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EXHIBIT 99.1
BUSINESS
Peregrine is a leading global provider of infrastructure resource management
applications, employee self-service solutions and e-commerce technologies and
services. We offer software products, services and enabling technologies that
permit large and medium-sized businesses to manage the acquisition, use,
maintenance and disposition of various infrastructure assets. Our solutions are
intended to make our customers more competitive in their markets by optimizing
the procurement and availability of their assets and increasing the productivity
of their employees. We believe our products can result in more efficient
deployment of capital and other resources and can lower the cost of operating
and maintaining organizational infrastructure assets. Peregrine markets its
products through two groups: the infrastructure management group, which consists
of products and services representing our traditional infrastructure management
business and employee self-service products, and the e-markets group, which
provides business-to-business software products and creates and manages
web-based catalog and vertical exchange markets for production supplies and
commodities.
Our infrastructure management group provides software, technologies and
services to manage the procurement, maintenance, and disposition of
infrastructure assets throughout their life cycles. We offer management
solutions for diverse categories of business assets, including technology
equipment and systems, telecommunications networks, corporate vehicle fleets and
physical plant and facilities. Our products offer complete life cycle management
of infrastructure assets. At the beginning of the cycle, we offer technologies
and services that enable buyers and sellers of infrastructure assets to purchase
and sell assets electronically over the Internet. Once an asset has been made
available for automated purchase or lease, we then automate and facilitate the
management and maintenance of the asset as well as its ultimate disposition. In
addition, our employee self-service applications offer individual employees
direct access to the resources, help, information, or infrastructure they
require.
Our e-markets group provides business-to-business software products and
solutions to facilitate the processes of selling and purchasing direct goods
used in the manufacture of finished products. Specifically, our e-markets group
provides e-commerce connectivity and data transformation solutions, creates and
manages web-based catalogs of supplies and materials, and maintains and hosts
vertical exchange markets for supply and commodity markets in the automotive,
energy, industrial component and retail/distribution industries.
Our solutions are intended to manage every step of the infrastructure asset
life cycle. By integrating the connectivity, data transformation, catalog
creation and management and transaction assurance technologies with our
infrastructure management products, we provide a comprehensive solution to
manage infrastructure assets and the procurement processes associated with
acquiring those assets.
INDUSTRY BACKGROUND
Businesses across many industries are facing increasing competitive
pressures to improve their operations by optimizing the management and
procurement of infrastructure assets. In response, businesses are deploying
information technology to gain competitive advantages to more efficiently manage
the life cycle of infrastructure assets.
We believe that the operational effectiveness of an organization ultimately
depends on the efficient acquisition, management, and divestiture of
infrastructure assets. Threats to infrastructure pose substantial business
risks. Issues addressed in connection with Year 2000 remediation, European
currency conversion, computer viruses, major facilities relocations and changes
in network environments have highlighted for senior business executives and
information technology managers the extent of infrastructure dependency and its
associated risks. In addition, in recent years, companies have focused
substantial resources on creating more efficient and less costly manufacturing,
production, and other core business processes, and we believe that they are now
looking internally to achieve similar cost reductions and efficiencies in
acquiring and maintaining infrastructure assets.
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In response, organizations are generating demand for software applications
that manage the full life cycle of infrastructure assets including acquisition,
management and divestiture. Companies are seeking enabling technologies and
applications that:
- lower the total cost of ownership of infrastructure assets;
- optimize the allocation of investment in infrastructure;
- streamline change management processes;
- increase the availability and performance of critical infrastructure
assets; and
- empower employees with technology to improve productivity.
To address these challenges, businesses are increasingly replacing paper or
spreadsheet-based applications with a single integrated solution to optimize the
workflow associated with the process to acquire, deploy, maintain, operate and
divest infrastructure assets efficiently throughout their life cycle. To further
reduce infrastructure costs, businesses are increasingly seeking web-based
applications to facilitate the procurement of complex assets. These assets can
range from computers to manufacturing machinery to transportation equipment that
are mission-critical to core business operations. The Internet provides a
cost-effective and efficient channel for connecting and transacting with global
suppliers, distributors and customers. We believe leveraging web-based
procurement applications accelerates the procurement cycle, lowers the cost to
acquire, minimizes levels of asset inventory and enables individual employees to
initiate procurement decisions on an as needed basis subject to automated
approval processes that are less costly and more efficient than manual order and
approval processes.
DEVELOPMENT OF OUR BUSINESS
Until recently, our products focused principally on problem management for
an organization's information technology infrastructure. Historically, our
principal product suite has been SERVICECENTER, an integrated, enterprise
service desk software solution that assists information technology departments
to manage and maintain their internal computer networks and related assets.
In addition to our internal development efforts, we have also made several
acquisitions intended to broaden the scope of our product suite beyond network
help desks. The largest and most significant of these acquisitions are the
following:
- In September 1997, we acquired ASSETCENTER, our asset management solution,
through the acquisition of Apsylog, S.A., a French corporation.
