<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY [ ], 2000
REGISTRATION NO. 333- [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PEREGRINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 95-3773312
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
12670 HIGH BLUFF DRIVE, SAN DIEGO, CALIFORNIA 92130
(858) 481-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ERIC P. DELLER
VICE PRESIDENT AND GENERAL COUNSEL
PEREGRINE SYSTEMS, INC.
12670 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(858) 481-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
DOUGLAS H. COLLOM ERIC P. DELLER ROD J. HOWARD
STEVE L. CAMAHORT Vice President and General ASHOK K. LALWANI
ROBERT F. KORNEGAY Counsel MADELEINE RANDAL
G. SCOTT GIESLER Peregrine Systems, Inc. Brobeck, Phleger & Harrison LLP
LIA ROSE ALIOTO 12670 High Bluff Drive Two Embarcadero Place
Wilson Sonsini Goodrich & Rosati San Diego, California 92130 2200 Geng Road
Professional Corporation (958) 481-5000 Palo Alto, California 94303
650 Page Mill Road (650) 424-0160
Palo Alto, California 94304-1050
(650) 493-9300
<S> <C> <C>
DOUGLAS H. COLLOM JOHN C. YATES LOREN B. WIMPFHEIMER
STEVE L. CAMAHORT JEFFREY L. SCHULTE Vice President and General
ROBERT F. KORNEGAY SETH A. COHEN Counsel
G. SCOTT GIESLER BRANDY A. BAYER Harbinger Corporation
LIA ROSE ALIOTO Morris, Manning & Martin, L.L.P. 1277 Lenox Park Boulevard
Wilson Sonsini Goodrich & Rosati 1600 Atlanta Financial Center Atlanta, Georgia 30319
Professional Corporation 3343 Peachtree Road, N.E. (404) 467-3000
650 Page Mill Road Atlanta, Georgia 30326
Palo Alto, California 94304-1050 (404) 233-7000
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON COMPLETION OF THE MERGER OF A SUBSIDIARY OF PEREGRINE SYSTEMS, INC. WITH
HARBINGER CORPORATION AS DESCRIBED HEREIN.
------------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value(1)........... 32,331,087 shares $14.40625(2) $621,026,282 $163,951
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to shareholders of Harbinger Corporation, a Georgia
corporation, pursuant to the transactions described in this registration
statement.
(2) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933,
as amended, the registration fee has been calculated based on the average of
the high and low prices per share of Harbinger's common stock on May 10,
2000 as reported on the Nasdaq National Market.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT ISSUE THE COMMON STOCK TO BE ISSUED IN CONNECTION
WITH THE MERGERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND NEITHER
PEREGRINE NOR HARBINGER IS SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, Dated May 8, 2000
[LOGO]
[LOGO]
, 2000
To the holders of Peregrine common stock and Harbinger common stock:
After careful consideration, the boards of directors of Peregrine
Systems, Inc. and Harbinger Corporation have approved the merger of Harbinger
and Peregrine. As a result of the merger, Harbinger will become a wholly-owned
subsidiary of Peregrine, and shareholders of Harbinger will become stockholders
of Peregrine. To achieve this organizational structure, a subsidiary of
Peregrine will merge into Harbinger, and Peregrine will issue its common stock
in exchange for the outstanding shares of Harbinger common stock.
In connection with the merger, each outstanding share of Harbinger common
stock will be exchanged for 0.75 of a share of Peregrine common stock. Peregrine
common stock is traded on the Nasdaq National Market under the trading symbol
"PRGN." On May 5, 2000, the closing price of Peregrine common stock was $21.75
per share, and the closing price of Harbinger common stock, which is traded on
the Nasdaq National Market as "HRBC," was $16.19. We encourage you to obtain
more recent quotations, however.
The attached proxy statement/prospectus provides detailed information
concerning Peregrine, Harbinger, the merger agreement, the merger, and the
proposals related to the merger. Please review carefully all of the information
contained in the joint proxy statement/prospectus. IN PARTICULAR, YOU SHOULD
CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 12.
After careful consideration, the boards of directors of both Peregrine and
Harbinger have determined the merger to be fair, and in the best interests of
their respective shareholders. Each board has approved the merger agreement
setting out the terms of the proposed merger.
Peregrine and Harbinger each believe that the Internet has redefined the
beginning and end points of business processes. We believe that, through the
Internet, businesses are now challenged to extend their operations beyond
traditional internal constraints and to interact directly with their supplier
base. At the same time, suppliers are challenged to reach customers in new ways,
notably by making their products and services available over the Internet and
through web-based marketplaces for goods and services. We believe business is
evolving toward an end-to-end process for managing business assets and
infrastructure from the time they are acquired until they are retired. We
believe that combining Harbinger and Peregrine can link the internal processes
associated with managing assets with the external processes associated with
acquiring them. Harbinger's reasons for the merger are discussed in greater
detail beginning on page 50, and Peregrine's reasons for the merger are
discussed in greater detail on page 61. A copy of the merger agreement is
attached as Annex A to the joint proxy statement/prospectus.
In connection with the merger, both Peregrine and Harbinger will hold a
special meeting of their respective shareholders. The matters to be submitted
for consideration at these special meetings are described in the attached notice
of special meeting and in the joint proxy statement/prospectus.
THE BOARD OF DIRECTORS OF HARBINGER RECOMMENDS THAT HOLDERS OF HARBINGER
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER. THE BOARD OF
<PAGE>
DIRECTORS OF PEREGRINE RECOMMENDS THAT HOLDERS OF PEREGRINE COMMON STOCK VOTE
FOR APPROVAL OF THE ISSUANCE OF SHARES OF PEREGRINE COMMON STOCK IN CONNECTION
WITH THE MERGER.
The Harbinger special meeting will be held on , 2000 at
9:00 a.m. (local time) at , Atlanta, Georgia . Only
shareholders who held shares of Harbinger at the close of business on
, 2000 will be entitled to vote at the Harbinger special meeting.
The Peregrine special meeting will be held on , 2000 at
9:00 a.m. (local time) at , San Diego, California . Only
stockholders who held shares of Peregrine at the close of business on
, 2000 will be entitled to vote at the Peregrine special meeting.
Please use this opportunity to take part in an important business decision
for Peregrine and Harbinger by voting at your special meeting. Whether or not
you plan to attend your special meeting, please submit your proxy by following
the instructions on the enclosed proxy card. Submitting a proxy does NOT deprive
you of the right to attend the meeting and vote your shares in person.
YOUR VOTE IS VERY IMPORTANT. We appreciate your consideration of the merger.
<TABLE>
<S> <C>
Sincerely,
STEPHEN P. GARDNER JAMES M. TRAVERS
President and Chief Executive Officer President and Chief Executive Officer
Peregrine Systems, Inc. Harbinger Corporation
</TABLE>
You may also obtain additional information about Harbinger and Peregrine
without charge by following the instructions in the section entitled "Where you
can find more information" in the joint proxy statement/prospectus.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 2000, AND
IT IS FIRST BEING MAILED OR OTHERWISE DELIVERED TO HOLDERS OF PEREGRINE COMMON
STOCK AND HARBINGER COMMON STOCK ON OR ABOUT , 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF PEREGRINE COMMON STOCK
TO BE ISSUED IN CONNECTION WITH MERGER, NOR HAVE THEY DETERMINED WHETHER THIS
JOINT PROXY STATEMENT/PROSPECTUS IS ADEQUATE OR CORRECT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[LOGO]
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 2000
------------------------
A special meeting of the shareholders of Harbinger Corporation will be held
at , Atlanta, Georgia , on , 2000 at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote on proposals:
- to approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of April 5, 2000, by and among Peregrine
Systems, Inc., Soda Acquisition Corporation and Harbinger Corporation.
A copy of the merger agreement is attached as Annex A to the
accompanying joint proxy statement/prospectus; and
- to approve the merger of Harbinger Corporation and Soda Acquisition
Corporation, a wholly owned subsidiary of Peregrine, whereby holders of
Harbinger common stock will receive 0.75 of a share of Peregrine common
stock for each share of Harbinger common stock they own.
2. To transact any other business that may properly come before the special
meeting or any adjournments or postponements of the special meeting.
The accompanying joint proxy statement/prospectus describes the merger
agreement and the proposed merger. We encourage you to read it carefully.
Only shareholders who held shares of Harbinger common stock at the close of
business on , 2000 are entitled to vote at the special meeting.
YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY ACCORDING TO THE
INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
By Order of the Board of Directors
Loren B. Wimpfheimer
SECRETARY
Atlanta, Georgia
, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE SUBMIT
YOUR PROXY ACCORDING TO THE INSTRUCTIONS ON THE ATTACHED PROXY CARD, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE
IT IS VOTED. SUBMITTING YOUR PROXY DOES NOT PREVENT YOU FROM ATTENDING THE
MEETING AND VOTING YOUR SHARES IN PERSON. IF YOUR SHARES ARE HELD IN AN ACCOUNT
AT A BROKERAGE FIRM OR A BANK, YOU MUST INSTRUCT THEM HOW TO VOTE YOUR SHARES.
IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR BANK HOW TO VOTE, IT WILL
HAVE THE SAME EFFECT AS VOTING AGAINST THE MERGER AGREEMENT AND THE MERGER.
<PAGE>
[LOGO]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
------------------------
A special meeting of the stockholders of Peregrine Systems, Inc. will be
held at , San Diego, California on , 2000 at
9:00 a.m., local time, for the following purposes:
1. To consider and vote on a proposal to issue shares of Peregrine common
stock in connection with the proposed merger of Harbinger Corporation
with a wholly owned subsidiary of Peregrine as set forth in the Agreement
and Plan of Merger and Reorganization, dated as of April 5, 2000 among
Peregrine, Harbinger, and Soda Acquisition Corporation, a wholly owned
subsidiary of Peregrine. Each outstanding share of Harbinger common stock
will be converted into 0.75 of a share of Peregrine common stock in
connection with the merger. A copy of the merger agreement is attached as
Annex A to the accompanying joint proxy statement/ prospectus.
2. To transact any other business that may properly come before the special
meeting or any adjournments or postponements of the special meeting.
The accompanying joint proxy statement/prospectus describes the merger
agreement and the proposed merger. We encourage you to read it carefully.
Only shareholders who held shares of Peregrine common stock at the close of
business on , 2000 are entitled to vote at the special meeting.
YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY ACCORDING TO THE
INSTRUCTIONS ON THE ATTACHED PROXY CARD.
By Order of the Board of Directors
Richard T. Nelson
SECRETARY
San Diego, California
, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE SUBMIT
YOUR PROXY ACCORDING TO THE INSTRUCTIONS ON THE ATTACHED PROXY CARD, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE
IT IS VOTED. SUBMITTING YOUR PROXY DOES NOT PREVENT YOU FROM ATTENDING THE
MEETING AND VOTING YOUR SHARES IN PERSON. IF YOUR SHARES ARE HELD IN AN ACCOUNT
AT A BROKERAGE FIRM OR A BANK, YOU MUST INSTRUCT THEM HOW TO VOTE YOUR SHARES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS............. 5
The Companies............................................. 5
The Merger................................................ 5
RISK FACTORS................................................ 12
Risks relating to the merger.............................. 12
Risks relating to Peregrine............................... 18
Risks relating to Harbinger............................... 27
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 36
Peregrine selected consolidated historical financial
information............................................. 36
Harbinger selected consolidated historical financial
information............................................. 36
Selected unaudited pro forma condensed combined financial
information............................................. 37
Comparative per share data................................ 38
MARKET PRICE AND DIVIDEND INFORMATION....................... 40
Peregrine common stock.................................... 40
Harbinger common stock.................................... 40
Recent share prices....................................... 40
Shareholders.............................................. 41
Dividends................................................. 41
THE SPECIAL MEETINGS........................................ 42
Date, time and place of the special meetings.............. 42
Purposes of the special meetings.......................... 42
Recommendations of the boards of directors................ 42
Record dates and outstanding shares....................... 43
Vote and quorum required.................................. 43
Treatment of abstentions and broker non-votes............. 44
Expenses of proxy solicitation............................ 44
Methods of voting......................................... 44
Revoking your proxy....................................... 45
THE MERGER.................................................. 46
Background of the merger.................................. 46
Joint reasons for the merger.............................. 49
Harbinger's reasons for the merger........................ 50
Recommendation of Harbinger's board of directors.......... 52
Opinion of Goldman, Sachs & Co., financial advisor to
Harbinger............................................... 52
Peregrine's reasons for the merger........................ 61
Recommendation of Peregrine's board of directors.......... 62
Opinion of Deutsche Bank Securities Inc., financial
advisor to Peregrine.................................... 63
Fee arrangements with Peregrine's financial advisor....... 70
Accounting treatment...................................... 70
Material United States federal income tax considerations
of the merger........................................... 70
Delisting and deregistration of Harbinger common stock.... 72
Listing of Peregrine common stock to be issued in the
merger.................................................. 72
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Regulatory compliance..................................... 72
Appraisal rights.......................................... 72
Federal securities laws consequences; stock transfer
restrictions............................................ 73
Interests of certain persons in the merger................ 73
THE MERGER AGREEMENT........................................ 75
General................................................... 75
The merger................................................ 75
Effective time and closing of the merger.................. 75
Procedure to exchange certificates........................ 76
Warrants, stock options and employee benefits............. 76
Representations and warranties............................ 77
Covenants relating to conduct of business of Harbinger and
Peregrine............................................... 79
Additional agreements..................................... 82
Conditions precedent to the merger........................ 87
Termination; amendment and waiver......................... 88
AGREEMENTS RELATED TO THE MERGER............................ 91
Peregrine stockholders' voting agreements................. 91
Harbinger shareholders' voting agreements................. 91
Stock option agreement.................................... 92
Affiliate agreements...................................... 94
BUSINESS OF PEREGRINE....................................... 95
Overview.................................................. 95
Corporate background...................................... 95
Industry background....................................... 95
Products.................................................. 96
Product integration....................................... 101
Product development; product authorship model............. 101
Technology................................................ 102
Sales and marketing....................................... 103
Professional services and customer support................ 104
Competition............................................... 104
Intellectual property..................................... 106
Employees................................................. 107
Properties................................................ 107
PEREGRINE SELECTED CONSOLIDATED FINANCIAL DATA.............. 108
PEREGRINE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 109
Overview.................................................. 109
Results of operations..................................... 111
Comparison of fiscal years ended March 31, 2000, 1999, and
1998.................................................... 111
Liquidity and capital resources........................... 114
Quantitative and qualitative disclosures about market
risk.................................................... 115
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS................................................ 116
PEREGRINE MANAGEMENT........................................ 121
Executive officers and directors.......................... 121
Board of directors........................................ 123
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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Executive compensation.................................... 124
Summary compensation table................................ 124
Option grants in fiscal year 2000......................... 126
Aggregate option exercises in last fiscal year and fiscal
year-end option values.................................. 127
Employment agreements and change in control
arrangements............................................ 127
Limitations on directors' and officers' liability and
indemnification......................................... 127
Stock plans............................................... 128
PEREGRINE RELATED PARTY TRANSACTIONS........................ 131
PEREGRINE PRINCIPAL STOCKHOLDERS............................ 132
BUSINESS OF HARBINGER....................................... 133
Business-to-business e-commerce........................... 134
The Internet and Internet Protocol........................ 136
The Harbinger solution.................................... 137
Strategy.................................................. 137
Capabilities.............................................. 139
E-Commerce center......................................... 141
Catalog data management................................... 143
Application services and software......................... 143
E-Commerce services....................................... 145
Sales and marketing....................................... 146
Product development....................................... 146
Competition............................................... 147
Intellectual property rights.............................. 147
Employees................................................. 149
Governmental regulations and industry standards........... 149
Properties................................................ 149
Legal proceedings......................................... 150
SELECTED FINANCIAL DATA OF HARBINGER........................ 151
HARBINGER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 152
Overview.................................................. 152
Stock repurchase program.................................. 152
Acquisitions and investments.............................. 152
Results of operations..................................... 154
1999 compared to 1998..................................... 157
1998 compared to 1997..................................... 159
Liquidity and capital resources........................... 162
Euro conversion........................................... 162
Quantitative and qualitative disclosures about market
risks................................................... 162
HARBINGER MANAGEMENT........................................ 163
Executive officers and directors.......................... 163
Election and compensation of directors.................... 165
Board committees.......................................... 166
Compensation committee interlocks and insider
participation........................................... 166
Executive compensation.................................... 167
Summary compensation table................................ 167
Option grants in last fiscal year......................... 168
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Agreements with employees................................. 168
401(k) profit sharing plan................................ 169
Stock option plans and stock purchase plan................ 170
HARBINGER RELATED PARTY TRANSACTIONS........................ 174
HARBINGER PRINCIPAL SHAREHOLDERS............................ 175
DESCRIPTION OF PEREGRINE CAPITAL STOCK...................... 177
General................................................... 177
Common stock.............................................. 177
Preferred stock........................................... 177
Antitakeover effects of provisions of certificate of
incorporation and bylaws................................ 178
COMPARISON OF RIGHTS OF HOLDERS OF HARBINGER COMMON STOCK
AND PEREGRINE COMMON STOCK................................ 179
EXPERTS..................................................... 194
LEGAL MATTERS............................................... 194
PEREGRINE STOCKHOLDER PROPOSALS............................. 194
HARBINGER SHAREHOLDER PROPOSALS............................. 194
DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS...................................... 195
WHERE YOU CAN FIND MORE INFORMATION......................... 196
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
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<S> <C>
Annex A Agreement and Plan of Merger and Reorganization
Annex B Form of Harbinger Stock Option Agreement
Annex C Form of Harbinger Voting Agreement
Annex D Form of Peregrine Voting Agreement
Annex E Opinion of Goldman, Sachs & Co.
Annex F Opinion of Deutsche Bank Securities Inc.
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
REFERENCES IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO "WE," "US," "OUR," OR
"OURS" REFER, AS THE CONTEXT MAY REQUIRE, TO PEREGRINE, HARBINGER OR THE
COMBINED COMPANY AFTER THE MERGER.
Q: WHAT IS THE PROPOSED MERGER TRANSACTION? (SEE PAGE 46)
A: The proposed merger transaction is to combine the businesses of Peregrine
and Harbinger. To combine the companies, a subsidiary of Peregrine will
merge into Harbinger. As a result, Harbinger will become a wholly owned
subsidiary of Peregrine. For a more complete description of the merger,
see the section entitled "The Merger."
Q: WHY ARE PEREGRINE AND HARBINGER PROPOSING THE MERGER? (SEE PAGES 49,50 AND
61)
A: Peregrine and Harbinger are proposing the merger because they believe the
combined company will be well positioned to offer solutions for
managing, acquiring and disposing the many assets comprising corporate
infrastructure.
Peregrine and Harbinger each believe that the Internet has redefined the
beginning and end points of business processes. We believe that, through
the Internet, businesses are now challenged to extend their operations
beyond traditional internal constraints and to interact directly with
their supplier base. At the same time, suppliers are challenged to reach
customers in new ways, notably by making their products and services
available over the Internet and through web-based marketplaces for goods
and services. We believe business is evolving toward an end-to-end
process for managing business assets and infrastructure from the time
they are acquired until they are retired. We believe that combining
Harbinger and Peregrine can link the internal processes associated with
managing assets with the external processes associated with acquiring
them.
A more complete discussion of the companies' respective reasons for
proposing the merger is contained under the captions "Peregrine's
reasons for the merger" on page 61 and "Harbinger's reasons for the
merger" on page 50.
Q: WHAT PERCENTAGE OF PEREGRINE WILL THE FORMER HARBINGER SHAREHOLDERS AND
CURRENT PEREGRINE STOCKHOLDERS OWN IMMEDIATELY FOLLOWING THE MERGER?
A: Immediately following the merger, the former shareholders of Harbinger
and the current stockholders of Peregrine will have approximately the
following aggregate ownership interests in Peregrine common stock:
<TABLE>
<CAPTION>
PEREGRINE
COMMON STOCK,
ASSUMING
EXERCISE OF ALL
PEREGRINE OUTSTANDING
COMMON HARBINGER
STOCK OPTIONS AND
OUTSTANDING WARRANTS
----------- ---------------
<S> <C> <C>
Former Harbinger
shareholders....... 21.5% 24.5%
Current Peregrine
stockholders....... 78.5% 75.5%
</TABLE>
Q: WHAT WILL HARBINGER SHAREHOLDERS RECEIVE IN EXCHANGE FOR HARBINGER COMMON
STOCK IN THE MERGER? (SEE PAGE 75)
A: When the merger is completed, Harbinger shareholders will receive in
exchange for each outstanding share of Harbinger common stock 0.75 of a
share of Peregrine common stock.
Peregrine will not issue fractional shares. Instead of issuing
fractional shares, Peregrine will pay Harbinger shareholders cash for
any fractional shares of Peregrine common stock they would have
otherwise received. The cash amount paid will be based on the average
closing price of Peregrine common stock over the five trading days prior
to the merger.
The merger agreement, a contract among Peregrine, Harbinger, and a
subsidiary of Peregrine, is attached to this joint proxy
statement/prospectus as
1
<PAGE>
Annex A. You should read the merger agreement carefully as it is the
legal document that sets forth the parties' rights.
Q: HOW WILL THE MERGER AFFECT OPTIONS AND WARRANTS TO ACQUIRE HARBINGER COMMON
STOCK? (SEE PAGE 76)
A: Options and warrants to purchase shares of Harbinger common stock will be
converted into options and warrants to purchase shares of Peregrine
common stock after completion of the merger. The number of shares
covered by these options and warrants, and their applicable exercise
prices, will be adjusted using the merger exchange ratio of 0.75 of a
share of Peregrine common stock for each share of Harbinger common stock
that was subject to the applicable option or warrant prior to the
merger.
Q: WILL HARBINGER SHAREHOLDERS BE ABLE TO TRADE THE PEREGRINE COMMON STOCK THAT
THEY RECEIVE IN THE MERGER? (SEE PAGE 73)
A: Yes. The Peregrine common stock will be listed on the Nasdaq National
Market under the symbol "PRGN." Certain persons who are deemed
affiliates of Harbinger will be required to comply with Rule 145 under
the Securities Act of 1933 if they sell their shares of Peregrine common
stock received in the merger.
Q: WHAT SHAREHOLDER APPROVALS ARE NEEDED TO COMPLETE THE MERGER? (SEE
PAGES 43)
A: For Harbinger, holders of a majority of the outstanding shares of
Harbinger's common stock must approve and adopt the merger agreement and
approve the merger.
For Peregrine, a majority of the shares of Peregrine common stock
present and voting at the Peregrine special meeting, in person or by
proxy, must approve the issuance of Peregrine common stock in connection
with the merger. In order to hold the special meeting, a majority of
Peregrine's outstanding common stock must be present and voting, in
person or by proxy.
Q: DOES THE BOARD OF DIRECTORS OF HARBINGER RECOMMEND VOTING IN FAVOR OF THE
MERGER? (SEE PAGE 52)
A: Yes. After careful consideration, Harbinger's board of directors, by the
unanimous vote of the directors present, recommends that Harbinger
shareholders vote in favor of approval and adoption of the merger
agreement and approval of the merger.
Q: DOES THE BOARD OF DIRECTORS OF PEREGRINE RECOMMEND VOTING IN FAVOR OF THE
ISSUANCE OF PEREGRINE COMMON STOCK IN THE MERGER? (SEE PAGE 62)
A: Yes. After careful consideration, Peregrine's board of directors
unanimously recommends that Peregrine stockholders vote in favor of the
issuance of Peregrine common stock in the merger.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER? (SEE PAGE 12)
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" beginning on page 12.
Q: WHAT DO I NEED TO DO NOW? (SEE PAGE 44)
A: After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please submit your Peregrine or
Harbinger proxy according to the instructions on the enclosed proxy card
as soon as possible. If you do not submit a proxy or attend your special
meeting and vote in person, your shares will not be represented or voted
at your meeting.
Q: CAN I SUBMIT MY PROXY BY TELEPHONE OR OVER THE INTERNET? (SEE PAGE 44)
A: You may be able to submit your proxy by telephone or over the Internet.
You should refer to the proxy card included with your materials for
instructions about how to vote. If you vote by telephone or over the
Internet, you do not need to complete and mail your proxy card.
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Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
(SEE PAGE 45)
A: You can change your vote at any time before your proxy is voted at your
special meeting. There are three ways for you to do this:
- send notice to the secretary of Peregrine or Harbinger (as applicable)
that you wish to revoke your proxy;
- send notice to the secretary of Peregrine or Harbinger (as applicable)
that you wish to change your proxy; or
- attend your special meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BANK OR BROKER, WILL MY BANK OR
BROKER VOTE MY SHARES FOR ME? (SEE PAGE 44)
A: Your bank or broker will vote your shares only if you provide
instructions on how to vote by following the information provided to
you.
If you do not instruct your bank or broker how to vote your shares, it
will not have discretionary authority to vote your shares on the matters
currently proposed to be presented at the special meetings. As a result,
your bank or broker may deliver a proxy card expressly indicating that
it is NOT voting your shares. This indication that a broker is not
voting your shares is referred to as a "broker non-vote." Broker
non-votes will be counted for the purpose of determining the presence or
absence of a quorum at the special meetings. Because the merger requires
the approval of holders of a majority of the Harbinger common stock
outstanding, a broker non-vote at the Harbinger special meeting will be
equivalent to a vote against adoption and approval of the merger
agreement and against approval of the merger. At the Peregrine special
meeting, a broker non-vote will not effect the outcome of voting on the
proposal to approve the issuance of shares of Peregrine common stock in
connection with the merger.
Q: WHAT HAPPENS IF A HARBINGER SHAREHOLDER DOESN'T VOTE? (SEE PAGE 44)
A: If a Harbinger shareholder doesn't submit a proxy or vote at the
Harbinger special meeting, it will have the same effect as a vote
against adoption and approval of the merger agreement and approval of
the merger.
- If you submit a proxy and do not indicate how you want to vote, your
proxy will be counted as a vote to adopt and approve the merger
agreement and to approve the merger.
- If you submit a proxy and affirmatively elect to abstain from voting,
your proxy will have the same effect as a vote against adoption and
approval of the merger agreement and against approval of the merger.
Q: WHAT HAPPENS IF A PEREGRINE STOCKHOLDER DOESN'T VOTE? (SEE PAGE 44)
A: If you are a Peregrine stockholder and do not submit a proxy or vote at
the Peregrine special meeting, your shares will not be counted as
present for purposes of determining the presence or absence of a quorum
and will have no effect on the outcome of the proposal to approve the
issuance of Peregrine common stock in the merger. Your broker could,
however, submit a "broker non-vote," which would have the effect
described in the question concerning shares held in "street name."
- If you submit a proxy and do not indicate how you want to vote, your
proxy will be counted as a vote to approve the issuance of shares of
Peregrine common stock in connection with the merger.
- If you submit a proxy and affirmatively elect to abstain from voting,
your proxy will be counted as present for the purpose of determining
the presence of a quorum but will not be voted at the special meeting.
Consequently, your abstention will have the same effect
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as a vote against the issuance of Peregrine's common stock in
connection with the merger.
Q: WHEN AND WHERE IS THE HARBINGER SPECIAL MEETING?
A: The Harbinger special meeting will take place at , Atlanta,
Georgia on , 2000 at 9:00 a.m., local time.
Q: WHEN AND WHERE IS THE PEREGRINE SPECIAL MEETING?
A: The Peregrine special meeting will take place at , San Diego,
California on , 2000 at 9:00 a.m., local time.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? (SEE PAGE 75)
A: We are working to complete the merger as quickly as possible. In addition
to receiving the required approvals from holders of Peregrine common
stock and Harbinger common stock, we must also receive clearance for the
merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
We hope to complete the merger before , 2000.
Q: SHOULD HARBINGER SHAREHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW? (SEE
PAGE 76)
A: No. After the merger is completed, the exchange agent will send Harbinger
shareholders written instructions for exchanging their Harbinger stock
certificates for Peregrine stock certificates.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME? (SEE PAGE 70)
A: Peregrine and Harbinger each expect the merger to qualify as a tax-free
reorganization for U.S. federal income tax purposes. A Harbinger
shareholder will recognize gain or loss on any fractional share of
Peregrine common stock for which cash is received in lieu of a
fractional share.
Please carefully review the information under the caption "Material
United States federal income tax consequences of the merger," beginning
on page , for a description of the material U.S. federal income tax
consequences of the merger. The tax consequences to you will depend on
the facts of your own situation. Please consult your tax advisors for a
full understanding of the tax consequences to you of the merger.
Q: AM I ENTITLED TO APPRAISAL RIGHTS? (SEE PAGE 72)
A: No. Neither holders of Harbinger common stock nor holders of Peregrine
common stock are entitled to appraisal rights in connection with the
merger.
Q: WILL THE RIGHTS OF A HARBINGER SHAREHOLDER CHANGE AS A RESULT OF THE MERGER?
(SEE PAGE 179)
A: Yes. The rights of Peregrine stockholders are governed by Delaware law
while the rights of Harbinger shareholders are governed by Georgia law.
In addition, Harbinger shareholder rights are currently governed by
Harbinger's articles of incorporation and bylaws, while Peregrine
stockholder rights are governed by Peregrine's certificate of
incorporation and bylaws. Harbinger shareholders will become Peregrine
stockholders as a result of the merger and, accordingly, their rights
will be governed by Delaware law and the certificate of incorporation
and bylaws of Peregrine.
Q: WHOM SHOULD I CALL WITH QUESTIONS? (SEE PAGE 196)
A: If you have any questions about the merger or any related transaction,
please call the investor relations department at Harbinger at
(404) 467-3000 or at Peregrine at (858) 481-5000. You may also obtain
additional information about Peregrine or Harbinger from documents filed
with the Securities and Exchange Commission without charge upon written
or oral request by following the instructions in the section entitled
"Where You Can Find More Information."
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER, YOU SHOULD
CAREFULLY READ THE REST OF THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 12 AND THE OTHER DOCUMENTS TO WHICH WE
REFER. SEE "WHERE YOU CAN FIND MORE INFORMATION."
THE COMPANIES
PEREGRINE SYSTEMS, INC.
Peregrine refers to itself as "The Infrastructure Management Company." It
offers business organizations an integrated suite of packaged infrastructure
resource management application software. These software applications are
designed to manage the various aspects of organizational infrastructure from the
moment an asset is leased, acquired, or taken from existing stock until the
moment it is taken out of service. Infrastructure assets include computers,
computer networks, telecommunication assets, physical plant and facilities,
corporate car or truck fleets, and many other assets. In addition, Peregrine has
recently introduced products designed to automate the processes associated with
the procurement and use of infrastructure assets.
Soda Acquisition Corporation is a wholly owned subsidiary of Peregrine that
was recently formed solely for the purpose of the merger. It does not conduct
any business and has no material assets. In connection with the merger of
Peregrine and Harbinger, Soda Acquisition will be merged with and into
Harbinger. Harbinger will then become a wholly owned subsidiary of Peregrine,
and Soda Acquisition will no longer exist as a separate corporation.
Peregrine was incorporated in California in 1981 and reincorporated in
Delaware in 1994. Peregrine's principal executive offices are located at 12760
High Bluff Drive, San Diego, California 92130, and its telephone number is
(858) 481-5000. Soda Acquisition has the same address and telephone number as
Peregrine.
HARBINGER CORPORATION
Harbinger is a leading provider of business-to-business electronic commerce
products and services. It develops, markets, and supports business-to-business
e-commerce software products and provides network communications and consulting
services that help businesses automate the cycle of transactions required in the
electronic procurement of goods and services.
Harbinger was incorporated in Georgia in 1988. Harbinger's principal
executive offices are located at 1277 Lenox Park Boulevard, Atlanta, Georgia
30319, and its telephone number is (404) 467-3000.
THE MERGER
SUMMARY OF THE MERGER
The merger involves a business combination of Peregrine and Harbinger. To
combine the companies, a subsidiary of Peregrine will merge into Harbinger. As a
result, Harbinger will become a wholly owned subsidiary of Peregrine.
In connection with the merger, each outstanding share of Harbinger common
stock will be exchanged for 0.75 of a share of Peregrine common stock. Peregrine
will not issue fractional shares in connection with the merger. Instead of
issuing fractional shares, Peregrine will pay Harbinger shareholders cash for
any fractional shares of Peregrine common stock they would have otherwise
received.
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REASONS FOR THE MERGER (SEE PAGES 48 AND 60)
The boards of directors of both Peregrine and Harbinger believe that the
merger and the merger agreement are fair to, and in the best interests of, their
respective companies and shareholders. Peregrine and Harbinger have each
identified several reasons that they believe the merger will be beneficial to
each company and each company's shareholders.
Peregrine and Harbinger each believe that the Internet has redefined the
beginning and end points of business processes. We believe that, through the
Internet, businesses are now challenged to extend their operations beyond
traditional internal constraints and to interact directly with their supplier
base. At the same time, suppliers are challenged to reach customers in new ways,
notably by making their products and services available over the Internet and
through web-based marketplaces for goods and services. We believe business is
evolving toward an end-to-end process for managing business assets and
infrastructure from the time they are acquired until they are retired. We
believe that combining Harbinger and Peregrine can link the internal processes
associated with managing assets with the external processes associated with
acquiring them. Our reasons are discussed in greater detail under the captions
"Joint reasons for the merger" on page 49, "Harbinger's reasons for the merger"
beginning on page 50 and "Peregrine's reasons for the merger" beginning on
page 61.
RISKS ASSOCIATED WITH PEREGRINE, HARBINGER, AND THE MERGER
The merger poses a number of risks to both companies and their respective
shareholders. In addition, both Peregrine and Harbinger are subject to various
risks associated with their businesses. These risks are discussed in greater
detail under the caption "Risk Factors" beginning on page 12. Peregrine and
Harbinger both encourage you to read and consider all of these risks carefully.
THE SPECIAL MEETINGS (SEE PAGE 42)
Peregrine and Harbinger will each hold a special meeting of its shareholders
in connection with the merger. The purpose of Harbinger's meeting will be to
obtain shareholder approval and adoption of the merger agreement with Peregrine
and approval of the merger. The purpose of Peregrine's meeting will be to obtain
stockholder approval of the issuance of shares of Peregrine common stock in
connection with the merger, as required by the rules of the Nasdaq National
Market.
Harbinger's special meeting will be held at 9:00 a.m., local time, on
, 2000 at , Atlanta, Georgia . Peregrine's special
meeting will be held on , 2000 at 9:00 a.m., local time, at
, San Diego, California .
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS (SEE PAGE 42)
The board of directors of Harbinger has concluded that the merger agreement
and the merger are fair to, and in the best interests of, Harbinger and its
shareholders. By the unanimous vote of the directors present, the board of
directors of Harbinger has recommended that Harbinger's shareholders vote in
favor of the approval and adoption of the merger agreement and in favor of
approval of the merger.
The board of directors of Peregrine has also concluded that the merger
agreement and the merger are fair to, and in the best interests of, Peregrine
and its stockholders. It has unanimously recommended that Peregrine's
stockholders vote in favor of the issuance of Peregrine's common stock in
connection with the merger.
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RECORD DATES (SEE PAGE 43)
The close of business on , 2000 has been fixed as the record
date for determining the holders of Peregrine common stock and Harbinger common
stock entitled to notice of and to vote at each company's respective special
meeting.
VOTING POWER (SEE PAGE 43)
On the record date, shares of Harbinger common stock were
outstanding. Each record holder of shares of Harbinger common stock will be
entitled at the special meeting to one vote for each Harbinger share held on the
record date.
On the record date, shares of Peregrine common stock were
outstanding. Each record holder of shares of Peregrine common stock will be
entitled to one vote for each Peregrine share held on the record date.
VOTING AGREEMENTS OF OFFICERS, DIRECTORS, AND SIGNIFICANT SHAREHOLDERS (SEE
PAGE 91)
Of Harbinger's outstanding shares, 5,987,524 shares are beneficially owned
by executive officers, directors, and significant shareholders who are deemed to
be affiliates of Harbinger and who signed voting agreements. These shares
represented approximately 14.5% of Harbinger's total outstanding shares on the
record date. Each of these affiliates has agreed to vote his or her shares at
Harbinger's special meeting in favor of the merger and the merger agreement.
Of Peregrine's outstanding shares, 11,988,403 shares are held by executive
officers, directors, and significant stockholders who are deemed to be
affiliates of Peregrine and who signed voting agreements. These shares
represented approximately 10.8% of Peregrine's total outstanding shares on the
record date. Each of these affiliates has agreed to vote his or her shares at
Peregrine's special meeting in favor of the issuance of Peregrine common stock
in connection with the merger.
VOTE REQUIRED FOR APPROVAL (SEE PAGE 43)
PEREGRINE'S SPECIAL MEETING
In order for a vote to be taken at the Peregrine special meeting, a quorum,
consisting of a majority of Peregrine's outstanding common stock at the record
date, must be present and voting, either in person or by proxy. In order for the
merger to become effective, holders of a majority of the shares present at the
special meeting, in person or by proxy, must vote in favor of the issuance of
shares of Peregrine common stock in connection with the merger. Holders of
approximately 10.8% of the outstanding shares of Peregrine common stock have
agreed to vote in favor of the issuance of shares of Peregrine common stock in
connection with the merger and will be present, in person or by proxy, at the
special meeting.
HARBINGER'S SPECIAL MEETING
In order for a vote to be taken at the Harbinger special meeting, a quorum,
consisting of a majority of Harbinger's outstanding common stock at the record
date, must be present and voting, either in person or by proxy. In order for the
merger to become effective, holders of at least a majority of Harbinger's
outstanding common stock at the record date must adopt and approve the merger
agreement and approve the merger. Holders of approximately 14.5% of the
outstanding shares of Harbinger common stock have agreed to vote for the merger
agreement and the merger and will be present, in person or by proxy, at the
special meeting.
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TREATMENT OF ABSTENTIONS AND BROKER NON-VOTES (SEE PAGE 44)
If you submit a proxy that indicates an abstention from voting in all
matters, your shares will be counted as present for the purpose of determining
the existence of a quorum, but they will not be voted on any matter at the
applicable special meeting. Abstentions at the Harbinger special meeting will
have the same effect as a vote against adoption and approval of the merger
agreement and against approval of the merger because the approval of holders of
a majority of the Harbinger common stock outstanding is required for adoption
and approval of the merger agreement and the approval of the merger. Abstentions
at the Peregrine special meeting will have the same effect as a vote against the
issuance of Peregrine's common stock in connection with the merger.
Banks and brokers who are the registered holder of shares held for the
benefit of their clients will not have discretionary voting authority with
respect to the matters to be considered at the special meetings. As a result, if
you hold your shares in "street name" (I.E., through your bank or broker), your
bank or broker will only vote your shares if you provide instructions by
following the instructions provided to you. If you do not provide instructions
with your proxy, your bank or broker may deliver a proxy card expressly
indicating that it is NOT voting your shares. This indication that a broker is
not voting your shares is referred to as a "broker non-vote."
Broker non-votes will be counted for the purpose of determining the presence
or absence of a quorum at the special meetings. Because the merger requires the
approval of holders of a majority of the Harbinger common stock outstanding, a
broker non-vote at the Harbinger special meeting will be equivalent to a vote
against adoption and approval of the merger agreement and approval of the
merger. At the Peregrine special meeting, a broker non-vote will not affect the
outcome of voting on the proposal to approve the issuance of shares of Peregrine
common stock in connection with the merger.
OPINIONS OF OUR FINANCIAL ADVISORS (SEE PAGES 52 AND 63)
In deciding to approve the merger, the boards of directors of both Peregrine
and Harbinger considered opinions from their respective financial advisors as to
the fairness, from a financial point of view, of the exchange ratio in the
merger. In deciding to approve the merger, Harbinger's board of directors
considered the opinion of its financial advisor, Goldman, Sachs & Co., and
Peregrine's board of directors considered the opinion of its financial advisor,
Deutsche Bank Securities Inc.
The full texts of the written opinions of our advisors are attached to this
joint proxy statement/ prospectus as Annex E and Annex F. You should read these
opinions carefully and completely for a description of the assumptions made and
matters considered by the financial advisors and the limitations of the reviews
the advisors conducted. The opinion of Goldman Sachs is directed to Harbinger's
board, and the opinion of Deutsche Bank is directed to Peregrine's board.
Neither Goldman Sachs' opinion nor Deutsche Bank's opinion addresses the prices
at which Peregrine's common stock will trade after the merger. Neither Goldman
Sachs nor Deutsche Bank is making any recommendation as to how you should vote
your shares at your special meeting.
INTERESTS OF SOME OF HARBINGER'S EXECUTIVE OFFICERS AND SHAREHOLDERS (SEE
PAGE 73)
Harbinger shareholders should consider that some officers and directors of
Harbinger have interests in the merger that are different from their interests.
These interests include:
- under Harbinger's employment agreement with James M. Travers, its
President and Chief Executive Officer, all unvested options he holds at
the time of the merger will become immediately vested when the merger is
completed;
- some options granted to other executive officers of Harbinger provide for
accelerated vesting if the officer's employment is actually or
constructively terminated within 180 days. The executive
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officers of Harbinger who will receive this benefit are James K.
McCormick, Harbinger's Chief Financial Officer; Douglas L. Roberts,
Harbinger's Senior Vice President, Worldwide Sales; Daniel L. Manack,
Harbinger's Executive Vice President, Global Operations; and Gerald
Diamond, Harbinger's Senior Vice President, Worldwide Product Development;
- Peregrine has agreed to appoint two members of Harbinger's board of
directors to its board of directors upon the effectiveness of the merger.
Peregrine and Harbinger have not yet determined which Harbinger directors
will become Peregrine directors; and
- Peregrine has agreed to continue to indemnify and provide directors' and
officers' insurance coverage for the current officers and directors of
Harbinger for a period of six years following the merger.
NO OTHER SOLICITATION OR NEGOTIATION BY HARBINGER (SEE PAGE 82)
Subject to some exceptions involving a superior acquisition proposal,
Harbinger has agreed that it will not solicit, initiate, or engage in
discussions with another party concerning an acquisition or business combination
with, or investment from, any other party while the merger is pending.
CONDITIONS TO THE MERGER (SEE PAGE 87)
Peregrine's and Harbinger's obligations to complete the merger are subject
to satisfaction or waiver of a number of closing conditions. These conditions
include the following:
- Harbinger's shareholders must have adopted and approved the merger
agreement and approved the merger;
- Peregrine's stockholders must have approved the issuance of shares of
Peregrine common stock in connection with the merger;
- there must be no effective injunction or order preventing the completion
of the merger;
- all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
must have expired or been terminated early;
- Peregrine and Harbinger must each have received an opinion of its tax
counsel that the merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code;
- the representations and warranties of Peregrine and Harbinger must be true
and correct on the closing of the merger unless the failure to be true and
correct would not have a material adverse effect; and
- Peregrine and Harbinger must have each complied in all material respects
with their respective obligations and agreements under the merger
agreement.
If either Peregrine or Harbinger waives any condition to the closing of the
merger, they will each consider at the time whether the facts and circumstances
of the waiver make a resolicitation of proxies from shareholders appropriate.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 88)
The merger agreement may be terminated, and the proposed merger may be
abandoned before (but not after) it becomes effective, under the following
conditions:
- Peregrine and Harbinger may mutually agree to terminate the merger
agreement and cancel the merger;
- Either Peregrine or Harbinger may terminate the merger agreement if a
governmental entity prohibits the merger;
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- Either Peregrine or Harbinger may terminate the merger agreement if the
merger has not occurred on or before October 31, 2000 and the company
seeking to terminate was not the principal cause for the delay;
- Either Peregrine or Harbinger may terminate the merger agreement if the
required shareholder approvals are not obtained at the special meetings;
- Harbinger may terminate the merger agreement if Peregrine has breached a
representation, warranty, or obligation under the merger agreement, and
the breach would cause closing conditions not to be met, and Peregrine has
not cured the breach within 30 days;
- Peregrine may terminate the merger agreement if Harbinger has breached a
representation, warranty, or obligation under the merger agreement, and
the breach would cause closing conditions not to be met, and Harbinger has
not cured the breach within 30 days; and
- Peregrine may terminate the merger agreement if the Harbinger board of
directors withdraws or changes its recommendation that Harbinger's
shareholders adopt and approve the merger agreement and approve the
merger.
PAYMENT OF TERMINATION FEES BY HARBINGER (SEE PAGE 89)
In the event the merger agreement is terminated, Harbinger may be required
to pay Peregrine a termination fee of $50 million. At least $20 million of the
termination fee must be paid in cash, and the balance may be paid in shares of
Harbinger's common stock.
FEDERAL TAX CONSEQUENCES OF THE MERGER (SEE PAGE 70)
The merger is structured so that Harbinger's shareholders generally will not
recognize gain or loss for United States federal income tax purposes (other than
taxes payable because of cash received by Harbinger shareholders in lieu of
fractional shares). It is a condition to the merger that both Peregrine and
Harbinger receive an opinion from their respective tax counsel concerning this
tax treatment. Please carefully review the information "Material United States
federal income tax consequences of the merger" beginning on page 72, for a
description of the material U.S. federal tax consequences of the merger. The tax
consequences to you will depend on the facts of your own situation. Please
consult your tax advisors for a full understanding of the tax consequences of
the merger to you.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 70)
Peregrine intends to account for the merger as a purchase for financial
accounting purposes. As a result of this accounting treatment, Peregrine will
record goodwill on its balance sheet, which will be amortized along with other
intangible assets over a five year period. In addition, Peregrine will incur a
charge for in-process research and development, currently estimated at $66.1
million, in the quarter in which the merger is completed.
RESTRICTIONS ON RESALE OF PEREGRINE COMMON STOCK ISSUED IN THE MERGER (SEE
PAGE 73)
The shares of Peregrine common stock you receive in the merger will be
freely tradable after the merger unless you are considered an affiliate of
Harbinger under applicable federal securities law. Affiliates of Harbinger may
only sell the shares of Peregrine common stock they receive in the merger in
compliance with Rule 145 under the Securities Act of 1933, however. Each person
that Harbinger believes to be an affiliate has signed an agreement acknowledging
his or her obligation to sell in compliance with Rule 145.
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ANTITRUST APPROVALS (SEE PAGE 72)
The merger is subject to waiting periods and other provisions of United
States and applicable foreign antitrust laws. Peregrine and Harbinger will make
required filings with the United States Department of Justice and the Federal
Trade Commission. The applicable waiting periods have not expired as of the date
of this joint proxy statement/prospectus. The merger may not be completed until
these waiting periods have expired or been terminated. Nevertheless, the
Department of Justice, the Federal Trade Commission, or a foreign regulatory
agency or other governmental or private person may challenge the merger at any
time, including after it is completed.
TRANSFER OF YOUR STOCK CERTIFICATES (SEE PAGE 76)
If the merger becomes effective, you will receive a transmittal letter from
the exchange agent in the merger instructing you how to exchange your Harbinger
stock certificates. PLEASE DO NOT SEND ANY STOCK CERTIFICATES UNTIL YOU HAVE
RECEIVED THIS INSTRUCTION LETTER. If you have any questions, you may contact
Peregrine's transfer agent, ChaseMellon Shareholder Services, L.L.C. at 400
South Hope Street, Fourth Floor, Los Angeles, California 90071. Their telephone
number is (213) 553-9700. Please do not contact ChaseMellon with questions about
the exchange of certificates until after the merger has been completed.
COMPARATIVE MARKET PRICE DATA (SEE PAGE 40)
Both Peregrine's and Harbinger's common stock currently trade on the Nasdaq
National Market. Peregrine trades under the symbol PRGN, and Harbinger trades
under the symbol HRBC. The following table presents trading information about
our common stock on April 5, 2000 and , 2000. April 5, 2000 was the
last trading day prior to the time the merger agreement was executed and
publicly announced. was the last practicable trading day prior to
the time we mailed this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
HARBINGER COMMON STOCK PEREGRINE COMMON STOCK
------------------------------ ------------------------------
HIGH LOW CLOSE HIGH LOW CLOSING
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
April 5, 2000................................ $25.250 $19.438 $24.125 $60.500 $53.375 $58.000
, 2000.................................
</TABLE>
FORWARD LOOKING STATEMENTS IN THIS JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus contains forward-looking statements
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. These statement include statements relating to the business, results of
operations, and financial condition of both Peregrine and Harbinger as well as
similar statements about the business, results of operations, and financial
condition of the combined company after the merger. Words such as will, would,
may, could, anticipates, expects, intends, plans, believes, seeks, estimates,
and similar expressions often identify forward-looking statements.
These forward-looking statements are not guarantees of the future
performance of Peregrine, Harbinger, or the combined company after the merger.
These forward looking statements are subject to many risks and uncertainties
that could cause actual results to differ materially from those contemplated by
the forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of these and other factors in the section entitled "Risk
Factors" beginning on page 12.
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RISK FACTORS
THE MERGER INVOLVES A HIGH DEGREE OF RISK. BY VOTING IN FAVOR OF THE MERGER,
SHAREHOLDERS OF HARBINGER WILL BE CHOOSING TO INVEST IN PEREGRINE'S COMMON
STOCK. BY VOTING IN FAVOR OF THE ISSUANCE OF SHARES OF PEREGRINE'S COMMON STOCK
IN CONNECTION WITH THE MERGER, STOCKHOLDERS OF PEREGRINE WILL BE CHOOSING TO
ISSUE A SUBSTANTIAL NUMBER OF PEREGRINE'S SHARES IN ORDER TO MERGE WITH
HARBINGER. BOTH HARBINGER SHAREHOLDERS AND PEREGRINE STOCKHOLDERS WILL BE
ASSUMING THE ADDITIONAL RISKS ASSOCIATED WITH THE MERGER AND THE ON-GOING
OPERATIONS OF THE COMBINED COMPANY. SHAREHOLDERS OF HARBINGER AND STOCKHOLDERS
OF PEREGRINE SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN DETERMINING HOW
TO VOTE.
RISKS RELATING TO THE MERGER
IF OUR CUSTOMER MARKETS DO NOT PERCEIVE BENEFITS FROM INTEGRATING
PEREGRINE'S INFRASTRUCTURE MANAGEMENT PRODUCTS WITH HARBINGER'S E-BUSINESS AND
INTERNET PROCUREMENT SOLUTIONS, OUR COMBINED REVENUES MAY NOT GROW OR MAY NOT
SUSTAIN THE HISTORICAL GROWTH RATES OF EITHER COMPANY, OUR BUSINESS WOULD BE
ADVERSELY AFFECTED, AND OUR STOCK PRICE COULD DECLINE.
The success of the merger depends on market acceptance of our strategic
initiative to integrate Peregrine's infrastructure management software products
with Harbinger's e-business and internet procurement offerings. If customers do
not perceive benefits from combining our product lines, we will not realize the
principal strategic benefit that our managements currently anticipate from the
merger. As a result, we would not experience increased revenues as a result of
the merger and could experience declining revenues or substantially slower
revenue growth than either company experienced prior to the merger. Any of these
events would have an adverse effect on our combined operating results and could
lead to a decline in Peregrine's stock price.
BOTH PEREGRINE'S AND HARBINGER'S EXISTING BUSINESSES ARE STILL RELATIVELY
NEW AND DEVELOPING. IT IS DIFFICULT TO PREDICT HOW THE COMBINED COMPANY'S
BUSINESS WILL EVOLVE OR WHETHER A MARKET WILL DEVELOP OR, IF DEVELOPED, CONTINUE
TO EXIST FOR OUR INTEGRATED PRODUCT OFFERINGS.
Because each of our independent businesses is still developing, it is hard
for us to predict how the business of the combined company will evolve and
whether it will achieve market acceptance. If we cannot develop an integrated
product line that achieves and maintains market acceptance, our business and
operating results will be harmed. Peregrine's and Harbinger's existing markets
are each new, developing, and relatively unproven. Beginning in late 1997,
Peregrine began to shift its product strategy beyond providing software products
to manage the help desks that support users of internal corporate computer
networks. Through acquisitions and internal product development, Peregrine
expanded its product line in an effort to develop a market for infrastructure
resource management software solutions that help companies manage the various
assets in their corporate infrastructures, including their computer networks and
other information technology assets. More recently, Peregrine has further
expanded its product line to offer products that help manage assets that are not
purely technology assets. These additional products help manage corporate assets
such as corporate car and truck fleets, rail fleets and physical plant and
facilities. In addition, in the second half of fiscal 2000, Peregrine introduced
GET.IT!, a line of employee self-service products that facilitate the
acquisition and use of infrastructure assets, services, and information.
Harbinger historically focused on providing electronic commerce software
products and network servers and has recently shifted its strategy toward
creating and supporting internet-based trading solutions. In connection with
this strategic shift, Harbinger is now offering its products on a subscription
basis over harbinger.net for a recurring fee in lieu of a one time license
payment. You should carefully review the more detailed discussion of the risks
associated with each of our individual businesses. These discussions are
contained under the risk factors captioned "Risks relating to Peregrine" and
"Risks relating to Harbinger."
SHAREHOLDERS OF HARBINGER WILL RECEIVE A FIXED NUMBER OF SHARES OF
PEREGRINE'S COMMON STOCK, REGARDLESS OF CHANGES IN THE PRICE OF PEREGRINE'S
COMMON STOCK OR HARBINGER'S COMMON STOCK.
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Shareholders of Harbinger will receive 0.75 of a share of Peregrine common
stock for each share of Harbinger common stock held by them at the time the
merger becomes effective. There will be no adjustment to this exchange ratio for
any changes in the market price of either Peregrine common stock or Harbinger
common stock. In addition, neither Peregrine nor Harbinger may terminate the
merger agreement or "walk away" from the merger solely because of changes in the
market price of either company's common stock. In addition to fluctuations
relating to changing market assessment of each company individually, the share
prices of Peregrine common stock and Harbinger common stock are by nature
subject to general stock market fluctuations, particularly fluctuations in the
market value of technology companies. Peregrine's and Harbinger's stock prices
have experienced substantial volatility historically and extremely strong
volatility since the announcement of the merger. We cannot predict or give any
assurances as to the market price of Peregrine's or Harbinger's common stock
before the merger or at any time after the merger.
WE MAY EXPERIENCE PROBLEMS INTEGRATING THE BUSINESSES OF PEREGRINE AND
HARBINGER. ANY INTEGRATION PROBLEMS COULD CAUSE US TO INCUR SUBSTANTIAL
UNANTICIPATED COSTS AND EXPENSES, WHICH WOULD HARM OUR OPERATING RESULTS.
If we fail to integrate our businesses successfully, we will incur
substantial costs, which will increase our expenses and reduce any earnings or
potentially result in losses, and we will fail to achieve the expected synergies
and cost reductions of the merger. In addition, integration problems could
divert management's attention from other business opportunities, which could
result in slower revenue growth than anticipated or in declines in revenue.
Integrating Peregrine's business with Harbinger's business will be complex,
time-consuming, and expensive. It may disrupt both companies' businesses if not
completed in a timely and efficient manner. Peregrine and Harbinger are both
global companies with substantial operations throughout the world, and
integrating geographically separate and dispersed organizations may be
difficult. Peregrine has never attempted to integrate a merger with a company as
large as Harbinger.
Specific integration challenges faced by Peregrine and Harbinger include the
following:
- retaining existing customers and strategic partners;
- retaining and integrating management and other key employees of both
companies;
- combining product offerings and product lines effectively and quickly,
including technical integration by our respective engineering teams;
- integrating sales efforts so that customers can easily do business with
the combined company;
- transitioning multiple locations around the world to common systems,
including common information technology systems;
- persuading employees that the business cultures of the two companies are
compatible;
- successfully developing and promoting a unified brand strategy and
marketing it to existing and prospective customers; and
- developing and maintaining uniform standards, controls, procedures, and
policies.
THE MERGER COULD IMPAIR EXISTING RELATIONSHIPS OF PEREGRINE AND HARBINGER
WITH SUPPLIERS, CUSTOMERS, STRATEGIC PARTNERS, AND EMPLOYEES, WHICH COULD HAVE
AN ADVERSE EFFECT ON OUR INDIVIDUAL AND COMBINED BUSINESSES AND FINANCIAL
RESULTS.
The public announcement of the merger could substantially impair important
business relationships of either company. Impairment of these business
relationships could reduce our revenues or increase
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our expenses, either of which would harm our financial results. Specific
examples of situations in which we could experience problems include the
following:
- suppliers, distributors, or customers of either Peregrine or Harbinger
could decide to cancel or terminate existing arrangements, or fail to
renew those arrangements, as a result of the merger;
- potential customers who are currently negotiating with Peregrine or
Harbinger with respect to the purchase or license of their products and
services may delay purchases, or defer or terminate negotiations, as a
result of uncertainty about the merger;
- customers of Harbinger who use products of Peregrine's competitors could
terminate or delay orders with Harbinger because they question Harbinger's
continued commitment to provide products and enhancements, or to support
products, used in conjunction with products of Peregrine's competitors;
- key employees of Harbinger, particularly those for whom vesting of options
or other benefits will accelerate as a result of the merger, may decide to
terminate their employment; and
- other current or prospective employees of Peregrine and Harbinger may
experience uncertainty about their future roles with the combined company,
which could adversely affect our ability to attract and retain key
management, sales, marketing, and technical personnel.
THE MERGER COULD RESULT IN SLOWER REVENUE GROWTH RATES FOR THE COMBINED
COMPANY THAN THOSE APPLICABLE TO PEREGRINE PRIOR TO THE MERGER, WHICH COULD
ADVERSELY AFFECT THE OPERATING RESULTS OF THE COMBINED COMPANY AND LEAD TO A
DECLINE IN ITS STOCK PRICE. HARBINGER'S REVENUES AND PROFITS COULD DECREASE AS
IT TRANSITIONS TO A BUSINESS MODEL THAT EMPHASIZES RECURRING SERVICES REVENUES.
Peregrine may not be able to maintain its recent revenue growth rates after
the merger, which could have an adverse effect on its operating results and
could lead to a decline in its stock price. Peregrine's revenues grew from
$62 million in fiscal 1998 to $138 million in fiscal 1999 and $253 million in
fiscal 2000. Harbinger has experienced substantially slower growth rates than
Peregrine in recent periods, with revenues growing from $118 million in fiscal
1997 to $135 million in fiscal 1998 to $156 million in fiscal 1999. Harbinger is
currently changing its business model by creating and supporting internet-based
trading solutions that assist companies to automate their procurement process
and by providing customers with the ability to use Harbinger's products on a
hosted subscription basis. The risks associated with the transition in
Harbinger's business model are more fully discussed under "Risks related to
Harbinger." If the merger does not create the product and financial synergies
management currently anticipates, and particularly if Harbinger's business
transition is not successful, the combined company's revenue growth rates could
be substantially lower than Peregrine's recent growth rates. In particular, if
Peregrine and Harbinger experience integration problems, management's attention
could be diverted from Peregrine's existing core business and lead to slower
revenue growth rates for that business. Even if the merger is not completed,
Peregrine's management does not believe that its historical growth rates can
necessarily be maintained. A more detailed discussion of Peregrine's business
and associated risks is contained under the caption "Risks related to
Peregrine."
