<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
</TABLE>
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
/ / Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
FRIDAY, SEPTEMBER 15, 2000
10:00 A.M.
------------------------
TO OUR STOCKHOLDERS:
The 2000 Annual Meeting of Stockholders of Peregrine Systems, Inc. will be
held on Friday, September 15, 2000, at 10:00 a.m. at the DoubleTree Hotel--Del
Mar, 11915 El Camino Real, San Diego, California 92130. At this meeting, our
stockholders will consider and vote upon the following matters:
1. The election of nine directors to serve until the next annual meeting of
our stockholders;
2. The amendment of our Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of our common stock from
200,000,000 to 500,000,000 shares;
3. The ratification of the appointment of Arthur Andersen LLP as our
independent public accountants for the fiscal year ending March 31, 2001;
and
4. The transaction of other business that may properly come before the
meeting or any adjournment thereof.
Stockholders who owned shares of our stock at the close of business on
Monday, July 31, 2000 are entitled to attend and vote at the meeting. A complete
list of these stockholders will be available during normal business hours for
ten days prior to the meeting at our headquarters located at 3611 Valley Centre
Drive, San Diego, California 92130. A stockholder may examine the list for any
legally valid purpose related to the meeting. The list will also be available
during the annual meeting for inspection by any stockholder present at the
meeting.
Whether or not you plan to attend the annual meeting, please complete, date,
sign and return the enclosed proxy card as promptly as possible in the
accompanying reply envelope. You may also be able to submit your proxy over the
Internet or by telephone. For specific instructions, please refer to the
information provided with your proxy card.
For the Board of Directors of
PEREGRINE SYSTEMS, INC.
/s/ Richard T. Nelson
Richard T. Nelson
SECRETARY
San Diego, California
August , 2000
YOUR VOTE IS IMPORTANT. PLEASE SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE BY
FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
GENERAL INFORMATION......................................... 1
Voting Procedures......................................... 1
Methods of Voting......................................... 1
Revoking Your Proxy....................................... 2
Quorum Requirement........................................ 2
Votes Required for Each Proposal.......................... 2
Abstentions and Broker Non-Votes.......................... 3
Proxy Solicitation Costs.................................. 3
Deadline for Receipt of Stockholder Proposals for 2001
Annual Meeting.......................................... 3
SUMMARY OF PROPOSALS........................................ 4
PROPOSAL ONE ELECTION OF DIRECTORS.......................... 5
Nominees.................................................. 5
Vote Required and Board of Directors' Recommendation...... 6
Board and Committee Meetings.............................. 7
Director Compensation..................................... 7
Compensation Committee Interlocks and Insider
Participation........................................... 8
PROPOSAL TWO AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK....................... 9
Vote Required and Board of Directors' Recommendation...... 10
PROPOSAL THREE RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS............................................... 11
Vote Required and Board of Directors' Recommendation...... 11
PRINCIPAL STOCKHOLDERS...................................... 12
EXECUTIVE COMPENSATION...................................... 14
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS.... 18
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS................................................. 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 23
RELATED PARTY TRANSACTIONS.................................. 23
COMPANY PERFORMANCE......................................... 24
OTHER MATTERS............................................... 25
</TABLE>
-i-
<PAGE>
PEREGRINE SYSTEMS, INC.
------------------------
PROXY STATEMENT FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
------------------------
GENERAL INFORMATION
The board of directors of Peregrine Systems, Inc., a Delaware corporation,
is soliciting the enclosed proxy from you. The proxy will be used at our 2000
Annual Meeting of Stockholders to be held at 10:00 a.m. on Friday,
September 15, 2000 at the DoubleTree Hotel--Del Mar, 11915 El Camino Real, San
Diego, California 92130.
This proxy statement contains important information regarding our annual
meeting. Specifically, it identifies the proposals on which you are being asked
to vote, provides information you may find useful in determining how to vote,
and describes the voting procedures.
We use several abbreviations in this proxy statement. We refer to our
company as "Peregrine." The term "proxy materials" includes this proxy
statement, as well as the enclosed proxy card and our 2000 Annual Report.
References to "fiscal 2000" mean our 2000 fiscal year which began on April 1,
1999 and ended on March 31, 2000.
Our board of directors is sending this proxy statement on or about
August , 2000 to all our stockholders as of the record date, July 31, 2000.
Stockholders who owned Peregrine common stock at the close of business on
July 31, 2000 are entitled to attend and vote at the annual meeting. On the
record date, we had approximately [ ] shares of our common stock issued and
outstanding. We had [ ] record stockholders as the record date and believe
that our common stock is held by more than [ ] beneficial owners.
VOTING PROCEDURES
As a stockholder, you have the right to vote on certain business matters
affecting our company. The three proposals that will be presented at the annual
meeting, and upon which you are being asked to vote, are discussed in the
sections entitled "Proposal One," "Proposal Two," and "Proposal Three." Each
share of Peregrine common stock you own entitles you to one vote. The enclosed
proxy card indicates the number of shares you own. You can vote by returning the
enclosed proxy in the envelope provided or by attending the annual meeting. In
addition, you may be able to vote by touch-tone telephone or over the Internet
if your proxy card includes instructions for voting in these manners.
