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EXHIBIT 99.2
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
EXCHANGE ACT OF 1934 CONTAIN FORWARD LOOKING STATEMENTS AND OTHER PROSPECTIVE
INFORMATION RELATING TO FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS AND
OTHER INFORMATION ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
ANTICIPATED RESULTS, INCLUDING THE FOLLOWING:
WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL BE PROFITABLE IN THE
FUTURE ON AN OPERATING BASIS OR OTHERWISE.
We have incurred substantial losses in recent years, and predicting our
future operating results is difficult. If we continue to incur losses, if our
revenues decline or grow at a slower rate, or if our expenses increase without
commensurate increases in revenues, our operating results will suffer and the
price of our common stock may fall. Through June 30, 2000, we had recorded
cumulative net losses of approximately $160.0 million, including approximately
$220.6 million related to the write-off of acquired in-process research and
development and the amortization of goodwill and other intangible assets in
connection with a series of acquisitions completed since late 1997. We have
incurred, and expect to continue to incur, substantial expenses associated with
the amortization of intangible assets. In addition, we do not believe recent
revenue growth rates are sustainable in the future or indicative of future
growth rates. If our revenue growth rates slow or our revenues decline, our
operating results could be seriously impaired because many of our expenses are
fixed and cannot be easily or quickly changed.
OUR RECENT ACQUISITION OF HARBINGER CORPORATION MAY REDUCE OUR REVENUE GROWTH
RATES AND MAKE PREDICTION OF OUR FUTURE REVENUES AND OPERATING RESULTS MORE
DIFFICULT AS WE INTEGRATE OUR BUSINESSES AND ATTEMPT TO FOCUS THE STRATEGIC
MODEL OF THE COMBINED COMPANY.
Harbinger's revenues prior to the acquisition were growing at a
substantially slower rate than our revenues, due in large part to declining
revenues for Harbinger's legacy electronic commerce software business. If our
efforts to refocus Harbinger's business and integrate it with that of Peregrine
are not successful, our future revenue growth rates could be substantially less
than our historic growth rates, and our future revenues and operating results
could be impaired. We have already determined to de-emphasize and discontinue
certain businesses of Harbinger that we do not believe are strategic to the
combined company. In September 2000, we completed the sale of one of Harbinger's
product lines and may determine to sell or discontinue other Harbinger products
or businesses in the future. We expect this recent divestiture and any future
discontinuations or divestitures to result in revenue reductions that may not be
offset by revenues from other sources.
In October 2000, we announced that we were implementing a strategic
segmentation of our business into an infrastructure management group and
e-markets group. Our infrastructure management group will focus principally on
the sale of our historic infrastructure management product line together with
procurement solutions and technologies acquired from Harbinger that were
complementary with or otherwise relevant to managing internal infrastructure
assets. Our e-markets group will focus on the acquisition of supplies and
materials used in the manufacture and production of finished goods. The
e-markets group will be comprised substantially of Harbinger's legacy e-commerce
software and data transformation businesses as well as web-based supply catalogs
and vertical exchange markets for supply and commodity markets in the
automotive, energy, industrial component and retail industries. We expect the
continuing strategic and operational integration of Harbinger into Peregrine
will make prediction of our future revenues and operating results particularly
difficult because our results of operations in future periods will reflect a
substantially different business than the historical businesses of either
Peregrine or Harbinger. We may not be able to accurately predict how the
combined businesses, or the individual businesses represented by our
infrastructure management and
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e-markets groups, will evolve. In particular, our future revenues and operating
results may be adversely affected for a number of reasons resulting from the
acquisition and subsequent integration processes, including the following:
- Revenues for Harbinger's e-commerce software products may continue to
decline.
- Harbinger's web-based supply catalog and vertical supply businesses are
still in their early stages, and a sustainable market may not develop for
these services as offered by our e-markets group.
- The businesses associated with our infrastructure management and e-markets
groups may be sufficiently distinct that customers perceive no benefit
from our combined product offerings, in which case we will not realize the
anticipated financial and product synergies of the acquisition.
- We may experience substantial unanticipated integration costs.
