of a purchase order, invoice,
or other written evidence of the purchase price of the assets
which such proceeds are reinvested in, and such other
information as may be requested by Administrative Agent with
respect thereto, Administrative Agent shall release its
security interest in such cash collateral in respect of the
reinvested funds and shall eliminate such reserve. To the
extent that Borrower or its
CREDIT AGREEMENT - Page 27
<PAGE>
Subsidiaries (as applicable) fail to reinvest such proceeds
within six (6) months as provided above, Borrower authorizes
and directs Administrative Agent to eliminate such reserve, to
apply the amount of the cash collateral in respect of the
unreinvested amount to the prepayment of the Loans and
permanently to reduce the Revolving Commitments in such amount
and/or to reduce the Revolving Commitments in an amount equal
to the reserved amount that is not reinvested.
(iii) PREPAYMENTS FROM DEBT OFFERINGS. In the event
that Borrower, or any Subsidiary of Borrower issues any Debt
Securities (including, without limitation, any Subordinated
Debt Securities), other than Debt referred to in SECTION 10.1
hereof ("DEBT OFFERING"), then no later than the third
Business Day following the date of receipt of the proceeds
from such issuance, Borrower shall make a prepayment in
respect of the Obligations equal to the amount of such
proceeds, net of underwriting discounts and commissions and
other reasonable costs associated therewith, in prepayment of
the Loans. The Revolving Commitments shall be permanently
reduced by the amount of any such prepayment.
(b) OPTIONAL. Subject to SECTION 4.2 and the provisions of
this CLAUSE (b), Borrower may, at any time and from time to time
without premium or penalty upon prior notice to Administrative Agent as
specified in SECTION 4.3, prepay or repay any Loan in full or in part.
Loans subject to a Libor Account may be prepaid or repaid only on the
last day of the Interest Period applicable thereto unless Borrower pays
to Administrative Agent, for the account of the applicable Lenders, any
amounts due under SECTION 5.5 as a result of such prepayment or
repayment.
Section 4.5 METHOD OF PAYMENT. Except as otherwise expressly provided
herein, all payments of principal, interest, and other amounts to be made by
Borrower or any other Loan Party under the Loan Documents shall be made to
Administrative Agent at the Principal Office for the account of each Lender's
Applicable Lending Office in Dollars and in immediately available funds, without
set-off, deduction, or counterclaim, not later than 11:00 a.m. (San Francisco,
California time) on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day). Borrower shall, at the time of making each
such payment, specify to Administrative Agent the sums payable under the Loan
Documents to which such payment is to be applied (and in the event that Borrower
fails to so specify, or if an Event of Default has occurred and is continuing,
Administrative Agent may apply such payment to the Obligations in such order and
manner as it may elect in its sole discretion, subject to SECTION 4.6 and
provided that when applying any such amounts to any Loans, Loans subject to Base
Rate Accounts shall be prepaid in full prior to any application to Loans subject
to Libor Accounts). Each payment received by Administrative Agent under any Loan
Document for the account of a Lender shall be paid to such Lender promptly, in
immediately available funds, for the account of such Lender's Applicable Lending
Office. Whenever any payment under any Loan Document shall be stated to be due
on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.
CREDIT AGREEMENT - Page 28
<PAGE>
Section 4.6 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each Loan shall be made by the Lenders holding Revolving Commitments
for such Loan, each payment of commitment fees under SECTIONS 2.5 and letter of
credit fees under SECTION 2.7(c) shall be made for the account of the Lenders
holding Revolving Commitments and each termination or reduction of the Revolving
Commitments shall be applied to the Revolving Commitments of the Lenders holding
the applicable Revolving Commitments, pro rata according to their respective
Revolving Commitment Percentages; (b) the making, Conversion, and Continuation
of Accounts of a particular Type (other than Conversions provided for by SECTION
5.4) shall be made pro rata among the Lenders holding Accounts of such Type
according to their respective Commitment Percentages; (c) each payment and
prepayment of principal of or interest on Loans or Reimbursement Obligations by
Borrower shall be made to Administrative Agent for the account of the Lenders
holding such Loans or Reimbursement Obligations (or participation interests
therein) pro rata in accordance with the respective unpaid principal amounts of
such Loans or participation interests held by such Lenders; PROVIDED that as
long as no default in the payment of interest exists, payments of interest made
when Lenders are holding different types of Accounts applicable to the same Loan
as a result of the application of SECTION 5.4, shall be made to the Lenders in
accordance with the amount of interest owed to each; and (d) the Lenders holding
Revolving Commitments shall purchase from the Fronting Bank participations in
the Letters of Credit to the extent of their respective Commitment Percentages.
If at any time payment, in whole or in part, of any amount distributed by
Administrative Agent hereunder is rescinded or must otherwise be restored or
returned by Administrative Agent as a preference, fraudulent conveyance, or
otherwise under any bankruptcy, insolvency, or similar Law, then each Person
receiving any portion of such amount agrees, upon demand, to return the portion
of such amount it has received to Administrative Agent.
Section 4.7 SHARING OF PAYMENTS. If a Lender shall obtain payment of
any principal of or interest on any of the Obligations due to such Lender
hereunder directly (and not through Administrative Agent) through the exercise
of any right of set-off, banker's lien, counterclaim, or similar right, or
otherwise, it shall promptly purchase from the other Lenders participations in
the Obligations held by the other Lenders in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Lenders shall share the benefit of such payment pro rata in accordance with the
unpaid principal of and interest on the Obligations then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored.
Borrower agrees, to the fullest extent it may effectively do so under applicable
Law, that any Lender so purchasing a participation in the Obligations held by
the other Lenders may exercise all rights of set-off, banker's lien,
counterclaim, or similar rights with respect to such participation as fully as
if such Lender were a direct holder of Obligations in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower.
Section 4.8 NON-RECEIPT OF FUNDS BY ADMINISTRATIVE AGENT. Unless
Administrative Agent shall have been notified by a Lender or Borrower (the
"PAYOR") prior to the date on which such Lender is to make payment to
Administrative Agent hereunder or Borrower is to make a payment to
Administrative Agent, for the account of one or more of the Agents or the
Lenders, as the case
CREDIT AGREEMENT - Page 29
<PAGE>
may be (such payment being herein called the "REQUIRED PAYMENT"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to Administrative Agent, Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has not in fact made the
Required Payment to Administrative Agent, (a) the recipient of such payment
shall, on demand, pay to Administrative Agent the amount made available to it
together with interest thereon in respect of the period commencing on the date
such amount was so made available by Administrative Agent until the date
Administrative Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such period, and (b) Administrative Agent shall be
entitled to offset against any and all sums to be paid to such recipient, the
amount calculated in accordance with the foregoing CLAUSE (a).
Section 4.9 PARTICIPATION OBLIGATIONS ABSOLUTE; FAILURE TO FUND
PARTICIPATION. The obligations of a Lender holding a Revolving Commitment to
fund its participation in the Letters of Credit in accordance with the terms
hereof shall be absolute, unconditional and irrevocable and shall be performed
strictly in accordance with the terms of the Loan Documents under all
circumstances whatsoever, including, without limitation, the following
circumstances: (a) any lack of validity of any Loan Document; (b) the occurrence
of any Default; (c) the existence of any claim, set-off, counterclaim, defense,
or other right which such Lender, any Loan Party, or any other Person may have;
(d) the occurrence of any event that has or could reasonably be expected to have
a Material Adverse Effect on Borrower or any other Loan Party; (e) the failure
of any condition to a Loan under ARTICLE 7 hereof to be satisfied; (f) the fact
that after giving effect to the funding of the participation the Outstanding
Revolving Credit may exceed the aggregate Revolving Commitments; or (g) any
other circumstance whatsoever, whether or not similar to any of the foregoing.
If a Lender fails to fund its participation in a Letter of Credit as required
hereby, such Lender shall, subject to the foregoing proviso, remain obligated to
pay to Administrative Agent the amount it failed to fund on demand together with
interest thereon in respect of the period commencing on the date such amount
should have been funded until the date the amount was actually funded to
Administrative Agent at a rate per amount equal to the Federal Funds Rate for
such period and Administrative Agent shall be entitled to offset against any and
all sums to be paid to such Lender hereunder the amount due Administrative Agent
or the Fronting Bank under this sentence.
ARTICLE 5
CHANGE IN CIRCUMSTANCES
Section 5.1 INCREASED COST AND REDUCED RETURN.
(a) INCREASED COST. If, after the Closing Date, any Regulatory
Change or compliance by any Lender (or its Applicable Lending Office)
with any request or directive (whether or not having the force of Law)
of any Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty, or other charge with respect
to any Libor Accounts, its Notes, or its
CREDIT AGREEMENT - Page 30
<PAGE>
obligation to make Libor Accounts, or change the basis of
taxation of any amounts payable to such Lender (or its
Applicable Lending Office) under this Agreement or its Notes
in respect of any Libor Accounts (other than franchise taxes
or taxes imposed on or measured by the net income of such
Lender by the jurisdiction in which such Lender is organized,
has its principal office or such Applicable Lending Office or
is doing business);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than the Reserve Requirement utilized in the
determination of the Adjusted Libor Rate) relating to any
extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the Revolving
Commitments of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or the London interbank market any other
condition affecting this Agreement or its Notes or any of such
extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, Converting into,
Continuing, or maintaining any Libor Accounts or to reduce any sum
received or receivable by such Lender (or its Applicable Lending
Office) under this Agreement or its Notes with respect to any Libor
Accounts, then Borrower shall pay to such Lender on demand such amount
or amounts as will compensate such Lender for such increased cost or
reduction, as then or previously incurred. If any Lender requests
compensation by Borrower under this SECTION 5.1(a), Borrower may, by
notice to such Lender (with a copy to Administrative Agent), suspend
the obligation of such Lender to make or maintain Libor Accounts, or to
Convert Base Rate Accounts into Libor Accounts, until the event or
condition giving rise to such request ceases to be in effect (in which
case the provisions of SECTION 5.4 shall be applicable); PROVIDED that
such suspension shall not affect the right of such Lender to receive
the compensation so requested.
(b) CAPITAL ADEQUACY. If, after the date hereof, any Lender
shall have determined that any Regulatory Change has or would have the
effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change,
request, or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time upon demand, Borrower shall pay to
such Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(c) CLAIMS UNDER THIS SECTION 5.1. Each Lender shall promptly
notify Borrower and Administrative Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such
Lender to such compensation pursuant to this SECTION 5.1 and will
designate a different Applicable Lending Office if such designation
will avoid the need
CREDIT AGREEMENT - Page 31
<PAGE>
for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender
claiming compensation under this SECTION 5.1 shall furnish to Borrower
and Administrative Agent a statement setting forth the additional
amount or amounts to be paid to it hereunder which shall be conclusive
in the absence of manifest error. In determining such amount, such
Lender may use any reasonable averaging and attribution methods.
Section 5.2 LIMITATION ON LIBOR ACCOUNTS. If on or prior to the first
day of any Interest Period for any Libor Account:
(a) Administrative Agent determines (which determination shall
be conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Libor Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall
be conclusive) and notify Administrative Agent that the Adjusted Libor
Rate will not adequately and fairly reflect the cost to the Lenders of
funding Libor Accounts for such Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof specifying
the amounts or periods, and so long as such condition remains in effect, the
Lenders shall be under no obligation to make additional Libor Accounts, Continue
Libor Accounts, or to Convert Base Rate Accounts into Libor Accounts and
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Libor Accounts, either prepay such Libor Accounts or Convert
such Libor Accounts into Base Rate Accounts in accordance with the terms of this
Agreement.
Section 5.3 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Libor Accounts hereunder,
then such Lender shall promptly notify Borrower and Administrative Agent thereof
and such Lender's obligation to make or Continue Libor Accounts and to Convert
Base Rate Accounts into Libor Accounts shall be suspended until such time as
such Lender may again make, maintain, and fund Libor Accounts (in which case the
provisions of SECTION 5.4 shall be applicable).
Section 5.4 TREATMENT OF AFFECTED ACCOUNTS. If the obligation of any
Lender to make a particular Libor Account or to Continue, or to Convert Base
Rate Accounts into, Libor Accounts shall be suspended pursuant to SECTION 5.1 or
SECTION 5.3 (Accounts of such Type being herein called "AFFECTED ACCOUNTS"),
such Lender's Affected Accounts shall be automatically Converted into Base Rate
Accounts on the last day(s) of the then current Interest Period(s) for the
Affected Accounts (or, in the case of a Conversion required by SECTION 5.3
hereof, on such earlier date as such Lender may specify to Borrower with a copy
to Administrative Agent) and, unless and until such Lender gives notice as
provided below that the circumstances specified in SECTION 5.1 or SECTION 5.3
hereof that gave rise to such Conversion no longer exist:
CREDIT AGREEMENT - Page 32
<PAGE>
(a) to the extent that such Lender's Affected
Accounts have been so Converted, all payments and prepayments of
principal that would otherwise be applied to such Lender's Affected
Accounts shall be applied instead to its Base Rate Accounts; and
(b) all Accounts that would otherwise be made or
Continued by such Lender as Libor Accounts shall be made or Continued
instead as Base Rate Accounts, and all Accounts of such Lender that
would otherwise be Converted into Libor Accounts shall be Converted
instead into (or shall remain as) Base Rate Accounts.
If such Lender gives notice to Borrower (with a copy to Administrative Agent)
that the circumstances specified in SECTION 5.1 or SECTION 5.3 hereof that gave
rise to the Conversion of such Lender's Affected Accounts no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when Libor Accounts made by other Lenders are outstanding, such Lender's
Base Rate Accounts shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Libor Accounts, to the
extent necessary so that, after giving effect thereto, all Accounts held by the
Lenders holding Libor Accounts and by such Lender are held pro rata (as to
principal amounts, Types, and Interest Periods) in accordance with their
respective Commitment Percentages.
Section 5.5 COMPENSATION. Upon the request of any Lender, Borrower
shall pay to such Lender such amount or amounts as shall be sufficient (in the
opinion of such Lender) to compensate it for any loss, cost, or expense
(including, without limitation, any such amounts incurred in connection with
syndication of the Loans) incurred by it as a result of:
(a) any payment, prepayment, or Conversion by Borrower of a
Libor Account for any reason (including, without limitation, the
acceleration of the Loans pursuant to SECTION 12.2) on a date other
than the last day of the Interest Period for such Libor Account; or
(b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in ARTICLE
7 to be satisfied) to borrow, Convert, Continue, or prepay a Libor
Account on the date for such borrowing, Conversion, Continuation, or
prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Agreement.
Section 5.6 TAXES.
(a) WITHHOLDING TAXES. Except as otherwise provided in this
Agreement, any and all payments by any Loan Party to or for the account
of any Lender, any of the Agents or the Fronting Bank hereunder or
under any other Loan Document shall be made free and clear of and
without deduction for any and all present or future taxes, duties,
levies, imposts, deductions, charges, or withholdings, and all
liabilities with respect thereto, EXCLUDING, in the case of each
Lender, each of the Agents, or the Fronting Bank (as applicable), taxes
imposed on or measured by its income, and franchise taxes imposed on
it, by the jurisdiction under the laws of which such Lender (or its
Applicable Lending Office), such of the Agents, or the
CREDIT AGREEMENT - Page 33
<PAGE>
Fronting Bank (as the case may be) is organized, located or doing
business or any political subdivision thereof (all such non-excluded
taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "TAXES"). If a Loan Party
shall be required by Law to deduct any Taxes from or in respect of any
sum payable under any Loan Document to any Lender, any of the Agents,
or the Fronting Bank (as applicable), (i) the sum payable shall be
increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 5.6) such Lender, such of the Agents, or the Fronting Bank (as
applicable) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the applicable Loan Party shall
make such deductions, (iii) the applicable Loan Party shall pay the
full amount deducted to the relevant taxing authority or other
authority in accordance with applicable Law, and (iv) the applicable
Loan Party shall furnish to Administrative Agent the original or a
certified copy of a receipt evidencing payment thereof.
(b) STAMP TAXES, ETC. In addition, Borrower agrees to pay any
and all present or future stamp or documentary taxes and any other
excise or property taxes or charges or similar levies which arise from
any payment made under this Agreement or any other Loan Document or
from the execution or delivery of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "OTHER
TAXES").
(c) TAX INDEMNIFICATION. BORROWER AGREES TO INDEMNIFY EACH
LENDER, EACH OF THE AGENTS, AND THE FRONTING BANK FOR THE FULL AMOUNT
OF TAXES AND OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR
OTHER TAXES IMPOSED OR ASSERTED BY ANY JURISDICTION ON AMOUNTS PAYABLE
UNDER THIS SECTION 5.6) PAID BY SUCH LENDER, SUCH OF THE AGENTS, OR THE
FRONTING BANK (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT
THERETO.
Section 5.7 WITHHOLDING TAX EXEMPTION. Each Lender organized under the
laws of a jurisdiction outside the U.S., on or prior to the date of its
execution and delivery of this Agreement in the case of each Lender listed on
the signature pages hereof and on or prior to the date on which it becomes a
Lender in the case of each other Lender, and from time to time thereafter if
requested in writing by Borrower or Administrative Agent (but only so long as
such Lender remains lawfully able to do so), shall provide Borrower and
Administrative Agent with (a) if such Lender is a "bank" within the meaning of
Section 881(c)(3)(A) of the Code, (i) Internal Revenue Service Form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the U.S. is a party which reduces to zero the rate of
withholding tax on payments of interest or certifying that the income receivable
pursuant to this Agreement is effectively connected with the conduct of a trade
or business in the U.S., (ii) Internal Revenue Service Form W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
and (iii) any other form or certificate required by any taxing authority
(including any certificate required by Sections 871(h) and 881(c) of the Code),
certifying that such Lender is entitled to a complete exemption from tax on
payments pursuant to any
CREDIT AGREEMENT - Page 34
<PAGE>
of the Loan Documents or (b) if such Lender is not a "bank" within the meaning
of Section 881(c)(3)(A) of the Code, a Form W-8, or any subsequent versions
thereof or successors thereto (and, if such non-U.S. Lender delivers a Form W-8,
a certificate (including any certificate required by Sections 871(h) and 881(c)
of the Code) representing that such non-U.S. Lender is not a bank for purposes
of Section 881(c) of the Code, is not a 10-percent shareholder (within the
meaning of Section 871(h)(3)(B) of the Code) of Borrower and is not a controlled
foreign corporation related to Borrower (within the meaning of Section 864(d)(4)
of the Code)), properly completed and duly executed by such non-U.S. Lender
claiming complete exemption from United States Federal withholding tax on
payments of interest by Borrower under this Agreement and the other Loan
Documents. For any period with respect to which a Lender has failed to provide
Borrower and Administrative Agent with the appropriate form pursuant to this
SECTION 5.7 and thereby to establish complete exemption from U.S. withholding
tax (unless such failure to establish complete exemption from U.S. withholding
tax is due to a change in treaty, Law, or regulation occurring subsequent to the
date on which a form originally was required to be provided), (A) the applicable
Loan Party shall deduct all required Taxes from any amounts payable to such
Lender under any Loan Document, (B) the applicable Loan Party shall pay the full
amount allocated to the relevant taxing authority or other authority in
accordance with applicable Law, (C) the applicable Loan Party shall furnish to
Administrative Agent the original or a certified copy of a receipt evidencing
payment thereof, and (D) such Lender shall not be entitled to an indemnification
or increases in the sum payable under SECTION 5.6 or SECTION 13.5 with respect
to Taxes imposed by the U.S.; PROVIDED, HOWEVER, that should a Lender, which is
otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
Borrower shall take such steps as such Lender shall reasonably request to assist
such Lender to recover such Taxes.
ARTICLE 6
SECURITY
Section 6.1 COLLATERAL. To secure the full and complete payment and
performance of the Obligations, Borrower shall, and shall cause each Subsidiary
of Borrower, other than the Foreign Subsidiaries, to grant to Administrative
Agent, for the benefit of the Agents and the Lenders, a perfected (except to the
limited extent otherwise as set forth herein), first priority Lien on all of its
right, title, and interest in and to the following Property, whether now owned
or hereafter acquired, pursuant to the Security Documents:
(a) all Capital Stock of each Subsidiary of Borrower other
than Capital Stock of Foreign Subsidiaries (whether present or future),
owned as of the Closing Date or thereafter acquired by Borrower or any
Domestic Subsidiary of Borrower;
(b) 65% of the shares of each class of Capital Stock of each
Foreign Subsidiary (whether present or future) that is a direct
Subsidiary of Borrower or of a Domestic Subsidiary of Borrower, owned
as of the Closing Date or thereafter acquired by Borrower or such
Domestic Subsidiary; and
CREDIT AGREEMENT - Page 35
<PAGE>
(c) all other Property of Borrower and each Subsidiary of
Borrower, other than the Foreign Subsidiaries, owned as of the Closing
Date or thereafter acquired, including, without limitation, all
accounts (including, without limitation, Receivables), inventory
(including, without limitation, Inventory), equipment, furniture,
fixtures, contract rights, general intangibles, documents, instruments,
investment property, chattel paper, permits, Intellectual Property,
intercompany Debt, licenses, and material real property.
Borrower covenants that none of the Capital Stock to be pledged, in accordance
with this SECTION 6.1 shall be subject to any transfer restrictions,
shareholders' agreement, or other restriction except for such restrictions under
applicable securities laws and such restrictions, if any, as may be reasonably
acceptable to Administrative Agent. In connection with and in addition to the
foregoing, Borrower and its Subsidiaries shall execute and/or deliver such
Security Documents and further agreements, documents, and instruments
(including, without limitation, stock certificates, stock powers, and financing
statements) as Administrative Agent may reasonably request in order for it to
obtain and maintain the perfected, first priority Liens to be granted in
accordance with this SECTION 6.1.
Section 6.2 GUARANTIES. Each Granting Domestic Subsidiary (and each
Remaining Subsidiary as set forth in SECTION 9.10(c)) shall guarantee payment
and performance of the Obligations pursuant to the Subsidiary Guaranty.
Section 6.3 NEW SUBSIDIARIES, NEW ISSUANCES OF CAPITAL STOCK.
Contemporaneously with the creation or acquisition of any Subsidiary of Borrower
(other than a Foreign Subsidiary, except as provided in SECTION 6.7) Borrower
shall, and shall cause each of its Subsidiaries to:
(a) grant or cause to be granted to Administrative Agent, for
the benefit of the Agents and the Lenders, a perfected, first priority
security interest in all Capital Stock in such Subsidiary owned by
Borrower or its Domestic Subsidiaries (to the extent such Capital Stock
is not already so pledged to Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and
performance of the Obligations by executing and delivering to
Administrative Agent an appropriate Guaranty; and
(c) cause each such Subsidiary to execute and deliver to
Administrative Agent an appropriate Security Agreement and such other
Security Documents as Administrative Agent may reasonably request to
grant Administrative Agent, for the benefit of the Agents and the
Lenders, a perfected, first priority Lien (except for Permitted Liens,
if any) on all Property of such Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of any
Subsidiary of Borrower, Borrower shall, and shall cause each of its Subsidiaries
and other appropriate Persons (as applicable) to, grant or cause to be granted
to Administrative Agent, for the benefit of the Agents and the Lenders, a
perfected, first priority security interest in all Capital Stock in such
Subsidiary owned by any shareholder of any Subsidiary of Borrower, Borrower, or
any Subsidiary of Borrower (to the extent such Capital Stock are already not so
pledged to Administrative Agent). Borrower covenants
CREDIT AGREEMENT - Page 36
<PAGE>
that none of the Capital Stock to be pledged in accordance with this SECTION 6.3
shall be subject to any transfer restriction, shareholders' agreement, or other
restriction except for such restrictions under applicable securities laws and
such restrictions, if any, as may be reasonably acceptable to Administrative
Agent. Notwithstanding anything to the contrary contained in this SECTION 6.3
(but subject to SECTION 6.7), (i) neither Borrower nor any Subsidiary of
Borrower shall be obligated to pledge more than 65% of each class of the issued
and outstanding capital stock of any Foreign Subsidiary that is a direct
Subsidiary of Borrower or its Domestic Subsidiaries or to pledge any Capital
Stock of any Subsidiary of any such Foreign Subsidiaries, (ii) no Foreign
Subsidiary shall be obligated to execute a Guaranty guaranteeing payment or
performance of the Obligations, and (iii) no Foreign Subsidiary shall be
obligated to execute a Security Agreement securing payment or performance of the
Obligations. In connection with and in addition to the foregoing, Borrower and
its Subsidiaries shall execute and/or deliver such further agreements, documents
and instruments (including, without limitation, stock certificates, stock
powers, and financing statements) as Administrative Agent may reasonably request
in order for it to obtain and maintain the perfected, first priority Liens to be
granted in accordance with this SECTION 6.3.
Section 6.4 NEW MORTGAGED PROPERTIES. If requested by Administrative
Agent, Borrower shall, and shall cause each of its Subsidiaries other than its
Foreign Subsidiaries to, contemporaneously with the acquisition of any fee real
Property, execute, acknowledge and deliver to Administrative Agent a Mortgage or
an amendment or modification to a then existing Mortgage covering all fee real
Property acquired by Borrower or any of such Subsidiaries subsequent to the
Closing Date, together with evidence reasonably satisfactory to Administrative
Agent and its counsel, including, without limitation, if requested by
Administrative Agent, a commitment for a mortgagee policy of title insurance or
a title opinion in favor of Administrative Agent, in form and substance
reasonably satisfactory to Administrative Agent, that the Mortgage creates a
valid, first priority Lien on the fee estate in favor of Administrative Agent,
for the benefit of the Agents and the Lenders (except for Permitted Liens, if
any), together with appraisals and surveys if requested by Administrative Agent.
Following the date of each such acquisition of Property, if requested by
Administrative Agent, Borrower shall, and shall cause each of its Subsidiaries
(other than its Foreign Subsidiaries) with an interest in such Properties to,
(a) deliver or cause to be delivered to Administrative Agent, a mortgagee policy
of title insurance insuring the Liens of the Mortgage covering such fee real
Property in an amount reasonably satisfactory to Administrative Agent on
standard form policies (except for Permitted Liens, if any) and (b) provide
Administrative Agent with a current environmental assessment of such Property in
form and substance reasonably satisfactory to Administrative Agent.
Section 6.5 RELEASE OF COLLATERAL. Upon any sale, transfer or other
disposition of Collateral that is expressly permitted under SECTION 10.8 and
upon five (5) Business Days prior written request by Borrower, Administrative
Agent shall execute at Borrower's expense such documents as may be necessary to
evidence the release by Administrative Agent of its Liens on such Collateral
being sold, transferred, or otherwise disposed of; PROVIDED, HOWEVER, that (a)
Administrative Agent shall not be required to release any Lien on any Collateral
if a Default shall have occurred and be continuing, (b) Administrative Agent
shall not be required to execute any such document on terms which, in
Administrative Agent's opinion, would expose Administrative Agent to liability
or create any obligation not reimbursed by Borrower or entail any consequences
other
CREDIT AGREEMENT - Page 37
<PAGE>
than the release of such Lien without recourse or warranty, and (c) such release
shall not in any manner discharge, affect or impair any of the Obligations or
any of Administrative Agent's Liens on any Collateral retained by Borrower or
any of its Subsidiaries, including, without limitation, its Liens on the
proceeds of any such sale, transfer or other disposition.
Section 6.6 SETOFF. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to Borrower or any other Person (any such notice being hereby
expressly waived by Borrower and the other Loan Parties), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of Borrower or any other Loan Party against any
and all of the Obligations of Borrower or such other Loan Party now or hereafter
existing under this Agreement, any of such Lender's Notes or any other Loan
Document, irrespective of whether or not Administrative Agent or such Lender
shall have made any demand under this Agreement, any of such Lender's Note or
any such other Loan Document and although such Obligations may be unmatured.
Each Lender agrees promptly to notify Borrower (with a copy to Administrative
Agent) after any such setoff and application, PROVIDED that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights and remedies of each Lender hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which such
Lender may have.
Section 6.7 COLLATERAL AND GUARANTIES OF FOREIGN SUBSIDIARIES. Borrower
and its Subsidiaries agree that, notwithstanding anything to the contrary
contained in this ARTICLE 6 or elsewhere in this Agreement or in any other Loan
Document, promptly upon (and, in any event, within ten Business Days after) any
written request therefor made by Administrative Agent or the Required Lenders
after and during the continuation of an Event of Default, they will execute
and/or deliver, or cause to be executed and/or delivered, each of the following
as may be so requested and all of which shall be in form and substance
satisfactory to Administrative Agent:
(a) a Security Agreement executed by each of Borrower and each
applicable Subsidiary of Borrower which grants to Administrative Agent
for the benefit of Administrative Agent and the Lenders a perfected,
first priority Lien (except for Permitted Liens, if any) on all of such
Person's right, title and interest in and to the following Property,
whether now owned or hereafter acquired:
(i) all Capital Stock of each Foreign Subsidiary
(whether present or future and whether direct or indirect);
and
(ii) all other Property of each Foreign Subsidiary
then owned or thereafter acquired, including, without
limitation, all accounts (including, without limitation,
Receivables), inventory (including, without limitation,
Inventory), equipment, furniture, fixtures, contract rights,
general intangibles (including, without limitation, franchise
agreements), instruments, investment property, chattel paper,
permits, Intellectual Property, intercompany Debt and real
Property; and
CREDIT AGREEMENT - Page 38
<PAGE>
(b) a Guaranty executed by each Foreign Subsidiary (whether
present or future and whether direct or indirect) which guarantees
payment and performance of the Obligations; and
(c) such further agreements, documents and instruments
(including, without limitation, stock certificates, stock powers,
financing statements and other Security Documents) as Administrative
Agent may request in connection with any of the foregoing.
Borrower covenants that none of the capital stock to be pledged in accordance
with this SECTION 6.7 shall be subject to any transfer restrictions,
shareholders' agreement or other restriction except for such restrictions under
applicable securities laws and such restrictions, if any, as may be reasonably
acceptable to Administrative Agent.