METHODS OF VOTING
VOTING BY MAIL. By signing and returning the proxy card according to the
enclosed instructions, you are enabling the individuals named on the proxy card
(known as "proxies") to vote your shares at the meeting in the manner you
indicate. We encourage you to sign and return the proxy card even if you plan to
attend the meeting. In this way, your shares will be voted even if you are
unable to attend the meeting.
Your shares will be voted in accordance with the instructions you indicate
on the proxy card. If you submit the proxy card but do not indicate your voting
instructions, your shares will be voted as follows:
- FOR the nine nominees for director identified in Proposal One;
- FOR the amendment of our Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of our common stock from
200,000,000 to 500,000,000 shares; and
- FOR the ratification of the appointment of Arthur Andersen LLP as our
independent public accountants for the fiscal year ending March 31, 2001.
<PAGE>
If you received more than one proxy card, it is an indication that your
shares are held in multiple accounts. Please submit your proxies according to
the instructions on each proxy card to ensure that all of your shares are voted.
We encourage you to consolidate multiple accounts by contacting your broker, if
you hold your shares through a brokerage account, or otherwise through our
transfer agent, ChaseMellon Shareholder Services, L.L.C. at (213) 553-9700.
Please note that shares held in certain types of accounts cannot be consolidated
with other accounts (for example, retirement and non-retirement accounts cannot
generally be consolidated).
VOTING BY TELEPHONE. You may be able to vote by telephone. If so,
instructions are included with your proxy card. If you vote by telephone, you do
not need to complete and mail your proxy card.
VOTING ON THE INTERNET. You may be able to vote on the Internet. If so,
instructions are included with your proxy card. If you vote on the Internet, you
do not need to complete and mail your proxy card.
VOTING IN PERSON AT THE MEETING. If you plan to attend the annual meeting
and vote in person, we will provide you with a ballot at the meeting. If your
shares are registered directly in your name, you are considered the stockholder
of record and you have the right to vote in person at the meeting. If your
shares are held in the name of your broker or other nominee, you are considered
the beneficial owner of shares held in your name. If you wish to vote at the
meeting, you will need to bring with you to the annual meeting a legal proxy
from your broker or other nominee authorizing you to vote these shares.
REVOKING YOUR PROXY
You may revoke your proxy at any time before it is voted at the annual
meeting. In order to do this, you may either:
- sign and return another proxy at a later date;
- provide written notice of the revocation to Richard T. Nelson, our
Secretary, prior to the time we take the vote at the annual meeting; or
- attend the meeting and vote in person.
QUORUM REQUIREMENT
A quorum, which is a majority of our outstanding shares as of the record
date, July 31, 2000, must be present in order to hold the meeting and to conduct
business. Your shares will be counted as being present at the meeting if you
appear in person at the meeting or if you vote your shares on the Internet, by
telephone, or by submitting a properly executed proxy card.
VOTES REQUIRED FOR EACH PROPOSAL
The vote required and method of calculation for the proposals to be
considered at the annual meeting are as follows:
PROPOSAL ONE--ELECTION OF DIRECTORS. The nine nominees receiving the
highest number of votes, in person or by proxy, will be elected as directors.
PROPOSAL TWO--AMENDMENT OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION. Amendment of our Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of our common stock
from 200,000,000 to 500,000,000 will require the affirmative vote of a majority
of the outstanding shares of our common stock.
-2-
<PAGE>
PROPOSAL THREE--RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS. Ratification of Arthur Andersen LLP as our independent public
accountants will require the affirmative vote of a majority of the shares
present at the annual meeting, in person or by proxy.
You may vote either "for" or "withhold" your vote for each nominee for
election as a director. You may vote "for," "against," or "abstain" from voting
on the proposals to amend our Amended and Restated Certificate of Incorporation
and to ratify Arthur Andersen LLP as our independent public accountants.
ABSTENTIONS AND BROKER NON-VOTES
If you return a proxy card that indicates an abstention from voting in all
matters, the shares represented will be counted as present for the purpose of
determining a quorum, but they will not be voted on any matter at the annual
meeting. Consequently, if you abstain from voting on the proposals to (a) amend
our Amended and Restated Certificate of Incorporation, or (b) ratify the
appointment of Arthur Andersen LLP as our independent auditors, your abstention
will have the same effect as a vote against the proposal.