OUR REVENUES VARY SIGNIFICANTLY FROM QUARTER-TO-QUARTER FOR NUMEROUS REASONS
BEYOND OUR CONTROL. QUARTER-TO-QUARTER VARIATIONS COULD RESULT IN A SUBSTANTIAL
DECREASE IN OUR STOCK PRICE IF OUR REVENUES OR OPERATING RESULTS ARE LESS THAN
MARKET ANALYSTS ANTICIPATE.
Our revenues or operating results in a given quarter could be substantially
less than anticipated by market analysts, which could result in a substantial
decline in our stock price. In addition, quarter-to-quarter variations could
create uncertainty about the direction or progress of our business, which could
also result in a decline in the price of our common stock. Our revenues and
operating results will vary from quarter to quarter for many reasons beyond our
control. As a result, our quarterly revenues and operating results are not
predictable with any significant degree of accuracy. Reasons for variability of
our revenues and operating results include the following:
- SIZE, TIMING, AND CONTRACTUAL TERMS OF ORDERS. Our revenues in a given
quarter could be adversely affected if we are unable to complete one or
more large license agreements, if the completion of a large license
agreement is delayed, or if the contract terms were to prevent us from
recognizing revenue during that quarter. In addition, when negotiating
large software licenses, many customers time their negotiations until
quarter-end in an effort to improve their ability to negotiate more
favorable pricing terms. As a result, we recognize a substantial portion
of our revenues in the last month or weeks of a quarter, and license
revenues in a given quarter depend substantially on orders booked during
the last month or weeks of a quarter. Our revenue growth in recent periods
has been attributable in part to an increase in the number of large
license transactions we completed in a given period. We expect our
reliance on these large transactions to continue for the foreseeable
future. If we are unable to complete a large license transaction by the
end of a particular quarter, our revenues and operating results could be
materially below the expectations of market analysts, and our stock price
could fall.
- FLUCTUATIONS IN REVENUE SOURCES. If our sales through indirect channels
were to decrease in a given quarter, our total revenues and operating
results could be harmed. Sales through indirect channels, including
distributors, third party resellers, and system integrators, represent a
significant percentage of our total sales. We expect this trend to
continue in the future. As a result, we could experience a shortfall in
our revenues, or a substantial decline in our rate of revenue growth, if
sales through indirect channels were to decrease or were to increase at a
slower rate than recently experienced. We have less ability to manage
sales through indirect channels, relative to direct sales, and less
visibility about our channel partners' success in selling our products. As
a result, we could experience unforeseen variability in our revenues and
operating results for a number of reasons, including the following:
inability of our channel partners to sell our products; a decision by our
channel partners to favor competing products; or inability of our channel
partners to manage the timing of their purchases from us against their
sales to end-users, resulting in inventories of unsold licenses held by
channel partners.
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- CUSTOMER BUDGETING CYCLES. Our quarter-to-quarter revenues will depend on
customer budgeting cycles. If customers change their budgeting cycles, or
reduce their capital spending on technology, our revenues could decline.
- PRODUCT AND PRICING ANNOUNCEMENTS. Announcements of new products or
releases by us or our competitors could cause customers to delay purchases
pending the introduction of the new product or release. In addition,
announcements by us or our competitors concerning pricing policies could
have an adverse effect on our revenues in a given quarter.
- CHANGES IN PRODUCT MIX. Changes in our product mix could adversely affect
our operating results because some products provide higher margins than
others. For example, margins on software licenses tend to be higher than
margins on maintenance and services.
- CANCELLATION OF LICENSES, SUBSCRIPTION OR MAINTENANCE
AGREEMENTS. Cancellations of licenses, subscription or maintenance
contracts could reduce our revenues and harm our operating results. In
particular, our maintenance contracts with customers terminate on an
annual basis. Substantial cancellations of maintenance or subscription
agreements, or a substantial failure to renew these contracts, would
reduce our revenues and harm our operating results.
THE LONG SALES CYCLE FOR OUR PRODUCTS MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN OUR
REVENUES AND OPERATING RESULTS.