HARBINGER AND SOME OF ITS CURRENT AND FORMER OFFICERS AND DIRECTORS ARE
DEFENDANTS IN SHAREHOLDER LITIGATION FOR WHICH HARBINGER IS NOT INSURED. THE
OUTCOME OF THIS LITIGATION, IF DETERMINED ADVERSELY TO HARBINGER, COULD HAVE AN
ADVERSE EFFECT ON THE COMBINED COMPANY'S FINANCIAL CONDITION AFTER THE MERGER.
If outstanding shareholder litigation against Harbinger were decided
adversely to Harbinger, or Harbinger were required to settle this litigation for
a substantial sum, our financial condition as a combined company after the
merger could be materially and adversely affected. In September 1999, a
complaint was filed against Harbinger and some of its current and former
officers and directors in the
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United States District Court for the Northern District of Georgia. The complaint
alleges causes of action for misrepresentation and violations of federal
securities laws. An amended complaint was filed in March 2000, alleging
additional causes of action, including allegations relating to accounting
improprieties. The complaints relate to actions by Harbinger during the period
from February 1998 to October 1998. Harbinger did not maintain directors' and
officers' liability insurance during this period. As a result, Harbinger is not
insured with respect to any potential liability of Harbinger or any officer or
director of Harbinger. Harbinger is, however, obligated under agreements with
each of its officers and directors to indemnify them for the costs incurred in
connection with defending themselves against this litigation and is obligated to
indemnify them to the maximum extent permitted under applicable law if they are
held liable.
The pending litigation is still in the early stages. As a result, we are
unable to estimate the damages, or range of damages, that Harbinger or the
combined company might incur in connection with this litigation. In addition,
defending the litigation will involve substantial direct expenses and will
likely result in a diversion of management's time and attention away from
business operations, which could have an adverse effect on the results of
operations of Harbinger or the combined company.
FUTURE ACQUISITIONS BY THE COMBINED COMPANY COULD COMPOUND ANY INTEGRATION
PROBLEMS RESULTING FROM THE MERGER OF PEREGRINE AND HARBINGER AND COULD
ADVERSELY AFFECT OUR COMBINED OPERATING RESULTS. CONVERSELY, INTEGRATING
PEREGRINE AND HARBINGER COULD CONSUME SUBSTANTIAL RESOURCES AND MANAGEMENT TIME,
CAUSING US TO FOREGO POTENTIAL ACQUISITIONS THAT WOULD FURTHER OUR STRATEGIC
OBJECTIVES.
Future acquisitions could make integrating Peregrine and Harbinger more
difficult and could adversely affect the operating results of the combined
company after the merger. Peregrine and Harbinger have each pursued aggressive
acquisition strategies in recent years in efforts to respond to changes in the
markets for their products and services. As a combined company, we may continue
to make strategic acquisitions or significant investments in businesses that
offer complementary products, services, and technologies. If we experience
problems with these acquisitions, or these acquisitions do not ultimately
provide the strategic and financial benefits anticipated, our financial results
as a combined company could be harmed.
On the other hand, we could be prevented from pursuing important strategic
acquisitions and investments if management resources are consumed with
integration issues arising from the merger of Peregrine and Harbinger. The
markets for our products are constantly changing, and our management believes it
is important to be able to respond to these changes quickly, which may require
us to acquire other companies or technologies. If the merger of Peregrine and
Harbinger leaves us unable to focus on these strategic objectives as a result of
integration or other issues, our future revenues and operating results could be
adversely affected, and our stock price could decline.
PEREGRINE'S REPORTED FINANCIAL RESULTS WILL SUFFER AS A RESULT OF PURCHASE
ACCOUNTING TREATMENT OF THE MERGER AND THE AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS.
Purchase accounting treatment of the merger will result in a net loss for
Peregrine for the foreseeable future, which could have a material and adverse
effect on the market price of Peregrine's common stock. Under purchase
accounting, Peregrine will record the following as an asset on its balance
sheet:
- the fair value of the consideration given for Harbinger's outstanding
common stock;
- the fair value of the consideration given for outstanding options and
warrants to purchase Harbinger common stock, which Peregrine will assume
in connection with the merger; and
- merger-related direct transaction costs, including the fees of our legal,
accounting, and financial advisors.
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Peregrine will allocate these costs to individual Harbinger assets acquired
and liabilities assumed. These assets and liabilities will include various
identifiable intangible assets such as acquired technology, acquired trademarks
and tradenames, and acquired workforce. Intangible assets, including goodwill,
will be amortized over a five year period. In addition, Peregrine will allocate
a portion of the purchase price for acquiring Harbinger to in-process research
and development. In-process research and development, which is currently
estimated at $66.1 million for Harbinger, will be expensed in the quarter in
which the merger is completed.
As described in the Unaudited Pro Forma Condensed Combined Financial
Statements beginning on page 114, the amount of purchase cost allocated to
goodwill and other intangibles is estimated to be approximately $1.3 billion. If
goodwill and other intangible assets were amortized in equal annual amounts
following completion of the merger, the accounting charge attributable to these
items would be approximately $250.0 million per fiscal year.
PEREGRINE STOCKHOLDERS MAY NOT REALIZE A BENEFIT FROM THE MERGER
COMMENSURATE WITH THE OWNERSHIP DILUTION THEY WILL EXPERIENCE IN CONNECTION WITH
THE MERGER.
If the combined company is unable to realize the strategic and financial
benefits currently anticipated from the merger, Peregrine stockholders will have
experienced substantial dilution of their ownership interest without receiving
any commensurate benefit. In connection with the merger, Peregrine anticipates
it will issue approximately 35.6 million shares of its common stock (including
options being assumed), representing approximately 32.5% of its outstanding
common stock prior to the merger.
OFFICERS AND DIRECTORS OF HARBINGER HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
Some of the directors and officers of Harbinger are parties to agreements,
or participate in other arrangements, that give them interests in the merger
that are different from your interests. These potential conflicts of interests
include the following:
- as a result of the merger, unvested options held by James M. Travers,
Harbinger's President and Chief Executive Officer, will immediately vest;
- some officers of Harbinger will be entitled to severance payments and
additional accelerated vesting of options if they are terminated by the
combined company after completion of the merger;
- Peregrine has agreed that Harbinger will be entitled to designate two
current directors of Harbinger who are reasonably acceptable to Peregrine
to serve on the combined company's board of directors; and
- Peregrine has agreed to cause the combined company to indemnify each
present and former Harbinger officer and director against liabilities
arising out of his or her services as an officer or director. The combined
company will maintain officers' and directors' liability insurance to
cover any of these liabilities for the next six years.
For the above reasons, the directors and officers of Harbinger receiving
these benefits could be more likely to vote to approve the merger agreement than
if they did not have these interests. Harbinger shareholders should consider
whether these interests may have influenced these directors and officers to
support or recommend the merger.
Harbinger's officers and directors, together, beneficially own approximately
5,987,524 shares of Harbinger's common stock, representing 14.5% of all
outstanding shares of Harbinger common stock entitled to vote at the Harbinger
special meeting have agreed to vote in favor of the merger. In addition,
officers and directors of Peregrine beneficially owning approximately 11,988,403
shares of
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Peregrine's common stock, representing 10.8% of all outstanding shares of
Peregrine common stock entitled to vote at the special meeting, have agreed to
vote at the Peregrine special meeting in favor of the issuance of Peregrine
common stock in connection with the merger. The share ownership numbers in this
paragraph include shares which could be purchased within 60 days of March 31,
2000 upon exercise of options.
THE STOCK PRICES OF PEREGRINE AND HARBINGER HAVE BEEN EXTREMELY VOLATILE IN
THE PAST, HAVE BEEN INCREASINGLY VOLATILE SINCE THE ANNOUNCEMENT OF THE MERGER,
AND SHOULD BE EXPECTED TO REMAIN VOLATILE IN THE FUTURE.
The market for technology stocks is particularly volatile, and both
Peregrine and Harbinger have experienced substantial swings in their stock
prices in recent periods. In addition, their stock prices have each been
extremely volatile since the announcement of the merger. The following factors
could cause the market price of the stock price of Peregrine, Harbinger, or
after the merger, the combined company to fluctuate significantly:
- announcements by Peregrine, Harbinger, the combined company, or any of
their competitors of significant contracts, new products or technological
innovations, acquisitions, strategic relationships, joint ventures, or
capital commitments;
- changes in financial estimates or recommendations by securities analysts,
including changes in estimates and recommendations relating to the merger;
- changes in market valuations of software and business-to-business
e-commerce companies; and
- general fluctuations in stock market prices and volumes.
FAILURE TO COMPLETE THE MERGER COULD HAVE A NEGATIVE IMPACT ON THE STOCK
PRICE OF PEREGRINE AND/OR HARBINGER AS WELL AS A NEGATIVE IMPACT ON THEIR
BUSINESSES AND FINANCIAL RESULTS.
If the merger is not completed for any reason, Peregrine and Harbinger may
be subject to a number of material risks, including the following:
- Harbinger may be required under certain circumstances to pay Peregrine a
termination fee of $50.0 million, at least $20.0 million of which must be
paid in cash and the balance of which may be paid in Harbinger common
stock based on a price per share of $24.125;
- the price of Peregrine and/or Harbinger common stock may decline to the
extent that the relevant current market price reflects a market assumption
that the merger will be completed. The companies' stock prices may also
decline because of uncertainty concerning the stand-alone prospects of
either company; and
- some costs related to the mergers, such as legal, accounting, financial
advisory, and financial printing fees must be paid even if the mergers are
not completed.
THE MERGER MAY PROCEED DESPITE MATERIAL ADVERSE CHANGES TO EITHER
PEREGRINE'S OR HARBINGER'S RESPECTIVE BUSINESSES THAT RESULT FROM THE
ANNOUNCEMENT OF THE MERGER, FROM CHANGES AFFECTING THE ECONOMY OR THE SOFTWARE
INDUSTRY GENERALLY, AND FROM OTHER CAUSES.
In general, either Peregrine or Harbinger may decline to complete the merger
if there is a material adverse change affecting the other company between the
date of the merger agreement and the completion of the merger. However, certain
types of changes, even if they have a material adverse effect on Peregrine or
Harbinger, will not permit the parties to abandon the merger. For example,
neither company may terminate the merger agreement as a result of any of the
following:
- changes in either company's stock price or trading volume;
- either company's failure to meet or exceed the earnings estimates of
research analysts;
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- either company's failure to meet or exceed its own internal earnings
estimates;
- changes in either company's industry that do not disproportionately affect
that company;
- changes affecting the United States economy generally; or
- changes resulting from the announcement and pendency of the merger.
If these types of adverse changes occur and Peregrine and Harbinger must
still complete the merger, the benefits of the merger to Peregrine and Harbinger
may be reduced, the trading price of either Peregrine common stock or Harbinger
common stock could decline prior to the merger, and the price of Peregrine
common stock after the merger could be adversely affected.
RISKS RELATING TO PEREGRINE
PEREGRINE HAS A HISTORY OF LOSSES, CANNOT PREDICT ITS FUTURE OPERATING
RESULTS, AND CANNOT ASSURE ITS FUTURE PROFITABILITY. IN ADDITION, MANAGEMENT
DOES NOT BELIEVE ITS RECENT REVENUE GROWTH RATES ARE NECESSARILY SUSTAINABLE.
Prediction of Peregrine's future operating results is difficult, if not
impossible, and we have incurred substantial losses in recent years. If we
continue to incur losses, if our revenues decline or grow at a slower rate, or
if our expenses increase without commensurate increases in revenues, our
operating results will suffer and our stock price may fall. Through March 31,
2000, we had recorded cumulative net losses of approximately $64.9 million,
including approximately $113.4 million related to the write-off of acquired
in-process research and development and the amortization of goodwill and other
intangible assets in connection with several acquisitions completed since late
1997. We have also incurred, and expect to continue to incur, substantial
expenses associated with the amortization of intangible assets. In addition, our
management does not believe our recent growth rates are necessarily sustainable
in the future or indicative of future growth rates. If our revenue growth rates
slow or our revenues decline, our operating results could be seriously impaired
because many of our expenses are fixed and cannot be easily or quickly changed.
PEREGRINE'S REVENUES VARY SIGNIFICANTLY FROM QUARTER TO QUARTER FOR NUMEROUS
REASONS BEYOND ITS CONTROL. QUARTER-TO-QUARTER VARIATIONS COULD RESULT IN
SUBSTANTIAL DECREASES IN PEREGRINE'S STOCK PRICE IF ITS REVENUES OR OPERATING
RESULTS ARE LESS THAN MARKET ANALYSTS ANTICIPATE.
Our revenues or operating results in a given quarter could be substantially
less than anticipated by market analysts, which could result in substantial
declines in our stock price. In addition, quarter-to-quarter variations could
create uncertainty about the direction or progress of our business, which could
also result in stock price declines. Our revenues and operating results will
vary from quarter to quarter for many reasons beyond our control. As a result,
our quarterly revenues and operating results are not predictable with any
significant degree of accuracy. Reasons for variability of our revenues and
operating results include the following:
- SIZE, TIMING, AND CONTRACTUAL TERMS OF ORDERS. Our revenues in a given
quarter could be adversely affected if we are unable to complete one or
more large license agreements, if the completion of a large license
agreement is delayed, or if the contract terms prevent us from recognizing
revenue during that quarter. In addition, when negotiating large software
licenses, many customers tend to time their negotiations until quarter-end
in an effort to improve their ability to negotiate more favorable pricing
terms. As a result, we tend to recognize a substantial portion of our
revenues in the last month or weeks of a quarter, and license revenues in
a given quarter will substantially depend on orders booked during the last
month or weeks of a quarter. Our revenue growth in recent periods has been
attributable in part to an increase in the number of large license
transactions we completed in a given period. We expect our reliance on
these large transactions to continue for the forseeable future. If we are
unable to complete a large license
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transaction in a particular quarter, our revenues and operating results
could be materially below the expectations of market analysts, and our
stock price could fall.
- ANNOUNCEMENTS BY PEREGRINE OR OUR COMPETITORS. Announcements of new
products or releases by us or our competitors could cause customers to
delay purchases pending the introduction of the new product or release. In
addition, announcements by us or our competitors concerning pricing
policies could have an effect on our revenues in a given quarter.
- CUSTOMER BUDGETING CYCLES. Our quarter-to-quarter revenues will depend on
customer budgeting cycles. If customers change their budgeting cycles, or
reduce their capital spending on technology, our revenues could decline.
- CHANGES IN PRODUCT MIX. Changes in our product mix could adversely affect
our operating results because some products provide higher margins than
others. For example, margins on software licenses tend to be higher than
margins on maintenance services.
- CHANGES IN METHOD OF SALE. Our profit margins will tend to vary based on
whether a sale was made through our direct sales force or through a
reseller or other strategic partner. Sales through indirect channels tend
to be less profitable, and if sales through indirect channels increased
relative to direct sales, our operating results could be harmed. Sales
through indirect channels, including distributors, third party resellers,
and system integrators, represent a significant percentage of our total
sales. We expect this trend to continue in the future. As a result, we
could experience a shortfall in our revenues, or a substantial decline in
our rate of revenue growth, if sales through our indirect channels were to
decrease or were to increase at a slower rate. We have less ability to
manage our sales through indirect channels and less visibility about our
channel partner's success in selling our products. As a result, we could
experience unforeseen variability in our revenues and operating results
for a number of reasons, including the following:
- inability of our channel partners to sell our products;
- a decision by our channel partners to favor products that compete with
Peregrine's;
- inability of our channel partners to manage the timing of their
purchases from Peregrine against their sales to end-users, resulting in
substantial inventories of unsold licenses held by our channel
partners; or
- our inability to increase the number of channel partners that sell our
products or to maintain relationships with existing channel partners.
- CANCELLATION OF LICENSES OR MAINTENANCE AGREEMENTS. Cancellations of
licenses or maintenance contracts could reduce our revenues and harm our
operating results. In particular, our customers tend to renew their
maintenance contracts on an annual basis. Substantial cancellations of
maintenance agreements, or a substantial failure to renew maintenance
contracts, would reduce our revenues and harm our operating results.
THE LONG SALES CYCLE FOR PEREGRINE'S PRODUCTS MAY CAUSE SUBSTANTIAL
FLUCTUATIONS IN OUR REVENUES AND OPERATING RESULTS.
Delays in customer orders could result in our revenues being substantially
below the expectations of market analysts. In addition, we may incur substantial
sales and marketing expenses during a particular period in an effort to obtain
orders. If we are unsuccessful in generating offsetting revenues during that
period, our revenues and earnings could be substantially reduced or we could
experience a large loss. We are likely to experience delays in customer orders
because the sales cycle for our products is long and unpredictable.
Specifically, our customers' planning and purchase decisions involve a
significant commitment of resources and a lengthy evaluation and product
qualification process. The
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sales cycle for our products requires us to engage in a sales cycle that, if it
results in a sale, takes six to nine months to complete. The length of the sales
cycle may be extended beyond six or nine months due to factors over which we
have little or no control, including the size of the transaction and the level
of competition we encounter in our sales activities. During the sales cycle, we
typically provide a significant level of education to prospective customers
regarding the use and benefits of our products. Any delay in the sales cycle of
a large license or a number of smaller licenses could have an adverse effect on
our results of operation and financial condition.
SEASONAL TRENDS IN SALES OF PEREGRINE'S SOFTWARE PRODUCTS MAY RESULT IN A
PERIODIC REDUCTION IN ITS REVENUES AND IMPAIRMENT OF ITS OPERATING RESULTS.
Seasonality in our business could result in our revenues in a given period
being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events,
seasonality could have an adverse impact on our results of operations.
Historically, our revenues and operating results in our December quarter have
tended to benefit, relative to our June and September quarters, from purchase
decisions made by the large concentration of customers with calendar year-end
budgeting requirements. Revenues and operating results in our March quarter have
tended to benefit from the efforts of our sales force to meet fiscal year-end
sales quotas. These historical patterns may change over time, however,
particularly as our operations become larger and the sources of our revenue
change or become more diverse. For example, our international operations have
expanded significantly in recent years, particularly in Europe. We also have an
international presence in the Pacific Rim and Latin America. We may experience
variability in demand associated with seasonal buying patterns in these foreign
markets. As an example, the September quarter is typically weaker in Europe for
many technology companies, including Peregrine, due to the European summer
holiday season.
IF A MARKET FOR PEREGRINE'S INFRASTRUCTURE RESOURCE MANAGEMENT SOFTWARE AND
ASSET PROCUREMENT SOLUTIONS DOES NOT DEVELOP, WE WILL BE UNABLE TO SELL OUR
PRODUCTS OR INCREASE OUR REVENUES. THE MARKET FOR OUR PRODUCTS IS STILL
RELATIVELY NEW AND UNPROVEN.
If the market for our infrastructure management software products does not
continue to develop as Peregrine anticipates, Peregrine's business and operating
results would be adversely affected, and our financial condition could
deteriorate. Until recently, Peregrine's product strategy focused on providing
software products that help to manage business computer networks and other
information technology assets. Beginning in late 1997, we began to broaden our
product line to offer products capable of managing multiple aspects of a
business enterprise's infrastructure, including its physical plant and
facilities, its telecommunications networks, its distribution systems, and its
corporate car and rail fleets. Prior to our introduction of these products, an
integrated software solution for managing corporate infrastructure assets did
not exist in the market. Rather, corporations purchased software to manage
specific components of their infrastructure. In the second half of fiscal 2000,
Peregrine attempted to further expand its infrastructure management product line
by introducing GET.IT!, a line of employee self-service products that facilitate
the acquisition and use of infrastructure assets, services, and information. As
a result, the market for our products is still new and unproven and is
continuing to develop. If a market for infrastructure management solutions fails
to develop, or develops in ways we do not anticipate, our business would be
seriously impaired. In particular, our revenues and operating results would
decrease, and we could experience losses.
IF PEREGRINE DOES NOT RESPOND ADEQUATELY TO ITS INDUSTRY'S EVOLVING
TECHNOLOGY STANDARDS, OR DOES NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF
ITS CUSTOMERS, SALES OF ITS 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
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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. We may not have sufficient resources to make
these investments. In addition, if we are required to expend substantial
resources to respond to specific technological or product changes, our operating
results would be adversely affected.
IF PEREGRINE CANNOT ATTRACT EXPERIENCED SALES PERSONNEL, SOFTWARE
DEVELOPERS, AND HIGHLY-TRAINED CUSTOMER SERVICE PERSONNEL, IT WILL NOT BE ABLE
TO SELL AND SUPPORT ITS PRODUCTS.
If we are not successful in attracting and retaining qualified sales
personnel, software developers, and customer service personnel, our revenue
growth rates could decrease, or our revenues could decline, and our operating
results could be materially harmed. Our products and services require a
sophisticated selling effort targeted at several key people within our
prospective customers' organizations. This process requires the efforts of
experienced sales personnel as well as specialized consulting professionals. In
addition, the complexity of our products, and issues associated with installing
and maintaining them, require highly trained customer service and support
personnel. We intend to hire a significant number of these personnel in the
future and train them in the use of our products. We believe our success depends
in large part on our ability to attract and retain these key employees.
Competition for these employees is intense, and we have in the past experienced
difficulty recruiting qualified employees.
PEREGRINE'S BUSINESS WOULD BE HARMED IF ONE OR MORE MEMBERS OF ITS SENIOR
MANAGEMENT TEAM CHOSE TO LEAVE PEREGRINE.
The loss of the services of one or more our executive officers or key
employees, or the decision of one or more of these individuals to join a
competitor, could adversely affect our business and harm our operating results
and financial condition. Our success depends to a significant extent on the
continued service of our senior management and other key sales, consulting,
technical, and marketing personnel. None of our senior management is bound by an
employment agreement. In addition, only a few employees who were significant
shareholders of businesses we acquired are bound by noncompetition agreements.
Peregrine does not maintain key man life insurance on any of its employees.
IF PEREGRINE FAILS TO MANAGE EXPANSION EFFECTIVELY, THIS WILL PLACE A
SIGNIFICANT STRAIN ON ITS MANAGEMENT AND OPERATIONAL RESOURCES.
Our recent growth rates have placed a significant strain on our management
and operational resources. Peregrine has expanded its operations rapidly in
recent years and intends to continue to expand in order to pursue market
opportunities that management believes are attractive. Our customer
relationships could be strained if we are unable to devote sufficient resources
to them as a result of our growth, which could have an adverse effect on our
future revenues and operating results.
NEW PRODUCT INTRODUCTIONS OR ENHANCEMENTS OF EXISTING PRODUCTS BY
PEREGRINE'S COMPETITORS COULD ADVERSELY AFFECT ITS ABILITY TO SELL ITS PRODUCTS.
If Peregrine cannot compete effectively in its market by offering products
that are comparable in functionality, ease of use, and price to those of its
competitors, our revenues will decrease, and our operating results would be
adversely affected. The market for Peregrine's products is highly competitive
and diverse, and the technologies for infrastructure management software
products can change rapidly. New products are introduced frequently and existing
products are continually enhanced.
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We face competition from a number of sources in the markets for our
infrastructure resource management and e-procurement software solutions.
- In the markets for our infrastructure resource management solutions, we
face competition from:
- providers of internal help desk software applications for managing
information technology service desks, such as Remedy Corporation and
Tivoli Systems, that compete with our enterprise service desk software;
- providers of asset management software, including Remedy, MainControl,
and Janus Technologies;
- providers of facilities management software, including Archibus,
Facilities Information Systems, and Assetworks (a division of
CSI-Maximus);
- providers of transportation management software that competes with our
fleet management and rail management software, including Control
Software (a division of CSI-Maximus) and Project Software and
Development Inc.;
- information technology and systems management companies such as IBM,
Computer Associates, Network Associates, Hewlett-Packard, and
Microsoft;
- numerous start-up and other entrepreneurial companies offering products
that compete with the functionality offered by one or more of our
infrastructure management products; and
- the internal information technology departments of those companies with
infrastructure management needs.
- In the markets for procurement and e-procurement solutions, we have
experienced competition from:
- established competitors in the business-to-business internet commerce
solution market, such as Ariba and CommerceOne; and
- established providers of enterprise resource planning software that are
entering the market for procurement and e-procurement solutions,
including Oracle and SAP.
Many of our current and potential competitors have substantially greater
financial, technical, marketing, and other resources than we have. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer needs. They may also be able to devote greater resources
than we can to the development, promotion, and sale of their products. We may
not be able to compete successfully against current and future competitors,
which could have an adverse effect on our future revenues and operating results.
NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR
PEREGRINE'S ABILITY TO RETAIN AND EXPAND ITS MARKET SHARE.
Additional competition from new entrepreneurial companies or established
companies entering our markets could have an adverse effect on our business,
revenues, and operating results. In addition, alliances among companies that are
not currently direct competitors could create new competitors with substantial
market presence. Because few barriers to entry exist in the software industry,
we anticipate additional competition from new and established companies as well
as business alliances. We expect that the software industry will continue to
consolidate. In particular, we expect that large software companies will
continue to acquire or establish alliances with our smaller competitors, thereby
increasing the resources available to these competitors. These new competitors
or alliances could rapidly acquire significant market share at our expense.
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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
PEREGRINE'S ABILITY TO SELL ITS PRODUCTS.
If large system management providers close their systems to our products,
our revenues and operating results would be seriously harmed. Our ability to
sell our products depends in large part on our products' compatibility with and
support by providers of system management products, including Tivoli, Computer
Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have acquired
providers of help desk software products. These large, established providers of
system management products and services may decide to close their systems to
competing vendors like Peregrine. They may also decide to bundle their 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.
PEREGRINE MAY BE UNABLE TO EXPAND ITS BUSINESS AND INCREASE ITS REVENUES IF
IT IS UNABLE TO EXPAND ITS DISTRIBUTION CHANNELS.
If we are unable to expand our distribution channels effectively, our
business, revenues, and operating results could be harmed. In particular, we
will need to expand our direct sales force and establish relationships with
additional system integrators, original manufacturers, and other third party
channel partners who market and sell our products. If we cannot establish these
relationships, or if our channel partners are unable to market our products
effectively or provide cost-effective customer support and service, our revenues
and operating results will be harmed. Even where we are successful in
establishing a new third-party relationship, our agreement with the third party
may not be exclusive. As a result, our partner may carry competing product
lines.
IF PEREGRINE IS UNABLE TO EXPAND ITS BUSINESS INTERNATIONALLY, PEREGRINE'S
BUSINESS, REVENUES, AND OPERATING RESULTS COULD BE HARMED.
In order to grow our business, increase our revenues, and improve our
operating results, Peregrine believes it must expand internationally. If we
expend substantial resources pursuing an international strategy and are not
successful, our revenues would be less than we or market analysts anticipate,
and our operating results would suffer. International revenues represented
approximately 36.0% of Peregrine's business in each of fiscal 1998 and 1999 and
approximately 41.0% of Peregrine's business in fiscal 2000. We have several
international sales offices in Europe as well as offices in Japan, Singapore,
and Australia. International expansion will require significant management
attention and financial resources, and we may not be successful expanding our
international operations. We have limited experience in developing local
language versions of our products or in marketing our products to international
customers. We may not be able to successfully translate, market, sell, and
deliver our products internationally.
CONDUCTING BUSINESS INTERNATIONALLY POSES RISKS THAT COULD AFFECT
PEREGRINE'S FINANCIAL RESULTS.
Even if we are successful in expanding our operations internationally,
conducting business outside North America poses many risks that could adversely
affect our operating results. These include the following:
- gains and losses resulting from fluctuations in currency exchange rates,
for which hedging activities may not adequately protect us;
- longer payment cycles;
- difficulties in staffing and managing international operations;
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- problems in collecting accounts receivable; and
- the adverse effects of tariffs, duties, price controls, or other
restrictions that impair trade.
IF IMMIGRATION LAWS LIMIT PEREGRINE'S ABILITY TO RECRUIT AND EMPLOY SKILLED
TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, ITS 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.
PEREGRINE HAS MADE SUBSTANTIAL CAPITAL COMMITMENTS THAT COULD HAVE AN
ADVERSE EFFECT ON ITS OPERATING RESULTS AND FINANCIAL CONDITION IF ITS 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, Peregrine entered into a series of leases providing us with
approximately 540,000 square feet of office space and an option to lease 118,000
square feet. Even excluding the exercise of the option, the leases require a
minimum aggregate lease payment of approximately $124.0 million over the twelve
year term of the leases. The office space (including the option) is intended for
a five building campus in San Diego, California. We plan to fully occupy three
of these buildings by the summer of 2000 and for the present time to sublease
the remaining two buildings. The capital commitments, construction oversight,
and movement of personnel and facilities involved in a transaction of this type
and magnitude present numerous risks, including:
- failure to properly estimate the future growth of our business;
- inability to sublease excess office space if we underestimate future
growth;
- disruption of operations; and
- inability to match fixed lease payments with fluctuating revenues, which
could impair our earnings or result in losses.
PRODUCT DEVELOPMENT DELAYS COULD HARM PEREGRINE'S COMPETITIVE POSITION AND
REDUCE ITS 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 PEREGRINE'S PRODUCTS COULD RESULT IN
SIGNIFICANT EXPENDITURES TO REMEDY OR CORRECT THE ERRORS OR BUGS.
If we are required to expend significant amounts to correct software bugs or
errors, our revenues could be harmed as a result of our inability to deliver the
product, and our operating results could be
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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.
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. Peregrine has made and expects to continue to make minority
investments in companies with businesses or technologies that we consider to be
complementary with those of Peregrine. These investments have generally been
made by issuing shares of our common stock or to a lesser extent with cash. Many
of these investments are in companies 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 Peregrine
incurring losses or an inability to recover the carrying value of its
investments.
PEREGRINE COULD BE COMPETITIVELY DISADVANTAGED IF IT WERE UNABLE TO PROTECT
ITS INTELLECTUAL PROPERTY.
If we fail to adequately protect our proprietary rights, our competitors
could offer similar products relying on technologies developed by us,
potentially harming our competitive position and decreasing our revenues. We
attempt to protect our intellectual property rights by limiting access to the
distribution of our software, documentation, and other proprietary information
and by relying on a combination of copyright, trademark, and trade secret laws.
In addition, we enter into confidentiality agreements with our employees and
certain customers, vendors, and strategic partners. In some circumstances,
however, we may, if required by a business relationship, provide our licensees
with access to our data model and other proprietary information underlying our
licensed applications.
Despite precautions that we take, it may be possible for unauthorized third
parties to copy aspects of our current or future products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of software
is difficult, and some foreign laws do not protect our proprietary rights to the
same extent as United States laws. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, or to
determine the validity and scope of the proprietary rights of other. If we are
required to pursue litigation to enforce our proprietary rights, we could incur
substantial costs, and management attention could be diverted, either of which
could adversely affect our revenues and operating results.
IF PEREGRINE BECOMES INVOLVED IN A PROTRACTED INTELLECTUAL PROPERTY DISPUTE,
OR ONE WITH A SIGNIFICANT DAMAGES AWARD, OR WHICH REQUIRES IT TO CEASE SELLING
ITS PRODUCTS, IT COULD BE SUBJECT TO SIGNIFICANT LIABILITY AND THE TIME AND
ATTENTION OF ITS MANAGEMENT COULD BE DIVERTED.
In recent years, there has been significant litigation in the United States
involving intellectual property rights, including companies in the software
industry. Intellectual property claims against Peregrine and any resulting
lawsuit, if successful, could subject us to significant liability for damages
and invalidate what we currently believe are our proprietary rights. These
lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and could divert management's time
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and attention. Any potential intellectual property litigation could also force
us to do one or more of the following:
- cease selling, incorporating, or using products or services that
incorporate the infringed intellectual property;
- obtain from the holder of the infringed intellectual property a license to
sell or use the relevant technology, which license may not be available on
acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology, which could result in substantial unanticipated development
expenses.
If we are subject to a successful claim of infringement and we fail to
develop noninfringing technology or license the infringed technology on
acceptable terms and on a timely basis, our revenues could decline or our
expenses could increase.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of competitors. These claims
could result in costly litigation and the diversion of technical and management
personnel's attention.
PEREGRINE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN
SIGNIFICANT COSTS.
If we are held liable for damages incurred as a result of our products, our
operating results could be significantly impaired. Our license agreements with
our customers typically contain provisions designed to limit exposure to
potential product liability claims. These limitations may not be effect under
the laws of some jurisdictions, however. Although we have not experienced any
product liability claims to date, the sale and support of our products entails
the risks of these claims.
CONTROL BY PEREGRINE'S OFFICERS AND DIRECTORS MAY LIMIT YOUR 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 of Peregrine or discourage
a potential acquiror from attempting to obtain control of Peregrine. This could
cause the market price of our common stock to fall or prevent the stockholders
from realizing a premium in the market price of our common stock in the event of
an acquisition. Our officers and directors currently own approximately
12,061,678 shares of common stock (including shares issuable upon exercise of
options exercisable within 60 days of March 31, 2000), representing
approximately 10.9% of our total shares outstanding as of March 31, 2000.
Assuming the issuance of 30,043,027 shares of Peregrine common stock in
connection with the merger, our officers and directors will own approximately
8.6% of our outstanding common stock (not including shares held by officers and
directors of Harbinger who will become officers and directors of Peregrine after
the merger). For information about the ownership of common stock by our
executive officers and stockholders, see "Peregrine Principal Stockholders."
PROVISIONS IN PEREGRINE'S CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE
POTENTIAL ACQUISITION BIDS FOR PEREGRINE AND MAY PREVENT CHANGES IN OUR
MANAGEMENT THAT OUR STOCKHOLDERS OTHERWISE WOULD APPROVE.
Some provisions of Peregrine's 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 Peregrine's board
of directors and the policies established by our board of directors. These
provisions also discourage some types of transactions, which may involve an
actual or threatened change of control. These provisions are
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designed to reduce the vulnerability of Peregrine 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 Peregrine's shares. These provisions may
prevent the market price of Peregrine common stock from reflecting the effects
of actual or rumored takeover attempts. These provisions may also prevent
changes in Peregrine's management.
Peregrine's 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 Peregrine 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 Peregrine common stock and other rights of holders of Peregrine
common stock may be adversely affected, including the loss of voting control to
others.
RISKS RELATING TO HARBINGER
HARBINGER'S REVENUES COULD DECREASE AS IT TRANSITIONS TO A BUSINESS MODEL
THAT EMPHASIZES RECURRING SERVICES REVENUES AND INVESTMENT IN COMPANIES FROM
WHICH IT EXPECTS TO DERIVE LICENSE AND RECURRING REVENUE.
Harbinger is currently transitioning our business model to focus on
providing our customers with the ability to have their electronic commerce
application hosted on harbinger.net as a subscription service. We expect that
this model will provide us with an increase in recurring services revenues but
will also result in a decrease in up-front licensing and sales revenue. Under
our new model, we provide application hosting, which involves applications owned
or licensed by us, or third-party-owned applications licensed by our customers
that we host on harbinger.net. Our management believes that this service will
allow our customers to access software, connectivity and support services
without having to bear significant up-front licensing expenditures. Any delay in
the installation of our Internet enabled products or the failure in the
implementation of this service could have a material adverse effect on our
business and financial results.
We are also making equity investments in companies from which we expect to
derive license and recurring revenue. Many of these companies are in the early
stages of their growth and therefore their business and revenues may be subject
to numerous risks related to early-stage ventures. The success of these
companies is dependent on many factors, and their inability to create revenues
will result in lower than expected payments to us and there can be no assurance
that these investments will result in any benefits or payments to us which are
proportionate to our expectations or capital investment. In addition, our
business and financial results could also suffer if our revenue from increased
volume experienced by existing and new customers does not make up for our loss
in revenue from the decrease in the per-customer amount of up-front licensing
and charges per message.
HARBINGER'S OPERATING RESULTS COULD FLUCTUATE, CAUSING ITS STOCK PRICE TO
FALL.
Although Harbinger has been able to grow our revenue and operating income
(before special charges) in the past, we cannot assure that this growth will
continue after the merger when Harbinger will operate as a subsidiary of
Peregrine or that fluctuations in revenue or operating income growth will not
occur in the future.
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The following are among numerous factors that could impair our future rates
of revenue growth or operating income:
- the discontinuance of historical or acquired lines of business or products
and a decrease in the rate of growth of X12 and EDIFACT data
transformation software sales;
- our success in focusing development on electronic commerce products and
services acceptable to the market; and
- our success in selling complex business-to-business e-commerce solutions
to large enterprise customers.
In addition, if our quarterly revenue or operating results fall below the
expectations of investors or public market analysts, the price of our common
stock could fall substantially. Our quarterly operating results have in the past
and may in the future vary or decrease significantly depending on factors over
which we have limited or no control, such as:
- revenue from software sales and services;
- the timing of new product and service announcements;
- changes in pricing policies by us and our competitors;
- market acceptance of new and enhanced versions of our products;
- conversion of customers to solutions that are Internet protocol-enabled;
- the size and timing of significant orders;
- changes in operating expenses, strategy or personnel;
- government regulation;
- the introduction of alternative technologies; and
- the effect of acquisitions.
We have experienced losses in the past, and at December 31, 1999, we had an
accumulated deficit of approximately $57.0 million. We have taken integration
and restructuring related charges in the past and may take similar charges in
the future related to these or similar items. We operate with virtually no
software product order backlog because our software products typically are
shipped shortly after orders are received. As a result, revenues in any quarter
are substantially dependent on the quantity of purchases of services requested
and product orders received in that quarter. Quarterly revenues also are
difficult to forecast because the market for electronic commerce and data
transformation software products is rapidly evolving, and our revenues in any
period may be significantly affected by the announcements and product offerings
of our competitors as well as alternative technologies. Our marketplace and
vertical market exchange software and infrastructure products are more complex
and expensive compared to our other electronic commerce and Internet products
introduced to date, and orders of these products will generally involve
significant investment decisions by prospective customers. Accordingly, we
expect that in selling our marketplace and vertical market exchange software and
infrastructure, we will encounter risks typical of companies that rely on large
dollar purchase decisions, including the reluctance of purchasers to commit to
major investments in new products and protracted sales cycles, both of which add
to the difficulty of predicting future revenues and may result in quarterly
fluctuations.
Our expense levels are based, in part, on our expectations as to future
revenues. If revenue levels are below expectations, we may be unable or
unwilling to reduce expenses proportionately and operating results are likely to
be adversely affected. As a result, we believe that period-to-period comparisons
of our results of operations are not necessarily meaningful and should not be
relied upon
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as indications of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter or quarters our operating results will be
below the expectations of public market analysts and investors.
IF HARBINGER FAILS TO SUCCESSFULLY MANAGE ITS GROWTH, IT COULD HAVE AN
ADVERSE EFFECT ON HARBINGER'S FUTURE REVENUES AND OPERATING RESULTS.
Harbinger has recently experienced significant growth in revenue, operations
and personnel as we have made strategic acquisitions, added subscribers to
harbinger.net, our business-to-business e-commerce center, and increased the
number of licensees of our software products. This growth could continue to
place a significant strain on our management and operations, including our
sales, marketing, customer support, research and development, finance and
administrative operations. Achieving and maintaining profitability during a
period of expansion will depend, among other things, on our ability to
successfully expand our products, services and markets and to manage our
operations and acquisitions effectively. Difficulties in managing growth,
including difficulties in obtaining and retaining talented management and
product development personnel, especially following an acquisition, could have a
material adverse effect on our business and financial results.
HARBINGER HAS RECENTLY INTRODUCED SEVERAL NEW PRODUCTS, AND MARKET
ACCEPTANCE OF THESE PRODUCTS IS CRITICAL TO OUR SUCCESS.
Harbinger has introduced our business community integration, application
service provider, marketplace and vertical market exchange and operations
management products. As of March 31, 2000, approximately 30 customers were
utilizing these products. Broad and timely acceptance of our recently-
introduced products, which is critical to our future success, is subject to a
number of significant risks. These risks include:
- our ability to successfully market and sell these products;
- our product's ability to support large numbers of buyers and suppliers;
- operating resource management and procurement on the Internet is a new
market;
- our need to enhance the features and services of our products; and
- our need to significantly expand our internal resources to support planned
growth of our network.
Although we expect to derive a significant portion of long-term future
revenue from our recently introduced products, we have not yet finalized our
pricing and revenue model for the services associated with these products. If
these products do not achieve the level of market acceptance that we anticipate,
our business and financial results would suffer.
NETWORK ENHANCEMENTS, UPGRADES AND OTHER FACTORS COULD CAUSE SERVICE
DISRUPTIONS OF HARBINGER.NET.
As Harbinger enhances and upgrades its harbinger.net platform, our customers
could suffer temporary service interruptions. We have experienced temporary
service disruptions in the past as a result of migrating our customers from our
current network switch to an Internet Protocol-enabled switch, as well as from
hardware and software transitions related to the Internet Protocol enabled
switch, and these service disruptions may continue. Other factors, such as
unauthorized intervention and access into our servers may also cause service on
harbinger.net to be disrupted. We are taking steps to ensure that such
disruptions do not occur, and that any disruptions that do occur will be
minimal. However, if not rectified in a manner satisfactory to our customers,
any disruptions in our harbinger.net network could result in a loss of customers
and a decline in service revenues, which would severely harm our business.
29
<PAGE>
IF HARBINGER CANNOT INTEGRATE ACQUIRED COMPANIES WITH HARBINGER'S BUSINESS,
HARBINGER'S PROFITABILITY MAY BE ADVERSELY AFFECTED.
Harbinger has completed a number of acquisitions in the past three fiscal
years and may complete additional acquisitions of complementary businesses in
the future. Our profitability may be adversely affected by our ability to
effectively and efficiently integrate these recently acquired companies as well
as our ability to integrate companies that we acquire in the future. Our
acquisitions present a number of risks and challenges, including:
- the integration of the software products of the acquired companies into
our current suite of products;
- retaining and integrating management and other key employees of Harbinger
and the acquired companies;
- the integration of the sales forces of acquired companies into our
existing sales operations;
- the coordination of customer support services;
- the conversion of acquired companies into a uniform infrastructure;
- the integration of international operations of acquired companies with our
international affiliates; and
- the diversion of our management's attention from other business concerns.
We cannot assure that we can successfully assimilate our operations and
integrate our software products with recently acquired operations, software
products and technologies or that we will be successful in repositioning our
products on a timely basis to achieve market acceptance. Any adverse
developments associated with our integration efforts could have a material
adverse affect on our business and financial results.
If we find it necessary to engage in additional acquisitions, we cannot
assure that we will be able to identify suitable acquisition candidates
available for sale at reasonable prices, consummate any acquisition or
successfully integrate any acquired business into our operations. Operational
and software integration problems may arise if we undertake future acquisitions
of complementary products, technologies or businesses. Future acquisitions may
also result in:
- potentially dilutive issuances of equity securities;
- the incurrence of additional debt;
- the write-off of in-process product development and capitalized product
costs;
- integration costs; and
- the amortization of expenses related to goodwill and other intangible
assets.
Future acquisitions may involve numerous additional risks, including
difficulties in the assimilation of the operations, products and personnel of
the acquired company, differing company cultures, the diversion of management's
attention from other business concerns, risks of entering markets in which we
have little or no direct prior experience and the potential loss of key
employees of the acquired company. The occurrence of any of these risks could
materially affect our business and financial results. In addition, if we
consummate a significant acquisition in which the consideration consists of
stock or other securities, our current shareholders' equity could be
significantly diluted. If we consummate a significant acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash to consummate the acquisition. Acquisition financing may
not be available on favorable terms, or at all.
30
<PAGE>
HARBINGER MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST OTHER COMPANIES.
The business-to-business e-commerce market is new, rapidly evolving and
intensely competitive, and Harbinger expects competition to intensify in the
future. Barriers to entry are minimal in some segments, and competitors may
develop and offer similar services in the future. Our business could be severely
harmed if we are not able to compete successfully against current or future
competitors. Although we believe that there may be opportunities for several
providers of products and services similar to ours, a single provider may
dominate the market. We believe there is no current dominant provider in our
market. We expect that additional companies will offer competing
business-to-business e-commerce solutions in the future.
We have many competitors with substantially greater financial, marketing,
personnel and technological resources than we have. We may not be able to
compete successfully against current and future competitors, and competitive
pressures faced by us could hurt our business and financial results. Other
companies offer products and services that may be considered by customers to be
acceptable alternatives to our products and services. Certain companies also
operate electronic marketplaces for transacting business with their trading
partners, and we expect other companies to offer products and services
competitive with our Templar, Express and marketplace and vertical market
exchange products and services. We expect that other companies may develop and
implement similar computer-to- computer networks, some of which may be "public"
networks such as ours and others may be "private," providing services only to a
specific group of trading partners, thereby reducing our ability to increase
sales of our network services. In addition, several companies offer PC-based,
midrange NT and UNIX, and mainframe and Internet computer software products that
compete with our software products. Advanced operating systems and applications
software from Microsoft and other vendors also may offer electronic commerce
functions that limit our ability to sell our software products.
We believe that the continuing acceptance of business-to-business
Internet-based electronic commerce will attract new competitors, including
software applications, operating systems and systems integration companies that
may bundle electronic commerce solutions with their offerings, and alternative
technologies that may be more sophisticated and cost effective than our products
and services. Competitive companies may offer certain electronic commerce
products or services, such as communications software, network transactional
services or consulting at no charge or a deeply discounted charge, in order to
obtain the sale of other products or services. Since our agreements with our
harbinger.net subscribers generally are terminable upon 30-days notice, we do
not have the contractual right to prevent our customers from changing to a
competing network.
HARBINGER IS SUBJECT TO RISKS ASSOCIATED WITH THE EMERGENCE OF ELECTRONIC
COMMERCE OVER THE INTERNET.
The Internet provides an alternative means of providing electronic commerce
to business trading partners. The market for Internet software and services is
both emerging and highly competitive, ranging from small companies with limited
resources to large companies with substantially greater financial, technical and
marketing resources than ours. In addition to Harbinger's Internet-related
products and services, several of its existing competitors have introduced their
own Internet electronic commerce products and services. Moreover, new
competitors, which may include telephone companies and media companies, are
likely to increase the provision of business-to-business data transmission
services using the Internet. Nor can we assure that the Internet will become an
accepted method of electronic commerce. We cannot assure that Templar end-user
software and marketplace and vertical market exchange products, which enable
electronic commerce over the Internet, will be accepted in the Internet market
or will be competitive with other products based on evolving technologies. If
the Internet becomes an accepted method of electronic commerce, we could lose
certain customers to other solutions offered by our competitors, which would
reduce recurring revenue from network services and have a material adverse
affect on our business and financial condition. Even if customers
31
<PAGE>
choose our Internet solutions, the revenue gained from the sale of these
solutions may not offset the loss of revenue from the sale of our traditional
e-commerce solutions.
The use of our Internet electronic commerce products and services will
depend in large part upon the continued development of the infrastructure for
providing Internet access and services. Use of the Internet for
business-to-business electronic commerce services raises numerous issues that
greatly impact the development of this market. These issues include reliability,
data security and data integrity, timely transmission, and pricing of products
and services. Because global commerce and online exchange of information on the
Internet is new and evolving, it is difficult to predict with any assurance
whether the Internet will prove to be a viable commercial marketplace. The
Internet has experienced, and is expected to continue to experience, substantial
growth in the number of users and the amount of traffic. We cannot assure that
the Internet will continue to be able to support the demands placed on it by
this continued growth. In addition, the Internet could lose its viability due to
delays in the adoption of new standards and protocols to handle increased levels
of Internet activity, or due to increased governmental regulation or the
imposition of fees or taxes for its use. We cannot assure that the
infrastructure or complementary services necessary to make the Internet a viable
commercial marketplace will be developed, or, if developed, that the Internet
will become a viable commercial marketplace for products and services such as
those offered by us. If the necessary infrastructure or complementary services
or facilities are not developed, or if the Internet does not become a viable
commercial marketplace, our business and financial results will be materially
adversely affected.
HARBINGER MUST CONTINUE TO ADVANCE ITS TECHNOLOGY AND COMPLY WITH INDUSTRY
REQUIREMENTS TO REMAIN COMPETITIVE.
The electronic commerce industry is characterized by rapid technological
change, frequent new product and service introductions and evolving industry
standards. Harbinger's future success will depend in significant part on our
ability to anticipate industry standards, to continue to apply advances in
electronic commerce product and service technologies, to enhance existing
products and services, and to introduce and acquire new products and services on
a timely basis to keep pace with technological developments. We cannot assure
that we will be successful in timely development, acquisition or marketing new
or enhanced products or services that respond to technological change and
evolving industry standards, and that meet the requirements of the marketplace
and achieve market acceptance. In the past, we have experienced delays in the
commencement of commercial shipments of new products and enhancements, resulting
in delays or losses of product revenues. These delays or failure in the
introduction of new or enhanced products or services, or the failure of such
products or services to achieve market acceptance, could have a material adverse
affect our business and financial results.
THERE ARE MANY RISKS ASSOCIATED WITH HARBINGER'S INTERNATIONAL OPERATIONS.
Harbinger believes that our continued growth and profitability will require
expansion of our international operations through our international
subsidiaries, in the United Kingdom, The Netherlands, Germany, Italy and Mexico.
This expansion will require financial resources and significant management
attention. Our ability to successfully expand our business internationally will
also depend upon our ability to attract and retain both talented and qualified
managerial, technical and sales personnel and electronic commerce services
customers outside the United States and our ability to continue to effectively
manage our domestic operations while focusing on international expansion.
Certain of our international subsidiaries have experienced operating losses in
their recent histories and some have experienced significant operating losses in
their recent histories. Any inability of our international subsidiaries to
penetrate international markets in a timely and profitable manner could have a
material adverse affect on our business and financial results.
International operations are subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, longer payment
cycles, increased difficulties in collecting accounts receivable and potentially
adverse tax consequences. To the extent international sales are denominated
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<PAGE>
in foreign currencies, gains and losses on the conversion to U.S. dollars of
revenues, operating expenses, accounts receivable and accounts payable arising
from international operations may contribute to fluctuations in our results of
operations. We have not entered into any hedging or other arrangements for the
purpose of guarding against the risk of currency fluctuation. In addition, sales
in Europe and certain other parts of the world typically are adversely affected
in the third calendar quarter of each year because many customers reduce their
business activities in the summer months.
THE INABILITY TO ATTRACT AND MAINTAIN MANAGEMENT AND OTHER PERSONNEL MAY
ADVERSELY AFFECT HARBINGER.
Our success is largely dependent upon our executive officers and key sales
and technical personnel, the loss of one or more of whom could have a material
adverse affect on our business and financial results. Our future success will
depend in large part upon our ability to attract and retain talented and
qualified personnel. In particular, we believe that it will be important for us
to hire and retain experienced product development and sales personnel.
Competition in the recruitment of highly qualified personnel in the computer
software and electronic commerce industries is intense. Our inability of to
locate and retain such personnel may have a material adverse affect on our
business and financial results. We cannot assure that we can retain our key
employees or that we can attract qualified personnel in the future. We currently
carry a key-person life insurance policy on our CEO, James M. Travers.
HARBINGER IS DEPENDENT UPON ITS ALLIANCE PARTNERS.
Harbinger has various agreements with alliance partners for the distribution
and marketing of certain of its software products. These alliance partners pay
us royalties representing a percentage of fees generated from the sale of
software licensed from us. If our current or future alliance partners are not
able to successfully resell our products, our business will suffer.
HARBINGER MAY BE CONFRONTED WITH DEFECTS IN ITS SOFTWARE.
Software products as complex as those offered by Harbinger may contain
undetected errors or failures when first introduced or when new versions are
released. If software errors are discovered after introduction, we could
experience delays or lost revenues during the period required to correct these
errors. We cannot assure that, despite testing by us and by current and
potential customers, errors will not be found in new products or releases after
commencement of commercial shipments. These errors could result in loss of or
delay in market acceptance, additional and unexpected expenses to fund further
product development or to add programming personnel to complete a development
project, and loss of revenue because of the inability to sell the new product on
a timely basis, any one or more of which could have a material adverse affect on
our business and financial results.
HARBINGER IS DEPENDENT ON ITS DATA CENTERS, WHICH COULD BE DESTROYED OR
DAMAGED.
Harbinger's harbinger.net service operations are dependent upon the ability
to protect computer equipment and the information stored in our data centers
against damage that may be caused by fire, power loss, telecommunication or
Internet failures, unauthorized intrusion, computer viruses and disabling
devices, our own internal errors and other similar events. Notwithstanding
precautions we have taken, we cannot assure that a fire or other natural
disaster, including national, regional or local telecommunications outages,
would not result in a prolonged outage of our network services. In the event of
a disaster, and depending on the nature of the disaster, it may take from
several minutes to several days before our off-site computer system can become
operational for all of our customers, and use of the alternative off-site
computer would result in substantial additional cost to us. In the event that an
outage of our network extends for more than several hours, we will experience a
reduction in revenues by reason of such outage. In the event that such outage
extends for one or more days, we could potentially lose many of our customers,
which would have a material adverse affect on our business and financial
results.
33
<PAGE>
HARBINGER IS DEPENDENT ON CERTAIN LICENSE ARRANGEMENTS WITH THIRD PARTIES.
Harbinger relies rely on certain technology that we license from third
parties and other products that are integrated with internally developed
software and used in our products to perform key functions or to add important
features. We cannot assure that we will be successful in negotiating third-
party technology licenses on suitable terms or that such licenses will not be
terminated in the future. Moreover, any delay or product problems experienced by
such third party suppliers could result in delays in introduction of our
products and services until equivalent technology, if available, is identified,
licensed and integrated, which could have a material adverse affect on our
business and financial results.
HARBINGER'S FAILURE TO ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS MAY
ADVERSELY AFFECT HARBINGER.
Harbinger relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We seek to protect our software,
documentation and other written materials principally under trade secret and
copyright laws, which afford only limited protection. We presently have a patent
for an electronic document interchange test facility and a patent for an EDI
communication system. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. We cannot assure that our
means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology. In distributing
many of our products, we rely primarily on "shrink wrap" licenses and
increasingly on "click wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, we have licensed our products to users and distributors in other
countries, and the laws of some foreign countries do not protect our proprietary
rights to as great an extent as the laws of the United States. We do not believe
that any of our products currently infringe the proprietary rights of third
parties. We cannot assure, however, that third parties will not claim
infringement by us with respect to current or future products, and we have
agreed to indemnify many of our customers for the full cost of such claims. We
expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in electronic
commerce grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit could be time-consuming, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements and indemnify our customers against resulting
liability, if any. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all, which could have a material
adverse affect on our business and financial results.
HARBINGER MAY BE SUBJECT TO CHANGING GOVERNMENTAL REGULATIONS.
Harbinger's network services are transmitted to our customers over dedicated
and public telephone lines. These lines are governed by Federal and state
regulations establishing the rates, terms and conditions for their use. Changes
in the legislative and regulatory environment relating to online services or the
Internet access industry, including regulatory or legislative changes which
directly or indirectly affect telecommunication costs, restrict content or
increase the likelihood of competition from regional telephone companies or
others, could have a material adverse affect on our business and financial
results. The Telecommunications Act of 1996 amended the federal
telecommunications laws by lifting restrictions on regional telephone companies
and others competing with us and imposed certain restrictions regarding obscene
and indecent content communicated to minors over the Internet or through
interactive computer services. The Telecommunications Act set in motion certain
events that will lead to the elimination of restrictions on regional telephone
companies providing transport between defined geographic boundaries associated
with the provision of their own information services. This will enable regional
telephone companies to more readily compete with us by packaging information
service offerings with other services and providing them on a wider geographic
scale. While provisions of the
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Telecommunications Act prohibiting the use of a telecommunications device or
interactive computer service to send or display indecent material to minors have
been held by the U.S. Supreme Court to be unconstitutional, we cannot assure
that future legislative or regulatory efforts to limit use of the Internet in a
manner harmful to us will not be successful.
Other legislation may also affect our business. The Clinton administration
has announced an initiative to establish a framework for global electronic
commerce. Also, some countries, such as Germany, have adopted laws regulating
aspects of the Internet, and there are a number of bills currently being
considered in the United States at the federal and state levels involving
encryption and digital signatures, all of which may impact our business. We
cannot predict the impact, if any, that the Act and future court opinions,
legislation, regulations or regulatory changes in the United States or other
countries may have on our business. We believe that we are in compliance with
all material applicable regulations. Our Templar product incorporates encryption
technology that is subject to U.S. export control regulations. Although this
product is currently exportable under licenses granted by the Commerce
Department, government regulation in this area is subject to frequent change and
we cannot assure that these products will remain exportable.
35
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table present selected historical financial data of Peregrine,
selected historical financial data of Harbinger, and selected unaudited pro
forma condensed combined financial data of Peregrine, which reflects the merger.
The information in the table should be read in conjunction with the financial
statements and related notes and the unaudited pro forma condensed combined
financial statements and related notes, which begin on page F-1 of this joint
proxy statement/prospectus.