Under the rules that govern brokers who have record ownership of shares that
are held in "street name" for their clients, who are the beneficial owners of
the shares, brokers have discretion to vote these shares on routine matters but
not on non-routine matters. Thus, if you do not otherwise instruct your broker,
the broker may turn in a proxy card voting your shares "FOR" routine matters but
expressly instructing that the broker is NOT voting on non-routine matters. A
"broker non-vote" occurs when a broker expressly instructs on a proxy card that
it is not voting on a matter, whether routine or non-routine. Broker non-votes
are counted for the purpose of determining the presence or absence of a quorum
but are not counted for determining the number of votes cast for or against a
proposal. Proposal Two to amend our Amended and Restated Certificate of
Incorporation is a non-routine matter. Accordingly, your broker will not have
discretionary voting authority to vote your shares on the proposal to amend our
Amended and Restated Certificate of Incorporation. If you do not vote on
Proposal Two, your broker's non-vote will have the same effect as a vote against
the proposal. Your broker will, however, have discretionary authority to vote
your shares on the remaining two proposals, which are both routine matters. To
the extent your brokerage firm submits a broker non-vote with respect to your
shares on these routine proposals, your shares will be counted as present for
the purpose of determining whether a quorum exists with respect to consideration
of that proposal but will not be deemed "votes cast" with respect to that
proposal. Accordingly, broker non-votes will have no effect on the outcome of
the vote with respect to Proposals One and Three.
PROXY SOLICITATION COSTS
We will bear the entire cost of proxy solicitation, including the
preparation, assembly, printing, and mailing of proxy materials. We have
retained ChaseMellon Shareholder Services, L.L.C. at an estimated cost of $7,500
to assist us in the solicitation of proxies for our annual meeting. In addition,
we may reimburse brokerage firms and other custodians for their reasonable
out-of-pocket expenses for forwarding these proxy materials to you. We expect
our transfer agent, ChaseMellon Shareholder Services, L.L.C. to tabulate the
proxies and act as inspector of the election.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
As a stockholder, you may be entitled to present proposals for action at a
forthcoming meeting if you comply with the requirements of the proxy rules
established by the Securities and Exchange Commission. Proposals of our
stockholders intended to be presented for consideration at our 2001
-3-
<PAGE>
annual meeting of stockholders must be received by us no later than
, in order that they may be included in the proxy statement and form
of proxy related to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the annual meeting. If you intend to submit a
proposal at the 2001 annual meeting, which is not eligible for inclusion in the
proxy statement and form of proxy relating to that meeting, you must do so no
later than . If you fail to comply with the foregoing notice
provision, the proxy holders will be allowed to use their discretionary voting
authority when the proposal is raised at the 2001 annual meeting.
SUMMARY OF PROPOSALS
The board of directors has included three proposals on the agenda for our
annual meeting. The following is a brief summary of the matters to be considered
and voted upon by our stockholders.
PROPOSAL ONE--ELECTION OF DIRECTORS
Our board of directors consists of nine directors. Each director serves a
one year term. The first proposal is the election of nine directors to serve
until our 2001 annual meeting. Our board of directors has nominated Stephen P.
Gardner, David A. Farley, John J. Moores, Christopher A. Cole, Charles E. Noell
III, Norris van den Berg, Thomas G. Watrous, Sr., James M. Travers, and William
D. Savoy to serve as our directors. Additional information about the election of
directors and a brief biography of each nominee begins on page 5.
OUR BOARD RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES.
PROPOSAL TWO--AMENDMENT OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
The second proposal is to approve an amendment to our Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of our
common stock from 200,000,000 to 500,000,000 shares. This proposal is discussed
further beginning on page 9.
OUR BOARD RECOMMENDS A VOTE TO APPROVE THE AMENDMENT OF OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION.
PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
The third proposal is to ratify the appointment of Arthur Andersen LLP as
our independent public accountants. More information about this proposal begins
on page 11.
OUR BOARD RECOMMENDS A VOTE TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
OUR INDEPENDENT ACCOUNTANTS.
OTHER MATTERS
Other than the proposals listed above, our board of directors does not
intend to present any other matters to be voted on at the meeting. Our board is
not currently aware of any other matters that will be presented by others for
action at the meeting. However, if other matters are properly presented at the
meeting and you have signed and returned your proxy card, or voted on the
Internet or by telephone, the proxies will have discretion to vote your shares
on these matters to the extent authorized under the Securities Exchange Act of
1934.
-4-
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Our certificate of incorporation and bylaws provide that nine directors will
serve on our board of directors. Directors are elected at each annual meeting,
and each director serves until his or her respective successor is elected or
appointed, or until the director's death, resignation or removal.
Nine directors are to be elected at this annual meeting. The board of
directors has nominated Stephen P. Gardner, David A. Farley, John J. Moores,
Christopher A. Cole, Charles E. Noell III, Norris van den Berg, Thomas G.
Watrous, Sr., James M. Travers, and William D. Savoy for election to the board.
If you sign and return the enclosed proxy, your shares will be voted for these
nominees, unless you indicate otherwise on your proxy. If any nominee is unable
or declines to serve as a director at the time of the annual meeting, the proxy
may be voted for a substitute nominee designated by the present board of
directors to fill the vacancy. We have no reason to believe that the nominees
for election will not be available to serve their prescribed terms.
In June 2000, Richard A. Hosley II resigned as a member of our board of
directors. Mr. Hosley had served as a member of our board since 1992. Peregrine
would like to thank Mr. Hosley for his service and counsel over the last eight
years.