- In July 1998, we acquired Innovative Tech Systems, a provider of
facilities management software. Innovative's SPAN*FM product line became
our FACILITYCENTER product line.
- In March 1999, we acquired Prototype, a provider of software products for
managing corporate vehicle and equipment fleets. Prototype's fleet
management product line became our FLEETANYWHERE product line.
- In December 1999, we acquired advanced and light rail management software
for the passenger and freight rail industries from KKO & Associates. Our
recently released RAILANYWHERE rail management product is based on
software developed by KKO applied to the FLEETANYWHERE technology base.
- In March 2000, through the acquisition of Telco Research, we acquired our
TELECENTER application for managing telecommunications assets.
- In June 2000, we completed the acquisition of Harbinger Corporation.
Harbinger's e-commerce and procurement software solutions have served as
the genesis of our e-markets group.
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In addition to acquiring technologies and products through acquisitions, we
have also focused substantial internal resources on internal product and
technology development. Our employee self service procurement product, GET.IT!
was developed internally and introduced in late 1999 to assist companies to
automate their internal asset procurement processes and make them more
efficient.
PRODUCTS
We currently offer over 40 infrastructure management and e-commerce software
products. The following discussion summarizes the principal product families of
our infrastructure management and e-markets groups.
INFRASTRUCTURE MANAGEMENT GROUP
SERVICECENTER is a set of applications designed to maintain the
effectiveness and functionality of an organization's information technology
infrastructure. Products in this family include applications that report, track
and assist operators in resolving problems with a business enterprise's
computing environment. Other SERVICECENTER products help manage an
organization's computing environment with applications that provide an inventory
of network devices and applications that provide a framework for managing
changes to a network, including products that track costs associated with
infrastructure problems and changes, and automate and track an organization's
equipment and services ordering process. SERVICECENTER includes an
Internet-hosted version, E-SERVICECENTER, in which we act as system
administrator and operator for the customer.
ASSETCENTER is a set of applications designed to manage financial
information relating to an organization's portfolio of information technology
investments. This family includes applications that provide a comprehensive
inventory of an organization's equipment, users, suppliers, and contracts, and
that assist in the financial analysis and decision-making of acquiring
information technology products. Other ASSETCENTER products help organizations
monitor leased and rented equipment, and track, control and allocate information
technology related expenses.
INFRATOOLS is a suite of software tools used in the real-time discovery,
tracking, and integration process of information technology infrastructure.
Applications in this family automate the discovery and inventory of personal
computer hardware and software assets, and the discovery, inventory and
monitoring of intelligent devices on a network, such as routers, hubs, switches,
servers and workstations. In addition, INFRATOOLS includes products that
remotely manage a number of intelligent devices with a graphical user interface
either through dedicated networks or the Internet.
FACILITYCENTER is a set of applications 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,
and data collection. E-FACILITYCENTER, an Internet-hosted version, offers the
application set to real estate and facility managers on a hosted basis.
FLEETANYWHERE is a comprehensive, Internet-enabled, fully integrated fleet
management system. This product family tracks all functions related to the
maintenance of equipment fleets, including processing repair and work orders,
tracking operating expenses, and tracking and billing for equipment usage.
E.FLEET, an Internet-hosted version, offers the FLEETANYWHERE application set to
fleet managers on a hosted basis.
GET.IT! is our employee self-service procurement product that is designed to
improve employee productivity and reduce operating expenses. Applications in
this family include products that enable employees at anytime and anyplace to
acquire information, resources, help or infrastructure to get their job done.
Specifically, GET.RESOURCES! enables employees to obtain assistance with their
infrastructure,
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GET.ANSWERS! allows employees to ask questions of their company knowledge bases,
and GET.ROOMS! enables employees to reserve corporate facilities for office or
conference functions.
The TELECENTER product family helps an organization to manage its
telecommunications assets. Applications in this family monitor and collect
information produced by network switching equipment, and provide customers with
the information to control costs and usage of their voice communications
network, monitor network operating status and maintain network integrity.
E-MARKETS GROUP
POWER.IT! is a suite of e-business software for integrating the e-commerce
and back-office applications of buyers and suppliers. The suite enables
real-time data exchange in numerous formats, such as XML, xCBL, ebXML, cXML,
RosettaNet, Biztalk, X12, and EDIFACT.
TRUSTED LINK is our e-commerce data transformation software. It allows
businesses to exchange e-commerce documents in standard data formats. The
software provides capabilities for data communications via popular value-added
networks as well as the Internet. The software also provides capabilities for
integrating e-commerce data directly with internal business applications that
either generate or need to receive e-commerce-related transactions.