Delays in customer orders could result in revenues substantially below the
expectations of market analysts. Our customers' planning and purchase decisions
involve a significant commitment of resources and a lengthy evaluation and
product qualification process. As a result, we may incur substantial sales and
marketing expenses during a particular period in an effort to obtain orders. If
we are unsuccessful in generating offsetting revenues during that period, our
revenues and earnings could be substantially reduced, or we could experience a
large loss. The sales cycle for our products typically takes six to nine months
to complete, and we may experience delays that further extend this period. The
length of the sales cycle may be extended beyond six or nine months due to
factors over which we have little or no control, including the size of the
transaction and the level of competition we encounter. The average size of our
transactions has increased in recent periods, and this could have the effect of
further extending our sales cycle. During the sales cycle, we typically provide
a significant level of education to prospective customers regarding the use and
benefits of our products. Any delay in the sales cycle of a large license or a
number of smaller licenses could have an adverse effect on our operating results
and financial condition.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY RESULT IN PERIODIC
REDUCTIONS IN OUR REVENUES AND IMPAIRMENT OF OUR OPERATING RESULTS.
Seasonality in our business could result in our revenues in a given period
being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events,
seasonality could have an adverse impact on our results of operations.
Historically, our revenues and operating results in our December quarter have
tended to benefit, relative to our June and September quarters, from purchase
decisions made by the large concentration of our customers with calendar
year-end budgeting requirements. Our June and September quarters tend to be our
weakest. Revenues and operating results in the March quarter have tended to
benefit from the efforts of our sales force to meet fiscal year-end sales
quotas. These historical patterns may change over time, however, particularly as
our operations become larger and the sources of our revenue change or become
more diverse. For example, our international operations have expanded
significantly in recent years, particularly in Europe. We also have an
international presence in the Pacific Rim and Latin America. We may experience
variability in demand associated with seasonal buying patterns in these foreign
markets. As an example, our September quarter is typically weaker in part due to
the European summer holiday season.
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OUR BUSINESS AND OPERATING RESULTS WILL BE HARMED IF WE CANNOT COMPETE
EFFECTIVELY AGAINST OTHER COMPANIES IN OUR MARKETS.
The market for our products is intensely competitive and diverse, and the
technologies for our products can change rapidly. New products are introduced
frequently and existing products are continually enhanced. We face competition
from a number of sources in the markets for our infrastructure resource
management, procurement and e-business connectivity solutions.
- In the markets for our infrastructure resource management and employee
self-service software solutions, we face competition from providers of
internal help desk software applications for managing information
technology service desks, 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 (a division of IBM), Computer Associates, Network
Associates, Hewlett-Packard, and Microsoft; numerous start-up and other
entrepreneurial companies offering products that compete with the
functionality offered by one or more of our infrastructure management
products; and the internal information technology departments of those
companies with infrastructure management needs.
- In the markets for employee self-service, including procurement and
e-service solutions, we have experienced competition from established
competitors in the business-to-business Internet commerce solution market,
such as Ariba and CommerceOne, and established providers of enterprise
resource planning software that are entering the market for procurement
and e-procurement solutions, including Oracle and SAP.
- In the markets served by our e-commerce enablement technology, we have
experienced competition from Sterling Commerce, a division of SBC
Communications, and General Electric eXchange solutions, each a provider
of electronic commerce software; Aspect Development, a provider of
internet business software solutions; Requisite Technology, a provider of
catalog management solutions; and webMethods, a provider of e-commerce
enablement software.
If we cannot compete effectively in our markets by offering products that
are comparable in functionality, ease of use and price to those of our
competitors, our revenues will decrease, and our operating results will be
adversely affected. Many of our current and potential competitors have
substantially greater financial, technical, marketing and other resources than
we have. As a result, they may be able to devote greater resources than we can
to the development, promotion and sale of their products and may be able to
respond more quickly to new or emerging technologies and changes in customer
needs.
Additional competition from new entrepreneurial companies or established
companies entering our markets could have an adverse effect on our business,
revenues and operating results. In addition, alliances among companies that are
not currently direct competitors could create new competitors with substantial
market presence. Because few barriers to entry exist in the software industry,
we anticipate additional competition from new and established companies as well
as business alliances. We expect that the software industry will continue to
consolidate. In particular, we expect that large software companies will
continue to acquire or establish alliances with our smaller competitors, thereby
increasing the resources available to these competitors. These new competitors
or alliances could rapidly acquire significant market share at our expense.