In addition, in July 2000, John J. Moores resigned as the chairman of our
board of directors, but continues to serve as a director on our board. We would
like to thank Mr. Moores for his service and leadership as chairman of our board
over the last ten years.
The names of the nominees and certain information about them as of July 21,
2000 are set forth below. Information as to the stock ownership of each director
and all current directors and executive officers of Peregrine as a group is set
forth below under "Principal Stockholders."
<TABLE>
<CAPTION>
POSITION(S) DIRECTOR
NAME AGE WITH PEREGRINE SINCE
---- -------- -------------------------------------------- ---------
<S> <C> <C> <C>
Stephen P. Gardner................... 46 Chairman of the Board of Directors and Chief 1998
Executive Officer
David A. Farley...................... 45 Senior Vice President, Finance and 1995
Administration, Chief Financial Officer,
and Director
James M. Travers..................... 49 Vice President and Director 2000
John J. Moores....................... 56 Director 1989
Christopher A. Cole.................. 46 Director 1981
Charles E. Noell III................. 47 Director 1992
William D. Savoy..................... 35 Director 2000
Norris van den Berg.................. 60 Director 1992
Thomas G. Watrous, Sr................ 58 Director 1999
</TABLE>
STEPHEN P. GARDNER became chairman of our board of directors on July 19,
2000. Mr. Gardner has served as our chief executive officer and as a director
since April 1998. Mr. Gardner also served as our president from April 1998 until
July 2000. 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.
-5-
<PAGE>
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.
JAMES M. TRAVERS has been a director of Peregrine since June 2000. Mr.
Travers served as President and Chief Executive Officer of Harbinger
Corporation, a provider of business-to-business electronic commerce products and
services, from January 2000 until Peregrine's acquisition of Harbinger in June
2000. Since the acquisition, Mr. Travers has served as Peregrine's vice
president and e-Business Connectivity Group President. From October 1998 until
January 2000, Mr. Travers served as Harbinger's President and Chief Operating
Officer. From June 1997 until October 1998, he was President and General Manager
of Harbinger's software division and from January 1994 until June 1997, he serve
as President of Harbinger's enterprise solutions business unit.
JOHN J. MOORES has served as a member of our board of directors since
March 1989, and served as chairman of our board from March 1990 until
July 2000. 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 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.
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.
WILLIAM D. SAVOY has served as a director of Peregrine since June 2000.
Since 1988, Mr. Savoy has served as President of Vulcan Northwest, Inc., a
venture capital and investment firm. Mr. Savoy also serves as a director of
Telescan, TicketMaster Online City Search, USA Networks, Metricom, Charter
Communications, drugstore.com, Go2Net, Value America, and High Speed Access
Corporation.
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.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The nine nominees receiving the greatest number of votes of the shares
present and entitled to vote at the annual meeting will be elected as directors.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DIRECTOR NOMINEES AND
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF THE DIRECTOR NOMINEES
LISTED ABOVE.
-6-
<PAGE>
BOARD AND COMMITTEE MEETINGS
Our board of directors held nine (9) meetings during the fiscal year ended
March 31, 2000. During the fiscal year, all of our directors attended at least
75% of the meetings of the board of directors and any applicable committee
meetings. Our board of directors has standing audit and compensation committees.
<TABLE>
<CAPTION>
MEETINGS
DATE OF MEMBERS HELD IN FISCAL
COMMITTEE INCEPTION DURING FISCAL 2000 COMMITTEE FUNCTIONS 2000
--------- ---------- ----------------------- ----------------------- --------------
<S> <C> <C> <C> <C>
Audit 1995 Charles E. Noell III - Reviews internal One
Norris van den Berg accounting procedures
Richard A. Hosley II - Recommends
(resigned as a appointments of
director on June 16, independent
2000) accountants
- Reviews results of
independent audit
Compensation 1995 John J. Moores - Determines One
Charles E. Noell III compensation of
Thomas G. Watrous executive officers
Richard A. Hosley II and directors
(resigned as a - Reviews general
director on June 16, policies relating to
2000) compensation and
benefits
</TABLE>
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 meeting. 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 $0.34, 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 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 $0.26 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
-7-
<PAGE>
automatic option grants. Each new nonemployee director is automatically granted
an option to purchase 25,000 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 5,000 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.
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 consists of Mr. Moores, Mr. Noell, and
Mr. Watrous. Our chairman of the board of directors 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 our compensation committee and any
member of any other company's board of directors or compensation committee.
-8-
<PAGE>
PROPOSAL TWO
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
Article FOURTH of our Amended and Restated Certificate of Incorporation
currently authorizes us to issue up to 200,000,000 shares of our common stock,
par value $0.001 per share, and 5,000,000 shares of undesignated preferred
stock, par value $0.001 per share. Our authorized common stock is all of a
single class, with equal voting, distribution, liquidation, and other rights. As
of June 30, 2000, 139,866,874 shares of our common stock were issued and
outstanding, and no shares of our authorized preferred stock were outstanding.