ARTICLE 7
CONDITIONS PRECEDENT
Section 7.1 INITIAL LOAN AND LETTER OF CREDIT. The obligation of each
Lender to make its initial Loan and the obligation of Administrative Agent to
issue the initial Letter of Credit are subject to the following conditions
precedent:
(a) DELIVERIES. Administrative Agent shall have received on or
before the Closing Date and on or before the day of any such Loan or
Letter of Credit all of the following, each dated (unless otherwise
indicated) the Closing Date, in form and substance satisfactory to
Administrative Agent:
(i) RESOLUTIONS; AUTHORITY. Resolutions of the board
of directors (or similar governing body) of each Loan Party
certified by its Secretary or an Assistant Secretary which
authorize its execution, delivery, and performance of the Loan
Documents to which it is or is to be a party;
(ii) INCUMBENCY CERTIFICATE. A certificate of
incumbency certified by the Secretary or an Assistant
Secretary of each Loan Party certifying the names of its
officers (A) who are authorized to sign the Loan Documents to
which it is or is to be a party (including the certificates
contemplated herein) together with specimen signatures of each
such officer and (B) who will, until replaced by other
officers duly authorized for that purpose, act as its
representative for the purposes of signing documentation and
giving notices and other communications in connection with
this Agreement and the transactions contemplated hereby;
(iii) ORGANIZATIONAL DOCUMENTS. The certificate of
incorporation of each Loan Party certified by the Secretary of
State of the state of its incorporation and dated a current
date;
CREDIT AGREEMENT - Page 39
<PAGE>
(iv) BYLAWS. The bylaws of each Loan Party certified
by its Secretary or an Assistant Secretary;
(v) GOVERNMENTAL CERTIFICATES. Certificates of the
appropriate government officials of the state of incorporation
of each Loan Party as to its existence and, to the extent
applicable good standing, and certificates of the appropriate
government officials of each state in which each Loan Party's
principal business office is located, as to each Loan Party's
qualification to do business and good standing in such state,
all dated a current date;
(vi) NOTES. The Notes executed by Borrower dated the
date hereof;
(vii) GUARANTIES. The Subsidiary Guaranty executed by
the Granting Domestic Subsidiaries;
(viii) LIEN SEARCH REPORTS. UCC, tax, and judgment
Lien search reports listing all documentation on file against
Borrower and its Domestic Subsidiaries in the central filing
locations of each jurisdiction in which any such party's
business offices are located and in the local filing offices
of each jurisdiction in which such party's principal business
office is located;
(ix) TERMINATION OR ASSIGNMENT OF LIENS. Duly
executed UCC-3 termination statements, mortgage releases, and
such other documentation as shall be necessary to terminate,
release, or assign to Administrative Agent all Liens other
Liens other than those permitted by SECTION 10.2 hereof;
(x) SECURITY AGREEMENTS. Security Agreements executed
by Borrower and each Granting Domestic Subsidiary of Borrower;
(xi) STOCK CERTIFICATES; INTERCOMPANY NOTES. The
stock certificates representing all of the issued and
outstanding Capital Stock of the Granting Domestic
Subsidiaries and 65% of the outstanding Capital Stock of its
first tier Foreign Subsidiaries, in each case accompanied by
appropriate instruments of transfer or stock powers executed
in blank (as appropriate), or registration of Administrative
Agent's Lien, in form and substance satisfactory to
Administrative Agent (in the case of book entry securities),
provided, that Borrower shall have sixty (60) days after the
Closing Date to deliver all of the Capital Stock of its first
tier Foreign Subsidiaries (including, without limitation, the
Capital Stock of Stringfield Limited, an Irish company, and
Peregrine Company of Canada Limited, a Canadian company)
required to be pledged as aforesaid, and all promissory notes
evidencing intercompany Debt between or among Borrower and any
of its Domestic Subsidiaries, accompanied by appropriate
endorsements thereto executed by the holder(s) of such
promissory notes to and in favor of Administrative Agent;
CREDIT AGREEMENT - Page 40
<PAGE>
(xii) FINANCING STATEMENTS. UCC Financing statements
and all other requisite filing documents executed by the Loan
Parties necessary to perfect the Liens created pursuant to the
Security Documents;
(xiii) CONSENTS. Copies of all material consents or
waivers (other than consents or waivers previously delivered
to Administrative Agent and certified by a Loan Party as being
true and correct copies) necessary for the execution,
delivery, and performance by each of the Loan Parties of the
Loan Documents to which it is a party, as Administrative Agent
may require, which consents shall be certified by an
Authorized Representative of the applicable Loan Party as true
and correct copies of such consents as of the Closing Date;
(xiv) PERMITS. Copies of all material permits (other
than permits previously delivered to Administrative Agent and
certified by a Loan Party as being true and correct copies)
affecting Borrower or any of its Subsidiaries in connection
with its businesses or any of the Properties owned or leased
by it, and evidence satisfactory to Administrative Agent that
Borrower and its Subsidiaries are able to conduct their
businesses with the use of such permits in full force and
effect;
(xv) INSURANCE POLICIES. Certificates of insurance
summarizing the insurance policies of Borrower and its
Subsidiaries required by this Agreement and reflecting
Administrative Agent as additional insured and loss payee
under such policies;
(xvi) OPINIONS OF COUNSEL. Opinions of legal counsel
to Borrower and the Subsidiaries of Borrower from such
jurisdictions, and as to such matters, as Administrative Agent
may reasonably request;
(xvii) FEES. The underwriting and structuring fees
set forth in that certain letter dated May 26, 1999 from
Agents to Borrower, as the same may be amended from time to
time;
(xviii) EMPLOYMENT AGREEMENTS. Copies of all
employment contracts or other compensation arrangements
between Borrower and any of its Subsidiaries and their
respective executive officers;
(xix) LETTER OF DIRECTION. A letter of direction from
Borrower addressed to Administrative Agent with respect to the
disbursement of the proceeds of the initial Loans;
(xx) SCHEDULES. The Schedules to be attached hereto
in form and substance satisfactory to Lenders in their sole
discretion.
(b) FINANCIAL STATEMENTS. Receipt and satisfactory review by
Administrative Agent of the consolidated financial statements of
Borrower and its Subsidiaries for each of
CREDIT AGREEMENT - Page 41
<PAGE>
the 1996, 1997 and 1998 Fiscal Years, including balance sheets, income
and cash flow statements audited by independent public accountants of
recognized national standing and prepared in conformity with GAAP and
such other financial information as Administrative Agent may request.
(c) ATTORNEYS' FEES AND EXPENSES. The reasonable costs and
expenses (including attorneys' fees) referred to in SECTION 14.1 hereof
for which statements have been presented shall have been paid in full;
(d) COMPLIANCE WITH LAWS. As of the Closing Date, each Loan
Party shall have complied with all requirements of all Governmental
Authorities necessary to consummate the transactions contemplated by
this Agreement and the other Loan Documents;
(e) NO PROHIBITIONS. No requirement of any Governmental
Authority shall prohibit the consummation of the transactions
contemplated by this Agreement or any other Loan Document, and no
order, judgment, or decree of any Governmental Authority or arbitrator
shall, and no litigation or other proceeding shall be pending or
threatened which would, enjoin, prohibit, restrain, or otherwise
adversely affect in any material manner the consummation of the
transactions contemplated by this Agreement and the other Loan
Documents or otherwise have a Material Adverse Effect on Borrower or
any other Loan Party;
(f) NO MATERIAL ADVERSE CHANGE. As of the Closing Date, no
material adverse change shall have occurred with respect to the
condition (financial or otherwise), results of operations, business,
operations, capitalization, assets, liabilities, or prospects of
Borrower and its Subsidiary taken as a whole since June 30, 1998 and
Administrative Agent shall be satisfied that the economic performance
of Borrower and each of its Subsidiaries to the Closing Date is not
materially different from the economic projections for Borrower and
each of its Subsidiaries through the Closing Date that were previously
submitted to Administrative Agent;
(g) NO MATERIAL LITIGATION. Except as set forth in SCHEDULE
8.5 hereto, as of the Closing Date, no action, suit, investigation, or
proceeding shall be pending or threatened before any Governmental
Authority that purports to affect Borrower or any Subsidiary of
Borrower that could result in a Material Adverse Effect as to any of
them or that could have an adverse effect on the ability of Borrower or
any Subsidiary of Borrower to perform their Obligations under the Loan
Documents;
(h) COMPLIANCE WITH FINANCIAL OBLIGATIONS. As of the Closing
Date, each of Borrower and the Subsidiaries of Borrower shall be in
compliance with all of their respective existing financial obligations;
(i) DUE DILIGENCE REVIEW. Receipt and review, with results
reasonably satisfactory to Administrative Agent and its counsel, of
information regarding litigation, tax, accounting, labor, insurance,
pension liabilities (actual or contingent), real estate leases,
CREDIT AGREEMENT - Page 42
<PAGE>
material contracts, debt agreements, property ownership, environmental
matters, contingent liabilities and management of Borrower and its
Subsidiaries which information may include, if requested by
Administrative Agent, (a) asset appraisal reports with respect to all
of the real and personal property owned by Borrower and its
Subsidiaries and (b) a written audit of the accounts receivable,
controls and systems of Borrower and its Subsidiaries.
(j) YEAR 2000 MATTERS. Receipt and review, with results
satisfactory to Administrative Agent and the Lenders, of information
confirming that (a) Borrower and its Subsidiaries are taking all
necessary and appropriate steps to ascertain the extent of, and to
quantify and successfully address, business and financial risks facing
Borrower and its Subsidiaries as a result of the "Year 2000 Problem"
(i.e., the inability of certain computer applications to recognize
correctly and perform date-sensitive functions involving certain dates
prior to and after December 31, 1999), including risks resulting from
the failure of key vendors and customers of Borrower and its
Subsidiaries to successfully address the Year 2000 Problem, and (b)
Borrower's and its Subsidiaries' material computer applications and
those of its key vendors and customers will, on a timely basis,
adequately address the Year 2000 Problem in all material respects.
(k) NO MATERIAL MARKET CHANGES. The absence of any material
disruption of or material adverse change in conditions in the
financial, banking or capital markets which Administrative Agent and
Lead Arranger, in their sole discretion, deem material in connection
with the syndication of the Loans or of the senior credit facility
expected to refinance the Loans.
(l) ADDITIONAL DOCUMENTATION. Administrative Agent shall have
received such additional approvals, opinions, or other documentation as
Administrative Agent may reasonably request.
Section 7.2 ALL LOANS AND LETTERS OF CREDIT. The obligation of each
Lender to make any Loan (including the initial Loans) and the obligation of the
Fronting Bank to issue any Letter of Credit (including any initial Letter of
Credit) are subject to the following additional conditions precedent:
(a) NO DEFAULT. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit; and
(b) REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties contained in ARTICLE 8 hereof and in the other Loan
Documents shall be true and correct in all material respects on and as
of the date of such Loan or Letter of Credit with the same force and
effect as if such representations and warranties had been made on and
as of such date except to the extent that such representations and
warranties relate specifically to another date, and except as to
transactions permitted hereunder.
Each notice of borrowing by Borrower hereunder, and each request for the
issuance of a Letter of Credit, shall constitute a representation and warranty
by Borrower that the conditions precedent set
CREDIT AGREEMENT - Page 43
<PAGE>
forth in SECTION 7.1(a) and SECTION 7.1(b) hereof have been satisfied (both as
of the date of such notice and, unless Borrower otherwise notifies
Administrative Agent prior to the date of such borrowing or Letter of Credit, as
of the date of such borrowing or Letter of Credit).
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement,
Borrower represents and warrants to the Agents and the Lenders that the
following statements are, and, after giving effect to the transactions
contemplated hereby, will be true, correct, and complete:
Section 8.1 CORPORATE EXISTENCE.
(a) Except as set forth in SCHEDULE 8.1, Borrower and each
Subsidiary of Borrower (i) is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation
and/or organization; (ii) has all requisite power and authority to own
its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business in all jurisdictions
in which the nature of its business makes such qualification necessary
and where failure to so qualify would have a Material Adverse Effect;
PROVIDED, HOWEVER, the Loan Parties identified on SCHEDULE 8.1 shall,
within sixty (60) days after the Closing Date, take all steps necessary
to become qualified and authorized to do business in each of the
jurisdictions identified therein where the failure to become so
qualified and authorized to do business would have a Material Adverse
Effect.
(b) Each Loan Party has the power and authority to execute,
deliver, and perform its respective obligations under the Loan
Documents to which it is or may become a party.
Section 8.2 FINANCIAL CONDITION.
(a) FINANCIAL STATEMENTS. All financial statements concerning
Borrower and its Subsidiaries delivered at any time to Administrative
Agent or any Lender have been, and at all times subsequent to the
Closing Date shall be, prepared in accordance with GAAP, and present
fairly, the financial condition of Borrower and its Subsidiaries as of
the respective dates indicated therein and the results of operations
for the respective periods indicated therein. Neither Borrower nor any
Subsidiary of Borrower has any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments, or
unrealized or anticipated losses from any unfavorable commitments
except as referred to or reflected in such financial statements.
(b) PROJECTIONS. The Projections delivered and to be delivered
have been and will be prepared by Borrower in light of the past
operation of the business of Borrower and its Subsidiaries. The
Projections represent, as of the date thereof, a good faith estimate by
Borrower and its senior management of the financial conditions and
performance of
CREDIT AGREEMENT - Page 44
<PAGE>
Borrower and its Subsidiaries based on assumptions believed to be
reasonable at the time made.
Section 8.3 CORPORATE ACTION; NO BREACH. The execution, delivery, and
performance by each Loan Party of the Loan Documents to which each is or may
become a party and the transactions contemplated hereby and thereby have been
duly authorized by all requisite action on the part of each Loan Party and do
not and will not (a) violate or conflict with, or result in a breach of, or
require any consent under (i) the articles of incorporation, certificate of
formation, bylaws, or operating agreement of any Loan Party, (ii) any applicable
Law, rule, or regulation or any order, writ, injunction, or decree of any
Governmental Authority or arbitrator, or (iii) any agreement or instrument to
which any Loan Party is a party or by which any of them or any of their property
is bound or subject, or (b) constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of the
revenues or assets of any Loan Party.
Section 8.4 OPERATION OF BUSINESS. Each Loan Party possesses all
material licenses, permits, franchises, patents, copyrights, trademarks, and
tradenames, or rights thereto, necessary to conduct its respective businesses
substantially as now conducted and as presently proposed to be conducted, and no
Loan Party is in violation of any valid rights of others with respect to any of
the foregoing where such violation could reasonably be expected to have a
Material Adverse Effect. Except as set forth in SCHEDULE 8.4, since May 31,
1997, the Loan Parties have conducted their respective businesses only in the
ordinary and usual course.
Section 8.5 LITIGATION AND JUDGMENTS. Except as set forth in SCHEDULE
8.5, to Borrower's knowledge there is no action, suit, investigation, or
proceeding before or by any Governmental Authority or arbitrator pending or
threatened against or affecting any Loan Party which could reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, except as
set forth in SCHEDULE 8.5, there are no outstanding judgments against any Loan
Party which could reasonably be expected to have a Material Adverse Effect.
Section 8.6 RIGHTS IN PROPERTIES; LIENS. Each Loan Party has good title
to or valid leasehold interests in its respective properties and assets, real
and personal, including, as of the Closing Date, the properties, assets, and
leasehold interests reflected in the financial statements described in SECTION
8.2, and none of such properties, assets, or leasehold interests of any Loan
Party is subject to any Lien, except as permitted by SECTION 10.2. Except as
disclosed on SCHEDULE 8.6(a), as of the Closing Date, no Loan Party owns any
material right, title, or interest in any real Properties. Except as disclosed
on SCHEDULE 8.6(b), as of the Closing Date, no Loan Party owns any right, title,
or interest of a material nature in Intellectual Property that is registered
with any Governmental Authority. As of the Closing Date, SCHEDULE 8.6(c) sets
forth the locations of all of the offices and other places of business of the
Loan Parties and the locations of all of the material Properties of the Loan
Parties, as well as the identities of the Loan Parties who conduct business or
own Properties at such locations and the identities of the predecessor entities
who previously conducted business or owned Properties at such locations and
whose Capital Stock or assets were acquired by any Loan Party. The Lenders' Lien
on the Collateral required by ARTICLE 6 constitutes a perfected first priority
Lien subject only to Permitted Liens.
CREDIT AGREEMENT - Page 45
<PAGE>
Section 8.7 ENFORCEABILITY. The Loan Documents to which any Loan Party
is a party, when delivered, shall constitute the legal, valid, and binding
obligations of the applicable Loan Party, enforceable against such Loan Party in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity.
Section 8.8 APPROVALS. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or other third party
is or will be necessary for the execution, delivery, or performance by any Loan
Party of the Loan Documents to which each is or may become a party or for the
validity or enforceability thereof except for such authorizations, approvals,
consents, filings, and registrations which have been obtained.
Section 8.9 DEBT. Except as set forth in SCHEDULE 8.9, no Loan Party
has any Debt, except as permitted by SECTION 10.1.
Section 8.10 TAXES. The Loan Parties have filed all material tax
returns (federal, state, and local) required to be filed, including all material
income, franchise, employment, property, and sales tax returns, and have paid
all of their respective material liabilities for taxes, assessments,
governmental charges, and other levies that are due and payable other than those
being contested in good faith by appropriate proceedings diligently pursued for
which adequate reserves have been established in accordance with GAAP. Borrower
knows of no pending investigation of any Loan Party by any taxing authority with
respect to any material liability for tax or of any pending but unassessed
material tax liability of any Loan Party.
Section 8.11 MARGIN SECURITIES. No Loan Party is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulations T, U, or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of any Loan will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying margin stock.
Section 8.12 ERISA. With respect to each Plan, each Loan Party is in
substantial compliance with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings.
No Loan Party nor any ERISA Affiliate has completely or partially withdrawn from
a Multiemployer Plan. The Loan Parties and each ERISA Affiliate have met their
minimum funding requirements under ERISA with respect to each Plan. The present
value of all vested benefits under each Plan do not exceed the fair market value
of all Plan assets allocable to such benefits, as determined on the most recent
valuation date of the Plan and in accordance with ERISA. No Loan Party nor any
ERISA Affiliate has any outstanding liability to the PBGC under ERISA (other
than liability for the payment of PBGC premiums in the ordinary course of
business).
CREDIT AGREEMENT - Page 46
<PAGE>
Section 8.13 DISCLOSURE. All factual information furnished by or on
behalf of any Loan Party in writing to the Agents or any Lender for the purposes
of or in this Agreement, the other Loan Documents, or any transaction
contemplated herein or therein is, and all other such factual information
hereafter furnished by or on behalf of any Loan Party to the Agents or any
Lender, are and will be true and accurate in all material respects on the date
as of which such information is dated or certified and not incomplete by
omitting to state any fact necessary to make such information not misleading in
any material respect at such time in light of the circumstances under which such
information was provided.
Section 8.14 SUBSIDIARIES; CAPITALIZATION. SCHEDULE 8.14 sets forth as
of the Closing Date the jurisdiction of incorporation or organization of
Borrower and each Subsidiary of Borrower, the percentage of Borrower's or
another Subsidiary's (as applicable) ownership of the outstanding Voting Stock
of each Subsidiary of Borrower, and the authorized, issued, and outstanding
Capital Stock of Borrower and each Subsidiary of Borrower. All of the
outstanding Capital Stock of Borrower and each Subsidiary of Borrower has been
validly issued, is fully paid, is nonassessable, and has not been issued in
violation of any preemptive or similar rights. Except as disclosed in SCHEDULE
8.14, there are (a) no outstanding subscriptions, options, warrants, calls, or
rights (including preemptive rights) to acquire, and no outstanding securities
or instruments convertible into, Capital Stock of any Subsidiary of Borrower and
(b) no shareholder agreements, voting trusts, or similar agreements in effect
and binding on any shareholder of Borrower or any Subsidiary of Borrower or the
Capital Stock of any Subsidiary of Borrower. All shares of Capital Stock of
Borrower and each Subsidiary of Borrower were issued in compliance with all
applicable state and federal securities laws. As of the Closing Date, the
aggregate Net Worth, determined on a consolidated basis, of the Non- Granting
Domestic Subsidiaries of Borrower is less than or equal to ten percent (10%) of
the aggregate Net Worth, determined on a consolidated basis, of the Borrower and
all of its Subsidiaries.
Section 8.15 AGREEMENTS. Except as set forth in SCHEDULE 8.15, no Loan
Party is a party to any indenture, loan, or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate
restriction that could have a Material Adverse Effect with respect to such Loan
Party. No Loan Party is in default in any respect in the performance,
observance, or fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument to which it is a party where such
default could reasonably be expected to cause a Material Adverse Effect with
respect to such Loan Party.
Section 8.16 COMPLIANCE WITH LAWS. No Loan Party is in violation of any
Law, rule, regulation, order, or decree of any Governmental Authority or
arbitrator except for unintentional violations which could not reasonably be
expected to have a Material Adverse Effect with respect to such Loan Party.
Section 8.17 INVESTMENT COMPANY ACT. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 8.18 PUBLIC UTILITY HOLDING COMPANY ACT. No Loan Party is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a
CREDIT AGREEMENT - Page 47
<PAGE>
"public utility" within the meaning of the Public Utility Borrower Company Act
of 1935, as amended.
Section 8.19 ENVIRONMENTAL MATTERS.
Except as disclosed on SCHEDULE 8.19:
(a) Each Loan Party, and all of their respective properties,
assets, and operations are in compliance in all material respects with
all Environmental Laws. Borrower is not aware of, nor has any Loan
Party received notice of, any past, present, or future conditions,
events, activities, practices, or incidents which may interfere with or
prevent the compliance or continued compliance of the Loan Parties with
all Environmental Laws;
(b) The Loan Parties have obtained and maintained, and are in
material compliance with, all material permits, licenses, and
authorizations that are required under applicable Environmental Laws;
(c) No Hazardous Materials exist on, about, or within or have
been used, generated, stored, transported, disposed of on, or Released
from any of the properties or assets of any Loan Party (other than
lubricants, cleaning solutions, and similar materials used for
maintenance in the ordinary course of business). The use which the Loan
Parties make and intend to make of their respective properties and
assets will not result in the use, generation, storage, transportation,
accumulation, disposal, or Release of any Hazardous Material on, in, or
from any of their properties or assets (other than lubricants, cleaning
solutions, and similar materials used for maintenance in the ordinary
course of business);
(d) No Loan Party nor any of their respective currently or
previously owned or leased properties or operations is subject to any
outstanding or threatened order from or agreement with any Governmental
Authority or other Person or subject to any judicial or administrative
proceeding with respect to (i) failure to comply with Environmental
Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities
arising from a Release or threatened Release;
(e) There are no conditions or circumstances associated with
the currently or previously owned or leased properties or operations of
any Loan Party that could reasonably be expected to result in any
Environmental Liabilities;
(f) No Loan Party is a treatment, storage, or disposal
facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., regulations thereunder
or any comparable provision of state Law. Except as would not
reasonably be expected to have a Material Adverse Effect with respect
to any Loan Party, as the case may be, the Loan Parties are in
compliance with all applicable financial responsibility requirements
of all applicable Environmental Laws;
CREDIT AGREEMENT - Page 48
<PAGE>
(g) Except as would not reasonably be expected to have a
Material Adverse Effect with respect any Loan Party, as the case may
be, no Loan Party has filed or failed to file any notice required under
applicable Environmental Law reporting an unauthorized Release; and
(h) No Lien arising under any Environmental Law has attached
to any property or revenues of any Loan Party.
Section 8.20 BROKER'S FEES. No broker's or finder's fee, commission or
similar compensation will be payable by any Loan Party with respect to the
transactions contemplated by this Agreement. No other similar fees or
commissions will be payable by any Loan Party to any Person (other than the
Agents and the Lenders) for any other services rendered to any Loan Party
ancillary to this Agreement.
Section 8.21 EMPLOYEE MATTERS. As of the Closing Date, (a) no Loan
Party, nor any of their respective employees, is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party, and (c) there are no strikes,
slowdowns, work stoppages, or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
employees.
Section 8.22 SOLVENCY. As of and from and after the date of this
Agreement and after giving effect to the consummation of the transactions
contemplated hereby, each of the Loan Parties individually and on a consolidated
basis is Solvent.
Section 8.23 YEAR 2000 COMPLIANCE. Borrower has (i) undertaken a
detailed review and assessment of all areas within the business and operations
of it and its Subsidiaries that could be adversely affected by the "YEAR 2000
PROBLEM" (that is, the risk that computer applications used by Borrower or its
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a detailed plan and timeline for addressing the Year 2000
Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. Borrower reasonably anticipates that all
computer applications that are material to the business and operations of it and
its Subsidiaries will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "YEAR 2000 COMPLIANT").
ARTICLE 9
POSITIVE COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Revolving Commitment
hereunder or any Letter of Credit remains outstanding, it will perform and
observe the following positive covenants:
CREDIT AGREEMENT - Page 49
<PAGE>
Section 9.1 REPORTING REQUIREMENTS. Borrower will furnish to
Administrative Agent and each Lender:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within ninety (90) days after the end of each Fiscal Year of
Borrower, beginning with Fiscal Year 1998, (i) a copy of the annual
audit report of Borrower and its Subsidiaries for such Fiscal Year
containing, on a consolidated basis, balance sheets and statements of
income, retained earnings, and cash flow as at the end of such Fiscal
Year and for the Fiscal Year then ended, in each case setting forth in
comparative form the figures for the preceding Fiscal Year, all in
reasonable detail and audited and certified on an unqualified basis by
independent certified public accountants of recognized standing
selected by Borrower and reasonably acceptable to Administrative Agent,
to the effect that such report has been prepared in accordance with
GAAP; (ii) a copy of the annual unaudited report of Borrower and its
Subsidiaries for such Fiscal Year containing, on a consolidating basis,
balance sheets and statements of income, retained earnings, and cash
flow as at the end of such Fiscal Year and for the Fiscal Year then
ended, in each case setting forth in comparative form the figures for
the preceding Fiscal Year, and in reasonable detail certified by the
chief executive officer or chief financial officer of Borrower to have
been prepared in accordance with GAAP and to fairly present the
financial condition and results of operation of Borrower and such
significant business divisions, on a consolidating basis at the date
and for the Fiscal Year then ended; and (iii) a copy of Projections of
Borrower's Fiscal Year immediately following the Fiscal Year which is
the subject of the financial statements delivered pursuant to CLAUSE
(i) preceding;
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within forty-five (45) days after the end of each of the
first three Fiscal Quarters beginning with the Fiscal Quarter ending
June 30, 1999, a copy of an unaudited financial report of Borrower and
its Subsidiaries as of the end of such period and for the portion of
the Fiscal Year then ended containing, on a consolidated basis, balance
sheets and statements of income, retained earnings, and cash flow, in
each case setting forth in comparative form the figures for the
corresponding period of the preceding Fiscal Year, all in reasonable
detail certified by the chief executive officer or chief financial
officer of Borrower to have been prepared in accordance with GAAP and
to fairly present the financial condition and results of operations of
Borrower and its Subsidiaries on a consolidated basis, at the date and
for the periods indicated therein, subject to year-end audit
adjustments;
(c) COMPLIANCE CERTIFICATE. As soon as available, and in any
event within forty-five (45) days after the end of each of the first
three Fiscal Quarters of each year and accompanying the annual
financial statements delivered in accordance with SECTION 9.1(a), a
Compliance Certificate, together with schedules setting forth the
calculations supporting the computations therein;
(d) NOTICE OF LITIGATION. Promptly after receipt by any Loan
Party of notice of the commencement thereof, notice of all actions,
suits, and proceedings before any Governmental Authority or arbitrator
affecting any Loan Party which, if determined
CREDIT AGREEMENT - Page 50
<PAGE>
adversely to such Loan Party, could reasonably be expected to have a
Material Adverse Effect with respect to such Loan Party;
(e) NOTICE OF DEFAULT. As soon as possible and in any event
within two (2) Business Days after the chief executive officer,
president, chief financial officer, the general counsel, any vice
president, secretary, assistant secretary, treasurer, or any assistant
treasurer of Borrower (each an "AUTHORIZED REPRESENTATIVE") has
knowledge of the occurrence of a Default, a written notice setting
forth the details of such Default and the action that Borrower has
taken and proposes to take with respect thereto;
(f) ERISA. As soon as possible and in any event within thirty
(30) days after Borrower knows, or has reason to know, that
(i) any Termination Event with respect to a Plan has
occurred or will occur, or
(ii) the aggregate present value of the Unfunded
Vested Accrued Benefits under all Plans is equal to an amount
in excess of $0, or
(iii) any Loan Party is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan required by reason of any Loan Party's
complete or partial withdrawal (as described in Section 4203
or 4205 of ERISA) from such Multiemployer Plan,
Borrower will provide Administrative Agent and the Lenders a
certificate of its president or its chief financial officer setting
forth the details of such event and the action which is proposed to be
taken with respect thereto, together with any notice or filing which
may be required by the PBGC or any other Governmental Authority with
respect to such event.
(g) NOTICE OF MATERIAL ADVERSE EFFECT. As soon as possible and
in any event within two (2) Business Days of the discovery of any event
or condition that could reasonably be expected to have a Material
Adverse Effect with respect to any Loan Party, written notice thereof;
(h) PROXY STATEMENTS, ETC. As soon as available, one copy of
each financial statement, report, notice, or proxy statement sent by
any Loan Party to its stockholders generally and one copy of each
regular, periodic, or special report, registration statement, or
prospectus filed by any Loan Party with any securities exchange or the
Securities and Exchange Commission or any successor agency; and
(i) GENERAL INFORMATION. Promptly, such other information
concerning any Loan Party as Administrative Agent or any Lender may
from time to time reasonably request.
Section 9.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Borrower
will, and will cause each of its Subsidiaries to, preserve and maintain its
corporate existence and all of its leases,
CREDIT AGREEMENT - Page 51
<PAGE>
privileges, licenses, permits, franchises, qualifications, and rights that are
necessary in the ordinary conduct of its business. Borrower will, and will cause
each of its Subsidiaries to, conduct its business in an orderly and efficient
manner in accordance with good business practices.
Section 9.3 MAINTENANCE OF PROPERTIES. Borrower will, and will cause
each other Loan Party to, maintain, keep, and preserve all of its material
properties necessary in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
Section 9.4 TAXES AND CLAIMS. Borrower will, and will cause each other
Loan Party to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (b) all lawful claims
for labor, material, and supplies, which, if unpaid, might become a Lien upon
any of its property; PROVIDED, HOWEVER, that neither no Loan Party shall be
required to pay or discharge any tax, levy, assessment, or governmental charge
(i) which is being contested in good faith by appropriate proceedings diligently
pursued, and for which adequate reserves in accordance with GAAP have been
established or (ii) if the failure to pay the same would not result in a Lien on
the property of any Loan Party.
Section 9.5 INSURANCE.
(a) Each of the Loan Parties will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable
insurers all Property of a character usually insured by responsible
corporations engaged in the same or a similar business similarly
situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations or entities and carry
such other insurance as is usually carried by such corporations or
entities, PROVIDED that in any event each Loan Party (as appropriate)
will maintain:
(i) PROPERTY INSURANCE -- Insurance against loss or
damage covering substantially all of the tangible real and
personal Property and improvements of such Loan Party by
reason of any Peril (as defined below) in such amounts
(subject to any deductibles as shall be reasonably
satisfactory to Administrative Agent) as shall be reasonable
and customary and sufficient to avoid the insured named
therein from becoming a co-insurer of any loss under such
policy, but in any event in such amounts as are reasonably
available as determined by Borrower's independent insurance
broker reasonably acceptable to Administrative Agent.
(ii) AUTOMOBILE LIABILITY INSURANCE FOR BODILY INJURY
AND PROPERTY DAMAGE --Insurance in respect of all vehicles
(whether owned, hired, or rented by any Loan Party) at any
time located at, or used in connection with, its Properties or
operations against liabilities for bodily injury and Property
damage in such amounts as are then customary for vehicles used
in connection with similar Properties and businesses, but in
any event to the extent required by applicable Law.