PEREGRINE SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data of Peregrine have been derived from
the audited historical financial data and related notes of Peregrine for each of
the years in the five-year period ended March 31, 2000. These historical data
provide only a summary. You should read them in conjunction with Peregrine's
historical consolidated financial statements and related notes thereto beginning
on page F-1 of this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues..................................... $253,300 $138,063 $61,877 $35,035 $23,766
Acquired in-process research and development....... 24,505 26,005 6,955 -- --
Amortization of goodwill and other intangible
assets........................................... 34,753 18,012 3,168 -- --
Operating income (loss)............................ (8,656) (13,739) 3,903 4,688 (4,266)
Net Income (loss).................................. (25,070) (23,370) (616) 5,802 (6,411)
Net Income (loss) per share--diluted............... $ (0.24) $ (0.27) $ (0.01) $ 0.10 $ (0.13)
Shares used in per share computation............... 102,332 87,166 69,520 59,856 49,324
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short term
investments...................................... $ 33,511 $ 23,545 $21,977 $ 305 $ 437
Working capital (deficit).......................... 20,510 25,302 23,779 (4,065) (9,697)
Total assets....................................... 523,430 207,713 83,568 19,738 13,817
Total debt......................................... 1,331 649 1,117 3,866 5,208
Stockholders' equity (deficit)..................... 411,850 150,781 55,639 (2,849) (8,450)
</TABLE>
HARBINGER SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data of Harbinger have been derived form
the audited historical financial data and related notes of Harbinger for each of
the years in the five-year period ended December 31, 1999. The selected
historical financial data of Harbinger for the three months ended and as of
March 31, 2000 have been derived from unaudited financial data and include, in
the opinion of management of Harbinger, all adjustments, consisting only of
normal recurring adjustment, necessary for a fair presentation of Harbinger's
results of operations for that period and its financial condition at March 31,
2000. These historical data provide only a summary. You should read them in
conjunction
36
<PAGE>
with Harbinger's historical consolidated financial statements and related notes
thereto beginning on page F-1 of this joint proxy statment prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues...................... $38,407 $33,503 $155,514 $135,151 $118,221 $ 89,245 $60,077
Operating income (loss)....... 364 1,556 12,630 (12,652) (22,705) (10,667) 1,314
Net income (loss)............. 1,372 2,341 16,560 (14,712) (39,047) (16,091) (445)
Net income (loss) per share--
diluted..................... $ 0.03 $ 0.06 $ 0.41 $ (0.35) $ (1.02) $ (0.46) $ (0.02)
Shares used in per share
computation (diluted)....... 42,246 40,451 40,739 41,557 38,162 35,080 28,573
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
AS OF MARCH 31, 2000 1999 1998 1997 1996 1995
--------------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Cash, cash equivalents and
short term investments.... $ 79,198 $ 73,020 $ 92,307 $102,144 $ 65,541 $ 75,980
Working capital............. 86,224 79,234 79,303 94,307 60,392 73,167
Total assets................ 183,213 169,459 178,369 183,559 131,199 125,867
Long-term obligations....... -- -- -- -- 1,608 7,116
Shareholders' equity........ 134,454 124,774 120,019 130,018 94,118 93,196
</TABLE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial data is not necessarily
indicative of the operating results or financial position that would have been
achieved had the merger been consummated as of the beginning of the periods
presented and should not be construed as representative or indicative of these
amounts for any future date or in any future periods. The information in the
table is only a summary and should be read in conjunction with the "Unaudited
Pro Forma Combined Condensed Financial Statements" beginning on page 116 and the
respective audited
37
<PAGE>
and unaudited consolidated financial statements of Peregrine and Harbinger,
including the notes thereto, beginning on page F-1 of this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
(A)
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 444,329
Operating income (loss)................................... (319,437)
Net income (loss)......................................... (333,774)
Net income (loss) per share--diluted...................... $ (2.52)
Shares used in per share computation...................... 132,409
</TABLE>
- ------------------------
(A) Year ended March 31, 2000 for both Peregrine and Harbinger. See "Notes to
Unaudited Pro Forma Financial Statements" on page 116.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------
(IN THOUSANDS)
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
Cash, cash equivalents, and short-term investments........ $ 112,709
Working capital........................................... 41,134
Total assets.............................................. 1,940,229
Total debt................................................ 1,331
Stockholders' equity...................................... $1,714,290
</TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth:
- historical book value per share and historical net income per share data
of Peregrine and Harbinger
- unaudited pro forma condensed combined book value per share and unaudited
pro forma condensed combined net loss per share data of Peregrine after
giving effect to the merger
- unaudited pro forma equivalent condensed combined book value per share and
unaudited pro forma equivalent condensed combined net loss per share data
of Peregrine common stock based on the exchange ratio of 0.75 of a share
of common stock for each share of Harbinger common stock
The information in the table should be read in conjunction with the
financial statements of Peregrine and Harbinger and the related notes and the
unaudited pro forma condensed combined financial statements and related notes,
which begin on page F-1 in this joint proxy statement/ prospectus. The unaudited
pro forma condensed combined financial data is not necessarily indicative of the
net loss per share or book value per share that would have been achieved had the
merger been consummated as of the beginning of the periods presented and should
not be construed as representative of these amounts for any future dates or
periods.
Although Peregrine and Harbinger have different fiscal years, pro forma per
share data are presented on a March 31 fiscal year basis.
The information in the table is only a summary and you should read it in
conjunction with the "Unaudited Pro Forma Combined Condensed Financial
Statements" beginning on page 116 and the respective audited and unaudited
consolidated financial statements of Peregrine and Harbinger, including the
notes thereto, beginning on page F-1 of this joint proxy statement/prospectus.
38
<PAGE>
This information is not necessarily indicative of the future results of
operations of the combined company after the merger or the actual results that
would have occurred if the merger had been consummated prior to the period
indicated.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 2000
---------------
<S> <C>
HISTORICAL--PEREGRINE (1):
Net (loss) per diluted share.............................. $ (0.24)
Net (loss) per basic share................................ $ (0.24)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-------------
<S> <C>
HISTORICAL--HARBINGER
Net income per diluted share.............................. $ 0.41
Net income per basic share................................ $ 0.43
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 2000
---------------
<S> <C>
PRO FORMA COMBINED NET LOSS(2):
Per Peregrine share--diluted.............................. $ (2.52)
Per Peregrine share--basic................................ $ (2.52)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------
<S> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(3):
Historical--Peregrine..................................... $ 3.76
Historical--Harbinger..................................... $ 3.36
Pro forma combined per Peregrine share.................... $ 12.25
</TABLE>
- ------------------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(2) The pro forma statement of operations excludes the charge of approximately
$66.1 million for purchased in-process research and development, which arose
from the merger. These charges will be included in the combined company's
consolidated financial statements for the period following completion of the
merger.
(3) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.
39
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
PEREGRINE COMMON STOCK
Peregrine's common stock has been traded on the Nasdaq National Market under
the symbol "PRGN" since April 1997. The following table sets forth the quarterly
high and low closing sales prices reported on the Nasdaq National Market for the
periods indicated. All prices have been adjusted to reflect two-for-one stock
splits of Peregrine common stock effected as stock dividends in February 1999
and February 2000.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 2000:
Fourth Quarter.......................................... $79.500 $36.625
Third Quarter........................................... 45.875 19.156
Second Quarter.......................................... 20.563 12.813
First Quarter........................................... 17.344 8.563
FISCAL YEAR ENDED MARCH 31, 1999:
Fourth Quarter.......................................... $16.813 $10.625
Third Quarter........................................... 11.594 7.109
Second Quarter.......................................... 10.344 5.844
First Quarter........................................... 7.130 4.563
</TABLE>
HARBINGER COMMON STOCK
Harbinger common stock has been traded on the Nasdaq National Market under
the symbol "HRBC" since August 1995. The following table sets forth the
quarterly high and low closing sales prices reported on the Nasdaq National
Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 2000:
First Quarter........................................... $39.875 $20.625
FISCAL YEAR ENDED DECEMBER 31, 1999:
Fourth Quarter.......................................... $34.000 $13.250
Third Quarter........................................... 17.438 10.625
Second Quarter.......................................... 14.063 6.125
First Quarter........................................... 8.563 5.063
FISCAL YEAR ENDED DECEMBER 31, 1998:
Fourth Quarter.......................................... $ 9.750 $ 3.500
Third Quarter........................................... 24.375 5.750
Second Quarter.......................................... 27.563 20.250
First Quarter........................................... 25.500 16.000
</TABLE>
RECENT SHARE PRICES
The following table provides information about the closing sale price of
Peregrine common stock and Harbinger common stock on April 5, 2000 and ,
2000. In addition, the table provides an equivalent per-share price for
Harbinger common stock on those dates based on the closing price of Peregrine
common stock multiplied by the exchange ratio in the merger of 0.75 share of
Peregrine common stock per share of Harbinger common stock. April 5, 2000 was
the last trading day prior to
40
<PAGE>
the execution and public announcement of the merger agreement. , 2000
was the last practicable trading day prior to the mailing of this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
HARBINGER
PEREGRINE HARBINGER COMMON STOCK
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ------------
<S> <C> <C> <C>
April 5, 2000........................................ $58.000 $24.125 $43.500
, 2000.........................................
</TABLE>
No assurance can be given as to the market prices of Peregrine common stock
or Harbinger common stock at any time prior to the merger or as to the market
price of Peregrine common stock after the merger. The exchange ratio is fixed
and will not be adjusted to compensate shareholders of Harbinger for decreases
in the market price of Peregrine common stock which could occur before the
merger becomes effective. In the event the market price of Peregrine common
stock decreases or increases prior to the effective time, the market value at
the effective time of the Peregrine common stock to be received in the merger in
exchange for Harbinger common stock would correspondingly increase or decrease.
WE URGE SHAREHOLDERS OF HARBINGER AND STOCKHOLDERS OF PEREGRINE TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE HARBINGER COMMON STOCK AND THE PEREGRINE
COMMON STOCK.
Following the merger, Harbinger common stock will no longer be listed on the
Nasdaq National Market.
SHAREHOLDERS
As of , 2000, Peregrine had issued and outstanding 109,501,146
shares of Peregrine common stock held by stockholders of record.
As of , 2000, Harbinger had issued and outstanding 40,057,369
shares of Harbinger common stock held by shareholders of record.
DIVIDENDS
Neither Peregrine nor Harbinger has ever declared or paid cash dividends on
its capital stock. Peregrine currently expects to retain future earnings, if
any, for use in the operation and expansion of its business and does not
anticipate paying any cash dividends in the foreseeable future. Under the merger
agreement, Harbinger has agreed not to pay cash dividends pending the
effectiveness of the merger.
41
<PAGE>
THE SPECIAL MEETINGS
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of proxies from shareholders of Harbinger by
Harbinger's board of directors and from stockholders of Peregrine by Peregrine's
board of directors. On April 5, 2000, Peregrine, Harbinger, and a wholly owned
subsidiary of Peregrine entered into the Agreement and Plan of Merger and
Reorganization. The merger agreement contemplates a merger of the Peregrine
subsidiary into Harbinger. As a result of the proposed merger, Harbinger would
become a subsidiary of Peregrine, and shareholders of Harbinger would become
stockholders of Peregrine.
Peregrine and Harbinger will each hold a special meeting of its shareholders
to vote upon matters in connection with the proposed merger. The boards of
directors of Peregrine and Harbinger are soliciting proxies in connection with
the matters to be voted upon at the special meetings.
DATE, TIME AND PLACE OF THE SPECIAL MEETINGS
<TABLE>
<CAPTION>
PEREGRINE SPECIAL MEETING HARBINGER SPECIAL MEETING
- ------------------------------------- -------------------------------------
<S> <C>
, 2000 , 2000
9:00 a.m., local time 9:00 a.m., local time
San Diego, California Atlanta, Georgia
</TABLE>
PURPOSES OF THE SPECIAL MEETINGS
PEREGRINE SPECIAL MEETING
The purpose of Peregrine's special meeting is for holders of Peregrine
common stock to approve the issuance of shares of Peregrine common stock in
connection with the merger as required by the rules of The Nasdaq Stock Market.
In addition, stockholders of Peregrine may transact any other business that may
properly come before the Peregrine special meeting or any adjournment or
postponement of the special meeting. Examples of other business that could be
transacted at the meeting would be a motion to adjourn to a later date to permit
further solicitation of proxies, if necessary, or to establish a quorum.
HARBINGER SPECIAL MEETING
The purpose of Harbinger's special meeting is for holders of Harbinger
common stock to approve the Agreement and Plan of Merger and Reorganization
entered on April 5, 2000 among Harbinger, Peregrine, and a wholly owned
subsidiary of Peregrine and to approve the merger contemplated by the merger
agreement. In addition, shareholders of Harbinger may transact any other
business that may properly come before the Harbinger special meeting or any
adjournment or postponement of the special meeting. Examples of other business
that could be transacted at the meeting would be a motion to adjourn to a later
date to permit further solicitation of proxies, if necessary, or to establish a
quorum.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The board of directors of Peregrine has concluded that the merger agreement
and the merger are fair to, and in the best interests of, Peregrine and its
stockholders. THE PEREGRINE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF PEREGRINE VOTE FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF
SHARES OF PEREGRINE COMMON STOCK IN CONNECTION WITH THE MERGER.
42
<PAGE>
The board of directors of Harbinger also has concluded that the merger
agreement and the merger are fair to, and in the best interests of, Harbinger
and its shareholders. THE HARBINGER BOARD OF DIRECTORS, BY THE UNANIMOUS VOTE OF
THE DIRECTORS PRESENT, HAS RECOMMENDED THAT SHAREHOLDERS OF HARBINGER VOTE FOR
THE PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT AND APPROVE THE MERGER.
RECORD DATES AND OUTSTANDING SHARES
PEREGRINE SPECIAL MEETING
Stockholders of record who owned Peregrine common stock at the close of
business on , 2000 will be entitled to attend and vote at the
Peregrine special meeting. On the record date, Peregrine had approximately
109,501,146 shares of common stock issued and outstanding. Peregrine had
stockholders of record on the record date and believes that its
common stock is held by more than beneficial owners.
HARBINGER SPECIAL MEETING
Shareholders of record who owned Harbinger common stock at the close of
business on , 2000 will be entitled to attend and vote at the
Harbinger special meeting. On the record date, Harbinger had approximately
40,057,369 shares of common stock issued and outstanding. Harbinger had
shareholders of record on the record date and believes that its
common stock is held by more than beneficial owners.
VOTE AND QUORUM REQUIRED
In order to conduct business at either the Harbinger special meeting or the
Peregrine special meeting, a quorum must be present. In each case, a quorum will
be present if a majority of the outstanding shares as of the record date are
present in person or by proxy at the special meeting.
PEREGRINE SPECIAL MEETING
Holders of Peregrine common stock are entitled to one vote for each share
held as of the record date. In order for the merger to become effective, holders
of at least a majority of the shares of Peregrine common stock present, in
person or by proxy, at the Peregrine special meeting must approve the issuance
of shares of Peregrine common stock in connection with the merger. Holders of
approximately 10.8% of the outstanding shares of Peregrine common stock have
entered agreements under which they agreed to vote in favor of the issuance of
Peregrine common stock in the merger. Approval of the issuance of Peregrine
common stock in connection with the merger is required by the rules of the
Nasdaq National Market.
HARBINGER SPECIAL MEETING
Holders of Harbinger common stock are entitled to one vote for each share
held as of the record date. In order for the merger to become effective, holders
of at least a majority of Harbinger's outstanding common stock at the record
date must adopt and approve the merger agreement and approve the merger. Holders
of approximately 14.5% of the outstanding shares of Harbinger common stock have
entered agreements under which they agreed to vote for approval and adoption of
the merger agreement and approval of the merger and to be present, in person or
by proxy, at the Harbinger special meeting.
43
<PAGE>
TREATMENT OF ABSTENTIONS AND BROKER NON-VOTES
If you submit a proxy that indicates an abstention for voting in all
matters, your shares will be counted as present for the purpose of determining
the existence of a quorum, but they will not be voted on any matter at the
applicable special meeting. Consequently, 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, the beneficial owners of the
shares, brokers have discretion to vote these shares on routine matters but not
on non-routine matters. The approval of the merger and the merger agreement at
the Harbinger special meeting, and the approval of the issuance of shares of
Peregrine common stock at the Peregrine special meeting, are not considered
routine matters. Accordingly, brokers will not have discretionary voting
authority to vote your shares. A "broker non-vote" occurs when brokers do not
have discretionary voting authority and have not received instructions from the
beneficial owners of the shares. At both special meetings, broker non-votes will
be counted for the purpose of determining the presence of a quorum but will not
be counted for the purpose of determining the number of votes cast on a matter.
At the Peregrine special meeting, broker non-votes will have no effect on the
outcome of the vote on the issuance of shares of Peregrine common stock in the
merger. At the Harbinger special meeting, broker non-votes will have the same
effect as a vote against the proposal to adopt and approve the merger agreement
and to approve the merger.
EXPENSES OF PROXY SOLICITATION
Peregrine and Harbinger will each bear the expenses of this solicitation,
including the cost of preparing and mailing this joint proxy
statement/prospectus. In addition, we may reimburse brokerage firms and other
custodians for their reasonable out-of-pocket expenses for forwarding this joint
proxy statement/prospectus to you.
Proxies may be solicited by directors, officers, and employees of Peregrine
and Harbinger in person or by telephone, facsimile, or other means of
communications. These directors, officers, and employees will not receive
additional compensation for their solicitation efforts, but we may reimburse
their reasonable out-of-pocket expenses.
Peregrine and Harbinger have jointly retained Georgeson Shareholder
Communications, Inc. at an estimated cost of $ to assist them in the
solicitation of proxies for the Peregrine special meeting and the Harbinger
special meeting.
METHODS OF VOTING
VOTING BY MAIL. By signing and returning the proxy card in the enclosed
prepaid and addressed envelope, you are enabling the individuals named on the
proxy card (known as proxies) to vote your shares at the special 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 return the proxy card but do not indicate your voting
instructions, your shares will be voted as follows:
- in the case of Harbinger shareholders, FOR the proposal to adopt and
approve the merger agreement and to approve the merger; and
- in the case of Peregrine stockholders, FOR the proposal to approve the
issuance of shares of Peregrine common stock in connection with the
merger.
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.
44
<PAGE>
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 your company's
special meeting and vote in person, you will be provided 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 your
company's special 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. In that case, in order to vote at your company's special meeting, you will
need to bring to the special meeting a legal proxy from your broker or other
nominee authorizing you to vote these shares.
REVOKING YOUR PROXY
You may revoke or change your proxy at any time before it is voted at your
company's meeting. In order to do this, you may either:
- sign and return another proxy at a later date;
- if you are a Harbinger shareholder, send notice to Harbinger's secretary,
Loren B. Wimpfheimer, that you are revoking your proxy;
- if you are a Peregrine stockholder, send notice to Peregrine's secretary,
Richard T. Nelson, that you are revoking your proxy; or
- attend your special meeting and vote in person.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT YOUR
COMPANY'S SPECIAL MEETING, PLEASE SUBMIT YOUR PROXY ACCORDING TO THE
INSTRUCTIONS ON THE ATTACHED CARD, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING.
45
<PAGE>
THE MERGER
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES THE MERGER.
WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF THE MERGER
AND THE RELATED TRANSACTIONS, THIS SUMMARY MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE
MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS
TO WHICH WE REFER.
BACKGROUND OF THE MERGER
The markets in which Peregrine and Harbinger sell their products are
dynamic, rapidly evolving, and intensely competitive. As a result, each company
has actively pursued potential business combinations, corporate acquisition
opportunities, alliances, and other strategic transactions as a significant part
of its business strategy in an effort to obtain and develop complementary
products and technologies.
In January 2000, Stephen P. Gardner, Peregrine's President and Chief
Executive Officer, met with representatives of Deutsche Bank to discuss
Peregrine's business and its interest in pursuing potential strategic
transactions or relationships. Mr. Gardner authorized the representatives of
Deutsche Bank to approach Harbinger regarding the exploration of a strategic or
other business relationship with Peregrine.
In late January 2000, James M. Travers, President and Chief Executive
Officer of Harbinger, met with representatives of Deutsche Bank to discuss
Harbinger's business and Harbinger's interest in pursuing partnerships, joint
ventures and acquisitions. The representatives of Deutsche Bank suggested that
Harbinger consider discussing a strategic relationship with Peregrine and
provided Mr. Travers certain information concerning Peregrine.
On February 8, 2000, a conference call occurred among Mr. Travers,
Mr. Gardner, and Loren B. Wimpfheimer, Harbinger's Vice President of Business
Development and General Counsel. Mr. Travers and Mr. Gardner discussed each
company's business and the potential benefits of a strategic relationship
between the companies. Mr. Travers and Mr. Gardner agreed to meet in person at a
later date.
Representatives of both companies were in San Francisco for an analyst
conference the week of February 28, 2000. On February 29, Mr. Gardner and
Mr. Travers arranged to meet for dinner. Also present for the dinner meeting
were David A. Farley, Peregrine's Chief Financial Officer; James K. McCormick,
Harbinger's Chief Financial Officer; Richard T. Nelson, Peregrine's Vice
President of Corporate Development; Mr. Wimpfheimer; and a representative of
Deutsche Bank. The representatives of Peregrine and Harbinger discussed various
aspects of each company's business. Mr. Gardner described Peregrine's interest
in integrating its infrastructure management product line with internet-based
asset procurement solutions. The meeting concluded with a discussion of various
strategic alternatives for the two companies, including a possible business
alliance, joint venture, or business combination.
On March 1, 2000, Mr. Nelson and Mr. Wimpfheimer met to plan additional
meetings between Peregrine and Harbinger. In addition, Peregrine and Harbinger
entered into a mutual nondisclosure agreement. Following execution of the
nondisclosure agreement, Harbinger provided Peregrine with additional financial
and operating information relating to Harbinger.
On March 2, 2000, Mr. Wimpfheimer contacted representatives of Goldman,
Sachs & Co. concerning Goldman Sachs' representation of Harbinger.
46
<PAGE>
On March 8 and 9, representatives of the management teams of Peregrine and
Harbinger met at a hotel at Dallas-Fort Worth airport. Attending these meetings
were Mr. Nelson, Mr. Wimpfheimer, and various senior executives in charge of
sales, marketing, and product development activities for Peregrine and
Harbinger. Representatives of Goldman Sachs also attended. During these
meetings, management of the two companies discussed their businesses and
operations in greater detail.
Over the next several weeks, Goldman Sachs assisted Harbinger in its
discussions with Peregrine. In addition, Goldman Sachs and Harbinger identified
other companies that might be expected to have an interest in a strategic
transaction with Harbinger. Representatives of Harbinger and Goldman Sachs made
exploratory contact with a number of companies and received inquiries concerning
possible transactions with Harbinger from a number of these other companies, but
no formal offers.
During the weeks following this meeting, executives of Peregrine and
Harbinger and their respective financial and legal advisors exchanged numerous
telephone calls concerning possible terms for a potential business combination
between the companies.
On March 21, 2000, Harbinger executed an engagement letter with Goldman
Sachs pursuant to which Goldman Sachs agreed to act as Harbinger's financial
advisor.
On March 22, 2000, the Harbinger board of directors held a special
telephonic meeting. Mr. Travers briefed the Harbinger board on the discussions
with Peregrine and Harbinger's contacts with other parties to date. Mr. Travers
also described the discussions with Peregrine regarding the financial terms for
a combination with Peregrine. Goldman Sachs briefed the Harbinger board, and
responded to questions, on the key terms of Peregrine's proposal, possible
market reaction to a combination of Peregrine and Harbinger, and Peregrine's
past history with business combinations. In addition, Goldman Sachs provided the
Harbinger board with an overview of the contacts with other parties. Harbinger's
board, management, and financial and legal advisors then engaged in an extended
discussion of Peregrine and its history, the merits and risks of a combination
with Peregrine and possible transaction structures and pricing terms. Brobeck,
Phleger & Harrison LLP, special legal counsel to Harbinger, also advised the
Harbinger board regarding a number of additional terms proposed by Peregrine and
responded to questions raised by the board.
On March 23 and 24, 2000, executives of the two companies and their
respective financial and legal advisors participated in a number of phone calls
regarding the financial and other terms for the potential combination.
Peregrine entered into an engagement letter, dated as of March 1, 2000, with
Deutsche Bank pursuant to which Deutsche Bank agreed to act as Peregrine's
financial advisor in connection with a proposed merger with Harbinger.
On March 26, 2000, Mr. Gardner and Mr. Travers had a telephone conversation
to review the key financial terms of the potential combination. During this
conversation, the executives discussed an exchange ratio of 0.75 of a share of
Peregrine common stock for each outstanding share of Harbinger common stock.
On March 27, 2000, Harbinger's board of directors held a special telephonic
meeting to review the status of negotiations between Harbinger and Peregrine.
Mr. Travers and representatives of Goldman Sachs discussed the financial
implications of the proposed 0.75 exchange ratio, including the implied
valuation of Harbinger, the implied per-share premium relative to Harbinger's
then-current trading price, and the percentage of Peregrine's outstanding common
stock that would be held after the merger by former shareholders of Harbinger.
In addition, representatives of Goldman Sachs commented on other proposed terms
of a combination with Peregrine and provided an overview of contacts with
companies other than Peregrine.
47
<PAGE>
From March 29 to March 31, 2000, representatives of Peregrine, Harbinger,
and their respective financial and legal advisors held meetings in Atlanta to
conduct due diligence on Harbinger. During these meetings, Mr. Gardner and
Mr. Farley also made presentations to the Harbinger management team concerning
Peregrine.
In addition, between March 30 and April 5, 2000, Peregrine, Harbinger and
their respective legal and financial advisors engaged in extensive negotiations
with respect to the merger agreement and the related transaction agreements.
On March 30, 2000, Peregrine's board of directors held a special telephonic
meeting to discuss the proposed merger with Harbinger. Mr. Gardner summarized
Harbinger and its business as well as the recent history of Peregrine's
negotiations with Harbinger. Mr. Gardner also reviewed with the board the
proposed financial terms of the merger.
From April 1 to 2, 2000, representatives of Peregrine, Harbinger, and their
respective financial and legal advisors held meetings in La Jolla, California
and at Peregrine's offices in San Diego, California. Representatives of Deutsche
Bank and Goldman Sachs were present for portions of these meetings. In addition,
several telephone conferences took place among participants who were not present
in San Diego. The purpose of these meetings and telephone conferences was to
permit Harbinger and its advisors to conduct due diligence of Peregrine.
On April 4, 2000, the board of directors of Peregrine held a special
telephonic meeting to consider the proposed merger. Mr. Gardner, together with
representatives from Wilson Sonsini Goodrich & Rosati and Deutsche Bank, updated
the board with respect to negotiations and discussions since the board's
March 30, 2000 meeting. In particular, representatives of Wilson Sonsini
Goodrich & Rosati reviewed with the board its legal responsibilities in
considering the merger and summarized the drafts of the merger agreement and
ancillary transaction agreements, which had been circulated to the board prior
to the meeting.
The board of directors of Harbinger also held a special telephonic meeting
on April 4 to review the principal strategic, financial, and legal
considerations relating to the proposed merger. During the meeting,
representatives of Brobeck, Phleger & Harrison LLP, special outside counsel to
Harbinger, and Morris, Manning & Martin, L.L.P., regular outside counsel to
Harbinger, reviewed with the board of directors its legal and fiduciary duties
in connection with the merger and summarized the terms of the most recent draft
of the merger agreement and reviewed in detail the terms and effects of certain
key provisions. Goldman Sachs then reviewed the financial terms of Peregrine's
proposal as well as the terms of comparable recent transactions. In addition,
Goldman Sachs summarized the status of contacts with companies other than
Peregrine. Following a discussion among the board members, Harbinger's board
adjourned the meeting without action and agreed to resume its deliberations on
April 5, 2000.
On April 5, 2000, Peregrine's and Harbinger's respective boards each met
separately to discuss the final terms of the merger and the proposed merger
agreement. At the Peregrine board meeting, Mr. Gardner again reviewed with the
board the strategic and business rationale for the proposed merger.
Representatives of Peregrine's legal and financial advisors summarized the
principal terms of the proposed merger for the board. Representatives of Wilson
Sonsini Goodrich & Rosati indicated changes that had been made to the merger
agreement since the prior day's meetings. Representatives of Deutsche Bank then
reviewed financial analyses they had prepared in connection with their
evaluation of the fairness, from a financial point of view, of the proposed
exchange ratio. Deutsche Bank's representatives rendered their oral opinion,
subsequently confirmed in writing, to the effect that, as of April 5, 2000 and
subject to certain assumptions and limitations set forth therein, the exchange
ratio was fair to Peregrine from a financial point of view. For a more detailed
discussion of Deutsche Bank's analysis and opinion, you should review the
section captioned "Opinion of Deutsche Bank Securities Inc., financial advisor
to Peregrine" beginning on page 62 and the text of Deutsche Bank's opinion
attached as Annex F to this joint proxy statement/prospectus.
48
<PAGE>
After further deliberation, the Peregrine board unanimously:
- determined that the merger is fair to, and in the best interests of,
Peregrine's stockholders;
- approved the merger, the merger agreement, and the transactions
contemplated in the merger agreement;
- resolved to call a special meeting of Peregrine's stockholders to approve
the issuance of Peregrine common stock in connection with the merger as
required by the rules of The Nasdaq Stock Market; and
- resolved to recommend that the stockholders of Peregrine vote in favor of
the issuance of shares of Peregrine common stock in connection with the
merger.
At the meeting of Harbinger's board held on April 5, 2000, the Harbinger
board resumed its deliberations regarding the proposed merger. A representative
of Brobeck, Phleger & Harrison summarized the results of the parties' further
negotiations since the prior day's meeting. Representatives of Goldman Sachs
then reviewed financial analyses they had prepared in connection with their
evaluation of the proposed exchange ratio. Goldman Sachs' representatives
rendered the oral opinion of Goldman Sachs, subsequently confirmed in writing,
to the effect that, as of April 5, 2000, and based upon and subject to the
various qualifications and assumptions described in the opinion, the exchange
ratio was fair from a financial point of view to the holders of Harbinger common
stock. For a more detailed discussion of Goldman Sachs' analysis and opinion,
you should review the section captioned "Opinion of Goldman, Sachs & Co.,
financial advisor to Harbinger" beginning on page 50 and the text of Goldman
Sachs' opinion attached as Annex E to this joint proxy statement/prospectus.
After further deliberation, the Harbinger board, by a unanimous vote of the
directors present:
- determined that the merger agreement and merger are advisable and fair to,
and in the best interests of, Harbinger and its shareholders;
- approved the merger, the merger agreement, and the transactions
contemplated in the merger agreement;
- resolved to call a special meeting of Harbinger's shareholders to approve
the merger and to adopt and approve the merger agreement; and
- resolved to recommend that shareholders of Harbinger vote in favor of
adoption and approval of the merger agreement and approval of the merger.
Following the conclusion of the two board meetings, Peregrine and Harbinger
finalized, executed and delivered the merger agreement.
On April 5, 2000, the companies issued a joint press release announcing the
transaction.
JOINT REASONS FOR THE MERGER
Peregine and Harbinger each believe that the Internet has redefined the
beginning and end points of business processes. We believe that, through the
Internet, businesses are now challenged to extend their operations beyond
traditional internal constraints and to interact directly with their supplier
base. At the same time, suppliers are challenged to reach customers in new ways,
notably by making their products and services available over the Internet and
through web-based marketplaces for goods and services. We believe business is
evolving toward an end-to-end process for managing business assets and
infrastructure. We believe that combining Harbinger and Peregine can link the
internal processes associated with managing assets with the external processes
associated with acquiring them.
49
<PAGE>
HARBINGER'S REASONS FOR THE MERGER
In approving the merger agreement and the merger and recommending that
Harbinger shareholders approve and adopt the merger agreement and approve the
merger, the Harbinger board identified a number of potential benefits from the
merger, including the following:
- the Harbinger board's judgment that the two companies have significant
complementary strengths and complementary products and solutions;
- the fact that the exchange ratio was at a significant premium over the
relative prices of Harbinger common stock then prevailing in the market,
and the further opportunity for Harbinger's shareholders to participate in
the future growth in value of the combined company as stockholders of
Peregrine due to the expected ownership of former Harbinger shareholders
immediately following the merger;
- the combined company's potential to be a market leader for e-business
solutions delivery, and its ability to offer products and solutions to
large, medium and small enterprises;
- the combined company's potential to enable businesses to access multiple
e-marketplaces for requisitioning, acquiring, managing and disposing of
critical assets, facilities and other operating resources;
- the combined company's ability to be a comprehensive single-source
provider for operating and linking e-business networks, e-catalogs and
online marketplaces, while managing the full lifecycle and infrastructure
of e-business; and
- the combined company's opportunity to participate in the expected growth
of infrastructure management, employee self-service and e-marketplace
enablement; its capacity for full-life-cycle e-business delivery and
operations, its status as a single-source provider of e-business
technology, enablement and services; and its potential to leverage global
presence in sales, support and alliances.
In identifying these benefits and evaluating the merger, the Harbinger board
reviewed a number of factors and sources of information, including the
following:
- historical information concerning Harbinger and Peregrine and their
respective businesses, financial performance, condition, operations,
technology, management and position in the markets, and information and
evaluations regarding the two companies' strengths, weaknesses and future
prospects;
- the reports and views of Harbinger's management, and the reports of
Harbinger's financial advisor, Goldman Sachs, and its legal advisors,
Brobeck Phleger & Harrison LLP and Morris, Manning & Martin, L.L.P.
- the two companies' track records for integrating e-business processes for
infrastructure management, e-procurement and e-marketplaces (portals), and
deploying e-business solutions;
- current financial market conditions and historical market prices,
volatility and trading information for Harbinger common stock and
Peregrine common stock; and various factors that might affect the market
value of Peregrine common stock in the future;
- the premium represented by the exchange ratio and the premiums paid in
other recent transactions that could be viewed as comparable, and the
negotiations between Harbinger and Peregrine relating to the exchange
ratio;
- the alternatives available to Harbinger and the history of contacts with
other parties;
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<PAGE>
- the presentations of Goldman Sachs at the briefing of the Harbinger board
on March 22 and 27, 2000 and the meetings of the Harbinger board on April
4 and 5, 2000, and Goldman Sachs' opinion to the effect that, as of
April 5, 2000 and based upon and subject to the various qualifications and
assumptions described in the opinion, the proposed exchange ratio was
fair, from a financial point of view, to the holders of Harbinger common
stock;
- the terms of the merger agreement and related agreements, by themselves
and in comparison to the terms of other transactions, and the intensive
negotiations between Peregrine and Harbinger, including their negotiations
relating to the details of the conditions to the parties' obligations to
complete the merger, the no-shop restrictions on Harbinger, the scope of
Harbinger's fiduciary out, the parties' termination rights, the
termination fee, the voting agreements, and the stock option agreement;
and
- the accounting treatment of the merger and the fact that Harbinger was
then ineligible for "pooling of interests" treatment as a result of
certain past stock repurchases.
The Harbinger board also identified and considered a number of risks and
uncertainties in its deliberations concerning the merger, including the
following:
- the fact that the exchange ratio is fixed and will not change with
increases or decreases in the market price of either company's stock
before the closing of the merger, and the possibility that the dollar
value of a share of Peregrine stock at the closing of the merger may be
more or less than the dollar value of a share of Peregrine stock at the
signing of the merger agreement;
- the risk that the potential benefits sought in the merger may not be fully
realized, if at all;
- the possibility that the merger may not be consummated and the effect of
the public announcement of the merger on Harbinger's sales, customer
relations and operating results and Harbinger's ability to attract and
retain key management, marketing and technical personnel;
- the risk that despite the efforts of the combined company, key technical,
marketing and management personnel might not choose to remain employed by
the combined company;
- the risk of market confusion and hesitation and potential delay or
reduction in orders;
- the fact that pursuant to the merger agreement, Harbinger is required to
obtain Peregrine's consent before it can take a variety of actions between
the signing and the closing of the merger;
- Harbinger's limited ability to terminate the merger agreement, including
Harbinger's inability to terminate the merger agreement merely because a
superior proposal has been made to Harbinger; and
- various other risks associated with the businesses of Harbinger, Peregrine
and the combined company and the merger described under "Risk Factors."
The Harbinger board believed that certain of these risks were unlikely to
occur or unlikely to have a material impact on the merger or the combined
company, while others could be avoided or mitigated by Harbinger or by the
combined company, and that, overall, the risks, uncertainties, restrictions and
potentially negative factors associated with the merger were outweighed by the
potential benefits of the merger.
The foregoing discussion of information and factors considered and given
weight by the Harbinger board is not intended to be exhaustive, but is believed
to include all of the material factors considered by the Harbinger board. In
view of the variety of factors considered in connection with its evaluation of
the merger, the Harbinger board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determinations and recommendations.
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<PAGE>
RECOMMENDATION OF HARBINGER'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, BY THE UNANIMOUS VOTE OF THE DIRECTORS PRESENT,
THE BOARD OF DIRECTORS OF HARBINGER HAS RECOMMENDED THAT HARBINGER'S
SHAREHOLDERS VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND IN FAVOR OF APPROVAL OF THE MERGER.
OPINION OF GOLDMAN, SACHS & CO., FINANCIAL ADVISOR TO HARBINGER
On April 5, 2000, Goldman Sachs rendered its oral opinion to the board of
directors of Harbinger, which was subsequently confirmed by the written opinion
of Goldman Sachs, dated April 5, 2000, that, as of that date, and based upon and
subject to the various qualifications and assumptions described in its opinion,
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders of Harbinger common stock.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF GOLDMAN SACHS, DATED APRIL
5, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX E AND IS
INCORPORATED HEREIN BY REFERENCE. HARBINGER SHAREHOLDERS SHOULD READ THE OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of
Harbinger for the five years ended December 31, 1999;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of
Peregrine for the three fiscal years ended March 31, 1999;
- certain interim reports to shareholders and Quarterly Reports on
Form 10-Q of Harbinger and Peregrine;
- certain other communications from Harbinger and Peregrine to their
respective shareholders;
- certain internal financial analyses and forecasts for Harbinger prepared
by its management; and
- certain cost savings and operating synergies projected by the management
of Harbinger to result from the transactions contemplated by the merger
agreement.
In addition, Goldman Sachs:
- held discussions with members of the senior management of Harbinger and
Peregrine regarding their assessment of the strategic rationale for, and
the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial
condition and future prospects of their respective companies;
- reviewed the reported price and trading activity for the Harbinger common
stock and Peregrine common stock, which, like many Internet related
stocks, have been and are likely to continue to be subject to significant
short term price and trading volatility;
- compared certain financial and stock market information for Harbinger and
Peregrine with similar information for certain other companies, the
securities of which are publicly traded;
- reviewed the financial terms of certain recent business combinations in
the enterprise software, business-to-business e-commerce and enterprise
e-commerce industries specifically and in other industries generally; and
- performed such other studies and analyses as Goldman Sachs considered
appropriate.
52
<PAGE>
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and has assumed
the accuracy and completeness of this information for purposes of rendering its
opinion. In that regard, Goldman Sachs has assumed, with the consent of the
board of directors of Harbinger, that the cost savings and operating synergies
have been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the management of Harbinger. As Harbinger was aware,
Peregrine did not make available to Goldman Sachs Peregrine's projections of
expected future performance. Accordingly, Goldman Sachs' review of such matters
was limited to discussions with the senior management of Peregrine of certain
publicly available estimates of research analysts. Goldman Sachs has also
assumed, with the consent of the board of directors of Harbinger, that the
estimates of research analysts as commented on by the senior management of
Peregrine have been prepared on a basis that does not materially differ from the
view of management of Peregrine as to the future performance of Peregrine.
Peregrine has advised Goldman Sachs and Harbinger that as a matter of policy it
does not adopt or otherwise endorse publicly available estimates of Peregrine's
future financial performance by research analysts. Accordingly, no inference
should be drawn from the contents of Goldman Sachs' written fairness opinion to
Harbinger's board of directors dated April 5, 2000 that Peregrine has endorsed
any publicly available estimates of Peregrine's future financial performance by
research analysts.
Goldman Sachs has not made an independent evaluation or appraisal of the
assets and liabilities of Harbinger or Peregrine or any of their subsidiaries
and it has not been furnished with any such evaluation or appraisal of any of
these assets or liabilities. The opinion of Goldman Sachs was provided for the
information and assistance of the board of directors of Harbinger in connection
with its consideration of the transaction contemplated by the merger agreement.
Goldman Sachs' opinion does not constitute a recommendation as to how any holder
of Harbinger common stock should vote with respect to such transaction.
The following is a summary of the material financial analyses reviewed by
Goldman Sachs and used in connection with providing its opinion to the board of
directors of Harbinger on April 5, 2000. It does not purport to be a complete
description of the analyses performed by Goldman Sachs. The order of analyses
described, and the results of those analyses, do not represent relative
importance or weight given to those analyses by Goldman Sachs. Except as
otherwise noted, the following quantitative information, to the extent that it
is based on market data, is based on market data as it existed on or before
April 5, 2000, and is not necessarily indicative of current market conditions.
THE SUMMARY INCLUDES INFORMATION PRESENTED IN TABULAR FORMAT. THESE TABLES
SHOULD BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY.
1. SUMMARY OF TRANSACTION MULTIPLES
At the exchange ratio of 0.75 of a share of Peregrine common stock for each
share of Harbinger common stock, Goldman Sachs noted that, based on the closing
prices of Peregrine common stock of $56.22 and Harbinger common stock of $22.13
on April 4, 2000, the implied price per share being paid in the merger was
$42.16, representing a premium of 90.6%. (It should be noted that the closing
price of Peregrine common stock on May 4, 2000 was $24.13 and based on that
price, the implied price per share of Harbinger common stock based on the same
exchange ratio was $18.09.) Goldman Sachs then calculated implied per share
prices using average market prices of Peregrine common stock over
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<PAGE>
selected periods at the exchange ratio of 0.75 and compared these implied per
share prices with average market prices of Harbinger common stock over selected
periods. The results of this analysis are as follows:
<TABLE>
<CAPTION>
IMPLIED VALUES AND IMPLIED PREMIUMS OF THE 0.75 EXCHANGE RATIO
---------------------------------------------------------------------------------------
BASED ON AVERAGE PRICE OF BASED ON AVERAGE PRICE OF
BASED ON CLOSING PRICE OF PEREGRINE COMMON STOCK OF PEREGRINE COMMON STOCK OF
PEREGRINE COMMON STOCK OF $67.94 FOR THE 10-DAY PERIOD $68.22 FOR THE 30-DAY PERIOD
$56.22 ON APRIL 4, 2000 ENDED APRIL 4, 2000 ENDED APRIL 4, 2000
------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
IMPLIED VALUE PER SHARE OF
HARBINGER COMMON STOCK...... $42.16 $50.96 $51.17
PREMIUM TO CLOSING PRICE OF
HARBINGER COMMON STOCK OF
$22.13 ON APRIL 4, 2000..... 90.6% 130.3% 131.3%
PREMIUM TO AVERAGE PRICE OF
HARBINGER COMMON STOCK OF
$31.71 FOR THE 1-MONTH
PERIOD ENDED APRIL 4,
2000........................ 33.0% 60.7% 61.4%
PREMIUM TO AVERAGE PRICE OF
HARBINGER COMMON STOCK OF
$28.53 FOR THE 3-MONTH
PERIOD ENDED APRIL 4,
2000........................ 47.8% 78.6% 79.4%
</TABLE>
Goldman Sachs also calculated the implied premium being paid in the merger
by comparing the exchange ratio in the merger with the average exchange ratio of
the market price of Harbinger common stock over selected periods to the closing
price of Peregrine common stock on April 4, 2000. The results of the analysis
are as follows:
<TABLE>
<CAPTION>
IMPLIED PREMIUMS TO VARIOUS MARKET EXCHANGE RATIOS
------------------------------------------------------
BASED ON CLOSING PRICE OF
PEREGRINE COMMON STOCK OF PREMIUM REPRESENTED BY THE
$56.22 ON APRIL 4, 2000 IMPLIED EXCHANGE RATIO
------------------------- --------------------------
<S> <C> <C>
BASED ON CLOSING PRICE OF HARBINGER COMMON STOCK
OF $22.13 ON APRIL 4, 2000.................... 0.39x 90.6%
BASED ON AVERAGE PRICE OF HARBINGER COMMON STOCK
OF $31.71 FOR THE 1-MONTH PERIOD ENDED APRIL
4, 2000....................................... 0.47x 61.2%
BASED ON AVERAGE PRICE OF HARBINGER COMMON STOCK
OF $28.53 FOR THE 3-MONTH PERIOD ENDED APRIL
4, 2000....................................... 0.55x 35.2%
</TABLE>
Using the implied values of $42.16, $50.96 and $51.17 per share, Goldman
Sachs calculated various financial multiples and ratios of the implied prices
for Harbinger for the years 1999 and 2000. Goldman Sachs obtained the 1999 data
from Harbinger's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and the 2000 data from Harbinger's management projections. The
analysis was made based on (i) 44.9 million fully diluted shares of Harbinger
common stock outstanding, (ii) Harbinger's net debt of ($12.9) million as of
December 31, 1999, (iii) Harbinger's 1999 and projected 2000 sales of
$155.5 million and $190.0 million, (iv) Harbinger's 1999 and projected 2000
earnings before interest, taxes, depreciation, and amortization ("EBITDA") of
$22.1 million and $16.9 million, (v) Harbinger's 1999 and projected 2000
earnings before interest and taxes ("EBIT") of
54
<PAGE>
$12.6 million and $4.5 million and (vi) Harbinger's 1999 and projected 2000
earnings per share ("EPS") of $0.26 and $0.11.
<TABLE>
<CAPTION>
IMPLIED TRANSACTION
MULTIPLES
------------------------------
IMPLIED PRICE PER SHARE $42.16 $50.96 $51.17
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/Sales
1999.............................................. 12.1x 14.6x 14.7x
2000 (estimated).................................. 9.9x 12.0x 12.0x
Enterprise Value/EBITDA
1999.............................................. 85.1x 103.0x 103.4x
2000 (estimated).................................. 111.3x 134.7x 135.2x
Enterprise Value/EBIT
1999.............................................. 149.3x 180.6x 181.4x
2000 (estimated).................................. 418.0x 505.8x 507.9x
P/E Multiple
1999.............................................. 162.2x 196.0x 196.8x
2000 (estimated).................................. 383.7x 463.7x 465.6x
</TABLE>
2. HISTORICAL STOCK TRADING ANALYSIS
Goldman Sachs reviewed and compared historical exchange ratios over selected
periods by calculating the ratio of the market price of Harbinger common stock
to the market price of Peregrine common stock on a daily basis and averaging
such ratios over the selected periods. The results of the analysis are
summarized as follows:
<TABLE>
<CAPTION>
PERIOD FOR WHICH THE DAILY AVERAGE EXCHANGE RATIO
EXCHANGE RATIOS WERE CALCULATED DURING PERIOD
- ------------------------------- ----------------------
<S> <C>
April 4, 2000........................................... 0.39x
1 month ended April 4, 2000............................. 0.47x
3 months ended April 4, 2000............................ 0.55x
6 months ended April 4, 2000............................ 0.63x
1 year ended April 4, 2000.............................. 0.76x
</TABLE>
Goldman Sachs also compared the historical trading prices of Harbinger
common stock and Peregrine common stock with the following: (i) an enterprise
software composite index comprised of the common stock of Baan, BMC Software,
Compuware, Great Plains Software, JD Edwards, JDA Software, Peoplesoft, SAP and
Siebel Systems; (ii) an enterprise e-commerce composite index comprised of the
common stock of i2 Technologies, Microsoft and Oracle; (iii) a
business-to-business e-commerce composite index comprised of the common stock of
Ariba, CommerceOne, FreeMarkets, Internet Capital Group, PCOrder.com,
PurchasePro.com and Vitria; and (iv) the Goldman Sachs Technology Index (GTSI).
The analysis indicated that, for the period from April 5, 1999 to April 4, 2000,
the Harbinger common stock and Peregrine common stock have increased relative to
the enterprise software composite index, business-to-business e-commerce
composite index and GTSI but decreased relative to the enterprise e-commerce
composite index.
3. SELECTED PUBLIC MARKET COMPARABLES
Goldman Sachs reviewed financial information of Harbinger, Peregrine and
comparable companies whose securities are publicly traded. Goldman Sachs
calculated various financial multiples and ratios for Harbinger based on
(i) the market price of the Harbinger common stock on April 4, 2000 and
55
<PAGE>
(ii) the implied price per share of the Harbinger common stock being paid in the
merger. Such financial multiples and ratios were compared with those for the
business-to-business e-commerce companies and enterprise software companies
selected for the historical stock trading analysis.
Goldman Sachs also conducted a similar analysis for Peregrine based on the
market price of the Peregrine common stock on April 4, 2000. Financial multiples
and ratios for Peregrine were compared with those for the enterprise e-commerce
companies and enterprise software companies selected for the historical stock
trading analysis.
Where applicable, the financial multiples and ratios for Harbinger,
Peregrine and the selected companies were calculated using the (i) the closing
prices of their common stock on April 4, 2000 and (ii) their respective equity
market capitalization. Estimates of revenues and price-to-earning ("P/E") ratios
for Harbinger, Peregrine and the selected companies were obtained from the
following sources:
- for Harbinger, estimates for the year 2000 were based on average street
revenue estimates and estimates for the year 2001 were based on
Harbinger's management projections;
- for Peregrine, estimates for the years 2000 and 2001 were based on a
publicly available research report dated February 18, 2000; and
- for the selected companies, estimates for the years 2000 and 2001 were
based on public filings, estimates of I/B/E/S International, a financial
information services provider, and respective publicly available research
reports.
The results of the analyses are summarized as follows:
<TABLE>
<CAPTION>
BUSINESS-TO-BUSINESS ENTERPRISE HARBINGER
E-COMMERCE ENTERPRISE SOFTWARE E-COMMERCE ----------------------
------------------------ ------------------------ ------------------------ MARKET TRANSACTION
RANGE MEDIAN RANGE MEDIAN RANGE MEDIAN VALUE VALUE
------------- -------- ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Price as a % of
52-week high......... 26.7% - 59.6% 37.6% 27.3% - 71.5% 57.3% 42.8% - 85.9% 74.3% 59.1% NM
Revenue Multiple
2000 (estimated)..... 6.2x - 270.4x 81.5x 1.4x - 37.5x 4.3x 20.8x - 23.8x 21.3x 5.0x 9.9x
32.8x -
2001 (estimated)..... 169.7x 61.1x 1.2x - 26.7x 3.5x 15.4x - 21.7x 18.7x 3.7x 7.3x
2000 Revenue
Multiple/1997-1999
Revenue Compounded
Annual Growth Rate... 0.1x - 1.0x 0.3x 0.1x - 0.4x 0.1x 0.3x - 1.0x 0.8x 0.3x 0.7x
P/E Multiple
14.9x - 49.5x -
2000 (estimated)..... NM NM 132.3x 59.6x 262.3x 105.5x 201.1x 383.3x
11.1x - 40.1x -
2001 (estimated)..... NM NM 100.9x 36.0x 178.2x 85.3x 36.9x 70.3x
IBES 5-year EPS
Compounded Annual
Growth Rate.......... 25.0% - 95.0% 50.0% 20.0% - 40.0% 26.5% 25.0% - 40.0% 25.0% 35.0% 35.0%
<CAPTION>
PEREGRINE
---------
<S> <C>
Stock Price as a % of
52-week high......... 70.7%
Revenue Multiple
2000 (estimated)..... 19.9x
2001 (estimated)..... 13.9x
2000 Revenue
Multiple/1997-1999
Revenue Compounded
Annual Growth Rate... 0.2x
P/E Multiple
2000 (estimated)..... 124.9x
2001 (estimated)..... 69.2x
IBES 5-year EPS
Compounded Annual
Growth Rate.......... 47.5%
</TABLE>
4. DISCOUNTED CASH FLOW ANALYSIS
Using Harbinger's management projections, Goldman Sachs calculated and
analyzed the sensitivity of the implied equity value for Harbinger on a per
share basis based on (i) Harbinger's net debt of ($12.9) million as of
December 31, 1999, (ii) 40.1 million basic shares of Harbinger common stock
outstanding and (iii) 7.2 million options to purchase Harbinger common stock
with a weighted average strike price of $13.54 outstanding.
Goldman Sachs calculated a range of implied equity value for Harbinger on a
per share basis by discounting projected future cash flows through 2002 and 2002
unlevered net income terminal multiples ranging from 30.0x to 50.0x at discount
rates ranging from 15.0% to 35.0% to June 30, 2000. This analysis showed that
the implied equity value of Harbinger common stock ranged from $19.28 to $37.34
per share.
56
<PAGE>
Using a 40.0x 2002 estimated unlevered net income terminal multiple and a
25.0% discount rate, Goldman Sachs performed a sensitivity analysis to consider
the impact of variances in sales growth and EBIT margins of Harbinger on its
implied equity value per share. This analysis showed that, with a variance in
sales growth ranging from (10.0)% to 10.0% and a variance in EBIT margin ranging
from (2.0)% to 2.0%, the implied equity value of Harbinger ranged from $19.74 to
$37.02 per share.
5. P/E METHODOLOGIES AND IMPLIED STOCK PRICE ANALYSIS
Using the 2001, 2002 and 2003 fully-diluted EPS estimates for Harbinger
common stock provided by Harbinger's management, Goldman Sachs calculated a
range of implied future stock prices of Harbinger common stock based on forward
EPS multiples ranging from 30x to 50x. Goldman Sachs then analyzed the present
value of Harbinger common stock by discounting the implied future stock prices
to June 30, 2000 at discount rates ranging from 15% to 35%. This analysis showed
that, with 2001, 2002 and 2003 fully-diluted EPS estimates of $0.47, $0.86 and
$1.41, the present value of the implied future stock price of Harbinger common
stock as of June 30, 2000 would range from $16.39 to $49.84 per share.
6. PRO FORMA MERGER ANALYSIS
Goldman Sachs analyzed the pro forma financial impact of the merger on the
fully-diluted cash EPS of Peregrine common stock for the fiscal years ending
March 31, 2000 and March 31, 2001. Estimates for Harbinger, as adjusted to
reflect Peregrine's fiscal year end of March 31, were based on a publicly
available research report dated February 10, 2000 for fiscal 2000 and the fiscal
2000 cash earnings were grown at the I/B/E/S median long term growth rate to
estimate fiscal 2001 cash earnings. Estimates for Peregrine were based on
publicly available median consensus earnings estimates. Estimates of revenue
enhancements and cost reductions that are expected to result from the merger
were provided by Harbinger's management. The fully-diluted cash EPS estimates
for Harbinger and Peregrine on a stand-alone basis did not include historical
transaction goodwill. The analysis was based on the following additional
assumptions:
- the merger would result in annual revenue enhancements and cost reductions
of $38.2 million on a pre-tax basis;
- the combined company would be subject to a tax rate of 33%;
- 100% of the synergies would be phased in during the year 2001;
- no additional interest expense would be resulted from the merger;
- transaction goodwill amortization was excluded;
- there were 44.9 million and 121.7 million of fully-diluted shares of
Harbinger and Peregrine common stock outstanding, respectively; and
- purchase accounting would apply to the combined company.
Taking into account the revenue enhancements and cost reductions expected to
result from the merger, the pro forma fully-diluted cash EPS of the combined
company would be as follows:
<TABLE>
<CAPTION>
PEREGRINE HARBINGER COMBINED COMPANY
--------- --------- ----------------
<S> <C> <C> <C>
2000 (estimated)......................... $0.31 $0.25 $0.31
2001 (estimated)......................... $0.51 $0.14 $0.60
</TABLE>
57
<PAGE>
7. CONTRIBUTION ANALYSIS
Goldman Sachs calculated the respective percentage contribution by Peregrine
and Harbinger to the combined company for the years 2001 and 2002. Estimates for
Harbinger, as adjusted to reflect Peregrine's fiscal year end of March 31, were
based on Harbinger's management projections and estimates for Peregrine were
based on a publicly-available research report dated February 18, 2000.
Historical data for Harbinger, as adjusted to reflect Peregrine's fiscal year
end of March 31, were based on Harbinger's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and historical data for Peregrine were based
on Peregrine's Annual Report on Form 10-K for the fiscal year ended March 31,
1999 and its Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1999.
Goldman Sachs computed the relative contribution of Harbinger and Peregrine
to the combined company in terms of (i) equity market capitalization,
(ii) enterprise value and (iii) pro forma ownership based on the following
information or assumptions:
- the market prices of Peregrine common stock and Harbinger common stock
were $56.22 and $22.13, respectively, as of April 4, 2000;
- 105.0 million basic shares of Peregrine common stock and 40.1 million
basic shares of Harbinger common stock were outstanding as of
December 31, 1999;
- 18.5 million options to purchase Peregrine common stock with a weighted
average strike price of $5.68 and 7.2 million options to purchase
Harbinger common stock with a weighted average strike price of $13.54 were
outstanding as of December 31, 1999;
- the options to purchase Harbinger common stock would be rolled-over on a
tax-fee basis; and
- the net debts of Peregrine and Harbinger were ($22.9) million and
($12.9) million, respectively, as of December 31, 1999.
The results of the analysis are as follows:
<TABLE>
<CAPTION>
% CONTRIBUTION
---------------------
PEREGRINE HARBINGER
--------- ---------
<S> <C> <C>
Equity Market Capitalization............................. 88% 12%
Enterprise Value......................................... 88% 12%
Pro Forma Ownership...................................... 78.3% 21.7%
</TABLE>
In addition, Goldman Sachs computed the relative contribution of Harbinger
and Peregrine to the combined company in terms of their respective (i) sales,
(ii) EBITDA, (iii) EBIT and (iv) cash net income. Using estimates provided by
Harbinger's management, Goldman Sachs also conducted a similar analysis by
taking into account the revenue enhancements and cost reductions expected to
result from the merger. The analysis was conducted with the following additional
assumptions:
- the merger would result in $36.0 million annual revenue enhancements on a
pre-tax basis with a margin impact of 70%;
- the merger would result in $13.0 million annual cost reductions on a
pre-tax basis;
- the revenue enhancements and cost reductions expected to result from the
merger would be subject to a tax rate of 33%; and
- 100% of the revenue enhancements and cost reductions expected to result
from the merger would be phased in during 2001.
58
<PAGE>
The table below sets forth the results of the analyses:
<TABLE>
<CAPTION>
WITHOUT REVENUE WITH REVENUE
ENHANCEMENTS AND ENHANCEMENTS AND
COST REDUCTIONS COST REDUCTIONS
--------------------- ---------------------
PEREGRINE HARBINGER PEREGRINE HARBINGER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales
LTM.................................. 59% 41% 59% 41%
Fiscal year ended March 31, 2000
(estimated)........................ 60% 40% 64% 36%
Fiscal year ended March 31, 2001
(estimated)........................ 64% 36% 66% 34%
EBITDA
LTM.................................. 79% 21% 79% 21%
Fiscal year ended March 31, 2000
(estimated)........................ 82% 18% 86% 14%
Fiscal year ended March 31, 2001
(estimated)........................ 86% 14% 89% 11%
EBIT
LTM.................................. 78% 22% 78% 22%
Fiscal year ended March 31, 2000
(estimated)........................ 83% 17% 89% 11%
Fiscal year ended March 31, 2001
(estimated)........................ 89% 11% 92% 8%
Cash Net Income
LTM.................................. 66% 34% 66% 34%
Fiscal year ended March 31, 2000
(estimated)........................ 73% 27% 83% 17%
Fiscal year ended March 31, 2001
(estimated)........................ 87% 13% 91% 9%
</TABLE>
8. SELECTED TRANSACTION MULTIPLES
Using the implied value of $42.16 per share being paid in the merger for
Harbinger common stock, Goldman Sachs calculated (i) the premium represented by
the implied value in relation to the highest market price of Harbinger common
stock during the past 52 weeks, (ii) the premium represented by the implied
value in relation to the market price of Harbinger common stock on April 4,
2000, (iii) the corresponding LTM revenue multiple and (iv) the corresponding
LTM EBITDA multiple. Goldman Sachs then compared such results with publicly
available information for similar transactions in the software industry,
including the merger between SBC Commerce and Sterling Commerce. The results of
the analysis are as follows:
<TABLE>
<CAPTION>
OTHER SOFTWARE TRANSACTIONS
PROPOSED SBC/STERLING ---------------------------------------
MERGER MERGER HIGH MEDIAN LOW
-------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Premium to 52-week high......... 12.7% 22.9% 44.8% -3.8% -50.0%
Premium to market............... 90.6% 47.9% 196.2% 30.1% -2.7%
LTM Revenue multiple............ 12.1x 6.2x 155.8x 6.0x 0.7x
LTM EBITDA multiple............. 85.1x 16.0x 1167.2x 26.0x 9.8x
</TABLE>
In addition, Goldman Sachs reviewed the premiums and transaction multiples
involved in the merger between SBC Commerce and Sterling Commerce. Using such
premiums and multiples,
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<PAGE>
Goldman Sachs computed the implied equity valuation and implied value per share
for Harbinger common stock in the merger based on the market price of $22.13 of
Harbinger common stock on April 4, 2000. The results of the analysis are as
follows:
<TABLE>
<CAPTION>
PREMIUMS OR MULTIPLES ON WHICH IMPLIED VALUE
THE IMPLIED VALUATION WAS BASED IMPLIED EQUITY VALUE PER SHARE
- ------------------------------- -------------------- -------------
<S> <C> <C>
Exchange ratio of 0.75 in this merger......... $1,881m $ 42.16
Premium to 52-week high in the SBC/Sterling
merger...................................... $1,680m $ 37
Premium to market in the SBC/Sterling
merger...................................... $1,470m $ 33
LTM Revenue multiple.......................... $ 977m $ 22
LTM EBITDA multiple........................... $ 354m $ 8
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the opinion of Goldman Sachs. In arriving at its opinion, Goldman
Sachs considered the results of all such analyses and did not attribute any
particular weight to any factor or analysis considered by it; rather, Goldman
Sachs made its determination as to fairness on the basis of its experience and
professional judgment after considering the results of all such analyses. No
company used in the above analyses as a comparison is directly comparable to
Harbinger or Peregrine and no transaction used is directly comparable to the
proposed merger.