In addition, options and warrants to acquire an additional 27,138,306 shares of
our common stock were issued and outstanding. Our board of directors has
approved an amendment to Article FOURTH of the Certificate of Incorporation to
increase the number of shares of our common stock authorized for issuance from
200,000,000 to 500,000,000 shares.
In June 2000, we issued approximately 30 million shares of our common stock
and assumed options and warrants to acquire an additional 6,159,680 shares of
our common stock in connection with our acquisition of Harbinger Corporation. In
addition, during our fiscal year ended March 31, 2000, we issued approximately
5,050,000 million shares of our common stock (including assumed options) in
connection with 4 acquisitions and strategic investments completed during the
fiscal year. Although we have no immediate plans to issue additional shares of
our common stock (other than upon exercise of outstanding options), we
anticipate that we may in the future issue additional shares in connection with
one or more of the following:
- other acquisitions,
- strategic investments,
- corporate transactions, such as stock splits or stock dividends,
- financing transactions, such as public offerings of common stock or
convertible securities,
- our stock incentive plans, and
- otherwise for corporate purposes that have not yet been identified.
In order to provide our board of directors with certainty and flexibility to
undertake such transactions to support our future business growth, the board
deems it appropriate at this time to increase the number of authorized shares of
our common stock. We currently have approximately 60,133,126 shares of
authorized, but unissued, common stock, approximately 139,866,874 shares of
outstanding common stock, 27,105,906 shares reserved for issuance to holders of
stock awards under all of our stock incentive plans, and 32,400 shares reserved
for issuance upon exercise of warrants assumed in connection with the Harbinger
acquisition. The current number of authorized, but unissued, shares is
insufficient to permit the board of directors flexibility to continue our future
growth. For example, the board currently would be unable to declare a 2-for-1
stock split that, as is typical, is effected in the form of a stock dividend,
because Delaware law will not allow the board to approve a stock dividend unless
a sufficient number of authorized shares is available. Although the board is not
currently contemplating any stock split or dividend, the increase in the number
of our authorized shares of common stock that is the subject of this proposal
will provide the board with the ability to timely undertake transactions that
will contribute to our future growth.
-9-
<PAGE>
If this proposal is adopted, the additional authorized shares of common
stock may be issued upon the approval of the board of directors at such times,
in such amounts, and upon such terms as the board of directors may determine,
without further approval of the stockholders, unless such approval is expressly
required by applicable law, regulatory agencies, or The Nasdaq Stock Market (or
any other exchange or quotation service on which our common stock may then be
listed). Furthermore, stockholders will have no preemptive rights to purchase
additional shares. Stockholder approval of this proposal will not, by itself,
cause any change in the capital accounts of the Company. The issuance of
additional shares of common stock may, however, dilute existing stockholders'
equity interest.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of our outstanding shares
of common stock will be required to approve this proposal. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL AND RECOMMENDS THE STOCKHOLDERS
VOTE "FOR" THE AMENDMENT OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO SET THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AT
500,000,000.
-10-
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The board of directors has selected Arthur Andersen LLP, independent
accountants, to audit our financial statements for the current fiscal year
ending March 31, 2001. We expect that a representative of Arthur Anderson LLP
will be present at the annual meeting, will have the opportunity to make a
statement if he or she desires to do so, and will be available to answer any
appropriate questions.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of our
common stock present or represented and voting at the annual meeting will be
required to approve this proposal. THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THIS PROPOSAL AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS.
-11-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information relating to the beneficial
ownership of our common stock as of June 30, 2000 by:
- each stockholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the summary compensation table on
page 13;
- 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"
includes all shares held by the indicated stockholder as of June 30, 2000 but
excludes shares of our common stock subject to options held by that person that
are currently exercisable or will become exercisable on or before August 30,
2000. The number of shares subject to options that each beneficial owner has the
right to acquire on or before August 30, 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 139,866,874 shares of our
common stock outstanding as of June 30, 2000. The address for those individuals
for which an address is not otherwise provided is c/o Peregrine Systems, Inc.,
3611 Valley Centre 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.
-12-
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING
SHARES SHARES SHARES SHARES
BENEFICIALLY UNDERLYING BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OPTIONS OWNED OWNED
---------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
Putnam Investments, Inc. (1)......... 10,557,036 -- 10,557,036 7.55%
One Post Office Square
Boston, Massachusetts 02109
Pilgrim Baxter & Associates,
Ltd.(2).............................. 7,140,400 -- 7,140,400 5.11
825 Duportail Road
Wayne, Pennsylvania 19087
CURRENT EXECUTIVE OFFICERS AND
DIRECTORS
Stephen P. Gardner................... 195,688 565,518 761,206 *
David A. Farley...................... 2,337,632 1,020,600 3,358,232 2.38
James M. Travers..................... 8,648 377,632 386,280 *
Christopher A. Cole.................. 1,747,534 4,375 1,751,909 1.25
William G. Holsten................... 50,000 193,100 243,100 *
Frederic B. Luddy.................... -- 92,843 92,843 *
John J. Moores(3).................... 5,752,986 -- 5,752,986 4.11
Richard T. Nelson.................... 278,000 80,600 358,600 *
Charles E. Noell III................. 54,428 120,625 175,053 *
Stephen S. Spitzer................... -- 91,225 91,225 *
Douglas S. Powanda................... 4 276,196 276,200 *
William D. Savoy(4).................. 2,055,640 65,530 2,121,170 1.52
Norris van den Berg.................. 38,744 80,625 119,369 *
Thomas G. Watrous, Sr................ 10,000 22,500 32,500 *
All current executive officers and
directors as a group (19
persons)........................... 12,691,970 3,189,510 15,881,480 11.10
</TABLE>
------------------------
* Less than 1%
(1) Based solely on a Schedule 13G/A, dated May 8, 2000, filed with the
Securities and Exchange Commission on May 9, 2000.