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OUR FUTURE OPERATING RESULTS MAY BE ADVERSELY AFFECTED IF THE SOFTWARE
APPLICATION MARKET CONTINUES TO EVOLVE TOWARD A SUBSCRIPTION-BASED MODEL, WHICH
MAY PROVE LESS PROFITABLE FOR US.
We expect our revenue growth rates and operating results to be adversely
affected as customers require us to offer our products under a
subscription-based application service provider model. Historically, we have
sold our infrastructure management solutions on a perpetual license basis in
exchange for an up-front license fee. Customers are increasingly attempting to
reduce their up-front capital expenditures and are purchasing software
applications under a hosted subscription service model. Under the hosted model,
the customer subscribes to use an application from the software provider. The
application is generally hosted on a server managed by the service provider or a
third-party hosting service. We expect that a substantial portion of future
revenues generated by our e-markets group will be realized under a subscription
model. We also expect that an increasing portion of our infrastructure
management group revenues may be represented by subscriptions.
Under the subscription revenue model, we generally will recognize revenue
and receive payment ratably over the term of the customer's subscription. As a
result, our rates of revenue growth under a subscription model may be less than
our historical rates under a license model. In addition, the price of our
services will be fixed at the time of entering into the subscription agreement.
If we are unable to adequately predict the costs associated with maintaining and
servicing a customer's subscription, then the periodic expenses associated with
a subscription may exceed the revenues we recognize for the subscription in the
same period, which may adversely affect our operating results.
In addition, if we are not successful in implementing the subscription
revenue model, or if market analysts or investors do not believe that the model
is attractive relative to our traditional license model, our business and our
stock price could decline dramatically.
IF WE, OR THIRD PARTIES ON WHICH WE WILL RELY, ARE UNABLE TO ADEQUATELY DELIVER
OUR INTERNET-BASED APPLICATIONS, OUR OPERATING RESULTS MAY BE ADVERSELY
AFFECTED.
We currently use our own servers to deliver our Internet-based products to
customers. We intend, however, to engage one or more third parties to provide a
full complement of services that will enable us to outsource the delivery of
these Internet-based products to our customers. For example, our third-party
service providers will manage the application servers, maintain communications
equipment, manage the network data centers where our software and data will be
stored, and provide client support. If we are unable to adequately deliver our
Internet-based applications, we may lose customers or be unable to attract new
customers, which would adversely affect our revenues.
In addition, the third-party service providers that we engage may not
deliver adequate support or service to our clients, which may harm our
reputation and our business. Because these third-party service providers handle
the installation of the computer and communications equipment and software
needed for the day-to-day operations of our Internet-based applications, we will
be dependent on them to manage, maintain and provide adequate security for
customer applications. If our customers experience any delays in response time
or performance problems while using our Internet applications hosted by a
third-party or us, our customers may perceive such delays as defects with our
products and may stop using our applications, which will adversely impact our
revenues.
We have limited experience outsourcing these services and may have
difficulties managing this process. We will be required to monitor our
third-party service providers to ensure that they perform these services
adequately. In addition, if we do not maintain good relations with these
third-party service providers, or if they go out of business, they may be unable
to perform critical support functions for us. If we were unable to find
replacement third-party service providers, we would be required to perform these
functions ourselves. We may not be successful in obtaining or performing these
services on a timely or cost-effective basis.
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IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUALLY DEVELOP PRODUCTS THAT MEET THE COMPLEX AND EVOLVING NEEDS
OF OUR CUSTOMERS, SALES OF OUR PRODUCTS MAY DECREASE.
As a result of rapid technological change in our industry, our competitive
position in existing markets, or in markets we may enter in the future, can be
eroded rapidly by product advances and technological changes. We may be unable
to improve the performance and features of our products as necessary to respond
to these developments. In addition, the life cycles of our products are
difficult to estimate. Our growth and future financial performance depend in
part on our ability to improve existing products and develop and introduce new
products that keep pace with technological advances, meet changing customer
needs, and respond to competitive products. Our product development efforts will
continue to require substantial investments. In addition, competitive or
technological developments may require us to make substantial, unanticipated
investments in new products and technologies, and we may not have sufficient
resources to make these investments. If we were required to expend substantial
resources to respond to specific technological or product changes, our operating
results would be adversely affected.