CREDIT AGREEMENT - Page 52
<PAGE>
(iii) COMPREHENSIVE GENERAL LIABILITY INSURANCE --
Insurance against claims for bodily injury, death, or Property
damage occurring on, in or about the Property (and adjoining
streets, sidewalks, and waterways) of any Loan Party, in such
amounts as are then customary for Property similar in use in
the jurisdictions where such Properties are located.
(iv) WORKER'S COMPENSATION INSURANCE -- Worker's
compensation insurance (including, without limitation,
employers' liability insurance) to the extent required by
applicable Law, which may be self-insurance to the extent
permitted by applicable Law.
Such insurance shall be written by financially responsible companies
selected by the applicable Loan Party and having an A.M. Best Rating of
"A-" or better and being in a financial size category of "VI" or
larger, or by other companies reasonably acceptable to Administrative
Agent. Each policy referred to in this SECTION 9.5 shall provide that
it will not be canceled, amended, or reduced except after not less than
thirty (30) days' prior written notice to Administrative Agent and
shall also provide that the interests of Administrative Agent and the
Lenders shall not be invalidated or reduced by any act, omission or
negligence of any Loan Party. Borrower will advise Administrative Agent
promptly of any policy cancellation, reduction, or amendment. For
purposes hereof, the term "PERIL" shall mean, collectively, fire,
lightning, flood, windstorm, hail, explosion, riot and civil commotion,
vandalism and malicious mischief, damage from aircraft, vehicles and
smoke, and other perils covered by the "all-risk" endorsement then in
use in the jurisdictions where the Properties of the Loan Parties are
located.
(b) Borrower will cause each insurance recovery (other than
any portion of an insurance recovery payable to a landlord to repair or
replace Property leased by Borrower or any of its Subsidiaries) paid to
it or any other Loan Party by any insurance company to be deposited
promptly with Administrative Agent as security for the Obligations if a
Default has then occurred and is continuing.
(c) If a Default shall have occurred and be continuing,
Borrower will cause all proceeds of insurance paid to it or any other
Loan Party on account of the loss of or damage to any Property of any
Loan Party and all awards of compensation for any Property of any Loan
Party taken by condemnation or eminent domain to be paid directly to
Administrative Agent to be applied against or held as security for the
Obligations, at the election of Administrative Agent and the Required
Lenders.
Section 9.6 INSPECTION RIGHTS. Each of the Loan Parties will, and will
cause each of its Subsidiaries to, permit representatives and agents of
Administrative Agent and each Lender, during normal business hours and upon
reasonable notice to Borrower, to examine, copy, and make extracts from its
books and records, to visit and inspect its Properties and to discuss its
business, operations, and financial condition with its officers and independent
certified public accountants. Borrower will authorize its accountants in writing
(with a copy to Administrative Agent) to comply with this SECTION 9.6.
Administrative Agent or its representatives may, at any time and from time to
time at
CREDIT AGREEMENT - Page 53
<PAGE>
Borrower's expense, conduct field examinations and audits of the Collateral and
of other matters pertaining to Borrower and its Subsidiaries for such purposes
as Administrative Agent or any Lender may reasonably request PROVIDED that so
long as no Default has occurred and continues to exist no more than two such
field examinations shall be conducted during any calendar year.
Section 9.7 KEEPING BOOKS AND RECORDS. Borrower will, and will cause
each other Loan Party to, maintain proper books of record and account in which
full, true, and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and activities.
Section 9.8 COMPLIANCE WITH LAWS. Borrower will, and will cause each
other Loan Party to, comply in all material respects with all applicable laws
(including, without limitation, all Environmental Laws), rules, regulations,
orders, and decrees of a material nature of any Governmental Authority or
arbitrator other than any such laws, rules, regulations, orders, and decrees
contested by appropriate actions or proceedings diligently pursued, if adequate
reserves in conformity with GAAP and satisfactory to Administrative Agent are
established with respect thereto and except for unintentional violations which
could not reasonably be expected to have a Material Adverse Effect with respect
to any such Loan Party.
Section 9.9 COMPLIANCE WITH AGREEMENTS. Borrower will, and will cause
each other Loan Party to, comply with all agreements, contracts, and instruments
binding on it or affecting its properties or business other than such
noncompliance which could not reasonably be expected to have a Material Adverse
Effect with respect to such Loan Party.
Section 9.10 FURTHER ASSURANCES.
(a) FURTHER ASSURANCE. Borrower will, and will cause each
other Loan Party to, execute and deliver pursuant to this clause (a)
such further documentation and take such further action as may be
reasonably requested by Administrative Agent to carry out the
provisions and purposes of the Loan Documents.
(b) SUBSIDIARY JOINDER. Within ten (10) days after the end of
each Fiscal Quarter, Borrower shall cause each Domestic Subsidiary
created or acquired during the Fiscal Quarter then ending to execute
and deliver to Administrative Agent a Joinder Agreement and such other
documentation as Administrative Agent may require to cause such
Domestic Subsidiary to evidence, perfect, and otherwise implement the
guaranty and/or security for repayment of the Obligations contemplated
by this Agreement, the Subsidiary Guaranty, and any applicable Security
Document.
(c) REMAINING SUBSIDIARIES. In the event any Non-Granting
Domestic Subsidiary is not merged or consolidated with or into Borrower
or a Wholly-Owned Granting Domestic Subsidiary or is not dissolved
within sixty (60) days after the Closing Date (each such Subsidiary a
"REMAINING SUBSIDIARY"), Borrower shall promptly (i) cause each
Remaining Subsidiary to execute and deliver to Administrative Agent a
Subsidiary Guaranty, Security Agreements, and/or a Joinder Agreement
(as applicable) and such other documentation as
CREDIT AGREEMENT - Page 54
<PAGE>
Administrative Agent may reasonably request to cause such Remaining
Subsidiary to evidence, perfect or otherwise implement the guarantee
and security for the repayment and performance of the Obligations
contemplated by the Subsidiary Guaranty and the Security Agreements in
form and substance satisfactory to the Administrative Agent and (ii)
deliver or cause to be delivered to Administrative Agent the stock
certificates representing all the issued and outstanding Capital Stock
of the Remaining Subsidiaries, in each case accompanied by instruments
of transfer or stock powers executed in blank (as appropriate), or
registration of Administrative Agent's Lien, in form and substance
satisfactory to Administrative Agent (in the case of book entry
securities).
Section 9.11 ERISA. With respect to each Plan, Borrower will, and will
cause each other Loan Party to, comply with all minimum funding requirements and
all other material requirements of ERISA, if applicable, so as not to give rise
to any liability which could reasonably be expected to have a Material Adverse
Effect with respect to such Loan Party.
Section 9.12 UNIFIED CASH MANAGEMENT SYSTEM. If required by
Administrative Agent, Borrower will, and will cause each of its Subsidiaries to
maintain a unified cash management system and will ensure, and will cause each
of its Subsidiaries to ensure, that all proceeds of all Collateral are (a)
deposited directly, as received, into a collection account of Borrower or such
Subsidiary (as applicable) and (b) on a daily basis after such deposit,
transferred into a concentration account of Borrower or such Subsidiary (as
applicable) maintained with a bank selected by Borrower and reasonably
acceptable to Administrative Agent. If required by Administrative Agent, each of
the Loan Parties will maintain in effect, and will cause each of its
Subsidiaries to maintain in effect, an agreement governing each of its
collection accounts and its concentration account in form and substance
satisfactory to Administrative Agent with a depository bank satisfactory to
Administrative Agent.
Section 9.13 YEAR 2000 COMPLIANCE. Borrower will promptly notify
Administrative Agent in the event Borrower discovers or determines that any
computer application (including those of its suppliers and vendors) that is
material to its or any of its Subsidiaries' business and operations will not be
Year 2000 Compliant on a timely basis.
ARTICLE 10
NEGATIVE COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Revolving Commitment
hereunder or any Letter of Credit remains outstanding, Borrower will perform and
observe the following negative covenants:
Section 10.1 DEBT. Borrower will not, and will not permit any other
Loan Party to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
CREDIT AGREEMENT - Page 55
<PAGE>
(b) Debt described on SCHEDULE 8.9 hereto, and any extensions,
renewals, or refinancings of such existing Debt so long as (i) the
principal amount of such Debt after such renewal, extension, or
refinancing shall not exceed the principal amount of such Debt which
was outstanding immediately prior to such renewal, extension, or
refinancing and (ii) such Debt shall not be secured by any assets other
than assets securing such Debt, if any, prior to such renewal,
extension, or refinancing;
(c) Debt of a Wholly-Owned Granting Domestic Subsidiary of
Borrower owed to Borrower or another Wholly-Owned Granting Domestic
Subsidiary of Borrower;
(d) Guaranties incurred in the ordinary course of business
with respect to surety and appeal bonds, performance and
return-of-money bonds, and other similar obligations including those of
the type otherwise described in SECTION 10.2(f);
(e) Debt of Borrower or any Subsidiary of Borrower
constituting purchase money Debt (including, without limitation,
Capital Lease Obligations) incurred after the Closing Date not to
exceed Five Million Dollars ($5,000,000) in the aggregate at any time
outstanding secured by purchase money Liens permitted by SECTION
10.2(g);
(f) Debt constituting obligations to reimburse worker's
compensation insurance companies for claims paid by such companies on
Borrower's or any of its Subsidiaries' behalf in accordance with the
policies issued to Borrower or such Subsidiary of Borrower;
(g) Debt secured by the Liens permitted by CLAUSES (d) and (e)
of SECTION 10.2;
(h) unsecured Debt arising under, created by and consisting of
Hedge Agreements, PROVIDED, (i) such Hedge Agreements shall have been
entered into for the purpose of hedging actual risk and not for
speculative purposes and (ii) that each counterparty to such Hedge
Agreement shall be a Lender (or an Affiliate thereof) or shall be rated
in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service, Inc.; and
(i) Debt in addition to the Debt described in the foregoing
CLAUSES (a) through (h) in an aggregate amount not exceeding Five
Million Dollars ($5,000,000) in the aggregate principal amount at any
one time outstanding.
Section 10.2 LIMITATION ON LIENS AND RESTRICTIONS ON SUBSIDIARIES.
Borrower will not, and will not permit any Subsidiary to, incur, create, assume,
or permit to exist any Lien upon any of its property, assets, or revenues,
whether now owned or hereafter acquired, except the following:
(a) Liens described on SCHEDULE 10.2 hereto, and any
extensions, renewals, or refinancings of the Debt secured by such Liens
as permitted under SECTION 10.1(b), PROVIDED that (i) no such Lien is
expanded to cover any additional Property (other than after acquired
title in or on such Property and proceeds of the existing collateral)
after the Closing Date and
CREDIT AGREEMENT - Page 56
<PAGE>
(ii) no such Lien is spread to secure any additional Debt after the
Closing Date other than Debt permitted by SECTION 10.1(b);
(b) Liens in favor of Administrative Agent, for the benefit of
the Agents and each Lender pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, zoning restrictions,
or other restrictions on the use of real Property that do not
(individually or in the aggregate) materially detract from the value of
the real Property encumbered thereby or materially impair the ability
of Borrower or any other Loan Party to use such real Property in their
respective businesses;
(d) Liens for taxes, assessments, or other governmental
charges (but excluding Environmental Liens or Liens under ERISA) that
are not delinquent or which are being contested in good faith and for
which adequate reserves have been established in accordance with GAAP;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords, or other similar statutory Liens securing obligations that
are not overdue or are being contested in good faith by appropriate
proceedings diligently pursued and for which adequate reserves have
been established in accordance with GAAP and are incurred in the
ordinary course of business;
(f) Liens resulting from deposits to secure payments of
worker's compensation, unemployment insurance or other social security
programs or to secure the performance of tenders, statutory
obligations, leases, insurance contracts, surety, performance and
appeal bonds, bids, and other contracts incurred in the ordinary course
of business (other than for payment of Debt);
(g) Liens for purchase money obligations and Liens securing
Capital Lease Obligations; PROVIDED that: (i) the Debt secured by any
such Lien is permitted under SECTION 10.1(e) hereof; and (ii) any such
Lien encumbers only the Property so purchased or leased;
(h) Any attachment or judgment Lien not constituting an Event
of Default;
(i) Any interest or title of a licensor, lessor, or sublessor
under any license or lease entered into in the ordinary course of
business;
(j) Liens against equipment arising from precautionary UCC
financing statement filings regarding operating leases entered into by
Borrower or another Loan Party in the ordinary course of business; and
CREDIT AGREEMENT - Page 57
<PAGE>
(k) Nonconsensual Liens in favor of banking institutions
arising as a matter of law and encumbering the deposits (including the
right of set-off) held by such banking institutions in the ordinary
course of business.
Section 10.3 MERGERS, ACQUISITIONS, ETC. Borrower will not, and will
not permit any other Loan Party to, become a party to a merger or consolidation,
or purchase or otherwise acquire all or a substantial part of the business or
Property of any Person or all or a substantial part of the business or Property
of a division or branch of a Person or Capital Stock of any Person, or wind-up,
dissolve, or liquidate itself; PROVIDED that as long as no Default exists or
would result therefrom and provided Borrower gives Administrative Agent and the
Lenders prior written notice:
(i) A Subsidiary may wind-up, dissolve, or liquidate if (a) in
the case of a Domestic Subsidiary, such Domestic Subsidiary's Property
is transferred to Borrower or a Wholly-Owned Granting Domestic
Subsidiary of Borrower and the Loan Party acquiring such Domestic
Subsidiary's Property complies with its obligations under SECTION 9.10
simultaneously with such acquisitions, or (b) in the case of a Foreign
Subsidiary, such Foreign Subsidiary's Property is transferred to
Stringfield Limited, an Irish company.
(ii) Any Subsidiary of Borrower may merge or consolidate with
Borrower (provided Borrower is the surviving entity) or with any
Wholly-Owned Granting Domestic Subsidiary of Borrower, and any Foreign
Subsidiary may merge or consolidate with or into Stringfield Limited,
an Irish company (provided Stringfield Limited is the surviving
entity); and
(iii) Borrower or any Domestic Subsidiary of Borrower may
acquire any Person or all or a substantial part of the business or
Property of a Person (or a division or branch thereof) provided that:
(A) after giving pro forma effect to any such acquisition, no Default
or Event of Default would exist; (B) any new Domestic Subsidiary formed
or acquired in connection with such an acquisition shall
contemporaneously therewith execute and delivery to Administrative
Agent a Joinder Agreement and such Security Documents as Administrative
Agent may require in its absolute discretion; (C) any acquisition of a
Person must be of at least a sufficient interest in the Capital Stock
of such Person to constitute such Person as a "Subsidiary" of Borrower;
and (D) total cash and Debt (including, without limitation, cash,
noncompete payments, consulting payments, earn-outs, and all Debt
assumed, incurred or acquired) consideration for any such acquisition
shall not exceed Forty Million Dollars ($40,000,000) and the total
aggregate consideration for any such acquisition (including, without
limitation, the value (determined as of the date of execution of a
definitive agreement related thereto) of any Capital Stock and other
equity given as consideration) shall not exceed One Hundred Million
Dollars ($100,000,000).
Section 10.4 RESTRICTED JUNIOR PAYMENTS. Borrower will not, and will
not permit any other Loan Party to, directly or indirectly declare, order, pay,
make, or set apart any sum for (a) any dividend or other distribution, direct or
indirect, on account of any shares of any class of Capital Stock of any Loan
Party now or hereafter outstanding; (b) any redemption, conversion, exchange,
retirement, sinking fund, or similar payment, purchase, or other acquisition for
value, direct or
CREDIT AGREEMENT - Page 58
<PAGE>
indirect, of any shares of any class of Capital Stock of any Loan Party now or
hereafter outstanding; or (c) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options, or other rights to acquire
shares of any class of Capital Stock of any Loan Party now or hereafter
outstanding except:
(i) Subsidiaries of Borrower may make, declare, and pay
dividends and make other distributions with respect to their Capital
Stock to Borrower or Wholly-Owned Granting Domestic Subsidiaries of
Borrower;
(ii) Borrower may declare and pay dividends on any class of
its Capital Stock payable solely in shares of Capital Stock of
Borrower; and
(iii) Borrower may redeem stock, stock rights, options or
similar rights from terminated or departing employees not to exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) in the aggregate in
any Fiscal Year.
Section 10.5 INVESTMENTS. Borrower will not, and will not permit any
other Loan Party to, make or permit to remain outstanding any advance, loan,
extension of credit, or capital contribution to or investment in any Person, or
purchase or own any stocks, bonds, notes, debentures, or other Securities of any
Person, or be or become a joint venturer with or partner of any Person (all the
foregoing, herein "INVESTMENTS"), except:
(a) Borrower and its Subsidiaries may make equity investments
in and may make loans to Subsidiaries of Borrower (in the case of
loans, as permitted by SECTION 10.1) and may make the acquisitions
permitted by SECTION 10.3(iii); PROVIDED that total investments in
Foreign Subsidiaries shall never exceed Five Million Dollars
($5,000,000) in the aggregate at any time outstanding;
(b) readily marketable direct obligations of the U.S. or any
agency thereof with maturities of one year or less from the date of
acquisition;
(c) fully insured certificates of deposit with maturities of
one year or less from the date of acquisition issued by any commercial
bank operating in the U.S. having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000);
(d) commercial paper of a domestic issuer and equity or debt
Securities of a domestic issuer if at the time of purchase such paper
or debt Securities of such issuer is rated in one of the two highest
rating categories of Standard and Poor's Corporation or Moody's
Investors Service, Inc. or any successor thereto and shares of any
mutual fund company substantially all the assets of which consist of
cash and the Investments of the type described in CLAUSE (c), CLAUSE
(d), and this CLAUSE (e);
(e) advances to officers, directors, and employees for
business expenses incurred in the ordinary course of business;
CREDIT AGREEMENT - Page 59
<PAGE>
(f) if no Event of Default exists, Borrower and its
Subsidiaries may make capital contributions to or investments in, or
purchase any Capital Stock of, Borrower or a Wholly- Owned Granting
Domestic Subsidiary of Borrower;
(g) Borrower and its Subsidiaries may acquire and own any
Investments of any Person received in connection with the bankruptcy or
reorganization of suppliers and customers and in connection with the
settlement of delinquent obligations of, and disputes with, customers
and suppliers arising in the ordinary course of business;
(h) extensions of trade credit in the ordinary course of
business;
(i) Borrower and its Subsidiaries may make Investments in
Persons operating within a related line of business as Borrower;
PROVIDED, that the aggregate amount of any such Investments shall not
exceed Twenty Million Dollars ($20,000,000); and
(j) Investments other than those described in CLAUSES (a)-(i)
of this SECTION 10.5 if the aggregate amount thereof never exceeds Five
Million Dollars ($5,000,000) at any time (determined based on the cost
or outstanding principal amount thereof, as applicable, without regard
to any write up or write down thereof).
Section 10.6 LIMITATION ON ISSUANCE OF CAPITAL STOCK. Borrower will not
permit any Subsidiary to, at any time issue, sell, assign, or otherwise dispose
of: (a) any of its Capital Stock, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any of its Capital Stock, or
(c) any option, warrant, or other right to acquire any of its Capital Stock.
Section 10.7 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will
not permit any other Loan Party to, enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering
of any service, with any Affiliate of Borrower or such other Loan Party except
in the ordinary course of and pursuant to the reasonable requirements of
Borrower's or such other Loan Party's business and upon fair and reasonable
terms no less favorable to Borrower or such other Loan Party than would be
obtained in a comparable arms-length transaction with a Person not an Affiliate
of Borrower or such other Loan Party.
Section 10.8 DISPOSITION OF ASSETS. Borrower will not, and will not
permit any other Loan Party to, sell, lease, assign, transfer, or otherwise
voluntarily dispose of: (a) any of its Receivables, provided, Borrower or any
other Loan Party may sell up to thirty percent (30%) of its Receivables in any
Fiscal Quarter; (b) any substantial portion of the consolidated assets of the
Loan Parties; or (c) any other Property, other than dispositions of Inventory in
the ordinary course of business.
Section 10.9 LINES OF BUSINESS. Borrower will not, and will not permit
any other Loan Party to engage in any line or lines of business activity other
than the businesses in which they are engaged on the date hereof or a business
reasonably related thereto.
Section 10.10 LIMITATIONS ON RESTRICTIONS AFFECTING SUBSIDIARIES.
Neither Borrower nor any other Loan Party shall enter into or assume any
material agreement (other than the Loan Documents)
CREDIT AGREEMENT - Page 60
<PAGE>
prohibiting the creation or assumption of any Lien upon its material properties
or assets, whether now owned or hereafter acquired. Except as provided herein,
Borrower will not, and will not permit any other Loan Party to, directly or
indirectly to create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any Loan
Party to: (a) pay dividends or make any other distribution on any of such Loan
Party's Capital Stock owned by any Loan Party; (b) pay any Debt owed to any Loan
Party; (c) make loans or advances to any Loan Party; or (d) transfer any of its
property or assets to any Loan Party.
Section 10.11 ENVIRONMENTAL PROTECTION. Borrower will not, and will not
permit any other Loan Party to, (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation, or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that in any material respect violates or is likely to
violate any Environmental Law or create any Environmental Liabilities for which
Borrower or any other Loan Party would be responsible that could reasonably be
expected to have a Material Adverse Effect with respect to any Loan Party.
Section 10.12 ERISA. Borrower will not, and will not permit any other
Loan Party to:
(a) allow, or take (or permit any ERISA Affiliate to take) any
action which would cause, any unfunded or unreserved liability for
benefits under any Plan (exclusive of any Multiemployer Plan) to exist
or to be created; or
(b) with respect to any Multiemployer Plan, allow, or take (or
permit any ERISA Affiliate to take) any action which would cause, any
unfunded or unreserved liability for benefits under any Multiemployer
Plan to exist or to be created, either individually as to any such Plan
or in the aggregate as to all such Plans.
ARTICLE 11
FINANCIAL COVENANTS
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Revolving Commitment
hereunder or any Letter of Credit remains outstanding, it will perform and
observe the following financial covenants:
Section 11.1 MAXIMUM LEVERAGE RATIO. As of the end of each Fiscal
Quarter, Borrower shall not permit its Leverage Ratio to exceed 2.00 to 1.00.
Section 11.2 MINIMUM EBITDA. As of the end of each Fiscal Quarter,
Borrower shall not permit its EBITDA for such Fiscal Quarter to be less than
zero dollars ($0).
CREDIT AGREEMENT - Page 61
<PAGE>
Section 11.3 MINIMUM QUICK RATIO. As of the end of each Fiscal Quarter,
Borrower shall not permit the ratio of its cash and receivables as of the end of
such Fiscal Quarter period to its current liabilities as of the end of such
Fiscal Quarter to be less than 1.0 to 1.0.
ARTICLE 12
DEFAULT
Section 12.1 EVENTS OF DEFAULT. Each of the following shall be deemed
an "EVENT OF DEFAULT":
(a) Borrower shall fail to pay (i) when due any principal of,
interest on or fees payable in respect of any Loan or any Reimbursement
Obligation payable under any Loan Document or any part thereof or (ii)
within two (2) days after the date Borrower receives written notice of
the failure to pay when due, any other Obligation or any part thereof,
or any indebtedness, liability, or obligation due to any Lender under
any Hedge Agreement.
(b) Any representation, warranty, or certification made or
deemed made by any Loan Party (or any of their respective officers) in
any Loan Document or in any certificate, report, notice, or financial
statement furnished at any time in connection with any Loan Document
shall be false, misleading, or erroneous in any material respect when
made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe, or comply
with any covenant, agreement, or term contained in SECTION 9.1, ARTICLE
10 or ARTICLE 11 of this Agreement.
(d) Any Loan Party shall fail to perform, observe, or comply
with any other agreement, or term contained in any Loan Document (other
than covenants described in SECTIONS 12.1(a)-(c)) and such failure
shall continue for a period of ten (10) days after the earlier of (i)
the date Administrative Agent provides Borrower with notice thereof or
(ii) the date Borrower should have notified Administrative Agent
thereof in accordance with SECTION 9.1(f) hereof.
(e) Any Loan Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner, liquidator, or the like of itself or of all or a
substantial part of its Property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect, the
"BANKRUPTCY CODE"), (iv) institute any proceeding or file a petition
seeking to take advantage of any other Law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code, (vi)
admit in writing its inability to, or be generally unable to pay its
debts as such debts become due, or (vii) take any corporate action for
the purpose of effecting any of the foregoing.
CREDIT AGREEMENT - Page 62
<PAGE>
(f) A proceeding or case shall be commenced, without the
application, approval or consent of the applicable Loan Party in any
court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement, or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator, or the like of such
Loan Party or of all or any substantial part of its Property, or (iii)
similar relief in respect of such Loan Party under any Law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment, or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of sixty (60) or more days; or an order for relief against
any Loan Party shall be entered in an involuntary case under the
Bankruptcy Code.
(g) Any Loan Party shall fail within a period of thirty (30)
days after the commencement thereof to discharge or obtain a stay of
any attachment, sequestration, forfeiture, or similar proceeding or
proceedings involving an aggregate amount in excess of One Million
Dollars ($1,000,000) against any of its assets or properties.
(h) A final judgment or judgments for the payment of money in
excess of One Million Dollars ($1,000,000) in the aggregate (to the
extent not paid or fully covered by insurance acknowledged by a carrier
reasonably acceptable to Administrative Agent) shall be rendered by a
court or courts against any Loan Party and the same shall not be
discharged (or provision shall not be made for such discharge), or a
stay of execution thereof shall not be procured, within thirty (30)
days from the date of entry thereof and the relevant Loan Party shall
not, within said period of thirty (30) days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal.
(i) Any Loan Party shall fail to pay when due any principal of
or interest on any Debt (beyond the period of grace, if any) if the
aggregate principal amount of the affected Debt equals or exceeds Five
Hundred Thousand ($500,000) (other than the Obligations), or the
maturity of any such Debt shall have been accelerated, or any such Debt
shall have been required to be prepaid prior to the stated maturity
thereof or any event shall have occurred with respect to any Debt in
the aggregate principal amount equal to or in excess of Five Hundred
Thousand ($500,000) that permits any holder or holders of such Debt or
any Person acting on behalf of such holder or holders to accelerate the
maturity thereof or require any prepayment thereof.
(j) This Agreement or any Security Document shall cease to be
in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
any Loan Party or any Loan Party shall deny that it has any further
liability or obligation under any of the Loan Documents or any Lien
created or purported to be created by the Loan Documents shall for any
reason cease to be or fail to be a valid, first priority perfected Lien
(except for Permitted Liens, if any, which are expressly permitted by
the Loan Documents to have priority over the Liens in favor of
Administrative Agent) upon any of the Collateral purported to be
covered thereby.
CREDIT AGREEMENT - Page 63
<PAGE>
(k) Any of the following events shall occur or exist with
respect to any Loan Party or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv)
any event or circumstance that could reasonably be expected to
constitute grounds entitling the PBGC to institute proceedings under
Section 4042 of ERISA for the termination of, or for the appointment of
a trustee to administer, any Plan, or the institution by the PBGC of
any such proceedings; or (v) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization, insolvency, or termination of any Multiemployer Plan;
and in each case above, such event or condition, together with all
other events or conditions, if any, have subjected or could in the
reasonable opinion of Administrative Agent subject Borrower or any of
its Subsidiaries to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof)
which in the aggregate could reasonably be expected to exceed One
Million Dollars ($1,000,000).
(l) The occurrence of any event or condition which constitutes
a Material Adverse Effect with respect to Borrower or any other Loan
Party and thirty (30) days have passed since written notification
thereof to Borrower by Administrative Agent (therein reasonably
identifying such event or condition) without such event or condition
having been remedied, cured or waived.
(m) a Change of Control shall occur.
Section 12.2 REMEDIES. If any Event of Default shall occur and be
continuing, Administrative Agent may (and if directed by Required Lenders,
shall) do any one or more of the following:
(a) ACCELERATION. By notice to Borrower, declare all
outstanding principal of and accrued and unpaid interest on the Notes
and all other amounts payable by Borrower under the Loan Documents
immediately due and payable, and the same shall thereupon become
immediately due and payable, without further notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest, or other formalities of any kind, all of
which are hereby expressly waived by Borrower except as where required
by the specific terms of this Agreement or the other Loan Documents;
(b) TERMINATION OF REVOLVING COMMITMENTS. Terminate the
Revolving Commitments, including, without limitation, the obligation of
the Fronting Bank to issue Letters of Credit, without notice to
Borrower or any other Loan Party;
(c) JUDGMENT. Reduce any valid claim to judgment;
(d) FORECLOSURE. Foreclose or otherwise enforce any Lien
granted to Administrative Agent, for the benefit of the Agents and each
Lender to secure payment and performance of the Obligations in
accordance with the terms of the Loan Documents; and
CREDIT AGREEMENT - Page 64
<PAGE>
(e) RIGHTS. Exercise any and all rights and remedies afforded
by the laws of the State of California or any other jurisdiction
governing any of the Loan Documents, by equity, or otherwise;
PROVIDED, HOWEVER, that, upon the occurrence of an Event of Default under
SECTIONS 12.1(e) or SECTION 12.1(f), the Revolving Commitments of all of the
Lenders, and the obligation of the Fronting Bank to issue Letters of Credit,
shall automatically terminate and the outstanding principal of and accrued and
unpaid interest on the Notes and all other amounts payable by Borrower under the
Loan Documents shall thereupon become immediately due and payable without
notice, demand, presentment, notice of dishonor, notice of acceleration, notice
of intent to accelerate, protest, or other formalities of any kind, all of which
are hereby expressly waived by Borrower.
Section 12.3 CASH COLLATERAL. If an Event of Default shall have
occurred and be continuing, Borrower shall, if requested by Administrative Agent
or the Required Lenders, pledge to Administrative Agent as security for the
Obligations, pursuant to agreements in form and substance satisfactory to
Administrative Agent, an amount in immediately available funds equal to the then
outstanding Letter of Credit Liabilities, such funds to be held in a cash
collateral account by Administrative Agent without any right of withdrawal by
Borrower.
Section 12.4 PERFORMANCE BY ADMINISTRATIVE AGENT. Upon the occurrence
of a Default, if any Loan Party shall fail to perform any agreement in
accordance with the terms of the Loan Documents, Administrative Agent may, at
the direction of the Required Lenders, perform or attempt to perform such
agreement on behalf of such Loan Party. In such event, Borrower shall, at the
request of Administrative Agent, promptly pay any amount expended by
Administrative Agent or the Lenders in connection with such performance or
attempted performance, to Administrative Agent at the Principal Office together
with interest thereon at the Default Rate applicable to Base Rate Accounts from
and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that neither the Agents nor any Lender shall have any liability or
responsibility for the performance of any obligation of any Loan Party under any
Loan Document.
Section 12.5 SET-OFF. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being hereby expressly waived by
Borrower), to set-off and apply any and all deposits (general, time, demand,
provisional, or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of any Loan Party against any
and all of the obligations of such Loan Party now or hereafter existing under
any Loan Document, irrespective of whether or not Administrative Agent or such
Lender shall have made any demand under such Loan Documents and although such
obligations may be unmatured. Each Lender agrees promptly to notify Borrower
(with a copy to Administrative Agent) after any such set-off and application,
PROVIDED that the failure to give such notice shall not affect the validity of
such set-off and application. The rights and remedies of each Lender hereunder
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which such Lender may have.