Goldman Sachs prepared these analyses solely for purposes of providing an
opinion to the Harbinger board as to the fairness of the exchange ratio to the
holders of shares of Harbinger common stock from a financial point of view and
they do not purport to be appraisals, nor do they necessarily reflect the prices
at which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
these analyses. Because these analyses are inherently subject to uncertainty and
are based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Harbinger, Peregrine or Goldman Sachs assumes
responsibility if future results are materially different from those forecasted.
As described above, the opinion of Goldman Sachs to the Harbinger board was one
of many factors taken into consideration by the Harbinger board in making its
determination to approve the merger agreement. The foregoing summary does not
purport to be a complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Harbinger, having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
merger agreement. In addition, Goldman Sachs is a full service securities firm
and in the ordinary course of its trading activities it may from time to time
effect transactions, for its own account or the account of customers, and hold
positions in securities or options on securities of Harbinger and Peregrine.
FEE ARRANGEMENTS WITH HARBINGER'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated March 21, 2000 between Harbinger and
Goldman Sachs, Harbinger engaged Goldman Sachs to act as its exclusive financial
advisor in connection with the possible sale of all or a portion of Harbinger.
Pursuant to the terms of this letter:
- if the merger is consummated, Harbinger will pay Goldman Sachs a
transaction fee equal to 0.60% of the aggregate consideration paid by
Peregrine for the Harbinger common stock
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(including amounts paid to holders of options, warrants and convertible
securities) pursuant to the merger agreement, plus the principal amount of
all indebtedness for borrowed money as set forth on the most recent
consolidated balance sheet of Harbinger prior to the completion of the
merger; and
- if the merger agreement is terminated or otherwise not consummated and
Harbinger is entitled to a payment according to the terms thereof,
Harbinger will pay Goldman Sachs a transaction fee of the lesser of
(i) $7 million or (ii) 25% of such payment in cash if and when such
payment is made to Harbinger.
In addition, Harbinger has agreed to reimburse Goldman Sachs periodically,
upon request, and upon consummation of the merger or upon termination of its
services pursuant to the letter agreement, for its reasonable out-of-pocket
expenses, including the fees and disbursements of Goldman Sachs' attorneys, plus
any sales, use or similar taxes (including additions to such taxes, if any)
arising in connection with any matter referred to in the letter. Harbinger has
also agreed to indemnify Goldman Sachs and certain related persons against
certain liabilities in connection with its engagement, including liabilities
under the federal securities laws.
PEREGRINE'S REASONS FOR THE MERGER
In its decision to recommend and approve the merger, the most important
benefits identified by the board of directors of Peregrine were the following:
- the board of directors believes that the merger will result in a
complementary coupling of Peregrine's infrastructure management,
e-procurement, and employee self-service solutions with Harbinger's
business-to-business e-commerce and procurement offerings;
- the combination of the technical and marketing resources of the two
companies is expected to lead to a broader product family that will be
attractive to customers because it will represent an integrated solution
for managing the acquisition, use, maintenance, and disposal of
infrastructure assets; and
- the combination of the companies' product lines, sales forces, and
distribution channels would immediately enhance Peregrine's ability to
compete in the infrastructure management, e-procurement, and employee self
service software solution markets.
Peregrine's board of directors consulted with senior management and its
outside legal and financial advisors as part of the process of approving the
merger. In its evaluation, the Peregrine board considered several factors,
including the following:
- the potential strategic benefits of the merger;
- historical information concerning Peregrine's and Harbinger's respective
businesses, prospects, financial performance and condition, operations,
technology, management, and competitive position, including public SEC
reports of the results of operations for each company;
- the view of Peregrine's management of the financial condition, results of
operations, and business of Peregrine and Harbinger both before and after
the merger;
- current financial market conditions and historical market prices,
volatility, and trading information with respect to Peregrine's common
stock and Harbinger's common stock;
- the exchange ratio for the merger in light of comparable transactions;
- detailed financial analysis and pro forma and other information presented
to the board, including the opinion of Deutsche Bank to the effect that,
as of the date of its opinion and
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based on and subject to the assumptions and limitations described in the
opinion, the exchange ratio in the merger was fair, from a financial point
of view, to Peregrine;
- the impact of the merger on Peregrine's customers and employees; and
- reports from Peregrine's management and its legal advisors concerning
their due diligence investigations of Harbinger.
The Peregrine board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger, including the
following:
- the risk that the potential benefits of the merger may not be realized;
- risks associated with recent changes in Harbinger's business plan;
- Harbinger's slower revenue growth rates relative to Peregrine;
- the risks associated with outstanding shareholder litigation against
Harbinger, for which Harbinger is not insured;
- the challenges of integrating the management teams, cultures, and
organizations of the two companies, especially in light of the physical
distance between Peregrine's headquarters in San Diego, California and
Harbinger's headquarters in Atlanta, Georgia as well as the worldwide
geographic dispersion of each company's operations;
- the risk of disruption of Peregrine's on-going business, including sales
momentum, as a result of uncertainties created by the announcement of the
merger;
- the risk that the merger might not be consummated despite the efforts of
the parties, even if approved by stockholders;
- the significant adverse impact to the net income of the combined company
that will result from charges for the amortization of goodwill and other
intangibles in light of purchase accounting treatment for the merger;
- the substantial charges to be incurred in connection with the merger,
including the costs of integrating the businesses and transaction expenses
arising from the merger;
- the risk that, despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company; and
- the other factors described in the section of this joint proxy
statement/prospectus entitled "Risk Factors" beginning on page 12.
The foregoing discussion of the information and factors considered by
Peregrine's board of directors is not intended to be exhaustive but includes the
material factors the Peregrine board of directors considered. In view of the
complexity of the transaction and the factors, both positive and negative,
influencing its decision, the Peregrine board did not find it practical to
quantify, rank, or otherwise assign relative or specific weights to these
factors. In considering the factors described above, individual members of the
Peregrine board of directors may have given different weights to different
factors. The Peregrine board considered all these factors as a whole and
believed the factors supported its determination to approve the merger.
RECOMMENDATION OF PEREGRINE'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, PEREGRINE'S BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF ITS STOCKHOLDERS, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE ISSUANCE OF SHARES OF PEREGRINE COMMON STOCK IN CONNECTION WITH
THE MERGER.
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OPINION OF DEUTSCHE BANK SECURITIES INC., FINANCIAL ADVISOR TO PEREGRINE
Pursuant to an engagement letter dated as of March 1, 2000, Peregrine
engaged Deutsche Bank to act as financial advisor in the merger and render an
opinion as to the fairness, from a financial point of view, of the exchange
ratio to Peregrine.
At the April 5, 2000 meeting of Peregrine's board of directors, Deutsche
Bank delivered its oral opinion, subsequently confirmed in writing as of the
same date, to Peregrine's board of directors to the effect that, as of the date
of such opinion, based upon and subject to the assumptions made, matters
considered and limits of the review undertaken by Deutsche Bank, the exchange
ratio was fair, from a financial point of view, to Peregrine.
THE FULL TEXT OF DEUTSCHE BANK'S WRITTEN OPINION, DATED APRIL 5, 2000, WHICH
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN BY DEUTSCHE BANK IN CONNECTION WITH THE OPINION,
IS ATTACHED AS ANNEX F TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. PEREGRINE STOCKHOLDERS ARE URGED TO READ
DEUTSCHE BANK'S OPINION IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF DEUTSCHE
BANK SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with Deutsche Bank's role as financial advisor to Peregrine,
and in arriving at its opinion, Deutsche Bank has, among other things, reviewed
certain publicly available financial information and other information
concerning Peregrine and Harbinger and certain internal analyses and other
information furnished to it by Peregrine and Harbinger. Deutsche Bank also held
discussions with the members of the senior managements of Peregrine and
Harbinger regarding the businesses and prospects of their respective companies
and the joint prospects of a combined enterprise. In addition, Deutsche Bank
- reviewed the reported prices and trading activity for the common stock of
both Peregrine and Harbinger,
- reviewed recent public research analyst reports concerning Peregrine and
Harbinger,
- compared certain financial and stock market information for Peregrine and
Harbinger with similar information for selected companies whose securities
are publicly traded,
- reviewed the financial terms of selected recent business combinations
which it deemed comparable in whole or in part,
- reviewed the terms of a draft of the merger agreement and certain related
documents dated April 5, 2000,
- assumed that the pending shareholder lawsuit against Harbinger described
under "Risk Factors" on page 12 of this joint proxy statement/prospectus
would not have a material adverse effect on Harbinger or Peregrine, and
- performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning Peregrine
or Harbinger, including, without limitation, any financial information,
forecasts or projections, considered in connection with the rendering of its
opinion. Accordingly, for purposes of its opinion, Deutsche Bank assumed and
relied upon the accuracy and completeness of all such information.
Deutsche Bank did not conduct a physical inspection of any of the properties
or assets, and did not prepare or obtain any independent evaluation or appraisal
of any of the properties, assets or
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liabilities of Peregrine or Harbinger. With respect to the financial forecasts
and projections made available to Deutsche Bank and used in its analysis,
Deutsche Bank has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Peregrine as to the matters covered thereby. In rendering its
opinion, Deutsche Bank expressed no view as to the reasonableness of such
forecasts and projections or the assumptions on which they are based. Neither
Peregrine nor Harbinger made available to Deutsche Bank any forecasts of future
financial performance.
The opinion of Deutsche Bank was necessarily based upon economic, market and
other conditions as in effect on, and the information made available to Deutsche
Bank as of, the date of such opinion. Although subsequent developments may
affect its opinion, Deutsche Bank has assumed no obligation to update, revise or
reaffirm it.
In rendering its opinion, Deutsche Bank assumed that, in all respects
material to its analysis,
- the representations and warranties of Peregrine, Harbinger and Soda
Acquisition contained in the merger agreement are true and correct;
- Peregrine, Harbinger and Soda Acquisition each will perform all of the
covenants and agreements to be performed by it under the merger agreement;
- all conditions to the obligation of each of Peregrine, Harbinger and Soda
Acquisition to consummate the merger will be satisfied without any waiver
thereof;
- all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the merger will be
obtained;
- in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers
to any agreements, instruments or orders to which either Peregrine or
Harbinger is a party or subject or by which it is bound, no limitations,
restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on Peregrine or
Harbinger or materially reduce the contemplated benefits of the merger to
Peregrine; and
- where applicable, the value per share of Peregrine common stock was its
closing price on April 5, 2000.
In addition, Deutsche Bank has been advised by Peregrine, and accordingly
has assumed for purposes of its opinion, that the merger will be tax-free to
each of Peregrine and Harbinger and their respective stockholders and that the
merger will be accounted for as a purchase.
Set forth below is a brief summary of some of the financial analyses
performed by Deutsche Bank in connection with its opinion and reviewed with
Peregrine's board of directors at its meeting on April 5, 2000. These summaries
of financial analyses include information presented in a tabular format. In
order to understand fully the financial analyses used by Deutsche Bank, the
tables must be read with the text of each summary, because the tables alone are
not a complete description of the financial analyses.
HISTORICAL EXCHANGE RATIO ANALYSIS. Deutsche Bank reviewed the historical
ratio of the daily per share market closing prices of Harbinger common stock to
the corresponding prices of Peregrine common stock over the 15-, 30-, 60- and
90-trading day periods prior to April 5, 2000. Deutsche Bank examined the
premiums represented by the exchange ratio of 0.75 over the averages of these
ratios
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<PAGE>
over the various periods. The following table summarizes the average exchange
ratio over the indicated period and the premium represented by the exchange
ratio.
<TABLE>
<CAPTION>
AVERAGE EXCHANGE RATIO PREMIUM REPRESENTED
PERIOD DURING PERIOD BY EXCHANGE RATIO
- ------ ---------------------- -------------------
<S> <C> <C>
April 5, 2000......................................... 0.4159 80.3%
15 trading day average................................ 0.4404 70.3%
30 trading day average................................ 0.4857 54.4%
60 trading day average................................ 0.5413 38.5%
90 trading day average................................ 0.5738 30.7%
</TABLE>
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Deutsche Bank compared
certain financial information and commonly used valuation measurements for
Harbinger to corresponding information and measurements for two groups of
companies that Deutsche Bank deemed to be comparable to the businesses of
Harbinger: a group of five publicly traded companies that Deutsche Bank deemed
to be internet software companies, which we refer to as the selected software
companies, and a group of six publicly traded companies that Deutsche Bank
deemed to be e-commerce enabling companies, which we refer to as the selected
e-commerce enabling companies. The following table lists the relevant selected
companies:
<TABLE>
<CAPTION>
SELECTED E-COMMERCE
SELECTED SOFTWARE COMPANIES ENABLING COMPANIES
- ---------------------------------------- ----------------------------------------
<S> <C>
Brokat Infosystems Agile Software
Checkfree Holdings Ariba
Intuit Commerce One
QRS Extensity
Sterling Commerce OnDisplay
VerticalNet
</TABLE>
Deutsche Bank compared, among other things, the enterprise value (determined
as the common equity market valuation adjusted by adding the amount of any debt
and subtracting the amount of any cash and cash equivalents, as most recently
reported) as of April 5, 2000 to revenues for the last four fiscal quarters and
projected revenues for calendar years 2000 and 2001 for the selected companies.
Based on such analysis, Deutsche Bank computed a range of implied values per
share of Harbinger. To calculate the multiples for the selected companies,
Deutsche Bank used publicly available information concerning historical and
projected financial performance, including published historical financial
information as well as revenue and earnings estimates reported by research
analysts who cover the selected companies. The following table summarizes the
calculations by Deutsche Bank of the multiples of enterprise value to revenues
for Harbinger implied by the merger and the mean, median, and ranges of
multiples of enterprise value to revenue for the selected companies for the
indicated periods.
<TABLE>
<CAPTION>
HARBINGER SELECTED SOFTWARE COMPANIES SELECTED E-COMMERCE ENABLING COMPANIES
IMPLIED ---------------------------------------- ----------------------------------------
REVENUES MULTIPLES MEAN MEDIAN RANGE MEAN MEDIAN RANGE
- -------- --------- -------- -------- ------------------ -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TTM.................. 12.3x 20.0x 7.5x 5.3x to 80.4x 195.7x 176.9x 86.4x to 380.6x
CY2000............... 9.9x 10.1x 6.4x 3.5x to 29.4x 68.1x 52.9x 30.5x to 162.1x
CY2001............... 7.4x 7.3x 6.0x 2.4x to 17.3x 37.9x 31.9x 14.9x to 93.2x
</TABLE>
Deutsche Bank noted that none of the companies utilized as a comparison is
identical to Harbinger. Accordingly, Deutsche Bank believes the analysis of
publicly traded comparable companies is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in Deutsche
Bank's opinion, concerning differences in financial and operating
characteristics
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of the comparable companies and other factors that could affect the public
trading value of the comparable companies.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Deutsche Bank reviewed the
financial terms, to the extent publicly available, of twenty-six proposed,
pending or completed merger and acquisition transactions since January 1996
involving companies in the traditional electronic data interchange and
enterprise software industries. We refer to these transactions as the selected
EDI/enterprise software transactions. Deutsche Bank also reviewed the financial
terms, to the extent publicly available, of twenty-eight proposed, pending or
completed merger and acquisition transactions since February 1997 involving
companies in the e-commerce enabling industry. We refer to these transactions as
the selected e-commerce enabling transactions. Deutsche Bank calculated the
ratio of the implied enterprise value of the target in each transaction to the
revenue, operating income and net income of the target company for the four
fiscal quarters preceding the announcement, based on certain information for
each of the selected transactions publicly available at the time of
announcement. Deutsche Bank's analysis did not take into account different
market and other conditions during the periods in which the selected
transactions occurred. The transactions reviewed were:
<TABLE>
<CAPTION>
SELECTED EDI/ENTERPRISE SOFTWARE TRANSACTIONS SELECTED E-COMMERCE ENABLING TRANSACTIONS
- --------------------------------------------- ---------------------------------------------
<S> <C>
SBC Communications / Sterling Commerce i2 Technologies / Aspect Development
Intel / Brokat Infosystems CheckFree / TransPoint
Nortel Networks / Clarify Kana Communications / Silknet Software
PeopleSoft / Vantive Broadvision / Interleaf
Peregrine Systems / Knowlix Vignette / DataSage
TSI International Software / Novera Software Ariba / TRADEX Technologies
Microsoft / Visio Broadbase / Rubric
ADC Telecommunications / Saville Systems Kana Communications / Business Evolution
Peregrine Systems / Innovative Tech Systems Kana Communications / NetDialog
Sterling Commerce / XcelleNet Ariba / Trading Dynamics
I2 Technologies / InterTrans Logistics Commerce One / CommerceBid.com
Solutions Agile Software / Digital Market
Siebel Systems / Scopus Technology Kana Communications / Connectify
IBM (Tivoli Systems) / Software Artistry Chemdex / Promedix.com
Scopus Technology / Clear with Computers Kewill Electronic Commerce / Aristo Research,
Harbinger / Premonos (Aristo Computer)
IBM (Tivoli Systems) / Unison Software Open Market / FutureTense
Peregrine Systems / Apsylog (United Software) eBay / Billpoint
Harbinger / ACQUION Vignette / Diffusion
I2 Technologies / Optimax Systems Amazon.com / Accept.com Financial Services
I2 Technologies / Think Systems Inktomi / Impulse! Buy Network
The Baan Company / Aurum Software CNET / KillerApp
Harbinger / Supply Tech Lucent Technologies / Kenan Systems
PeopleSoft / Red Pepper Software America Online / Netscape Communications
Clarify / Metropolis Software BEA Systems / WebLogic
Astea International / Bendata Inktomi / C2B Technologies
IBM / Tivoli Systems Sun Microsystems / NetDynamics
Netscape Communications / KIVA Software
Open Market / Folio Corp. (Mead Data Central)
</TABLE>
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The following table summarizes the calculations by Deutsche Bank of the
mean, median and range of multiples of enterprise value to revenues, operating
income and net income for the selected transactions and the corresponding
multiples for Harbinger implied by the merger.
<TABLE>
<CAPTION>
HARBINGER SELECTED SOFTWARE COMPANIES SELECTED E-COMMERCE ENABLING COMPANIES
IMPLIED ---------------------------------------- ----------------------------------------
TTM MULTIPLES MEAN MEDIAN RANGE MEAN MEDIAN RANGE
- --- --------- -------- -------- ------------------ -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. 12.3x 8.5x 4.9x 2.4x to 30.7x 78.9x 73.5x 7.8x to 192.0x
Operating Income..... 151.4x 85.4x 40.6x 19.8x to 233.0x n/a n/a n/a
Net Income........... 119.9x 366.7x 97.8x 30.1x to 1955.2x n/a n/a n/a
</TABLE>
For transactions in the technology and internet sector announced since
January 1, 1999 with transaction values greater than $1 billion in which the
stock of the acquired company was publicly traded, Deutsche Bank also calculated
the premium of the price at which such transactions were announced or effected
to each acquired companies' per share market price for the one day, one week and
four weeks prior to the announcement of the transaction and the premium
represented by the exchange ratio in the merger (based on the exchange ratio and
the per share market price of Peregrine common stock on April 5, 2000) over the
per share market price of Harbinger common stock for the one day, one week and
four weeks prior to the announcement of the merger. The following table sets
forth the selected transactions analyzed by Deutsche Bank:
SELECTED TRANSACTIONS
Spyglass / OpenTV
LHS Group / Sema Group
Aspect Development / i2 Technologies
Apex / Cybex Computer Products
Network Solutions / VeriSign
Mission Critical Software / NetIQ
Sterling Commerce / SBC Communications
CareInsite / Healtheon/WebMD
Medical Manager / Healtheon/WebMD
Sterling Software / Computer Associates
Inprise / Corel
InterVU / Akamai Technologies
Silknet Software / Kana Communications
E-Tek Dynamics / JDS Uniphase
Etec Systems / Applied Materials
Concentric Network / NextLink Communications
USWeb/CKS / Whittman-Hart
DII Group / Flextronics International
Pierce Leahy / Iron Mountain
Clarify / Nortel Networks
Flycast Communications / CMGI
Visio / Microsoft
Smart Modular Technologies / Solectron
Excel Switching / Lucent Technologies
International Network Services / Lucent
Technologies
Data General / EMC
AboveNet Communications / Metromedia Fiber
Network
Medical Manager / Synetic
Wang Laboratories / Getronics
FORE Systems / GEC
GeoTel Communications / Cisco Systems
Broadcast.com / Yahoo!
PLATINUM Technology / Computer Associates
Level One Communications / Intel
XYLAN / Alcatel
VLSI Technology / Koninklijke Philips
Electronics
Sundstrand / United Technologies
GeoCities / Yahoo!
Excite / At Home
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This premium analysis is summarized in the following table:
<TABLE>
<CAPTION>
TRANSACTION PRICE PREMIUM
--------------------------------
SELECTED TRANSACTIONS ONE DAY ONE WEEK FOUR WEEKS
- --------------------- -------- -------- ----------
<S> <C> <C> <C>
High............................................ 196.2% 188.9% 235.5%
Mean............................................ 43.9 49.8 67.7
Median.......................................... 39.6 45.5 54.6
Low............................................. 5.3 1.1 -3.4
Harbinger/Peregrine............................. 80.3 46.8 33.8
</TABLE>
Deutsche Bank noted that none of the selected transactions was identical to
the merger. In evaluating the selected transactions, Deutsche Bank made
assumptions and judgments with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Deutsche Bank, Peregrine or Harbinger. Because the reasons
for, and circumstances surrounding, each of the selected transactions analyzed
were so diverse, and due to the inherent differences between the operations and
financial conditions of Harbinger and Peregrine and the companies involved in
the selected transactions, Deutsche Bank believes that a comparable transaction
analysis is not simply mathematical. Rather, it involves complex considerations
and qualitative judgments, reflected in Deutsche Bank's opinion, concerning
differences between the characteristics of the selected transactions and the
merger that could affect the value of the subject companies and businesses and
Harbinger and Peregrine.
PRO FORMA COMBINED REVENUES AND EARNINGS ANALYSIS. Deutsche Bank analyzed
certain pro forma effects of the merger. Based on its analysis, Deutsche Bank
computed the resulting dilution or accretion to the combined company's revenues
per share and earnings per share, based on publicly available analyst estimates
for Peregrine and Harbinger for calendar year 2000, before taking into account
any potential cost savings and other synergies that Peregrine and Harbinger
could achieve if the merger were consummated and before non-recurring expenses
relating to the merger. Deutsche Bank noted that before taking into account any
potential cost savings and other synergies and before such non-recurring costs,
the merger would be approximately 15.0% accretive to the combined company's
revenues per share and 6.8% dilutive to the combined company's earnings per
share (excluding goodwill) for the calendar year 2000. Deutsche Bank also noted
that the combined company would require approximately $6.0 million in cost
savings (without considering any tax effects) and other synergies to eliminate
any dilution to the combined company's earnings per share (excluding goodwill).
CONTRIBUTION ANALYSIS. Deutsche Bank analyzed the relative contributions of
Peregrine and Harbinger to the pro forma revenues, gross margin, and operating
income of the combined company, based on research analysts' projections for the
respective companies for the last four fiscal quarters and the calendar year
ending December 31, 2000 (excluding (1) the effect of any potential cost savings
or synergies that may be realized as a result of the merger and
(2) non-recurring expenses relating to the merger). The following table
summarizes the results of this analysis:
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION TO THE
PRO FORMA
COMBINED COMPANY BY
---------------------
PEREGRINE HARBINGER
--------- ---------
<S> <C> <C>
TTM Revenues............................................. 58.9% 41.1%
CY00 Revenues............................................ 63.5 36.5
TTM Gross Margin......................................... 62.4 37.6
CY00 Gross Margin........................................ 68.8 31.2
TTM Operating Income..................................... 78.3 21.7
CY00 Operating Income.................................... 95.0 5.0
</TABLE>
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Deutsche Bank compared the results of their analysis to the relative
ownership, based on the exchange ratio, by Harbinger's shareholders of
approximately 21.4% of the outstanding capital of the combined company on an
enterprise value basis.
Deutsche Bank applied the same analysis to the relative contributions of
Peregrine and Harbinger to the pro forma net income of the combined company. The
results of this analysis are summarized in the following table.
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION TO THE
PRO FORMA
COMBINED COMPANY BY
---------------------
PEREGRINE HARBINGER
--------- ---------
<S> <C> <C>
TTM Net Income........................................... 65.0% 35.0%
CY00 Net Income.......................................... 91.6 8.4
</TABLE>
Deutsche Bank compared the results of this analysis to the relative
ownership, based on the exchange ratio, of approximately 22.0% of the
outstanding capital of the combined company by Harbinger's shareholders on an
equity value basis.
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to Peregrine's board of directors and in
preparing its the opinion, but is not a comprehensive description of all
analyses performed and factors considered by Deutsche Bank in connection with
preparing its opinion. The preparation of a fairness opinion is a complex
process involving the application of subjective business judgment in determining
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, is
not readily susceptible to summary description. Deutsche Bank believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and of the factors considered without considering all analyses and
factors could create a misleading view of the process underlying the opinion. In
arriving at its fairness determination, Deutsche Bank did not assign specific
weights to any particular analyses.
In conducting its analyses and arriving at its opinions, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its opinion
to Peregrine's board of directors as to the fairness of the exchange ratio to
the stockholders of Peregrine and do not purport to be appraisals of or
necessarily reflect the prices at which businesses or securities actually may be
sold, which are inherently subject to uncertainty. In connection with its
analyses, Deutsche Bank made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond Peregrine's and Harbinger's control. Analyses based on
estimates or forecasts of future results are not necessarily indicative of
actual past or future values or results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of Peregrine, Harbinger or their respective advisors, none of Peregrine,
Deutsche Bank nor any other person assumes responsibility if future results or
actual values are materially different from these forecasts or assumptions.
The terms of the merger were determined through negotiations between
Peregrine and Harbinger and were approved by Peregrine's board of directors.
Although Deutsche Bank provided advice to Peregrine during the course of these
negotiations, the decision to enter into the merger was solely that of
Peregrine's board of directors. As described above, the opinion and presentation
of Deutsche Bank to Peregrine's board of directors were only one of a number of
factors taken into consideration by Peregrine's board of directors in making its
determination to approve the merger. Deutsche Bank's opinion was provided to
Peregrine's board of directors to assist it in connection with it consideration
of
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the merger and does not constitute a recommendation to any holder of Peregrine
common stock as to how to vote with respect to the merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. Deutsche Bank is an affiliate of Deutsche Bank AG, and we
refer to Deutsche Bank, Deutsche Bank AG and its affiliates collectively as the
DB Group. One or more members of the DB Group have, from time to time, provided
investment banking and other financial services to Peregrine or its affiliates
for which such member has received compensation, including in connection with
the acquisition of Innovative Tech Systems, Inc. by Peregrine. In addition, one
or more members of the DB Group have provided investment banking services to
Harbinger, including in connection with its initial public offering, follow-on
public offering, and acquisition of Premenos Technology Corporation. In the
ordinary course of business, members of the DB Group publish research reports
regarding the software and Internet industries and the business and services of
publicly owned companies in the software and Internet industries. Members of the
DB Group may actively trade securities and other instruments and obligations of
Peregrine and Harbinger for their own account or the account of their customers
and, accordingly, may from time to time hold a long or short position in such
securities, instruments or obligations.
FEE ARRANGEMENTS WITH PEREGRINE'S FINANCIAL ADVISOR
Peregrine selected Deutsche Bank as financial advisor in connection with the
merger based on Deutsche Bank's qualifications, reputation and experience in
mergers and acquisitions. Peregrine retained Deutsche Bank pursuant to a letter
agreement dated as of March 1, 2000, which we refer to as the engagement letter.
As compensation for Deutsche Bank's services in connection with the merger,
Peregrine has paid Deutsche Bank a cash fee of $1.35 million and has agreed to
pay an additional cash fee of approximately $8.65 million if the merger is
consummated. Regardless of whether the merger is consummated, Peregrine has
agreed to reimburse Deutsche Bank for reasonable fees and disbursements of
Deutsche Bank's counsel and Deutsche Bank's reasonable travel and other
out-of-pocket expenses incurred in connection with the merger or otherwise
arising out of the retention of Deutsche Bank under the engagement letter.
Peregrine has also agreed to indemnify Deutsche Bank and certain related persons
to the full extent lawful against certain liabilities, including certain
liabilities under the federal securities laws arising out of its engagement or
the merger.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. After the merger, the results of operations of Harbinger
will be included in the consolidated financial statements of Peregrine. The
purchase price will be allocated based on the fair values of the assets acquired
and the liabilities assumed. Any excess of cost over fair value of the net
tangible assets of Harbinger acquired will be recorded as goodwill and other
intangible assets and will be amortized by charges to operations under U.S.
generally accepted accounting principles. These allocations will be made based
upon valuations and other studies that have not yet been finalized. In addition,
Peregrine will incur a charge, for in-process research and development,
currently estimated at $66.1 million, in the quarter in which the merger is
completed.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
The following discussion summarizes the material federal income tax effects
of the merger that are generally applicable to holders of Harbinger common stock
exchanging their Harbinger stock for Peregrine common stock. This discussion is
based on the Internal Revenue Code of 1986, as amended
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(the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice, any of which could change retroactively.
Shareholders of Harbinger should be aware that the following discussion does
not deal with all federal income tax considerations that may be relevant to
Harbinger shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are non-U.S. residents or who
acquired their Harbinger common stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of the merger under foreign,
state or local tax laws. Finally, the following discussion does not address the
tax consequences of transactions occurring prior to or after the merger (whether
or not such transactions are in connection with the merger) including, without
limitation, the exercise of options or rights to purchase Harbinger common stock
prior to the merger. ACCORDINGLY, HARBINGER SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
As a condition to the completion of the merger, Harbinger must receive an
opinion of Morris, Manning & Martin, L.L.P., and Peregrine must receive an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, to the
effect that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. These opinions
will neither bind the IRS, nor preclude the IRS or the courts from adopting a
contrary position. Neither Peregrine nor Harbinger intends to obtain a ruling
from the IRS on the tax consequences of the merger.
In delivering their opinions, tax counsel will rely on customary
representations made by Harbinger and Peregrine including those contained in
certificates of officers of Harbinger and Peregrine. Provided that such
representations are correct as of the time the certificates of merger are filed
with the states of Delaware and Georgia, that the merger is consummated in the
manner described in the merger agreement and this joint proxy
statement/prospectus and that there are no changes in the Code or other
applicable law, the merger will be a reorganization within the meaning of
Section 368(a) of the Code. Assuming that the merger is a reorganization and
that the shares of Harbinger common stock surrendered in the merger were held as
a capital assets, the merger will have the following income tax consequences:
- the holders of Harbinger common stock will recognize no gain or loss upon
the receipt of Peregrine common stock solely in exchange for their
Harbinger common stock in the merger, except with respect to cash received
in lieu of fractional shares of Peregrine common stock;
- the aggregate tax basis of the common stock received by the Harbinger
shareholders in the merger will be the same as the aggregate tax basis of
the Harbinger common stock surrendered in exchange therefor (reduced by
any basis allocable to fractional shares for which cash is received);
- the holding period of the Peregrine common stock received by each
Harbinger shareholder in the merger will include the holding period of the
Harbinger common stock surrendered in exchange therefor;
- a holder of Harbinger common stock receiving cash in the merger in lieu of
a fractional interest in Peregrine common stock will be treated as if such
holder actually received such fractional share interest and the fractional
share interest was subsequently redeemed by Peregrine. A Harbinger
shareholder should recognize gain or loss with respect to a cash payment
in lieu of a fractional share measured by the difference, if any, between
the amount of cash received and the basis in such fractional share;
- neither Harbinger nor Peregrine will recognize gain or loss solely as a
result of the merger; and
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<PAGE>
- a successful IRS challenge to the reorganization status of the merger
would result in Harbinger shareholders recognizing gain or loss. The
amount of gain or loss for each share of Harbinger common stock
surrendered would equal the difference between the stockholder's basis in
each share and the fair market value, as of the time of the merger, of the
Peregrine common stock and any other consideration received in exchange. A
Harbinger shareholder's aggregate basis in the Peregrine common stock so
received would equal its fair market value, and the shareholder's holding
period for such stock would begin the day after the merger.
This discussion of material federal income tax consequences is intended to
provide only a general summary and is not a complete analysis or description of
all potential federal income tax consequences of the merger. This discussion
does not address tax consequences that may vary with, or are contingent on,
individual circumstances. In addition, it does not address any non-income tax or
any foreign, state or local tax consequences of the merger. ACCORDINGLY,
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THEM OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
DELISTING AND DEREGISTRATION OF HARBINGER COMMON STOCK
If the merger is completed, the shares of Harbinger common stock will be
delisted from the Nasdaq National Market and will be deregistered under the
Securities Exchange Act of 1934. The shareholders of Harbinger will become
stockholders of Peregrine, and their rights as stockholders will be governed by
Peregrine's restated certificate of incorporation, Peregrine's bylaws and the
laws of the State of Delaware. See "Comparison of rights of Harbinger common
stock and Peregrine common stock."
LISTING OF PEREGRINE COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the consummation of the merger that Peregrine list the
shares of Peregrine common stock to be issued and reserved in connection with
the merger on the Nasdaq National Market.
REGULATORY COMPLIANCE
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
that have been promulgated under that legislation, business combinations and
acquisitions of a sufficient size may not be consummated unless information has
been furnished to the Antitrust Division of the U.S. Department of Justice and
to the Federal Trade Commission and applicable waiting period requirements have
been satisfied or early termination of the waiting period has been granted. The
exchange of shares of Harbinger's common stock pursuant to the merger is subject
to the provisions of that legislation.
Peregrine and Harbinger each will file with the Antitrust Division of the
U.S. Department of Justice and the Federal Trade Commission a Hart-Scott-Rodino
Notification and Report Form with respect to the exchange of shares of Harbinger
common stock for Peregrine common stock. Under the applicable provisions of the
Hart-Scott-Rodino Antitrust Improvements Act, the transaction cannot be
consummated until the expiration of early termination of the waiting period
following the filing of the report form by Peregrine and Harbinger.
Nevertheless, the Department of Justice, the Federal Trade Commission, or a
foreign regulatory agency or other governmental agency may challenge the merger
at any time, including after it is completed.
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<PAGE>
APPRAISAL RIGHTS
Harbinger is incorporated under Georgia law. Under applicable Georgia law,
the holders of Harbinger common stock are not entitled to dissenter's or
appraisal rights in connection with the merger because Harbinger is a publicly
traded company. In addition, holders of Peregrine common stock will not be
entitled to dissenters or appraisal rights in connection with the merger.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This joint proxy statement/prospectus does not cover any resales of the
Peregrine common stock received in the merger, and no person is authorized to
make any use of this joint proxy statement/ prospectus in connection with any
such resale.
All shares of Peregrine common stock received in the merger will be freely
transferable, except that if you are deemed to be an "affiliate" of Harbinger
under the Securities Act of 1933, as amended, at the time of the special meeting
you may resell those shares only in transactions permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. In addition,
various stockholders of Harbinger have entered into affiliate agreements that
restrict their ability to transfer the shares of Peregrine common stock that
they receive in the merger. Persons who may be affiliates of Harbinger for those
purposes generally include individuals or entities that control, are controlled
by, or are under common control with, Harbinger, and would not include
shareholders who are not officers, directors or principal shareholders of
Harbinger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Harbinger's board of directors with
respect to the approval and adoption of the merger agreement and approval of the
merger, you should be aware that certain members of the management of Harbinger
and Harbinger's board of directors may have interests in the merger that are
different from, or in addition to, your interests. Harbinger's board of
directors was aware of these interests and considered the following matters,
among others, in approving the merger. Other than the merger agreement and the
transactions contemplated thereby, there are no past, present or proposed
contracts, arrangements, understandings, relationships or transactions between
Harbinger and its affiliates and Peregrine and its affiliates.
ASSUMPTION AND ACCELERATION OF STOCK OPTIONS
Pursuant to the merger agreement, Peregrine will assume each outstanding
stock option under Harbinger's Amended and Restated 1989 Stock Option Plan, 1996
Stock Option Plan and 1993 Stock Option Plan for Nonemployee Directors.
As of March 31, 2000, Harbinger's executive officers and directors held
options to purchase a total of 2,049,598 shares of Harbinger common stock at a
weighted average exercise price of $13.38 per share, of which options to
purchase 826,472 shares were unvested. Under the pre-existing terms of option
and employment agreements entered into with certain employees, officers and
directors of Harbinger, these individuals may be entitled to accelerated vesting
benefits. In particular, all outstanding options held by James M. Travers,
Harbinger's President and Chief Executive Officer, will become fully vested upon
completion of the merger. In addition, options outstanding held by some officers
of Harbinger will become fully vested in the event of an actual or constructive
termination of that officer's employment within 180 days of the merger. In
general a termination may be deemed constructive if Peregrine were to terminate
the officer's employment without cause or the officer were to terminate his
employment for any of the following reasons:
- assignment to duties materially inconsistent with, or a diminution of, the
officer's position, duties, titles, responsibilities, and status;
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<PAGE>
- reduction in base salary; or
- change in location of the officer's principal place of employment by more
than 75 miles.
The following table summarizes the terms of the change of control benefits
applicable to the identified officers:
<TABLE>
<CAPTION>
OPTION SHARES
OPTION SHARES TO ACCELERATE WEIGHTED
TO ACCELERATE UPON POST-MERGER AVERAGE EXERCISE
NAME POSITION UPON MERGER CONSTRUCTIVE TERMINATION PRICE
---- ------------------------------ ------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
James M. Travers......... President and Chief Executive 435,992 -- $17.78
Officer
James K. McCormick....... Chief Financial Officer -- 52,500 5.78
Douglas L. Roberts....... Senior Vice President, -- 200,000 8.87
Worldwide Sales
Daniel L. Manack......... Executive Vice President, -- 63,750 6.84
Global Operations
Gerald Diamond........... Senior Vice President, -- 58,577 6.81
Worldwide Product Development
</TABLE>
BOARD SEATS. In accordance with the terms of the merger, two members of
Harbinger's board of directors reasonably acceptable to Peregrine will be
appointed to Peregrine's board of directors. Peregrine and Harbinger have not
yet determined which Harbinger directors will become Peregrine directors.
INDEMNIFICATION. Under the merger agreement, Peregrine has agreed to honor
Harbinger's obligations under indemnification agreements between Harbinger and
its directors and officers in effect before the completion of the merger and any
indemnification provisions in Harbinger's articles of incorporation and bylaws.
Peregrine has also agreed to provide for indemnification provisions in the
certificate of incorporation and bylaws of the surviving corporation of the
merger that are at least as favorable as Peregrine's provisions and to maintain
these provisions for six years form the completion of the merger.
INSURANCE. Peregrine has agreed to maintain directors' and officers'
liability insurance covering the persons or class of persons who are currently
covered by Harbinger's directors' and officers' liability insurance policy for
six years from the completion of the merger, provided that Peregrine is not
required to pay more than 150% of the premium most recently paid for Harbinger's
directors and officers' insurance.
As a result of these interests, these directors and officers of Harbinger
could be more likely to vote to approve the merger agreement than if they did
not hold these interests. Harbinger's shareholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger.
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THE MERGER AGREEMENT
GENERAL
The following summary of the material terms of the merger agreement is
subject to, and qualified in its entirety by, the complete text of the merger
agreement. A copy of the merger agreement, as amended, is attached as Annex A to
this joint proxy statement/prospectus and is incorporated in this joint proxy
statement/prospectus by reference. You should read the full text of the merger
agreement, because it, and not this joint proxy statement/prospectus, is the
legal document that governs the merger. In the event of any discrepancy between
the terms of the merger agreement and the following summary, the merger
agreement will control.
THE MERGER
Following the approval and adoption of the merger agreement, attached as
Annex A hereto, by the shareholders of Harbinger and the stockholders of
Peregrine and the satisfaction or waiver of the other conditions to the merger,
Harbinger will merge with Soda Acquisition Corporation, a wholly owned
subsidiary of Peregrine. As a result, Soda Acquisition will cease to exist as a
separate corporate entity, and Harbinger will continue as the surviving
corporation and retain its name as a wholly owned subsidiary of Peregrine. The
merger will be effective at the time a certificate of merger is filed with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Georgia.
Each share of Harbinger common stock, par value of $0.0001 per share, issued
and outstanding immediately before the merger, other than those held in the
treasury of Harbinger and those owned by Peregrine or Soda Acquisition, will be
cancelled and automatically converted into the right to receive 0.75 of a share
of Peregrine common stock upon surrender of the certificate representing shares
of Harbinger common stock.
No certificates representing fractional shares of Peregrine common stock
will be issued upon the surrender of Harbinger common share certificates. Each
holder of a Harbinger common share certificate, at the time of merger, who would
otherwise be entitled to receive a fractional share of Peregrine common stock
will receive cash. The amount of cash paid in lieu of fractional shares will be
the fraction of a share of Peregrine common stock that would be otherwise issued
multiplied by the average closing price per share of Peregrine common stock on
the Nasdaq National Market for the five trading days prior to the merger. The
exchange agent will pay this amount without interest.
The merger agreement provides that at the time the certificate of merger is
filed, Harbinger's articles of incorporation will be the articles of
incorporation of the surviving entity. The merger agreement further provides
that the bylaws of the surviving corporation, as in effect when the certificate
of merger is filed, will be the bylaws of Harbinger immediately after the
certificate of merger is filed. The merger agreement also provides that those
persons who are the directors and officers of Soda Acquisition, when the
certificate of merger is initially filed will be the directors and officers of
the surviving corporation immediately after the certificate of merger is filed
until their successors are duly elected or appointed and qualified.
EFFECTIVE TIME AND CLOSING OF THE MERGER
As soon as practicable, after the satisfaction or waiver of the terms and
conditions of the merger agreement, the parties shall file a certificate of
merger with the Secretary of State of the State of Delaware as required by the
Delaware General Corporation Law and a certificate of merger with the Secretary
of State of the State of Georgia in accordance with the relevant provisions of
Georgia law. The merger will be effective when the certificates of merger are
accepted by the respective secretaries of state. We expect to complete the
merger as soon as practicable after , 2000, the date scheduled for
the special meeting.
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PROCEDURE TO EXCHANGE CERTIFICATES
Peregrine will authorize a bank or trust company acceptable to Harbinger to
act as exchange agent. The exchange agent will mail letters of transmittal and
instructions regarding the exchange process to each record holder of shares of
Harbinger common stock as soon as practicable following the merger. Upon
surrender of Harbinger common stock certificates, together with the letter of
transmittal duly executed, the Harbinger shareholders of record will receive
cash payments for fractional shares and certificates representing Peregrine
common stock. Once the holders of certificates previously representing Harbinger
common stock surrender these certificates, they will receive any dividends or
other distributions on the Peregrine common stock that have a record date after
the merger and a payment date before the holder surrenders the Harbinger common
share certificate. However, Peregrine will not pay any dividends until the
holder of the Harbinger share certificate surrenders that certificate. The
holder will also receive any dividends or other distributions with a record date
after the merger but before the surrender, and a payment date after the
surrender. In each case, taxes will be withheld as required. No interest will be
paid or accrued on unpaid dividends or distributions, if any, which will be paid
on surrender of Harbinger common share certificates.
No certificates representing fractional shares of Peregrine common stock
will be issued upon the surrender of Harbinger common share certificates. Each
holder of a Harbinger common share certificate, at the time of merger, who would
otherwise be entitled to receive a fractional share of Peregrine common stock
will receive cash. The amount of cash paid in lieu of fractional shares will be
the fraction of a share of Peregrine common stock that would be otherwise issued
multiplied by the average closing price per share of Peregrine common stock on
the Nasdaq National Market on five trading days preceding the last full trading
day prior to the merger. The exchange agent will pay this amount without
interest.
Neither Peregrine, Soda Acquisition, Harbinger, nor the exchange agent will
be liable to you for any amount properly delivered to a public official under
applicable abandoned property, escheat or similar law.
The exchange agent will deliver Peregrine common stock, any cash in lieu of
fractional shares and any unpaid dividends or distribution with respect to
Peregrine common stock in exchange for lost, stolen, or destroyed certificates
if the record holder of such Harbinger common stock certificates signs an
affidavit of loss, theft or destruction. Peregrine may also, in its discretion,
require the holder of a lost, stolen or destroyed certificate to deliver a bond
in reasonable sum as indemnity against any claim that might be made against
Peregrine regarding the alleged lost, stolen or destroyed certificate.
WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFITS
Upon the completion of the merger, each then-outstanding option and warrant
to purchase shares of Harbinger common stock will be assumed by Peregrine. Each
Harbinger option and warrant assumed by Peregrine will continue to have the same
terms and conditions, except that (a) each Harbinger option and warrant will be
exercisable for that number of whole shares of Peregrine common stock equal to
the product of the number of shares of Harbinger common stock that were issuable
upon exercise of such Harbinger option and warrant immediately prior to the
merger multiplied by 0.75, rounded down to the nearest whole number of shares of
Peregrine common stock and (b) the per share exercise price for the shares of
Peregrine common stock issuable upon exercise of such assumed Harbinger option
and warrant will be equal to the quotient determined by dividing the exercise
price per share of Harbinger common stock at which such Harbinger option and
warrant was exercisable immediately prior to the merger by 0.75, rounded up to
the nearest whole cent. Each assumed Harbinger option shall be vested
immediately following the merger as to the same percentage of the total number
of shares subject thereto as it was vested as of the merger, except that
pursuant to the
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terms of the option and employment agreements under which the assumed Harbinger
options were granted, certain Harbinger options shall accelerate upon the
merger.
Pursuant to the merger agreement, outstanding purchase rights under
Harbinger's Amended and Restated Employee Stock Purchase Plan, or ESPP, shall be
exercised pursuant to the terms of the ESPP prior to the consummation of the
merger. Each share of Harbinger common stock purchased will be converted into
the right to receive 0.75 shares of Peregrine common stock. Harbinger agreed in
the merger agreement to terminate the ESPP immediately following the exercise of
the outstanding purchase rights. Effective immediately preceding the closing of
the merger, Harbinger and its subsidiaries and affiliates, shall each terminate
all group severance, separation or salary contribution plans, programs or
arrangements and all 401(k) plans.
For purposes of determining eligibility to participate, vesting, and accrual
or entitlement to benefits where length of service is relevant under any
employee benefit plan of Peregrine or any of its subsidiaries, Peregrine will
use reasonable efforts to give the employees of Harbinger at the time of the
merger, or Affected Employees, service credit for service with Harbinger to the
same extent that such service credit was recognized under the employee plans of
Harbinger prior the merger. To the extent permitted by Peregrine's employee
benefit plans and applicable law permits, Peregrine will: (1) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Affected
Employees under any welfare benefit plans that the Affected Employees may be
eligible to participate in after the consummation of the merger, other than
limitations or waiting periods that are already in effect and that have not been
satisfied under any welfare plan maintained for the Affected Employees
immediately prior to the consummation of the merger; and (2) provide such
Affected Employee with credit for any co-payments and deductibles paid prior to
the consummation of the merger in satisfying any deductible or out-of-pocket
requirements under any welfare plans that the Affected Employees are eligible to
participate in after the consummation of the merger.
Subject to any limitations under the Securities Act, Peregrine will file a
registration statement on Form S-8 for the shares of Peregrine common stock
issuable upon the exercise of assumed options to purchase Peregrine common stock
which were previously options to purchase Harbinger common stock. Peregrine will
file this registration statement as soon as is reasonably practicable after the
merger, and in no event later than 20 business days after the merger.
REPRESENTATIONS AND WARRANTIES
Peregrine and Harbinger each made a number of representations and warranties
in the merger agreement regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the merger.
HARBINGER REPRESENTATIONS AND WARRANTIES
Harbinger made representations and warranties relating to Harbinger and its
subsidiaries regarding, among other things, the following topics:
- corporate organization and its qualification to do business;
- articles of incorporation and bylaws;
- capitalization;
- authorization of the merger agreement;
- regulatory approvals required to complete the merger;
- the effect of the merger on obligations of Harbinger and under applicable
laws;
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- permits required to conduct Harbinger's business and compliance with those
permits;
- compliance with applicable laws;
- filings and reports with the Securities and Exchange Commission;
- financial statements;
- liabilities;
- changes in Harbinger's business since December 31, 1999;
- litigation;
- employee benefit plans;
- labor matters;
- information supplied by Harbinger in this joint proxy statement/prospectus
and the related registration statement filed by Peregrine;
- restrictions on the conduct of Harbinger's business;
- title to the properties Harbinger owns and leases;
- taxes;
- environmental laws that apply to Harbinger;
- payments, if any, required to be made to brokers and agents on account of
the merger;
- intellectual property used by Harbinger;
- material contracts;
- the fairness opinion received by Harbinger from its financial advisor;
- insurance and claims related thereto;
- approval by Harbinger's board of directors;
- the vote of Harbinger shareholders required to approve the merger; and
- the inapplicability of state takeover statues.
The representations and warranties of Harbinger expire at the effective time
of the merger.
PEREGRINE REPRESENTATIONS AND WARRANTIES
Peregrine and Soda Acquisition made representations and warranties relating
to Pergrine and Soda Acquisition. These representation and warranties addressed,
among other things, the following topics:
- corporate organization and its qualification to do business;
- certificate of incorporation and bylaws;
- capitalization;
- common stock to be issued in the merger;
- authorization of the merger agreement;
- filings and reports with the Securities and Exchange Commission;
- financial statements;
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- liabilities;
- compliance with applicable laws;
- compliance with permits required to conduct business;
- changes in the business of Peregrine since December 31, 1999;
- litigation;
- information supplied by Peregrine in this joint proxy statement/prospectus
and the related registration statement filed by Peregrine;
- payments, if any, required to be made to brokers and agents on account of
the merger;
- the fairness opinion received by Peregrine from its financial advisor;
- approval by Peregrine's board of directors; and
- the vote of Peregrine stockholders required to approve the merger.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the sections of the
merger agreement entitled "Representations and Warranties of Company" starting
on page 6 of Annex A and "Representations and Warranties of Parent and Merger
Sub" starting on page 20 of Annex A.
COVENANTS RELATING TO CONDUCT OF BUSINESS OF HARBINGER AND PEREGRINE
HARBINGER CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Harbinger agreed that until the earlier of the completion of the merger or
the termination of the merger agreement, unless Peregrine consents in writing,
Harbinger and its subsidiaries will:
- carry on their business in the ordinary course as currently conducted;
- pay their debts and taxes when due;
- pay or perform other material obligations when due;
- use commercially reasonable efforts to preserve intact their present
business organization;
- use commercially reasonable efforts to keep available the services of
their present officers and employees; and
- use commercially reasonable efforts to preserve their relationships with
customers, suppliers and others with whom they have business dealings.
In addition, unless Peregrine consents in writing or the merger agreement
provides otherwise, Harbinger has agreed that, until the earlier of the
completion of the merger or the termination of the merger agreement, it and each
of its subsidiaries will not and will not agree to:
- waive any stock repurchase rights, accelerate, amend or change the period
of exercisability of options or restricted stock, or reprice options
granted under any stock plans or authorize cash payments in exchange for
any options granted under any of such plans, except pursuant to plans and
agreements existing as of the date of the merger agreement and disclosed
to Peregrine;
- grant any severance or termination pay to any officer or employee except
pursuant to written agreements outstanding, or policies existing, on the
date of the merger agreement and as previously disclosed in writing or
made available to Peregrine, or adopt any new severance plan;
- transfer or license to any person or entity or otherwise extend, amend or
modify in any material respect any rights to intellectual property, or
enter into grants to transfer or license to any
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person future patent rights, other than non-exclusive licenses in the
ordinary course of business and consistent with past practice, provided
that in no event shall Harbinger license to any person or entity on an
exclusive basis or sell intellectual property;
- declare, set aside or pay any dividends on or make any other distributions
on its capital stock or split, combine or reclassify any capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
- purchase, redeem or otherwise acquire, directly or indirectly, any shares
of Harbinger's capital stock or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on April 5, 2000;
- issue, deliver, sell, authorize, pledge or otherwise encumber or propose
any of the foregoing with respect to any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating them to issue any
such shares or convertible securities, other than (1) the issuance,
delivery and/or sale of (a) Harbinger common stock pursuant to the
exercise of stock options outstanding as of April 5, 2000 or granted
pursuant to Harbinger's 1993 Stock Option Plan for Nonemployee Directors
and (b) shares of Harbinger common stock issuable to participants in
Harbinger's Amended and Restated Employee Stock Purchase Plan and (2) the
granting of non-discretionary stock options to non-employee directors
under the 1993 Stock Option Plan for Nonemployee Directors in an amount
not to exceed 135,000 shares in the aggregate;
- cause, permit or propose any amendments to their certificate of
incorporation, bylaws or other charter documents;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets or enter into any material joint ventures,
strategic partnerships or alliances;
- sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the
business of Harbinger and its subsidiaries, except sales of inventory or
non-exclusive licenses of Harbinger's intellectual property in the
ordinary course of business and consistent with past practice;
- incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Harbinger, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables consistent with past practice;
- adopt or amend any employee benefit plan, policy or arrangement, any
employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer
letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable
"at will"), pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors,
officers, employees or consultants;
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- (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, or liabilities recognized or
disclosed in the most recent consolidated financial statements (or the
notes thereto) of Harbinger included in certain of Harbinger's filings
with the Securities and Exchange Commission since December 31, 1999 or
incurred since the date of those financial statements, or (ii) waive the
benefits of, agree to modify in any manner, terminate, release any person
from or fail to enforce any confidentiality or similar agreement to which
Harbinger or any of its subsidiaries is a party or of which either is a
beneficiary;
- make any individual or series of related payments outside of the ordinary
course of business (other than certain payments to financial, legal,
accounting or other professional service advisors);
- except in the ordinary course of business consistent with past practice,
modify, amend or terminate any material contract or agreement to which
Harbinger or any of its subsidiaries is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
- enter into or materially modify any contracts, agreements, or obligations
relating to the distribution, sale, license or marketing by third parties
of Harbinger's products or products licensed by Harbinger on an exclusive
basis;
- revalue any of its assets or, except as required by generally accepted
accounting principles, make any change in accounting methods, principles
or practices;
- incur or enter into any agreement, contract or commitment outside of the
ordinary course of business calling for payments by Harbinger in excess of
$350,000 individually;
- take any action that could reasonably be expected to cause the merger to
fail to qualify as a "reorganization" under Section 368(a) of the Code;
- engage in any action with the intent to directly or indirectly adversely
impact any of the transactions contemplated by the merger agreement;
- make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect to the tax
liability or tax attributes of Harbinger or any of its subsidiaries or
settle or compromise any material income tax liability; or
- agree in writing or otherwise to take any of the actions described above.
PEREGRINE CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Peregrine agreed that, until the earlier of the completion of the merger or
the termination of the merger agreement pursuant to its terms, neither Peregrine
nor its subsidiaries shall do any of the following:
- declare, set aside, or pay any dividends or make any other distributions
(whether in cash, stock, equity securities or property) in respect to
Peregrine's capital stock, except where (i) an adjustment is made to the
exchange ratio in accordance with the merger agreement or (ii) the holders
of Harbinger's common stock will otherwise receive an equivalent,
proportional dividend or distribution (based on the exchange ratio, as
adjusted pursuant to merger agreement) in connection with the merger as if
they had been holders of Peregrine's common stock on the record date for
such dividend or distribution;
- purchase, redeem, or otherwise acquire, directly or indirectly, any shares
of capital stock of Peregrine or its subsidiaries in any amounts that
would adversely affect Peregrine's financial condition or liquidity;
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- effect any amendment to Peregrine's certificate of incorporation that
would have an adverse effect on the rights of holders of Peregrine's
common stock (including the Peregrine common stock to be issued pursuant
to the merger agreement);
- engage in any action that could cause the merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code;
- engage in any action with the intent to directly or indirectly adversely
impact any of the transactions contemplated by the merger agreement;
- following the filing of this joint proxy statement/prospectus, acquire or
agree to acquire any business or any corporation, partnership, association
or other business organization or division if the acquisition or agreement
would require the inclusion in this joint proxy statement/prospectus of
pro forma financial information regarding the acquisition; or
- agree in writing or otherwise to take any of the actions described above.
ADDITIONAL AGREEMENTS
SHAREHOLDER MEETING. Peregrine and Harbinger have agreed to call meetings
of their respective shareholders as promptly as practicable after the date of
the merger agreement and to use all reasonable efforts to hold their shareholder
meetings on the same day or as soon as practicable after the declaration of
effectiveness of the registration statement of which this joint proxy statement/
prospectus is a part. Peregrine and Harbinger may adjourn or postpone their
respective shareholder meetings if there is an insufficient number of shares
necessary to conduct business. Unless withdrawn in compliance with the
nonsolicitation provisions in the merger agreement, Harbinger has agreed to use
commercially reasonable efforts to solicit from its shareholders proxies in
favor of adoption and approval of the merger agreement and approval of the
merger. Peregrine has agreed to use commercially reasonable efforts to solicit
from its stockholders proxies in favor of the issuance of Peregrine's common
stock pursuant to the merger. Harbinger is obligated to hold its shareholder
meeting whether or not Harbinger's board of directors at any time subsequent to
the merger agreement determines that the merger agreement is no longer advisable
or recommends that Harbinger's shareholders reject it.