PRODUCT INTEGRATION
We have completed several acquisitions 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 October 2000, we
announced that we had integrated the connectivity, marketplace, and catalog
technology acquired through the acquisition of Harbinger into the complete life
cycle of our infrastructure resource management products. At the same time, we
announced that we had also integrated some of the technology we obtained through
the purchase of Loran, which was completed in August 2000. Prior to the
acquisition, we resold Loran's products under our INFRATOOLS product line. We
are continuing to expend resources to improve the integration of SERVICECENTER,
ASSETCENTER, and FACILITYCENTER. Integration of products of this number and
complexity is costly and time consuming, results in the diversion of resources
from the development of new or enhanced products and technologies, and exposes
us to a number of risks which are described in greater detail in Exhibit 99.2
attached herewith.
PRODUCT DEVELOPEMENT; 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.
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Our research and development expenditures in fiscal 2000, 1999, and 1998
were $28.5 million, $13.9 million, and $8.4 million, representing 11%, 10%, and
14% of total revenues in the respective periods. In addition, our research and
development expenditures for the three-month period ended June 30, 2000 were
$11.3 million.
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. Our new product developments have been standardized upon a
Java and Enterprise Java Beans development environment using XML and HTTP for
inter-application event and data connectivity.
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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 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.
GLOBAL USER ACCESS. The technology underlying our GET.IT! employee
self-service applications also provides the foundation for a common user
approach to all our applications, some applications of other software vendors
and customer-written applications. GET.IT! technology provides a dynamic user
interface which enables users to access GET.IT!'S data and applications through
a cell phone, on a Palm OS or Windows CE device.
UNIVERSAL CONNECTIVITY. Our technology also provides open communication
among our products and between our products and applications and integration
tools from other software technology companies, which provides a unified user
interface for an organization's infrastructure management applications.
SALES AND MARKETING
We sell our software and services in North America and internationally
primarily through a direct sales force. In October 2000, we implemented a
strategic segmentation of our business into two groups, our infrastructure
management group and our e-markets group, each with a dedicated sales and
marketing team to pursue business opportunities in their respective markets. 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, Canada and Mexico. 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
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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. 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.
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 e-commerce enablement, infrastructure management and employee
self-service 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.
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SOURCES OF EXISTING COMPETITION
We face competition from a number of sources in the markets for our
e-commerce enablement, infrastructure resource management and employee
self-service 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 Computer Associates, 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 Tivoli Systems, 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 employee self-service, including 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; established providers of enterprise resource
planning software that are entering the market for procurement and
e-procurement solutions, including Oracle and SAP; and numerous start-up
and other entrepreneurial companies offering products that provide one or
more aspects of employee self-service such as self-help service offerings,
or web-based knowledge management systems.
- In the markets served by our e-commerce enablement technology, we face
competition from: providers of customer relationship portals, such as
Aspect Communications; providers of catalog management solutions, such as
Requisite Technology; providers of e-commerce enablement software such as
webMethods; and providers of legacy e-commerce technology and services
such as SBC (Sterling Commerce) and General Electric eXchange Solutions.
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.
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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
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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;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which may not be 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 September 30, 2000, we employed 2,583 persons, including 880 in sales
and marketing, 319 in customer support, 451 in professional services, 431 in
research and development and 502 in finance and administration. Of our
employees, 696 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.
PROPERTIES
Our principal administrative, sales, marketing, support, research and
development and training functions are located at our headquarters facility in
San Diego, California. In June 1999, we entered into a series of leases covering
up to approximately 540,000 square feet of office space, including an option on
approximately 118,000 square feet of office space, for our headquarters in San
Diego, California. 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) relates to
a five building campus in San Diego, California. We recently relocated our San
Diego operations to three of these buildings and intend for the present time to
sublease the remaining two buildings.
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 Harbinger Corporation, we assumed
leases for approximately 99,560 square feet of office space in Atlanta, Georgia,
which lease expires in 2008. 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.
LEGAL PROCEEDINGS
In connection with our acquisition of Harbinger, we assumed the defense of
an outstanding shareholder class action lawsuit against Harbinger and several of
its former officers and directors. In September 1999, a complaint was filed
against Harbinger and some of its former officers and directors in the 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.
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As a result, we are not insured with respect to any potential liability of
Harbinger or any officer or director of Harbinger. Harbinger was, 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. In connection with the
acquisition, we agreed to honor these contractual arrangements.
In October 2000, we entered into an agreement in principle to settle this
class action lawsuit. If the settlement is finalized and approved by the court,
we will be required to make an aggregate cash payment of $2.25 million to a
class of former shareholders of Harbinger in exchange for dismissal of all
claims against Harbinger. Although the parties to the litigation have agreed in
principle to this settlement, final settlement is subject to further
documentation, various contingencies, and approval by the court. The court may
not approve the settlement. If the court does not approve the settlement, the
plaintiffs in the lawsuit may proceed with their claims, without prejudice. If
the litigation were to continue to proceed, we could be required to spend
substantial sums in an effort to litigate this matter. Continued litigation
would be likely to result in a diversion of management's time and attention away
from business operations. If the litigation were decided adversely to Harbinger,
or we agree in the future to settle this litigation for a substantial sum as a
result of failure to obtain court approval of the pending settlement, our
financial condition and results of operations could be materially and adversely
affected.
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