IF WE CANNOT ATTRACT AND RETAIN QUALIFIED SALES PERSONNEL, SOFTWARE DEVELOPERS
AND CUSTOMER SERVICE PERSONNEL, WE WILL NOT BE ABLE TO SELL AND SUPPORT OUR
PRODUCTS.
Competition for qualified employees is intense, particularly in the
technology industry, and we have in the past experienced difficulty recruiting
qualified employees. If we are not successful in attracting and retaining
qualified sales personnel, software developers and customer service personnel,
our revenue growth rates could decrease, or our revenues could decline, and our
operating results could be materially harmed. Our products and services require
a sophisticated selling effort targeted at several key people within a
prospective customer's organization. This process requires the efforts of
experienced sales personnel as well as specialized consulting professionals. In
addition, the complexity of our products, and issues associated with installing
and maintaining them, require highly-trained customer service and support
personnel. We intend to hire a significant number of these personnel in the
future and train them in the use of our products. We believe our success will
depend in large part on our ability to attract and retain these key employees.
OUR BUSINESS WOULD BE HARMED IF WE LOST THE SERVICES OF ONE OR MORE MEMBERS OF
OUR SENIOR MANAGEMENT TEAM.
The loss of the services of one or more of our executive officers or key
employees, or the decision of one or more of these individuals to join a
competitor, could adversely affect our business and harm our operating results
and financial condition. Our success depends to a significant extent on the
continued service of our senior management and other key sales, consulting,
technical and marketing personnel. None of our senior management is bound by an
employment or non-competition agreement. We do not maintain key man life
insurance on any of our employees.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, THIS WILL PLACE A SIGNIFICANT STRAIN
ON OUR MANAGEMENT AND OPERATIONAL RESOURCES.
Our recent growth rates have placed a significant strain on our management
and operational resources. We have expanded the size and geographic scope of our
operations rapidly in recent years, both internally and through acquisitions,
and intend to continue to expand in order to pursue market opportunities that
our management believes are attractive. Our customer relationships could be
strained if we are unable to devote sufficient resources to them as a result of
our growth, which could have an adverse effect on our future revenues and
operating results.
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SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE INFRASTRUCTURE MANAGEMENT AND/OR HELP
DESK SOFTWARE COMPANIES AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, HARMING OUR
ABILITY TO SELL OUR PRODUCTS.
If large system management providers close their systems to our products,
our revenues and operating results would be seriously harmed. Our ability to
sell our products depends in large part on their compatibility with and support
by providers of system management products, including Tivoli, Computer
Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have acquired
providers of help desk software products. These large, established providers of
system management products and services may decide to close their systems to
competing vendors like us. They may also decide to bundle the products that
compete with our products with other products for enterprise licenses for
promotional purposes or as part of a long-term pricing strategy. If that were to
happen, our ability to sell our products could be adversely affected. Increased
competition may result from acquisitions of help desk and other infrastructure
management software vendors by system management companies. Increased
competition could result in price reductions, reductions in our gross margins,
or reductions in our market share. Any of these events would adversely affect
our business and operating results.
WE MAY BE UNABLE TO EXPAND OUR BUSINESS AND INCREASE OUR REVENUES IF WE ARE
UNABLE TO EXPAND OUR DISTRIBUTION CHANNELS.
If we are unable to expand our distribution channels effectively, our
business, revenues and operating results could be harmed. In particular, we will
need to expand our direct sales force and establish relationships with
additional system integrators, resellers and other third party channel partners
who market and sell our products. If we cannot establish these relationships, or
if our channel partners are unable to market our products effectively or provide
cost-effective customer support and service, our revenues and operating results
will be harmed. Even where we are successful in establishing a new third-party
relationship, our agreement with the third party may not be exclusive. As a
result, our partner may carry competing product lines.
IF WE ARE UNABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS, REVENUES
AND OPERATING RESULTS COULD BE HARMED.
In order to grow our business, increase our revenues, and improve our
operating results, we believe we must continue to expand internationally. If we
expend substantial resources pursuing an international strategy and are not
successful, our revenues will be less than our management or market analysts
anticipate, and our operating results will suffer. International revenues
represented approximately 36.0% of our business in each of fiscal 1998 and 1999
and approximately 41.0% of our business in fiscal 2000. We have several
international sales offices in Europe as well as offices in Japan, Singapore and
Australia. International expansion will require significant management attention
and financial resources, and we may not be successful expanding our
international operations. We have limited experience in developing local
language versions of our products or in marketing our products to international
customers. We may not be able to successfully translate, market, sell, and
deliver our products internationally.