CONFIDENTIALITY, ACCESS TO INFORMATION. Peregrine and Harbinger agreed that
the terms of the confidentiality agreement that they entered into on March 1,
2000 will continue in full force and effect. Peregrine and Harbinger have agreed
to provide to the accountants, counsel and other representatives of the other
company reasonable access to their properties, books, records and personnel
during the period between the date of the merger agreement and the completion of
merger.
NO SOLICITATION. Until the merger is completed or the merger agreement is
terminated, Harbinger has agreed, subject to limited exceptions, not to directly
or indirectly take any of the following actions:
- solicit, initiate, encourage or induce the making, submission or
announcement of any acquisition proposal;
- participate in any discussions or negotiations regarding any acquisition
proposal;
- furnish to any person any information with respect to any acquisition
proposal;
- take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
acquisition proposal;
- engage in discussions with any person with respect to any acquisition
proposal;
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- subject to limited exceptions discussed below, approve, endorse or
recommend any acquisition proposal; or
- enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
acquisition transaction.
For purposes of the foregoing, any action by any officer, director,
affiliate or employee of Harbinger or any investment banker, attorney or other
advisor or representative retained by any of them is deemed to be a breach by
Harbinger.
The foregoing provisions do not prohibit the board of directors of Harbinger
from complying with Rule 14d-9 (Recommendation or Solicitation By the Subject
Company and Others) or 14 e-2(a) (Position of a Subject Company with Respect to
a Tender Offer) under the Securities Exchange Act of 1934 with regard to tender
or exchange offers.
Harbinger has further agreed to cease, as of April 5, 2000, any and all
existing activities, discussions or negotiations with any parties conducted
prior to that date with respect to any acquisition proposal until the merger is
completed or the merger agreement is terminated.
An acquisition proposal is any offer or proposal relating to any acquisition
transaction, other than an offer or proposal from Peregrine.
An acquisition transaction is any transaction or series of transactions,
other than the merger described in this joint proxy statement/prospectus,
involving any of the following:
- the acquisition or purchase from Harbinger of more than a 15% interest in
the total outstanding voting securities of Harbinger or any of its
subsidiaries;
- any tender offer or exchange offer that if consummated would result in any
person or group beneficially owning 15% or more of the total outstanding
voting securities of Harbinger or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving Harbinger pursuant to which the shareholders of Harbinger
immediately preceding such transaction hold less than 85% of the equity
interests in the surviving or resulting entity;
- any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition or
disposition of more than 15% of the assets of Harbinger; or
- any liquidation, dissolution, recapitalization or other significant
corporate reorganization of Harbinger.
Until the merger is completed or the merger agreement is terminated,
Harbinger is allowed, in response to an unsolicited bona fide written superior
proposal, to engage in discussions and negotiations with and furnish information
to, the party making, or recommend to Harbinger's shareholders, the superior
proposal (and in connection with such recommendation, withdraw its
recommendation of the merger described in this joint proxy statement/prospectus)
if all of the following conditions are met:
- the board of directors of Harbinger determines in good faith, after
consultation with its outside legal counsel, that failure to take such
action would be inconsistent with its fiduciary obligations under
applicable law;
- at least two business days prior to furnishing any nonpublic information
to, or entering into discussions or negotiations with, such person or
group, Harbinger gives Peregrine written notice of Harbinger's intention
to furnish nonpublic information to, enter into discussions or
negotiations with, such person or group and Harbinger receives from such
person or group an
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executed confidentiality agreement containing customary limitations on the
use and disclosure of all nonpublic written and oral information furnished
to such person or group by or on behalf of Harbinger; and
- contemporaneously with furnishing any nonpublic information, Harbinger
furnishes the nonpublic information to Peregrine, to the extent the
nonpublic information has not been previously furnished by Harbinger to
Peregrine.
A superior proposal is an acquisition proposal with respect to which (x) if
any cash consideration is involved, is not subject to any financing contingency,
or, after consultation with Harbinger's financial advisors, Harbinger's board of
directors shall have determined that financing is reasonably likely to be
obtained on a timely basis, and with respect to which Harbinger's board of
directors has determined in good faith (after consultation with Harbinger's
financial advisors) that the acquiring party is capable of consummating the
proposed acquisition on the terms proposed, and (y) Harbinger's board of
directors has determined in good faith that the acquisition provides greater
value to the shareholders of Harbinger than the merger with Peregrine (taking
into account the advice of Harbinger's independent financial advisors).
Harbinger has agreed to promptly inform Peregrine, and in any event within
24 hours, of any request for information that Harbinger reasonably believes
would lead to an acquisition proposal, or of any acquisition proposal, or any
inquiry with respect to or which Harbinger reasonably believes would lead to any
acquisition proposal, the material terms and conditions of such request,
acquisition proposal or inquiry, and the identity of the person or group making
any such request, acquisition proposal or inquiry. Harbinger further agreed to
keep Peregrine informed in all material respects of the status and details,
including material amendments or proposed amendments, or any such request,
acquisition proposal or inquiry.
Harbinger has agreed to provide Peregrine with at least 48 hours prior
notice, or such lesser prior notice as provided to the members of Harbinger's
board of directors (but in no event less than eight hours), of any meeting of
Harbinger's board of directors at which an acquisition proposal is reasonably
expected to be up for consideration and 48 hours prior written notice, or such
lesser prior notice as provided to the members of Harbinger's board of directors
(but in no event less than eight hours), of any meeting of Harbinger's board of
directors at which it is reasonably expected to recommend a superior proposal,
together with the definitive documentation relating to the superior proposal.
Regardless of whether Harbinger's board of directors has received a superior
proposal or withdrawn its recommendation of the merger, Harbinger is obligated
under the merger agreement to hold and convene the Harbinger special meeting.
REASONABLE EFFORTS. Peregrine and Harbinger have each agreed to use their
commercially reasonable efforts to take all actions, and do all things,
necessary, proper or advisable to conclude and make effective the merger and any
transactions contemplated by the merger agreement, including, among other
things:
- taking all reasonable acts to cause the conditions precedent to the merger
to be satisfied;
- obtaining all necessary actions, nonactions, waivers, consents, approvals,
orders and authorizations from governmental entities, making of all
necessary registrations, declarations and filings and taking of all
reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any government entity;
- obtaining all necessary consents, approvals or waivers from third parties;
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- defending any lawsuits or proceedings that challenge the merger agreement
or the transactions contemplated by the merger agreement; and
- executing any additional documents necessary to conclude the merger.
NOTICE. Peregrine and Harbinger have each agreed to give the other prompt
notice of any representation or warranty made by it contained in the merger
agreement becoming untrue or inaccurate, or any failure to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the merger agreement.
THIRD PARTY CONSENTS. Peregrine and Harbinger have agreed that each will
use their commercially reasonable efforts to obtain any consents, waivers and
approvals under any of its or its subsidiaries' respective agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the merger.
OPTIONS AND WARRANTS. Upon completion of the merger, each outstanding
option and warrant to purchase Harbinger common stock will be assumed by
Peregrine. The number of shares of common stock to be received on exercise of
the options and warrants will be adjusted based on the exchange ratio, rounded
down to the nearest whole number of shares. Each assumed option and warrant,
will continue to have the same terms as each had immediately prior to the
completion of the merger except that each will be exercisable for shares of
Peregrine common stock. The exercise price will be equal to the exercise price
per share of Harbinger common stock at which such Harbinger stock option and
each outstanding warrant was exercisable immediately prior to the completion of
the merger divided by the exchange ratio, rounded up to the nearest whole cent.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN. Prior to the completion
of the merger, outstanding purchase rights under Harbinger's employee stock
purchase plan will be exercised, and each share of Harbinger common stock
purchased will be converted into the right to receive a number of shares of
Peregrine common stock equal to the exchange ratio in the merger. Harbinger will
terminate the employee stock purchase plan immediately following this purchase.
Peregrine will file a registration statement on Form S-8 for the shares of
Peregrine common stock issuable with respect to assumed Harbinger stock options
as soon as is reasonably practicable, and in any event within 20 business days,
after the completion of the merger.
EMPLOYEE BENEFITS. In the merger agreement, Harbinger agreed to terminate
all group severance, separation or salary continuation plans, programs or
arrangements and all 401(k) plans, effective immediately preceding the closing
of the merger. To the extent permitted by Peregrine's employee benefit plans and
applicable law, Peregrine agreed to use its reasonable efforts to give persons
employed by Harbinger at the completion of the merger full credit for purposes
of eligibility, vesting, benefit accrual (excluding benefit accrual under any
defined benefit plans) and determination of the level of benefits under any
employee benefit plans or arrangement maintained by Peregrine or its
subsidiaries for service with Harbinger or its subsidiaries to the same extent
recognized by Harbinger prior to the completion of the merger. To the extent
permitted by Peregrine's employee benefit plans and applicable law, Peregrine
agreed to (i) waive all limitations as to preexisting conditions, exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the Harbinger employees under any welfare benefit plans that such
employees may be eligible to participate in after the completion of the merger,
other than waiting periods that are already in effect with respect to such
employees and that have not been satisfied as of the completion of the merger
under any welfare plan maintained for the Harbinger employees immediately prior
to the completion of the merger; and (ii) provide employees of Harbinger at the
time of completion of the merger with credit for any co-payments and deductibles
paid prior to the completion of the merger in satisfying any deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the completion of the merger.
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INDEMNIFICATION. Peregrine has agreed to honor the obligations of Harbinger
pursuant to any indemnification agreements between Harbinger and its directors
and officers in effect as of the date of the merger and any indemnification
provisions under Harbinger's articles of incorporation and bylaws as of
April 5, 2000. For a period of six years, the certificate of incorporation and
bylaws of the corporation surviving the merger will contain provisions with
respect to exculpation and indemnification that are at least as favorable to the
directors and officers of Harbinger as those contained in the articles of
incorporation and bylaws of Harbinger as of April 5, 2000. These provisions will
not be amended, repealed or otherwise modified for a period of six years from
the completion of the merger in any way that would adversely affect the rights
thereunder of the indemnified parties, unless such modification is required by
law.
For a period of six years after the merger, Peregrine will cause the
surviving corporation to use its commercially reasonable efforts to maintain in
effect, directors' and officers' liability insurance covering those persons who
are currently covered by Harbinger's directors' and officers' liability
insurance policy with coverage in an amount and scope at least as favorable as
that applicable to Harbinger's current directors and officers, PROVIDED,
HOWEVER, that in no event will Peregrine or the corporation funding the merger
be required to pay an annual premium for coverage in excess of 150% of the
annual premium most recently paid by Harbinger. If the annual premium for such
coverage exceeds 150% of the annual premium most recently paid by Harbinger, the
surviving corporation will provide the maximum coverage available at an annual
premium equal to 150% of the annual premium most recently paid by Harbinger.
NASDAQ LISTING. Peregrine has agreed to authorize for listing on the Nasdaq
National Market the shares of Peregrine common stock issuable, and those
required to be reserved for issuance, in connection with the merger.
AFFILIATES. Harbinger agreed to use its commercially reasonable efforts to
deliver to Peregrine, as promptly as practicable after April 5, 2000 from each
affiliate of Harbinger an executed affiliate agreement, each of which are to be
in full force and effect as of the completion of the merger. Peregrine will be
entitled to place appropriate legends on the certificates evidencing any
Peregrine common stock to be received by a Harbinger affiliate and to issue stop
transfer instructions to the transfer agent for the Peregrine common stock,
consistent with the terms of the affiliate agreement. See "Agreements related to
the merger--Affiliate agreements" for a discussion of the terms of the affiliate
agreements.
REGULATORY FILINGS. Pursuant to the merger agreement, Peregrine and
Harbinger are to each file with the United States Federal Trade Commission and
the Antitrust Division of the United States Department of Justice Notification
and Report Forms relating to the merger as required by the Hart-Scott-Rodino
Antitrust Improvements Act, as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction. Peregrine and Harbinger agreed to supply each other
with any information required to effect these filings and to supply any
additional information that may be required by the relevant authorities;
provided, however, that Peregrine shall not be required to agree to any
divestiture by Peregrine or Harbinger or any material limitation on the ability
to conduct business or to own or exercise control over assets, properties and
stock.
PEREGRINE'S BOARD OF DIRECTORS. Peregrine agreed that its board of
directors will take all actions necessary so that two members of Harbinger's
board of directors reasonably acceptable to Peregrine, at least one of whom is
an independent director of Harbinger's board of directors, shall be appointed to
Peregrine's board of directors as of the completion of the merger with a term
expiring at the next annual meeting of Peregrine's stockholders.
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SHAREHOLDER LITIGATION. Until the earlier termination of the merger
agreement or the completion of the merger, Harbinger agreed to give Peregrine
the opportunity to participate in the defense or settlement of any shareholder
litigation against Harbinger or members of Harbinger's board of directors
relating to the merger agreement and the transactions contemplated thereby or
otherwise and Harbinger shall not settle such litigation without Peregrine's
prior written consent.
CONDITIONS PRECEDENT TO THE MERGER
Peregrine, Soda Acquisition, and Harbinger are required to complete the
merger only if each of the following conditions is met:
- STOCKHOLDER APPROVAL. The holders of a majority of the outstanding shares
of Harbinger common stock have adopted and approved the merger agreement
and approved the merger and a majority of the outstanding shares of
Peregrine common stock have approved the issuance of shares pursuant to
the merger agreement.
- REGISTRATION STATEMENT. The registration statement on Form S-4 of which
this joint proxy statement/prospectus is a part has been declared
effective under the Securities Act of 1933. No stop order suspending the
effectiveness of the Form S-4 has been initiated or issued by the
Securities and Exchange Commission and no similar proceedings with respect
to this joint proxy statement/prospectus shall be pending or threatened in
writing by the Securities and Exchange Commission.
- HART-SCOTT-RODINO ACT. The waiting period applicable to the consummation
of the merger under the Hart-Scott-Rodino Antitrust Improvements Act has
expired or terminated early and all material foreign antitrust approvals
required to be obtained prior to the merger shall have been obtained.
- NO GOVERNMENT ACTION/ORDER. No governmental entity has enacted or issued
any statute, rule, regulation, executive order, decree, injunction or
other order which is in effect and has the effect of making the merger
illegal or otherwise prohibiting it.
- TAX OPINIONS. Peregrine and Harbinger have each received written opinions
from their respective tax counsel that the merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; provided, however, that if their respective tax
counsel does not render the opinion, counsel to the other party may render
the opinion.
Additionally, the agreement obligates Peregrine and Soda Acquisition, on the
one hand, and Harbinger on the other hand, to complete the merger only if,
before the merger, the following additional conditions are satisfied or waived:
- Each of the representations and warranties of the other party in the
merger agreement is true and correct in all material respects as of
April 5, 2000, and as of the closing of the merger, except for failures to
be true and correct that do not in the aggregate constitute a material
adverse effect (with the exception of Harbinger representations and
warranties relating to capitalization, approval of its board of directors
and the vote required to approve the merger agreement and merger) and
those representations and warranties made as of a particular date which
must be true as of that date and do not constitute, in the aggregate, a
material adverse effect.
- The other party has performed or complied in all material respects with
all agreements and covenants required by the merger agreement to be
performed or complied with prior to completion of the merger and the
parties have received a certificate from the other with respect to the
foregoing signed on behalf of the party by an authorized officer of the
party.
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In addition, Peregrine is not obligated to complete the merger unless
Harbinger receives all consents, waivers and approvals required in connection
with the merger and in connection with agreements, contracts, licenses or leases
of Harbinger that require them as a result of the merger.
TERMINATION; AMENDMENT AND WAIVER
CONDITIONS TO TERMINATION. Peregrine and Harbinger may terminate the merger
agreement at any time prior to the merger, even if the shareholders of Harbinger
approve matters related to the merger. The merger agreement may be terminated:
- by Peregrine or Harbinger if the parties mutually consent in writing;
- by Peregrine or Harbinger if the merger has not been effected on or prior
to October 31, 2000; however, this right to terminate will not be
available to any party whose action or failure to act was the principal
cause of the failure of the merger to occur by this date and the action or
failure to act constitutes a breach of the merger agreement;
- by Peregrine or Harbinger if any governmental entity issues an order,
decree or ruling or takes any action to permanently restrain, enjoin or
prohibit the merger, and this order, decree or ruling is final and
nonappealable;
- by Peregrine or Harbinger if the shareholders of Harbinger do not approve
the merger agreement at the special meeting or at any adjournment or
postponement of the special meeting or the stockholders of Peregrine do
not approve the issuance of the shares pursuant to the merger at the
special meeting or at any adjournment or postponement of the special
meeting;
- by Peregrine if Harbinger's board of directors changed, in a manner
adverse to Peregrine, its recommendation in favor of the agreement or the
merger;
- by Peregrine if Harbinger shall have recommended an acquisition proposal
to the shareholders of Harbinger other than the transaction contemplated
by the merger agreement;
- by Peregrine if Harbinger fails to comply with the provisions in the
merger agreement regarding nonsolicitation;
- by Peregrine if a bonafide acquisition proposal other than the transaction
contemplated by the merger agreement is publicly announced or has
otherwise become publicly known and Harbinger's board of directors
(i) shall have failed to recommend against acceptance of the acquisition
proposal, including by taking no position with respect to a tender or
exchange offer; or (ii) failed to reconfirm its approval and
recommendation of the merger agreement and related transactions within ten
business days or Harbinger's board of directors resolves to take any of
the actions described above;
- by either Peregrine or Harbinger upon a breach of any representation,
warranty, covenant or agreement or if any representation or warranty on
their respective part shall have become untrue, in either case such that
in the aggregate it constitutes a material adverse effect or a material
breach of an agreement or covenant in the merger agreement; provided that
if the inaccuracy in the representation or warranty or breach is curable,
the affected party may not terminate the merger agreement for 30 days
after it delivered notice of the breach and may not terminate the merger
agreement if the breach is cured during the 30-day period.
EFFECT OF TERMINATION. In the event of termination of the merger agreement
by either Peregrine or Harbinger, the merger agreement will become void;
provided, however, that (a) the confidentiality provisions, general provisions
and termination provisions will survive and (b) nothing will relieve the parties
from any liability for fraud in connection with, or any willful breach of, the
merger agreement.
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Harbinger has also agreed to pay $50,000,000 to Peregrine in cash and shares
of Harbinger common stock, valued for such purpose at $24.125 per share,
provided that the cash component must be at least $20 million, in the event that
the agreement is terminated:
- by Peregrine if Harbinger's board of directors withdraws, modifies or
changes its recommendation of the merger agreement or merger in a manner
adverse to Peregrine;
- by Peregrine if Harbinger's board of directors shall have recommended an
acquisition proposal to the shareholders of Harbinger other than the
transaction contemplated by the merger agreement;
- by Peregrine if Harbinger fails to comply with the provisions in the
merger agreement regarding nonsolicitation; or
- by Peregrine if a bonafide acquisition proposal other than the transaction
contemplated by the merger agreement is publicly announced or has
otherwise become publicly known and Harbinger's board of directors
(i) shall have failed to recommend against acceptance of the such
acquisition proposal, including by taking no position or indicating its
inability to take a position with respect to the acceptance by its
shareholders of an acquisition proposal involving a tender or exchange
offer; or (ii) failed to reconfirm its approval and recommendation of the
merger agreement and related transactions within ten business days or the
Harbinger board of directors resolves to take any of the above actions.
In the event the merger agreement is terminated for the reasons set forth
immediately above, the termination fee is payable in two installments of equal
value. Harbinger is to make the first payment on the termination of the merger
agreement for the reasons mentioned above and the second payment on the 30(th)
day after the termination of the merger agreement.
In addition, Harbinger must pay the $50 million termination fee in the event
the merger agreement is terminated:
- by Peregrine if the merger has not been affected on or prior to
October 31, 2000; or
- by Peregrine in the event Harbinger's shareholders fail to approve the
merger agreement and merger;
provided that a bonafide acquisition proposal has been announced or shall
otherwise have become publicly known, and within 12 months after termination of
the merger agreement, Harbinger has entered into a definitive agreement
providing for the acquisition of more than 40% of Harbinger or such an
acquisition is consummated. Under these circumstances, the termination fee is
payable in two installments of equal value. Harbinger is to make the first
payment contemporaneously with the execution of the agreement for the
acquisition of Harbinger. Harbinger is to make the second payment on the earlier
to occur of (i) the consummation of the acquisition; or (ii) the 90(th) day
after the date of execution of the definitive agreement relating to the
acquisition of Harbinger.
- Should Harbinger satisfy its obligation to pay the termination fee by
delivering to Peregrine shares of Harbinger common stock, Peregrine is
entitled to registration rights with respect to those shares as described
in the option agreement. See "Agreements Related to the Merger--Option
Agreement" for a description of the option agreement.
- Except with respect to the termination fee, each party will pay its own
costs and expenses whether or not the merger is consummated. However, in
the event that either Peregrine or Harbinger terminates the merger
agreement upon a breach of any representation, warranty, covenant or
agreement, in either case such that the additional conditions to Peregrine
and Soda Acquisition's obligations would not be satisfied as of the time
of the breach or the time this representation or warranty becomes untrue
provided that if this breach is curable by Harbinger
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then Peregrine may not terminate the merger agreement for 30-days after
the delivery of written notice by Peregrine to Harbinger of the breach,
provided Harbinger continues to exercise commercially reasonable efforts
to cure the breach (Peregrine may not terminate the merger if the breach
is cured during this 30-day period), the nonterminating party must
reimburse the other party for the costs and expenses it incurred in
connection with the merger agreement and related transactions. Peregrine
and Harbinger will share equally all fees and expenses, other than
attorneys' and accountants' fees and expenses, incurred in relation to the
printing and filing relating to this Form S-4 and the joint proxy
statement/prospectus.
AMENDMENT. Subject to applicable law, the merger agreement may be amended
by the parties at any time by a written instrument signed on behalf of each of
the parties to the merger agreement.
EXTENSION; WAIVER. At any time prior to the completion of the merger, any
party to the merger agreement may, in writing:
- extend the time for performance for any obligations of the other parties
under the merger agreement;
- waive any inaccuracies in the representations and warranties in the merger
agreement made to that party; and
- waive compliance with any of the agreements or conditions of the merger
agreement for the benefit of that party.
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AGREEMENTS RELATED TO THE MERGER
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES AGREEMENTS
RELATED TO THE MERGER AGREEMENT, INCLUDING THE PEREGRINE STOCKHOLDERS' VOTING
AGREEMENTS AND THE HARBINGER SHAREHOLDERS' VOTING AGREEMENTS. WHILE WE BELIEVE
THAT THESE DESCRIPTIONS COVER THE MATERIAL TERMS OF THESE AGREEMENTS, THESE
SUMMARIES MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
PEREGRINE STOCKHOLDERS' VOTING AGREEMENTS
As a condition to Harbinger's entering into the merger agreement, Harbinger
and each of John J. Moores, Stephen P. Gardner, David A. Farley, Richard A.
Hosley, II, Norris Van den Berg, Richard T. Nelson, Frederic B. Luddy,
Douglas S. Powanda, William G. Holsten, Matthew C. Gless, Charles E.
Noell, III, Christopher A. Cole, and Thomas G. Watrous, Sr. entered into voting
agreements. By entering into the voting agreements these Peregrine stockholders
have irrevocably appointed the directors of Harbinger as their lawful attorneys
and proxies. These proxies give Harbinger the limited right to vote the shares
of Peregrine common stock beneficially owned by these Peregrine stockholders,
including shares of Peregrine common stock acquired after the date of the voting
agreements, in favor of any matter reasonably expected to facilitate the share
issuance, in favor of the issuance of shares of Peregrine common stock pursuant
to the merger and against any matter that could reasonably be expected to
prevent the merger. These Peregrine stockholders may vote their shares of
Peregrine common stock on all other matters.
As of the record date, these individuals and entities collectively
beneficially owned 11,988,403 shares of Peregrine common stock, or approximately
10.8% of the outstanding Peregrine common stock, all of which are subject to the
voting agreements. None of the Peregrine stockholders who are parties to the
voting agreements were paid additional consideration in connection with the
agreements.
Under these voting agreements, each of these Peregrine stockholders, with
the exception of John J. Moores, agrees not to transfer the Peregrine common
stock and options owned, controlled or acquired, either directly or indirectly,
by that person until the earlier of the termination of the merger agreement or
the completion of the merger, unless the transfer is in accordance with the
voting agreement and each person to which any shares or any interest in any
shares is transferred agrees to be bound by the terms and provisions of the
voting agreement. These voting agreements will terminate upon the earlier to
occur of the termination of the merger agreement and the completion of the
merger.
HARBINGER SHAREHOLDERS' VOTING AGREEMENTS
As a condition to Peregrine's entering into the merger agreement, Peregrine
and each of James M. Travers, William B. King, Douglas Roberts, David Bursiek,
Stuart Bell, Daniel Manack, David T. Leach, Benn R. Konsynski, David Hildes,
John D. Lowenberg, James K. McCormick, Klaus Neugebauer, William D. Savoy, Ad
Nederlof and Vulcan Ventures entered into voting agreements. By entering into
the voting agreements, these Harbinger shareholders have irrevocably appointed
Peregrine as their lawful attorney and proxy. These proxies give Peregrine the
limited right to vote all of the shares of Harbinger common stock beneficially
owned by these Harbinger shareholders, including shares of Harbinger common
stock acquired after the date of the voting agreements, in favor of the merger
agreement and merger, in favor of anything that could be reasonably expected to
facilitate the merger, against any other acquisition proposal and against any
matter that could reasonably be expected to facilitate any other acquisition
proposal. These Harbinger shareholders may vote their shares of Harbinger common
stock on all other matters.
As of the record date, these individuals and entities collectively
beneficially owned 5,987,524 shares of Harbinger common stock, all of which, or
approximately 14.5% of the outstanding Harbinger common stock are subject to the
voting agreements. None of the Harbinger shareholders who are parties to the
voting agreements were paid additional consideration in connection with the
agreements.
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Under these voting agreements, each of these Harbinger shareholders agreed
not to sell the Harbinger common stock and options owned, controlled or
acquired, either directly or indirectly, by that person until the earlier of the
termination of the merger agreement or the completion of the merger, unless the
transfer is in accordance with the voting agreement and each person to which any
shares or any interest in any shares is transferred agrees to be bound by the
terms and provisions of the voting agreement. These voting agreements will
terminate upon the earlier to occur of the termination of the merger agreement
and the completion of the merger.
STOCK OPTION AGREEMENT
As a condition to Peregrine's willingness to enter into the merger
agreement, Harbinger granted to Peregrine an irrevocable option to acquire up to
8,007,468 shares of Harbinger common stock that represent approximately 19.99%
of the issued and outstanding Harbinger common stock as of March 31, 2000. The
exercise price of the option is $43.50 per share of Harbinger common stock,
payable in cash. The number of shares issuable upon exercise of the option and
the exercise price of the option are subject to adjustment to prevent dilution.
The option is intended to increase the likelihood that the merger will be
completed. Some of the aspects of the stock option agreement may have the effect
of discouraging persons who might now or at any time be interested in acquiring
all or a significant interest in Harbinger or its assets before completion of
the merger.
If the option becomes exercisable, Harbinger would not be able to account
for future transactions under the pooling-of-interests accounting method for
some period of time.
EXERCISE EVENTS. Peregrine may exercise the option, in whole or part, at
any time or from time to time, upon the occurrence of any of the following
events:
- the termination of the merger agreement by Peregrine if Harbinger's board
of directors withdraws, modifies, or changes its recommendation of the
merger agreement or the merger in a manner adverse to Peregrine;
- the termination of the merger agreement by Peregrine if Harbinger's board
of directors shall have recommended an acquisition proposal to Harbinger's
shareholders, other than the transaction contemplated by the merger
agreement;
- the termination of the merger agreement by Peregrine if Harbinger fails to
comply with the provisions in the merger agreement regarding
nonsolicitation;
- the termination of the merger agreement by Peregrine if a bonafide
acquisition proposal other than the transaction contemplated by the merger
agreement is publicly announced or has otherwise become publicly known and
Harbinger's board of directors: (i) shall have failed to recommend against
acceptance of the acquisition proposal, including by taking no position
with respect to a tender or exchange offer; or (ii) failed to reconfirm
its approval and recommendation of the merger agreement and related
transactions within ten business days;
- the board of directors resolves to take any of the above actions;
- the termination of the merger agreement because the merger has not been
consummated by October 31, 2000, or the termination of the merger
agreement because the required approval of Harbinger's shareholders has
not been obtained, and prior to this termination a bona fide acquisition
proposal shall have been announced or otherwise shall have become publicly
known and within 12 months after such termination, Harbinger has entered
into a definitive acquisition
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agreement providing for an acquisition of Harbinger or a acquisition of
Harbinger shall have been consummated, other than the merger contemplated
by the merger agreement; or
- the required approval of Harbinger shareholders pursuant to the merger
agreement shall have not been obtained.
TERMINATION. The option will terminate and cease to be exercisable upon the
earliest of any of the following:
- the completion of the merger;
- 12 months after termination of the merger agreement based on a failure of
the merger to be consummated by October 31, 2000 or the failure to obtain
the required approval of Harbinger shareholders if no event causing the
termination fee to become payable has occurred;
- 12 months after payment of the termination fee in connection with
termination of the merger agreement based on Harbinger's (i) board of
directors withdrawing, modifying or changing its recommendation regarding
the merger adverse to Peregrine, (ii) board of directors recommendation of
another acquisition proposal, (iii) failure to comply with the
nonsolicitation provisions, (iv) board of directors' failure to recommend
against acceptance and reconfirm its approval of the merger agreement and
related transactions after the public announcement of a bonafide proposal
to acquire Harbinger or other public knowledge of such an acquisition;
- 12 months after payment of the termination fee in connection with a
termination of the merger agreement based on a failure of the merger to
have been consummated by October 31, 2000 or failure to obtain the
required approval of Harbinger's shareholders; and
- the date on which the merger agreement is otherwise terminated.
REPURCHASE AT THE OPTION OF PEREGRINE. During the period when the option is
exercisable, Peregrine may require Harbinger to repurchase from Peregrine the
unexercised portion of the option at a price, called the market/tender offer
price, equal to the difference between the higher of (i) the highest price per
share offered pursuant to any acquisition proposal and (ii) the highest closing
sale price of Harbinger common stock on the Nasdaq National Market for the 20
preceding trading days; and the exercise price. With respect to shares of
Harbinger common stock purchased by Peregrine pursuant to exercise of the
option, the price of repurchase is equal to the exercise price plus the
difference between the market/tender offer price and the exercise price
multiplied by the number of shares purchased. In no event will Harbinger be
required to pay in excess of an aggregate of $50,000,000 minus the amount of the
total termination fee paid by Harbinger to Peregrine.
ECONOMIC BENEFIT TO PEREGRINE IS LIMITED. The stock option agreement limits
the maximum profit to Peregrine, including the amount, if any, paid to Peregrine
as a termination fee under the merger agreement, which may be received by
Peregrine is limited to $60 million.
REGISTRATION RIGHTS. The stock option agreement grants registration rights
to Peregrine with respect to the shares of Harbinger common stock represented by
the option, including the right to demand that Harbinger register all or part of
such shares with the Securities and Exchange Commission, provided that Peregrine
will only be able to make two such demands, and the right to register all or
part of such shares if Harbinger otherwise register effects a registration for
its own account.
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AFFILIATE AGREEMENTS
In order to induce Peregrine to enter into the merger agreement, each of the
Harbinger affiliates has entered into an affiliate agreement at Peregrine's
request. Pursuant to the terms of the affiliate agreements, the Harbinger
affiliates have represented the following:
- the shares of and options and warrants to purchase shares of Harbinger
common stock held by them are not subject to any claim, lien, pledge,
charge, security interest or other encumbrance or to any rights of first
refusal of any kind;
- there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the affiliate is party or by
which it is bound obligating the affiliate to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any Harbinger common stock, warrants or options or obligating
the affiliate to grant or enter into any such option, warrant, call,
right, commitment or agreement;
- the affiliate has the sole right to transfer the shares of Harbinger
common stock, warrants and options held by it;
- the shares of Harbinger common stock are not subject to preemptive rights
created by any agreement to which the affiliate is party; and
- the affiliate has not engaged in any sale or other transfer of Harbinger
common stock, warrants or options in contemplation of the merger.
RULE 145. Each affiliate has agreed not to sell, transfer or otherwise
dispose of any Peregrine common stock issued in the merger unless one of the
following conditions is met:
- the sale, transfer or other disposition is made in conformity with the
requirements of Rule 145(d) under the Securities Act;
- the sale, transfer or other disposition is made pursuant to an effective
registration statement under the Securities Act or an appropriate
exemption from registration;
- the affiliate delivers to Peregrine a written opinion of counsel,
reasonably acceptable to Peregrine in form and substance, that such sale,
transfer or other disposition is otherwise exempt from registration under
the Securities Act; or
- an authorized representative of the SEC shall have rendered written advice
to the affiliate to the effect that the SEC would take no action, or that
the staff of the SEC would not recommend that the SEC take any action,
with respect to the proposed disposition if consummated.
The form of affiliate agreement is attached as Exhibit C to the merger
agreement, which is attached as Annex A to this joint proxy
statement/prospectus.
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BUSINESS OF PEREGRINE
OVERVIEW
Peregrine refers to itself as "The Infrastructure Management Company." We
offer business organizations an integrated suite of packaged infrastructure
resource management application software. In addition, we have recently
introduced additional products designed to automate the processes associated
with the procurement and use of infrastructure assets. These software
applications are designed to manage the various aspects of organizational
infrastructure from the moment an asset is leased, acquired, or taken from
existing inventory until the moment it is taken out of service. Infrastructure
assets include computers, computer networks, telecommunication assets, physical
plant and facilities, corporate car or truck fleets, and many other assets. Our
products are designed to help businesses answer the following questions about
each item of corporate infrastructure:
- What assets does my business own?
- Where are each of these assets located?
- How well are each of these assets working?
- What is the total cost of owning each asset (I.E., the cost of acquiring,
maintaining, servicing, and disposing of each asset)?
- How well is each asset supporting my business?
CORPORATE BACKGROUND
We were incorporated in California in 1981 and reincorporated in Delaware in
1994. Our principal executive offices are located at 12670 High Bluff Drive, San
Diego, California 92130. Our telephone number at that address is (858) 481-5000.
INDUSTRY BACKGROUND
Until recently, automated management of organizational infrastructure was
not a priority for many companies. Rather, organizations tended to focus their
information technology spending on automating external business functions that
involve interactions with customers, suppliers, distributors, and other third
parties. These applications included building networks for voice and data and
implementing software solutions for enterprise resource planning (ERP), customer
supply chain management (CSCM), and customer relationship management (CRM).
Organizations have become increasingly dependent on these networks, systems, and
applications to provide core products and services, and we believe they are now
critical components of an organization's operating infrastructure.
Organizational infrastructure has also become larger and more complex.
Modern businesses now depend on an array of systems and applications to provide
electronic mail and Internet and Intranet services, to manage documents, and to
support mission critical ERP, CSCM, and CRM applications. In addition, the
various components of infrastructure, including desktop computers, networks, and
telecommunications assets, are increasingly linked. In turn, these internal
networks and systems depend on a physical infrastructure comprised of cable and
wiring in walls, floors, and ceilings that are ultimately part of the buildings
and campuses that comprise the larger organizational infrastructure.
We believe that the operational effectiveness of an organization ultimately
depends on the efficient acquisition, management, and disposal of these
infrastructure assets. Threats to infrastructure pose substantial business
risks. Issues raised in connection with Year 2000 remediation, European currency
conversion, computer viruses, major facilities relocations, and changes in
network environments have resulted in increased awareness of infrastructure
dependency by senior business executives and information technology managers.
Accordingly, we believe that opportunities exist for providers of an integrated
suite of infrastructure resource management software that can assist
organizations to acquire, deploy, maintain, and operate infrastructure assets
efficiently throughout their life cycle--from the time an organization starts to
contemplate purchase or lease of a new asset to the moment the asset is
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removed from service and sold or disposed. We attempt to manage the following
major stages in the lifecycle of an asset:
- procurement or lease
- maintenance in inventory
- installation
- data collection
- taking and implementing a service or upgrade request
- asset relocation
- problem management and resolution
- performance tracking
- correlation of performance to service level agreements
- contract management
- removal from service
- disposition or re-use
Until recently, our products focused principally on problem management for
an organization's information technology infrastructure. Our principal product
suite, SERVICECENTER, is an integrated, enterprise service desk software
solution that assists information technology departments to manage and maintain
their internal computer networks and related assets. Since 1997, however, we
have made several acquisitions intended to broaden our infrastructure resource
management product suite beyond management of network help desks.
- In September 1997, we acquired ASSETCENTER, our first asset management
product through the acquisition of Apsylog, S.A., a French corporation,
and its U.S. parent company.
- In July 1998, we acquired Innovative Tech Systems, a leading provider of
facilities management software. Innovative's SPAN-FM product line became
our FACILITYCENTER product line.
- In September 1998, we acquired technologies and other assets from related
entities operating as International Software Solutions. These technologies
expanded the ability of our products to help manage information technology
assets by permitting network help desk analysts to interface with users
over the corporate network without on-site visits.
- In March 1999, we acquired Prototype, a provider of software products for
managing corporate vehicle and equipment fleets.
- In April 1999, we acquired fPrint, a British provider of software used to
discover and inventory software located on the computers of individual
users on a corporate network.
- In September 1999, we acquired Knowlix, a developer of knowledge
management software that assists help desk analysts by managing the
intangible technical information and know-how required to assist callers.
- In December 1999, we acquired advanced and light rail management software
for the passenger and freight rail industries from KKO & Associates.
- In March 2000, we acquired Telco Research, a provider of software products
that help manage telecommunications assets, and Barnhill Management Group,
a services and solutions delivery partner with extensive experience in the
telecommunications industry.
PRODUCTS
We currently offer over forty infrastructure management and e-procurement
software products. The following discussion summarizes our principal product
families.
SERVICECENTER
SERVICECENTER is a set of applications intended to maintain the
effectiveness and functionality of an organization's information technology
infrastructure. SERVICECENTER offers a number of gateway products to the
software tools and applications of other vendors. These gateway products include
interfaces to system and network management products such as Hewlett-Packard
Openview, Computer Associates
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Unicenter, and Tivoli TME10. In addition, gateways to enterprise resource
planning applications are supported to products such as SAP R3, PeopleSoft, and
Oracle.
PRIMARY SERVICECENTER APPLICATIONS
PROBLEM MANAGEMENT. The problem management application automates the
process of reporting and tracking specific problems or classes of problems
associated with a business enterprise's network computing environment. Help
desk personnel open problem tickets using templates specific to the class of
problem reported.
PROBLEM RESOLUTION. The problem management application works together
with our IR EXPERT, a text search expert system that employs advanced
technology to allow network operators to retrieve relevant information. This
application assists in problem solving, based on prior solutions. The IR
EXPERT reduces a user's question, or query, to a number of "terms," refining
the query to fit knowledge in the database and then searches resolution
databases using related terms. This application is self-learning, so the
customer does not have to perform any work to keep the knowledge base up to
date.
CHANGE MANAGEMENT. The change management application provides a
functional framework for proposing, accepting, scheduling, approving,
reviewing and coordinating network changes.
CONTRACT MANAGEMENT. The contract management application provides
information system departments with the tools they need to track all costs
associated with infrastructure problems or change.
INVENTORY CONFIGURATION MANAGEMENT. The inventory configuration
management application provides the service desk with a central repository
of information about inventories of networked devices and applications as
well as information concerning end-users. Easy access to inventory
information permits the service desk to respond to end-user problems, to
plan changes and services, and to create accurate reports about the
network's status and environmental trends.
REQUEST MANAGEMENT. The request management application automates and
tracks an organization's equipment and services ordering process from
initial request through installation and follow-up. Using SERVICECENTER, an
end-user identifies and orders products or services from a catalog of items.
SERVICECENTER then consolidates requests, forwards orders through an
organization's standard approval and order processing procedures, and
consolidates orders by vendor. End-users can track the status of requests
through SERVICECENTER at all times.
SERVICE LEVEL AGREEMENT MANAGEMENT. Service level agreements are used
by companies to relate the availability and performance of infrastructure to
the business mission performed by the infrastructure. Service level
agreement management is designed to simplify the task of managing these
contracts.
SERVICECENTER INSIGHT. ServiceCenter Insight is a data mining tool
which facilities the ability of the customer to make queries and prepare
reports about information in the infrastructure repositories.
SERVICE MANAGEMENT. Service management is a comprehensive call
management tool. The service desk operator uses service management to assess
an incoming call and determine whether it is an information request, a call
requiring problem management, a request for action to assist an individual
or a requirement for a change which would affect multiple elements of the
infrastructure.
WORK MANAGEMENT. Work management is designed to help managers better
balance the demands for service and support based on the priority of tasks
and the skill set of the workforce. Work management will automatically
allocate unassigned or incomplete problem tickets to
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individuals. The manager can also assign new work, view progress on assigned
items, or reassign work based on changing properties using the drag and drop
interface.
E-SERVICECENTER is the Internet-hosted version of SERVICECENTER, which
offers a subset of the SERVICECENTER application set to help desk managers on an
application service provider basis. If the customer elects this option, we act
as the system administrator and operator for the customer. Their users connect
to our software over the Internet and receive the benefit of the application
without the administrative burden of actually running the server portion of the
application. The product is sold in two models. We may enter a perpetual license
agreement with the customer and recognize license revenue at the time of initial
sale, as with a standard SERVICECENTER license, and recognize maintenance,
hosting operations and administration revenues as a recurring payment stream.
Alternatively, we may provide a limited-term, noncancelable subscription to use
E-SERVICECENTER, where we recognize revenue for license, maintenance, hosting
operations and administration on a periodic basis.
ASSETCENTER
ASSETCENTER is a set of applications intended to manage financial
information relating to an organization's portfolio of information technology
infrastructure investments. Like SERVICECENTER, ASSETCENTER supports gateways to
enterprise resource planning and desktop inventory discovery tools.
PRIMARY ASSETCENTER APPLICATIONS
ASSET MANAGEMENT. The asset management application provides a
comprehensive inventory of an organization's equipment, users, suppliers,
and contracts. The application provides detailed descriptions of software
licenses acquired and their associated rights in order to reconcile them
with the software actually installed.
LEASE MANAGEMENT. Lease management manages the contractual aspects of
leasing and rental by returning, updating and renewing equipment through
alarm and messaging features. The application also includes a wide range of
methods for calculating lease terms and permits users to evaluate different
financing alternatives.
PROCUREMENT MANAGEMENT. This application manages the acquisition of
information technology products including assets, consumables and services.
Procurement management covers the entire purchasing cycle: request,
approval, estimate, issuance of purchase orders, delivery and receipt. The
application allows users to set up authorization procedures as well as
automatic reordering based on user-defined restocking criteria.
COST MANAGEMENT. Cost management features analytic and budgetary
functions that allow tracking, control, and allocation of information
technology related expenses. The application allows users to track costs
related to each asset, including both capital and operational expenses
(E.G., training, service calls) and to measure the costs of ownership for
each asset. The application also allows users to compare accounting and
physical inventories to determine the correct valuation of balance sheet
assets.
INFRACENTER FOR WORKGROUPS
INFRACENTER FOR WORKGROUPS is a comprehensive asset management technology
targeted at the midrange market. INFRACENTER FOR WORKGROUPS offers functionality
and applications similar to those offered with our ASSETCENTER product suite. In
addition, Infratools desktop discovery provides complete, accurate, and timely
intelligence about desktop users on a network. The premium offering of
INFRACENTER FOR WORKGROUPS bundles our InfraTools Remote Control product, a
graphical remote control application. InfraTools Remote Control is designed for
everything from help desk and remote support to teaching applications and
network management.
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FACILITYCENTER
FACILITYCENTER is a set of applications and multiple gateways that are
designed to manage assets related to physical plant and facilities.
FACILITYCENTER includes space planning, facilities management, work order
management, stacking, maintenance management, facilities help desk, cable plant
management, computer aided design integrator, data collection, and real estate
lease management. Like SERVICECENTER and ASSETCENTER, FACILITYCENTER also
supports gateways to external products.
The FACILITYCENTER product suite offers solutions specifically designed to
automate facilities, real estate and operations, and maintenance management.
E-FACILITYCENTER is the Internet-hosted version of FACILITYCENTER. It offers the
FACILITYCENTER application set to real estate and facilities managers on a
hosted application service provider basis.
PRIMARY FACILITYCENTER APPLICATIONS
FACILITYCENTER SOLUTION FOR FACILITIES MANAGEMENT. FACILITYCENTER
projects occupancy demand and supply scenarios to enable efficient move
planning and reduce costs. By interfacing to popular computer-aided-design
products, users can view information graphically and manage facilities using
a top down approach. The FACILITYCENTER application can also manage project
bids, costs and budgets.
FACILITYCENTER SOLUTION FOR OPERATIONS AND MAINTENANCE. OUR
FACILITYCENTER solution for operations and maintenance enables preventive
maintenance workflow to be streamlined and managed from a single point. It
allows managers to automatically schedule preventive maintenance, obtain
work order cost estimates, schedule work orders, and obtain information
about the status of work orders. Purchasing, receiving and shipping
functions can also be administered automatically.
FACILITYCENTER SOLUTION FOR REAL ESTATE. The FACILITYCENTER real estate
management solution helps real estate professionals optimize the use of
available space, reduce overall occupancy costs and implement continuous
improvement strategies and policy tactics. The application tracks owned and
leased property including space configuration and utilization.
FLEETANYWHERE
FLEETANYWHERE is a comprehensive, Internet-enabled, fully integrated,
Windows-based fleet management system. It is capable of tracking an unlimited
number of equipment units and supporting an unlimited number of workstations
from any number of locations. FLEETANYWHERE tracks all functions related to the
maintenance of equipment fleets, including processing repair and work orders,
tracking operating expenses such as for fuel, oil, and licensing, and tracking
and billing for equipment usage. Optional modules offer functionality related to
bar coding on the shop floor, online employee labor capture, motor pool
reservations tracking, shop scheduling, service level agreement tracking,
replacement analysis, tire tracking, and fleet optimization.
E.FLEET is the Internet-hosted version of FLEETANYWHERE. It offers the full
FLEETANYWHERE application set to fleet managers on an application service
provider basis.
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GET.IT!
GET.IT! is our employee self-service product suite. The GET.IT! solution
offers employee self-service applications designed to improve employee
productivity and reduce operating expenses.
GET.IT! APPLICATIONS
GET.RESOURCES! Get.Resources! assists the traditional asset
procurement process by allowing businesses to evaluate total lifecycle costs
of an asset. Using a web interface, employees can buy, lease, or take from
existing stock needed resources or services. The workflow engine in
Get.Resources! routes requisitions through the organization based on local
business rules, thereby streamlining the process and reducing cycle time.
Get.Resources! is an open e-procurement application that allows
organizations to purchase products and resources through CommerceOne's
MarketSite or via direct, point-to-point links with suppliers from
e-catalogs hosted on either the buyer or supplier site.
GET.ANSWERS! Get.Answers! is a portal interface for accessing and
distributing information throughout an organization. With an easy-to-use web
interface, Get.Answers! lets any employee tap into the same information base
used by information technology support and other infrastructure
professionals. The reporting feature in Get.Answers! lets administrators
know who is using the system and what information is being used.
GET.SERVICE! Get.Service! automates the employee service request
process through a centralized portal for requesting services ranging from
training services to providing lunches for meetings.
COMMANYWHERE
COMMANYWHERE is a communications equipment management system that tracks
mobile and portable radios, base and fixed equipment, microwave equipment,
console and remote equipment, and 800 megahertz trunked radio system equipment.
KNOWLIX
KNOWLIX is our knowledge management product suite for help desks and
customer support centers. KNOWLIX assists help desk and call center analysts by
managing the technical information and know-how required to assist callers.
TELEPHONY AND DATA MANAGEMENT SOLUTIONS
In March 2000, we completed our acquisition of Telco Research Corporation
Limited, a provider of software products that help manage telecommunications
assets. The Telco Research product suite combines hardware and software
solutions that help organizations accurately accumulate and allocate
telecommunications cost, measure system health and performance, enforce
policies, manage security, and control fraudulent use of corporate phone
systems.
DATA COLLECTION DEVICES. We offer intelligent data collectors that monitor
and collect the information produced by network switching equipment. These data
collectors provide a solution for monitoring and filtering alarms, collecting
call detail records and traffic data and obtaining secure access into telephone
switches from a central point. These collection devices provide call detail
record storage, polling, toll fraud & real-time information concerning the
operating status of telecommunications systems.
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VOICE SOLUTIONS. We offer solutions to manage the voice communications
network for companies of all sizes. This family of products provides customers
the ability to understand and control cost and usage, monitor network operating
status and maintain network integrity.
PRODUCT INTEGRATION
We have completed numerous acquisition of businesses and technologies since
late 1997. As a result, our research and development personnel have focused
substantial effort on integrating the acquired products and technologies into a
single product suite with a common data repository. In April 1998, we announced
and shipped the Peregrine Repository Interface Manager, which we market as PRIM.
PRIM integrates common elements between the data schema of SERVICECENTER and
ASSETCENTER. We are continuing to expend resources to improve the integration of
SERVICECENTER and ASSETCENTER and are beginning the integration of
FACILITYCENTER, a product we acquired in connection with the acquisition of
Innovative Tech Systems in July 1998. Integration of products of this number and
complexity can be costly and time consuming, could result in the diversion of
resources from development of new or enhanced products and technologies, and
exposes us to a number of risks which are described in greater detail under the
caption "Risk Factors" beginning on page 12.
PRODUCT DEVELOPMENT; PRODUCT AUTHORSHIP MODEL
We believe that attracting and retaining talented software developers is an
important component of our product development activities. To this end, we have
instituted a product authorship incentive program that rewards our developers
with commissions based on the market success of the applications designed,
written, marketed, and supported by them. Our product authorship program is
designed to encourage our developers to evaluate the effectiveness of a product
in the actual user environment.
We believe that the ability to deliver new and enhanced products to
customers is a key success factor. We have historically developed our products
through a consultative process with existing and potential customers. We expect
that continued dialogue with existing and potential customers may result in
enhancements to existing products and the development of new products. We have
in the past devoted and expect to continue to devote a significant amount of
resources to developing new and enhanced products. We currently have a number of
product development initiatives underway. We cannot predict, however, whether
any enhanced products, new products, or product suites will be embraced by
existing or new customers. The failure of any of these products to achieve
market acceptance would have a material adverse effect on our business, results
of operations and financial condition.
Our research and development expenditures in fiscal 2000, 1999, and 1998
were $28.5 million, $13.9 million, and $8.4 million, respectively, representing
11%, 10%, and 14% of total revenues in the respective periods. See "Peregrine
Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 108.
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 investments
by us. There can be no assurance that we will have sufficient resources to make
the necessary investments. 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
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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. Peregrine's
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, Peregrine's 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 Peregrine's
standard tools provided with the system.
RAPID APPLICATION DEVELOPMENT ENVIRONMENT. Peregrine has created a
"fill-in-the-blanks" development environment for building and deploying
applications. All SERVICECENTER applications are implemented using Peregrine's
rapid application development environment. If a customer requires more extensive
modification, the system can be customized by changing the applications provided
by Peregrine or implementing new applications using the rapid application
development environment. In fiscal 1999, Peregrine introduced an advanced
graphical workflow engine in ASSETCENTER, along with technology for simplified
tailoring of the application. These technologies are expected to be introduced
in future Peregrine applications.
DISTRIBUTED SERVICES. Peregrine has 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. Peregrine provides adapters to industry standard application
programming interfaces, such as SMTP e-mail, and leading vendors products. These
adapters expand the reach of Peregrine's products by allowing them to interact
with other products currently in the customer's environment. Peregrine has also
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, Peregrine has created an open application programming
interface permitting software developed by third parties, end-users or
Peregrine's professional services group to be integrated into the system.
INTELLIGENT AGENTS. Peregrine provides intelligent agents that gather and
feed information to SERVICECENTER. The agents provide automated inventory
gathering and problem determination data for
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use in problem resolution and management of an information technology
environment. The agents permit help desk personnel to open, update, and close
trouble tickets based on criteria provided by the customers.
JAVA CLIENT. Peregrine introduced a Java SERVICECENTER graphical user
interface client in fiscal 1999. The Java client duplicates the functionality of
the SERVICECENTER graphical user interface, allowing access to the entire
SERVICECENTER system via the Internet. The Java client is designed for use by
production or "heavy" users of the system, while the web client, available for
SERVICECENTER, ASSETCENTER, FACILITIES CENTER, and FLEETANYWHERE is designed for
the casual user requiring easy, simple access to basic system functions.
SALES AND MARKETING
We sell our software and services in North America and internationally
primarily through a direct sales force. A large number of our sales force is
based at our San Diego headquarters, but we also have North American sales
personnel located in, or in close proximity to, most major cities in the United
States and Canada. Our international sales force is located in the metropolitan
areas of Amsterdam, Frankfurt, London, Milan, Copenhagen, Munich, Paris,
Singapore and Sydney. Our sales model combines telephone and Internet
communications for product demonstrations with travel to customer locations to
pursue a consultative sales process. In addition to our direct sales strategy,
we continue to pursue indirect distribution channels. In the Pacific Rim and
Latin America, we have established a network of channel partners. In North
America, we have established a network of regional and national systems
integrators and channel partners. When sold through direct channels, the sales
cycle for our products typically ranges from six to nine months, depending on a
number of factors, including the size of the transaction and the level of
competition we encounter in our sales activities.
In recent periods, we have devoted significant resources to building our
marketing organization and infrastructure. We have significantly expanded
product marketing, marketing communications, alliance marketing, telemarketing
and sales training. The primary focus of our marketing department is to generate
qualified leads for the worldwide direct sales force and to create market
awareness programs for Peregrine and our products. As part of our strategy, we
have invested significantly in the Internet, developing a new corporate web site
during fiscal 2000 and executing an array of web-based marketing programs. In
addition, during fiscal 2000, we established an executive briefing center in
order to focus our sales efforts at senior levels within our prospective
customer's organizations.
We have significantly increased the size of our sales force over the last
year and expect to continue hiring sales personnel, both domestically and
internationally, over the next twelve months. Competition for qualified sales
personnel is intense in the software industry. We also expect to increase the
number of our regional, national, system integrator and channel partners, both
domestically and internationally. Any failure to expand our direct sales force
or other distribution channels could have a material adverse effect on our
business, results of operations, and financial condition.
We believe that our continued growth and profitability will require
expansion of our international operations, particularly in Europe, Latin
America, and the Pacific Rim. We intend to expand international operations and
to enter additional international markets, either directly or through
international distribution or similar arrangements, which will require
significant management attention and financial resources. 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.
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In addition, continued international expansion poses a number of risks
associated with conducting business outside the United States, including
fluctuations in currency exchange rates, longer payment cycles, difficulties in
staffing and managing international operations, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world, increases in tariffs, duties, price controls, or other restrictions on
foreign currencies, and trade barriers imposed by foreign countries, any of
which could have a material adverse effect on our business, operating results
and financial condition. In addition, we have only limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. There can be no assurance that we will be able to
successfully localize, market, sell, and deliver products internationally. If we
are unable to expand our international operations successfully and in a timely
manner, our future revenues could decline or grow at a slower rate, and our
results of operations and financial condition could be impaired.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services group provides technical consulting and training
to assist customers and business partners in implementing our products.
Our basic consulting services include analyzing user requirements and
providing the customer with a starter system that will quickly demonstrate
significant benefits of our products. More advanced consulting services include
providing turn-key implementations using our Advanced Implementation
Methodology, which begins with a structured analysis to map the customer's
business rules onto our service desk tools, continues with the technical design
and construction, and finishes with system roll out. Implementation assistance
frequently involves a modest level of process reengineering and the development
of interfaces between our products and legacy systems and other tools or
systems.
We offer training courses in the implementation and administration of our
products. On a periodic basis, we offer product training at our facilities in
San Diego, Orlando, Washington D.C., London, Paris, Frankfurt, Amsterdam and
Tokyo for customers and business partners. Customer-site training is also
available.
We maintain a staff of customer support and customer care personnel, who
provide technical support and periodic software updates to our customers and
partners. We offer complete technical support services 24 hours a day, five days
per week, with critical care services offered 24 hours a day, seven days a week
via toll free lines through our local offices in Europe and San Diego. In
addition to telephone support, we provide support via facsimile, e-mail, and a
web server.
COMPETITION
The markets for Peregrine's products are highly competitive and diverse. The
technology for infrastructure management and e-procurement software products can
change rapidly. New products are frequently introduced and existing products are
continually enhanced. Competitors vary in size and in the scope and breadth of
the products and services offered. In the last few years, we have experienced
substantial competition from new competitors of all types and sizes, and we do
not foresee a change in the rate of increasing competition.
SOURCES OF EXISTING COMPETITION
We face competition from a number of sources in the markets for our
infrastructure resource management and e-procurement software solutions.
- In the markets for our infrastructure resource management products, we
face competition from:
- providers of internal help desk software applications, such as Remedy
Corporation and Tivoli Systems, that compete with our enterprise
service desk software
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- providers of asset management software, including Remedy, MainControl,
and Janus Technologies
- providers of facilities management software, including Archibus,
Facilities Information Systems, and Assetworks (a division of
CSI-Maximus)
- providers of transportation management software that competes with our
fleet management and rail management software, including Control
Software (a division of CSI-Maximus) and Project Software and
Development Inc.
- information technology and systems management companies such as IBM,
Computer Associates, Network Associates, Hewlett-Packard, and Microsoft
- numerous start-up and other entrepreneurial companies offering products
that compete with the functionality offered by one or more of our
infrastructure management products
- the internal information technology departments of those companies with
infrastructure management needs.
- In the markets for procurement and e-procurement solutions, we face
competition from:
- established competitors in the business-to-business internet commerce
solution market, such as Ariba and CommerceOne; and
- established providers of enterprise resource planning software that are
entering the market for procurement and e-procurement solutions,
including Oracle and SAP.
SOURCES OF FUTURE COMPETITION
Because competitors can easily penetrate the software market, we anticipate
additional competition from other established and new companies as the market
for enterprise infrastructure management applications develops. In addition,
current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties.
Large software companies may acquire or establish alliances with smaller
competitors of Peregrine. 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.