CREDIT AGREEMENT - Page 65
<PAGE>
Section 12.6 CONTINUANCE OF DEFAULT. For purposes of all Loan
Documents, a Default shall be deemed to have continued and exist until
Administrative Agent shall have actually received evidence satisfactory to
Administrative Agent that such Default shall have been remedied.
ARTICLE 13
ADMINISTRATIVE AGENT
Section 13.1 APPOINTMENT, POWERS, AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes Bank of America to act as its agent under
this Agreement and the other Loan Documents with such powers and discretion as
are specifically delegated to Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Administrative Agent (which term as used in this
sentence and in SECTION 13.5 and the first sentence of SECTION 13.6 shall
include its Affiliates (including Banc of America Securities LLC) and its own
and its Affiliates' officers, directors, employees, and agents): (a) shall not
have any duties or responsibilities except those expressly set forth in the Loan
Documents and shall not be a trustee or fiduciary for any Lender; (b) shall not
be responsible to the Lenders for any recital, statement, representation, or
warranty (whether written or oral) made in or in connection with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under, any Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document referred to or provided for therein or for any failure by
any Loan Party or any other Person to perform any of its obligations thereunder;
(c) shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any Loan
Party or the satisfaction of any condition or to inspect the property (including
the books and records) of any Loan Party or any of its Affiliates; (d) shall not
be required to initiate or conduct any litigation or collection proceedings
under any Loan Document; and (e) shall not be responsible for any action taken
or omitted to be taken by it under or in connection with any Loan Document,
except for its own gross negligence or willful misconduct. Administrative Agent
may employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
Section 13.2 RELIANCE BY ADMINISTRATIVE AGENT. Administrative Agent
shall be entitled to rely upon any certification, notice, instrument, writing,
or other communication (including, without limitation, any thereof by telephone
or telecopy) believed by it to be genuine and correct and to have been signed,
sent or made by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel for any Loan Party),
independent accountants, and other experts selected by Administrative Agent.
Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until Administrative Agent receives
and accepts an Assignment and Acceptance executed in accordance with SECTION
15.8. As to any matters not expressly provided for by this Agreement,
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding on all of the
Lenders; PROVIDED, HOWEVER, that Administrative Agent shall not be required to
take any action that exposes
CREDIT AGREEMENT - Page 66
<PAGE>
Administrative Agent to personal liability or that is contrary to any Loan
Document or applicable Law.
Section 13.3 DEFAULTS. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless Administrative Agent
has received written notice from a Lender or Borrower specifying such Default
and stating that such notice is a "Notice of Default". In the event that
Administrative Agent receives such a notice of the occurrence of a Default,
Administrative Agent shall give prompt notice thereof to the Lenders.
Administrative Agent shall take such action with respect to such Default as it
shall deem appropriate or as shall reasonably be directed by the Required
Lenders.
Section 13.4 RIGHTS AS LENDER. With respect to its Revolving Commitment
and the Loans made by it, Bank of America (and any successor acting as
Administrative Agent) in its capacity as a Lender hereunder shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not acting as Administrative Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include Administrative
Agent in its individual capacity. Bank of America (and any successor acting as
Administrative Agent) and its Affiliates may (without having to account therefor
to any Lender) accept deposits from, lend money to, make investments in, provide
services to, and generally engage in any kind of lending, trust, or other
business with any Loan Party or any of their respective Affiliates as if it were
not acting as Administrative Agent, and Bank of America (and any successor
acting as Administrative Agent) and its Affiliates may accept fees and other
consideration from any Loan Party or any of their respective Affiliates for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 13.5 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY
ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 14.1 OR SECTION
14.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF BORROWER UNDER SUCH SECTIONS)
RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT PERCENTAGES, FOR ANY AND
ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS'
FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST ADMINISTRATIVE AGENT (INCLUDING BY ANY
LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY
ADMINISTRATIVE AGENT UNDER ANY LOAN DOCUMENT; PROVIDED THAT NO LENDER SHALL BE
LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARE FOUND IN A FINAL,
NON-APPEALABLE JUDGMENT RENDERED BY A COURT OF COMPETENT JURISDICTION TO HAVE
ARISEN FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF, THE PERSON TO BE
INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER
THIS SECTION SHALL BE INDEMNIFIED FROM AND
CREDIT AGREEMENT - Page 67
<PAGE>
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE (BUT NOT THE GROSS NEGLIGENCE) OF SUCH PERSON. WITHOUT
LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE ADMINISTRATIVE
AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE (CALCULATED BASED ON THE
COMMITMENT PERCENTAGES) OF ANY COSTS OR EXPENSES PAYABLE BY BORROWER UNDER
SECTION 14.1 TO THE EXTENT THAT ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED
FOR SUCH COSTS AND EXPENSES BY BORROWER. IN THE CASE OF AN INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 13.5
APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION,
LITIGATION OR PROCEEDING IS BROUGHT BY BORROWER, ITS DIRECTORS, SHAREHOLDERS, OR
CREDITORS OR ANY PARTY ENTITLED TO INDEMNIFICATION HEREUNDER OR ANY OTHER PERSON
AND WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED.
Section 13.6 NON-RELIANCE ON AGENTS AND OTHER LENDERS. Each Lender
agrees that it has, independently and without reliance on the Agents or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Loan Parties and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agents or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents. Except for
notices, reports, and other documents and information expressly required to be
furnished to the Lenders by the Agents hereunder, the Agents shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition, or business of any Loan
Party or any of their Affiliates that may come into the possession of any Agent
or any of its Affiliates.
Section 13.7 RESIGNATION OF ADMINISTRATIVE AGENT. Administrative Agent
may resign as Administrative Agent at any time by giving notice thereof to the
Lenders and Borrower. If Administrative Agent resigns under this Agreement, the
Required Lenders shall appoint a successor administrative agent for the Lenders,
which successor administrative agent shall be approved by Borrower. If no
successor administrative agent is appointed prior to the effective date of the
resignation of Administrative Agent, Administrative Agent may appoint, after
consulting with the Lenders and Borrower, a successor administrative agent which
shall be a commercial bank organized under the laws of the U.S. having combined
capital and surplus of at least One Hundred Million Dollars ($100,000,000). Upon
the acceptance of its appointment as successor administrative agent hereunder,
such successor administrative agent shall succeed to all the rights, powers, and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor administrative agent, and the retiring Administrative
Agent's appointment, powers, and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this ARTICLE 13 and SECTION 14.1 and
SECTION 14.2 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was
CREDIT AGREEMENT - Page 68
<PAGE>
Administrative Agent under this Agreement. If no successor administrative agent
has accepted appointment as Administrative Agent by the date which is thirty
(30) days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor administrative agent as provided for above. Notwithstanding the
foregoing, if Administrative Agent is also acting as the Fronting Bank,
simultaneously with appointment of a successor administrative agent as provided
herein such successor administrative agent shall assume all of the duties and
obligations of the retiring Administrative Agent as the Fronting Bank pursuant
to documentation in form and substance satisfactory to the retiring
Administrative Agent.
Section 13.8 ADMINISTRATIVE AGENT FEE. Borrower agrees to pay to
Administrative Agent on the date hereof and on each anniversary of the date
hereof the administrative fee described in that certain letter dated May 26,
1999 from Bank of America and the Banc of America Securities LLC to Borrower, as
the same may be amended from time to time.
Section 13.9 SEVERAL REVOLVING COMMITMENTS. The Revolving Commitments
and other obligations of the Lenders under any Loan Document are several. The
default by any Lender in making a Loan in accordance with its Revolving
Commitment shall not relieve the other Lenders of their obligations under any
Loan Document. In the event of any default by any Lender in making any Loan,
each nondefaulting Lender shall be obligated to make its Loan but shall not be
obligated to advance the amount which the defaulting Lender was required to
advance hereunder. No Lender shall be responsible for any act or omission of any
other Lender.
ARTICLE 14
MISCELLANEOUS
Section 14.1 EXPENSES. Borrower hereby agrees to pay promptly after
presentation of supporting documentation without duplication: (a) all reasonable
costs and expenses of Administrative Agent arising in connection with the
preparation, negotiation, execution, and delivery of the Loan Documents and all
amendments or other modifications to the Loan Documents, including, without
limitation, the reasonable fees and expenses of legal counsel for Administrative
Agent; (b) all reasonable fees, costs, and expenses of Administrative Agent or
the Fronting Bank arising in connection with any Letter of Credit, including the
Fronting Bank's customary fees for amendments, transfers, and drawings on
Letters of Credit; (c) all reasonable costs and expenses of Administrative Agent
in connection with any Default and the enforcement of any Loan Document or
collection of the Obligations, including, without limitation, the fees and
expenses of legal counsel for Administrative Agent; (d) all reasonable fees,
costs, and expenses of any Lender arising in connection with an Event of Default
and the enforcement of any Loan Document or collection of the Obligations during
the continuance of an Event of Default; PROVIDED, HOWEVER, that all Lenders
(other than Administrative Agent) shall be limited to the legal fees and
expenses of one counsel for all Lenders unless such representation shall result
in a conflict of interest, in which case Borrower shall pay the fees, costs, and
expenses of as many counsel as necessary to avoid conflicts among the Lenders;
(e) all transfer, stamp, documentary, or other similar recording or filing
taxes, assessments, or charges (including, without limitation, the Taxes and any
penalties or interest) levied by any Governmental Authority in respect of any
Loan Document or the transactions contemplated thereby; (f) all reasonable
costs, expenses, assessments,
CREDIT AGREEMENT - Page 69
<PAGE>
and other charges incurred in connection with any filing, registration,
recording, or perfection of any security interest or other Lien contemplated by
any Loan Document; and (g) all other reasonable costs and expenses incurred by
Administrative Agent in connection with any Loan Document. The fees and expenses
of legal counsel for Administrative Agent that Borrower has agreed to pay
hereunder include the fees and expenses of legal counsel for Administrative
Agent arising in connection with advice given to Administrative Agent as to its
rights and responsibilities hereunder.
Section 14.2 INDEMNIFICATION. BORROWER SHALL INDEMNIFY THE
ADMINISTRATIVE AGENT, THE LEAD ARRANGER, THE FRONTING BANK, AND EACH LENDER AND
EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES)
TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM
OR RELATE TO (A) ANY BREACH BY ANY LOAN PARTY OF ANY REPRESENTATION, WARRANTY,
COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (B) THE
PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY
HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE ASSETS OF
BORROWER OR ANY OTHER LOAN PARTY, (C) THE USE OR PROPOSED USE OF ANY LETTER OF
CREDIT OR ANY PAYMENT OR FAILURE TO PAY WITH RESPECT TO ANY LETTER OF CREDIT,
(D) ANY AND ALL STAMP, FILING, OR SIMILAR TAXES (INCLUDING, WITHOUT LIMITATION,
THE "TAXES" AND ANY INTEREST OR PENALTY) LEVIES, DEDUCTIONS, AND CHARGES IMPOSED
ON ADMINISTRATIVE AGENT OR ANY LENDER IN RESPECT OF ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, OR (E) ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING, THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY; PROVIDED THAT THE PERSON
ENTITLED TO BE INDEMNIFIED UNDER THIS SECTION SHALL NOT BE INDEMNIFIED FROM OR
HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, OR EXPENSES (INCLUDING, WITHOUT LIMITATION,
ATTORNEYS' FEES) FOUND IN A FINAL, NON-APPEALABLE JUDGMENT RENDERED BY A COURT
OF COMPETENT JURISDICTION TO HAVE ARISEN OUT OF OR RESULTED FROM ITS GROSS
NEGLIGENCE OR ITS WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF ANY LOAN
DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO
BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
CREDIT AGREEMENT - Page 70
<PAGE>
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS'
FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE (BUT
NOT THE GROSS NEGLIGENCE) OF SUCH PERSON. IN THE CASE OF AN INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 14.2
APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION,
LITIGATION, OR PROCEEDING IS BROUGHT BY BORROWER, ITS DIRECTORS, SHAREHOLDERS,
OR CREDITORS OR ANY PARTY ENTITLED TO INDEMNIFICATION HEREUNDER OR ANY OTHER
PERSON AND WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED.
Section 14.3 LIMITATION OF LIABILITY. None of the Agents, any Lender,
or any Affiliate, officer, director, employee, attorney, or agent thereof shall
have any liability with respect to Borrower, and, by the execution of the Loan
Documents to which it is a party, each other Loan Party, hereby waives,
releases, and agrees not to sue any of them upon, any claim for any special,
indirect, incidental, consequential, remote, exemplary or punitive damages
suffered or incurred by any Loan Party in connection with, arising out of, or in
any way related to any of the Loan Documents, or any of the transactions
contemplated by any of the Loan Documents.
Section 14.4 NO DUTY. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by any of the Agents or any Lender
shall have the right to act exclusively in the interest of the Agents and the
Lenders and shall have no duty of disclosure, duty of loyalty, duty of care, or
other duty or obligation of any type or nature whatsoever to any Loan Party, any
shareholders of any Loan Party, or any other Person.
Section 14.5 NO FIDUCIARY RELATIONSHIP. The relationship between the
Loan Parties on the one hand and the Agents and each Lender on the other is
solely that of debtor and creditor, and neither any of the Agents nor any Lender
has any fiduciary or other special relationship with any Loan Parties, and no
term or condition of any of the Loan Documents shall be construed so as to deem
the relationship between the Loan Parties on the one hand and any of the Agents
and each Lender on the other to be other than that of debtor and creditor.
Section 14.6 EQUITABLE RELIEF. Borrower recognizes that in the event
any Loan Party fails to pay, perform, observe, or discharge any or all of the
obligations under the Loan Documents, any remedy at law may prove to be
inadequate relief to the Agents and the Lenders. Borrower therefore agrees that
the Agents and the Lenders, if Administrative Agent or the Required Lenders so
request, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
Section 14.7 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
Administrative Agent or any Lender to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power, or privilege under any
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or privilege under any Loan Document preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.
CREDIT AGREEMENT - Page 71
<PAGE>
The rights and remedies provided for in the Loan Documents are cumulative and
not exclusive of any rights and remedies provided by Law.
Section 14.8 SUCCESSORS AND ASSIGNS.
(a) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns. Borrower may not assign or transfer any of its
rights or obligations hereunder or under any other Loan Document
without the prior written consent of Administrative Agent and all of
the Lenders.
(b) ASSIGNMENT. Each Lender may assign to one or more Persons
all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Loans, its
Notes, and its Revolving Commitment); PROVIDED, HOWEVER, that
(i) each such assignment shall be to an Eligible
Assignee. As used herein, "ELIGIBLE ASSIGNEE" means (A) a
Lender; (B) an Affiliate of a Lender or, with respect to any
Lender that is a fund that invests in bank loans, any other
fund that invests in bank loans and is managed by the same
investment advisor as such Lender (herein a "RELATED FUND");
and (C) any other Person approved by Administrative Agent
(such approval being not unreasonably withheld); PROVIDED,
HOWEVER, that neither Borrower nor an Affiliate of Borrower
shall qualify as an Eligible Assignee;
(ii) except in the case of an assignment to another
Lender or an assignment of all of a Lender's rights and
obligations under this Agreement or an assignment by a Lender
to one of its Related Funds, any such partial assignment shall
be in an amount at least equal to Five Million Dollars
($5,000,000) and the assignee must have (after giving effect
to such assignment) Revolving Commitments of at least Ten
Million Dollars ($10,000,000);
(iii) the parties to such assignment shall execute
and deliver to Administrative Agent for its acceptance an
Assignment and Acceptance, together with any Note subject to
such assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits
of a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Agreement. Upon the consummation of any
assignment pursuant to this Section, the assignor, Administrative
Agent, and Borrower shall upon return of the assignor's notes, if any,
make appropriate arrangements so that, if required, new Notes are
issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the U.S. or a state thereof, it shall
deliver to Borrower and Administrative Agent certification as to
exemption from deduction or withholding of Taxes in accordance with
SECTION 5.7.
CREDIT AGREEMENT - Page 72
<PAGE>
(c) REGISTER. Administrative Agent shall maintain at the
Principal Office a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Revolving Commitment of, and principal
amount of the Loans owing to, each Lender from time to time (the
"REGISTER"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and Borrower,
Administrative Agent, and the Lenders may treat each Person whose name
is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice. Upon its receipt of an Assignment and
Acceptance executed by the parties thereto, together with any Note or
Notes subject to such assignment and payment of the processing fee,
Administrative Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, and (iii) give prompt
notice thereof to the parties thereto.
(d) PARTICIPATIONS. Each Lender may sell participations to one
or more Persons in all or a portion of its rights and obligations under
this Agreement (including all or a portion of its Revolving Commitment
and its Loans); PROVIDED, HOWEVER, that (i) such Lender's obligations
under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
ARTICLE 5 (to the extent that the Lender selling such participation
would have been entitled thereto) and the right of set-off contained in
SECTION 12.5, and (iv) Borrower shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole
right to enforce the obligations of Borrower relating to its Loans and
to approve any amendment, modification, waiver, or consent of any
provision of any Loan Document (other than amendments, modifications,
waivers, or consents of the types referred to in SECTION 14.11(a)).
(e) PLEDGE TO FEDERAL RESERVE. Notwithstanding any other
provision set forth in this Agreement, any Lender may at any time
assign and pledge all or any portion of its Loans to any Federal
Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank. No such
assignment shall release the assigning Lender from its obligations
hereunder.
(f) DELIVERY OF INFORMATION. Any Lender may furnish any
information concerning any Loan Party in the possession of such Lender
from time to time to assignees and participants (including prospective
assignees and participants) subject to such Persons agreeing to being
bound by the provisions of SECTION 14.22.
Section 14.9 SURVIVAL. All representations and warranties made in any
Loan Document or in any document, statement, or certificate furnished in
connection with any Loan Document shall survive the execution and delivery of
the Loan Documents and no investigation by Administrative Agent or any Lender or
any closing shall affect the representations and warranties or the right of
Administrative Agent or any Lender to rely upon them. Without prejudice to the
survival of any
CREDIT AGREEMENT - Page 73
<PAGE>
other obligation of Borrower hereunder, the obligations under ARTICLE 5, SECTION
13.5, SECTION 14.1, and SECTION 14.2 shall survive repayment of the Notes and
termination of the Revolving Commitments and the Letters of Credit.
Section 14.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
THERETO.
Section 14.11 AMENDMENTS AND WAIVERS. Any provision of any Loan
Document may be amended or waived and any consent to any departure by any Loan
Party therefrom may be granted if, but only if, such amendment, waiver, or
consent is in writing and is signed by Borrower and the Required Lenders (and,
if ARTICLE 13 or the rights or duties of Administrative Agent are affected
thereby, by Administrative Agent); PROVIDED that no such amendment, waiver, or
consent applicable to:
(a) a Loan, Letter of Credit, or Revolving Commitment which
has the effect of:
(i) increasing such Revolving Commitment,
(ii) reducing the principal of or rate of
interest on such Loan or any Reimbursement Obligation
relating to such Letter of Credit or any fees or
other amounts payable hereunder to Lenders generally
with respect to such Loan, Letter of Credit, or
Revolving Commitment,
(iii) postponing any date fixed for the
payment of any scheduled installment of principal of
or interest on such Loan or any Reimbursement
Obligation relating to such Letter of Credit or any
fees or other amounts payable hereunder with respect
to such Loan, Letter of Credit, or Revolving
Commitment or changing any optional or mandatory
prepayment provision applicable to such Loan or
Letter of Credit, or
(iv) postponing any date fixed for
termination of such Revolving Commitment
shall be effective unless also signed by each Lender holding (with
respect to Letters of Credit either directly or through a participation
under SECTION 2.7(a)) the Loan, Letter of Credit, or Revolving
Commitment of the type being modified; and
(b) any change (including a waiver) in:
CREDIT AGREEMENT - Page 74
<PAGE>
(i) the definition of Required Lenders or
the provisions of this SECTION 14.11; or
(ii) the conditions specified in ARTICLE 7
hereof, or
(iii) which has the effect of releasing any
Loan Party in a transaction which is not otherwise
permitted hereby, or
(iv) releases of all or substantially all of
the Collateral, or
(v) releases of all or substantially all of
the Guaranties
shall not be effective unless signed by all Lenders.
Section 14.12 MAXIMUM INTEREST RATE.
(a) No interest rate specified in any Loan Document shall at
any time exceed the Maximum Rate. If at any time the interest rate (the
"CONTRACT RATE") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited
to the Maximum Rate, then any subsequent reduction in the Contract Rate
for such Obligation shall not reduce the rate of interest on such
Obligation below the Maximum Rate until the aggregate amount of
interest accrued on such Obligation equals the aggregate amount of
interest which would have accrued on such Obligation if the Contract
Rate for such Obligation had at all times been in effect.
(b) Notwithstanding anything to the contrary contained in any
Loan Document, the interest and fees paid or agreed to be paid under
the Loan Documents shall not exceed the Maximum Rate. If Administrative
Agent or any Lender shall receive interest or a fee in an amount that
exceeds the Maximum Rate, the excessive interest or fee shall be
applied to the principal of the outstanding Obligations or, if it
exceeds the unpaid principal, refunded to Borrower. In determining
whether the interest or a fee contracted for, charged, or received by
Administrative Agent or a Lender exceeds the Maximum Rate, such Person
may, to the extent permitted by applicable Law, (a) characterize any
payment that is not principal as an expense, fee, or premium rather
than interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or
unequal parts the total amount of interest throughout the contemplated
term of the so that interest for the entire term does not exceed the
Maximum Rate.
Section 14.13 NOTICES. All notices and other communications provided
for in any Loan Document to which any Loan Party is a party shall be given or
made in writing (except as otherwise permitted by SECTION 4.3) and telecopied,
mailed by certified mail return receipt requested, or delivered to the intended
recipient at the "Address for Notices" specified below its name on SCHEDULE
14.13 or with respect to any Loan Party, at the "Address for Notices" specified
below Borrower's name on SCHEDULE 14.13, or with respect to a Lender not a party
to this Agreement on the Closing Date, in its Assignment and Acceptance, or, as
to any party at such other address as shall be
CREDIT AGREEMENT - Page 75
<PAGE>
designated by such party in a notice to each other party given in accordance
with this Section. Except as otherwise provided in any Loan Document, all such
communications shall be deemed to have been duly given when transmitted by
telecopy (if prior to 5:00 p.m., San Francisco, California time, otherwise the
next Business Day), subject to telephone confirmation of receipt, or when
personally delivered or, in the case of a mailed notice, three (3) Business Days
after being duly deposited in the mails, in each case given or addressed as
aforesaid; PROVIDED, HOWEVER, notices to Administrative Agent pursuant to
SECTION 2.7 or SECTION 4.3 shall not be effective until received by
Administrative Agent. Any agreement of Administrative Agent herein to receive
certain notices by telephone or telecopy is solely for the convenience and at
the request of Borrower. Administrative Agent, the Lenders, and the Fronting
Bank shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by Borrower to give such notice and none of Administrative
Agent, any Lender, nor the Fronting Bank shall have any liability to Borrower or
any other Person on account of any action taken or not taken by Administrative
Agent, any Lender, or the Fronting Bank in reliance upon such telephonic or
telecopy notice. The obligation of Borrower to repay the Loans and pay the
Reimbursement Obligations shall not be affected in any way or to any extent by
any failure of Administrative Agent, any Lender, or the Fronting Bank to receive
written confirmation of any telephonic or telecopy notice or the receipt by
Administrative Agent, any Lender, or the Fronting Bank of a confirmation which
is at variance with the terms understood by Administrative Agent, such Lender,
or the Fronting Bank to be contained in such telephonic or telecopy notice.
Section 14.14 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA AND THE APPLICABLE LAWS OF THE U.S. ANY ACTION OR PROCEEDING AGAINST
BORROWER UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN ANY CALIFORNIA STATE COURT OR FEDERAL COURT LOCATED IN THE
CITY AND COUNTY OF SAN FRANCISCO. BORROWER IRREVOCABLY (a) SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (b) WAIVES ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT
IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. BORROWER AGREES THAT
SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 14.13 OF THIS AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF ADMINISTRATIVE AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER
JURISDICTIONS. ANY ACTION OR PROCEEDING BY ANY LOAN PARTY AGAINST ANY OF THE
AGENTS OR ANY LENDER SHALL BE BROUGHT ONLY IN A COURT LOCATED IN SAN FRANCISCO,
CALIFORNIA.
CREDIT AGREEMENT - Page 76
<PAGE>
Section 14.15 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 14.16 SEVERABILITY. Any provision of any Loan Document held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of such Loan Document and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 14.17 HEADINGS. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 14.18 CONSTRUCTION. Borrower, each Loan Party (by its execution
of the Loan Documents to which it is a party), the Agents, and each Lender
acknowledges that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review the Loan Documents with
its legal counsel and that the Loan Documents shall be construed as if jointly
drafted by the parties thereto.
Section 14.19 INDEPENDENCE OF COVENANTS. All covenants under the Loan
Documents shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default if such action is taken or
such condition exists.
Section 14.20 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF ANY OF THE AGENTS OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION,
OR ENFORCEMENT THEREOF.
Section 14.21 CONFIDENTIALITY. Each Lender agrees to keep confidential
any information obtained by it from any Loan Party or its agents or
representatives pursuant hereto and the other Loan Documents identified as
confidential in writing at the time of delivery in accordance with such Lender's
customary practices and agrees that it will only use such information in
connection with the transactions contemplated by this Agreement and not disclose
any of such information other than (a) to such Lender's officers, directors,
employees, representatives, attorneys, agents, or affiliates who are advised of
the confidential nature of such information, (b) to the extent such information
presently is or hereafter becomes available to such Lender on a non-confidential
basis from any source or as such information that is in the public domain at the
time of disclosure, (c) to the extent disclosure is required by Law, regulation,
subpoena, or judicial order or process (provided that notice of such requirement
or order shall be promptly furnished to Borrower unless such notice is legally
prohibited) or requested or required by bank regulators or auditors or any
administrative body,
CREDIT AGREEMENT - Page 77
<PAGE>
commission, or other Governmental Authority to whose jurisdiction such Lender
may be subject, (d) to assignees or participants or potential assignees or
participants or to professional advisors or direct or indirect contractual
counter parties in swap agreements provided in each case such Person agrees to
be bound by the provisions of this SECTION 14.22, (e) to the extent required in
connection with any litigation between any Loan Party and any Lender with
respect to the Loans or this Agreement and the other Loan Documents, (f) to
rating agencies, their employees, representatives, attorneys, agents, or
affiliates who are advised of the confidential nature of such information, and
(g) with Borrower's prior written consent.
CREDIT AGREEMENT - Page 78
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PEREGRINE SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Revolving Commitment: BANK OF AMERICA, N.A.,
$10,000,000.00 as Administrative Agent and as a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Revolving Commitment: BANKBOSTON, N.A.,
$10,000,000.00 as Syndication Agent and as a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CREDIT AGREEMENT
<PAGE>
EXHIBIT "A"
FORM OF REVOLVING NOTE
<PAGE>
REVOLVING NOTE
$______________ July___, 1999
FOR VALUE RECEIVED, the undersigned, PEREGRINE SYSTEMS, INC., a
Delaware corporation (the "BORROWER"), hereby promises to pay to the order of
________________________ (the "LENDER"), at the Principal Office of the
Administrative Agent, in lawful money of the United States of America and in
immediately available funds, the principal amount of
_______________________________ NO/100 DOLLARS ($_____________) or such lesser
amount as shall equal the aggregate unpaid principal amount of the Revolving
Loans made by the Lender to the Borrower under the Credit Agreement referred to
below, on the dates and in the principal amounts provided in the Credit
Agreement, and to pay interest on the unpaid principal amount of each such
Revolving Loan, at such office, in like money and funds, for the period
commencing on the date of such Revolving Loan until such Revolving Loan shall be
paid in full, at the rates per annum and on the dates provided in the Credit
Agreement.
The Borrower hereby authorizes the Lender to record in its records the
amount of each Revolving Loan and Type of Accounts established under each
Revolving Loan and all Continuations, Conversions and payments of principal in
respect thereof, which records shall, in the absence of manifest error,
constitute prima facie evidence of the accuracy thereof; PROVIDED, HOWEVER, that
the failure to make such notation with respect to any such Revolving Loan or
payment shall not limit or otherwise affect the obli gations of the Borrower
under the Credit Agreement or this Revolving Note.
This Revolving Note is one of the Revolving Notes referred to in the
Credit Agreement dated as of July 30, 1999, among the Borrower, the Lender, the
other lenders party thereto (collectively with the Lender, the "LENDERS"),
BankBoston, N.A., as syndication agent and Bank of America, N.A., as
administrative agent for such lenders (the "ADMINISTRATIVE AGENT" and such
Credit Agreement, as the same may be amended or otherwise modified from time to
time, being referred to herein as the "CREDIT AGREEMENT"), and evidences
Revolving Loans made by the Lender thereunder. The Credit Agreement, among other
things, contains provisions for acceleration of the maturity of this Revolving
Note upon the happening of certain stated events and for prepayments of
Revolving Loans prior to the maturity of this Revolving Note upon the terms and
conditions specified in the Credit Agreement. Capitalized terms used in this
Revolving Note, unless otherwise defined herein, have the respective meanings
assigned to them in the Credit Agreement.
THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
Except for any notices expressly required by the Loan Documents, the
Borrower and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Revolving Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace and all
other formalities of any
<PAGE>
kind, and consent to all extensions without notice for any period or periods of
time and partial payments, before or after maturity, and any impairment of any
collateral securing this Revolving Note, all without prejudice to the holder.
The holder shall similarly have the right to deal in any way, at any time, with
one or more of the foregoing parties without notice to any other party, and to
grant any such party any extensions of time for payment of any of said
indebtedness, or to release any such party or to release or substitute part or
all of the collateral securing this Revolving Note, or to grant any other
indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
PEREGRINE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT "B"
FORM OF ASSIGNMENT AND ACCEPTANCE
<PAGE>
ASSIGNMENT AND ACCEPTANCE
Dated _________, 1999
Reference is made to the Credit Agreement dated as of July 30, 1999,
among PEREGRINE SYSTEMS, INC., a Delaware corporation (the "BORROWER"), the
lenders named therein (the "LENDERS"), BankBoston, N.A., as syndication agent,
and BANK OF AMERICA, N.A., as administrative agent for the Lenders (the
"ADMINISTRATIVE AGENT" and such Credit Agreement, as it may be amended, restated
or otherwise modified from time to time, being hereinafter referred to as the
"CREDIT AGREEMENT"; capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the Credit Agreement). This
Assignment and Acceptance is being executed pursuant to SECTION 14.8 of the
Credit Agreement.