CONDUCTING BUSINESS INTERNATIONALLY POSES RISKS THAT COULD AFFECT OUR FINANCIAL
RESULTS.
Even if we are successful in expanding our operations internationally,
conducting business outside North America poses many risks that could adversely
affect our operating results. In particular, we may experience gains and losses
resulting from fluctuations in currency exchange rates, for which hedging
activities may not adequately protect us. Moreover, exchange rate risks can have
an adverse effect on our ability to sell our products in foreign markets. Where
we sell our products in U.S. dollars, our sales could be adversely affected by
declines in foreign currencies relative to the dollar, thereby making our
products more expensive in local currencies. Where we sell our products in local
currencies, we could be competitively unable to change our prices to reflect
exchange rate changes. In recent periods, for example, our revenues in Europe
have been adversely affected by the decline in the value of the Euro and its
component currencies relative to the U.S. dollar.
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Additional risks we face in conducting business internationally include the
following:
- longer payment cycles;
- difficulties in staffing and managing international operations;
- problems in collecting accounts receivable; and
- the adverse effects of tariffs, duties, price controls or other
restrictions that impair trade.
WE MAY EXPERIENCE INTEGRATION OR OTHER PROBLEMS WITH NEW ACQUISITIONS, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS. NEW
ACQUISITIONS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS, AND THE
ANNOUNCEMENT OF NEW ACQUISITIONS COULD RESULT IN A DECLINE IN THE PRICE OF OUR
COMMON STOCK.
In addition to the acquisition of Harbinger, we have made a number of
acquisitions of businesses and technologies over the last three years. We are
frequently in formal or informal discussions with potential acquisition
candidates. Accordingly, we may in the future make acquisitions of, or large
investments in, businesses that offer products, services and technologies that
we believe would complement our products or services. We may also make
acquisitions of or investments in businesses that we believe could expand our
distribution channels. Even though we announce an acquisition, however, we may
not be able to complete it. Any future acquisition or substantial investment
would present numerous risks. The following are examples of these risks:
- difficulty in combining the technology, operations or work force of the
acquired business;
- disruption of our on-going business;
- difficulty in realizing the potential financial or strategic benefits of
the transaction;
- difficulty in maintaining uniform standards, controls, procedures and
policies;
- possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel;
- impairment of assets related to resulting goodwill, and reductions in our
future operating results from amortization of goodwill and other
intangible assets.
We expect that future acquisitions could provide for consideration to be
paid in cash, shares of our common stock, or a combination of cash and our
common stock. If the consideration for the transaction were paid in common
stock, this would further dilute our existing stockholders. Any amortization of
goodwill or other assets resulting from the acquisition could materially impair
our operating results and financial condition. If an acquisition were to take
place, the risks described above could materially and adversely affect our
business and operating results.
HARBINGER AND SOME OF ITS FORMER OFFICERS AND DIRECTORS ARE DEFENDANTS IN
SHAREHOLDER LITIGATION FOR WHICH HARBINGER IS NOT INSURED. THE OUTCOME OF THIS
LITIGATION, IF DETERMINED ADVERSELY TO HARBINGER, COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION.
In September 1999, a complaint was filed against Harbinger and some of its
current and 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. 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
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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.
IF IMMIGRATION LAWS LIMIT OUR ABILITY TO RECRUIT AND EMPLOY SKILLED TECHNICAL
PROFESSIONALS FROM OTHER COUNTRIES, OUR BUSINESS AND OPERATING RESULTS COULD BE
HARMED.
Limitations under United States immigration laws could prevent us from
recruiting skilled technical personnel from foreign countries, which could harm
our business if we do not have sufficient personnel to develop new products and
respond to technological changes. This inability to hire technical personnel
could lead to future decreases in our revenues, or decreases in our revenue
growth rates, either of which would adversely affect our operating results.