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 than Peregrine. 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 faced by Peregrine 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
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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 Peregrine. 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
Peregrine's success depends heavily on our ability to maintain and protect
our proprietary technology. We rely primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights, which offer only limited
protection. We attempt to protect our intellectual property rights by limiting
access to the distribution of our software, documentation and other proprietary
information. In addition, we enter into confidentiality agreements with our
employees and certain customers, vendors, and strategic partners. These steps
may fail to prevent the misappropriation of our intellectual property,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. Other parties may independently develop
competing technology. Attempts may be made to copy aspects of our products or to
obtain and use information that we regard as proprietary. Despite precautions we
may take, it may be possible for unauthorized third parties to copy aspects of
our current or future products or to obtain and use information that we regard
as proprietary. In particular, we may provide our licensees with access to our
data model and other proprietary information underlying our licensed
applications.
We employ a variety of intellectual property in the development and sale of
our products. We believe that the loss of all or a substantial portion of our
intellectual property rights would have a material adverse effect on our results
of operations. Our intellectual property protection measures might not be
sufficient to prevent misappropriation of our technology. From time to time, we
may desire or be required to renew or obtain licenses from others in order to
further develop and effectively market commercially viable products effectively.
Any necessary licenses might not be available on reasonable terms, if at all,
and the associated license fees could increase our expenses and impair our
results of operations.
Litigation concerning intellectual property is common among technology
companies. In the future, third parties may claim that we infringe their
products or technologies. These claims and any resulting lawsuit, if successful,
could subject us to significant liability for damages and invalidate our
proprietary rights. These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation could also force us to
do one or more of the following:
- cease selling, incorporating, or using products or services that
incorporate the infringed intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not
available on acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of our competitors. These
claims could result in costly litigation and the diversion of our
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technical and management personnel's time and attention. As a result, our
operating results could suffer, and our financial condition could be harmed.
EMPLOYEES
As of March 31, 2000, Peregrine employed 1,433 persons, including 555 in
sales and marketing, 160 in customer support, 257 in professional services, 243
in research and development and 218 in finance and administration. Of our
employees, 441 are located outside North America, principally in Europe. None of
our employees is represented by a labor union (other than by statutory unions or
workers' committees required by law in some European countries). We have not
experienced any work stoppages and consider our relations with our employees to
be good.
PROPERTIES
Peregrine's principal administrative, sales, marketing, support, research
and development and training functions are located at our headquarters facility
in San Diego, California. We currently occupy 127,110 square feet of space in
San Diego, and the underlying leases extend through August 2003. An additional
13,310 square feet of space at the San Diego headquarters is subleased to JMI
Services, Inc., an affiliate of the Company.
In June 1999, we entered into a series of leases providing approximately
540,000 square feet of office space, including an option for approximately
118,000 square feet of space. Excluding the exercise of the option, the leases
require minimum lease payments of approximately $124.0 million over their terms,
which are approximately twelve years. This office space (including the option)
is intended for a five building campus in San Diego, California. Initially, we
expect to occupy three of the buildings and sublet the remaining two buildings.
We currently occupy one of the three buildings and expect to occupy the balance
sometime during the summer of 2000. As part of the relocation to the new campus
facility, we intend to sublet our currently leased space on High Bluff Drive for
the remaining period of our lease.
We also lease office space for sales, marketing, and professional services
staff in most major metropolitan areas of the United States and Canada. In
connection with our recent acquisition of Telco Research Corporation Limited, we
assumed leases for approximately 37,000 square feet of space in Nashville,
Tennessee and 17,000 square feet in Toronto, Ontario. In Europe, we lease space
in the metropolitan areas of Amsterdam, Copenhagen, Dublin, Frankfurt, London,
Milan, and Paris. In the Pacific Rim, we lease space in Singapore, Sydney, and
Tokyo.
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PEREGRINE SELECTED CONSOLIDATED FINANCIAL DATA
Peregrine's selected consolidated statement of operations data for each of
the years in the five year period ended March 31, 2000 is presented below. Our
selected consolidated balance sheet data is presented below as of March 31,
2000, 1999, 1998, 1997, and 1996. Our selected consolidated financial data
derives from the consolidated financial statements of Peregrine Systems, Inc and
its subsidiaries. These financial statements have been audited by Arthur
Andersen LLP, independent public accountants. The consolidated financial
statements as of March 31, 2000 and 1999 and for each of the years in the
three-year period ended March 31, 2000, and the report of independent public
accountants thereon, are included beginning on page F-1 of this joint proxy
statement prospectus. The selected consolidated financial data set forth below
is qualified in its entirety by, and should be read in conjunction with, our
consolidated financial statements and the notes thereto and "Peregrine's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Licenses.................................................. $168,467 $ 87,362 $38,791 $20,472 $11,642
Services.................................................. 84,833 50,701 23,086 14,563 12,124
-------- -------- ------- ------- -------
Total revenues........................................ 253,300 138,063 61,877 35,035 23,766
Costs and expenses:
Cost of licenses.......................................... 1,426 1,020 326 215 415
Cost of services.......................................... 51,441 31,561 10,326 4,661 3,526
Sales and marketing....................................... 101,443 50,803 22,728 15,778 11,820
Research and development.................................. 28,517 13,919 8,394 5,877 7,742
General and administrative................................ 19,871 10,482 6,077 3,816 4,529
Amortization of intangibles............................... 34,753 18,012 3,168 -- --
Acquired in-process research and development costs........ 24,505 26,005 6,955 -- --
-------- -------- ------- ------- -------
Total costs and expenses.............................. 261,956 151,802 57,974 30,347 28,032
-------- -------- ------- ------- -------
Operating income (loss)..................................... (8,656) (13,739) 3,903 4,688 (4,266)
Interest income (expense) and other......................... 38 664 839 (478) (286)
-------- -------- ------- ------- -------
Income (loss) from continuing operations before income
taxes..................................................... (8,618) (13,075) 4,742 4,210 (4,552)
Income tax expense (benefit)................................ 16,452 10,295 5,358 (1,592) --
-------- -------- ------- ------- -------
Income (loss) from continuing operations.................... (25,070) (23,370) (616) 5,802 (4,552)
Loss from discontinued operations:
Loss from operations...................................... -- -- -- -- 781
Loss on disposal.......................................... -- -- -- -- 1,078
-------- -------- ------- ------- -------
Loss from discontinued operations....................... -- -- -- -- (1,859)
-------- -------- ------- ------- -------
Net income (loss)........................................... $(25,070) $(23,370) $ (616) $ 5,802 $(6,411)
======== ======== ======= ======= =======
Net income (loss) per share--diluted........................ $ (0.24) $ (0.27) $ (0.01) $ 0.10 $ (0.13)
======== ======== ======= ======= =======
Shares used in per share calculation........................ 102,332 87,166 69,520 59,856 49,324
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments..... $ 33,511 $ 23,545 $21,977 $ 305 $ 437
Working capital (deficit)................................. 20,510 25,302 23,779 (4,065) (9,697)
Total assets.............................................. 523,430 207,713 83,568 19,738 13,817
Total debt................................................ 1,331 649 1,117 3,866 5,208
Stockholders' equity (deficit)............................ 411,850 150,781 55,639 (2,849) (8,450)
</TABLE>
108
<PAGE>
PEREGRINE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA OF PEREGRINE" AND PEREGRINE'S FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. PEREGRINE'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS INCLUDING THE RISKS RELATED TO PEREGRINE'S BUSINESS DISCUSSED
IN "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
OVERVIEW
Peregrine Systems, Inc. is a leading provider of infrastructure management
and e-infrastructure software products and solutions. Our products help
businesses to deploy, maintain, and dispose of numerous aspects of their
corporate infrastructure. Using common shared data, our products help to manage
information technology assets as well as assets relating to corporate facilities
and vehicle fleets. In addition, we have recently introduced products for rail
management and Internet-based asset procurement.
Until late 1997, our product offerings focused principally on managing
information technology assets through a consolidated enterprise service desk
that provided support to users of our customers' information technology systems
and networks. During fiscal 1998, we determined that our customers required a
more comprehensive solution to control and manage their infrastructure assets,
including information technology assets as well as the numerous other assets
that make up business infrastructures. Among other things, we determined that
businesses needed to be able to manage the availability of their assets,
minimize their investments and expense, consolidate data about infrastructure
assets, and interface their asset management solutions to enterprise
applications. Accordingly, we refocused our product development and marketing
strategies to focus on an "infrastructure resource management" strategy.
In order to execute on our infrastructure resource management strategy, we
have completed a number of acquisitions since late 1997. These acquisitions have
been designed to broaden our infrastructure resource management product suite.
- In September 1997, we acquired Apsylog S.A., a provider of asset
management software focused principally on managing information technology
assets.
- In July 1998, we acquired Innovative Tech Systems, a provider of software
products that address management of corporate facilities.
- In September 1998, we acquired technologies and other assets from related
entities operating as International Software Solutions. These technologies
expanded the ability of our products to help manage information technology
assets by permitting network help desk analysts to interface with users
over the corporate network.
- In March 1999, we acquired Prototype, a provider of software products for
managing corporate vehicle fleets.
- In April 1999, we acquired fPrint, a British provider of software used to
discover and inventory software located on the computers of individual
users on a corporate network.
- In September 1999, we acquired Knowlix, a developer of knowledge
management software that assists network help desk analysts by managing
the intangible technical information and know-how required to assist
callers.
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- In March 2000, we acquired Telco Research, a provider of software products
that help manage telecommunications assets, and Barnhill Management Group,
a services and solutions delivery partner of Peregrine with extensive
experience in the telecommunications industry.
Our software products are currently available on most major computer
operating platforms; however, for the past several years, over 85% of our
license sales have been attributable to the UNIX and Windows NT platforms.
Our revenues are derived from product licensing and services. Services are
comprised of maintenance, professional services, and training. License fees are
generally due upon the granting of the license and typically include a one-year
maintenance and warranty period as part of the license agreement. We also
provide ongoing maintenance services, which include technical support and
product enhancements, for an annual fee based upon the current price of the
product.
Revenues from license agreements are recognized currently, provided that all
of the following conditions are met: a noncancelable license agreement has been
signed, the product has been delivered, there are no material uncertainties
regarding customer acceptance, collection of the resulting receivable is deemed
probable and the risk of concession is deemed remote, and no other significant
vendor obligations exist. Revenues from post-contract support services are
recognized ratably over the term of the support period, generally one year.
Maintenance revenues which are bundled with license agreements are unbundled
using vendor-specific objective evidence. Consulting revenues are primarily
related to implementation services most often performed on a time and material
basis under separate service agreements for the installation of our products.
Revenues from consulting and training services are recognized as the respective
services are performed.
We currently derive a substantial portion of our license revenues from the
sale of our infrastructure resource management applications and our
e-infrastructure solutions. We expect these products to account for a
substantial portion of our revenues for the foreseeable future. As a result, our
future operating results are dependent upon continued market acceptance of our
infrastructure resource management strategy and applications, including future
product enhancements. Substantially all of our license revenues are derived from
granting a non-exclusive perpetual license to use our products. Factors
adversely affecting the pricing of, demand for or market acceptance of the
infrastructure resource management applications, such as competition or
technological change, manner of distribution or licensing, and related method of
revenue recognition could have a material adverse effect on our business,
operating results, and financial condition.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
consolidated statements of operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses......................................... 66.5% 63.3% 62.7%
Services......................................... 33.5 36.7 37.3
----- ----- -----
Total revenues............................... 100.0 100.0 100.0
Costs and expenses:
Cost of licenses................................. 0.6 0.7 0.5
Cost of services................................. 20.3 22.9 16.7
Sales and marketing.............................. 40.0 36.8 36.7
Research and development......................... 11.3 10.1 13.6
General and administrative....................... 7.8 7.6 9.8
Amortization of intangible assets................ 13.7 13.1 5.1
Acquired in-process research and development..... 9.7 18.8 11.3
----- ----- -----
Total costs and expenses..................... 103.4 110.0 93.7
----- ----- -----
Operating income (loss)............................ (3.4) (10.0) 6.3
Interest income and other.......................... -- 0.5 1.3
Income (loss) from before income taxes............. (3.4) (9.5) 7.6
Income tax expense................................. 6.5 7.4 8.7
----- ----- -----
Net loss........................................... (9.9)% (16.9)% (1.1)%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998
REVENUES
REVENUES. Total revenues were $253.3 million, $138.1 million and
$61.9 million for fiscal year end 2000, 1999 and 1998, representing
period-to-period increases of 83% and 123% for the fiscal 2000 and 1999 periods.
The reasons for the revenue increases are more fully discussed below.
LICENSES. License revenues were $168.4 million, $87.4 million and
$38.8 million in fiscal 2000, 1999 and 1998, representing 67% of total revenues
in fiscal 2000 and 63% in both fiscal 1999 and 1998. Total license revenues
increased 93% and 125% period-to-period for fiscal 2000 and 1999. Domestic
license revenues increased 73% in fiscal 2000 and 135% in fiscal 1999, while
international license revenues increased 125% and 111% in fiscal 2000 and 1999.
The increases in license revenues are attributable to increased demand for new
and additional licenses of our infrastructure resource management applications,
from new and existing customers, larger transaction sizes, expansion of our
domestic and international sales forces, and acquisitions. We expect larger
transaction sizes from a limited number of customers to account for a large
percentage of license revenues for the foreseeable future. Management believes
these trends will fluctuate period to period in absolute dollars and as a
percentage of total revenues.
During the past three years, we have increased the number of channels that
we use to distribute our products. The majority of our products are distributed
through our direct sales organization. The balance is derived through indirect
sales channels and alliance partners, including value added resellers and
systems integrators. Revenues derived through indirect channels now comprise a
significant portion of our total license revenues. We have substantially less
ability to manage our sales through indirect
111
<PAGE>
channels and less visibility about our partner's success in selling the products
that they have purchased from us. To the extent indirect sales continue to
increase as a percentage of total revenues, we could experience unforeseen
variability in our future revenues and operating results if our partners are
unable to sell our products.
SERVICES. Services revenues consist of support, consulting and training
services. Service revenues were $84.8 million, $50.7 million and $23.1 million
for fiscal years 2000, 1999 and 1998, representing 33% of total revenues in
fiscal 2000 and 37% in both fiscal 1999 and 1998. Total services revenues
increased 67% and 120% period to period for fiscal 2000 and 1999. Domestic
services increased 63% in fiscal 2000 and 111% in fiscal 1999, while
international services revenues increased 78% and 140% in fiscal 2000 and 1999,
respectively. The dollar increases are attributable to maintenance agreements
and related billings from our expanded installed base of customers and an
increase in consulting and training revenues related to the implementation of
our software from initial license agreements and related expansion. While these
revenues are increasing in absolute dollars, we expect these trends to fluctuate
as a percentage of total revenues.
COSTS AND EXPENSES
COST OF LICENSES. Cost of licenses were $1.0 million, $0.3 million and
$0.2 million in fiscal years 2000, 1999 and 1998, each representing less than 1%
of total revenues in these periods. Cost of software licenses includes
third-party software royalties, product packaging, documentation and production.
These costs are expected to remain the same or increase as a percentage of total
revenues.
COST OF SERVICES. Cost of services were $51.4 million, $31.6 million and
$10.3 million in fiscal years 2000, 1999 and 1998, representing 20%, 23% and 17%
of total revenues in the respective periods. Cost of services primarily consists
of personnel, facilities and system costs in providing support, consulting and
training services. The dollar increases are attributable to an increase in
personnel related costs in order to support the related activities. Cost of
services increased as a percentage of related revenues due largely to a greater
percentage growth in lower margin consulting revenue compared to support
revenue. Consulting and training services generally have lower margins as
compared to support services.
SALES AND MARKETING. Sales and marketing expenses were $101.4 million,
$50.8 million and $22.7 million in fiscal years 2000, 1999 and 1998,
representing 40% of total revenues in fiscal 2000 and 37% of total revenues in
both fiscal 1999 and 1998. Sales and marketing expenses consists primarily of
personnel related costs, including commissions and bonuses, facilities and
system costs and travel and entertainment. The dollar increases in sales and
marketing expenses are attributable to the significant expansion of both the
North American and international sales forces, a large increase in general and
product specific marketing expenses, much of which related to our e-commerce
initiatives, the effect of combining the sales and marketing operations of the
acquisitions made during fiscal 2000 and 1999, and the effect of certain
operating expense increases. We expect that sales and marketing expenses will
continue to increase in absolute dollars as we continue to expand our sales and
marketing efforts and establish additional sales offices around the world. If we
experience a decrease in sales force productivity or for any other reason a
decline in revenues, it is likely that our operating margins will decline as
well.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$28.5 million, $13.9 million and $8.4 million in fiscal years 2000, 1999 and
1998, representing 11%, 10% and 14% of total revenues in those periods. Research
and development expenses consist primarily of employee salaries, developer
bonuses, quality assurance activities and consulting costs. The dollar increases
in research and development are due primarily to an increase in the number of
personnel conducting research and development, new product initiatives and
quality assurance efforts. These costs are expected to increase in absolute
dollars but remain relatively the same as a percentage of total revenues.
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<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$19.9 million, $10.5 million and $6.1 million in fiscal years 2000, 1999 and
1998, representing 8% of total revenues in fiscal 2000 and 1999 and 10% of total
revenues in fiscal 1998. General and administrative expenses consists primarily
of employee salaries and overhead for administrative personnel. The dollar
increases from year to year are attributable to costs associated with
administrative personnel additions and infrastructure expansion to support our
growth. These costs are expected to increase in absolute dollars but remain
relatively the same as a percentage of total revenues.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of intangibles
and other assets were $34.8 million, $18.0 million and $3.2 million in fiscal
years 2000, 1999 and 1998, representing 14%, 13% and 6% of total revenues in
those periods. The dollar and percentage increases are attributable to the
amortization of intangible assets and goodwill related to acquisitions made
during those respective periods. These costs in future periods will be subject
to future potential acquisitions and amortization periods. These costs are
typically amortized over a five year period. See Note 1 of Notes to Peregrine
Consolidated Financial Statements.
ACQUIRED RESEARCH AND DEVELOPMENT COSTS. Acquired in-process research and
development costs were $24.5 million, $26.0 million and $7.0 million in fiscal
years 2000, 1999 and 1998, representing 10%, 19% and 11% of total revenues in
those periods. The costs incurred in fiscal 2000 relate to one-time charges
associated with the acquisitions of FPrint, Knowlix, and Telco Research. The
costs incurred in fiscal 1999 and 1998 relate to one-time charges associated
with the acquisitions of Innovative and Apsylog and the acquisition of certain
technology and other assets from a group of affiliated entities conducting
business as International Software Solutions. These costs in future periods will
be subject to future potential acquisitions. See Note 2 of Notes to Peregrine
Consolidated Financial Statements.
The value of each acquisition's acquired in-process technology was computed
using a discounted cash flow analysis on the anticipated income stream of the
related product sales. The value assigned to acquired in-process technology was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from the projects and discounting the net cash flows to their present
value. With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of the companies
acquired prior to the close of each acquisition.
The nature of the efforts required to develop acquired in-process technology
into commercially viable products principally relates to the completion of all
planning, designing and testing activities that are necessary to establish that
the products can be produced to meet their design requirements, including
functions, features and technical performance requirements. If the research and
development project and technologies are not completed as planned, they will
neither satisfy the technical requirements of a changing market nor be cost
effective.
No assurance can be given, however, that the underlying assumptions used to
estimate expected product sales, development costs or profitability, or the
events associated with such projects, will transpire as estimated. We currently
believe that actual results have been consistent with forecasts with respect to
acquired in-process revenues. Because we do not account for expenses by product,
it is not possible to determine the actual expenses associated with any of the
acquired technologies. However, we believe that expenses incurred to date
associated with the development and integration of the acquired in-process
research and development projects are substantially consistent with our previous
estimates.
We have completed many of the original research and development projects in
accordance with our plans. We continue to work toward the completion of other
projects. The majority of the projects are on schedule, but delays may occur due
to changes in technological and market requirements for our products. The risks
associated with these efforts are still considered high and no assurance can be
made
113
<PAGE>
that any upcoming products will meet with market acceptance. Delays in the
introduction of certain products may adversely affect our revenues and earnings
in future quarters.
PROVISION FOR INCOME TAXES
Income tax expenses were $16.5 million, $10.3 million and $5.4 million for
fiscal year 2000, 1999 and 1998. This increase in absolute dollars is
attributable to an increase in operating profits. Excluding the effect on net
income of the acquired in-process research and development costs and
amortization of intangibles, our effective tax rates were 32.5%, 34.0% and 36.0%
for those fiscal years. These costs are expected to increase in absolute dollars
but remain relatively the same as a percentage of operating profits.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and marketable equity securities increased to
$33.5 million in fiscal year end 2000 from $23.5 million in fiscal 1999. This
increase is attributable to cash provided through ongoing operations, sale or
assignment of accounts receivables and cash received as a result of the exercise
of stock options under our stock incentive plans. Our days sales outstanding in
accounts receivable was 83 as of March 31, 2000 as compared with 76 as of
March 31, 1999. Since March 31, 1999, we have expended significant funds to
strengthen our operating infrastructure, including payments related to our lease
commitments for our recently signed campus leases. These leases require a
minimum aggregate lease payment of approximately $124 million over their twelve
year term. In addition, we have expended significant funds acquiring companies
and technologies subsequent to fiscal year end 1999.
During July 1999, we entered into a $20 million senior credit facility for a
term of three years with a syndicate of financial institutions. The facility is
available for general corporate purposes including acquisitions. We believe that
our current cash, short-term investments, cash flow from operations, and amounts
available under our credit facility will be sufficient to meet our working
capital requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent we experience
growth in the future, our operating and investing activities may use cash.
Consequently, any such future growth may require us to obtain additional equity
or debt financing, which may not be available on commercially reasonable terms
or which may be dilutive. As of March 31, 2000, there were no amounts
outstanding with respect to the $20 million senior credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in a
derivative's fair value be recognized currently in operations unless specific
hedge accounting criteria are met. SFAS No. 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We do not anticipate that the adoption of this amendment will have a
material impact on our financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101, as amended,
is effective no later than the second calendar quarter of fiscal 2001. We are in
the process of evaluating the potential impact of SAB
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<PAGE>
No. 101, but we anticipate that the impact to our consolidated financial
statements, if any, will be insignificant.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than forward-rate currency contracts described below, which are used
for hedging our foreign currency risk, Peregrine does not use derivative
financial instruments in its investment portfolio. Peregrine's financial
instruments consist of cash and cash equivalents, short-term investments, trade
accounts and contracts receivable, accounts payable, and long-term obligations.
Peregrine considers investments in highly liquid instruments purchased with a
remaining maturity of 90 days or less at the date of purchase to be cash
equivalents. Peregrine's exposure to market risk for changes in interest rates
relates primarily to its short-term investments and short-term obligations. As a
result, we do not expect fluctuations in interest rates to have a material
impact on the fair value of these securities.
We conduct business overseas in a number of foreign currencies, principally
in Europe. These currencies have been relatively stable against the U.S. dollar
for the past several years. As a result, foreign currency fluctuations have not
had a material impact historically on our revenues or results of operations.
Although we currently derive no material revenues from highly inflationary
economies, we are expanding our presence in international markets outside
Europe, including the Pacific Rim and Latin America, whose currencies have
tended to fluctuate more relative to the U.S. dollar. There can be no assurance
that European currencies will remain stable relative to the U.S. dollar or that
future fluctuations in the value of foreign currencies will not have a material
adverse effect on our business, operating results, revenues and financial
condition. Currently, we attempt to mitigate our transaction currency risks
through our foreign currency hedging program. The hedging program consists
primarily of using forward-rate currency contracts of approximately one month in
length to minimize the short-term impact of foreign currency fluctuations.
Currency contracts are accounted for in accordance with SFAS No. 52 and receive
hedge accounting treatment. To the extent not properly hedged by obligations
denominated in local currencies, our foreign operations remain subject to the
risks of future foreign currency fluctuations, and there can be no assurances
that our hedging activities will adequately protect Peregrine against such risk.
115
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial information assumes a
business combination between Peregrine and Harbinger is accounted for as a
purchase and is based on the respective historical consolidated financial
statements and the notes thereto, which are included in this joint proxy
statement/prospectus. The pro forma combined condensed balance sheet combines
Peregrine's March 31, 2000 consolidated balance sheet with Harbinger's
March 31, 2000 consolidated balance sheet. The pro forma statements of
operations combine Peregrine's pro forma results and Harbinger's historical
results for the period indicated below. Peregrine's pro forma results for the
period indicated below contain Telco Research Corporation and subsidiaries pro
forma results of operations as though they were acquired on April 1, 1999, see
related 8-K/A incorporated by reference herein.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had occurred as of the date or during the
periods presented nor is it necessarily indicative of future operating results
or financial positions.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical consolidated financial statements, and the
related notes thereto, of Peregrine and Harbinger included in this joint proxy
statement/prospectus.
PEREGRINE SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2000
AFTER GIVING EFFECT TO THE MERGER
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HARBINGER PEREGRINE ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 21,049 $ 33,511 -- $ 54,560
Short-term investments.................................... 58,149 -- -- 58,149
Accounts receivable, net of allowances for doubtful
accounts................................................ 48,289 69,940 -- 118,229
Deferred tax asset........................................ 2,103 4,024 -- 6,127
Other current assets...................................... 5,393 18,802 -- 24,195
-------- -------- ---------- ----------
Total current assets.................................... 134,983 126,277 -- 261,260
Property and equipment, net................................. 25,903 29,537 (4,125)(I) 51,315
Intangible assets, investments, and other, net.............. 17,302 367,616 1,237,711 (A)(B)(C)(F) 1,622,629
Deferred income taxes....................................... 698 -- -- 698
Other assets................................................ 4,327 -- -- 4,327
-------- -------- ---------- ----------
$183,213 $523,430 $1,233,586 $1,940,229
======== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 5,452 $ 19,850 -- $ 25,302
Accrued expenses.......................................... 19,859 49,064 73,550 (B) 142,473
Deferred revenue.......................................... 23,448 36,779 (7,950)(I) 52,277
Current portion of long term debt......................... -- 74 -- 74
-------- -------- ---------- ----------
Total current liabilities............................... 48,759 105,767 65,600 220,126
Long-term debt, net of current portion...................... -- 1,257 -- 1,257
Deferred revenue, net of current portion.................... -- 4,556 -- 4,556
-------- -------- ---------- ----------
Total liabilities........................................... 48,759 111,580 65,600 225,939
-------- -------- ---------- ----------
Stockholders' Equity:
Preferred stock............................................. -- -- -- --
Common stock................................................ 4 110 26 (B),(D) 140
Additional paid-in capital.................................. 216,678 480,957 1,306,024 (B),(D) 2,003,659
Accumulated deficit......................................... (55,596) (64,863) (10,457)(D) (130,916)
Accumulated other comprehensive loss........................ (1,588) -- 1,588 (D) --
Unearned portion of deferred compensation................... -- (678) (154,239)(H) (154,917)
Accumulated other comprehensive loss........................ -- (666) -- (666)
Treasury stock, at cost..................................... (25,044) (3,010) 25,044 (D) (3,010)
-------- -------- ---------- ----------
Total stockholders' equity.................................. 134,454 411,850 1,167,986 1,714,290
-------- -------- ---------- ----------
$183,213 $523,430 $1,233,586 $1,940,229
======== ======== ========== ==========
</TABLE>
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PEREGRINE SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
AFTER GIVING EFFECT TO THE MERGER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
HARBINGER PEREGRINE ADJUSTMENTS COMBINED
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Licenses............................................... $ 49,881 $185,442 $ -- $ 235,323
Services............................................... 110,537 98,469 -- 209,006
-------- -------- --------- ---------
Total revenues....................................... 160,418 283,911 -- 444,329
-------- -------- --------- ---------
Costs and Expenses:
Cost of licenses....................................... 4,482 3,460 -- 7,942
Cost of services....................................... 46,554 63,240 18,302 (A)(H) 128,096
Sales and marketing.................................... 43,667 107,690 25,515 (A)(H) 176,882
Research and development............................... -- 32,203 24,360 (A)(H) 56,563
Product development.................................... 11,018 -- (11,018)(A) --
General and administrative............................. 33,094 23,171 10,402 (A)(H) 66,667
Depreciation and amortization.......................... 10,155 -- (10,155)(A) --
Amortization of intangible assets...................... 51,936 251,175 (F)(G) 303,111
Acquired in-process research and development costs..... -- 24,505 -- 24,505
-------- -------- --------- ---------
Total costs and expenses............................. 148,980 306,205 308,581 763,766
-------- -------- --------- ---------
Income (loss) from continuing operations................. 11,438 (22,294) (308,581) (319,437)
Interest income, net..................................... 3,960 158 -- 4,118
Equity in losses of joint ventures....................... (321) -- -- (321)
-------- -------- --------- ---------
Income (loss) from continuing operations before income
taxes.................................................. 15,077 (22,136) (308,581) (315,640)
Income taxes............................................. 842 18,648 -- 19,490
-------- -------- --------- ---------
Income (loss) from continuing operations................. 14,235 (40,784) (308,581) (335,130)
Income from disposal of discontinued business............ 1,356 -- -- 1,356
-------- -------- --------- ---------
Net income (loss)...................................... $ 15,591 $(40,784) $(308,581) $(333,774)
======== ======== ========= =========
Net income (loss) per share--basic:
Net income (loss) per share............................ $ 0.40 $ (0.40) $ (2.52)
======== ======== =========
Shares used in computation............................. 38,835 102,332 132,409
======== ======== =========
Net income (loss) per share-diluted
Net income (loss) per share............................ $ 0.38 $ (0.40) $ (2.52)
======== ======== =========
Shares used in computation............................. 41,331 102,332 132,409
======== ======== =========
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma financial statements of Peregrine have been prepared
based on the historical financial statements of Peregrine for the year ended
March 31, 2000 and for Harbinger for the year ended December 31, 1999
considering the effects of the merger under the purchase method. The pro forma
balance sheet of Peregrine at March 31, 2000 has been prepared as if the merger
had been consummated at March 31, 2000. The pro forma statement of operations
for the year ended March 31, 2000 has been prepared as if the Merger had been
consummated on April 1, 1999.
In management's opinion, all material adjustments necessary to reflect the
effects of the merger have been made. The unaudited pro forma financial
statements are not necessarily indicative of the actual financial position at
March 31, 2000, or what the actual results of operations of Peregrine would have
been assuming the merger had been completed as of April 1, 1999, nor are they
indicative of the financial position or results of operations for future
periods. The pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of Peregrine and Harbinger
included elsewhere herein.
2. PRO FORMA ADJUSTMENTS AND ASSUMPTION
(A) Harbinger's condensed consolidated financial statements have been
adjusted to conform to Peregrine's basis of presentation and to conform to
Peregrine's March 31st year end.
(B) The purchase price for the completion of the Harbinger merger was
determined by combining the value of Peregrine common stock issued to Harbinger
shareholders (approximately 30,077,000 Peregrine common shares valued at $45.50
per share, based on the weighted share price a few days before and after the
announcement date of the merger) and the estimated transactions costs for the
merger. The estimated direct transaction costs to be incurred by the combined
company include transaction fees for investment bankers, attorneys, accountants,
financial printing, due diligence costs, and other related charges. The purchase
price for the completion of the merger is summarized below (in thousands):
<TABLE>
<S> <C>
Common stock and additional paid-in capital................. $1,368,493
Estimated transaction costs, involuntary termination,
relocation, and other merger related costs................ 73,550
----------
$1,442,043
==========
</TABLE>
The estimated allocation of the purchase price for the completion of the
Harbinger merger was determined as follows (in thousands):
<TABLE>
<S> <C>
Fair value of net assets acquired (net of impact of
note (I) adjustments)..................................... $ 120,977
Acquired in-process technology.............................. 66,053
Intangible assets........................................... 1,255,013
----------
$1,442,043
==========
</TABLE>
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<PAGE>
The components of the pro forma adjustment to intangible assets,
investments, and other, net are as follows (in thousands):
<TABLE>
<S> <C>
Intangible assets (see above) resulting from this
transaction............................................... $1,255,013
Less: Harbinger intangible assets........................... (17,302)
----------
Net adjustment............................................ $1,237,711
==========
</TABLE>
(C) The intangible assets related to the Harbinger merger will be amortized
on a straight-line basis over five years and will be included in the
amortization of intangible assets in the combined company's statement of
operations.
(D) Elimination of Harbinger shareholders' equity amounts. The components of
the pro forma adjustment to accumulated deficit are as follows (in thousands):
<TABLE>
<S> <C>
Elimination of Harbinger accumulated deficit................ $ 55,596
One time charge associated with acquired in-process
technology (see note C above)............................. (66,053)
--------
Net adjustment.............................................. $(10,457)
========
</TABLE>
(E) The pro forma statement of operations excludes the $66.1 million charge
for acquired in-process research and development costs, which arose from the
merger. This charge will be included in the combined company's consolidated
financial statements in the period subsequent to the close of the transaction.
(F) Reflects the elimination of Harbinger's capitalized software development
costs and intangible assets and related amortization expenses, pending
completion of valuation of the capitalized asset.
(G) Reflects the amortization of intangible assets beginning April 1, 1999.
The purchase price for the assets of Harbinger was allocated to the tangible and
intangible assets of Harbinger based on preliminary estimates of the fair market
value of those assets.
(H) Reflects the deferred compensation associated with the issuance of
Peregrine stock options in exchange for Harbinger stock options at the exchange
ration of 0.75. Amortization of the deferred compensation resulting from the
transaction is reflected in the pro forma statement of operations but not
reflected in the pro forma balance sheet.
(I) Reflects the adjustment of the carrying value of assets and liabilities
to their fair value to Peregrine upon consummation of the transaction.
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<PAGE>
PEREGRINE MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to
Peregrine's executive officers and directors as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --------- --------------------------------------------------------
<S> <C> <C>
Stephen P. Gardner................... 46 President, Chief Executive Officer and Director
David A. Farley...................... 44 Senior Vice President, Finance and Administration, Chief
Financial Officer, and Director
Matthew C. Gless..................... 34 Vice President, Finance, and Chief Accounting Officer
William G. Holsten................... 63 Senior Vice President, Customer Service
Frederick B. Luddy................... 45 Vice President, Research and Development
Douglas S. Powanda................... 43 Executive Vice President, Worldwide Operations
Steven S. Spitzer.................... 41 Vice President, Channel Sales
Richard T. Nelson.................... 40 Vice President, Corporate Development and Secretary
Eric P. Deller....................... 39 Vice President and General Counsel
John J. Moores....................... 55 Chairman of the Board of Directors
Christopher A. Cole.................. 45 Director
Richard A. Hosley II................. 55 Director
Charles E. Noell III................. 47 Director
Norris van den Berg.................. 61 Director
Thomas G. Watrous, Sr................ 58 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
STEPHEN P. GARDNER has served as our president and chief executive officer
and as a director since April 1998. From January 1998 until April 1998,
Mr. Gardner served as executive vice president and principal executive officer.
From May 1997 until January 1998, he served as vice president, strategic
acquisitions. From May 1996 until May 1997, Mr. Gardner was president of
Thunder & Lightning Company, an internet software company. From March 1995 until
May 1996, Mr. Gardner was president of Alpharel, Inc., a document management
software company. From March 1993 until March 1995, Mr. Gardner was vice
president of Data General Corporation, a manufacturer of multiuser computer
systems, peripheral equipment, communications systems, and related products.
DAVID A. FARLEY has served as our senior vice president, finance and
administration since August 1998, and as our chief financial officer and as a
director since October 1995. Mr. Farley served as vice president, finance from
October 1995 until August 1998 and as our secretary from October 1995 until
February 1997. From November 1994 to November 1995, Mr. Farley was vice
president, finance, and chief financial officer and a director of XVT
Software Inc., a development tools software company. From December 1984 until
October 1994, Mr. Farley held various accounting and financial positions at BMC
Software, Inc., a vendor of software system utilities for IBM mainframe
computing environments, most recently as chief financial officer and as a
director.
MATTHEW C. GLESS has served as our vice president, finance and chief
accounting officer since October 1998. From April 1996 until October 1998,
Mr. Gless served as our corporate controller. From
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<PAGE>
1990 to April 1996, Mr. Gless held various accounting and financial management
positions at BMC Software, Inc.
WILLIAM G. HOLSTEN has served as our senior vice president, worldwide
professional services since August 1998. Mr. Holsten served as vice president,
professional services from November 1995 until August 1998. From July 1994 until
November 1995, Mr. Holsten was director of professional services for XVT
Software, Inc.
FREDERICK B. LUDDY has served as our vice president, North American research
and development and chief technology officer since January 1998. From
April 1990 until January 1998, Mr. Luddy served as product architect for our
SERVICECENTER product suite.
DOUGLAS S. POWANDA has served as our executive vice president, worldwide
operations since April 1999. From August 1999 until April 1999, Mr. Powanda
served as senior vice president, worldwide sales and from January 1998 until
August 1998, as vice president, worldwide sales. From September 1995 until
January 1998, Mr. Powanda served as vice president, international sales.
STEVEN S. SPITZER has served as our vice president, Channel Sales since
August 1997. From 1986 until August 1997, Mr. Spitzer held various positions
with FileNet Corporation, a provider of workflow, document-imaging and
electronic document management software solutions, most recently as vice
president, channel sales.
RICHARD T. NELSON has served as our vice president, corporate development,
since March 2000 and as our corporate secretary since February, 1997.
Mr. Nelson served as our vice president and general counsel from November 1995
to March 2000. From August 1991 until November 1995, Mr. Nelson was an associate
in the Houston, Texas office of Jackson & Walker LLP, a law firm.
ERIC P. DELLER has served as our vice president and general counsel since
March 2000. From May 1999 until March 2000, Mr. Deller served as our associate
general counsel. From February 1997 to April 1999, Mr. Deller served as
Executive Vice President and General Counsel of PeakCare LLC, an internet based
provider of health care products. During the same period, he also served as
general counsel of The Leeds Group, Inc., an investment and development firm
that held a controlling interest in PeakCare. From February 1995 until February
1997, Mr. Deller was an associate at the law firm of McKenna & Cuneo.
JOHN J. MOORES has served as chairman of the our board of directors since
March 1990 and as a member of our board of directors since March 1989. In 1980,
Mr. Moores founded BMC Software, Inc. and served as its President and Chief
Executive Officer from 1980 to 1986 and as chairman of its board of directors
from 1980 to 1992. Since December 1994, Mr. Moores has served as owner and
Chairman of the Board of the San Diego Padres Baseball Club, L.P. and since
September 1991 as Chairman of the Board of JMI Services, Inc., a private
investment company. Mr. Moores also serves as a director and member of the
compensation committees of Bindview Development Corp. and Neon Systems, Inc. Mr.
Moores also serves as a director of Mission Critical Software, Inc. and LEAP
Wireless International.
CHRISTOPHER A. COLE has served as a member of our board of directors since
founding the Company in 1981. He also served as its president and chief
executive officer from 1986 until 1989. Since 1992, Mr. Cole has served as
president and chief executive officer of Questrel, Inc., Ur Studios, Inc., and
Headlamp, Inc., each a software development company.
RICHARD A. HOSLEY II has served as a member of our board of directors since
January 1992. Prior to retiring from full-time employment, Mr. Hosley served as
president and chief executive officer of BMC Software, Inc. Mr. Hosley also
serves as a director of Bindview Development Corp.
CHARLES E. NOELL III has served as a member of our board of directors since
January 1992. Since January 1992, Mr. Noell has served as president and chief
executive officer of JMI Services, Inc., a
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<PAGE>
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.
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.
BOARD OF DIRECTORS
BOARD COMMITTEES
Our board of directors has standing audit and compensation committees.
During fiscal 2000, our audit committee was comprised of Mr. Hosley, Mr. Noell,
and Mr. van den Berg. Our compensation committee was comprised of Mr. Moores,
Mr. Hosley, Mr. Noell, and Mr. Watrous.
DIRECTOR COMPENSATION
Each member of our board who is not also an employee of Peregrine receives
$2,000 for each board meeting and $1,000 for each committee meeting he attends
in person. We pay members of our board $500 for telephonic attendance at a board
or committee meetings. Directors receive compensation for attendance at
committee meetings only if they are members of the applicable committee.
In September 1998, we granted each of Mr. Cole, Mr. Hosley, Mr. Noell, and
Mr. van den Berg an option to acquire 50,000 shares of our common stock under
our 1994 stock plan. The exercise price for these option grants was $7.50. These
options become exercisable over four years, with 25% vesting after one year and
the remaining shares vesting in quarterly installments thereafter. These grants
expire if not exercised prior to September 2008.
In May 1992, we granted each of Mr. Cole, Mr. Hosley, Mr. Noell, and
Mr. Van den Berg an option to acquire 180,000 shares of common stock under our
1991 nonqualified stock option plan at an exercise price of $0.335, the per
share fair market value of our common stock on the date of grant. Each of these
options vested in annual installments over four years, are now fully
exercisable, and expire if not exercised prior to May 2002. In addition, in
December 1990, we granted Mr. Cole an option to acquire 450,000 shares of our
common stock under a separate nonqualified stock option plan at an exercise
price of $0.255 per share, the per share fair market value of our common stock
on the date of grant. Following Mr. Cole's resignation as an executive officer
of Peregrine and in consideration of his continuing service as a director, we
extended the exercisability of the option with respect to 112,500 vested shares
for so long as Mr. Cole remains a director of Peregrine but no later than
December 2000.
In addition to the option grants described above, directors who are not also
employees of Peregrine also receive automatic option grants under our 1997
director option plan. Nonemployee directors who hold or are affiliated with a
holder of three percent or more of our outstanding common stock do not receive
these automatic option grants. Each new nonemployee director is automatically
granted an option to purchase 50,000 shares of our common stock at the time he
or she is first elected to our board of directors. Each nonemployee director
receives a subsequent option grant to purchase 10,000 shares of our common stock
at each annual meeting of our stockholders. All options granted under the
director option plan are granted at the fair market value of our common stock on
the date of grant. Options granted to nonemployee directors under the director
plan become exercisable over
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<PAGE>
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 consist of Mr. Hosley, Mr. Moores,
Mr. Noell, and Mr. Watrous. Our president and chief executive officer
participates in all discussions and decisions regarding salaries and incentive
compensation for all employees and consultants. He is excluded, however, from
discussions regarding his own salary and incentive compensation. No interlocking
relationship exists between any member of the our compensation committee and any
member of any other company's board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table indicates the compensation earned for services rendered
to Peregrine in all capacities during the fiscal years ended March 31, 2000,
1999, and 1998 our President and Chief Executive Officer and our next five most
highly compensated executive officers whose salary and bonus for fiscal 2000
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<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
President and 1999 250,040 343,750 -- 730,000 2,599
Chief Executive Officer 1998 139,000 210,000 775,000(7) 150,000 5,156
Frederic B. Luddy......................... 2000 150,000 605,532(2) -- 313,212 3,385
Vice President, North American 1999 150,000 555,726 -- 112,564 3,143
Research and Development 1998 150,000 729,060 25,000 2,837
Douglas S. Powanda........................ 2000 225,000 326,250(3) -- 600 2,788
Executive Vice President, 1999 180,000 359,991 -- 400,000 3,143
Worldwide Operations 1998 150,000 309,523 -- 75,000 3,946
Richard T. Nelson......................... 2000 180,000 213,037(4) -- 80,600 3,282
Vice President, 1999 180,000 83,790 -- -- 4,751
Corporate Development 1998 180,000 54,000 -- 120,000 3,218
William G. Holsten........................ 2000 180,000 137,812(5) 82,600 6,060
Senior Vice President, 1999 150,000 210,858 -- -- 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
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<PAGE>
fiscal 2000. Bonus compensation for fiscal 1998 consists of (i) $555,519 of
product authorship commission income earned and paid in fiscal 1998 and
(ii) $173,541 of product authorship commission income earned in fiscal 1998
and paid in fiscal 1999.
(3) Bonus compensation for 2000 consists of (i) $55,875 of commission and
$50,000 of bonus compensation earned and paid in fiscal 2000 and
(ii) $45,375 of commission and $175,000 of bonus compensation earned in
fiscal 2000 to be paid in fiscal 2001. Bonus compensation for 1999 consists
of (i) $91,648 of commission and $80,551 of bonus earned and paid in fiscal
1999 and (ii) $87,792 of commission and $100,000 of bonus earned in fiscal
1999 and paid in fiscal 2000. Bonus compensation for fiscal 1998 consists of
(i) $10,000 of bonus compensation and $195,053 of commission income earned
and paid in fiscal 1998 and (ii) $115,570 of commission income earned in
fiscal 1998 and paid in fiscal 1999.
(4) Bonus compensation for 2000 consists of (i) $43,037 earned and paid in
fiscal 2000 and (ii) $170,000 earned in fiscal 2000 to be paid in fiscal
2001. Bonus compensation for 1999 consists of (i) $20,790 earned and paid in
fiscal 1999 and (ii) $63,000 earned in fiscal 1999 and paid in fiscal 2000.
Bonus compensation for 1998 was all earned and paid in fiscal 1998.
(5) Bonus compensation for 2000 consists of (i) $56,250 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
Peregrine's 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.
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<PAGE>
OPTION GRANTS IN FISCAL YEAR 2000
The following table provides information relating to stock options granted
to each of the executive officers named in the compensation table above during
our fiscal year ended March 31, 2000. All of these options were granted under
our 1994 stock plan and have a term of 10 years, subject to earlier termination
in the event the optionee's services to us cease.
The exercise price of the options we grant are equal to the fair market
value of our common stock based on the closing sales price of our common stock
in trading on the Nasdaq National Market on the trading day prior to the date of
grant. The exercise price may be paid by cash or check. Alternatively, optionees
may exercise their shares under a cashless exercise program. Under this program,
the optionee may provide irrevocable instructions to sell the shares acquired on
exercise and to remit to Peregrine a cash amount equal to the exercise price and
all applicable withholding taxes. The options granted under our 1994 stock plan
vest over a four year period. Twenty-five percent will vest on the first
anniversary of the date of grant. The balance of the option will vest over the
remaining three years at the rate of 6.25% every three months.
On May 5, 1999, Peregrine 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, 2006 or the date
Peregrine achieved certain financial milestones. Peregrine achieved the
milestones, and these options are now fully vested.
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 to employees and
consultants under our 1994 stock plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUES AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTIONS TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL 2000 PER SHARE DATE 5% 10%
- ---- ---------- ---------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Gardner.... 600 * $ 8.56 05/05/09 $ 3,230 $ 8,185
91,250 2.13% 19.16 10/28/09 1,108,688 2,786,775
200,000 4.66% 36.63 01/13/10 4,608,000 11,675,751
Frederic B. Luddy..... 600 * 8.56 05/05/09 3,230 8,185
100,000 2.33% 8.56 05/05/09 538,000 1,364,000
212,612 4.95% 19.16 10/28/09 2,583,236 6,493,170
Douglas S. Powanda.... 600 * 8.56 05/05/09 3,230 8,185
Richard T. Nelson..... 600 * 8.56 05/05/09 3,230 8,185
40,000 * 19.16 10/28/09 486,000 1,221,600
40,000 * 36.63 01/13/10 921,600 2,335,200
William G. Holsten.... 600 * 8.56 05/05/09 3,230 8,185
120,000 2.79% 36.63 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%
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<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
Peregrine's 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 VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 2000 MARCH 31, 2000
ACQUIRED VALUE --------------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Gardner...... 468,352 $11,897,053 312,898 1,370,600 $19,306,778 $77,797,083
Frederic B. Luddy....... 167,500 4,117,200 14,102 536,738 886,200 29,791,184
Douglas S. Powanda...... 262,500 8,805,294 125,596 738,100 7,565,180 44,981,564
Richard T. Nelson....... 150,000 2,270,563 60,000 178,100 3,900,375 9,414,964
William G. Holsten...... 202,500 4,042,842 20,000 218,100 1,300,129 9,933,464
Steven S. Spitzer....... 75,000 1,680,111 35,000 302,600 2,237,637 17,350,630
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Peregrine does not currently have any employment contracts in effect with
any officer listed in the summary compensation table.
Peregrine and Stephen P. Gardner, our Chief Executive Officer, are parties
to a restricted stock agreement dated November 1, 1997 pursuant to which we
issued Mr. Gardner 200,000 shares of our common stock. We entered 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 Mr. Gardner and Mr. Farley vest incrementally over ten years, subject to
earlier vesting over six years contingent Peregrine achieves identified
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
33,332 shares in April 2000, Mr. Gardner surrendered all 33,332 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 a merger or
change in control of Peregrine, all these 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.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Peregrine's amended and restated certificate of incorporation limits the
liability of our directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation
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will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except liability for:
- any breach of their duty of loyalty to Peregrine or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of our directors' liability does not apply to liabilities
arising under federal securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Peregrine's amended and restated certificate of incorporation and bylaws
require us to indemnify our directors and executive officers and permit us to
indemnify other officers and employees and agents of Peregrine to the fullest
extent permitted by law. Peregrine believes that indemnification under
Peregrine's bylaws covers at least negligence and gross negligence on the part
of indemnified parties. Peregrine's bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether our
bylaws would permit indemnification.
We have entered into indemnification agreements with each of our officers
and directors. These agreements provide for indemnification of our directors and
officers for judgments, fines, settlement amounts and certain expenses,
including attorneys' fees incurred by the director or executive officer in any
action or proceeding. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Peregrine
pursuant to the foregoing provisions, Peregrine has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
STOCK PLANS
1994 STOCK OPTION PLAN. Peregrine's 1994 stock option plan, as amended,
provides for the grant of stock options to eligible employees, non-employee
directors and consultants of Peregrine. The 1994 plan authorizes grants of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, as well as grants of nonstatutory stock
options. The 1994 plan was adopted by our board of directors in January 1994 and
approved by Peregrine's stockholders in April 1994. The 1994 plan replaced our
nonqualified stock option plan and our 1991 nonqualified stock option plan.
Options previously issued under the nonqualified stock option plan and the 1991
nonqualified stock option plan remain exercisable according to their terms.
Unless terminated sooner, the 1994 plan will terminate automatically in January
2004. A total of 32,558,570 shares of our common stock was reserved for issuance
under the 1994 Plan at March 31, 2000.
The 1994 plan provides for automatic annual increases in the number of
shares reserved for issuance under the plan such that, effective on January 1 of
each calendar year beginning January 1, 1999 and ending January 1, 2003, the
number of shares available for issuance under the plan but not subject to
outstanding options will be not less than the lesser of (a) four percent of the
aggregate number of shares of Peregrine's common stock then issued and
outstanding or (b) 16,000,000 shares.
The 1994 plan may be administered by our board of directors or a committee
of our board. In the case of options intended to qualify as "performance-based
compensation" within the meaning of
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Section 162(m) of the Internal Revenue Code, the committee must consist of two
or more "outside directors" within the meaning of Section 162(m) of the code.
The 1994 plan is currently administered by our board of directors. The
administrator has the power to determine the terms of the options granted,
including the exercise price, the number of shares subject to each option, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the administrator has the authority to amend, suspend or
terminate the 1994 plan, provided that no action may affect any share of our
common stock previously issued and sold or any option previously granted under
the 1994 plan.
Options granted under the 1994 plan are not generally transferable by the
optionee, and each option is generally exercisable during the lifetime of the
optionee only by the optionee. Options granted under the 1994 plan must
generally be exercised within ninety days of the end of optionee's status as an
employee, consultant, or nonemployee director of Peregrine, within six months
after the optionee's termination by disability, or within twelve months after
the optionee's death. In no event, however, may the optionee exercise an option
later than the expiration of ten-years from the date the option was granted. The
administrator of the 1994 plan has the discretion to extend the exercisability
of options following a termination of the optionee's employment or status as a
director but in no event for more than ten years after the date of grant of such
option.
The exercise price of all incentive stock options granted under the 1994
plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the 1994 plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price must at least be equal to the fair market value of our common
stock on the date of grant. With respect to any participant who owns stock
possessing more than ten percent of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of the incentive stock option must not exceed five years. The term of
all other options granted under the 1994 plan may not exceed ten years.
The 1994 plan provides that in the event of a merger or consolidation of
Peregrine with or into another corporation, a sale of substantially all of our
assets or certain other changes in control of Peregrine, all outstanding options
under the plan will become immediately vested.
As of March 31, 2000, 5,983,400 shares of common stock had been issued upon
exercise of options outstanding under both the nonqualified stock option plan
and our 1991 nonqualified stock option plan, and 11,538,664 shares of common
stock had been issued upon exercise of options outstanding under the 1994 plan.
Options to purchase 250,000 shares of common stock at a weighted average
exercise price of $0.33 were outstanding under the nonqualified stock option
plan and 1991 plan, and options to purchase 17,762,503 shares of common stock at
a weighted average exercise price of $9.35 were outstanding under the 1994 Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN. Our 1997 employee stock purchase plan
was adopted by our board of directors and approved by our stockholders in
February 1997. It became effective on May 1, 1997. A total of 1,000,000 shares
of common stock has been reserved for issuance under the purchase plan. The
purchase plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, has four three-month offering periods each year beginning on the
first trading day on or after May 1, August 1, November 1 and February 1. The
purchase plan is administered by the board of directors or by a committee
appointed by the board. Employees are eligible to participate if they are
customarily employed by Peregrine or any participating subsidiary. Our executive
officers are not eligible to participate in the 1997 purchase plan, however.
The 1997 purchase plan permits participants to purchase common stock through
payroll deductions of up to 15% of an employee's compensation, including
commissions, but excluding overtime, bonuses
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and other incentive compensation. The price of stock purchased under the 1997
purchase plan is 85% of the lower of the fair market value of the common stock
at the beginning or at the end of each offering period. Shares purchased under
the 1997 purchase plan may not be sold or otherwise transferred by a participant
for a period of 12 months after the date of purchase. Employees may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with Peregrine.
Rights granted under the 1997 purchase plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 purchase plan. The 1997 purchase plan provides
that, in the event of a merger of Peregrine with or into another corporation or
a sale of substantially all of our assets, the board of directors will shorten
the offering period then in progress (so that employees' rights to purchase
stock under the Plan are exercised prior to the merger or sale of assets). In
addition, the twelve-month restriction on transfers applicable to shares
purchased under the 1997 purchase plan will lapse in such event.
The 1997 purchase plan will terminate in February 2007. The board of
directors has the authority to amend or terminate the 1997 purchase plan, except
that no action may adversely affect any outstanding rights to purchase stock
under the 1997 Purchase Plan.
1997 DIRECTOR OPTION PLAN. Outside directors are entitled to participate in
our 1997 director option plan. Outside directors who directly or indirectly hold
more than three percent of Peregrine's outstanding common stock are not eligible
for option grants under the director plan. The director plan was adopted by our
board of directors and approved by our stockholders in February 1997, and it
became effective on April 8, 1997. Our director plan has a term of ten years,
unless terminated sooner by the board. A total of 600,000 shares of common stock
has been reserved for issuance under the director plan.
The director plan provides for an automatic initial grant of 25,000 shares
of our common stock to each eligible outside director on the date he or she
first becomes an outside director. After the initial grant to the eligible
outside director, he or she will automatically be granted a subsequent option to
purchase 5,000 shares each year on the date of Peregrine's annual stockholder's
meeting, if on that date he or she has served on the board for at least six
months. The initial option and each subsequent option have a term of ten years,
and the shares subject to the option vest as to 25% of the shares on the first
anniversary of the grant date and as to 6 1/4% of the shares on the last day of
each consecutive three-month period thereafter. The exercise prices of the
initial option and each subsequent option are the fair market value per share of
the common stock, generally determined with reference to the closing price of
the common stock as reported on the Nasdaq National Market on the date of grant.
In the event of a merger of Peregrine or the sale of substantially all of
our assets, each option may be assumed or an equivalent option substituted by
the successor corporation. If an option is assumed or substituted for, it shall
remain exercisable and shall continue to vest as provided in our director plan.
However, if an eligible outside director's status as a director of Peregrine or
the successor corporation, as applicable, is terminated following such
assumption or substitution, other than upon a voluntary resignation by such
outside director, each option granted to such director shall become fully vested
and exercisable. If the successor does not agree to assume or substitute for the
option, each option shall also become fully vested and exercisable.
Options granted under our director plan must be exercised within three
months of the end of the optionee's tenure as a director of Peregrine, or within
12 months after such director's termination by death or disability, but in no
event later than the expiration of the option's ten-year term. No option granted
under our director plan is transferable by the optionee other than by will or
the laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by such optionee.
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PEREGRINE RELATED PARTY TRANSACTIONS
Peregrine and JMI Services, Inc., an investment management company ("JMI
Services"), are parties to a sublease under which we sublease approximately
13,310 square feet of office space in San Diego, California to JMI Services. The
term of the sublease is from June 1, 1996 through October 21, 2003. The sublease
provides for initial monthly rental payments of $16,638 to increase by $666 per
month on each anniversary of the sublease. John J. Moores, the chairman of our
board of directors, also serves as chairman of the board of JMI Services.
Charles E. Noell, III, a director of Peregrine, serves as president and chief
executive officer of JMI Services. We believe that the terms of the sublease are
at competitive market rates.
We lease a suite at San Diego's Qualcomm Stadium at competitive rates and on
an informal basis from the San Diego Padres Baseball Club, L.P. Mr. Moores has
served as owner and chairman of the board of the Padres since December 1994. Our
annual payments for the suite and game tickets total approximately $50,000.
We are parties to restricted stock agreements with Stephen P. Gardner, our
president and chief executive officer, and David A. Farley, our senior vice
president and chief financial officer. Under these agreements, we issued
1,000,000 shares of common stock. These agreements are discussed in detail under
the caption "Employment agreements and change in control arrangements."
During fiscal year 2000, we issued options to purchase common stock to
certain directors under our 1994 stock option plan. These grants are discussed
in detail under the caption "Director compensation."
During fiscal year 1999, we purchased a golf club membership for business
entertainment use by Douglas S. Powanda, our executive vice president, worldwide
operations, at a cost of $70,000. Mr. Powanda and Peregrine have agreed that
upon termination of his employment with Peregrine, he may purchase the
membership from us at our original cost. Subsequent to March 31, 1999, we
purchased a similar membership at $70,000 under a similar agreement with
Mr. Gardner.
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PEREGRINE PRINCIPAL STOCKHOLDERS
The following table provides information relating to the beneficial
ownership of Peregrine's common stock as of March 31, 2000 by:
- each stockholder known by Peregrine to own beneficially more than 5% of
its common stock;
- each of Peregrine's executive officers named in the summary compensation
table above;
- each of Peregrine's 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 the number of shares of our common stock subject to options held by
that person that are currently exercisable or will become exercisable on or
before May 31, 2000. The number of shares subject to options that each
beneficial owner has the right to acquire on or before May 31, 2000 is listed
separately under the column "Number of Shares Underlying Options." These shares
are not deemed exercisable for purposes of computing the beneficial ownership of
any other person. Percent of beneficial ownership is based upon 109,501,146
shares of Peregrine's common stock outstanding as of March 31, 2000. The address
for those individuals for which an address is not otherwise provided is c/o
Peregrine Systems, Inc., 12670 High Bluff Drive, San Diego, California 92130.