_________________________________ (the "ASSIGNOR") and ________________
(the "ASSIGNEE") agree as follows:
1. (a) The Assignor hereby sells and assigns to the Assignee without
recourse, representation or warranty except as specifically set
forth herein, and the Assignee hereby purchases and assumes from
the Assignor as of the Effective Date (as defined below), a
___________% interest in and to all the Assignor's rights and
obligations under the Credit Agreement and the other Loan
Documents (including, without limitation, such percentage
interest in the Revolving Commitment of the Assignor on the
Effective Date and such percentage interest in the Letter of
Credit Liabilities (including participations purchased pursuant
to the Credit Agreement) held by and Loans owing to, the Assignor
outstanding on the Effective Date together with such percentage
interest in all unpaid interest and fees accrued from the
Effective Date relating thereto).
(b) After giving effect to the foregoing assignment, Assignor's
and Assignee's Revolving Commitments and Letter of Credit
Liabilities shall be as follows:
ASSIGNOR:
Revolving Commitment $____________________
Letter of Credit Liabilities $____________________
ASSIGNEE
Revolving Commitment $____________________
Letter of Credit Liabilities $____________________
ASSIGNMENT AND ACCEPTANCE - Page 1
<PAGE>
(c) After giving effect to the foregoing assignment, Assignor's
and Assignee's Loans shall be as follows:
ASSIGNOR:
Loans $____________________
ASSIGNEE
Loans $____________________
2. The Assignor (i) represents that as of the date hereof, its
Revolving Commitment is $_____________, the outstanding Letter of
Credit Liabilities (including participations purchased pursuant
to the Credit Agreement) held by it is $____________ and the
outstanding principal balance of its Loans is $_____________ (all
as unreduced by any assignments which have not yet become
effective); (ii) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit
Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of
the Credit Agreement or any other Loan Document, other than that
it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear
of any adverse claim; (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial
condition of the Borrower or any Loan Party or the performance or
observance by the Borrower or any other Loan Party of any of
their obligations under the Credit Agreement or any other Loan
Document; and (iv) attaches the Revolving Note held by Assignor
and requests that the Administrative Agent exchange such
Revolving Note for new Revolving Notes payable to the order of
(A) Assignee in amounts equal to the Revolving Commitments
assumed by the Assignee pursuant hereto and the outstanding
principal amount of the Loans assigned to Assignee pursuant
hereto, as applicable, and (B) the Assignor in amounts equal to
the Revolving Commitments and Loans retained by the Assignor
under the Credit Agreement, as specified above.
3. The Assignee (i) represents and warrants that it is legally
authorized to enter in this Assignment and Acceptance; (ii)
confirms that it has received a copy of the Credit Agreement,
together with copies of the most recent financial statements
delivered pursuant to SECTION 9.1 thereof, and such other
documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this
Assignment and Acceptance; (iii) agrees that it will,
independently and without reliance upon the Administrative Agent,
the Assignor, or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action
under the Credit Agreement and the other Loan Documents; (iv)
confirms that it is eligible to be an Assignee; (v) appoints and
authorizes the Administrative Agent to take such action
ASSIGNMENT AND ACCEPTANCE - Page 2
<PAGE>
on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are reasonably
incidental thereto; (vi) agrees that it will perform in
accordance with their terms all obligations which by the terms of
the Credit Agreement and the other Loan Documents are required to
be performed by it as a Lender; [and (vii) attaches the forms
prescribed by the Internal Revenue Service of the United States
certifying as to the Assignee's exemption from United States
withholding taxes with respect to all payments to be made to the
Assignee under the Credit Agreement or such other documents as
are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty].1
4. The effective date for this Assignment and Acceptance shall be
_______________, 19__ (the "EFFECTIVE DATE").2 Following the
execution of this Assignment and Acceptance, it will be delivered
to the Administrative Agent for acceptance and recording by the
Administrative Agent.
5. Upon such acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance,
shall have the rights and obligations of a Lender thereunder and
under the other Loan Documents and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Credit
Agreement and the other Loan Documents.
6. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect
of the interest assigned hereby (including payments of principal,
interest, fees, and other amounts) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Note for periods prior to the
Effective Date directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
AND APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
8. This Assignment and Acceptance may be executed in any number of
counterparts and on telecopy counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
- ---------------------
1 If the Assignee is organized under the laws of a jurisdiction outside the
United States.
2 Such date shall be at least five (5) Business Days after the execution of
this Assignment and Acceptance and delivery thereof to the Administrative Agent
and Borrower.
ASSIGNMENT AND ACCEPTANCE - Page 3
<PAGE>
[NAME OF ASSIGNOR]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[NAME OF ASSIGNEE]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACCEPTED BY:
BANK OF AMERICA, N.A.
as Administrative Agent
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PEREGRINE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ASSIGNMENT AND ACCEPTANCE - Page 4
<PAGE>
EXHIBIT "C"
FORM OF COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE - Page 1
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned, duly appointed and acting president or chief financial
officer (as the case may be) of PEREGRINE SYSTEMS, INC. ("BORROWER"), being duly
authorized, hereby delivers this Compliance Certificate to BANK OF AMERICA,
N.A., as administrative agent ("ADMINISTRATIVE AGENT"), pursuant to SECTION
9.1(c) of that certain Credit Agreement dated as of July 30, 1999, among
Borrower, Administrative Agent, BankBoston, N.A., as Syndication Agent, and the
other Lenders party thereto (as such agreement may be amended, restated or
otherwise modified from time to time, the "CREDIT AGREEMENT"). Terms defined in
the Credit Agreement, wherever used herein, shall have the same meanings as are
prescribed by the Credit Agreement.
1. The Borrower hereby delivers to Administrative Agent [check as
applicable]: ___ the audited fiscal year end financial statements required by
SECTION 9.1(a); or ___ the quarterly financial statements required by SECTION
9.1(b); dated as of _____________, ____. Such financial statements are complete
and correct in all material respects and have been prepared in accordance with
GAAP (except, in the case of the quarterly financial statements, for the
omission of footnotes) applied consistently throughout the periods reflected
therein.
2. The undersigned hereby states that, to the best of his or her
knowledge and based upon an examination sufficient to enable an informed
statement [check as applicable]:
/ / No Default or Event of Default exists as of the date hereof.
/ / One or more Defaults or Events of Default have occurred or
exist as of the date hereof. Included within EXHIBIT "A"
attached hereto is a written description specifying each such
Default or Event of Default, its nature, when it occurred,
whether it is continuing as of the date hereof and the steps
being taken by the Borrower with respect thereto. Except as so
specified, no Default or Event of Default exists as of the
date hereof.
3. EXHIBIT "B" attached hereto sets forth the calculations necessary to
establish the status of Borrower's compliance with the covenants contained in
SECTION 11.1 ("Maximum Leverage Ratio"), SECTION 11.2 ("Minimum EBITDA") and
SECTION 11.3 ("Minimum Quick Ratio") of the Credit Agreement as of the effective
date of the financial statements referenced in PARAGRAPH 1 above.
4. All of the information on the Schedules to the Credit Agreement is
complete and accurate as of the date hereof except as set forth on EXHIBIT "C"
hereto which sets forth the information required to make such Schedules complete
and accurate after its acceptance by Administrative Agent and the Lenders in
accordance with the terms of the Credit Agreement.
COMPLIANCE CERTIFICATE - Page 2
<PAGE>
Date of execution of Compliance Certificate: __________, 1999.
PEREGRINE SYSTEMS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
COMPLIANCE CERTIFICATE - Page 3
<PAGE>
EXHIBIT "A"
to
COMPLIANCE CERTIFICATE
dated
________, 1999
The following is attached to and made a part of the above referenced Compliance
Certificate.
[specify Defaults or Events of Defaults]
COMPLIANCE CERTIFICATE - Page 4
<PAGE>
EXHIBIT "B"
to
COMPLIANCE CERTIFICATE
dated
_________, 1999
The following is attached to and made a part of the above referenced Compliance
Certificate.
[insert calculations and information]
COMPLIANCE CERTIFICATE - Page 5
<PAGE>
EXHIBIT "C"
to
COMPLIANCE CERTIFICATE
dated
_________, 1999
The following is attached to and made a part of the above referenced Compliance
Certificate.
[Attach information regarding Schedules, including information
required to update the Schedules]
COMPLIANCE CERTIFICATE - Page 6
<PAGE>
EXHIBIT "D"
FORM OF SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY - Page 1
<PAGE>
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY (this "SUBSIDIARY GUARANTY"), dated as of July
__, 1999, is executed and delivered by each of the undersigned Subsidiaries and
any Subsidiary who may become a party hereto pursuant to the execution and
delivery of a Joinder Agreement (each a "GUARANTOR" and collectively, the
"GUARANTORS"), to and in favor of Administrative Agent (as defined below).
A. PEREGRINE SYSTEMS, INC. ("BORROWER"), a Delaware corporation, has
entered into that certain Credit Agreement dated as of July 30, 1999, among
Borrower, the lenders party thereto (individually a "LENDER" and collectively,
the "LENDERS"), BankBoston, N.A. , as syndication agent, and BANK OF AMERICA,
N.A., as administrative agent ("ADMINISTRATIVE AGENT") for itself and the other
Lenders and as the Fronting Bank (such Credit Agreement, as it may be amended,
restated or otherwise modified from time to time, being hereinafter referred to
as the "CREDIT AGREEMENT"; capitalized terms not otherwise defined herein shall
have the same meaning as set forth in the Credit Agreement).
B. The execution of this Subsidiary Guaranty is required by the Credit
Agreement and is a condition to the Lenders making extensions of credit
available to Borrower and the Fronting Bank issuing Letters of Credit for the
account of Borrower thereunder.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, each of the undersigned Guarantors and any
Guarantor hereafter added hereto pursuant to a Joinder Agreement, hereby
irrevocably, unconditionally and jointly and severally guarantees to the
Administrative Agent and the Lenders the full and prompt payment and performance
of the Guaranteed Indebtedness (hereinafter defined), this Subsidiary Guaranty
being upon the following terms:
1. The term "GUARANTEED INDEBTEDNESS", as used herein means all of the
"Obligations", as defined in the Credit Agreement and shall include any and all
post-petition interest and expenses (including attorneys' fees) whether or not
allowed under any bankruptcy, insolvency, or other similar law; PROVIDED that,
notwithstanding anything to the contrary contained in this Subsidiary Guaranty,
the Guaranteed Indebtedness shall be limited, with respect to each Guarantor, to
an aggregate amount equal to the greatest amount that would not render such
Guarantor's indebtedness, liabilities or obligations hereunder subject to
avoidance under Sections 544, 548 or 550 of the United States Bankruptcy Code or
subject to being set aside or annulled under any applicable state law relating
to fraud on creditors; PROVIDED, FURTHER, that, for purposes of the immediately
preceding clauses, it shall be presumed that the Guaranteed Indebtedness for
each Guarantor hereunder does not equal or exceed any aggregate amount which
would render such Guarantor's indebtedness, liabilities or obligations hereunder
subject to being so avoided, set aside or annulled, and the burden of proof to
the contrary shall be on the party asserting to the contrary. Subject to but
without limiting the generality of the foregoing sentence, the provisions of
this Subsidiary Guaranty are severable and, in any legally binding action or
proceeding involving any state corporate law or any bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity, if the indebtedness, liabilities or
obligations of any Guarantor hereunder
SUBSIDIARY GUARANTY - Page 2
<PAGE>
would otherwise be held or determined to be void, invalid or unenforceable on
account of the amount of its indebtedness, liabilities or obligations hereunder,
then, notwithstanding any other provision of this Subsidiary Guaranty to the
contrary, the amount of such indebtedness, liabilities or obligations shall, for
purposes of determining such Guarantor's obligations under this Subsidiary
Guaranty, without any further action by such Guarantor or any other Person, be
automatically limited and reduced to the greatest amount which is valid and
enforceable as determined in such action or proceeding.
2. Each Guarantor under this Subsidiary Guaranty, and each guarantor
under other guaranties, if any, relating to the Credit Agreement (the "RELATED
GUARANTIES") which contain a contribution provision similar to that set forth in
this paragraph 2, together desire to allocate among themselves (collectively,
the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their
obligations arising under this Subsidiary Guaranty and the Related Guaranties.
Accordingly, in the event any payment or distribution is made by a Guarantor
under this Subsidiary Guaranty or a guarantor under a Related Guaranty (a
"FUNDING GUARANTOR") that exceeds its Fair Share (as defined below), that
Funding Guarantor shall be entitled to a contribution from each of the other
Contributing Guarantors in the amount of such other Contributing Guarantor's
Fair Share Shortfall (as defined below), with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments (as
defined below) to equal its Fair Share. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (i)
the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to
such Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts
with respect to all Contributing Guarantors, MULTIPLIED BY (ii) the aggregate
amount paid or distributed on or before such date by all Funding Guarantors
under this Subsidiary Guaranty and the Related Guaranties in respect of the
obligations guarantied. "FAIR SHARE SHORTFALL" means, with respect to a
Contributing Guarantor as of any date of determination, the excess, if any, of
the Fair Share of such Contributing Guarantor over the Aggregate Payments of
such Contributing Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a
Contributing Guarantor as of any date of determination, the maximum aggregate
amount of the obligations of such Contributing Guarantor under this Subsidiary
Guaranty and the Related Guaranties, in each case determined in accordance with
the provisions hereof and thereof; PROVIDED THAT, solely for purposes of
calculating the "Adjusted Maximum Amount" with respect to any Contributing
Guarantor for purposes of this paragraph 2, the assets or liabilities arising by
virtue of any rights to or obligations of contribution hereunder or under any
similar provision contained in a Related Guaranty shall not be considered as
assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS"
means, with respect to a Contributing Guarantor as of any date of determination,
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Subsidiary Guaranty and
the Related Guaranties (including, without limitation, in respect of this
paragraph 2 or any similar provision contained in a Related Guaranty). The
amounts payable as contributions hereunder and under similar provisions in the
Related Guaranties shall be determined as of the date on which the related
payment or distribution is made by the applicable Funding Guarantor. The
allocation among Contributing Guarantors of their obligations as set forth in
this paragraph 2 or any similar provision contained in a Related Guaranty shall
not be construed in any way to limit the liability of any Contributing Guarantor
hereunder or under a Related Guaranty. Each Contributing Guarantor under a
Related Guaranty is a third party beneficiary to the contribution agreement set
forth in this paragraph 2.
SUBSIDIARY GUARANTY - Page 3
<PAGE>
3. This instrument shall be an absolute, continuing, irrevocable and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and each Guarantor shall remain liable on its obligations hereunder
until the payment and performance in full of the Guaranteed Indebtedness. No
set-off, counterclaim, recoupment, reduction, or diminution of any obligation,
or any defense of any kind or nature which Borrower may have against
Administrative Agent, any Lender or any other party, or which any Guarantor may
have against Borrower, Administrative Agent, any Lender or any other party,
shall be available to, or shall be asserted by, any Guarantor against
Administrative Agent, any Lender or any subsequent holder of the Guaranteed
Indebtedness or any part thereof or against payment of the Guaranteed
Indebtedness or any part thereof.
4. If a Guarantor becomes liable for any indebtedness owing by Borrower
to Administrative Agent or any Lender by endorsement or otherwise, other than
under this Subsidiary Guaranty, such liability shall not be in any manner
impaired or affected hereby, and the rights of Administrative Agent and Lenders
hereunder shall be cumulative of any and all other rights that Administrative
Agent and Lenders may ever have against such Guarantor. The exercise by
Administrative Agent and Lenders of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
5. In the event of default by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration, or otherwise, the Guarantors
shall, jointly and severally, promptly pay the amount due thereon to
Administrative Agent and Lenders without notice or demand in lawful currency of
the United States of America and it shall not be necessary for Administrative
Agent or any Lender, in order to enforce such payment by any Guarantor, first to
institute suit or exhaust its remedies against Borrower or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness. In the event
such payment is made by a Guarantor, then such Guarantor shall be subrogated to
the rights then held by Administrative Agent and any Lender with respect to the
Guaranteed Indebtedness to the extent to which the Guaranteed Indebtedness was
discharged by such Guarantor and, in addition, upon payment by such Guarantor of
any sums to Administrative Agent and any Lender hereunder, all rights of such
Guarantor against Borrower, any other guarantor or any Collateral arising as a
result therefrom by way of right of subrogation, reimbursement, or otherwise
shall in all respects be subordinate and junior in right of payment to the prior
indefeasible payment in full of the Guaranteed Indebtedness.
6. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
payable by the Guarantors hereunder forthwith on demand by Administrative Agent
or any Lender.
7. Each Guarantor hereby waives all suretyship defenses and agrees that
its obligations under this Subsidiary Guaranty shall not be released,
discharged, diminished, impaired, reduced, or
SUBSIDIARY GUARANTY - Page 4
<PAGE>
affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of any Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Indebtedness or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Indebtedness; (b) any partial release of
the liability of any Guarantor hereunder, or the full or partial release of any
other guarantor from liability for any or all of the Guaranteed Indebtedness;
(c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of
Borrower, any Guarantor, or any other party at any time liable for the payment
of any or all of the Guaranteed Indebtedness; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Indebtedness or any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(e) any adjustment, indulgence, forbearance, waiver, or compromise that may be
granted or given by Administrative Agent or any Lender to Borrower, any
Guarantor, or any other party ever liable for any or all of the Guaranteed
Indebtedness; (f) any neglect, delay, omission, failure, or refusal of
Administrative Agent or any Lender to take or prosecute any action for the
collection of any of the Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (g) the unenforceability or invalidity of any or all of the
Guaranteed Indebtedness or of any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(h) any payment by Borrower or any other party to Administrative Agent or any
Lender is held to constitute a preference under applicable bankruptcy or
insolvency law or if for any other reason Administrative Agent or any Lender is
required to refund any payment or pay the amount thereof to someone else; (i)
the settlement or compromise of any of the Guaranteed Indebtedness; (j) the
non-perfection of any security interest or lien securing any or all of the
Guaranteed Indebtedness; (k) any impairment of any collateral securing any or
all of the Guaranteed Indebtedness; (l) the failure of Administrative Agent or
any Lender to sell any collateral securing any or all of the Guaranteed
Indebtedness in a commercially reasonable manner or as otherwise required by
law; (m) any change in the corporate existence, structure, or ownership of
Borrower; or (n) any other circumstance which might otherwise constitute a
defense (other than payment and performance in full) available to, or discharge
of, Borrower or any Guarantor.
8. Each Guarantor represents and warrants to Administrative Agent and
Lenders as follows:
(a) All representations and warranties in the Credit Agreement
relating to it are true and correct as of the date hereof and on each date the
representations and warranties hereunder are restated pursuant to any of the
Loan Documents with the same force and effect as if such representations and
warranties had been made on and as of such date except to the extent that such
representations and warranties relate specifically to another date or to the
extent that a fact, event or circumstance has occurred that makes such
representation or warranty untrue but which is not prohibited to occur or exist
(or which does not cause an Event of Default) under the Loan Documents.
(b) The value of the consideration received and to be received
by it as a result of Borrower, Administrative Agent and Lenders entering into
the Credit Agreement and its executing
SUBSIDIARY GUARANTY - Page 5
<PAGE>
and delivering this Subsidiary Guaranty and the other Loan Documents to which it
is a party is reasonably worth at least as much as its liability and obligation
hereunder and thereunder, and such liability and obligation and the Credit
Agreement have benefitted and may reasonably be expected to benefit it directly
or indirectly.
(c) It has, independently and without reliance upon
Administrative Agent or any Lender and based upon such documents and information
as it has deemed appropriate, made its own analysis and decision to enter into
the Loan Documents to which it is a party.
(d) It has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition and assets of
Borrower and it is not relying upon Administrative Agent or the Lenders to
provide (and neither the Administrative Agent nor any Lender shall have any duty
to provide) any such information to it either now or in the future.
9. Each Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or any Lender has any commitment
under the Credit Agreement, it will comply with all covenants set forth in the
Credit Agreement specifically applicable to it.
10. When an Event of Default exists, Administrative Agent and Lenders
shall have the right to set-off and apply against this Subsidiary Guaranty or
the Guaranteed Indebtedness or both, at any time and without notice to any
Guarantor, any and all deposits (general or special, time or demand, provisional
or final, but excluding any account established by a Guarantor as a fiduciary
for another party) or other sums at any time credited by or owing from
Administrative Agent and Lenders to any Guarantor whether or not the Guaranteed
Indebtedness is then due and irrespective of whether or not Administrative Agent
or any Lender shall have made any demand under this Subsidiary Guaranty. Each
Lender agrees promptly to notify the Borrower (with a copy to the Administrative
Agent) after any such setoff and application, provided that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights and remedies of Administrative Agent and the Lenders hereunder are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which Administrative Agent or any Lender may have.
11. (a) Each Guarantor hereby agrees that the Subordinated Indebtedness
(as defined below) shall be subordinate and junior in right of payment to the
prior payment in full of all Guaranteed Indebtedness as herein provided. The
Subordinated Indebtedness shall not be payable, and no payment of principal,
interest or other amounts on account thereof, and no property or guarantee of
any nature to secure or pay the Subordinated Indebtedness shall be made or
given, directly or indirectly by or on behalf of any Debtor (hereafter defined)
or received, accepted, retained or applied by any Guarantor unless and until the
Guaranteed Indebtedness shall have been paid in full in cash; EXCEPT THAT prior
to occurrence of an Event of Default, a Guarantor shall have the right to
receive payments on the Subordinated Indebtedness made in the ordinary course of
business. After the occurrence and during the continuance of an Event of
Default, no payments of principal or interest may be made or given, directly or
indirectly, by or on behalf of any Debtor or received, accepted, retained or
applied by any Guarantor unless and until the Guaranteed Indebtedness shall have
been paid in full in cash. If any sums shall be paid to a Guarantor by any
Debtor or any other
SUBSIDIARY GUARANTY - Page 6
<PAGE>
Person on account of the Subordinated Indebtedness when such payment is not
permitted hereunder, such sums shall be held in trust by such Guarantor for the
benefit of Administrative Agent and the Lenders and shall forthwith be paid to
Administrative Agent without affecting the liability of any Guarantor under this
Subsidiary Guaranty and may be applied by Administrative Agent against the
Guaranteed Indebtedness in accordance with the Credit Agreement. Upon the
request of Administrative Agent, a Guarantor shall execute, deliver, and endorse
to Administrative Agent such documentation as Administrative Agent may request
to perfect, preserve, and enforce its rights hereunder. For purposes of this
Subsidiary Guaranty and with respect to a Guarantor, the term "SUBORDINATED
INDEBTEDNESS" means all indebtedness, liabilities, and obligations of Borrower
or any other Loan Party other than such Guarantor (Borrower and such Loan
Parties herein the "DEBTORS") to such Guarantor, whether such indebtedness,
liabilities, and obligations now exist or are hereafter incurred or arise, or
are direct, indirect, contingent, primary, secondary, several, joint and
several, or otherwise, and irrespective of whether such indebtedness,
liabilities, or obligations are evidenced by a note, contract, open account, or
otherwise, and irrespective of the Person or Persons in whose favor such
indebtedness, obligations, or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by such Guarantor.
(b) Each Guarantor agrees that any and all Liens (including
any judgment liens), upon any Debtor's assets securing payment of any
Subordinated Indebtedness shall be and remain inferior and subordinate to any
and all Liens upon any Debtor's assets securing payment of the Guaranteed
Indebtedness or any part thereof, regardless of whether such Liens in favor of a
Guarantor, Administrative Agent or any Lender presently exist or are hereafter
created or attached. Without the prior written consent of Administrative Agent,
no Guarantor shall (i) file suit against any Debtor or exercise or enforce any
other creditor's right it may have against any Debtor, or (ii) foreclose,
repossess, sequester, or otherwise take steps or institute any action or
proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any obligations of any
Debtor to such Guarantor or any Liens held by such Guarantor on assets of any
Debtor.
(c) In the event of any receivership, bankruptcy,
reorganization, rearrangement, debtor's relief, or other insolvency proceeding
involving any Debtor as debtor, Administrative Agent shall have the right to
prove and vote any claim under the Subordinated Indebtedness and to receive
directly from the receiver, trustee or other court custodian all dividends,
distributions, and payments made in respect of the Subordinated Indebtedness
until the Guaranteed Indebtedness has been paid in full in cash. Administrative
Agent may apply any such dividends, distributions, and payments against the
Guaranteed Indebtedness in accordance with the Credit Agreement.
(d) Each Guarantor agrees that all promissory notes, accounts
receivable, ledgers, records, or any other evidence of Subordinated Indebtedness
shall contain a specific written notice thereon that the indebtedness evidenced
thereby is subordinated under the terms of this Subsidiary Guaranty.
12. Except for modifications made pursuant to the execution and
delivery of a Joinder Agreement (which only needs to be signed by each
Subsidiary party thereto), no amendment or
SUBSIDIARY GUARANTY - Page 7
<PAGE>
waiver of any provision of this Subsidiary Guaranty or consent to any departure
by any Guarantor therefrom shall in any event be effective unless the same shall
be in writing and signed by Administrative Agent and Required Lenders except as
otherwise provided in the Credit Agreement. No failure on the part of
Administrative Agent or any Lender to exercise, and no delay in exercising, any
right, power, or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power, or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
13. Any acknowledgment or new promise, whether by payment of principal
or interest or otherwise and whether by Borrower or others (including any
Guarantor), with respect to any of the Guaranteed Indebtedness shall, if the
statute of limitations in favor of a Guarantor against Administrative Agent or
any Lender shall have commenced to run, toll the running of such statute of
limitations and, if the period of such statute of limitations shall have
expired, prevent the operation of such statute of limitations.
14. This Subsidiary Guaranty is for the benefit of Administrative Agent
and the Lenders and their successors and assigns, and in the event of an
assignment of the Guaranteed Indebtedness, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness so assigned,
may be transferred with such indebtedness. This Subsidiary Guaranty is binding
not only on each Guarantor, but on each Guarantor's successors and assigns.
15. Each Guarantor recognizes that Administrative Agent and the Lenders
are relying upon this Subsidiary Guaranty and the undertakings of each Guarantor
hereunder and under the other Loan Documents to which each is a party in making
extensions of credit to Borrower under the Credit Agreement and further
recognizes that the execution and delivery of this Subsidiary Guaranty and the
other Loan Documents to which each Guarantor is a party is a material inducement
to Administrative Agent and the Lenders in entering into the Credit Agreement
and continuing to extend credit thereunder. Each Guarantor hereby acknowledges
that there are no conditions to the full effectiveness of this Subsidiary
Guaranty or any other Loan Document to which it is a party.
16. Any notice or demand to any Guarantor under or in connection with
this Subsidiary Guaranty or any other Loan Document to which it is a party shall
be deemed effective if given to the Guarantor, care of Borrower in accordance
with the notice provisions in the Credit Agreement.
17. The Guarantors shall, jointly and severally, pay on demand all
reasonable attorneys' fees and all other reasonable costs and expenses incurred
by Administrative Agent and Lenders in connection with the administration,
enforcement, or collection of this Subsidiary Guaranty.
18. Each Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Subsidiary Guaranty, presentment, notice of protest, notice
of dishonor, notice of the incurring by Borrower of additional indebtedness, and
all other notices and demands with respect to the Guaranteed Indebtedness and
this Subsidiary Guaranty.
SUBSIDIARY GUARANTY - Page 8
<PAGE>
19. The Credit Agreement, and all of the terms thereof, are
incorporated herein by reference, the same as if stated verbatim herein, and
each Guarantor agrees that Administrative Agent and the Lenders may exercise any
and all rights granted to any of them under the Credit Agreement and the other
Loan Documents without affecting the validity or enforceability of this
Subsidiary Guaranty.
20. THIS SUBSIDIARY GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF
EACH GUARANTOR, ADMINISTRATIVE AGENT AND LENDERS WITH RESPECT TO EACH
GUARANTOR'S GUARANTY OF THE GUARANTEED INDEBTEDNESS AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS SUBSIDIARY GUARANTY
IS INTENDED BY EACH GUARANTOR, ADMINISTRATIVE AGENT AND LENDERS AS A FINAL AND
COMPLETE EXPRESSION OF THE TERMS OF THIS SUBSIDIARY GUARANTY, AND NO COURSE OF
DEALING AMONG ANY GUARANTOR, ADMINISTRATIVE AGENT AND THE LENDERS, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
SUBSIDIARY GUARANTY. THERE ARE NO ORAL AGREEMENTS AMONG ANY GUARANTOR,
ADMINISTRATIVE AGENT AND THE LENDERS.
21. THIS SUBSIDIARY GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA AND THE APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.
EXECUTED as of the date first above written.
GUARANTORS:
----------------------------------------------
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
SUBSIDIARY GUARANTY - Page 9
<PAGE>
EXHIBIT "E"
FORM OF JOINDER AGREEMENT
JOINDER AGREEMENT - Page 1
<PAGE>
JOINDER AGREEMENT
(Subsidiary of Peregrine Systems, Inc.)
This JOINDER AGREEMENT (the "AGREEMENT") dated as of ___________,
______, is executed by the undersigned (the "SUBSIDIARY") for the benefit of
BANK OF AMERICA, N.A., in its capacity as administrative agent (in such
capacity, herein the "ADMINISTRATIVE AGENT") for the Lenders party to the
hereafter identified Credit Agreement and for the benefit of such Lenders in
connection with that certain Credit Agreement dated as of July 30, 1999 among
Administrative Agent, PEREGRINE SYSTEMS, INC., BankBoston, N.A., as Syndication
Agent, and the other Lenders from time to time party thereto (as amended,
restated or otherwise modified from time to time, the "CREDIT AGREEMENT";
capitalized terms not otherwise defined herein being used herein as defined in
the Credit Agreement).
RECITALS:
The Subsidiary is a Domestic Subsidiary and is required to execute this
Agreement pursuant to the terms of the Credit Agreement.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subsidiary hereby agrees as follows:
1. The Subsidiary assumes all the obligations of a "Guarantor" under
that certain Pledge and Security Agreement dated as of July __, 1999, by and
among each Domestic Subsidiary, Administrative Agent and other parties who from
time to time may become party thereto (as amended, the "SECURITY AGREEMENT") and
agrees that it is a "Guarantor" and bound as a "Guarantor" under the terms of
the Security Agreement as if it had been an original signatory thereto. In
furtherance of the foregoing, the Subsidiary hereby assigns, pledges and grants
to Administrative Agent a security interest in all of its right, title and
interest in and to the Subsidiary's Collateral (as defined in the Security
Agreement) to secure the Obligations (as defined in the Security Agreement)
under the terms of the Security Agreement.
2. SCHEDULES 1.1, 3.1, 3.2, 3.3, and 3.5 of the Security Agreement are
hereby amended to add the information relating to the Subsidiary set out on
SCHEDULES 1.1, 3.1, 3.2, 3.3, and 3.5 hereto. The Subsidiary hereby confirms
that the representations and warranties set forth in the Security Agreement
applicable to it and its Collateral and the representations and warranties set
forth in the Credit Agreement applicable to it and its Collateral are true and
correct in all material respects after giving effect to such amendment to the
Schedules.