Because of severe shortages for qualified technical personnel in the United
States, many companies, including Peregrine, have recruited engineers and other
technical personnel from foreign countries. Foreign computer professionals such
as those we have employed typically become eligible for employment in the United
States by obtaining a nonimmigrant visa. The number of nonimmigrant visas is
limited annually by federal immigration laws. In recent years, despite increases
in the number of available visas, the annual allocation has been exhausted well
before year-end.
WE HAVE MADE SUBSTANTIAL CAPITAL COMMITMENTS THAT COULD HAVE AN ADVERSE EFFECT
ON OUR OPERATING RESULTS AND FINANCIAL CONDITION IF OUR BUSINESS DOES NOT GROW.
We have made substantial capital commitments as a result of recent growth in
our business that could seriously harm our financial condition if our business
does not grow and we do not have adequate resources to satisfy our obligations.
In June 1999, we entered into a series of leases providing us with approximately
540,000 square feet of office space and an option to lease 118,000 square feet
for our headquarters in San Diego, California. Even excluding the exercise of
the option, the leases require a minimum aggregate lease payment of
approximately $124.0 million over the twelve year term of the leases. The office
space (including the option) relates to a five building campus. We have
relocated our San Diego operations to three of these buildings and intend for
the present time to sublease the remaining two buildings. The capital
commitments, construction oversight, and movement of personnel and facilities
involved in a transaction of this type and magnitude present numerous risks,
including:
- failure to properly estimate the future growth of our business;
- inability to sublease excess office space if we overestimate future
growth;
- disruption of operations; and
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- inability to match fixed lease payments with fluctuating revenues, which
could impair our earnings or result in losses.
PRODUCT DEVELOPMENT DELAYS COULD HARM OUR COMPETITIVE POSITION AND REDUCE OUR
REVENUES.
If we experience significant product development delays, our position in the
market would be harmed, and our revenues could be substantially reduced, which
would adversely affect our operating results. We have experienced product
development delays in the past and may experience delays in the future. In
particular, we may experience product development delays associated with the
integration of recently acquired products and technologies. Delays may occur for
many reasons, including an inability to hire sufficient number of developers,
discovery of bugs and errors, or a failure of our current or future products to
conform to industry requirements.
ERRORS OR OTHER SOFTWARE BUGS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT
EXPENDITURES TO REMEDY OR CORRECT THE ERRORS OR BUGS AND COULD RESULT IN PRODUCT
LIABILITY CLAIMS.
If we were required to expend significant amounts to correct software bugs
or errors, our revenues could be harmed as a result of an inability to deliver
the product, and our operating results could be impaired as we incur additional
costs without offsetting revenues. Errors can be detected at any point in a
product's life cycle. We have experienced errors in the past that resulted in
delays in product shipment and increased costs. Discovery of errors could result
in any of the following:
- loss of or delay in revenues and loss of customers or market share;
- failure to achieve market acceptance;
- diversion of development resources and increased development expenses;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
If we were held liable for damages incurred as a result of our products, our
operating results could be significantly impaired. Our license agreements with
our customers typically contain provisions designed to limit exposure to
potential product liability claims. These limitations may not be effective under
the laws of some jurisdictions, however. Although we have not experienced any
product liability claims to date, the sale and support of our products entails
the risks of these claims.
WE COULD BE COMPETITIVELY DISADVANTAGED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY.
If we fail to adequately protect our proprietary rights, competitors could
offer similar products relying on technologies we developed, potentially harming
our competitive position and decreasing our revenues. We attempt to protect our
intellectual property rights by limiting access to the distribution of our
software, documentation, and other proprietary information and by relying on a
combination of patent, copyright, trademark, and trade secret laws. In addition,
we enter into confidentiality agreements with our employees and certain
customers, vendors, and strategic partners. In some circumstances, however, we
may, if required by a business relationship, provide our licensees with access
to our data model and other proprietary information underlying our licensed
applications.
Despite precautions that we take, it may be possible for unauthorized third
parties to copy aspects of our current or future products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of software
is difficult, and some foreign laws do not protect proprietary rights to the
same extent as United States laws. Litigation may be necessary in the future to
enforce
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our intellectual property rights, to protect our trade secrets, or to determine
the validity and scope of the proprietary rights of others, any of which could
adversely affect our revenues and operating results.