Unless otherwise indicated, we believe the stockholders listed have sole voting
or investment power with respect to all shares, subject to applicable community
property laws.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF OUTSTANDING
SHARES SHARES TOTAL SHARES SHARES
BENEFICIALLY UNDERLYING BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OPTIONS OWNED OWNED
- ---------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
Pilgrim Baxter & Associates, Ltd.(1)......... 7,140,400 -- 7,140,400 6.52%
825 Duportail Road
Wayne, Pennsylvania 19087
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
Stephen P. Gardner........................... 195,688 436,768 632,456 *
David A. Farley.............................. 2,337,632 400,600 2,738,232 2.49
Christopher A. Cole.......................... 1,721,284 26,250 1,747,534 1.60
William G. Holsten........................... 50,000 20,600 70,600 *
Richard A. Hosley II......................... -- 26,250 26,250 *
Frederic B. Luddy............................ -- 60,023 60,023 *
John J. Moores(2)............................ 5,752,986 -- 5,752,986 5.23
Richard T. Nelson............................ 278,000 60,600 338,600 *
Charles E. Noell III......................... 54,428 116,250 170,678 *
Stephen S. Spitzer........................... -- 63,600 63,600 *
Douglas S. Powanda........................... 4 194,946 194,950 *
Norris van den Berg.......................... 38,744 76,250 114,994 *
Thomas G. Watrous, Sr........................ 10,000 16,250 26,250 *
All current executive officers and directors
as a group (15 persons)...................... 10,542,016 1,519,662 12,061,678 10.86
</TABLE>
- ------------------------
* Less than 1%
(1) Based solely on a Schedule 13G, dated February 8, 1999, filed with the
Securities and Exchange Commission on February 9, 1999.
(2) Includes 1,352,590 shares held by Mr. Moores as trustee under various
trusts, substantially all of which were established for members of
Mr. Moores' family.
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BUSINESS OF HARBINGER
Harbinger is a leading worldwide provider of business-to-business e-commerce
products and services, offering comprehensive, scalable, standards-based,
solutions for businesses of all sizes. Harbinger develops, markets and supports
business-to-business e-commerce software products and provides network
communications and consulting services that help businesses fully automate the
cycle of transactions required in the electronic procurement of goods and
services. Harbinger is differentiated in the business-to-business e-commerce
market by its core competency, which focuses on the end-to-end process of
building, managing and integrating complete electronic trading communities which
are composed of groups of companies that regularly exchange business-to-business
e-commerce transactions. Harbinger believes that this end-to-end process
requires domain expertise both as a technology and services provider, but also
as a trusted intermediary, which includes managing the exchange and integration
of mission-critical transactions, developing and facilitating electronic
procurement catalogs enabling and deploying electronic marketplaces and vertical
market exchanges, and managing the on-going trading relationships between
businesses using these marketplaces and exchanges to communicate their
purchasing and settlement transactions with each other.
Harbinger's software products enable businesses to engage in e-commerce with
one another by fully integrating e-commerce into their business infrastructure
and operations. The software is designed and compatible for use with the most
commonly used computer platforms and operating systems, and provides secure and
reliable transmission of e-commerce data between businesses via the Internet and
legacy networks. Harbinger offers the software as customer-licensed applications
for operation on an end-user's server, or on a subscription basis as an
Application Service Provider in which the software is hosted on Harbinger's
servers and accessed by customers via the Internet. Harbinger provides
e-commerce delivery and implementation services for its software, including
installation, training and on-going customer support, and additionally the
integration of the software and resulting e-commerce data with a customer's
business systems. Delivery and implementation services can also include
outsourcing services for the operations management of a customer's e-commerce
systems, and management of a customer's e-commerce trading community program.
Harbinger additionally offers e-commerce network communications and trusted
intermediary services via its e-commerce portal on the Internet. The e-commerce
center facilitates electronic transaction exchange between businesses using
Internet Protocol, the underpinning for the Internet, Intranets, Extranets, Web
sites and e-mail, and over standard telephone lines using non-Internet Protocol
protocols, such as X.400, X.25 and Bisync.
Harbinger's business-to-business e-commerce products and services are
deployed in many combinations to suit the individual needs of its customers,
resulting in a comprehensive, scalable, standards-based, e-commerce solution for
each customer, thus maximizing the number and value of their e-commerce trading
relationships with other businesses. As of March 31, 2000, the Harbinger's
customers included leading U.S. and multi-national corporations and government
agencies, including the following:
3M Companies
Abbott Labs
Allied Signal
Ameritech
Amoco
AT&T
Baxter Healthcare
Bell Atlantic
Bell Canada
Bellcore
BellSouth
Caterpillar
Chevron
Compaq Computer
Daimler-Chrysler
Dell Computer
Deutsche Telekom
Detroit Edison
Digital Equipment Corp.
Duke Power
DuPont
Dutch PTT Post
Eastman Chemical
Eli Lilly
Environmental Protection Agency
Exxon
Federal Express
Ford
General Electric
General Motors
Georgia Power
GroceryLink
Hewlett-Packard
Hitachi Data Systems
Honda
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IBM
Internal Revenue Service
John Deere
Johnson & Johnson
Johnson Controls
Kmart
Lucent Technologies
MCI
Mitsubishi
Mobil
Northern Telecom
Northrop Grumman
Pacific Gas & Electric
Proctor and Gamble
Reebok International
Sears
Shell
Southern Company
Southwestern Bell
Sports Authority
Sprint
Swisscom
Telstra
Tennessee Valley Authority
Texaco
Texas Instruments
The Limited
Timberland
Toys R Us
TRW
United Parcel Service
United Technologies
Upjohn
US Dept. of Transportation
US Dept. of Defense
US Postal Service
Wal-Mart
Harbinger focuses day-to-day business operations on five corporate
priorities:
- revenue growth;
- customer value renewal;
- knowledgeable, committed and motivated team;
- operational excellence; and
- infrastructure expansion.
To achieve its objectives in these areas, Harbinger announced that during
2000 it expected to:
- increase market awareness of Harbinger as the leading business-to-business
e-commerce solutions provider;
- capitalize on its e-commerce center (harbinger.net-SM-) as the leading
portal for mission-critical business-to-business e-commerce;
- complete the conversion of its approximately 40,000 existing customers to
Internet-enabled products and services; and
- maintain operational excellence throughout Harbinger.
BUSINESS-TO-BUSINESS E-COMMERCE
Business-to-business e-commerce involves the automation of business
processes and transactions through the use of computers and telecommunications
to exchange and electronically process commercial information and transactions
between businesses. In the 1980s, the predominant technology for
business-to-business e-commerce was standards-based data exchange, which
facilitated the computer-to-computer exchange of business transactions between
trading partners using formatted messages. The transactions, typically purchase
orders, shipping notices, invoices and related confirmations, were communicated
between businesses over private service networks, known as value-added networks,
which provided security, auditability and delivery for transactions. In the
1990s, Internet Protocol-based networks including the Internet became more
prominent in the business-to-business e-commerce market and have greatly
expanded the opportunity for software functionality, types of transactions and
the data communications of these transactions between businesses.
The advantages of business-to-business e-commerce typically include one-time
or eliminated data entry, reduced clerical workload, elimination of paper
records, rapid, accurate and secure exchange of business data, and reduced
operating and inventory carrying costs. Business-to-business e-commerce, for
example, facilitates uniform data communications between trading partners in
different industries,
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including customers, suppliers, common carriers, banks and other financial
institutions. Standards-based data exchange remains a cornerstone of e-commerce
and has historically been the source of the majority of Harbinger's revenue. The
Harbinger expects Internet Protocol-based revenue to increase as a percentage of
its total revenue. Nevertheless, many business-to-business e-commerce
transactions, including those generated by new Internet Protocol-based software
applications, follow a common transaction flow originally established using
standards-based data exchange.
TRANSACTION FLOW. Business-to-business e-commerce transactions follow
specific execution methods. The following outlines a typical purchasing
transaction. First, a trading partner creates with its computer, either manually
or electronically, the raw business data for the purchase order. Business data
for manual transactions may be created by selecting items from an electronic
procurement catalog, whereas automated transactions may be dynamically created
by the sending partner's business systems according to predetermined criteria
for inventory levels, sales forecasts, etc. Second, e-commerce software on the
sending partner's computer converts the raw business data into an acceptable,
standards-based, e-commerce purchase order. Third, the purchase order, now in
e-commerce format, is electronically transmitted through telecommunications
links from the sending partner's computer to the central server of a trusted
third party that serves as the transactional intermediary for many trading
partners. Telecommunications could be point-to-point between trading partners,
but the predominant model remains through intermediaries for reasons of
security, auditing and ease of delivery. Fourth, the intermediary receives and
processes the transaction for subsequent delivery to the intended trading
partner. Fifth, the receiving partner uses e-commerce software, but not
necessarily the same brand of e-commerce software employed by the sending
partner, to act on the purchase order. Sixth, based on the receiving partner's
actions, a follow-up transaction, such as order confirmation, is created and
communicated back to the sending partner ostensibly following the same
procedures outlined in steps 1-4 above. The transaction exchange, following
prescribed execution methods and standard transaction sets including quotes,
purchase orders, shipping and receiving notices, invoices, payments and related
transaction, continues between the partners through invoicing and settlement.
TRADING COMMUNITIES. Groups of companies that regularly trade with each
other generate a significant number of repetitive business transactions. These
groups and the individual companies that comprise their trading communities are
prospects for the implementation of business-to-business e-commerce solutions.
Early market expansion of business-to-business e-commerce and its associated
trading communities was made possible through the establishment of repetitive
standard transactions sets based on the ANSI X.12 and UN/EDIFACT formats.
Subsets of these standards are now in use across specific industries such as
automotive, banking, chemical, financial, grocery, healthcare, petroleum, retail
and utilities. The adoption of these standards-based formats as an accepted
means of transaction exchange has occurred, in part, because many groups and
trade organizations and many large companies within vertical communities
increasingly recommend or require their member organizations or trading partners
to adopt such formats as the primary method of communicating business
transactions. The vast majority of today's business-to-business e-commerce
transactions utilize these standard and subset formats. With the growth of
Internet Protocol-based e-commerce, the market is also seeing new formats emerge
such as extensible markup language or XML, and open buying over the Internet
which, like standards-based data exchange in the 1980s, must first achieve
market acceptance.
MARKETPLACES AND VERTICAL MARKET EXCHANGES. Several business-to-business
e-commerce trading models have evolved in the market over time including
enterprise-centric, consortium and open market. The predominant model,
enterprise-centric, dates back to the 1980s, where large companies within a
trading group exercised substantial influence over how the group exchanged
business-to-business e-commerce transactions. This one-to-many trading model
grew up in vertical markets where there were clear industry leaders conducting
business around a specialized group of products. Within business-to-business
e-commerce, the consortium and open market trading models have emerged in recent
years. The consortium model is similar to the enterprise-centric model except
that several large
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enterprises, sometimes in joint-ventures which include e-commerce technology
suppliers, band together to build a marketplace for the exchange of
commodity-oriented goods and services. In contrast, the open market model is a
many-to-many marketplace for the exchange of commodity-oriented goods and
services, where no clear business leaders can dominate the playing field.
Transactions within these trading models can flow via Internet or Extranet,
public and private third-party networks. The process of building, managing and
integrating complete electronic trading communities around these e-commerce
trading models has a cascading effect across business segments and markets.
Large companies attract mid-market companies, who in turn attract smaller
enterprises to engage in business-to-business e-commerce, thus creating an
integrated and automated supply chain. This natural evolution and growth results
in potential new customers for business-to-business e-commerce software, network
communications and consulting services.
According to GartnerGroup, business-to-business e-commerce transactions will
grow to reach $7.3 trillion worldwide by 2004. Furthermore, Harbinger management
estimates that of the 3 million U.S. companies with five or more employees,
approximately 200,000, including virtually all of the Fortune 500, have elected
to date to make use of business-to-business e-commerce, representing about
$45 billion in transaction value. Although many of these businesses are members
of existing trading communities, Harbinger believes that the majority use
business-to-business e-commerce to communicate with only a small percentage of
their suppliers, distributors and customers. For business-to-business e-commerce
to achieve analyst growth estimates over the next few years, Harbinger believes
penetration and adoption rates within the mid-market and small enterprise will
need to sharply increase. Adoption of business-to-business e-commerce and
expansion within trading communities will depend on various factors, such as the
extent of automation in the industry, the degree to which companies require
electronic trading from their trading partners, the level of computer
sophistication of businesses in the trading community, the frequency of
transactions among trading partners in the community and the economic benefits
derived from the trading community by implementing electronic trading, which
historically have accrued principally to the larger members of the community.
THE INTERNET AND INTERNET PROTOCOL
The Internet is a collection of interconnected public and private networks
that allows any computer on the network to communicate with any other computer
on the network over Internet Protocol. Internet Protocol is the common
denominator for the Internet as well as for corporate Intranets, Extranets, Web
sites and e-mail. Although the Internet affords a lower cost, more robust, and
widely available medium for business-to-business e-commerce telecommunications,
there are significant actual and perceived concerns relating to the use of the
Internet for commercial transactions. These concerns include security, inability
to confirm message integrity, vulnerability of messages to interception and
fabrication, lack of user support, service or centralized "help desk" support,
and difficulties in obtaining reliable assurance of receipt of messages sent or
the authenticity of messages received. These difficulties inherent in the
Internet are magnified when the Internet is used to transport commercial,
mission-critical, business-to-business e-commerce transactions.
To solve the current problems with using the Internet and other Internet
Protocol networks for transporting business-to-business e-commerce transactions,
Harbinger offers a series of products and services. The harbinger.net e-commerce
center provides trusted intermediary services including those for message
integrity and accountability, and centralized online customer support. Harbinger
software products that operate as Extranets, but do not require a Web browser
interface, include secure communications to harbinger.net using secure sockets
layer, a security protocol that is widely accepted for Internet Protocol
networks. Harbinger Express is an e-commerce extranet product using a Web
browser interface and the browser's native secure sockets layer component for
secure transmission of transactions to harbinger.net. Harbinger Templar is an
e-commerce e-mail product using patented and industry standard encryption
technologies for the highly secure transmission of transactions to harbinger.net
and directly between trading partners.
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THE HARBINGER SOLUTION
The Harbinger solution to address business-to-business e-commerce focuses on
building, managing and integrating complete electronic trading communities.
Harbinger believes that facilitating this end-to-end process requires a
combination of technologies and services, surrounding centralized trusted
intermediary services that link businesses together in organized trading
communities. We believe the following components for trading community
development differentiates it from competitors in the market.
- E-COMMERCE CENTER, TRUSTED INTERMEDIARY. Harbinger offers harbinger.net, a
transaction portal and e-commerce center, providing Internet Protocol and
non-Internet Protocol telecommunications and value-added information
services between trading partners, as well as an e-commerce information
service accessible to all businesses. The portal also hosts the
Harbinger's Application Services business, as well as marketplaces and
vertical market exchanges operated by the Harbinger on behalf of itself
and others, some of whom are joint-venture partners. Trading services
include subscription-based vertical market trading communities, electronic
storefronts, online customer care, e-commerce resource center, e-commerce
directory and various interconnections to numerous private networks and
value added networks.
- CATALOG DATA MANAGEMENT. Harbinger offers a range of tools and services
for buyers and suppliers to quickly build and maintain electronic
procurement catalogs with fully rationalized data elements for fast search
and retrieval by popular catalog engines. Electronic procurement catalogs
can be hosted on a subscription basis on harbinger.net under the
Harbinger's application service provider program.
- APPLICATION SERVICES AND SOFTWARE. Harbinger offers a fully scalable range
of e-commerce software products for trading communities to create
marketplaces and vertical market exchanges, build Internet storefronts,
implement data security and encryption, and conduct Internet Protocol and
non-Internet Protocol telecommunications. Harbinger offers the software as
customer-licensed applications for operation on the end-user's server, or
on a subscription basis as an application service providers where the
software is hosted on Harbinger's servers and accessed via connection to
harbinger.net.
- DATA TRANSFORMATION SERVICES AND SOFTWARE. Harbinger offers a fully
scalable range of e-commerce software products to perform data
transformation between e-commerce formats XML, X12, EDIFACT and the
integration of resulting data to its customers business processes such as
and systems. Harbinger offers the software as customer-licensed
applications for operation on the end-user's server, or on a subscription
basis as an application service provider where the software is hosted on
Harbinger's servers and accessed via connection to harbinger.net.
- DELIVERY AND IMPLEMENTATION SERVICES. Harbinger offers a full complement
of e-commerce delivery and implementation services for its software
including installation, training and on-going customer support, and
additionally the integration of the software with a customer's business
systems. Services can also include outsourcing services for the operations
management of a customer's e-commerce systems, and complete development,
deployment and management of a customer's e-commerce trading community
program.
STRATEGY
Harbinger's objective is to be a leading worldwide provider of Internet
Protocol-based, business-to-business e-commerce solutions to businesses of all
sizes. To accomplish this objective, we offer a full spectrum of products and
services, which enable customers to conduct business-to-business e-commerce over
Internet Protocol networks. Harbinger's focus is on building, managing and
integrating complete electronic trading communities for its customers on a
worldwide basis. Harbinger strives to generate recurring revenue by extending
the solution it offers to its current customers while
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adding new customers, thus increasing revenue-related traffic to the
harbinger.net e-commerce center and increasing market awareness and acceptance
for Harbinger and its solutions in the marketplace. Harbinger offers its
customers the flexibility of purchasing its solution as a licensed application
set or on a subscription basis as a network-delivered service via harbinger.net.
MIGRATE CUSTOMERS TO INTERNET PROTOCOL-BASED PRODUCTS AND
SERVICES. Harbinger believes Internet Protocol-enabled products and services
amplify its ability to provide enhanced features and improved service levels to
its customers. As a result, throughout 1999 Harbinger engaged in a comprehensive
marketing effort to migrate its customers to Internet Protocol-based products
and services, with a goal of achieving a 50% penetration by year-end. Harbinger
is continuing the migration program during 2000 and intends to achieve further
penetration by year-end.
PROVIDE A COMPREHENSIVE RANGE OF INTEGRATED PRODUCTS AND SERVICES. All
products and services offered by Harbinger are or are expected to be IP-enabled,
and include e-commerce software for use on the full range of commonly used
computer platforms and operating systems, along with industry-standard
applications such as Web browsers where required. Harbinger designs its products
and services to include significant ease-of-use features while providing a high
degree of maintainability and supportability across the customer and product
life cycles. Customer self-services for problem reporting, trouble shooting,
software updates and similar services are available via online connection to the
harbinger.net e-commerce center. The software supports standard formats and
transactions for e-commerce, including X12, EDIFACT and XML, and is designed to
be adaptable to emerging business-to-business e-commerce facilitates such as
open buying over the Internet, RosettaNet and BizTalk. While certain software is
designed for installation by the customer, more sophisticated e-commerce
applications often require delivery and implementation assistance provided by
Harbinger's professional services group. Such instances typically include
specific customer requirements for data transformation, as well as integration
of the resulting data with the customer's business systems including popular
enterprise resource planning Harbinger systems. Finally, all the products and
services are compatible with the Harbinger's harbinger.net e-commerce center and
seeks to drive recurring revenue through subscription and transaction volume.
FOCUS ON BUILDING, MANAGING AND INTEGRATING TRADING COMMUNITIES. Harbinger
seeks to establish new and larger trading communities by (1) developing
marketing and technical competence within specific industries by understanding
the needs of major trade organizations and leading enterprises in the industry,
and the trading customs and practices of their trading partners, (2) working
closely with trading partners to define software and information processing
requirements, (3) developing trading community solutions that meet the needs of
trading partners in these markets, and (4) providing a wide array of
value-added, high-quality products and services to facilitate the adoption and
implementation of business-to-business e-commerce solutions across these
industries.
DEVELOP NEW BUSINESS-TO-BUSINESS TECHNOLOGIES. Harbinger's research and
development organization is continually working to improve the features,
performance and serviceability of its going-forward products and services. The
group follows the Software Process Handbook and Product Life Cycle Methodology
to adhere to the Software Engineering Institute Capability Maturity Model, which
measures the quality and stability of software per line of code. The research
and development group is currently evaluating an upgrade to its development
standards for 2000, such as Rational Unified process, to better standardize its
software development around object-oriented programming. Additionally, Harbinger
is currently engaged to develop new business-to-business e-commerce products and
services through Harbinger Labs, a separate group within its research and
development organization. Harbinger Labs is focused on new business-to-business
e-commerce technologies for rollout in the 2001 through 2004 timeframe.
PENETRATE WORLDWIDE MARKETS. Harbinger intends to aggressively pursue
worldwide business-to-business e-commerce opportunities in Europe, the Middle
East, Africa, and the Asia-Pacific and Latin American theaters. Harbinger has a
direct presence in the United States, Canada, Germany,
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Italy, Mexico, The Netherlands and the United Kingdom. Harbinger maintains
indirect channels through distributors in countries where it does not have a
direct presence and complements the Harbinger's direct sales, marketing and
support initiatives in these countries.
MAINTAIN OPERATIONAL EXCELLENCE. Harbinger's value-proposition is based on
a business model of operational excellence. This business model enables
Harbinger to pursue sustainable competitive advantage through its ability to
deliver products and services to customers at the lowest possible cost, with the
highest degree of quality and efficiency, backed by expert customer care.
Harbinger is implementing total quality management processes across the
organization and expects to achieve ISO 9001 certification by year-end 2000.
Harbinger strives to make itself the easiest to do business among all
business-to-business e-commerce providers.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Harbinger intends to enter new
vertical markets, penetrate additional geographic markets and expand its
business-to-business e-commerce product and service offerings. Harbinger will
continue to seek to acquire complementary technologies and businesses
opportunistically, when appropriate and supportable. Harbinger has in the past
completed acquisitions to address other e-commerce opportunities on the
Internet, enter new vertical markets, acquire complementary technologies and
further penetrate international markets. Harbinger also actively seeks strategic
alliances with leading professional services companies, software application
developers and computer system suppliers to resell, distribute and co-market its
business-to-business e-commerce products and services.
INVESTMENT DIVISION FOR EMERGING MARKETPLACE. Harbinger announced in
January 2000 that it was forming a new investment division with $25 million
allocated to capitalize emerging marketplaces and vertical market exchanges
hosted on harbinger.net. Vulcan Ventures, Inc., Paul Allen's venture capital
firm and one of Harbinger's largest and longest standing shareholders, also
plans to invest side by side with Harbinger as Harbinger builds equity stakes in
the emerging Internet startups. The division will be separately staffed, and
allow Harbinger to evaluate new opportunities and make investment decisions in a
highly competitive and rapidly changing market environment.
CAPABILITIES
Harbinger offers a comprehensive range of e-commerce products and services
for entire trading communities. Harbinger's offerings are divided into three
categories: e-commerce software, telecommunications and services. The following
chart summarizes these categories and provides the functions and computer
operating systems (where applicable) for the offerings.
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<TABLE>
<CAPTION>
NAME DESCRIPTION
- ---------------------------------- ------------------------------------------------------------
<S> <C>
E-COMMERCE CENTER, TRUSTED
INTERMEDIARY
HARBINGER.NET Transaction portal and support center for businesses to
conduct e-commerce with suppliers, distributors and
customers, regardless of their data and communications
requirements. Includes hosted Application Services for
Harbinger software and provides service point for hosted
marketplaces and vertical market exchanges. Offers online
customer care and e-commerce content and information for
industry professionals.
CATALOG DATA MANAGEMENT
HARBINGER KNOWBILITY-TM- Software tools and services for buyers and suppliers to
build and maintain electronic procurement catalogs with
fully rationalized data elements for fast search and
retrieval by popular catalog engines.
</TABLE>
<TABLE>
<CAPTION>
COMPUTER
OPERATING
NAME FUNCTION SYSTEMS
- ---------------------------------- -------------------------------------- ----------------------------
<S> <C> <C>
E-COMMERCE APPLICATION SERVICES
AND SOFTWARE
APPLICATION SERVICE PROVIDER Subscription-based access and usage of
Harbinger software and transaction
services hosted on harbinger.net.
MARKETPLACES AND VERTICAL MARKET Advanced Internet Protocol gateway Windows NT, UNIX
EXCHANGES technology and back-office e-commerce
infrastructure for managing and
operating electronic marketplaces and
vertical market exchanges.
HARBINGER EXPRESS Web-based e-commerce software for Windows 95, Windows 98,
creating and exchanging e-commerce Windows 2000, Windows NT
transactions (XML, X12, EDIFACT) using
a Web browser or an optional
thick-client desktop application.
HARBINGER TRUSTEDLINK-TM- Data transformation and integration Windows 95, Windows 98,
software for creating and exchanging Windows 2000, Windows NT,
e-commerce transactions (XML, X12, UNIX, OS/400, MVS
EDIFACT)
HARBINGER TEMPLAR Data encryption and communications Windows 95, Windows 98,
software for highly secure exchange of Windows 2000, Windows NT,
e-commerce transactions via e-mail UNIX
over the Internet Protocol networks
HARBINGER PRIME FACTORS-TM- Data encryption software for multiple Windows 95, Windows 98,
platforms and applications, including Windows 2000, Windows NT,
ANSI X12.58 and X12.42 standards, UNIX, OS/400, MVS, O/S390
generalized file security, ANSI X9.9
and ATM sharing credit and debit
networks.
</TABLE>
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<TABLE>
<CAPTION>
COMPUTER
OPERATING
NAME FUNCTION SYSTEMS
- ---------------------------------- -------------------------------------- ----------------------------
<S> <C> <C>
E-COMMERCE SERVICES
HARBINGER BUSINESS COMMUNITY Outsourcing services for building, managing and integrating complete
INTEGRATION electronic trading communities with suppliers, distributors and
customers. Includes complete marketing programs, information
seminars, support materials, telemarketing, trading format creation
and distribution, software and services delivery, installation
assistance, testing and certification of e-commerce software and
telecommunications with trading partners.
HARBINGER OPERATIONS Outsourcing services for operating Harbinger software applications
MANAGEMENT hosted on customer's servers. Includes onsite or remote operation,
administration and support of customer's e-commerce systems and
resources.
PROFESSIONAL SERVICES Consulting, project management, installation, integration and
ongoing services for Harbinger software applications.
E-COMMERCE PROJECT SERVICES Development and implementation of e-commerce solutions leveraging
Harbinger's application services and software.
TRAINING Classroom, on-site and Internet-based training classes in the use
and operations of Harbinger software applications.
CUSTOMER SUPPORT Online customer self-service and telephone hotline support in the
use and operations of Harbinger software applications, documentation
and network services. Includes electronic software updates.
</TABLE>
E-COMMERCE CENTER
HARBINGER.NET. harbinger.net is an Internet Protocol-based portal for
application-to-application e-commerce. harbinger.net serves as a clearinghouse
for e-commerce information and as a gateway for e-commerce transactions, noting
that these transactions will increasingly flow through real-time, universal and
persistently connected networks. harbinger.net also serves as an Application
Service Provider network, hosting Harbinger e-commerce applications and
electronic procurement catalogs, which are accessed and used by customers on a
subscription basis. Similarly, harbinger.net also hosts marketplaces and
vertical market exchanges sponsored by leading business entities, sometimes in
joint venture relationships with Harbinger. Harbinger believes that its
business-to-business e-commerce network service offering is one of the largest
in the United States as measured by the number of billable subscribers. To
manage and facilitate these types of connections, harbinger.net provides a set
of features and functions that cover a broad range of e-commerce services. The
harbinger.net e-commerce center supports real-time transactions, open network
and application interfaces, online customer self-service facilities and
e-commerce content for industry professionals. The features, services and
capabilities of harbinger.net fall into three general categories: Transaction
Services; Customer Services, and Content Services.
PORTAL TRANSACTION SERVICES
- Applications Services--Harbinger software applications hosted and
available on a subscription basis.
- Catalog Data Management--harbinger.net will enable the aggregation and
rationalization of catalog content for business-to-business e-commerce.
Tools and services that allow businesses to submit, review and modify
catalog data and then control the release of e-catalogs to customers.
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These services are facilitated via harbinger.net through the use of
browser utilities and FTP technologies.
- Marketplaces and Vertical Market Exchanges--comprehensive marketplaces and
vertical market exchanges hosted on harbinger.net. Includes complete
back-office infrastructure for customer initiation, support, billing, etc.
- Internet Storefronts--hosting environment for Internet storefronts.
- Transport Services--harbinger.net provides several mechanisms enabling
businesses, trading communities, Internet servicers providers, system
integrators, hosting services and others to transmit and receive
e-commerce transactions.
- Connectivity--harbinger.net provides connectivity, data communications
protocols and transport applications to move transactions through the
portal and on to their destination. The primary protocol suite is oriented
around Internet Protocol technologies which includes HTTP, SMTP, and FTP.
Although many services of harbinger.net require Internet Protocol
technologies, other protocols and transports are available, including:
Async, Bisync, SNA, X.400 and OFTP.
- Interconnections--interconnections to other networks to ensure that
transactions are able to flow through the portal and reach their final
destination, such as public value added networks such as Harbinger,
Sterling, GEIS, IBM and others, private value added networks, and X.400
Networks.
- Value-Added Processing--transactions traversing harbinger.net can be
diverted for value-added processing. Some examples of value-added
processing are: translation from one e-commerce standard to another;
reformatting; standards compliance checking; event triggers based on
various criteria; carbon copy to duplicate and forward transactions to
additional mailboxes; and redirection of transactions.
- Mailboxing Services--for trading partners who are not immediately
accessible for instance if they do not have persistent connection to the
network or the connection is down. Unconnected trading partners can access
their mailboxes at a later time to pickup their transactions.
- Security--several security and encryption mechanisms are supported for
harbinger.net transactions, including secure socket layer and S/MIME.
- Web E-Commerce (Harbinger Express)--harbinger.net provides a Web
transaction portal supporting all levels of browser-side applications.
- Transformation and Integration Service--allows businesses to send
transactions through the portal in any format and rely on harbinger.net to
ensure that the transactions are transformed into the appropriate data
format required by trading partners.
- Archiving and Restoral--a standard feature of harbinger.net is the storage
and archiving of transactions.
- Communities of Interest --harbinger.net hosts and serves as an
intermediary for e-commerce communities of interest. It also serves as a
navigation portal for communities of interest that have e-commerce
functionality.
PORTAL CUSTOMER SERVICES
- Internet Customer Support System--browser submission, review and
modification of trouble tickets and a direct link into the harbinger.net
call support system.
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- Network Inspector--harbinger.net's transaction tracking system which
includes a flexible, powerful browser interface to enable tracing of every
transaction, with exact times and checkpoints for each stage of processing
and transport.
- Customer Services--harbinger.net also provides the customer services for
customer alarm/alert notification, transaction recovery, restoral,
retransmission, error viewing and correction, billing review,
registration, and electronic software distribution.
Portal Content Services
- E-Commerce Content--harbinger.net also serves as a portal for information
and resources associated with e-commerce, including XML, ANSI X12,
UN/EDIFACT, OBI, eCo, ANX, news and events associated with e-business,
links to associations, organizations, standards bodies, consortiums,
vendors, system integrators, consultants, forums and discussion groups,
case studies and an e-commerce glossary.
- Commerce Directory Services--the e-commerce directory component of
harbinger.net is an open directory of businesses trading electronically.
- my.harbinger--e-commerce managers and specialists can personalize their
access and use of harbinger.net to ensure that the content and
transactions that are most relevant to their business needs are
immediately available to them.
- Trading Rules Repository--harbinger.net serves as a leading repository of
trading rules associated with individual businesses and e-commerce data
standards, including emerging data standards such as XML.
CATALOG DATA MANAGEMENT
HARBINGER KNOWBILITY. Harbinger Knowbility is a comprehensive suite of
software tools for buyers and suppliers to create, load, manage and maintain
electronic procurement catalogs. Rationalizing data from existing paper catalogs
and electronic repositories to create electronic procurement catalogs is often
the number one challenge faced by companies trying to establish an online
purchasing system. The Knowbility suite produces fully rationalized data
elements for fast search and accurate retrieval by popular catalog search
engines. Electronic procurement catalogs data and technology have been applied
in both supply chain management initiatives for production goods and services,
and maintenance, repair and operating supplies for non-production goods and
services. Additionally, Harbinger offers complete outsourcing services for
electronic procurement catalogs development and maintenance, application service
for hosting of electronic procurement catalogs on harbinger.net.
APPLICATION SERVICES AND SOFTWARE
HARBINGER APPLICATION SERVICES. Harbinger Application Services provides
businesses of all sizes subscription-based access and usage of Harbinger
e-commerce software, which is hosted for them on the harbinger.net e-commerce
center. In a market experiencing rapid advancement and change, many businesses
are opting to rent, rather than permanently license, software applications, thus
conserving capital for other strategic initiatives. Harbinger application
services can be tailored to the specific needs of each business including any
combination of software usage, transaction exchange and support services across
the complete range of Harbinger e-commerce software and electronic procurement
catalog tools.
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HARBINGER MARKETPLACES AND VERTICAL MARKET EXCHANGES. Harbinger
Marketplaces and Vertical Market Exchanges are powered by Harbinger's advanced
Internet Protocol gateway technologies for rapidly creating, deploying, managing
and operating electronic marketplaces, which conform to the enterprise-centric,
consortium and open market trading models in today's environment for
business-to-business e-commerce. Deploying a full-service, real-time, end-to-end
electronic marketplace requires more than a Web site. Harbinger's one-to-many
and many-to-many online exchanges may be operated on the sponsor's servers or
hosted on harbinger.net under Harbinger's application service provider program,
and can be configured with complete front- and back-office e-commerce
infrastructures to manage the entire customer life cycle from recruitment to
registration, to on-going transaction exchange and billing.
HARBINGER EXPRESS. Harbinger Express is a Web-enabled application that
allows a business on one end of an e-commerce transaction to exchange
transactions with their trading partner using only an Internet connection and
standard Web browser. Frequently small and mid-size enterprises that have been
reluctant to implement full-scale e-commerce systems within their businesses use
the Express application. Larger enterprises wanting to expand their trading
communities with small and mid-size enterprise trading partners often sponsor
Express applications as well. Express automatically translates e-commerce
transactions to and from hypertext markup language so that trading partners
using a Web browser on one end of an exchange receive e-commerce transactions as
Web pages, while more sophisticated trading partners on the other end of an
exchange receive e-commerce transactions in their preferred format, such as XML,
X12, or EDIFACT. For more complex business requirements, the small and mid-size
enterprises can use an optional Windows client application, which supports
offline document processing and application integration.
HARBINGER TRUSTEDLINK. Harbinger TrustedLink is a family of data
transformation and integration software that permits the rapid creation and
exchange of e-commerce transactions across a comprehensive range of e-commerce
standards such as XML, X12 and EDIFACT. Businesses of all sizes engaged in
full-scale e-commerce programs use the TrustedLink product family. TrustedLink
facilitates the creation and control of business transactions, such as purchase
orders and invoices, and provides data integration and messaging functions for
directly interacting with a company's internal business systems, including
popular enterprise resource planning systems.
The Windows version of TrustedLink is the leading business-to-business
e-commerce software product for the desktop computer market. The OS/400 version
of TrustedLink is the leading business-to-business e-commerce software product
for the mid-range computer market, operating on the IBM AS/400 computer. The
AS/400 is the leading mid-range platform installed worldwide for use as either
the main computer for a small or mid-sized business or as a departmental or
dedicated processor in a larger business.
HARBINGER INSTANT NET PRESENCE. Harbinger Instant Net Presence allows a
company to establish an Internet storefront for their business including a
professional Web site and online catalog and ordering suite. The software is
designed for SMEs typically implementing their first e-commerce sites and
requires no programming skills. Users create their Internet storefront by
entering information to the software following an interview format. The
storefront can be previewed locally on the desktop using the embedded Microsoft
Internet Explorer software, and published for use on the Internet via
Harbinger's application services provider program hosted on harginger.net.
HARBINGER TEMPLAR. Harbinger Templar is an open, standards-based solution
for enabling secure transmission of digitally designed electronic documents,
including XML, X12 and EDIFACT documents, over the Internet and other Internet
Protocol networks. Templar supplies security for message transmissions by
utilizing public key cryptography techniques licensed from RSA Data
Security, Inc. and by implementing security and confidentiality features at the
software application level. Templar generates a digital signature for each
outbound message that verifies the identity of the
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sender and automatically detects any alteration of the message upon receipt.
Templar automatically tracks message traffic and message integrity and
authenticity and provides user-configurable management reports. Templar also
maintains transmission records for audit trails. Harbinger markets an exportable
version of Templar in compliance with current U.S. export control laws and
regulations applicable to encryption technology. Harbinger Templar is protected
under U.S. patent.
HARBINGER PRIME FACTORS. Harbinger Prime Factors enables banks and other
businesses to secure financial and other information transmitted over internal
and external networks. Customers include money center banks, large corporations
and government agencies interested in securing data transmitted internally and
externally. Prime Factors products operate on computer platforms such as desktop
PCs, mid-range UNIX and AS/400, DEC and Tandem machines to MVS mainframes.
E-COMMERCE SERVICES
HARBINGER BUSINESS COMMUNITY INTEGRATION. Harbinger business community
integration offers outsourcing services for building, managing and integrating
complete electronic trading communities with suppliers, distributors and
customers. Many companies do not want the burden of finding new trading
partners, integrating them into existing e-commerce program, or managing the
ongoing electronic relationships across all trading partners. Business Community
Integration is a tailored service to meet the specific trading community needs
of each business. The program includes full-service capabilities for
implementation and execution of marketing programs, information seminars,
support materials, telemarketing, trading format creation and distribution,
software and services delivery, installation assistance, testing and
certification of e-commerce software and telecommunications with all trading
partners.
HARBINGER OPERATIONS MANAGEMENT (OUTSOURCING). Harbinger Operations
Management provides outsourcing services for the operation of Harbinger software
applications hosted on customers' servers. Many companies want to conserve
in-house information technology resources for strategic initiatives other than
e-commerce, opting to rely on outside expert services for the operation and
maintenance of their e-commerce infrastructure. Operations Management is a
tailored service to meet the specific e-commerce operational needs of each
customer. Harbinger staff provides outsourcing services either onsite or
remotely.
PROFESSIONAL SERVICES. Harbinger Professional Services is staffed by
technical consultants providing project management, installation, integration
and ongoing services for Harbinger software applications and e-commerce
implementations. This is particularly important for the many companies today
that are building end-to-end e-commerce infrastructures, which include
application-to-application interfaces between their internal business systems
and those of their trading partners. These integrated trading relationships
require e-commerce software to be tightly coupled with internal business
systems, including enterprise resource planning systems, and communicate in
real-time via the Internet or near real-time via private networks and
value-added networks. Harbinger Professional Services specializes in the
delivery and implementation of Harbinger software within complex trading
environments.
E-COMMERCE PROJECT SERVICES. Harbinger E-Commerce Project Services
specializes in the development and implementation of e-commerce solutions that
leverage Harbinger applications and services.
EDUCATION. Harbinger Education provides classroom, on-site and
Internet-based training classes in the use and operations of harbinger software
applications.
CUSTOMER SERVICE. Harbinger Customer Service provides extensive customer
care and ongoing support facilities related to the use and operation of
Harbinger software applications, network services and the business processes
associated with e-commerce. Customers can tailor their support program to
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include annual maintenance with software updates and product enhancements, along
with any combination of no-charge and fee-based services. Harbinger operates
multiple hotline "help desks" across North America, Europe and Mexico. Harbinger
provides 24 hours a day, seven days a week customer self-services for problem
reporting, trouble shooting, software upgrades and downloads are available via
online connection to the harbinger.net e-commerce center.
SALES AND MARKETING
Harbinger's principal marketing strategy focuses on establishing complete
electronic trading communities and expanding the number of trading partners
using Harbinger software and the harbinger.net e-commerce center. Harbinger
targets trading communities composed of trading partners in common industries or
markets conducting recurring business transactions. To achieve this objective,
Harbinger has developed a sales and distribution function that includes direct
and indirect channels to promote the implementation of business-to-business
e-commerce within trading communities primarily conforming to the
enterprise-centric trading model and secondarily to the consortium and open
market trading models. Within its direct selling operations, Harbinger utilizes
a solutions selling approach to address the needs of its customers and
prospective customers.
DIRECT. Harbinger has direct selling operations based in North America,
Europe and Mexico. Applying the best practices associated with solutions
selling, Harbinger's direct sales organization seeks to have customers license
or subscribe to under an application service provider program its software and
sell network and e-commerce services to businesses of all sizes that address the
needs and requirements of those businesses e-commerce objectives. As of
March 1, 2000, Harbinger employed approximately 250 sales and marketing
personnel. Harbinger's compensation strategies are designed to reward sales
personnel based upon sales to new customers and the sale of additional products
and services to existing customers.
INDIRECT. Harbinger seeks to complement its direct selling operations
through referral partners and distributors, and relies on distributors in the
Latin American and Asia-Pacific theaters. Through various alliance programs,
Harbinger has established relationships with referral partners, distributors,
application software developers, systems integrators and value-added resellers
of computer products. Harbinger's objective is to integrate Harbinger's products
with those of its business partners and to promote distribution of Harbinger
software along with products and services sold by its marketing partners.
Harbinger fosters relationships with software vendors who bundle or imbed
Harbinger's products with their own products, or which resell Harbinger's
products in particular trading communities. Distributors typically sublicense
Harbinger's software to end-user customers and pay Harbinger a royalty, while
co-marketers typically forward leads to Harbinger in exchange for a percentage
referral fee if the sale is completed. Harbinger has relationships with partners
such as AT&T, Ariba, Baan, Clarus, Computer Associates, Computer Generated
Solutions, Concur, daly.commerce, Data General, Deloitte Consulting, Entrust
Technologies, Ernst & Young, Hewlett-Packard, IBM, Intentia, JBA, J.D. Edwards,
MAPICS, Marcam, Microsoft, OnDisplay, Optika, Oracle, Peachtree Software,
PeopleSoft, PricewaterhouseCoopers, PurchaseSoft, RightWorks, SAP, Sprint,
Sun-Netscape Alliance, Sybase, Syntegra Unisys, UUNET Technologies and WebVan
for distribution of its products worldwide.
PRODUCT DEVELOPMENT
Harbinger continues to assess the needs of businesses in various trading
communities and to develop software programs and network services, which
facilitate business-to-business e-commerce transactions via the harbinger.net
e-commerce center, or directly over standard telephone lines. Harbinger's
product development efforts currently are focused on providing a full range of
business-to-business e-commerce solutions to Harbinger customers and prospective
customers. In addition,
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Harbinger has incorporated into its products certain software licensed to it by
other software developers, where appropriate, to reduce product development
time.
COMPETITION
The business-to-business e-commerce services and computer software markets
are highly competitive. Numerous companies supply business-to-business
e-commerce network services, and several competitors target specific vertical
markets such as the pharmaceutical, agri-business, retail and transportation
industries. Additional competitors provide software designed to facilitate
e-commerce transactions and electronic procurement catalog systems and services.
Several of Harbinger's most significant competitors provide network services and
related software products and services. Harbinger believes that many of its
competitors have significantly greater financial and personnel resources than
Harbinger, due in part either to their revenue and profitability, or market
capitalization.
The market for Internet business-to-business e-commerce software and
services is also highly competitive, ranging from small companies with limited
resources to large companies with substantially greater financial and marketing
resources than Harbinger. Harbinger believes that existing competitors are
likely to expand the range of their e-commerce services to include
Internet-based capabilities, and that new competitors, which may include
telephone companies and media companies, are likely to increasingly offer
services which utilize the Internet to provide business-to-business e-commerce
services. Additionally, several competitive network service providers allow
their subscribers access to the Internet, and several major software and
telecommunications companies have Internet access services.
Harbinger believes the principal competitive factors in the commercial
business-to-business e-commerce industry include responsiveness to customer
needs, efficiency in the delivery of solutions, ease of product use, quality of
service, price and value. Harbinger believes it competes favorably with regard
to these factors.
INTELLECTUAL PROPERTY RIGHTS
In accordance with industry practice, Harbinger relies primarily on a
combination of copyright, patent and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. Harbinger seeks to protect its software, documentation and other written
materials principally under trade secret and copyright laws, which afford only
limited protection. Harbinger presently has one U.S. patent for an electronic
document interchange test facility, one U.S. patent for technology utilized in
Harbinger's EDI/Open product and one U.S. patent for an EDI communication system
and for technology utilized in Harbinger's Templar product. Harbinger routinely
enters into non-disclosure and confidentiality agreements with employees,
vendors, contractors, consultants and customers. Despite Harbinger's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of Harbinger's products or to obtain and use information that Harbinger regards
as proprietary. There can be no assurance that Harbinger's means of protecting
its proprietary rights will be adequate or that competitors will not
independently develop similar technology. The laws of certain foreign countries
in which Harbinger's products are or may be developed, manufactured, licensed or
distributed may not protect Harbinger's products or intellectual property rights
to the same extent as do the laws of the United States and thus make the
possibility of piracy of Harbinger's technology and products more likely.
Harbinger believes that, due to the rapid pace of innovation within the
electronic commerce, electronic data interchange and related software
industries, factors such as the technological and creative skills of its
personnel are more important in establishing and maintaining a leadership
position within the industry than are the various legal protections of its
technology.
Harbinger does not believe that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by Harbinger with
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respect to current or future products. From time to time, Harbinger has received
notices which allege, directly or indirectly, that Harbinger's products or other
intellectual property rights infringe the rights of others. Harbinger generally
has been able to address these allegations without material cost to Harbinger.
There can be no assurance, however, that the cost to Harbinger of addressing
these allegations will not increase in the future. Harbinger expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in electronic commerce grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require Harbinger to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to Harbinger or at all, which
could have a material adverse effect on Harbinger.
In its distribution agreements and certain of its customer or other
agreements, Harbinger agrees to indemnify certain parties, which may include
customers of parties with which Harbinger has contracted, for any expenses or
liabilities resulting from claimed infringements of patents, trademarks or
copyrights or certain other intellectual property rights of third parties. In
the event of litigation to determine the validity of any third-party claims,
such litigation, whether or not determined in favor of Harbinger, could result
in significant expense to Harbinger and divert the efforts of Harbinger's
technical and management personnel from productive tasks. In the event of an
adverse ruling in such litigation, Harbinger might be required to pay money
damages, to discontinue the use and sale of infringing products, to expend
significant resources to develop non-infringing technology or obtain licenses
from third parties. There can be no assurance that licenses from third parties
would be available on reasonable commercial terms, if at all. In the event of a
successful claim against Harbinger and the failure of Harbinger to develop or
license a substitute technology, Harbinger's business and operations results
would be materially adversely affected.
THIRD PARTY TECHNOLOGY. Harbinger incorporates in its products software
licensed to it by other software developers. These include the public key
cryptography software licensed by RSA Data Security, Inc. to Premenos which is
used in connection with Templar as well as database software used in the Templar
and EDI/Open products and graphical interface software used in EDI products and
Templar.
Premenos licensed the public key encryption technology pursuant to a license
agreement with RSA, which was transferred to Harbinger in connection with the
acquisition of Premenos. The RSA license grants to Harbinger the non-exclusive,
non-transferable, non-assignable limited license to incorporate certain
functionality within RSA's public key encryption technology into a Premenos
product solely to create a bundled product, as defined in the RSA license, to
reproduce and sublicense the bundled product, and to use or authorize end-users
to use the bundled product in conjunction with a service bureau or internal
network or to provide electronic communications, messaging and similar services
to third parties. A bundled product is defined as a Harbinger product that
represents a significant functional and value enhancement to the RSA technology
designed to facilitate the secure exchange of electronic information such as EDI
documents over open networks. The RSA license contains a number of restrictions
regarding sublicensing of the bundled product to act as a certification
authority, as well as other restrictions regarding end-user use, territory and
distribution channels. Harbinger is prohibited from selling the bundled product
or any product with comparable functionality which does not incorporate the RSA
encryption technology, except in certain circumstances, in which event Harbinger
is required to pay the otherwise applicable royalty fee to RSA.
Harbinger also incorporates database software licensed from Sybase, Inc.
into its Templar and some versions of its EDI/Open products, and incorporates
graphical software licensed from third parties into the EDI products and
Templar. Although Harbinger seeks and generally receives assurances from
third-party software vendors as to the third party's intellectual property
rights and the non-infringement by the software of other parties' rights,
Harbinger's right to use the software could be
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impaired by third party claims. In addition, certain agreements pursuant to
which Harbinger uses this software may be terminated in accordance with their
terms in certain circumstances.
If Harbinger were deprived of the right to use software incorporated in its
products for any reason, there could be serious disruption to its business.
EMPLOYEES
As of March 8, 2000, Harbinger had 1,003 full-time employees of which 309
are technical personnel engaged in maintaining or developing our products or
performing related services, 200 are marketing and sales personnel, 314 are
customer support and operations personnel, and 180 are involved in
administration and finance.
GOVERNMENTAL REGULATIONS AND INDUSTRY STANDARDS
GOVERNMENT REGULATORY AND INDUSTRIAL POLICY RISKS. Harbinger's network
services are transmitted to its customers over dedicated and public
communications lines. These transmissions are governed by legislative and
regulatory policies establishing charges, terms and conditions affecting
communications. Changes in the legislative and regulatory environment relating
to online services, EDI or the Internet access industry, including regulatory or
legislative changes that directly or indirectly affect telecommunication costs
or increase the likelihood of competition from regional telephone companies or
others, could have an adverse effect on Harbinger's business. The
Telecommunications Act of 1996 amended the federal telecommunications laws by
relaxing restrictions on regional telephone companies and others competing with
Harbinger. The Telecommunications Act set in motion certain events that will
lead to the elimination of restrictions on regional telephone companies
providing transport between defined geographic boundaries associated with the
provision of their own information services. This will enable regional telephone
companies to more readily compete with Harbinger by packaging information
service offerings with other services and providing them on a wider geographic
scale. While some legislative efforts to govern communications, especially over
the Internet, have been held by the U.S. Supreme Court to be unconstitutional,
there can be no assurance that future legislative or regulatory efforts to limit
use of the Internet in a manner harmful to Harbinger will not be successful. The
Clinton Administration has announced an initiative to establish a framework for
global electronic commerce. The Children's Online Privacy Protection Act became
effective April 21, 2000, and this and future governmental privacy initiatives
may affect Harbinger's provision of services. Also, some countries, such as
Germany, have adopted laws regulating aspects of the Internet, and there are a
number of bills recently adopted or currently being considered in the United
States at the federal and state levels involving electronic transactions,
encryption and digital signatures, all of which may impact Harbinger. Harbinger
cannot predict the impact, if any, that these laws and future court opinions,
legislation, regulations or regulatory changes in the United States or other
countries may have on its business. Management believes that Harbinger is in
compliance with all material applicable regulations. The Harbinger IVAS product
and the Harbinger Templar product both incorporate encryption technology which
is subject to U.S. export control regulations. Although both products are
currently exportable under licenses granted by the Commerce Department,
government regulation in this area is subject to frequent change and there can
be no assurance that these products will remain exportable.
PROPERTIES
Harbinger occupies 99,560 square feet of office space in Atlanta, Georgia
under a lease expiring in 2008, plus options to extend the lease term. This
location serves as Harbinger's headquarters and data center. Harbinger also has
offices in Michigan, Texas, California, South Carolina, Oregon and Oklahoma,
occupying 39,800; 26,000; 73,615; 21,789; 2,100; and 14,700 square feet,
respectively. In addition, Harbinger also has offices in The Netherlands,
Germany, the United Kingdom, Italy and
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Mexico occupying 1,600; 14,546; 7,600; 2,228 and 1,614 square feet,
respectively. Harbinger's offices are generally located in suburban office park
environments.
LEGAL PROCEEDINGS
Harbinger is involved from time to time in various legal proceedings
incidental to the conduct of its business. In addition, on September 13, 1999,
Harbinger and three of its current or former officers and directors, C. Tycho
Howle, David Leach and Joel G. Katz, were named in a purported class action
lawsuit alleging violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. The complaint alleged that during a class period running
from February 4, 1998 through October 1, 1998 defendants made materially false
and misleading statements, and failed to disclose material facts regarding
Harbinger's business condition, future prospects and integration of
acquisitions. According to the complaint, these purported misrepresentations and
omissions artificially inflated the price of Harbinger's common stock throughout
the class period and resulted in substantial losses by members of the purported
class. On January 13, 2000, the court entered an order appointing lead
plaintiffs and lead plaintiffs' counsel. On March 6, 2000, plaintiffs filed an
amended complaint reiterating and expanding upon the basic claims asserted in
the original complaint by, among other things, adding allegations regarding
Harbinger's accounting practices. Plaintiffs seek certification of the case as a
class action, a declaration that defendants violated the federal securities
laws, unspecified money damages according to proof, interest, attorneys' fees
and costs. Harbinger believes all claims asserted in the action are without
merit, and intends to defend the case vigorously.
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SELECTED FINANCIAL DATA OF HARBINGER
The selected financial data of Harbinger set forth below as of December 31,
1995, 1996, 1997, 1998 and 1999 are derived from financial statements of
Harbinger audited by KPMG LLP, independent public accountants, which are
included elsewhere in this prospectus. The data should be read in conjunction
with the Financial Statements and the Notes thereto and with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this prospectus.
STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $155,514 $135,151 $118,221 $ 89,245 $60,077
Direct costs........................................ $ 50,997 $ 38,217 $ 30,510 $ 23,112 $14,994
-------- -------- -------- -------- -------
Gross margin........................................ $104,517 $ 96,934 $ 87,711 $ 66,133 $45,083
======== ======== ======== ======== =======
Operating income (loss)............................. $ 12,630 $(12,652) $(22,705) $(10,667) $ 1,314
======== ======== ======== ======== =======
Net income (loss) applicable to common
Shareholders...................................... $ 16,560 $(14,712) $(39,047) $(16,091) $ (445)
======== ======== ======== ======== =======
Diluted net income (loss) per share of common
stock............................................. $ 0.41 $ (0.35) $ (1.02) $ (0.46) $ (0.02)
======== ======== ======== ======== =======
Weighted average number of common shares
outstanding....................................... 40,739 41,557 38,162 35,080 28,573
======== ======== ======== ======== =======
</TABLE>
SUPPLEMENTAL INFORMATION STATEMENTS OF
OPERATIONS DATA AS ORIGINALLY REPORTED
(EXCLUDING ACQUISITIONS ACCOUNTED FOR UNDER THE
POOLING-OF-INTERESTS METHOD OF ACCOUNTING)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues(1)........................................... $155,514 $135,151 $90,415 $38,236 $19,846
======== ======== ======= ======= =======
Operating income(1)................................... $ 14,176 $ 20,138 $18,791 $ 7,619 $ 2,807
======== ======== ======= ======= =======
Net income applicable to common shareholders(2)....... $ 10,762 $ 13,396 $12,647 $ 4,672 $ 1,363
======== ======== ======= ======= =======
Diluted net income per share(2)....................... $ 0.26 $ 0.36 $ 0.31 $ 0.18 $ 0.07
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................... $ 79,234 $ 79,303 $ 94,307 $ 60,392 $ 73,167
Total assets....................................... $169,459 $178,369 $183,559 $131,199 $125,867
Long-term obligations, redeemable preferred stock
and puttable common stock........................ $ -- $ -- $ -- $ 1,608 $ 7,116
Shareholders' equity............................... $124,774 $120,019 $130,018 $ 94,118 $ 93,196
</TABLE>
- --------------------------
(1) The results of operations of Premenos, a pooling-of-interests, are excluded
from all periods prior to the merger in 4Q97. The results of operations of
STI, a pooling-of-interests, are excluded from all periods prior to the
merger in 1Q97. Excludes $27.0 million, $40.6 million and $8.8 million of
pre-tax charges for 1998, 1997 and 1996, respectively, for purchased
in-process product development, write-off of software development costs,
restructuring, acquisition-related and other charges. Excludes $1.5 million
and $5.8 million in net general and administrative charges for 1999 and 1998
principally related to provisions for doubtful accounts.
(2) Excludes all charges per note * above. In addition, excludes $80,000,
$7.0 million and $954,000 for 1999, 1996 and 1995, respectively, of equity
in losses of joint ventures. Also excludes $2.4 million loss on
extinguishment of debt in 1997. Excludes operating losses of all
discontinued operations and income and losses on disposals of discontinued
operations totaling $1.4 million, $6.2 million and $14.4 million in 1999,
1998 and 1997, respectively. The resulting net income applicable to common
shareholders is tax effected at 39%.
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HARBINGER MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the consolidated financial statements and related notes included elsewhere in
this filing. Except for historical information, the discussion in this filing
contains certain forward-looking statements that involve risks and
uncertainties. The principal factors that could cause or contribute to
differences in our actual results are discussed in the section titled "Risk
Factors."
OVERVIEW
Harbinger Corporation generates revenues from e-commerce enablement services
and from licensing software that facilitates the exchange of electronic data
between businesses. Revenues for enablement services principally include
transaction fees on harbinger.net, Harbinger's e-commerce portal; subscription
fees for access to applications hosted on harbinger.net as an application
service provider; software maintenance; and professional service fees for
operations management outsourcing, business community integration, training,
consulting and project management. Transaction and subscription fees are a
combination of access and usage charges and are recognized as incurred each
month. Software maintenance is billed in advance with revenue deferred and
recognized ratably over the one-year service period. Revenues for professional
services are based on actual services rendered and are recognized as the
services are performed. License fees for software are generally recognized upon
shipment, net of estimated returns. Software revenues also include royalties due
Harbinger under distribution agreements with third parties which are recognized
either on shipment of software to a distributor, or upon sales to end users by a
distributor, depending on the terms of the distribution agreement.
Harbinger also analyzes its mix of revenues in terms of the recurring versus
nonrecurring nature of the revenue streams. Harbinger includes revenues from
ongoing software maintenance and transactions on harbinger.net, together with
operations management and certain application service provider services in its
definition of recurring revenues. Recurring revenues are recognized ratably over
the contract period as services are provided or may be billed and recognized on
monthly subscription terms generally over a two- to three-year period. Harbinger
defines nonrecurring revenues to include one-time professional service
enablement contracts, typically for consulting, project management or
implementation services, and software licenses.
Harbinger seeks to maximize its recurring revenue streams in order to:
1) promote customer retention, 2) provide increased visibility into long-term
revenue and cash flow generating capabilities, and 3) decrease the revenue and
cash flow risk associated with singular professional service and software
license contracts. Accordingly, in 1999 Harbinger increased its sales and
marketing efforts in its recurring revenue programs. Harbinger also seeks to
maximize the use of the public Internet as a means of conducting
business-to-business e-commerce. Since 1994, Harbinger has invested in enabling
its products and services to the Internet and is actively encouraging its
current customer base to migrate to Internet-capable technologies.