3. In furtherance of its obligations under SECTION 4.2 of the Security
Agreement, the Subsidiary agrees to execute and deliver to the Administrative
Agent (i) appropriately completed UCC financing statements naming the Subsidiary
as debtor and the Administrative Agent as secured party and describing its
Collateral and (ii) such other documentation as the Administrative Agent may
require to protect and perfect the Liens created by the Security Agreement, as
modified hereby.
JOINDER AGREEMENT - Page 2
<PAGE>
4. The Subsidiary hereby assumes all the obligations of a "Guarantor"
under that certain Subsidiary Guaranty, dated as of July 30, 1999, executed by
each Domestic Subsidiary party thereto in favor of the Administrative Agent and
the Lenders (as amended, the "SUBSIDIARY GUARANTY") and agrees that it is a
"Guarantor" and bound as a "Guarantor" under the terms of the Subsidiary
Guaranty as if it had been an original signatory thereto. In accordance with the
foregoing and for valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Subsidiary irrevocably and unconditionally guarantees
to the Administrative Agent and the Lenders the full and prompt payment and
performance of the Guaranteed Indebtedness (as defined in the Subsidiary
Guaranty) upon the terms and conditions set forth in the Subsidiary Guaranty.
5. This Agreement shall be deemed to be part of, and a modification to,
the Security Agreement and the Subsidiary Guaranty and shall be governed by all
the terms and provisions of the Security Agreement and the Subsidiary Guaranty,
which terms are incorporated herein by reference, are ratified and confirmed and
shall continue in full force and effect as valid and binding agreements of the
Subsidiary enforceable against the Subsidiary. The Subsidiary hereby waives
notice of Administrative Agent's or any Lender's acceptance of this Agreement.
IN WITNESS WHEREOF, the Subsidiary has executed this Agreement as of
the day and year first written above.
SUBSIDIARY:
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
JOINDER AGREEMENT - Page 3
<PAGE>
Schedule 1.1
TO
JOINDER AGREEMENT
PLEDGED SHARES
<TABLE>
<CAPTION>
Description of Each
Class and Series Number of Number of
Name State of Incorporation (If Applicable) Par Value Issued Shares Pledged Shares Certificate No.
- ---- ---------------------- --------------- --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Schedule 1.1, Solo Page
<PAGE>
SCHEDULE 3.1
TO
JOINDER AGREEMENT
LOCATIONS
Address Landlord/Mortgagee
------- ------------------
I. PRINCIPAL PLACE OF BUSINESS
II. OTHER LOCATIONS
Schedule 3.1, Solo Page
<PAGE>
SCHEDULE 3.2
TO
JOINDER AGREEMENT
DEPOSIT, COMMODITY, AND SECURITIES ACCOUNTS
Schedule 3.2, Solo Page
<PAGE>
SCHEDULE 3.3
TO
JOINDER AGREEMENT
TRADE AND OTHER NAMES; TAX IDENTIFICATION NUMBER
I. Trade and Other Names:
II. United States Income Tax Identification Number:
Schedule 3.3, Solo Page
<PAGE>
SCHEDULE 3.5
TO
JOINDER AGREEMENT
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
COPYRIGHTS
====================================================================================================================================
Owner of Record Country of Registration Copyright Applications Registration or Expiration Title
or Registration Filing Date Date
No.
================== ========================= ================== ================= ================= ================ ===========
<S> <C> <C> <C> <C> <C> <C>
================== ========================= ================== ================= ================= ================ ===========
</TABLE>
<TABLE>
<CAPTION>
COPYRIGHT LICENSES
==================================================================================================================================
Name of Agreement Patent Date of Agreement
================================== ======================================== ====================================================
<S> <C> <C>
================================== ======================================== ====================================================
</TABLE>
<TABLE>
<CAPTION>
PATENTS
==========================================================================================================================
Owner of Record After Application or Registration or Issue Date
Assignment Agreements are Filed Country of Origin Patent Identification Registration No. Filing Date (if known)
=============================== ================== ===================== ================ =============== ============
<S> <C> <C> <C> <C> <C>
=============================== ================== ===================== ================ =============== ============
</TABLE>
<TABLE>
===============
Expiration Date
===============
<S> <C>
===============
</TABLE>
<TABLE>
<CAPTION>
PATENT LICENSES
==================================================================================================================================
Name of Agreement Patent Date of Agreement
========================== ============================= =======================================================================
<S> <C> <C>
========================== ============================= =======================================================================
</TABLE>
Schedule 3.5, Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
TRADEMARKS
===================================================================================================================================
Application or Filing Expiration
Owner of Record Country of Registration Trademark Registration No. Date Date
====================== ============================= ======================== ==================== ============= ==============
<S> <C> <C> <C> <C> <C>
====================== ============================= ======================== ==================== ============= ==============
</TABLE>
<TABLE>
================================================
Goods
===============================================
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
TRADEMARK LICENSES
====================== ===================================== ====================================================================
Name of Agreement Parties Date of Agreement
====================== ===================================== ====================================================================
<S> <C> <C>
====================== ===================================== ====================================================================
</TABLE>
Schedule 3.5, Page 2 of 2
<PAGE>
REVOLVING NOTE
$10,000,000.00 July 30, 1999
FOR VALUE RECEIVED, the undersigned, PEREGRINE SYSTEMS, INC., a
Delaware corporation (the "BORROWER"), hereby promises to pay to the order of
BANK OF AMERICA, N.A. (the "LENDER"), at the Principal Office of the
Administrative Agent, in lawful money of the United States of America and in
immediately available funds, the principal amount of TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) or such lesser amount as shall equal the aggregate
unpaid principal amount of the Revolving Loans made by the Lender to the
Borrower under the Credit Agreement referred to below, on the dates and in the
principal amounts provided in the Credit Agreement, and to pay interest on the
unpaid principal amount of each such Revolving Loan, at such office, in like
money and funds, for the period commencing on the date of such Revolving Loan
until such Revolving Loan shall be paid in full, at the rates per annum and on
the dates provided in the Credit Agreement.
The Borrower hereby authorizes the Lender to record in its records the
amount of each Revolving Loan and Type of Accounts established under each
Revolving Loan and all Continuations, Conversions and payments of principal in
respect thereof, which records shall, in the absence of manifest error,
constitute prima facie evidence of the accuracy thereof; PROVIDED, HOWEVER, that
the failure to make such notation with respect to any such Revolving Loan or
payment shall not limit or otherwise affect the obligations of the Borrower
under the Credit Agreement or this Revolving Note.
This Revolving Note is one of the Revolving Notes referred to in the
Credit Agreement dated as of July 30, 1999, among the Borrower, the Lender, the
other lenders party thereto (collectively with the Lender, the "LENDERS"),
BankBoston, N.A., as syndication agent and Bank of America, N.A., as
administrative agent for such lenders (the "ADMINISTRATIVE AGENT" and such
Credit Agreement, as the same may be amended or otherwise modified from time to
time, being referred to herein as the "CREDIT AGREEMENT"), and evidences
Revolving Loans made by the Lender thereunder. The Credit Agreement, among other
things, contains provisions for acceleration of the maturity of this Revolving
Note upon the happening of certain stated events and for prepayments of
Revolving Loans prior to the maturity of this Revolving Note upon the terms and
conditions specified in the Credit Agreement. Capitalized terms used in this
Revolving Note, unless otherwise defined herein, have the respective meanings
assigned to them in the Credit Agreement.
THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
Except for any notices expressly required by the Loan Documents, the
Borrower and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Revolving Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace and all
other formalities of any
<PAGE>
kind, and consent to all extensions without notice for any period or periods of
time and partial payments, before or after maturity, and any impairment of any
collateral securing this Revolving Note, all without prejudice to the holder.
The holder shall similarly have the right to deal in any way, at any time, with
one or more of the foregoing parties without notice to any other party, and to
grant any such party any extensions of time for payment of any of said
indebtedness, or to release any such party or to release or substitute part or
all of the collateral securing this Revolving Note, or to grant any other
indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
PEREGRINE SYSTEMS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
REVOLVING NOTE
$10,000,000.00 July 30, 1999
FOR VALUE RECEIVED, the undersigned, PEREGRINE SYSTEMS, INC., a
Delaware corporation (the "BORROWER"), hereby promises to pay to the order of
BANKBOSTON, N.A. (the "LENDER"), at the Principal Office of the
Administrative Agent, in lawful money of the United States of America and in
immediately available funds, the principal amount of TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) or such lesser amount as shall equal the aggregate
unpaid principal amount of the Revolving Loans made by the Lender to the
Borrower under the Credit Agreement referred to below, on the dates and in
the principal amounts provided in the Credit Agreement, and to pay interest
on the unpaid principal amount of each such Revolving Loan, at such office,
in like money and funds, for the period commencing on the date of such
Revolving Loan until such Revolving Loan shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement.
The Borrower hereby authorizes the Lender to record in its records the
amount of each Revolving Loan and Type of Accounts established under each
Revolving Loan and all Continuations, Conversions and payments of principal in
respect thereof, which records shall, in the absence of manifest error,
constitute prima facie evidence of the accuracy thereof; PROVIDED, HOWEVER, that
the failure to make such notation with respect to any such Revolving Loan or
payment shall not limit or otherwise affect the obligations of the Borrower
under the Credit Agreement or this Revolving Note.
This Revolving Note is one of the Revolving Notes referred to in the
Credit Agreement dated as of July 30, 1999, among the Borrower, the Lender, the
other lenders party thereto (collectively with the Lender, the "LENDERS"),
BankBoston, N.A., as syndication agent and Bank of America, N.A., as
administrative agent for such lenders (the "ADMINISTRATIVE AGENT" and such
Credit Agreement, as the same may be amended or otherwise modified from time to
time, being referred to herein as the "CREDIT AGREEMENT"), and evidences
Revolving Loans made by the Lender thereunder. The Credit Agreement, among other
things, contains provisions for acceleration of the maturity of this Revolving
Note upon the happening of certain stated events and for prepayments of
Revolving Loans prior to the maturity of this Revolving Note upon the terms and
conditions specified in the Credit Agreement. Capitalized terms used in this
Revolving Note, unless otherwise defined herein, have the respective meanings
assigned to them in the Credit Agreement.
THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA.
Except for any notices expressly required by the Loan Documents, the
Borrower and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Revolving Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace and all
other formalities of any
<PAGE>
kind, and consent to all extensions without notice for any period or periods of
time and partial payments, before or after maturity, and any impairment of any
collateral securing this Revolving Note, all without prejudice to the holder.
The holder shall similarly have the right to deal in any way, at any time, with
one or more of the foregoing parties without notice to any other party, and to
grant any such party any extensions of time for payment of any of said
indebtedness, or to release any such party or to release or substitute part or
all of the collateral securing this Revolving Note, or to grant any other
indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
PEREGRINE SYSTEMS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
PLEDGE AND SECURITY AGREEMENT
(Peregrine Systems, Inc.)
THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT"), dated as of July
30, 1999, is between PEREGRINE SYSTEMS, INC., a Delaware corporation ("DEBTOR"),
and BANK OF AMERICA, N.A. as Administrative Agent for the Lenders referred to
below (in such capacity, the "SECURED PARTY").
R E C I T A L S:
A. Debtor has entered into that certain Credit Agreement dated as of
July 30, 1999, with the lenders party thereto (each individually a "LENDER" and
collectively, the "LENDERS"), BankBoston, N.A., as Syndication Agent, and
Secured Party, as Administrative Agent for the Lenders (such agreement as it may
be amended, restated or otherwise modified from time to time is referred to
herein as the "CREDIT AGREEMENT").
B. The execution and delivery of this Agreement is required by the
Credit Agreement as a condition to the Lenders' obligations under the Credit
Agreement.
C. Terms defined in the Credit Agreement, and not otherwise defined
herein, are used herein with their meanings so defined.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt, and sufficiency of which are
hereby acknowledged, and in order to induce Secured Party and the Lenders to
make Loans and issue Letters of Credit pursuant to the Credit Agreement, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following terms
have the following meanings:
"ACCOUNT" means any "account," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include, without limitation, each of
the following, whether now owned or hereafter acquired by Debtor: (a)
all rights of Debtor to payment for goods sold or leased, services
rendered or the license of Intellectual Property, whether or not earned
by performance; (b) all accounts receivable of Debtor; (c) all rights
of Debtor to receive any payment of money or other form of
consideration; (d) all security pledged, assigned, or granted to or
held by Debtor to secure any of the foregoing; (e) all guaranties of,
or indemnifications with respect to, any of the foregoing; (f) all
rights of Debtor as an unpaid seller of goods or services, including,
but not limited to, all rights of stoppage in transit, replevin,
reclamation, and resale; and (g) all rights to brokerage commissions.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 1
<PAGE>
"AMENDMENT" means any amendment of this Agreement between
Debtor and Secured Party required hereby or entered into pursuant to
the terms of the Credit Agreement, including, without limitation, any
amendment in the form of EXHIBIT A hereto.
"CAPITAL STOCK" means corporate stock and any and all shares,
partnership interests, equity interests, rights, securities or other
equivalent evidences of ownership (however designated) issued by any
entity (whether a corporation, partnership, limited liability company,
limited partnership or other type of entity).
"CHATTEL PAPER" means any "chattel paper," as such term is
defined in Article or Chapter 9 of the UCC, now owned or hereafter
acquired by Debtor.
"COLLATERAL" has the meaning specified in SECTION 2.1 of this
Agreement.
"COPYRIGHT LICENSE" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
Copyright, including, without limitation, the agreements identified on
SCHEDULE 3.5.
"COPYRIGHTS" means all of the following: (a) all copyrights,
works protectable by copyright, copyright registrations, and copyright
applications, including, without limitation, those identified on
SCHEDULE 3.5; (b) all renewals, extensions, and modifications thereof;
(c) all income, royalties, damages, profits, and payments relating to
or payable under any of the foregoing; (d) the right to sue for past,
present, or future infringements of any of the foregoing; and (e) all
other rights and benefits relating to any of the foregoing throughout
the world; in each case, whether now owned or hereafter acquired by
Debtor.
"COPYRIGHT SECURITY AGREEMENT" means a copyright security
agreement to be executed and delivered by Debtor to Secured Party,
substantially in the form of EXHIBIT B hereto and otherwise in form and
substance satisfactory to Secured Party, for the purpose of recording
such agreement with any copyright office of a Governmental Authority,
as such agreement may be amended, restated, or otherwise modified from
time to time.
"DEPOSIT ACCOUNTS" means any and all deposit accounts,
certificates of deposit, or other bank accounts now owned or hereafter
acquired or opened by Debtor, and any account which is a replacement or
substitute for any of such accounts including, without limitation,
those deposit accounts identified on SCHEDULE 3.2.
"DOCUMENT" means any "document," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, including, without limitation, all documents of title and all
receipts covering, evidencing, or representing goods now owned or
hereafter acquired by Debtor.
"EQUIPMENT" means any "equipment," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor and, in any event, shall include, without limitation, all
machinery, furniture, trailers, rolling stock, vessels, aircraft, and
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 2
<PAGE>
vehicles now owned or hereafter acquired by Debtor and any and all
additions, substitutions, and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment, and accessories installed thereon or affixed thereto.
"FINANCIAL ASSETS" means any "financial asset," as such term
is defined in Article or Chapter 8 of the UCC.
"FIXTURES" means any "fixtures," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor and in any event shall include, without limitation, all plant
fixtures, business fixtures, other fixtures, and storage office
facilities, wherever located, and all additions and accessions thereto
and replacements therefor.
"GENERAL INTANGIBLES" means any "general intangibles," as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by Debtor and, in any event, shall include, without
limitation, each of the following, whether now owned or hereafter
acquired by Debtor: (a) all of Debtor's Intellectual Property together
with all of Debtor's trade secrets, proprietary information, customer
lists, designs, and inventions; (b) all of Debtor's books, records,
data, plans, manuals, computer software, computer tapes, computer
disks, computer programs, source codes, object codes, and all rights of
Debtor to retrieve data and other information from third parties; (c)
all of Debtor's contract rights (including, without limitation, all of
Debtor's right, title, and interest in and to the Loan Documents),
which include, without limitation, (i) all rights of Debtor to receive
moneys due and to become due under or pursuant to such agreements, (ii)
all rights of Debtor to receive proceeds of any insurance, indemnity,
warranty, or guaranty with respect to such agreements, (iii) all claims
of Debtor for damages arising out of or for breach of or default under
such agreements, (iv) all rights of Debtor to terminate such
agreements, to perform thereunder, and to compel performance and
otherwise exercise all rights and remedies thereunder, and (v) any
rights to Liens securing Pledged Collateral, Accounts, or obligations
arising under any Loan Document, (d) all rights or interests of Debtor
in any partnership or joint venture; (e) all rights of Debtor to
payment under letters of credit and similar agreements; (f) all tax
refunds and tax refund claims of Debtor; (g) all choses in action and
causes of action of Debtor (whether arising in contract, tort, or
otherwise and whether or not currently in litigation) and all judgments
in favor of Debtor; (h) all rights and claims of Debtor under
warranties and indemnities; and (i) all rights of Debtor under any
insurance, surety, or similar contract or arrangement, including,
without limitation, all claims under governmental health care programs
and claims under private insurance to which Debtor is entitled or which
have been assigned to it.
"INSTRUMENT" means any "instrument," as such term is defined
in Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include all promissory notes, drafts,
bills of exchange, and trade acceptances, whether now owned or
hereafter acquired by Debtor.
"INTELLECTUAL PROPERTY" means the Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks, and Trademark Licenses.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 3
<PAGE>
"INVENTORY" means any "inventory," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include, without limitation, each of
the following, whether now owned or hereafter acquired by Debtor: (a)
all goods and other personal property that are held for sale or lease
or to be furnished under any contract of service; (b) all raw
materials, work-in-process, finished goods, inventory, supplies, and
materials; (c) all wrapping, packaging, advertising, and shipping
materials; (d) all goods that have been returned to, repossessed by, or
stopped in transit by Debtor; and (e) all Documents evidencing any of
the foregoing.
"INVESTMENT PROPERTY" means any "investment property" as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by Debtor, and, in any event, shall include, without
limitation, each of the following, whether now owned or hereafter
acquired: (a) any security, whether certificated or uncertificated; (b)
any security entitlement; (c) any securities account (including,
without limitation, those described on SCHEDULE 3.2); (d) any commodity
contract; and (e) any commodity account (including, without limitation,
those identified on SCHEDULE 3.2).
"OBLIGATIONS" means and includes the "Obligations" as such
term is defined in the Credit Agreement.
"PATENT LICENSE" means any written agreement now or hereafter
in existence granting to Debtor any right to use any invention on which
a Patent is in existence, including, without limitation, the agreements
identified on SCHEDULE 3.5.
"PATENTS" means any and all of the following: (a) all patents,
patent applications, and patentable inventions, including, without
limitation, those identified on SCHEDULE 3.5, and all of the inventions
and improvements described and claimed therein; (b) all continuations,
divisions, renewals, extensions, modifications, substitutions,
continuations-in-part, or reissues of any of the foregoing; (c) all
income, royalties, profits, damages, awards, and payments relating to
or payable under any of the foregoing; (d) the right to sue for past,
present, and future infringements of any of the foregoing; and (e) all
other rights and benefits relating to any of the foregoing throughout
the world; in each case, whether now owned or hereafter acquired by
Debtor.
"PATENT SECURITY AGREEMENT" means a patent security agreement
to be executed and delivered by Debtor to Secured Party, substantially
in the form of EXHIBIT C hereto and otherwise in form and substance
satisfactory to Secured Party, for the purpose of recording such
agreement with any copyright office of a Governmental Authority, as
such agreement may be amended, restated, or otherwise modified from
time to time.
"PLEDGED COLLATERAL" means the Pledged Shares and the
Instruments evidencing the obligations of Subsidiaries to Debtor
described in SECTION 2.1(c).
"PLEDGED SHARES" means the Capital Stock identified on
SCHEDULE 1.1 attached hereto, which constitutes 100% of the Capital
Stock of each of the direct Domestic Subsidiaries of
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 4
<PAGE>
Debtor and 65% of the Capital Stock of each of the direct Foreign
Subsidiaries of Debtor, or on SCHEDULE 1 to an Amendment (all of which
shall not, in any event, except as described in Section 6.7 of the
Credit Agreement or an Amendment hereto, include more than 65% of the
Capital Stock of any direct Foreign Subsidiary).
"PROCEEDS" means any "proceeds," as such term is defined in
Article or Chapter 9 of the UCC and, in any event, shall include, but
not be limited to, (a) any and all proceeds of any insurance,
indemnity, warranty, or guaranty payable to Debtor from time to time
with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure,
or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any Person acting, or purporting to act, for or on behalf
of any Governmental Authority), and (c) any and all other amounts from
time to time paid or payable under or in connection with any of the
Collateral.
"TRADEMARK LICENSE" means any written agreement now or
hereafter in existence granting to Debtor any right to use any
Trademark, including, without limitation, the agreements identified on
SCHEDULE 3.5.
"TRADEMARKS" means all of the following: (a) all trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other business
identifiers, prints and labels on which any of the foregoing appear,
all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings, and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision
thereof, including, without limitation, those identified in SCHEDULE
3.5; (b) all reissues, extensions, and renewals thereof; (c) all
income, royalties, damages, and payments now or hereafter relating to
or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present, and future
infringements of any of the foregoing; (e) all rights corresponding to
any of the foregoing throughout the world; and (f) all goodwill
associated with and symbolized by any of the foregoing; in each case,
whether now owned or hereafter acquired by Debtor.
"TRADEMARK SECURITY AGREEMENT" means a trademark security
agreement to be executed and delivered by Debtor to Secured Party,
substantially in the form of EXHIBIT D hereto and otherwise in form and
substance satisfactory to Secured Party, for the purpose of recording
such agreement with any copyright office of a Governmental Authority,
as such agreement may be amended, restated, or otherwise modified from
time to time.
"UCC" means the Uniform Commercial Code as in effect in the
State of California and/or any other jurisdiction the laws of which may
be applicable to or in connection with the creation, perfection or
priority of any Lien on any Collateral.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 5
<PAGE>
Section 1.2 OTHER DEFINITIONAL PROVISIONS. References to "Sections,"
"subsections," "Exhibits," and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. All definitions contained in this Agreement are equally
applicable to the singular and plural forms of the terms defined. All references
to statutes and regulations shall include any amendments of the same and any
successor statutes and regulations. References to particular sections of the UCC
should be read to refer also to parallel sections of the Uniform Commercial Code
as enacted in each state or other jurisdiction where any portion of the
Collateral is or may be located. Terms used herein, which are defined in the
UCC, unless otherwise defined herein or in the Credit Agreement, shall have the
meanings determined in accordance with the UCC.
ARTICLE 2
SECURITY INTEREST
Section 2.1 SECURITY INTEREST. As collateral security for the prompt
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration, or otherwise), Debtor hereby pledges and assigns to
Secured Party, and grants to Secured Party a continuing lien on and security
interest in, all of Debtor's right, title, and interest in and to the following,
whether now owned or hereafter arising or acquired and wherever located (the
"COLLATERAL"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Instruments, including, without limitation, or in
addition, all instruments evidencing indebtedness from time to
time owed to Debtor by any Person, and all interest, cash, and
other property from time to time received, receivable, or
otherwise distributed or distributable in respect of or in
exchange for any or all of such Instruments;
(d) all General Intangibles;
(e) all Documents;
(f) all Equipment;
(g) all Fixtures;
(h) all Inventory;
(i) all Financial Assets and Investment Property, including,
without limitation, or in addition, the following:
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 6
<PAGE>
(1) all of the Pledged Shares and the certificates (if
any) representing the Pledged Shares, and all
dividends, cash, Instruments, and other property from
time to time received, receivable, or otherwise
distributed or distributable in respect of or in
exchange for any or all of the Pledged Shares;
(2) all additional Capital Stock from time to time owned
or acquired by Debtor in any manner, and all
dividends, cash, Instruments, and other property from
time to time received, receivable, or otherwise
distributed or distributable in respect of or in
exchange for any or all of such Capital Stock;
provided, except as otherwise provided in Section 6.7
of the Credit Agreement or an Amendment hereto, no
more than 65% of the Capital Stock of a Foreign
Subsidiary shall be required to be pledged and no
Capital Stock owned by a Foreign Subsidiary shall be
required to be pledged; and
(j) all of Debtor's Deposit Accounts and all funds, certificates,
Documents, Instruments, checks, drafts, wire transfer
receipts, and other earnings, profits, or other Proceeds from
time to time representing, evidencing, deposited into, or held
in the Deposit Accounts;
(k) all other goods and personal property of Debtor of any kind or
character, whether tangible or intangible, including, without
limitation, any and all rights in and claims under insurance
policies, judgments and rights thereunder, and tort claims;
and
(l) all products and Proceeds, in cash or otherwise, of any of the
property described in the foregoing CLAUSES (a) THROUGH (k).
Section 2.2 DEBTOR REMAINS LIABLE. Notwithstanding anything to the
contrary contained herein, (a) Debtor shall remain liable under the
documentation included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights or remedies hereunder shall not release Debtor from any of its
duties or obligations under such documentation, (c) Secured Party shall not have
any obligation under any of such documentation included in the Collateral by
reason of this Agreement, and (d) Secured Party shall not be obligated to
perform any of the obligations of Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce Secured Party and the Lenders to enter into this Agreement
and the Credit Agreement, Debtor represents and warrants as follows:
Section 3.1 LOCATION OF EQUIPMENT, FIXTURES, AND INVENTORY; THIRD
PARTIES IN POSSESSION. All of the Equipment, Fixtures and Inventory are located
in the jurisdictions and at the places
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 7
<PAGE>
specified in SCHEDULE 3.1. SCHEDULE 3.1 correctly identifies the landlords or
mortgagees, if any, of each location identified in SCHEDULE 3.1. Except for the
Persons identified on SCHEDULE 3.2, no Person other than Debtor and Secured
Party has possession of any of the Collateral. None of the Collateral other than
the Pledged Collateral has been located in any location within the past six (6)
months other than as set forth on SCHEDULE 3.1.
Section 3.2 DEPOSIT, COMMODITY, AND SECURITIES ACCOUNTS. SCHEDULE 3.2
correctly identifies all deposit, commodity, and securities accounts owned by
Debtor and the institutions holding such accounts. No Person other than Debtor
has control over any Investment Property.
Section 3.3 OFFICE LOCATIONS; FICTITIOUS NAMES; TAX I.D. NUMBER. The
principal place of business and the chief executive office of Debtor is
identified on SCHEDULE 3.1. SCHEDULE 3.1 also sets forth all other places where
Debtor keeps its books and records and all other locations where Debtor has a
place of business. Debtor does not do business and has not done business during
the past five (5) years under any trade-name or fictitious business name except
as disclosed on SCHEDULE 3.3. Debtor's United States Federal Income Tax
Identification Number is set forth on SCHEDULE 3.3.
Section 3.4 DELIVERY OF COLLATERAL. Except as provided by SECTION 4.3,
Debtor has delivered to Secured Party all Collateral the possession of which is
necessary to perfect the security interest of Secured Party therein. All
certificates of title evidencing Equipment have been delivered to Secured Party
to the extent required to perfect the security interest of Secured Party
therein.
Section 3.5 INTELLECTUAL PROPERTY. All of Debtor's Intellectual
Property that is registered with or for which an application for registration
has been filed with any Governmental Authority is identified on SCHEDULE 3.5,
and such information is true, correct, and complete.
ARTICLE 4
COVENANTS
Debtor covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment under the Credit
Agreement, Debtor will perform and observe each of the following covenants:
Section 4.1 ACCOUNTS. Debtor shall, in accordance with its customary
business practices, endeavor to collect or cause to be collected from each
account debtor under its Accounts, as and when due, any and all amounts owing
under such Accounts. Without the prior written consent of Secured Party, Debtor
shall not, except in the ordinary course of business and in no event when any
Default exists, (a) grant any extension of time for any payment with respect to
any of the Accounts beyond sixty (60) days after such payment's due date, (b)
compromise, compound, or settle any of the Accounts for less than the full
amount thereof, (c) release, in whole or in part, any Person liable for payment
of any of the Accounts, (d) allow any credit or discount for payment with
respect to any Account other than trade or other customary discounts granted in
the ordinary course of business, or (e) release any Lien or guaranty securing
any Account unless the Account has been paid.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 8
<PAGE>
Section 4.2 FURTHER ASSURANCES; EXCEPTIONS TO PERFECTION. At any time
and from time to time, upon the request of Secured Party, and at the sole
expense of Debtor, Debtor shall promptly execute and deliver all such further
agreements, documents, and instruments and take such further action as Secured
Party may reasonably deem necessary or appropriate to preserve and perfect its
security interest in the Collateral and carry out the provisions and purposes of
this Agreement or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral. Without limiting the
generality of the foregoing, Debtor shall upon reasonable request by Secured
Party (a) execute and deliver to Secured Party such financing statements as
Secured Party may from time to time require, (b) take such action after the
occurrence of a Default as Secured Party may request to permit Secured Party to
have control over any Investment Property or any Deposit Account, (c) deliver to
Secured Party all Collateral the possession of which is necessary to perfect the
security interest therein, duly endorsed and/or accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Secured Party; EXCEPT that, prior to the occurrence of a Default, Debtor may:
(i) retain for collection in the ordinary course of business checks representing
Proceeds of Accounts received in the ordinary course of business; (ii) retain
any letters of credit received in the ordinary course of business; (iii) retain
and utilize in the ordinary course of business all dividends and interest paid
in respect to any of the Pledged Collateral or any other Investment Property;
and (iv) retain any Documents received and further negotiated in the ordinary
course of business, (d) deliver any and all certificates of title, applications
for title or similar evidence of ownership of Equipment and cause Secured Party
to be named as lienholder thereon, and (e) execute and deliver to Secured Party
such other agreements, documents, and instruments as Secured Party may
reasonably require to perfect and maintain the validity, effectiveness, and
priority of the Liens intended to be created by this Agreement or any other Loan
Document.
Section 4.3 THIRD PARTIES IN POSSESSION OF COLLATERAL. Debtor shall not
permit any third Person (including any warehouseman, bailee, agent, consignee,
or processor) to hold any Collateral, unless Debtor shall: (i) notify such third
Person of the security interests created hereby; (ii) instruct such Person to
hold all such Collateral for Secured Party's account subject to Secured Party's
instructions; and (iii) take all other actions Secured Party reasonably deems
necessary to perfect and protect its and Debtor's interests in such Collateral
pursuant to the requirements of the UCC of the applicable jurisdiction where
such warehouseman, bailee, consignee, agent, processor, or other third Person is
located (including the filing of financing statements in the proper
jurisdictions naming the applicable third Person as debtor and Debtor as secured
party and notifying the third Person's secured lenders of Debtor's interest in
such Collateral before the third Person receives possession of the Collateral in
question).
Section 4.4 CORPORATE CHANGES. Debtor shall not change its name,
identity, corporate structure, or its United States Tax Identification Number in
any manner that might make any financing statement filed in connection with this
Agreement seriously misleading unless Debtor shall have given Secured Party not
less than thirty (30) days prior written notice thereof and shall have taken all
action reasonably deemed necessary or desirable by Secured Party to protect its
Liens with the perfection and priority thereof required by the Loan Documents.