IF WE BECOME INVOLVED IN AN INTELLECTUAL PROPERTY DISPUTE, WE MAY INCUR
SIGNIFICANT EXPENSES OR MAY BE REQUIRED TO CEASE SELLING OUR PRODUCTS, WHICH
WOULD SUBSTANTIALLY IMPAIR OUR REVENUES AND OPERATING RESULTS.
In recent years, there has been significant litigation in the United States
involving intellectual property rights, including rights of companies in the
software industry. Intellectual property claims against us, and any resulting
lawsuit, may result in our incurring significant expenses and could subject us
to significant liability for damages and invalidate what we currently believe
are our proprietary rights. These lawsuits, regardless of their success, would
likely be time-consuming and expensive to resolve and could divert management's
time and attention. Any potential intellectual property litigation against us
could also force us to do one or more of the following:
- cease selling, incorporating or using products or services that
incorporate the infringed intellectual property;
- obtain from the holder of the infringed intellectual property a license to
sell or use the relevant technology, which license may not be available on
acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology, which could result in substantial unanticipated development
expenses.
If we are subject to a successful claim of infringement and we fail to
develop noninfringing technology or license the infringed technology on
acceptable terms and on a timely basis, our revenues could decline or our
expenses could increase.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of competitors. These claims
could also result in significant expense and the diversion of technical and
management personnel's attention.
CONTROL BY OUR OFFICERS AND DIRECTORS MAY LIMIT OUR STOCKHOLDERS' ABILITY TO
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DELAY OR PREVENT A
CHANGE IN CONTROL, WHICH COULD PREVENT OUR STOCKHOLDERS FROM REALIZING A PREMIUM
IN THE MARKET PRICE OF THEIR COMMON STOCK.
The concentration of ownership of our common stock by our officers and
directors could delay or prevent a change in control or discourage a potential
acquirer from attempting to obtain control of Peregrine. This could cause the
market price of our common stock to fall or prevent our stockholders from
realizing a premium in the market price in the event of an acquisition. As of
September 30, 2000, our officers and directors owned approximately 12.0 million
shares of our common stock (including shares issuable upon exercise of options
exercisable within 60 days of September 30, 2000), representing approximately
8.6% of our total shares outstanding.
WE COULD EXPERIENCE LOSSES AS A RESULT OF OUR STRATEGIC INVESTMENTS.
If our strategic investments in other companies are not successful, we could
incur losses. We have made and expect to continue to make minority investments
in companies with businesses or technologies that we consider to be
complementary with our business or technologies. These investments have
generally been made by issuing shares of our common stock or, to a lesser
extent, by paying cash. Many of these investments are in companies whose
operations are not yet sufficient to establish them as profitable concerns.
Adverse changes in market conditions or poor operating results of underlying
investments could result in our incurring losses or our being unable to recover
the carrying value of our investments.
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PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR PEREGRINE AND MAY PREVENT CHANGES IN OUR MANAGEMENT THAT
STOCKHOLDERS OTHERWISE WOULD APPROVE.
Some provisions of our charter documents eliminate the right of stockholders
to act by written consent without a meeting and impose specific procedures for
nominating directors and submitting proposals for consideration at a stockholder
meeting. These provisions are intended to increase the likelihood of continuity
and stability in the composition of our board of directors and the policies
established by the board of directors. These provisions also discourage some
types of transactions, which may involve an actual or threatened change of
control. These provisions are designed to reduce Peregrine's vulnerability to an
unsolicited acquisition proposal. As a result, these provisions could discourage
potential acquisition proposals and could delay or prevent a change of control
transaction. These provisions are also intended to discourage common tactics
that may be used in proxy fights. As a result, they could have the effect of
discouraging third parties from making tender offers for our shares. These
provisions may prevent the market price of our common stock from reflecting the
effects of actual or rumored take-over attempts. These provisions may also
prevent changes in our management.
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preference, privileges, and restrictions of this preferred stock without
any further vote or action by our stockholders. The issuance of preferred stock
allows us to have flexibility in connection with possible acquisitions and for
other corporate purposes. The issuance of preferred stock, however, may delay or
prevent a change in control transaction. As a result, the market price of our
common stock and other rights of holders of our common stock may be adversely
affected, including the loss of voting control to others.
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