(2) Based solely on a Schedule 13G, dated February 8, 1999, filed with the
Securities and Exchange Commission on February 9, 1999.
(3) 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's family.
(4) Includes 2,055,640 shares beneficially owned by Vulcan Ventures, Inc. and
Paul G. Allen, as to which Mr. Savoy disclaims beneficial ownership. Mr.
Savoy is the president of Vulcan Northwest, Inc., a company that is
beneficially owned by Mr. Allen. The address of Vulcan Ventures, Inc. and
Vulcan Northwest, Inc. is 110 110th Avenue, N.E., Bellevue, Washington
98004.
-13-
<PAGE>
EXECUTIVE COMPENSATION
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 RESTRICTED SECURITIES
FISCAL ------------------- 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
Chairman of the Board of Directors 1999 250,000 343,750 -- 730,000 2,599
and 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 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
-14-
<PAGE>
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.
-15-
<PAGE>
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 granted is 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, as long as the optionee continues to provide employment
or consulting services to us. 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.
-16-
<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 ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
TOTAL PRICE APPRECIATION
NUMBER OF OPTIONS FOR OPTIONS
SECURITIES GRANTED TO -----------------------
UNDERLYING EMPLOYEES EXERCISE OPTIONS TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------- ----------
NAME GRANTED 2000 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%
-17-
<PAGE>
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.
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
OPTIONS AT MARCH 31, 2000 VALUE OF UNEXERCISED
---------------------------------- IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 2000
ACQUIRED VALUE EXERCISABLE UNEXERCISABLE ----------------------------------
NAME ON EXERCISE REALIZED (#) (#) 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>
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 200,000 shares of our common stock. We entered into a similar
agreement with David A. Farley, our chief financial officer, on November 1, 1995
and issued Mr. Farley 800,000 shares of our 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 33,333 shares
in April 2000, Mr. Gardner surrendered all 33,333 shares subject to his
restricted stock agreement. In connection with the lapsing of restrictions on
404,000 shares in April 2000, Mr. Farley surrendered 202,000 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 a merger or a change in control
of Peregrine, vesting of options outstanding under the plan will automatically
accelerate. Outstanding options will become fully exercisable, including with
respect to shares for which such options would be otherwise unvested.
-18-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY IN ANY OF OUR PREVIOUS OR
FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, THIS REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS SHALL NOT BE DEEMED "FILED"
WITH THE COMMISSION OR "SOLICITING MATERIAL" UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, AND SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
The compensation committee of the board of directors establishes our general
compensation policies and the compensation plans and the specific compensation
levels for senior executives, including our chief executive officer.
-19-
<PAGE>
GENERAL COMPENSATION PHILOSOPHY
The primary objectives of our executive compensation policies include the
following:
- To attract, motivate, and retain a highly qualified executive management
team;
- To link executive compensation to our financial performance as well as to
defined individual management objectives established by the committee;
- To compensate competitively with the practices of similarly situated
technology companies; and
- To create management incentives designed to enhance stockholder value.
Peregrine competes in an aggressive and dynamic industry and, as a result,
we believe that finding, motivating, and retaining quality employees,
particularly senior managers, sales personnel, and technical personnel are key
factors to our future success. The committee's compensation philosophy seeks to
align the interests of stockholders and management by tying compensation to
Peregrine's financial performance, either directly in the form of salary and
bonuses paid in cash or indirectly in the form of appreciation of stock options
and in certain instances, restricted stock granted to our principal executive
officers.
CASH COMPENSATION
We seek to provide cash compensation to our executive officers, including
base salary and an annual cash bonus, at levels that are commensurate with cash
compensation of executives with comparable responsibility at similarly situated
technology companies. Annual increases in base salary are determined on an
individual basis based on market data and a review of the officer's performance
and contribution to various individual, departmental, and corporate objectives.
Cash bonuses are intended to provide additional incentives to achieve such
objectives.