Debtor shall not change its principal place of business, chief executive office,
or the place where it keeps its books and records unless it shall have given
Secured Party not less than thirty (30) days prior written notice thereof and
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 9
<PAGE>
shall have taken all action deemed necessary or desirable by Secured Party to
cause its security interest in the Collat eral to be perfected with the priority
required by the Loan Documents.
Section 4.5 EQUIPMENT, FIXTURES, AND INVENTORY. Debtor shall keep the
Equipment, Fixtures, and Inventory in (or in transit to) any of the
jurisdictions specified on SCHEDULE 3.1 hereto or, upon not less than thirty
(30) days prior written notice to Secured Party, at such other places within the
United States of America where all actions required to perfect Secured Party's
security interest in such Collateral with the priority required by the Loan
Documents shall have been taken.
Section 4.6 WAREHOUSE RECEIPTS NON-NEGOTIABLE. Debtor agrees that if
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
in respect of any portion of the Collateral, such warehouse receipt or receipt
in the nature thereof shall not be "negotiable" (as such term is used in Section
7.104 of the UCC) unless such warehouse receipt or receipt in the nature thereof
is delivered to Secured Party.
Section 4.7 VOTING RIGHTS; DISTRIBUTIONS, ETC. So long as no Event of
Default shall have occurred and be continuing, Debtor shall be entitled to
exercise any and all voting and other consensual rights (including, without
limitation, the right to give consents, waivers, and notifications) pertaining
to any of the Pledged Collateral or any other Investment Property; PROVIDED,
HOWEVER, that without the prior written consent of Secured Party no vote shall
be cast or consent, waiver, or ratification given or action taken which would be
inconsistent with or violate any provision of this Agreement or any other Loan
Document.
Section 4.8 TRANSFERS AND OTHER LIENS; ADDITIONAL INVESTMENTS. Except
as provided otherwise by the Credit Agreement or this Agreement, Debtor agrees
that it will (i) cause each issuer of any of the Pledged Collateral not to issue
any Capital Stock, notes, or other securities or instruments in addition to or
in substitution for any of the Pledged Collateral, (ii) pledge hereunder,
immediately upon its acquisition thereof, any and all such Capital Stock, notes,
or other securities or instruments, and (iii) promptly (and in any event within
three (3) Business Days) deliver to Secured Party an Amendment, duly executed by
Debtor, in respect of such Capital Stock, notes, or other securities or
instruments, together with all certificates, notes, or other securities or
instruments representing or evidencing the same. Debtor hereby (i) authorizes
Secured Party to attach each Amendment to this Agreement, and (ii) agrees that
all such Capital Stock, notes, or other securities or instruments listed on any
Amendment delivered to Secured Party shall for all purposes hereunder constitute
Pledged Collateral.
Section 4.9 INTELLECTUAL PROPERTY COVENANTS. If, before the Obligations
are paid in full, Debtor obtains any new Intellectual Property or rights thereto
or becomes entitled to the benefit of any Intellectual Property, Debtor shall
give to Secured Party prompt written notice thereof, and shall execute and
deliver, in form and substance satisfactory to Secured Party, a Copyright
Security Agreement, Patent Security Agreement, or Trademark Security Agreement,
as applicable, describing any such new Intellectual Property. Debtor shall (a)
prosecute diligently any copyright, patent, or trademark application at any time
pending which is necessary for the conduct of Debtor's business, (b) make
application on all new copyrights, patents, and trademarks as reasonably deemed
appropriate by Debtor, (c) preserve and maintain all rights in the Intellectual
Property that is
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 10
<PAGE>
necessary for the conduct of Debtor's business, and (d) upon and after the
occurrence and during the continuance of an Event of Default, use its reasonable
efforts to obtain any consents, waivers, or agreements necessary to enable
Secured Party to exercise its remedies with respect to the Intellectual
Property. Debtor shall not, without the prior written consent of Secured Party,
abandon any pending copyright, patent, or trademark application, or Copyright,
Patent, Trademark, or any other Intellectual Property which is necessary for the
conduct of Debtor's business.
Section 4.10 DEPOSIT, COMMODITY, AND SECURITY ACCOUNTS. Debtor shall
not open any new deposit, commodity, or securities account or otherwise utilize
any such account other than the accounts identified on SCHEDULE 3.2 unless
Debtor shall have given Secured Party not less than thirty (30) days prior
written notice thereof and shall have taken all action deemed necessary or
desirable by Secured Party to cause its security interest therein to be
perfected with the priority required by the Loan Documents. Prior to the
occurrence and continuance of any Event of Default, Debtor may make purchases
and sales of Investment Property or Financial Assets in accordance with the
restrictions on investment set out in the Credit Agreement. After the occurrence
and during the continuance of an Event of Default, Debtor shall not be
authorized to make purchases and sales of the Investment Property or Financial
Assets and Debtor shall take such steps as Secured Party may reasonably request
to give Secured Party control over all Investment Property and Financial Assets.
Debtor will not give any party control over any Investment Property or Financial
Assets.
ARTICLE 5
RIGHTS OF SECURED PARTY
Section 5.1 POWER OF ATTORNEY. DEBTOR HEREBY IRREVOCABLY CONSTITUTES
AND APPOINTS SECURED PARTY AND ANY OFFICER OR AGENT THEREOF, WITH FULL POWER OF
SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH FULL IRREVOCABLE
POWER AND AUTHORITY IN THE NAME OF DEBTOR OR IN ITS OWN NAME, TO TAKE, WHEN AN
EVENT OF DEFAULT EXISTS, ANY AND ALL ACTIONS AND TO EXECUTE ANY AND ALL
DOCUMENTS AND INSTRUMENTS WHICH SECURED PARTY AT ANY TIME AND FROM TIME TO TIME
DEEMS NECESSARY TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND, WITHOUT
LIMITING THE GENERALITY OF THE FORE GOING, DEBTOR HEREBY GIVES SECURED PARTY THE
POWER AND RIGHT ON BEHALF OF DEBTOR AND IN ITS OWN NAME TO DO ANY OF THE
FOLLOWING UPON THE OCCURRENCE OF A DEFAULT WITHOUT NOTICE TO, OR THE CONSENT OF,
DEBTOR:
(a) to demand, sue for, collect, or receive, in the name of
Debtor or in Secured Party's own name, any money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, documents of title, or any other instruments
for the payment of money under the Collateral or any policy of
insurance;
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 11
<PAGE>
(b) to pay or discharge taxes, Liens, or other encumbrances
levied or placed on or threatened against the Collateral;
(c) to notify post office authorities to change the address
for delivery of Debtor's mail to an address designated by Secured Party
and to receive, open, and dispose of mail addressed to Debtor;
(d) (i) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to Secured Party
or as Secured Party shall direct (Debtor agrees that if any Proceeds of
any Collateral (including payments made in respect of Accounts) shall
be received by Debtor after the occurrence of a Default, Debtor shall
promptly deliver such Proceeds to Secured Party with any necessary
endorsements, and until such Proceeds are delivered to Secured Party,
such Proceeds shall be held in trust by Debtor for the benefit of
Secured Party and shall not be commingled with any other funds or
property of Debtor); (ii) to receive payment of and receipt for any and
all monies, claims and other amounts due and to become due at any time
in respect of or arising out of any Collateral; (iii) to sign and
endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
proxies, stock powers, verifications, and notices in connection with
accounts and other documents relating to the Collateral; (iv) to
commence and prosecute any suit, action, or proceeding at law or in
equity in any court of competent jurisdiction to collect the Collateral
or any part thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action, or proceeding brought
against Debtor with respect to any Collateral; (vi) to settle,
compromise, or adjust any suit, action, or proceeding described above
and, in connection therewith, to give such discharges or releases as
Secured Party may deem appropriate; (vii) to exchange any of the
Collateral for other property upon any merger, consolidation,
reorganization, recapitalization, or other readjustment of the issuer
thereof and, in connection therewith, deposit any of the Collateral
with any committee, depositary, transfer agent, registrar, or other
designated agency upon such terms as Secured Party may determine;
(viii) to add or release any guarantor, indorser, surety, or other
party to any of the Collateral; (ix) to renew, extend, or otherwise
change the terms and conditions of any of the Collateral; (x) to grant
or issue any exclusive or nonexclusive license under or with respect to
any of the Intellectual Property (subject to the rights of third
parties under pre-existing licenses); (xi) to endorse Debtor's name on
all applications, documents, papers, and instruments necessary or
desirable in order for Secured Party to use any of the Intellectual
Property; (xii) to make, settle, compromise, or adjust any claims under
or pertaining to any of the Collateral (including claims under any
policy of insurance); and (xiii) to sell, transfer, pledge, convey,
make any agreement with respect to, or otherwise deal with any of the
Collateral as fully and completely as though Secured Party were the
absolute owner thereof for all purposes, and to do, at Secured Party's
option and Debtor's expense, at any time, or from time to time, all
acts and things which Secured Party deems necessary or desirable to
protect, preserve, maintain, or realize upon the Collateral and Secured
Party's security interest therein.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 12
<PAGE>
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL
BE IRREVOCABLE UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH SECTION
7.11 HEREOF. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be
liable for any failure to do so or any delay in doing so. Neither Secured
Party nor any Person designated by Secured Party shall be liable for any act
or omission or for any error of judgment or any mistake of fact or law,
except any of the same resulting from its or their gross negligence or
willful misconduct. This power of attorney is conferred on Secured Party
solely to protect, preserve, maintain, and realize upon its security interest
in the Collateral. Secured Party shall not be responsible for any decline in
the value of the Collateral not caused by Secured Party's gross negligence or
willful misconduct and shall not be required to take any steps to preserve
rights against prior parties or to protect, preserve, or maintain any Lien
given to secure the Collateral.
Section 5.2 ASSIGNMENT BY SECURED PARTY. Secured Party and each Lender
may at any time assign or otherwise transfer all or any portion of their rights
and obligations under this Agreement and the other Loan Documents (including,
without limitation, the Obligations) to any other Person, to the extent
permitted by, and upon the conditions contained in, the Credit Agreement, and
such Person shall thereupon become vested with all the benefits thereof granted
to Secured Party or the Lenders, as applicable, herein or otherwise.
Section 5.3 POSSESSION; REASONABLE CARE. Secured Party may, from time
to time, in its sole discretion, appoint one or more agents to hold physical
custody, for the account of Secured Party, of any or all of the Collateral that
Secured Party has a right to possess. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any parties with respect to any Collateral.
ARTICLE 6
DEFAULT
Section 6.1 RIGHTS AND REMEDIES. If an Event of Default shall have
occurred and be continuing, Secured Party shall have the following rights and
remedies:
(a) In addition to all other rights and remedies granted to
Secured Party in this Agreement or in any other Loan Document or by
applicable law, Secured Party shall have all of the rights and remedies
of a secured party under the UCC (whether or not the UCC applies to the
affected Collateral). Without limiting the generality of the foregoing,
Secured Party may (i) without demand or notice to Debtor or any other
person, collect, receive, or take possession of the Collateral or any
part thereof and for that purpose Secured Party may
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 13
<PAGE>
enter upon any premises on which the Collateral is located and remove
the Collateral therefrom or render it inoperable, and/or (ii) sell,
lease, or otherwise dispose of the Collateral, or any part thereof, in
one or more parcels at public or private sale or sales, at Secured
Party's offices or elsewhere, for cash, on credit, or for future
delivery, and upon such other terms as Secured Party may deem
commercially reasonable or otherwise as may be permitted by law.
Secured Party shall have the right at any public sale or sales, and, to
the extent permitted by applicable law, at any private sale or sales,
to bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) and become a purchaser of the Collateral
or any part thereof free of any right or equity of redemption on the
part of Debtor, which right or equity of redemption is hereby expressly
waived and released by Debtor. Upon the request of Secured Party,
Debtor shall assemble the Collateral and make it available to Secured
Party at any place designated by Secured Party that is reasonably
convenient to Debtor and Secured Party. Debtor agrees that Secured
Party shall not be obligated to give more than ten (10) days prior
written notice of the time and place of any public sale or of the time
after which any private sale may take place and that such notice shall
constitute reasonable notice of such matters. Secured Party shall not
be obligated to make any sale of Collateral if it shall determine not
to do so, regardless of the fact that notice of sale of Collateral may
have been given. Secured Party may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned
from time to time by announcement at the time and place fixed for sale,
and such sale may, without further notice, be made at the time and
place to which the same was so adjourned. Debtor shall be liable for
all reasonable expenses of retaking, holding, preparing for sale, or
the like, and all reasonable attorneys' fees, legal expenses, and other
costs and expenses incurred by Secured Party in connection with the
collection of the Obligations and the enforcement of Secured Party's
rights under this Agreement. Debtor shall remain liable for any
deficiency if the Proceeds of any sale or other disposition of the
Collateral applied to the Obligations are insufficient to pay the
Obligations in full. Secured Party may apply the Collateral against the
Obligations as provided in the Credit Agreement. Debtor waives all
rights of marshaling, valuation, and appraisal in respect of the
Collateral. Any cash held by Secured Party as Collateral and all cash
proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of Secured Party, be held by Secured
Party as Collateral for, and then or at any time thereafter, shall be
applied in whole or in part by Secured Party against, the Obligations
in the order permitted by the Credit Agreement. Any surplus of such
cash or cash proceeds and interest accrued thereon, if any, held by
Secured Party and remaining after payment in full of all the
Obligations shall be promptly paid over to Debtor or to whomsoever may
be lawfully entitled to receive such surplus; PROVIDED that Secured
Party shall have no obligation to invest or otherwise pay interest on
any amounts held by it in connection with or pursuant to this
Agreement.
(b) Secured Party may cause any or all of the Collateral held
by it to be transferred into the name of Secured Party or the name or
names of Secured Party's nominee or nominees.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 14
<PAGE>
(c) Secured Party may exercise any and all rights and remedies
of Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of
the Collateral and any and all voting rights and corporate powers in
respect of the Collateral. Debtor shall execute and deliver (or cause
to be executed and delivered) to Secured Party all such proxies and
other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to exercise the voting and other
rights which it is entitled to exercise pursuant to this CLAUSE (c) and
to receive the dividends, interest, and other distributions which it is
entitled to receive hereunder.
(d) Secured Party may collect or receive all money or property
at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain
any required approval of the purchaser or purchasers by any applicable
Governmental Authority.
(f) For purposes of enabling Secured Party to exercise its
rights and remedies under this SECTION 6.1 and enabling Secured Party
and its successors and assigns to enjoy the full benefits of the
Collateral in each case as Secured Party shall be entitled to exercise
its rights and remedies under this SECTION 6.1, Debtor hereby grants to
Secured Party an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to Debtor) to use, assign,
license, or sublicense any of the Intellectual Property, including in
such license reasonable access to all media in which any of the
licensed items may be recorded or stored and all computer programs used
for the completion or printout thereof and further including in such
license such rights of quality control and inspection as are reasonably
necessary to prevent the Trademarks included in such license from
claims of invalidation. This license shall also inure to the benefit of
all successors, assigns, and transferees of Secured Party.
Section 6.2 PRIVATE SALES. Debtor recognizes that Secured Party may be
unable to effect a public sale of any or all of the Collateral by reason of
certain prohibitions contained in the laws of any jurisdiction outside the
United States or in the Securities Act of 1933, as amended from time to time
(the "SECURITIES ACT") and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to the seller
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall, to the extent permitted by law, be
deemed to have been made in a commercially reasonable manner. Neither Secured
Party nor the Lenders shall be under any obligation to delay a sale of any of
the Collateral for the period of time necessary to permit the issuer of such
securities to register such securities under the laws of any jurisdiction
outside the United States, under the Securities Act, or under any applicable
state
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 15
<PAGE>
securities laws, even if such issuer would agree to do so. Debtor further agrees
to do or cause to be done, to the extent that Debtor may do so under applicable
law, all such other reasonable acts and things as may be necessary to make such
sales or resales of any portion or all of the Collateral valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees, or awards of any and all courts, arbitrators, or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at Debtor's expense.
ARTICLE 7
MISCELLANEOUS
Section 7.1 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of Debtor and Secured Party and their respective
successors and assigns, except that Debtor may not assign any of its rights or
obligations under this Agreement without the prior written consent of Secured
Party, and Secured Party may not appoint a successor as Secured Party except in
accordance with the Credit Agreement.
Section 7.3 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE PROVISIONS OF THIS
AGREEMENT MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY
THE PARTIES HERETO.
Section 7.4 NOTICES. All notices and other communications provided for
in this Agreement shall be given or made in accordance with the Credit
Agreement.
Section 7.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA AND APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
Section 7.6 HEADINGS. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 16
<PAGE>
Section 7.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 7.8 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 7.9 WAIVER OF BOND. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 7.10 SEVERABILITY. Any provision of this Agreement which is
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.11 TERMINATION. If all of the Obligations shall have been
paid and performed in full and all Commitments of Secured Party and the Lenders
shall have expired or terminated, Secured Party shall, upon the written request
of Debtor, execute and deliver to Debtor a proper instrument or instruments
acknowledging the release and termination of the security interests created by
this Agreement, and shall duly assign and deliver to Debtor (without recourse
and without any representation or warranty) such of the Collateral as may be in
the possession of Secured Party and has not previously been sold or otherwise
applied pursuant to this Agreement; notwithstanding anything to the contrary
contained in this Agreement, if the payment of any amount of the Obligations is
rescinded, voided or must otherwise be refunded by Secured Party or any Lender
upon the insolvency, bankruptcy or reorganization of Debtor or any other Loan
Party or otherwise for any reason whatsoever, then the security interests
created by this Agreement will be automatically reinstated and become
automatically effective and in full force and effect, all to the extent that and
as though such payment so rescinded, voided or otherwise refunded had never been
made and such release and termination of such security interest had never been
given.
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
PEREGRINE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SECURED PARTY:
BANK OF AMERICA, N.A.,
as Administrative Agent for the Lenders
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PLEDGE AND SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 18
<PAGE>
Schedule 1.1
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGED SHARES
<TABLE>
<CAPTION>
Description of Each
Class and Series Number of Number of
Name State of Incorporation (If Applicable) Par Value Issued Shares Pledged Shares(1) Certificate No.
- ---- ---------------------- --------------- --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------
(1) 100% for Domestic Subsidiaries; 65% for first tier Foreign Subsidiaries
Schedule 1.1, Solo Page
<PAGE>
SCHEDULE 3.1
TO
PLEDGE AND SECURITY AGREEMENT
LOCATIONS
Address Landlord/mortgagee
------- ------------------
I. PRINCIPAL PLACE OF BUSINESS
II. OTHER LOCATIONS
Schedule 3.1, Solo Page
<PAGE>
SCHEDULE 3.2
TO
PLEDGE AND SECURITY AGREEMENT
DEPOSIT, COMMODITY, AND SECURITIES ACCOUNTS
Schedule 3.2, Solo Page
<PAGE>
SCHEDULE 3.3
TO
PLEDGE AND SECURITY AGREEMENT
TRADE AND OTHER NAMES; TAX IDENTIFICATION NUMBER
I. Trade and Other Names:
II. United States Income Tax Identification Number:
Schedule 3.3, Solo Page
<PAGE>
SCHEDULE 3.5
TO
PLEDGE AND SECURITY AGREEMENT
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
COPYRIGHTS
===============================================================================================================================
Owner of Record Country of Registration Copyright Applications Registration or Expiration
or Registration Filing Date Date
No.
========================== ========================= ================== ================= ================= ================
<S> <C> <C> <C> <C> <C>
========================== ========================= ================== ================= ================= ================
</TABLE>
<TABLE>
<CAPTION>
=======================
Title
=======================
<S> <C>
=======================
</TABLE>
<TABLE>
<CAPTION>
COPYRIGHT LICENSES
===================================================================================================================
Name of Agreement Patent Date of Agreement
======================================== =================================== ====================================
<S> <C> <C>
======================================== =================================== ====================================
</TABLE>
<TABLE>
<CAPTION>
PATENTS
======================================================================================================================
Owner of Record After Application or
Assignment Agreements are Filed Country of Origin Patent Identification Registration No.
======================================= ======================= ======================== ==========================
<S> <C> <C> <C>
======================================= ======================= ======================== ==========================
</TABLE>
<TABLE>
<CAPTION>
====================================================================
Registration or Issue Date Expiration Date
Filing Date (if known)
=================== ======================= =======================
<S> <C> <C> <C>
=================== ======================= =======================
</TABLE>
Schedule 3.5, Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
PATENT LICENSES
==============================================================================================================================
Name of Agreement Patent Date of Agreement
========================================== ==================================== ============================================
<S> <C> <C>
========================================== ==================================== ============================================
</TABLE>
<TABLE>
<CAPTION>
TRADEMARKS
====================================================================================================================================
Application or Filing Expiration
Owner of Record Country of Registration Trademark Registration No. Date Date
======================== ============================= ======================== ==================== ============= =============
<S> <C> <C> <C> <C> <C>
======================== ============================= ======================== ==================== ============= =============
</TABLE>
<TABLE>
<CAPTION>
===========================
Goods
===========================
<S> <C>
===========================
</TABLE>
<TABLE>
<CAPTION>
TRADEMARK LICENSES
===================================================================================================================
Name of Agreement Parties Date of Agreement
========================================= ================================== ====================================
<S> <C> <C>
========================================= ================================== ====================================
</TABLE>
Schedule 3.5, Page 2 of 2
<PAGE>
EXHIBIT A
TO
PLEDGE AND SECURITY AGREEMENT
FORM OF AMENDMENT
This Amendment, dated _______________, _____, is delivered pursuant to
SECTION 4.8 of the Pledge and Security Agreement referred to below. The
undersigned hereby agrees that this Amendment may be attached to that certain
Pledge and Security Agreement, dated as of July __, 1999, between the
undersigned and Bank of America, N.A. as Administrative Agent for the Lenders
referred to therein (the "PLEDGE AND SECURITY AGREEMENT"), and that the Capital
Stock, notes, or other securities or instruments listed on SCHEDULE 1 annexed
hereto shall be and become part of the Collateral referred to in the Pledge and
Security Agreement and shall secure payment and performance of all Obligations
as provided in the Pledge and Security Agreement.
Capitalized terms used herein but not defined herein shall have the
meanings therefor provided in the Pledge and Security Agreement.
DEBTOR:
PEREGRINE SYSTEMS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SECURED PARTY:
BANK OF AMERICA, N.A.,
as Administrative Agent for the Lenders
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Amendment to Pledge and Security Agreement - Solo Page
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
to
Amendment to Pledge and Security Agreement
Number Percentage
Stock Par Number of of Of
Stock Issuer Class of Certificate Value Issued Pledged Outstanding
------------ -------- ----------- ----- ------ ------- Shares
Stock No(s). Shares Shares(1) ------
----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------
(1) 100% for Domestic Subsidiaries; 65% for first tier Foreign Subsidiaries
Schedule 1 to Amendment to Pledge and Security Agreement, Solo Page
<PAGE>
EXHIBIT B
TO
PLEDGE AND SECURITY AGREEMENT
FORM OF COPYRIGHT SECURITY AGREEMENT
See attached.
<PAGE>
COPYRIGHT SECURITY AGREEMENT
(Peregrine Systems, Inc.)
THIS COPYRIGHT SECURITY AGREEMENT ("AGREEMENT") is between PEREGRINE
SYSTEMS, INC., a Delaware corporation ("DEBTOR"), and BANK OF AMERICA, N.A.
("SECURED PARTY"), acting in its capacity as Administrative Agent pursuant to
that certain Credit Agreement dated as of July __, 1999 (as amended, restated,
or otherwise modified, the "CREDIT AGREEMENT") among Debtor, Secured Party,
BankBoston, N.A., as syndication agent and each of the "Lenders" party thereto.
R E C I T A L S:
A. Debtor and Secured Party have entered into that certain Pledge and
Security Agreement, dated as of June __, 1999 (as amended, restated, or
otherwise modified, the "SECURITY AGREEMENT"; all terms defined in the Security
Agreement, wherever used herein, shall have the same meanings herein as are
prescribed by the Security Agreement).
B. Pursuant to the terms of the Security Agreement, Debtor has granted
to Secured Party a lien and security interest in all General Intangibles of
Debtor including, without limitation, all of Debtor's right, title, and interest
in, to and under all now owned and hereafter acquired Copyrights and Copyright
Licenses, and all products and Proceeds thereof, to secure the payment of the
Obligations (as defined in the Credit Agreement).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby grants to Secured
Party a lien and continuing security interest in all of Debtor's right, title,
and interest in, to, and under the following (all of the following items or
types of property being herein collectively referred to as the "COPYRIGHT
COLLATERAL"), whether presently existing or hereafter created or acquired:
(1) each Copyright, each registration of a Copyright
("COPYRIGHT REGISTRATION"), and each application for registration of a
Copyright ("COPYRIGHT APPLICATION"), including, without limitation,
each Copyright, Copyright Registration, and Copyright Application
referred to in SCHEDULE 1 annexed hereto;
(2) each Copyright License, to the extent assignable,
including, without limitation, each Copyright License referred to in
SCHEDULE 1 annexed hereto; and
(3) all products and Proceeds of the foregoing, including,
without limitation, any claim by Debtor against third parties for past,
present, or future infringement or breach of any Copyright, Copyright
Registration, Copyright Application, or Copyright License, including,
without limitation, any Copyright, Copyright Registration, or Copyright
License listed in SCHEDULE 1 annexed hereto, and any Copyright
Registration issued pursuant to a Copyright Application referred to in
SCHEDULE 1 annexed hereto.
The lien and security interest contained in this Agreement is granted in
conjunction with the liens and security interests granted to Secured Party
pursuant to the Security Agreement.
COPYRIGHT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 4
<PAGE>
Debtor hereby acknowledges and affirms that the rights and remedies of
Secured Party with respect to the liens and security interests in the Copyright
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed by its duly authorized officer as of the ___ day of ____________, 1999.
DEBTOR:
PEREGRINE SYSTEMS, INC.,
a Delaware corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SECURED PARTY:
BANK OF AMERICA, N.A.,
as Administrative Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
COPYRIGHT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 5
<PAGE>
ACKNOWLEDGMENT
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of _________,
1999, by ______________, as ___________ of Peregrine Systems, Inc., a Delaware
corporation, on behalf of such company.
-------------------------------------
{Seal} Notary Public in and for the State of
---------
My commission expires:
---------------------
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of __________,
1999, by _______________, as _____________ of Bank of America, N.A., on behalf
of such bank.
-------------------------------------
{Seal} Notary Public in and for the State of
---------
My commission expires:
---------------------
COPYRIGHT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 6
<PAGE>
Schedule 1
to Copyright
SECURITY AGREEMENT
COPYRIGHTS
<TABLE>
<CAPTION>
OWNER OF COUNTRY OF COPYRIGHT APPLICATION OR REGISTRATION EXPIRATION TITLE
RECORD REGISTRATION REGISTRATION OR FILING DATE DATE
NO.
- ---------- ------------ --------- -------------- -------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
COPYRIGHT LICENSES
<TABLE>
<CAPTION>
NAME OF AGREEMENT COPYRIGHT DATE OF AGREEMENT
- ----------------- --------- -----------------
<S> <C> <C>
</TABLE>
COPYRIGHT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 7
<PAGE>
EXHIBIT C
TO
PLEDGE AND SECURITY AGREEMENT
FORM OF PATENT SECURITY AGREEMENT
See attached.
COPYRIGHT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 8
<PAGE>
PATENT SECURITY AGREEMENT
(Peregrine Systems, Inc.)
THIS PATENT SECURITY AGREEMENT ("AGREEMENT") is between PEREGRINE
SYSTEMS, INC., a Delaware corporation ("DEBTOR"), and BANK OF AMERICA, N.A.
("SECURED PARTY"), acting in its capacity as Administrative Agent pursuant to
that certain Credit Agreement dated as of July __, 1999 (as amended, restated,
or otherwise modified, the "CREDIT AGREEMENT") among Debtor, Secured Party,
BankBoston, N.A., as syndication agent and each of the "Lenders" party thereto.
R E C I T A L S:
A. Debtor and Secured Party have entered into that certain Pledge and
Security Agreement, dated as of July __, 1999 (as amended, restated, or
otherwise modified, the "SECURITY AGREEMENT"; all terms defined in the Security
Agreement, wherever used herein, shall have the same meanings herein as are
prescribed by the Security Agreement).
B. Pursuant to the terms of the Security Agreement, Debtor has granted
to Secured Party a lien and security interest in all General Intangibles of
Debtor including, without limitation, all of Debtor's right, title, and interest
in, to and under all now owned and hereafter acquired Patents and Patent
Licenses, and all products and Proceeds thereof, to secure the payment of the
Obligations (as defined in the Credit Agreement).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby grants to Secured
Party a lien and continuing security interest in all of Debtor's right, title,
and interest in, to, and under the following (all of the following items or
types of property being herein collectively referred to as the "PATENT
COLLATERAL"), whether presently existing or hereafter created or acquired:
(1) each Patent and each application for a Patent ("PATENT
APPLICATION"), including, without limitation, each Patent and Patent
Application referred to in SCHEDULE 1 annexed hereto, together with any
reissues, continuations, divisions, modifications, substitutions or
extensions thereof;
(2) each Patent License, to the extent assignable, including,
without limitation, each Patent License referred to in SCHEDULE 1
annexed hereto; and
(3) all products and Proceeds of the foregoing, including,
without limitation, any claim by Debtor against third parties for past,
present, or future infringement or breach of any Patent or Patent
License, including, without limitation, any Patent or Patent License
referred to in SCHEDULE 1 annexed hereto, and any Patent issued
pursuant to a Patent Application referred to in SCHEDULE 1 annexed
hereto.
The lien and security interest contained in this Agreement is granted in
conjunction with the liens and security interests granted to Secured Party
pursuant to the Security Agreement.
PATENT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 9
<PAGE>
Debtor hereby acknowledges and affirms that the rights and remedies of
Secured Party with respect to the liens and security interests in the Patent
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed by its duly authorized officer as of the ___ day of July, 1999.
DEBTOR:
PEREGRINE SYSTEMS, INC.,
a Delaware corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SECURED PARTY:
BANK OF AMERICA, N.A.,
as Administrative Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
PATENT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 10
<PAGE>
ACKNOWLEDGMENT
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of July, 1999,
by ______________, as ___________ of Peregrine Systems, Inc., a Delaware
corporation, on behalf of such company.
-------------------------------------
{Seal} Notary Public in and for the State of
----------
My commission expires:
---------------------
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of July, 1999,
by _______________, as _____________ of Bank of America, N.A., on behalf of such
bank.
-------------------------------------
{Seal} Notary Public in and for the State of
----------
My commission expires:
---------------------
PATENT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 11
<PAGE>
Schedule 1
to Patent
SECURITY AGREEMENT
PATENTS
<TABLE>
<CAPTION>
OWNER OF COUNTRY OF PATENT APPLICATION OR REGISTRATION ISSUE DATE EXPIRATION
RECORD ORIGIN IDENTIFICATION REGISTRATION OR FILING DATE (IF KNOWN) DATE
NO.