The salaries and cash bonuses of each of our executive officers, other than
the chief executive officer, were determined by the board of directors, upon the
recommendation of the chief executive officer. Our chief executive officer's
base salary was determined by the board of directors, upon the recommendation of
the committee. Stephen P. Gardner has served as our president and chief
executive officer since April 1998. The board of directors set Mr. Gardner's
base annual salary for fiscal year 2000 at $250,000. In addition, the board
awarded and paid Mr. Gardner a cash bonus of $50,000 for fiscal year 2000. For
fiscal year 2001, Mr. Gardner's base annual salary will be $400,000. The board
of directors increased Mr. Gardner's salary for fiscal 2001 in light of the
substantial financial and business milestones Peregrine achieved in fiscal 2000.
In addition to annual salary, cash bonuses for our president and chief
executive officer and our chief financial officer are based on various
performance targets established by the board of directors. Cash bonuses may also
be earned by operational vice presidents based on their divisional financial
performance.
Based on a review of public company proxy data, compensation data supplied
by independent executive compensation research and consulting firms, and other
relevant market data, the committee believes that cash compensation paid to our
executive officers, including our chief executive officer, was generally
consistent with amounts paid to officers with similar responsibilities at
similarly situated software companies. We note that competition for qualified
management and technical personnel in the technology industry is extremely
intense, and we expect such competition to remain intense for the foreseeable
future. As a result, in order to insure access to qualified personnel, we
believe that it will continue to be necessary to provide compensation packages,
consisting of cash compensation and equity incentives, that are at least
competitive with, and in certain instances superior to, compensation paid by
other technology companies.
-20-
<PAGE>
EQUITY-BASED COMPENSATION
RESTRICTED STOCK. In November 1995, we granted David A. Farley, our chief
financial officer, in connection with his becoming an officer of the Company,
800,000 shares of our common stock pursuant to a restricted stock agreement. The
shares issued to Mr. Farley under his restricted stock agreement vest
incrementally over ten years, subject to earlier vesting over six years,
contingent upon Peregrine achieving certain financial milestones.
We believe that such restricted stock arrangements effectively implement our
philosophy of aligning management interests with stockholder interests.
Mr. Farley joined the Company prior to its initial public offering. At the time,
we had incurred substantial operating losses, and the board of directors charged
him and our chief executive officer at that time with improving our financial
condition and operating performance. Because restrictions on the shares issued
under the restricted stock agreement lapse early if we achieve certain targeted
financial performance milestones, the board of directors believed that such
grants provided an effective incentive to the chief financial officer to take
the necessary actions to improve our financial performance. The financial
targets in the restricted stock agreement were intended to be aggressive yet
realizable. As a result of attaining the targets in fiscal 1997, 1998, 1999 and
2000, restrictions have lapsed with respect to an aggregate of 800,000 shares
for Mr. Farley. In addition, the restricted stock agreement permits the
stockholder to surrender shares to satisfy withholding tax obligations that
arise as the restrictions lapse. In connection with the lapse of vesting
restrictions on 404,000 shares in April 2000, Mr. Farley surrendered 202,000
shares.
In November 1997, we issued 200,000 shares of our common stock to Stephen P.
Gardner, then our vice president, strategic acquisitions and now our chairman
and chief executive officer, under a restricted stock agreement containing
substantially similar terms to the agreements previously entered between us and
Mr. Farley. The targeted financial milestones, however, were adjusted upward to
reflect our improved financial performance but were again set at levels the
board determined to be aggressive yet realizable based on information available
concerning our prospects at the time of grant. In connection with the lapse of
vesting restrictions on 33,333 shares in each of April 1998, 1999 and 2000,
Mr. Gardner surrendered 11,820, 33,333 and 33,333 shares in April 1998, 1999 and
2000, respectively, to satisfy tax withholding obligations.
STOCK OPTIONS. Stock options are periodically granted to provide additional
incentive to executives and other employees to maximize long-term total return
to our stockholders. Stock options are a particularly strong incentive because
they are valuable to employees only if the fair market value of our common stock
increases above the exercise price, which is set at the fair market value of our
common stock on the date the option is granted. In addition, employees must
remain employed with us for a fixed period of time in order for the options to
vest fully. Options generally vest over a four year period to encourage option
holders to continue in our employ.
All of the options granted in the year ended March 31, 2000 were approved by
the committee, pursuant to its delegated authority, or the full board of
directors. In making its determinations, the committee considers the executive's
position with us, such executive's individual performance, the number of options
held (if any) and the extent to which such options are vested, and any other
factors that the committee may deem relevant.
-21-
<PAGE>
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits the federal income tax
deductibility of compensation paid to our chief executive officer and to each of
the other four most highly-compensated executive officers. We may deduct such
compensation only to the extent that during any fiscal year the compensation
paid to such individual does not exceed $1 million or meet certain specified
conditions (including stockholder approval). Based on our current compensation
plans and policies and proposed regulations interpreting this provision of the
Internal Revenue Code, Peregrine and the committee believe that, for the near
future, there is little risk that Peregrine will lose any significant tax
deduction for executive compensation.
THE COMPENSATION COMMITTEE
John J. Moores
Charles E. Noell III
Thomas G. Watrous, Sr.
-22-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 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.