===================== =============== =================== =================== ================== =============== ==============
<S> <C> <C> <C> <C> <C> <C>
- --------------------- --------------- ------------------- ------------------- ------------------ --------------- --------------
===================== =============== =================== =================== ================== =============== ==============
</TABLE>
PATENT LICENSES
<TABLE>
<CAPTION>
NAME OF AGREEMENT PATENT DATE OF AGREEMENT
- ----------------- ------ -----------------
<S> <C> <C>
</TABLE>
PATENT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 12
<PAGE>
EXHIBIT D
TO
PLEDGE AND SECURITY AGREEMENT
FORM OF TRADEMARK SECURITY AGREEMENT
See attached.
PATENT SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 13
<PAGE>
TRADEMARK SECURITY AGREEMENT
(Peregrine Systems, Inc.)
THIS TRADEMARK SECURITY AGREEMENT ("AGREEMENT") is between PEREGRINE
SYSTEMS, INC., a Delaware corporation ("DEBTOR"), and BANK OF AMERICA, N.A.
("SECURED PARTY"), acting in its capacity as Administrative Agent pursuant to
that certain Credit Agreement dated as of July __, 1999 (as amended, restated,
or otherwise modified, the "CREDIT AGREEMENT") among Debtor, Secured Party,
BankBoston, N.A., as syndication agent and each of the "Lenders" party thereto.
R E C I T A L S:
A. Debtor and Secured Party have entered into that certain Pledge and
Security Agreement, dated as of July __, 1999 (as amended, restated, or
otherwise modified, the "SECURITY AGREEMENT"; all terms defined in the Security
Agreement, wherever used herein, shall have the same meanings herein as are
prescribed by the Security Agreement).
B. Pursuant to the terms of the Security Agreement, Debtor has granted
to Secured Party a lien and security interest in all General Intangibles of
Debtor, including, without limitation, all of Debtor's right, title, and
interest in, to and under all now owned and hereafter acquired Trademarks,
together with the goodwill of the business symbolized by Debtor's Trademarks,
and Trademark Licenses, and all products and Proceeds thereof, to secure the
payment of the Obligations (as defined in the Credit Agreement).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby grants to Secured
Party a lien and continuing security interest in all of Debtor's right, title,
and interest in, to, and under the following (all of the following items or
types of property being herein collectively referred to as the "TRADEMARK
COLLATERAL"), whether presently existing or hereafter created or acquired:
(1) each Trademark, trademark registration ("TRADEMARK
REGISTRATION") and trademark application ("TRADEMARK APPLICATION"),
including, without limitation, each Trademark, Trademark Registration
and Trademark Application referred to in SCHEDULE 1 annexed hereto,
together with the goodwill of the business symbolized thereby; and
(2) each Trademark License, to the extent assignable,
including, without limitation, each Trademark License listed in
SCHEDULE 1 annexed hereto; and
(3) all products and proceeds of the foregoing, including,
without limitation, any claim by Debtor against third parties for past,
present or future (a) infringement, dilution or breach of any
Trademark, Trademark Registration, Trademark Application and Trademark
License, including, without limitation, any Trademark, Trademark
Registration and Trademark License referred to in SCHEDULE 1 annexed
hereto, and any Trademark Registration issued pursuant to a Trademark
Application referred to in SCHEDULE 1 annexed hereto; or (b) injury to
the goodwill associated with any Trademark, Trademark Registration and
Trademark Application.
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 14
<PAGE>
The lien and security interest contained in this Agreement is granted in
conjunction with the liens and security interests granted to Secured Party
pursuant to the Security Agreement.
Debtor hereby acknowledges and affirms that the rights and remedies of
Secured Party with respect to the liens and security interests in the Trademark
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
[The remainder of this page is left intentionally blank.]
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 15
<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed by its duly authorized officer as of the ___ day of July, 1999.
DEBTOR:
PEREGRINE SYSTEMS, INC.
a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SECURED PARTY:
BANK OF AMERICA, N.A,
as Administrative Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 16
<PAGE>
ACKNOWLEDGMENT
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of July, 1999,
by ______________, as ___________ of Peregrine Systems, Inc., a Delaware
corporation, on behalf of such company.
-------------------------------------
{Seal} Notary Public in and for the State of
----------
My commission expires:
---------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me this __ day of July, 1999,
by _______________, as _____________ of Bank of America, N.A., on behalf of such
bank.
-------------------------------------
{Seal} Notary Public in and for the State of
----------
My commission expires:
---------------------
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 17
<PAGE>
Schedule 1
to Trademark
SECURITY AGREEMENT
FEDERAL TRADEMARKS
<TABLE>
<CAPTION>
TRADEMARK COUNTRY OF FILE DATE APPLICATION REGISTRATION REGISTRATION STATUS
REGISTRATION NO. DATE NO.
======================== ================= ============== ================== ================= ================ ==================
<S> <C> <C> <C> <C> <C> <C>
- ------------------------ ----------------- -------------- ------------------ ----------------- ---------------- ------------------
======================== ================= ============== ================== ================= ================ ==================
</TABLE>
STATE TRADEMARKS - NONE
TRADEMARK LICENSES - NONE
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 18
<PAGE>
TRADEMARK SECURITY AGREEMENT
(Peregrine Systems, Inc.)
THIS TRADEMARK SECURITY AGREEMENT ("AGREEMENT") is between PEREGRINE
SYSTEMS, INC., a Delaware corporation ("DEBTOR"), and BANK OF AMERICA, N.A.
("SECURED PARTY"), acting in its capacity as Administrative Agent pursuant to
that certain Credit Agreement dated as of July 30, 1999 (as amended, restated,
or otherwise modified, the "CREDIT AGREEMENT") among Debtor, Secured Party,
BankBoston, N.A., as syndication agent and each of the "Lenders" party thereto.
R E C I T A L S:
A. Debtor and Secured Party have entered into that certain Pledge and
Security Agreement, dated as of July 30, 1999 (as amended, restated, or
otherwise modified, the "SECURITY AGREEMENT"; all terms defined in the Security
Agreement, wherever used herein, shall have the same meanings herein as are
prescribed by the Security Agreement).
B. Pursuant to the terms of the Security Agreement, Debtor has granted
to Secured Party a lien and security interest in all General Intangibles of
Debtor, including, without limitation, all of Debtor's right, title, and
interest in, to and under all now owned and hereafter acquired Trademarks,
together with the goodwill of the business symbolized by Debtor's Trademarks,
and Trademark Licenses, and all products and Proceeds thereof, to secure the
payment of the Obligations (as defined in the Credit Agreement).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby grants to Secured
Party a lien and continuing security interest in all of Debtor's right, title,
and interest in, to, and under the following (all of the following items or
types of property being herein collectively referred to as the "TRADEMARK
COLLATERAL"), whether presently existing or hereafter created or acquired:
(1) each Trademark, trademark registration ("TRADEMARK
REGISTRATION") and trademark application ("TRADEMARK APPLICATION"),
including, without limitation, each Trademark, Trademark Registration
and Trademark Application referred to in SCHEDULE 1 annexed hereto,
together with the goodwill of the business symbolized thereby; and
(2) each Trademark License, to the extent assignable,
including, without limitation, each Trademark License listed in
SCHEDULE 1 annexed hereto; and
(3) all products and proceeds of the foregoing, including,
without limitation, any claim by Debtor against third parties for past,
present or future (a) infringement, dilution or breach of any
Trademark, Trademark Registration, Trademark Application and Trademark
License, including, without limitation, any Trademark, Trademark
Registration and Trademark License referred to in SCHEDULE 1 annexed
hereto, and any Trademark Registration issued pursuant to a Trademark
Application referred to in SCHEDULE 1 annexed
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 1
<PAGE>
hereto; or (b) injury to the goodwill associated with any Trademark,
Trademark Registration and Trademark Application.
The lien and security interest contained in this Agreement is granted in
conjunction with the liens and security interests granted to Secured Party
pursuant to the Security Agreement.
Debtor hereby acknowledges and affirms that the rights and remedies of
Secured Party with respect to the liens and security interests in the Trademark
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
[The remainder of this page is left intentionally blank.]
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 2
<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed by its duly authorized officer as of the ___ day of July, 1999.
DEBTOR:
PEREGRINE SYSTEMS, INC.
a Delaware corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SECURED PARTY:
BANK OF AMERICA, N.A,
as Administrative Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 3
<PAGE>
ACKNOWLEDGMENT
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me this __ day of July, 1999,
by ______________, as ___________ of Peregrine Systems, Inc., a Delaware
corporation, on behalf of such company.
-------------------------------------
{Seal} Notary Public in and for the State of
--------
My commission expires:
---------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me this __ day of July, 1999,
by _______________, as _____________ of Bank of America, N.A., on behalf of such
bank.
-------------------------------------
{Seal} Notary Public in and for the State of
--------
My commission expires:
---------------------
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 4
<PAGE>
Schedule 1
to Trademark
SECURITY AGREEMENT
FEDERAL TRADEMARKS
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
PEREGRINE SYSTEMS Australia 06-Oct-88 A496,832 06-Oct-88 A496,832 Registered
SERVICECENTER Australia 26-Apr-96 707348 26-Apr-96 707348 Registered
PEREGRINE SYSTEMS Austria 11-Oct-88 AM 4550/88 06-Feb-89 123787 Registered
PEREGRINE SYSTEMS Benelux 20-Jan-89 724277 01-Aug-89 455170 Renewed
APSYLOG Canada 24-Dec-96 832450 21-Apr-98 TMA493.410 Registered
APSYLOG Canada 24-Dec-96 832450 Filed
INTERNATIONAL SOFTWARE Canada 20-Jun-96 815831 23-Sep-97 TMA482,810 Registered
SOLUTIONS
OPENSNA Canada 10-Jul-92 708838 09-Dec-94 436776 Registered
PEREGRINE SYSTEMS Canada 15-Nov-88 618954 18-Jan-91 378289 Registered
SERVICECENTER Canada 26-Apr-96 811112 Filed
SESSIONVIEW Canada 05-Nov-91 693036 29-Dec-95 452311 Registered
STATIONVIEW Canada Proposed
THE IT ASSET MANAGEMENT Canada 24-Dec-96 832451 Abandoned
COMPANY
PEREGRINE SYSTEMS China 09-Feb-89 8903876 10-Dec-89 506584 Registered
PEREGRINE SYSTEMS Denmark 20-Oct-88 07.296 1988 13-Jul-90 4659 1990 Registered
POLYPM/2 Denmark 17-Jan-95 VA00.395 12-May-95 02.929.1995 Aband Inst
199
OPEN ADMINISTRATOR European 01-Apr-96 76372 Withdrawn
Community
PEREGRINE SYSTEMS European 01-Apr-96 76273 Published
Community
PEREGRINE SYSTEMS European 01-Apr-96 76539 Published
SERVICECENTER Community
SERVICECENTER European 01-Apr-96 77156 Filed
Community
</TABLE>
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 5
<PAGE>
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
STATIONVIEW European 01-Apr-96 76216 01-Apr-96 76216 Registered
Community
INTERNATIONAL SOFTWARE Fed. Republic of 24-Jun-96 39628354.3 Aband Inst
SOLUTIONS Germany
OPENSNA Fed. Republic of 14-Sep-92 P43518/9 Wz Abandoned
Germany
PEREGRINE SYSTEMS AND DESIGN Fed. Republic of 23-Jan-89 P37511/9 Wz 12-Mar-90 1155670 Renewed
Germany
SESSION VIEW Fed. Republic of 05-Nov-91 P42026/9 Wz 21-Jan-93 2028515 Registered
Germany
SESSIONVIEW Fed. Republic of Proposed
Germany
PEREGRINE SYSTEMS Finland 12-Jan-89 146/89 22-Apr-91 111544 Registered
INTERNATIONAL SOFTWARE France 04-Jul-96 13-Dec-96 96/632,919 Registered
SOLUTIONS
OPENSNA France 16-Sep-92 92434058 16-Sep-92 92434058 Registered
PEREGRINE SYSTEMS France 03-Feb-89 107979 03-Feb-89 1512787 Renewed
SESSION VIEW France 13-Dec-91 325072 13-Dec-91 1711904 Registered
SESSIONVIEW France Proposed
PEREGRINE SYSTEMS Hong Kong 09-Aug-88 349/89 30-Apr-90 1187/1990 Registered
PEREGRINE SYSTEMS Italy 27-Jan-89 17252 C/89 27-Jan-89 553261 Renewed
OPENSNA Japan 16-Sep-92 4-185083 13-Mar-98 3369248 Registered
OPENSNA Japan 16-Sep-92 4-185,084 28-Apr-95 3038068 Registered
PEREGRINE SYSTEMS Japan 17-Nov-88 63-129444 29-Nov-91 2349251 Registered
PEREGRINE SYSTEMS Japan 30-Jun-98 55991/1998 Filed
SERVICECENTER
SERVICECENTER Japan 26-Apr-96 046959/1996 Aband Inst
SESSION VIEW Japan 26-Nov-91 3-121,838 31-Mar-94 2640568 Registered
SESSIONVIEW Japan Proposed
STATIONVIEW Japan Proposed
PEREGRINE SYSTEMS Norway 28-Dec-88 88.5911 02-Aug-90 142276 Registered
STATIONVIEW Norway Proposed
PEREGRINE SYSTEMS Spain 20-Jan-89 1296663 04-May-90 1296663 Registered
</TABLE>
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 6
<PAGE>
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
PEREGRINE SYSTEMS Sweden Proposed
OPENSNA Switzerland 11-Sep-92 6667/1992.8 11-Sep-92 401248 Registered
PEREGRINE SYSTEMS Switzerland 23-Jan-89 599 23-Jan-89 369666 Registered
SESSION VIEW Switzerland 21-Nov-91 7824/1991.7 Abandoned
PEREGRINE SYSTEMS Taiwan Proposed
PEREGRINE SYSTEMS Thailand Proposed
INTERNATIONAL SOFTWARE United Kingdom 25-Jun-96 2103760 Aband Inst
SOLUTIONS
OPENSNA United Kingdom 09-Jul-92 1506798 Abandoned
PEREGRINE SYSTEMS United Kingdom 09-Aug-88 1370984 09-Aug-88 1370984 Registered
SESSION VIEW United Kingdom 31-Oct-91 1481386 Abandoned
*AVAILABLE* United States of Unfiled
America
APSYLOG United States of 18-Mar-96 75/073,691 23-Sep-97 2098819 Registered
America
ASSETCENTER United States of 14-Apr-98 75/467,895 Allowed
America
BRIDGE/ADMIN United States of 19-Feb-91 74/139,994 10-Dec-91 1667504 Cancelled
America
BRIDGE/FASTLOAD United States of 26-Mar-92 74/259,415 08-Dec-92 1738149 Aband Inst
America
BRIDGE/MONITOR United States of 13-Jan-92 74/237,326 22-Feb-94 1823960 Aband Inst
America
BRIDGE/SNAPSHOT United States of 19-Feb-91 74/139,993 10-Dec-91 1667503 Cancelled
America
CLIENTVIEW United States of 01-Oct-92 74/319,929 Abandoned
America
COMMANYWHERE United States of 03-Feb-98 75/427,962 Allowed
America
DBAID United States of Proposed
America
E.FLEET United States of 31-Jul-97 75/333,912 Filed
America
</TABLE>
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 7
<PAGE>
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
FACILITYCENTER United States of 03-Jun-99 75/720,997 Filed
America
FLEETANALYST United States of 24-Jul-96 75/139,320 Abandoned
America
FLEETANYWHERE United States of 04-Aug-97 75/334,964 Allowed
America
FLEETCENTRAL United States of Searched
America
GLOBAL CONTROL United States of Searched
America
GLOBAL DISCOVERY United States of Searched
America
GLOBAL DISTRIBUTION United States of Searched
America
INFRACENTER United States of Searched
America
INFRATOOLS United States of Searched
America
INTELLIFLEET United States of Searched
America
INTERNATIONAL SOFTWARE United States of 04-Jan-96 75/040,165 16-Jun-98 2166201 Registered
SOLUTIONS America
INTERNATIONAL SOFTWARE United States of 04-Jan-96 75/040,165 16-Jun-98 2166201 Registered
SOLUTIONS America
IRPCENTER United States of Searched
America
NETWORK EDGE United States of 01-Oct-92 74/319,926 Abandoned
America
NTV United States of Proposed
America
NV/MONITOR United States of 24-Apr-92 74/268,838 29-Dec-92 1742921 Registered
America
OFFICE TECHNICAL United States of 22-Jun-99 75/689,002 Filed
America
OPEN ADMINISTRATOR United States of 19-Jan-95 74/623,035 17-Dec-96 2024487 Registered
America
OPENSNA United States of 15-Jun-92 74/284,668 14-Dec-93 1811705 Registered
America
</TABLE>
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 8
<PAGE>
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
PEREGRINE SOFTWARE United States of 01-Apr-85 73/529,811 03-Jun-86 1396177 Cancelled
America
PEREGRINE SYSTEMS United States of
America 08-Dec-95 75/029,988 07-Jan-97 2028646 Registered
PEREGRINE SYSTEMS United States of 09-Aug-88 73/745,003 27-Jun-89 1545802 Registered
America
PEREGRINE SYSTEMS United States of 09-Aug-88 73/745,004 15-Aug-89 1551702 Registered
America
PEREGRINE SYSTEMS (STYLIZED) United States of Proposed
America
PEREGRINE SYSTEMS United States of 08-Dec-95 75/029,986 Allowed
SERVICECENTER America
PEREGRINE-RMON United States of Proposed
America
PNMS EXPRESS United States of Proposed
America
POLYMP/2 United States of 23-Nov-94 74/602,188 11-Jun-96 1979300 Registered
America
POLYPM/2 United States of 23-Nov-94 74/602,188 11-Jun-96 1979300 Registered
America
PROTOTYPE INCORPORATED United States of 24-Jun-97 75/314,290 Published
America
RECAP United States of Proposed
America
REMOTE SERVICES United States of Searched
America
REMOTE SERVICES MANAGEMENT United States of 07-Apr-95 74/657,626 30-Jul-96 1990556 Reg SuppR
America
REMOTE SERVICES MANAGEMENT United States of 07-Apr-95 74/657,626 30-Jul-96 1990556 Registered
America
SERVERVIEW United States of Abandoned
America
SERVERVIEW United States of 01-Oct-92 74/319,928 Abandoned
America
SERVICECENTER United States of 30-Oct-95 75/011,922 11-Mar-97 2045202 Reg SuppR
America
SERVICEINFO United States of Proposed
America
</TABLE>
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 9
<PAGE>
<TABLE>
<CAPTION>
APPLICATION REGISTRATION REGISTRATION
TRADEMARK COUNTRY NAME FILE DATE NUMBER DATE NUMBER STATUS
===================================== ================ ============= ============= ============== ================= ===========
<S> <C> <C> <C> <C> <C> <C>
SESSION VIEW United States of 08-Aug-91 74/192,681 Abandoned
America
SESSIONVIEW United States of Proposed
SESSIONVIEW United States of 07-Jan-93 74/346,176 Abandoned
America
SNAPRO United States of Proposed
America
STATIONVIEW United States of 01-Oct-92 74/319,927 27-Dec-94 1870375 Registered
America
TECHNOLOGY FOR MANAGING United States of Proposed
TECHNOLOGY America
TECHNOLOGY MANAGEMENT United States of Searched
SOLUTIONS America
THE INFRASTRUCTURE United States of Searched
MANAGEMENT COMPANY America
THE IT ASSET MANAGEMENT United States of 16-Jul-96 75/134,990 Abandoned
COMPANY America
</TABLE>
STATE TRADEMARKS - NONE
TRADEMARK LICENSES - NONE
TRADEMARK SECURITY AGREEMENT (Peregrine Systems, Inc.) - Page 10
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated and
effective as of December 31, 1999, is between PEREGRINE SYSTEMS, INC.
("BORROWER"), a Delaware corporation, each of the banks or other lending
institutions which is a party hereto (individually, each a "LENDER", and
collectively the "LENDERS") and BANK OF AMERICA, N.A., formerly known as
NationsBank, N.A., as administrative agent for itself and the other Lenders (in
such capacity herein, the "ADMINISTRATIVE AGENT").
RECITALS:
A. Borrower, Administrative Agent, and the Lenders have entered into
that certain Credit Agreement dated as of July 30, 1999 (as amended, restated,
or modified from time to time, the "AGREEMENT").
B. Borrower has requested that the Agreement be amended in certain
respects, and Administrative Agent and the Lenders are willing to comply with
such request subject to the terms and provisions of this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE 2
AMENDMENTS
Section 2.1 AMENDMENT TO SECTION 10.8. Section 10.8(a) of the Agreement
is hereby amended and restated in its entirety as follows:
(a) any of its Receivables, provided that Borrower or any
other Loan Party may sell up to thirty percent (30%) of its Receivables
in any Fiscal Quarter; PROVIDED, FURTHER, that Borrower or any other
Loan Party may sell up to forty percent (40%) of its Receivables in any
Fiscal Quarter if, on a pro forma basis, the Borrower would have
satisfied SECTION 11.3 of this Agreement for the prior Fiscal Quarter
had such Receivables been sold in such prior Fiscal Quarter.
FIRST AMENDMENT TO CREDIT AGREEMENT, Page 1
<PAGE>
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
(a) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct
in all material respects as of the date hereof as if made on the date
hereof, except for such representations and warranties limited by their
terms to a specific date;
(b) No Default or Event of Default shall have occurred and be
continuing;
(c) Borrower and the Lenders shall have delivered to the
Administrative Agent an executed original copy of this Amendment;
(d) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documentation and other legal
matters incident thereto shall be satisfactory to the Administrative
Agent.
ARTICLE 4
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 4.1 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, Administrative Agent and the Lenders agree that the Agreement
as amended hereby and the other Loan Documents shall continue to be legal,
valid, binding and enforceable in accordance with their respective terms.
Section 4.2 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Administrative Agent and the Lenders that (i) the execution,
delivery and performance of this Amendment and any and all other Loan Documents
executed and/or delivered in connection herewith have been authorized by all
requisite action on the part of Borrower and will not violate the articles of
incorporation or bylaws of Borrower; (ii) the representations and warranties
contained in the Agreement, as amended hereby, and any other Loan Document, are
true and correct on and as of the date hereof as though made on and as of the
date hereof (except to the extent that such representations and warranties were
expressly, in the Agreement, made only in reference to a specific date); (iii)
after giving effect to this Amendment, no Default or Event of Default has
occurred and
FIRST AMENDMENT TO CREDIT AGREEMENT, Page 2
<PAGE>
is continuing; and (iv) Borrower is in full compliance with all covenants and
agreements contained in the Agreement, as amended hereby, and the other Loan
Documents.
ARTICLE 5
MISCELLANEOUS
Section 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Amendment or any other Loan Document
including any Loan Document furnished in connection with this Amendment shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Administrative Agent or any Lender shall
affect the representations and warranties or the right of Administrative Agent
or any Lender to rely upon them.
Section 5.2 REFERENCE TO AGREEMENT. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement as amended hereby.
Section 5.3 EXPENSES OF ADMINISTRATIVE AGENT. As provided in the
Agreement, Borrower agrees to pay on demand all reasonable costs and expenses
incurred by Administrative Agent in connection with the preparation,
negotiation, and execution of this Amendment and the other Loan Documents
executed pursuant hereto.
Section 5.4 SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 5.5 APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
Section 5.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Administrative Agent, the Lenders, and Borrower
and their respective successors and assigns, except Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of all the Lenders.
Section 5.7 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, and on telecopy counterparts each of which when so executed shall
be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
Section 5.8 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Administrative Agent or any Lender to or for any breach of or deviation from
any covenant, condition or duty by
FIRST AMENDMENT TO CREDIT AGREEMENT, Page 3
<PAGE>
Borrower or any Loan Party shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition or duty.
Section 5.9 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
[remainder of page intentionally left blank]
FIRST AMENDMENT TO CREDIT AGREEMENT, Page 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment effective as of the date first written above.
BORROWER: PEREGRINE SYSTEMS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A.,
as Administrative Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
LENDERS: BANK OF AMERICA, N.A.,
as a Lender
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
BANKBOSTON, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
FIRST AMENDMENT TO CREDIT AGREEMENT, Page 5
<PAGE>
Exhibit 10.29
PEREGRINE SYSTEMS, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Nonstatutory Stock Option
Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with 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 of Directors appointed by the Board
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, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers, employed by the
Company or any Parent or Subsidiary of the Company. A Service Provider shall not
cease to be an Employee in the case of (i) any leave of absence approved by the
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "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 Nasdaq
National Market 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, the Fair Market Value of
a Share of Common Stock 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;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(o) "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.
(p) "OPTION" means a nonstatutory stock option granted pursuant to the
Plan, that is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.
(q) "OPTION AGREEMENT" means an 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.
(r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
-2-
<PAGE>
(s) "OPTIONED STOCK" means the Common Stock subject to an Option.
(t) "OPTIONEE" means the holder of an outstanding Option granted under
the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 1999 Nonstatutory Stock Option Plan.
(w) "SERVICE PROVIDER" means an Employee including an Officer,
Consultant or Director.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "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 12 of
the Plan, the maximum aggregate number of Shares, which may be optioned and sold
under the Plan, is 2,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATION. The Plan shall be administered by (i) the Board or
(ii) 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, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
-3-
<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 or 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 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 shall have declined since the date the Option was granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(xi) to modify or amend each Option (subject to Section 14(b)
of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to determine the terms and restrictions applicable to
Options;
(xiv) 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; and
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
-4-
<PAGE>
5. ELIGIBILITY. Options may be granted to Service Providers; provided,
however, that notwithstanding anything to the contrary contained in the Plan,
Options may not be granted to Officers and Directors, except in connection with
an Officer's initial service to the Company.
6. LIMITATION. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for ten (10) years, unless sooner terminated
under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) 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 (B) 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;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
-5-
<PAGE>
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of payment.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), 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 after the
Option is exercised. 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 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter 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 RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for ninety (90) days following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested 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. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of
-6-
<PAGE>
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for six (6) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested 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
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 shall vest and become exercisable as to all of the Shares subject thereto
and may be exercised within such period of time as is specified in the Option
Agreement (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 acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under the
Optionnee's will or the laws of descent or distribution. If the Option is not so
exercised with the specified time, 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.
11. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an Option 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.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(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
-7-
<PAGE>
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 Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (15) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
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; or
(ii) the sale of all or substantially all of the assets of 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. If an Option becomes fully vested and exercisable in the
event of a merger or consolidation or sale of assets, as provided above, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
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.
15. CONDITIONS UPON ISSUANCE OF SHARES.
-8-
<PAGE>
(a) LEGAL COMPLIANCE. 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 shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. 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.
16. INABILITY TO OBTAIN AUTHORITY. 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 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.
17. 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.
-9-
<PAGE>
PEREGRINE SYSTEMS, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
----------------------------------
Date of Grant
----------------------------------
Vesting Commencement Date
----------------------------------
Exercise Price per Share $
----------------------------------
Total Number of Shares Granted
----------------------------------
Total Exercise Price $
----------------------------------
Type of Option: Nonstatutory Stock Option
----------------------------------
Term/Expiration Date:
----------------------------------
VESTING SCHEDULE:
Subject to the Optionee continuing to be a Service Provider on such
dates, this Option shall vest and become exercisable in accordance with the
following schedule:
25% of the total number of Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and 6.25% of the total number
of Shares subject to the Option shall vest each quarter thereafter
TERMINATION PERIOD:
<PAGE>
This Option may be exercised for 90 days after termination of
Optionee's Continuous Status as an Employee or Consultant, or such longer period
as may be applicable upon death or disability of Optionee as provided in the
Plan, but in no event later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(b) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as EXHIBIT A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
-2-
<PAGE>
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares, which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(b) DISPOSITION OF SHARES. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. The internal substantive laws, but not the choice of law rules, of
California govern this agreement.
-3-
<PAGE>
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE PEREGRINE SYSTEMS, INC.
- ------------------------------------ -------------------------------------
Signature By
- ------------------------------------ -------------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
-4-
<PAGE>
EXHIBIT A
PEREGRINE SYSTEMS, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
EXERCISE NOTICE
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, CA 92130
Attention: [TITLE]
1. EXERCISE OF OPTION. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Peregrine Systems, Inc. (the "Company")
under and pursuant to the 1999 Nonstatutory Stock Option Plan (the "Plan") and
the Stock Option Agreement dated, _________, ___ (the "Option Agreement"). The
purchase price for the Shares shall be $______, as required by the Option
Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. 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 the 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 Shares so acquired shall
be issued to the Optionee as soon as practicable after 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 of issuance, except as provided in Section 12 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. The internal substantive
laws, but not the choice of law rules, of California govern this agreement.
Submitted by: Accepted by:
PURCHASER PEREGRINE SYSTEMS, INC.
- ------------------------------------ -------------------------------------
Signature By
- ------------------------------------ -------------------------------------
Print Name Title
-------------------------------------
Date Received
ADDRESS: ADDRESS: 12670 High Bluff Drive
---------------------------- San Diego, CA 92130
----------------------------
----------------------------
-2-
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Peregrine Federal Systems, Inc. (Illinois)
Peregrine Asset Management Corporation (Delaware)
Prototype, Inc. (California)
XVT Software, Inc. (Delaware)
Peregrine Bridge Subsidiary, Inc. (Delaware)
Peregrine Systems of Canada, Inc. (Canadian)
Peregrine Systems, GmbH (Germany)
Peregrine Systems, B.V. (Netherlands)
Peregrine Systems, Ltd. (UK)
Peregrine Systems Int'l, Inc. (Barbados)
Peregrine Systems Australia Pty, Ltd. (Australia)
Peregrine Systems, Private, Ltd. (Singapore)
Peregrine Systems, K.K. (Japan)
FPrint UK, Ltd. (UK)
Peregrine Systems, S.A. (France)
AGDS (France)
Apsylog, Inc. (California)
Apsylog, GmbH (Germany)
Peregrine Systems, Global, Ltd. (Ireland)
Peregrine Telco, Ltd. (Canada)
Knowlix Corporation
Barnhill Management Group, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into Peregrine Systems, Inc.
previously filed Registration Statements Files No. 333-37105, No. 333-44699,
No. 333-60423, No. 333-65541, No. 333-84355, No. 333-90325, No. 333-31850,
No. 333-35536, No. 333-35504, and No. 333-31848).
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
San Diego, California
May 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 33,511
<SECURITIES> 0
<RECEIVABLES> 72,119
<ALLOWANCES> (2,179)
<INVENTORY> 0
<CURRENT-ASSETS> 126,277
<PP&E> 53,027
<DEPRECIATION> (23,490)
<TOTAL-ASSETS> 523,430
<CURRENT-LIABILITIES> 105,767
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 411,740
<TOTAL-LIABILITY-AND-EQUITY> 523,430
<SALES> 253,300
<TOTAL-REVENUES> 253,300
<CGS> 52,917
<TOTAL-COSTS> 261,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (8,618)
<INCOME-TAX> 16,452
<INCOME-CONTINUING> (25,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,070)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