RELATED PARTY TRANSACTIONS
The following is a description of transactions since April 1, 1999 to which
we have been a party, in which the amount involved in the transaction exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of our capital stock had or will have a direct or indirect material interest
other than compensation arrangements which are otherwise described under
"Employment Agreements and Change in Control Agreements."
We are party to an agreement with JMI Services, Inc., an investment
management company, in which we sublease approximately 13,310 square feet of
office space in San Diego 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, a member of our board of directors, serves as
chairman of the board of JMI Services, and Charles E. Noell III, a director on
our board, serves as president and chief executive officer of JMI Services. We
believe that the terms of the sublease are at competitive market rates.
We also 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 such suite and game tickets total
approximately $50,000.
We are parties to restricted stock agreements with Mr. Gardner, our chairman
and chief executive officer, and Mr. Farley, our senior vice president and chief
financial officer. Under these agreements, we issued 1,000,000 shares of our
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 "Executive Compensation."
Also during fiscal 2000, we purchased a golf club membership for business
entertainment use by Mr. Gardner, our chairman and chief executive officer, at a
cost of $70,000. We have agreed with Mr. Gardner that upon termination of his
employment, he may purchase the membership from us at our original cost.
-23-
<PAGE>
COMPANY PERFORMANCE
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY IN ANY OF OUR PREVIOUS OR
FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, THE FOLLOWING
INFORMATION RELATING TO THE PRICE PERFORMANCE OF OUR COMMON STOCK SHALL NOT BE
DEEMED "FILED" WITH THE COMMISSION OR "SOLICITING MATERIAL" UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND SHALL NOT BE INCORPORATED BY REFERENCE
INTO ANY SUCH FILINGS
Our registration statement covering our initial public offering became
effective April 8, 1997, and our common stock began trading on the Nasdaq
National Market on April 9, 1997. The following graph shows a comparison, from
April 9, 1997 through June 30, 2000, of cumulative total return for our common
stock, the Standard & Poors 500 Index, and the Goldman Sachs Software Index.
Such returns are based on historical results and are not intended to suggest
future performance. Data for the Standard & Poors Index and the Goldman Sachs
Software Index assume reinvestment of dividends. We have never paid dividends on
our common stock and have no present plans to do so.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PEREGRINE, THE S&P 500 INDEX, AND THE GOLDMAN SACHS SOFTWARE INDEX
<TABLE>
<CAPTION>
GOLDMAN SACHS
SOFTWARE
PEREGRINE S&P 500 INDEX
---------- -------- ---------------
<S> <C> <C> <C>
04/09/97.............................................. 100.000 100.000 100.000
09/30/97.............................................. 197.222 124.544 140.583
03/31/98.............................................. 212.498 144.853 171.677
09/30/98.............................................. 447.222 133.712 164.569
03/31/99.............................................. 747.222 169.126 230.608
09/30/99.............................................. 905.556 168.644 272.296
03/31/00.............................................. 2980.556 197.026 500.880
06/30/00.............................................. 1541.667 191.244 434.335
</TABLE>
------------------------
Assumes $100 invested in our common stock, the S&P 500, and the Goldman Index on
April 9, 1997, the first day our common stock was publicly traded on the Nasdaq
National Market.
-24-
<PAGE>
OTHER MATTERS
We know of no other matters to be submitted at the annual meeting. If any
other matters properly come before the annual meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the board of directors may recommend.
It is important that your shares be represented at the annual meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
mark, sign, date, and return the accompanying proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose.
For the Board of Directors of
PEREGRINE SYSTEMS, INC.
/s/ Richard T. Nelson
Richard T. Nelson
SECRETARY
Dated: August , 2000
-25-
<PAGE>
PEREGRINE SYSTEMS, INC.
PROXY FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of PEREGRINE SYSTEMS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated August 4, 2000, and hereby appoints
Stephen P. Gardner, David A. Farley and Richard T. Nelson and each of them
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
2000 Annual Meeting of Stockholders of PEREGRINE SYSTEMS, INC. to be held on
Friday, September 15, 2000 at 10:00 a.m., local time at the DoubleTree Hotel -
Del Mar, 11915 El Camino Real, San Diego, California 92130 and any
adjournment(s) thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
1. Election of directors:
Nominees: Stephen P. Gardner, David A. Farley, John J. Moores,
Christopher A. Cole, Charles E. Noell III, Norris van
den Berg, Thomas G. Watrous, Sr., James M. Travers,
and William D. Savoy.
/ / FOR all nominees listed above / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed above
------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee(s) name(s) on the line above.
2. Proposal to approve an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the
authorized number of shares of common stock from 200,000,000
to 500,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of Arthur Anderson LLP as the
Company's independent public accountants for the fiscal year ending
March 31, 2001.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any
adjournment(s) thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AND FOR THE RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSON LLP AS INDEPENDENT ACCOUNTANTS FOR THE
2000 FISCAL YEAR.
All three of such attorneys or substitutes (if all three are present and acting
at said meeting or any adjournment(s) thereof, or, if only one shall be present
and acting, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
Dated: , 2000
-----------------------------
Signature
-----------------------------------
Signature
-----------------------------------
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