STOCK REPURCHASE PROGRAM
On April 2, 1999 Harbinger's board of directors approved the purchase of 10%
of Harbinger's outstanding common stock over the next 12 months. As of
December 31, 1999 Harbinger had repurchased 4,323,050 shares of common stock at
an aggregate cost of $25.0 million.
ACQUISITIONS AND INVESTMENTS
Harbinger acquired two companies in 1998 through a combination of
$3.5 million in cash and the issuance of 194,497 shares of its common stock.
Harbinger completed six acquisitions in 1997 through a
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combination of cash totaling $15.1 million, the issuance of 12,514,000 shares of
Harbinger's common stock and the issuance of 533,000 stock options. The
acquisitions completed during 1998 and 1997 are described in note 2 to
Harbinger's accompanying financial statements.
In conjunction with these acquisitions Harbinger assigned personnel to
facilitate the integration of the acquired companies into Harbinger's
operations. As a result, certain payroll and associated costs or integration
activity costs directly related to integration activities are reflected as
restructuring and acquisition-related charges within the line titled, "Charge
for purchased in-process product development, write-off of software development
costs, restructuring, acquisition-related and other charges" in the consolidated
statements of operations for 1998 and 1997. These costs and their impact on
year-over-year comparisons are more fully explained in note 2 to the
consolidated financial statements and the following "Results of Operations."
During 1999 Harbinger became a one-third owner of GLINK, LLC, a joint
venture established to develop an electronic marketplace for the grocery
industry. Harbinger accounts for its ownership in GLINK using the equity method
of accounting, which requires Harbinger to record its share of income and losses
of GLINK to the consolidated statements of operations under "Equity in losses of
joint ventures" in the period they occur.
In the fourth quarter of 1999 Harbinger announced a substantial increase in
its investment in advertising, public relations, sales and technology in order
to enhance the awareness of its position as a supplier of e-commerce enablement
solutions in an expanding marketplace for business-to-business e-commerce. The
investments totaled approximately $3 million in the fourth quarter of 1999, and
are estimated to be about $25 million in 2000.
In the first quarter of 2000 Harbinger invested $5.0 million in two
privately-held ventures, informally committed to an equity position in a third
privately-held venture and recorded software and services revenues totaling
$4.6 million from these three transactions, fundamentally exchanging Harbinger's
technologies and services for equity positions in the ventures. These revenues
excluded $749,000 of revenues and deferred revenues corresponding to the
Harbinger's percentage ownership in the ventures which were eliminated in
consolidation, as required by the equity method of accounting. Harbinger has
determined that it will use the equity method of accounting for these ventures
as it believes that it has the ability to exercise significant influence over
each entity. These ventures are early-stage enterprises which therefore may be
financially volatile, with no assurances on the ultimate value of Harbinger's
investments.
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RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship of consolidated statements of operations data items to total
revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1999 1998 1997 2000 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Services.................................................. 69.9% 65.2% 53.6% 70.9% 75.7%
Software.................................................. 30.1 34.8 46.4 29.1 24.3
----- ----- ----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Direct costs:
Services.................................................. 29.9 25.5 19.2 27.9 31.7
Software.................................................. 2.9 2.8 6.6 2.8 3.4
----- ----- ----- ----- -----
Total direct costs...................................... 32.8 28.3 25.8 30.7 35.1
----- ----- ----- ----- -----
Gross margin............................................ 67.2 71.7 74.2 69.3 64.9
----- ----- ----- ----- -----
Operating costs:
Selling and marketing..................................... 25.4 23.4 22.6 32.6 25.0
General and administrative................................ 19.9 23.8 17.6 22.6 19.6
Depreciation and amortization............................. 6.1 6.0 6.0 7.5 6.7
Product development....................................... 7.7 7.9 12.9 5.7 9.0
Charge for purchased in-process product development,
write-off of software development costs, restructuring,
acquisition-related and other charges................... -- 20.0 34.3 -- --
----- ----- ----- ----- -----
Total operating costs................................. 59.1 81.1 93.4 68.4 60.3
----- ----- ----- ----- -----
Operating income (loss)............................. 8.1 (9.4) (19.2) 0.9 4.6
Interest income, net........................................ 2.2 3.6 3.3 3.6 2.7
Equity in losses of joint ventures.......................... -- -- (0.3) (0.6) --
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes...................................... 10.3 (5.8) (16.2) 3.9 7.3
Income tax expense.......................................... (0.5) (0.5) (2.6) (0.3) (0.3)
----- ----- ----- ----- -----
Income (loss) from continuing operations............ 9.8 (6.3) (18.8) 3.6 7.0
Loss from operations of TrustedLink Procurement
Business and TrustedLink Banker division.............. -- (1.3) (8.8) -- --
Income (loss) on disposal of TrustedLink Procurement
Business and TrustedLink Banker division, including
Provisions for operating losses during phase-out
Periods................................................. 0.9 (3.3) (3.4) -- --
----- ----- ----- ----- -----
Income (loss) before extraordinary item............. 10.7 (10.9) (31.0) 3.6 7.0
Extraordinary loss on debt extinguishment................... -- -- (2.0) -- --
----- ----- ----- ----- -----
Net income (loss)................................... 10.7% (10.9)% (33.0)% 3.6% 7.0%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Total revenues increased 15% to $38.4 million in the first
quarter of 2000 from $33.5 million in the first quarter of 1999. Revenues for
services increased 7% to $27.2 million in the first quarter of 2000 from
$25.4 million in the first quarter of 1999. The increase in service revenues is
primarily attributable to an increase in software maintenance revenues for the
first quarter of 2000 compared to 1999. Traditional professional services
revenues in enablement, training and consulting declined commensurate with
Harbinger's deemphasis on large electronic e-commerce enablement
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contracts as a source of professional services revenues. Application Service
provider, or ASP, services revenues increased $1.9 million over the first
quarter of 1999 primarily due to approximately $1.4 million in nonrecurring ASP
enablement service revenue from FactorWorks.com, a venture in which Harbinger
maintains an equity position.
Of the service revenues from FactorWorks recognized by Harbinger in the
three-month period ended March 31, 2000, about $1.1 million was for services
previously billed at cost by Harbinger in prior periods. Harbinger had
previously agreed to these reduced rates in exchange for a higher percentage of
revenue sharing over the life of the multi-year arrangement. During the first
quarter of 2000, Harbinger and FactorWorks renegotiated the arrangement such
that Harbinger received retroactive services revenues at market rates, an
extension of the contract term and certain volume commitments in exchange for a
commensurate reduction in the revenue sharing participation.
Revenues from software sales increased 37% to $11.2 million in the first
quarter of 2000 from $8.1 million in the first quarter of 1999. This increase is
primarily attributable to an increase in software revenues from Harbinger's
recently introduced portal service offerings. Software revenues from Harbinger's
desktop and AS400 products on a combined basis were consistent in the first
quarter of 2000 compared to 1999. During 1999, Harbinger announced plans to
migrate the majority of its existing customer base to new internet enabled
products and focused primarily on the desktop customers during its 1999
migration initiative. Harbinger intends to focus on migrating its enterprise
customers in 2000. Accordingly, the software revenue from desktop products
declined in the first quarter of 2000, and software revenue from AS400 products
correspondingly increased over the first quarter of 1999.
In the fourth quarter of 1998, Harbinger phased out about 40% of its product
lines, collectively referred to as Sunset Products, and discontinued
relationships with certain third-party resellers of our software products. On a
pro forma basis, core revenues, defined as revenues excluding Sunset products
and discontinued third-party resellers, increased to $34.3 million or 89% of
total revenues in the first quarter of 2000 compared to $27.1 million or 80.9%
of total revenue in the first quarter of 1999.
DIRECT COSTS. Direct costs for services increased to $10.7 million in the
first quarter of 2000 from $10.6 million in the first quarter of 1999. As a
percentage of service revenues, these costs were 39.4% in the first quarter of
2000 and 41.9% in the first quarter of 1999. Excluding $1.4 million of
nonrecurring application service provider revenues in the first quarter of 2000
for work substantially performed in prior periods, Harbinger's cost of services
for 2000 would have been 41.5%. The decrease in the adjusted percentage of cost
of services compared to the percentage in the first quarter of 1999 is primarily
attributable to an increase in higher-margin software maintenance in the first
quarter of 2000. Direct software costs were $1.1 million in the first quarters
of both 2000 and 1999 as software amortization and royalties increased and
charge-offs of outdated collateral materials decreased in the first quarter of
2000.
SELLING AND MARKETING. Selling and marketing expenses increased 49% to
$12.5 million in the first quarter of 2000 from $8.4 million in the first
quarter of 1999. As a percentage of revenues these expenses were 32.6% in 2000
and 25.0% in 1999. In the fourth quarter of 1999, Harbinger announced its
intention to spend up to $25 million in marketing, sales and technology
development. The increase in selling and marketing expenses is primarily
attributable to first quarter 2000 increases in marketing and brand awareness,
commissions associated with increased revenues and an accrual for estimated
sales taxes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
32% to $8.7 million in the first quarter of 2000 from $6.6 million in the first
quarter of 1999. As a percentage of revenues these expenses were 22.6% in 2000
and 19.6% in 1999. Included in 1999 is a $750,000 credit for recovery of an
outstanding royalty receivable from a specific customer that had been reserved
for in
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1998. Excluding this credit, general and administrative expenses would have been
$7.3 million or 21.8% of revenues in 1999. The increase in general and
administrative expenses in the first quarter of 2000 is primarily attributable
to Harbinger's ongoing investment in information technology, including personnel
costs, and increases to Harbinger's allowance for doubtful accounts.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 28%
to $2.9 million in the first quarter of 2000 from $2.2 million in the first
quarter of 1999. The increase in depreciation and amortization is due to the
purchase of computer hardware and software associated with Harbinger's ongoing
investments in its information technology infrastructure.
PRODUCT DEVELOPMENT. Total expenditures for product development, including
capitalized software development costs, decreased 5% to $3.7 million in the
first quarter of 2000 from $3.9 million in the first quarter of 1999. Total
expenses for product development decreased 27% to $2.2 million in 2000 from
$3.0 million in 1999. As a percentage of revenues, product development expenses
decreased to 5.7% in 2000 from 9.0% in 1999. The decrease in overall product
development expenditures in the first quarter of 2000 compared to 1999 is
primarily attributable to a reduction in contract labor. Harbinger capitalized
software development costs of $1.5 million and $887,000 in the first quarters of
2000 and 1999, respectively. Capitalization increased in 2000 as products
reached technological feasibility at Harbinger Labs, Harbinger's development
group devoted to next generation product development. Amortization of
capitalized software development costs included in direct costs of software
totaled $633,000 and $510,000 in the first quarters of 2000 and 1999,
respectively.
EQUITY IN LOSSES OF JOINT VENTURES. The total equity in losses of joint
ventures for the first quarter of 2000 is attributable to Harbinger's one-third
ownership in GLink LLC, an electronic marketplace for the grocery industry.
Harbinger has also recently acquired equity positions in joint ventures created
to establish electronic marketplaces for banking, apparel and the golf and
hospitality industries. Harbinger anticipates continued losses from these
start-up ventures for the remainder of 2000.
INCOME TAXES. Harbinger recorded income tax expense of $142,000 and
$113,000 in the first quarters of 2000 and 1999, respectively. The increase in
taxes for the first quarter of 2000 is due primarily to the earnings in certain
foreign countries that cannot be offset by losses in other jurisdictions. The
effective tax rates of 9.4% and 4.6% for the first quarters of 2000 and 1999
differ from the expected rate of 39% due to reductions in the deferred tax
valuation allowance.
NET INCOME AND EARNINGS PER SHARE. Harbinger realized net income of
$1.4 million or $0.03 per diluted share in the quarter ended March 31, 2000 and
$2.3 million or $0.06 per diluted share in the quarter ended March 31, 1999. In
order to facilitate comparison of operating results year over year, Harbinger
also presents its earnings adjusted for certain charges and credits and
tax-affects the results
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at a 39% effective rate (core earnings). A comparison of the quarters ended
March 31, 2000 and 1999 is as follows:
SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Operating income......................................... $ 364 $1,556
Certain general and administrative credits for
recoveries............................................. -- (750)
------ ------
Adjusted operating income................................ 364 806
Interest income, net..................................... 1,391 898
------ ------
Core earnings before income taxes........................ 1,755 1,704
------ ------
Core earnings net of income taxes at 39%................. 1,071 1,039
====== ======
Core earnings per share.................................. $ 0.03 $ 0.03
====== ======
Weighted average number of diluted shares outstanding.... 42,246 40,451
====== ======
</TABLE>
1999 COMPARED TO 1998
REVENUES. Total revenues increased 15% to $155.5 million in 1999 from
$135.2 million in 1998. Revenues for services increased 23.4% to $108.7 million
in 1999 from $88.1 million in 1998. This increase is attributable to growth in
Harbinger's operations management and professional services, as well as growth
in transaction fees on harbinger.net.
Revenues from software sales decreased 0.6% to $46.8 million in 1999 from
$47.1 million in 1998. In the fourth quarter of 1998, Harbinger phased out about
40% of its product lines, collectively referred to as Sunset Products, and
discontinued relationships with certain third-party resellers of the Harbinger's
software products. The decline in 1999 software sales is primarily attributable
to this phase-out. On a pro forma basis, software sales, net of Sunset Products
and discontinued third-party resellers, increased 24.3% to $40.8 million in 1999
from $32.9 million in 1998. Harbinger is in the process of upgrading its
products to accommodate public Internet data protocols and Windows functionality
and is actively migrating its customer base from old to new technology
platforms. Approximately 23% of software revenues were derived from these
migrations in 1999.
DIRECT COSTS. Direct costs for services increased to $46.4 million in 1999
from $34.5 million in 1998. As a percentage of service revenues, these costs
were 42.7% in 1999 and 39.2% in 1998. The increase in direct services costs as a
percentage of services revenues primarily reflects the effects of a higher
proportion of lower-margin professional enablement services revenues in 1999 and
the effect of reallocating personnel costs to integration activity costs in
1998. Direct software costs increased to $4.6 million in 1999 from $3.7 million
in 1998. Direct software costs as a percentage of software revenues were 9.8% in
1999 and 7.9% in 1998. The increase in direct software costs as a percentage of
software revenues is primarily due to an increase in amortization of capitalized
software costs while software revenues remained relatively flat due to the
phase-out of Sunset Products.
SELLING AND MARKETING. Selling and marketing expenses increased 25% to
$39.6 million in 1999 from $31.6 million in 1998. As a percentage of revenues
these expenses were 25.4% in 1999 and 23.4% in 1998. The increase in selling and
marketing expenses as a percentage of revenues reflects an increase in sales
force personnel in 1999 and an incremental investment in marketing and brand
awareness for harbinger.net. In addition, the increase in 1999 is partially
attributable to the effect of reallocating personnel costs to integration
activity costs in 1998.
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<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
4% to $31.0 million in 1999 from $32.2 million in 1998. As a percentage of
revenues these expenses were 19.9% in 1999 and 23.8% in 1998. Included in 1999
is a $3.3 million charge recorded in the fourth quarter for aged accounts
receivable, offset by $1.8 million in credits recorded in the first nine months
for recovery of outstanding royalty receivables from a specific customer that
had been reserved for in 1998. Included in 1998 is a $5.8 million net charge
recorded for outstanding royalty and accounts receivable from a reseller and
certain other customer accounts. Excluding the aforementioned net charges,
general and administrative expenses would have been $29.5 million or 18.9% of
revenues in 1999 and $26.4 million or 19.5% of revenues in 1998. The increase in
adjusted general and administrative expenses is primarily attributable to the
effect of reallocating personnel costs to integration activity costs in 1998,
and increases in office space and investments in information technology in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 18%
to $9.5 million in 1999 from $8.1 million in 1998. As a percentage of revenues
these expenses were 6.1% in 1999 and 6.0% in 1998. The increase in depreciation
and amortization is due to the purchase of computer hardware and software
associated with Harbinger's investment in its information technology
infrastructure during 1999 and the latter half of 1998.
PRODUCT DEVELOPMENT. Total expenditures for product development, including
capitalized software development costs, increased 24% to $17.6 million in 1999
from $14.1 million in 1998. Total expenses for product development increased 11%
to $11.8 million in 1999 from $10.6 million in 1998. As a percentage of revenues
total product development expenses decreased to 7.6% in 1999 from 7.9% in 1998.
The increase in product development expenses is primarily attributable to
increased development of Internet-based products, the 1999 addition of Harbinger
Labs, Harbinger's development group devoted to next generation product
development, and the effect of reallocating personnel costs to integration
activity costs in 1998. Harbinger capitalized software development costs of
$5.8 million and $3.6 million in 1999 and 1998, respectively. In the third
quarter of 1999 Harbinger capitalized $1.6 million of development costs for
software that was originally being developed for internal use by Harbinger's
information technology group. Marketing and licensing efforts on this product
were initiated in the third quarter of 1999 and the first license of this
product was sold in the fourth quarter of 1999. Excluding this item, capitalized
software development costs were $4.2 million or 26.6% of total expenditures for
product development in 1999 and $3.6 million or 25.0% of product development in
1998. The increase in amounts capitalized reflects an increase in development
activities associated with products that have reached technological feasibility.
Amortization of capitalized software development costs included in direct costs
of software totaled $2.0 million and $1.6 million in 1999 and 1998,
respectively.
CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE
DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION-RELATED AND OTHER
CHARGES. Harbinger incurred charges of $27.0 million in 1998 related to the
costs of integrating its acquisitions in 1998 and 1997 and its restructuring in
1998. Approximately $4.1 million in 1998 charges were personnel costs
reallocated to integration activity costs. The integration activities were
completed by the end of 1998 and the internal resources and their associated
costs are recorded in their original operating cost categories in 1999.
INCOME TAXES. Harbinger recorded income tax expense of $813,000 and
$705,000 in 1999 and 1998, respectively. Taxable income of $7.4 million will be
required in future years to realize Harbinger's net deferred income tax assets
at December 31, 1999 of $2.8 million, net of a valuation allowance. Future
decreases of $3.3 million in the total valuation allowance of $18.9 million at
December 31, 1999 relate to foreign net operating loss carryforwards and will
reduce the intangibles associated with those acquisitions as the net operating
loss carryforwards are realized.
DISCONTINUED OPERATIONS. Harbinger discontinued its TrustedLink Procurement
business on September 30, 1998 and its TrustedLink Banker division on
December 31, 1997, both of which had
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been generating lower than desired profitability and growth and which management
deemed to be no longer strategic to Harbinger. The disposal of TrustedLink
Banker was substantially completed by December 31, 1998. During 1999 Harbinger
recovered the remaining loss reserve estimates associated with the disposal of
TrustedLink Banker as contingencies related with the disposal were resolved. The
recovery of the reserve in 1999 for TrustedLink Banker is reported in the
accompanying consolidated statements of operations under "Income (loss) on
disposal of discontinued operations." At December 31, 1999 Harbinger had a
remaining reserve of $3.3 million for TrustedLink Procurement related to certain
remaining contingencies.
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE. Harbinger realized net
income of $16.6 million or $0.41 per diluted share in 1999 and a net loss of
$14.7 million or $0.35 per diluted share in 1998. In order to facilitate
comparison of operating results year over year, Harbinger also presents its
earnings by adjusting for certain charges and tax-affecting the results at a 39%
effective rate, or core earnings. A comparison of 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Supplemental Information:
Operating income (loss)..................................... $12,630 $(12,652)
Charges..................................................... -- 27,027
Certain general and administrative charges net of
recoveries................................................ 1,546 5,763
------- --------
Adjusted operating income................................... 14,176 20,138
Taxable interest income, net................................ 3,467 4,404
------- --------
Core earnings before income taxes........................... 17,643 24,542
------- --------
Core earnings net of income taxes at 39%.................... 10,762 14,970
------- --------
Non-taxable interest income................................. -- 426
------- --------
Core earnings............................................... $10,762 $ 15,396
======= ========
Core earnings per share..................................... $ 0.26 $ 0.36
======= ========
Weighted average number of diluted shares outstanding....... 40,739 43,306
======= ========
</TABLE>
Core earnings declined in 1999 compared to 1998 primarily as a result of
Harbinger's investment in technology and marketing of its e-commerce portal,
harbinger.net, in the first three quarters of 1999, as well as the fourth
quarter launch of its marketing and brand awareness campaign for Harbinger as a
whole. Harbinger expects to continue this program in 2000 as well as increasing
its sales force and enhancing its technologies in order to position itself as a
primary service provider to the anticipated growing number of businesses seeking
e-commerce solutions over the next few years. As a result of these investments
Harbinger expects a further decline in core earnings in 2000.
1998 COMPARED TO 1997
REVENUES. Total revenues increased 14% to $135.2 million in 1998 from
$118.2 million in 1997. Revenues for services increased 38.9% to $88.1 million
from $63.4 million in 1997. This increase is partly attributable to acquisitions
made in 1998, and also reflects growth in transaction fees, professional
services and maintenance. Transaction fees increased as a result of an increase
in subscribers to Harbinger's value-added network and IVAS networks, plus an
increase in the average transaction volume per customer each year. Software
revenues decreased 14.1% to $47.1 million in 1998 from $54.8 million in 1997,
primarily due to decreased royalty revenues from resellers.
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DIRECT COSTS. Direct costs for services increased to $34.5 million in 1998
from $22.7 million in 1997. As a percentage of service revenues these costs were
39.2% in 1998 and 35.8% in 1997. The increase in direct costs as a percentage of
service revenues is primarily attributable to a larger percentage of
lower-margin professional enablement services in 1998. Harbinger increased its
emphasis on enablement services in response to market demand for e-commerce
solutions integration. The increase in direct costs in 1998 compared to 1997 was
partially offset by the reallocation of personnel costs to integration activity
costs in 1998. Direct software costs decreased to $3.7 million in 1998 from
$7.8 million in 1997. Direct software costs as a percentage of software revenues
were 7.9% in 1998 and 14.2% in 1997. The decrease in direct software costs is
due to decreased software amortization resulting from a write-off of capitalized
and purchased software development in connection with certain business
combinations in 1997 and a decrease in royalty and other fees paid by Harbinger
to third-party resellers in 1998.
SELLING AND MARKETING. Selling and marketing expenses increased 18% to
$31.6 million in 1998 from $26.7 million in 1997. As a percentage of revenues
these expenses were 23.4% in 1998 and 22.6% in 1997. The increase in selling and
marketing expenses as a percentage of revenues reflects an increase in sales and
marketing personnel and related selling costs offset by a decrease in
reallocated personnel costs to integration activity costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
55% to $32.2 million in 1998 from $20.8 million in 1997. As a percentage of
revenues these expenses were 23.8% in 1998 and 17.6% in 1997. The increase in
general and administrative expenses is primarily due to a $5.8 million net
charge recorded for outstanding royalty and accounts receivable from a reseller
and certain other customer accounts. Excluding the impact of this net charge,
general and administrative expenses would have increased to $26.4 million or
19.5% of revenues for 1998. The increase in adjusted general and administrative
expenses as a percentage of revenues is attributable to an increase in personnel
and associated costs in both Harbinger's domestic and European operations, an
increase in rent for expanded office space, adjustments to compensation related
accruals and a decrease in personnel costs reallocated to integration activity
costs in 1998 compared to 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 14%
to $8.1 million in 1998 from $7.1 million in 1997. As a percentage of revenues
these expenses remained the same. The increase in depreciation and amortization
is a result of additions to fixed assets and increased intangible assets
acquired through business combinations in 1998.
PRODUCT DEVELOPMENT. Total expenditures for product development, including
capitalized software development costs, decreased 30% to $14.1 million in 1998
from $20.3 million in 1997. Total expenses for product development decreased to
$10.6 million in 1998 from $15.3 million in 1997. As a percentage of revenues
total product development expenses decreased to 7.9% in 1998 from 12.9% in 1997.
The decrease in product development expenses is primarily attributable to
efficiencies gained in consolidating development resources of acquired
companies, and the impact of personnel costs reallocated to integration activity
costs. Harbinger capitalized software development costs of $3.6 million and
$5.0 million in 1998 and 1997, respectively, which represented 25.0% and 24.7%
of total expenditures for product development in these respective periods. The
decrease in amounts capitalized reflects a decrease in development activities
associated with products that have reached technological feasibility.
Amortization of capitalized software development costs included in direct costs
of software totaled $1.6 million and $3.7 million in 1998 and 1997,
respectively.
CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE
DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION-RELATED AND OTHER
CHARGES. Harbinger incurred charges of $27.0 million in 1998 and $40.6 million
in 1997 as a result of 15 acquisitions and two restructurings from 1996 to 1998.
Approximately $4.1 million in 1998 and $7.8 million in 1997 in charges were
personnel costs reallocated to integration activity costs.
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INCOME TAXES. Harbinger recorded income tax expense of $705,000 and
$3.1 million in 1998 and 1997, respectively. 1998 tax expense decreased
approximately 77% as compared with 1997. This is primarily due to profits in
foreign taxing jurisdictions in 1997 that could not be offset by domestic net
operating losses. Foreign tax expense was $1.2 million in 1997 as compared with
a benefit of $100,000 in 1998. 1997 tax expense also included deferred taxes of
$1.1 million. In 1998 there was no deferred tax expense because all deferred tax
assets had been fully reserved for with an allowance.
DISCONTINUED OPERATIONS. Harbinger discontinued TrustedLink Procurement on
September 30, 1998 and TrustedLink Banker on December 31, 1997, both of which
had been generating lower than desired profitability and growth and which
management deemed to be no longer strategic to Harbinger. The results of
TrustedLink Procurement and TrustedLink Banker for 1998 and 1997 are reported in
the accompanying reclassified audited consolidated statement of operations under
"Loss from operations of TrustedLink Procurement business and TrustedLink Banker
division." For TrustedLink Banker, Harbinger in 1997 provided for an anticipated
loss of $4.0 million related to the discontinuance of the division, including an
estimated $2.3 million for operating losses during the phase-out period. As of
December 31, 1998, the disposal of TrustedLink Banker was substantially
completed and $2.0 million in anticipated losses not incurred was recorded as a
reduction to "Income (loss) on disposal of TrustedLink Banker" on the statement
of operations in 1998.
For TrustedLink Procurement, Harbinger provided for an anticipated loss on
the disposal of the business of $6.4 million, including $2.9 million for
operating losses during the phase-out period.
LOSS ON EXTINGUISHMENT OF DEBT. Harbinger recorded a loss of $2.4 million
on debt extinguishment in the first quarter of 1997 related to the acquisition
of Harbinger Net Services.
NET LOSS AND LOSS PER SHARE. Harbinger realized net losses of
$14.7 million or $0.35 per share in 1998 and $39.0 million or $1.02 per share in
1997. In order to facilitate comparison of operating results year over year,
Harbinger also presents its earnings by adjusting for certain charges, and
tax-affecting the results at a 39% effective rate (core earnings). A comparison
of 1998 and 1997 is provided as follows:
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION 1998 1997
- ------------------------ ---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Operating loss.......................................... $(12,652) $(22,705)
Charges................................................. 27,027 40,555
Certain general and administrative charges net of
recoveries............................................ 5,763 --
-------- --------
Adjusted operating income............................... 20,138 17,850
Taxable interest income, net............................ 4,404 3,488
-------- --------
Core earnings before income taxes....................... 24,542 21,338
-------- --------
Core earnings net of income taxes at 39%................ 14,970 13,017
-------- --------
Non-taxable interest income............................. 426 418
-------- --------
Core earnings........................................... $ 15,396 $ 13,435
======== ========
Core earnings per share................................. $ 0.36 $ 0.33
======== ========
Weighted average number of diluted shares outstanding... 43,306 40,692
======== ========
</TABLE>
Core earnings increased in 1998 compared to 1997 primarily as a result of a
decrease in product development expenses in 1998 which was realized by
consolidating the development resources of acquired companies.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments decreased $19.3 million to $73.0 million at
December 31, 1999 compared to $92.3 million at December 31, 1998, primarily due
to 1999 stock repurchases totaling $17.6 million and a $17.2 million investment
in information technology and capitalized software, offset by $15.6 million of
positive cash flows from operations and exercises of options and warrants.
Management expects Harbinger will continue to fund its operations,
investment needs and capital expenditures through cash flows generated from
operations, cash on hand, and additional equity and debt capital if necessary.
Several factors could have an impact on Harbinger's cash flow in the future,
including the effects of Harbinger's strategic investment in marketing and sales
and technology development, currently projected to be $25 million in additional
spending that will substantially be recorded to selling and marketing expenses
on the consolidated statement of operations in 2000. Additionally, Harbinger
recently announced the creation of a $25 million venture division focused on
investing in new vertical market portal opportunities in 2000. Harbinger also
anticipates continued liquidation of liabilities incurred due to charges and
discontinued operations. Further, management is authorized to repurchase
additional Harbinger stock if favorable pricing scenarios develop in the future.
Liquidity could also be negatively impacted as a result of a shareholder class
action lawsuit filed against Harbinger in 1999. Although the outcome of this
action cannot be determined at this time, management does not believe the
outcome will have a material adverse effect on Harbinger's financial position.
Harbinger does not believe that inflation has had a material impact on its
business, however, there can be no assurance that Harbinger's business will not
be affected by inflation in the future.
EURO CONVERSION
Effective January 1, 1999, 11 of the 15 member countries of the European
Union adopted a single European currency, the euro, as their common legal
currency. Like many companies that operate in Europe, various aspects of
Harbinger's business were affected by the conversion to the euro. Harbinger has
not experienced any significant impact in its internal IT systems or its
customer products as a result of the euro conversion.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Harbinger has not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believes its exposure to
interest rate risk, foreign currency exchange rate risk and other relevant
market risks is not material.
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HARBINGER MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current directors and executive officers of Harbinger and their ages as
of March 31, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
<S> <C> <C>
James M. Travers..................... 48 President and Chief Executive Officer
Daniel L. Manack..................... 42 Executive Vice President, Global Operations
Dave Bursiek......................... 62 Executive Vice President, Market Development
James K. McCormick................... 43 Chief Financial Officer
Douglas L. Roberts................... 43 Senior Vice President, Worldwide Sales
Gerald Diamond....................... 53 Senior Vice President, Worldwide Product Development
Ray L. Dicasali...................... 51 Chief Information Officer
Stuart L. Bell(2).................... 46 Director
William B. King(2)................... 55 Director
Klaus Neugebauer(1).................. 61 Director
David Hildes(1)...................... 49 Director
Benn R. Konsynski(1)................. 49 Director
David T. Leach(1).................... 49 Director
John D. Lowenberg(1)................. 57 Director
Ad Nederlof(1)....................... 53 Director
William D. Savoy(2).................. 35 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
JAMES M. TRAVERS has been a director of Harbinger since March 1999 and has
served as President and Chief Executive Officer of Harbinger since
January 2000. He served as President and Chief Operating Officer from
October 1998 until January 2000, as President and General Manager of Harbinger's
Software Division from June 1997 until October 1998, and from January 1994 until
June 1997, he served as President of Harbinger Enterprise Solutions Division.
From 1978 through 1994, Mr. Travers served in various managerial positions with
Texas Instrument's Information Technology Group, including Vice President for
North American Field Operations, and from June 1992 through December 1994 as
Director of Business Development for Texas Instrument's Worldwide Applications
Software Business.
DANIEL MANACK has served as Executive Vice President, Global Operations, of
Harbinger since March 2000. From 1999 to March 2000, he served as Senior Vice
President and General Manager of the EC Solutions Division of Harbinger. From
February 1998 to February 1999, he served as Vice President and General
Manager--Professional Services & Outsourcing Practice, and from January 1997 to
February 1998 he served as Vice President of Professional Services and
Outsourcing. From September 1994 until December 1996, he was a principal with
the Information Services unit of Unisys Corporation. From June 1980 through
August 1994, Mr. Manack served in various managerial positions with Texas
Instruments.
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DAVE BURSIEK has served as Executive Vice President, Market Development, of
Harbinger since March 2000. From February 1999 to March 2000, he served as
Executive Vice President and General Manager of Customer Solutions and
Enhancements Division. From January 1997 through February 1999, he served as
Senior Vice President of Sales, with responsibility for mass deployment sales.
From December 1996 until January 1997, he served as the Executive Vice President
of Sales of Supply Tech, Inc., which was acquired by Harbinger in January 1997.
From 1995 until December 1996, he was a management consultant with Optimum
Associates, a consulting firm. In 1994, he served as Chief Executive Officer of
Sapiens International, a software and consulting firm.
JAMES K. MCCORMICK has served as Chief Financial Officer of Harbinger since
April 1, 1999. From September 1997 until February 1999, he served as Chief
Financial Officer, Treasurer and Secretary of Knology Holdings, Inc., a
telecommunications service provider. From 1992 until August 1997, he worked as
Corporate Controller and Treasurer for United Dairy Farmers, Inc., which is a
holding company for dairy retail and manufacturing companies.
DOUGLAS L. ROBERTS has served as Senior Vice President--Worldwide Sales of
Harbinger since April 1999. From October 1995 until April 1999, he served as
Senior Vice President--Sales, of BellSouth Wireless Data, a telecommunications
wireless data provider. From October 1993 until October 1995, he served as Vice
President--General Manager--International of Software AG, a software firm.
STUART L. BELL has been a director of Harbinger since April 1995. Mr. Bell
has served as the Chairman of Webloyalty.com, a web marketing firm since 1999,
and as the Vice-Chairman of Interval International, a time share exchange
company since 1997. He served as Chairman of Innovative Medical Research, a
provider of clinical trials, from January 1995 until February 1998.
GERALD DIAMOND has served as Senior Vice President, Worldwide Product
Development of Harbinger since December 1997. From May of 1996 to December of
1997, Mr. Diamond served as Senior Vice President of Premenos Technology Corp.,
a business-to-business e-commerce company which was acquired by Harbinger in
December of 1997. From January 1994 to April of 1996, Mr. Diamond served as
President of Don Valley Technology Corporation, a business-to-business e-
commerce company which was acquired by Premenos in April of 1996.
RAY L. DICASALI has served as Chief Information Officer of Harbinger since
July 1998. From May 1995 to July 1998, Mr. Dicasali served as Chief Technology
Officer for Anacomp, a leading electronic document company.
WILLIAM B. KING has been a director of Harbinger since January 1993.
Mr. King has served as Chairman of Private Business, Inc., a banking software
provider, since 1991. From 1986 until February 1995, Mr. King served as Chairman
of FISI-Madison Financial Corporation, Chairman of CUC Europe, and served on the
Board of Directors of CUC International.
KLAUS NEUGEBAUER has been a director of Harbinger since March 1997.
Dr. Neugebauer was a co-founder of Softlab GmbH, an international software
development company that was sold to BMW AG in 1991. Dr. Neugebauer is a member
of a number of German industrial boards and acts as a strategic information
technology advisor to the State of Bavaria and the German Federal Government,
and since 1991, has been a partner in NSE, Inc., an investment firm specializing
in the software industry.
DAVID HILDES has been a director of Harbinger since December 1997.
Mr. Hildes is a private investor. Prior to the acquisition of Premenos
Technology Corp. in December 1997, Mr. Hildes was Vice Chairman, Secretary and a
Director of Premenos from its organization in July 1995 until its acquisition by
Harbinger in December 1997. Mr. Hildes was a Director and the Treasurer of
Premenos from October 1989 until December 1997, and Vice Chairman, Director and
Secretary from July 1995 until December 1997.
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BENN R. KONSYNSKI has been a director of Harbinger since December 1996.
Since 1993, Dr. Konsynski has been the George S. Craft Professor of Business
Administration at the Goizueta Business School at Emory University. From 1987 to
1993, he served on the faculty at Harvard Business School. Dr. Konsynski is also
a director of Tessco Technologies, Inc.
DAVID T. LEACH has been a director of Harbinger since February 1994 and is a
private investor. He has served as acting Chairman of the Board since
January 2000 and served as Vice Chairman from September 1998 until
January 2000. From March 1997 until September 1998, he served as Chief Executive
Officer of Harbinger, from February 1994 until March 1997, he served as
President and Chief Operating Officer of Harbinger, and from June 1992 until
February 1994, he was Executive Vice President, Group Sales and Operations.
JOHN D. LOWENBERG has been a director of Harbinger since December 1997.
Mr. Lowenberg has been a manager of the general partner of Anvil Investment
Associates, L.P., an investment fund since 1998. From 1970 to October 1997, he
was employed by The Robinson-Humphrey Company, an investment banking firm, in
increasingly senior capacities, serving as a Managing Director and a Director at
the time of his departure. Mr. Lowenberg previously served as a director of
Harbinger and its predecessors from 1983 to May 1995. Mr. Lowenberg has served
as a Trustee since 1988 and the Chairman since 1990 of the Investment Committee
of Denison University.
AD NEDERLOF has been a director of Harbinger since April 1997. Mr. Nederlof
has served as President and Chief Executive Officer of Genesys
Telecommunications Laboratories, a provider of call center software, since
March 2000, and served as Senior Vice President--Europe, Middle East and Africa
from March 1999 until March 2000. Genesys was acquired by Alcatel S.A. in
January 2000. He served as President and Chief Operating Officer of Richter
Systems, Inc., a provider of software applications for the retail industry, from
March 1998 until February 1999. Mr. Nederlof was an independent software
consultant from 1996 until March 1997. He served as Vice President of Oracle
Northern Europe from 1994 to 1996, with responsibility for all Northern European
subsidiaries. From 1991 to 1994, he served as Managing Director of Oracle
Nederland BV, Oracle's Dutch subsidiary.
WILLIAM D. SAVOY has been a director of Harbinger since May 1993. Mr. Savoy
has served as President of Vulcan Northwest, Inc. since 1988. Vulcan
Ventures, Inc., a shareholder of Harbinger, and Vulcan Northwest, Inc. are
beneficially owned by Paul G. Allen. Mr. Savoy is also a director of
Telescan, Inc., Ticketmaster Online--City Search, Inc., USA Networks, Inc.,
Metricom, Inc., Charter Communications, Inc., drugstore.com, Go2Net, Inc., Value
America and High Speed Access Corporation.
ELECTION AND COMPENSATION OF DIRECTORS
Harbinger's board of directors is divided into three classes that serve
staggered three-year terms and are as nearly equal in number as possible. The
board currently consists of four Class I directors, Stuart L. Bell, William B.
King, Klaus Neugebauer, and James M. Travers; three Class II directors, David
Hildes, David T. Leach, and Ad Nederlof; and three Class III directors, Benn R.
Konsynski, John D. Lowenberg, and William D. Savoy. At each annual meeting of
shareholders, a class of directors are elected to serve for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I directors will expire at the 2003 annual meeting of shareholders,
the terms of the Class II directors will expire at the 2001 annual meeting of
shareholders, and the terms of the Class III directors will expire at the 2002
annual meeting of shareholders.
As compensation for serving on the board of directors, directors who are not
also employees of Harbinger receive $1,250 for each meeting of the full board
and $250 for teleconference board meetings of 90 minutes or less in which they
participate. In Harbinger's discretion, nonemployee directors may also be
reimbursed for reasonable expenses incurred by them in connection with their
attendance at board meetings. Nonemployee directors are also eligible to receive
options under
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Harbinger's Amended and Restated 1993 Stock Option Plan for Nonemployee
Directors. Under this plan, nonemployee directors receive an option to purchase
15,000 shares of common stock upon becoming a director and an additional 15,000
shares of common stock each year immediately following the annual shareholders
meeting. These options are fully vested upon issuance.
BOARD COMMITTEES
Harbinger's board of directors has established an audit committee and
compensation committee. John Lowenberg, Klaus Neugebauer, Ad Nederlof, David
Leach and Benn Konsynski presently serve on the audit committee. The audit
committee met one time in 1999. The primary functions of the audit committee are
to (i) review the scope and timing of the audit and non-audit services to be
rendered by Harbinger's independent accountants, to review audit plans of the
independent accountants and to review the reports upon completion of their
audits, (ii) to review the appropriateness of Harbinger's accounting policies,
the adequacy of its financial controls and the reliability of the financial
information reported to the public, and (iii) to report to the board of
directors on its activities.
Stuart Bell, William Savoy and William King presently serve on the
compensation committee. The compensation committee met 3 times in 1999. The
primary functions of the compensation committee are to review and approve,
subject to ratification of the board of directors, the Chief Executive Officer's
compensation, to consult with the Chief Executive Officer and approve
compensation for executive officers and other key employees, to administer
Harbinger's stock option plans and employee stock purchase plan including
approval of all awards thereunder, to approve management incentive plans for
senior management, and to report to the board of directors on these activities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the directors of Harbinger serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of the Harbinger board of directors or
compensation committee.
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EXECUTIVE COMPENSATION
The following table presents summary information concerning compensation
earned for services rendered to Harbinger by its Chief Executive Officer and
each of the other four most highly compensated executive officers of Harbinger
during 1999 for the fiscal years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- -------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James M. Travers(2) ......................... 1999 $256,833 $ 86,940 100,000 --
President and Chief Executive Officer 1998 184,833 8,800 120,000 --
1997 140,985 59,000 108,750 $25,000(3)
C. Tycho Howle(2) ........................... 1999 $314,583 $111,000 -- --
Former Chairman of the Board and Chief 1998 257,216 -- -- --
Executive Officer 1997 213,977 81,000 225,000 --
David Bursiek ............................... 1999 $161,537 $ 64,864 35,000 --
Executive Vice President, Market 1998 150,766 36,872 39,932 --
Development 1997 162,500 55,100 11,250 --
Daniel L. Manack(4) ......................... 1999 $178,197 $ 76,512 35,000 --
Executive Vice President, Global Operations 1998 141,167 25,039 63,896 --
1997 122,375 -- 7,500 --
Douglas L. Roberts(5) ....................... 1999 $214,803 $106,667 200,000 $45,799
Senior Vice President, Worldwide Sales 1998 -- -- -- --
1997 -- -- --
</TABLE>
- ------------------------
(1) In accordance with rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted if such perquisites
and other personal benefits constituted less than the lesser of $50,000 or
10% of the total annual salary and bonus for such year.
(2) In January 2000, Mr. Howle resigned as Chairman and Chief Executive Officer
of the Harbinger and Mr. Travers became President and Chief Executive
Officer. During 1999, Mr. Travers served as President and Chief Operating
Officer.
(3) Mr. Travers was reimbursed $25,000 for certain expenses incurred in
connection with his relocation to Atlanta.
(4) Mr. Manack joined the Harbinger in January 1997.
(5) Mr. Roberts joined the Harbinger in April 1999. Other compensation is
primarily comprised of relocation costs.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted during
the year ended December 31, 1999 to the executive officers named in the table
above:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
EXERCISE APPRECIATION FOR OPTION
NUMBER OF SECURITIES % OF TOTAL OPTIONS OR BASE TERM(2)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- -------------------- -------------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James M. Travers...... 100,000 4.93% $10.50 04/30/06 $427,455 $1,618,698
C. Tycho Howle........ -- -- -- -- -- --
David Bursiek......... 35,000 1.73 6.75 04/01/06 96,177 364,207
Daniel L. Manack...... 35,000 1.73 6.75 04/01/06 96,177 364,207
Douglas Roberts....... 200,000 9.86 8.87 04/09/06 722,196 2,734,828
</TABLE>
- ------------------------
(1) The options granted were awarded under the Harbinger's 1996 Stock Option
Plan. The options granted under the 1996 Plan are exercisable for a period
not to exceed seven years from the date of grant. Options generally vest
over four years of continuous employment with Harbinger. The exercise price
of each option granted was not less than 100% of the fair market value of a
share of common stock on the date of grant.
(2) Amounts represent the hypothetical gains that could be achieved for the
respective options at the end of the seven-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by the rules of the SEC and
may not accurately reflect the appreciation of the price of the common stock
from the grant date until the expiration of the option term. These
assumptions are not intended to represent a forecast of future stock
appreciation of the common stock. No assurance can be given that the common
stock will appreciate at all.
AGREEMENTS WITH EMPLOYEES
Employees of Harbinger, including executive officers, are required to sign
an agreement with Harbinger defining the employee's responsibilities,
restricting the ability of the employee to compete with Harbinger during his or
her employment and for a designated period thereafter, restricting solicitation
of customers and employees following employment with Harbinger, and providing
for ownership and assignment of intellectual property rights to Harbinger. The
agreements have an indefinite term, but the employee may terminate employment
with Harbinger at any time.
Effective January 19, 2000, Harbinger entered into an employment agreement
with James M. Travers to provide for Mr. Travers' continued services as
President and Chief Executive Officer. The employment agreement provides for a
three-year term at an initial base salary of $250,000, with a bonus opportunity
of 75% of base salary at target if certain performance criteria are met. In
addition to the terms of Harbinger's standard employment agreement described
above, Mr. Travers' employment agreement provides for: (1) an option grant under
the 1996 Plan to purchase 200,000 shares of common stock at a price equal to the
fair market value of the common stock on the date of the grant, (2) termination
for cause by Harbinger without payment of severance, (3) voluntary departure by
Mr. Travers without severance, and (4) termination without cause by Harbinger
with payment of severance.
Harbinger may terminate Mr. Travers for cause if Mr. Travers: (1) knowingly
and willfully engages in misconduct with respect to the business and affairs of
Harbinger, (2) violates any policy of Harbinger in a material way relating to
ethical business conduct, practices or fiduciary duties of a senior executive,
(3) knowingly and willfully breaches any material provision of his employment
agreement that is not remedied within 30 days after receipt of notice,
(4) commits a felony or an illegal act involving moral
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turpitude or fraud or dishonesty that may reasonably be expected to have a
material adverse effect on Harbinger, or (5) fails to comply with reasonable
directives of the board, if not remedied within 30 days after receipt of notice.
If Harbinger terminates Mr. Travers without cause, then it will be obligated to
pay Mr. Travers the net present value of the compensation that would be payable
to Mr. Travers during the remaining term of his employment agreement.
Mr. Travers' stock options vest ratably over four years. In the event
Harbinger terminates Mr. Travers without cause, the stock options will continue
to vest as if he were still employed by Harbinger. Further, in the event of a
change in control of Harbinger, Mr. Travers' stock options shall immediately
vest in their entirety. A change in control shall be deemed to have occurred if
(and only if) any of the following shall have taken place: (1) a change in
control is reported by Harbinger in response to either Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended or the (Exchange Act), or Item 1 of Form 8-K promulgated under the
Exchange Act; (2) any person (as such term is used in Section 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of
Harbinger representing 40% or more of the combined voting power of Harbinger's
then outstanding securities; or (3) following the election or removal of
directors, a majority of the board consists of individuals who were not members
of the board two years before such election or removal, unless the election of
each director who was not a director at the beginning of such two-year period
has been approved in advance by directors representing at least a majority of
the directors then in office who were directors at the beginning of the two-year
period.
On March 4, 1997, Harbinger entered into an employment agreement with C.
Tycho Howle in relation to his services as Chairman and Chief Executive Officer
of Harbinger, on substantially the same terms as Mr. Travers' agreement. The
employment agreement provided for a four-year term at a base salary of $275,000
per year for the period between January 1, 1999 and March 31, 1999 and $300,000
per year for the period between April 1, 1999 and December 31, 1999, with a
bonus opportunity of 50% of base salary at target if certain performance
criteria were met. Mr. Howle voluntarily resigned as Chairman and Chief
Executive Officer in January 2000 and will not receive any payments from
Harbinger under his contract.
In addition to the standard employment agreements referred to above,
Messrs. Manack and Roberts have entered into amendments to their respective
employment agreements which provide that in the event of change of control of
Harbinger and their termination of employment from Harbinger in connection with
the change of control, all outstanding unvested stock options will become fully
vested and exercisable. Mr. Bursiek has entered into an employment agreement
which provides that he will receive certain cash payments in the event of his
involuntary termination.
401(K) PROFIT SHARING PLAN
Effective April 1, 1998, Harbinger merged its previous three 401(k) plans
into one plan, now called the Harbinger Corporation 401(k) Retirement Plan. The
401(k) plan is intended to be a profit sharing plan as defined for purposes of
Sections 401(a), 402, 412 and 417 of the Code of 1986, as amended, contain a
cash or deferred arrangement under Sections 401(f) of the Code, and comply with
the requirements of the Employee Retirement Income Security Act of 1974, as
amended.
The 401(k) plan allows eligible employees to participate beginning on the
first day of the first month following the employee's hire date. The employee
may contribute from 2% to 15% of salary to the 401(k) plan up to a maximum of
$10,000 per year. Harbinger makes a discretionary matching contribution of 50%
of the employee's contribution, up to a maximum of 4% of annual compensation,
subject to a $2,200 limit per employee. Harbinger match is made each pay period
and vests 25% per year while the employee remains employed. Unvested portions of
Harbinger match are forfeited at termination of employment.
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STOCK OPTION PLANS AND STOCK PURCHASE PLAN
STOCK OPTION PLANS. Harbinger's 1996 Stock Option Plan was approved by
Harbinger's shareholders and became effective on May 8, 1996. The 1996 plan
replaced Harbinger's Amended and Restated 1989 Stock Option Plan. Following
approval of the 1996 plan at the annual shareholders meeting in 1996, no further
stock options were granted under the 1989 plan. The 1989 plan continues in
effect only with respect to outstanding stock options which were granted under
that plan and will terminate and cease to exist as of the date on which all
outstanding stock options which were granted under the 1989 plan are exercised
in full, expired or canceled. The purpose of the 1996 plan is to provide
incentives for officers, directors, consultants and key employees to promote the
success of Harbinger, and to enhance Harbinger's ability to attract and retain
the services of such persons. The aggregate number of shares of common stock
reserved for issuance under the 1996 Plan is 9,737,500 shares, plus an amount
equal to the number of all shares that are either not subject to options granted
under the 1989 plan or were subject to options granted under the 1989 plan that
expire without exercise. Options granted under the 1996 plan may be either
(1) options intended to qualify as "incentive stock options" under Section 422
of the Code, or (2) non-qualified stock options, each of which are approved
plans under Section 423 of the Code. The 1996 Plan permits the grant of stock
appreciation rights in connection with the grant of stock options. Stock options
may be granted under the 1996 plan for all employees and consultants of
Harbinger, or of any present or future subsidiary or parent of Harbinger, who
are considered "key employees" or "key consultants." The 1996 plan is
administered by the compensation committee of the board of directors. The
compensation committee has the authority to determine exercise prices applicable
to the options, the eligible officers, directors, consultants or employees to
whom options may be granted, the number of shares of Harbinger's common stock
subject to each option, and the extent to which options may be exercisable. The
compensation committee is empowered to interpret the 1996 plan and to prescribe,
amend and rescind the rules and regulations pertaining to the 1996 plan. Options
granted under the 1996 Plan generally vest ratably over four years. No option is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the lifetime of the optionee
only by such optionee, unless otherwise approved by the compensation committee.
Any incentive stock option that is granted under the 1996 plan may not be
granted at a price less than the fair market value of the common stock on the
date of grant (or less than 110% of fair market value in the case of holders of
10% or more of the total combined voting power of all classes of stock of
Harbinger or a subsidiary or parent of Harbinger). Non-qualified stock options
may be granted at the exercise price established by the compensation committee,
which may be less than the fair market value of the common stock on the date of
grant.
Each option granted under the 1996 plan is exercisable for a period
determined by the compensation committee, which period may not exceed ten years
from the date of grant (or five years in the case of a holder of more than 10%
of the total combined power of all classes of stock of Harbinger or of a
subsidiary or parent of Harbinger). Options terminate upon expiration of such
period, or earlier upon termination of the recipient's employment with
Harbinger, or as determined by the compensation committee.
The terms of the 1989 plan are substantially similar to the terms of the
1996 plan. The material difference between the plans is the manner of exercise
permitted by the 1996 plan. Under the 1996 plan, payment of the purchase price
for shares of common stock purchased upon exercise of an option may be made in
any of the following terms: (1) in cash or subject to the sole discretion of
Harbinger's board of directors,(2) by delivery to Harbinger of a number of
shares of common stock which have been owned by the optionee for at least six
months prior to the date of exercise of the option having an aggregate fair
market value on the date of delivery of not less than the total purchase price
for the shares being purchased upon exercise of the option; (3) by delivery of a
promissory note executed by the optionee to Harbinger which shall include such
terms and conditions as approved by the board of
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directors, including without limitation, that: (a) the balance equal to the
aggregate purchase price for the shares being purchased shall be payable in
equal installments over such a period as approved by the board of directors; (b)
interest shall accrue at a per annum rate equal to the prime rate as announced
by the Wall Street Journal as the prevailing "prime rate" of interest per annum;
and (c) the optionee shall be personally liable for the repayment of the unpaid
principal balance of the loan and any and all accrued but unpaid interest on the
loan; (4) by surrender of a number of shares of common stock otherwise issuable
upon exercise of the option having an aggregate fair market value on the date of
exercise of not less than the total purchase price for all shares being
purchased upon exercise of the option, including the shares being surrendered;
and (5) in any combination of the forms described above as approved by the board
of directors.
As of March 8, 2000, options to purchase 361,918 shares of common stock were
outstanding under the 1989 plan and 2,772,825 shares of common stock had been
issued upon exercise of options granted under the plan. As of March 8, 2000,
options to purchase 5,752,526 shares of common stock were outstanding under the
1996 plan and 2,075,597 shares of common stock had been issued upon exercise of
options granted under such plan.
NONEMPLOYEE DIRECTORS PLAN. The Amended and Restated 1993 Stock Option Plan
for Nonemployee Directors became effective on April 30, 1993. A total of 875,000
shares of common stock have been reserved for issuance under the nonemployee
directors plan.
The terms of the options granted under the nonemployee directors plan,
including the exercise price, dates and number of shares subject to the options
are specified in the nonemployee directors plan. The nonemployee directors plan
provides for the automatic granting of non-qualified stock options to
nonemployee directors. Each nonemployee director receives an option to purchase
15,000 shares of common stock on the date of, and at a time immediately
following every, annual meeting of the shareholders. Each nonemployee director
who is first appointed or elected to the board and attends a regular quarterly
meeting of the board which occurs at any time other than at an annual meeting of
the shareholders is granted an option to purchase a number of shares of common
stock equal to the product of (1) 15,000 multiplied by (2) a fraction, the
numerator of which is the number of regular quarterly directors meetings
expected by the Chief Executive Officer of Harbinger to occur between the date
that such nonemployee director is appointed or elected to the board and the
first annual meeting of shareholders following such appointment or election, and
the denominator of which is four. Annual grants and interim grants vest upon
grant. No option is transferable by the optionee other than by will or laws of
descent and distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee, unless otherwise approved by the
compensation committee. The exercise price of all options must be at least equal
to the fair market value of the shares on the date of grant, and the term of
each option may not exceed seven years. The nonemployee directors plan will
continue in effect for a period of ten years unless sooner terminated by the
board of directors.
As of March 8, 2000, options to purchase an aggregate of 355,874 shares of
common stock were outstanding under the nonemployee directors plan and
approximately 94,312 shares had been issued pursuant to the exercise of options
granted under the plan.
STOCK PURCHASE PLAN. On May 8, 1995, the shareholders of Harbinger approved
the Amended and Restated Harbinger Corporation Employee Stock Purchase Plan to
be effective January 1, 1996. The purpose of the stock purchase plan is to
encourage and enable employees of Harbinger and its subsidiaries to acquire a
proprietary interest in Harbinger through ownership of shares of common stock.
The stock purchase plan authorizes the issuance of up to 587,500 shares of
common stock (subject to adjustment for capital changes) pursuant to the
exercise of non-transferable options granted to participating employees.
An employee who elects to participate in the stock purchase plan must
authorize a stated dollar amount of the employee's regular pay to be deducted by
Harbinger from the employee's pay during
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each of four quarterly payroll deduction periods. The minimum deduction for a
participant is $10.00 per pay period. Purchase periods begin on January 1, April
1, July 1, and October 1 of each calendar year. On the last day of each purchase
period, Harbinger is deemed to have granted a purchase right to each participant
as of the first day of the purchase period to purchase as many shares of common
stock as can be purchased with the participant's payroll deductions. On the last
business day prior to reporting of financial results for the current fiscal
period, the participant is deemed to have exercised this option, at the option
price, to the extent of such participant's accumulated payroll deductions. The
participant may not purchase common stock having a fair market value, measured
on the first business day of the Purchase Period, in excess of $3,750 during a
Purchase Period. The option price under the stock purchase plan is equal to 85%
of the fair market value of the common stock on the third business day after the
reporting of financial results for either the prior or current fiscal period,
whichever is lower. Interest is not paid on amounts deducted from an employee's
pay and used to purchase common stock under the stock purchase plan. An employee
may not sell shares purchased under the stock purchase plan for at least one
purchase period following the purchase period in which the option for such
shares was granted.
An employee elects to participate by delivering to Harbinger a participation
form authorizing the stated dollar amount to be deducted each pay period for the
entire purchase period. If an employee does not file a participation form at
least 15 days before the start of a purchase period, the employee's election or
payroll deductions for the preceding purchase period remains in effect.
Employee's rights under the stock purchase plan may not be assigned,
transferred, pledged or otherwise disposed of, except by will or the laws of
descent and distribution.
Employees of Harbinger and whose customary employment is more than 20 hours
per week and five or more months per calendar year are eligible to participate
in the stock purchase plan. An employee may not be granted an option under the
stock purchase plan if after the granting of the option such employee would be
deemed to own 5% or more of the combined voting power of value of all classes of
stock of Harbinger. As of March 8, 2000, approximately 869 employees are
eligible to participate in the stock purchase plan.
An employee's rights under the stock purchase plan terminate upon
termination of his or her employment for any reason, including retirement. Upon
termination, Harbinger will refund the employee's payroll deductions made during
the purchase period. A participant may withdraw from the stock purchase plan at
any time prior to the last business day of any purchase period by delivering to
Harbinger a participation withdrawal form. The participant may elect on the
withdrawal form to receive all of the accumulated payroll deductions as a refund
or to exercise the participant's outstanding purchase rights to purchase common
stock in the amount of payroll deductions withheld during the purchase period. A
participant who withdraws from the stock purchase plan is not eligible to rejoin
the stock purchase plan until the second purchase period following the purchase
period of withdrawal. In the event a participant who is an officer who files
reports under Section 16 of the Securities Exchange Act of 1934, as amended,
ceases participation in the Plan, such officer may not re-enroll in the stock
purchase plan under the purchase period beginning coincident with or immediately
following the expiration of a six-month period beginning upon the effective date
of such officer's withdrawal from the stock purchase plan.
The stock purchase plan is administered by the compensation committee. No
member of the board of directors is eligible to participate in the stock
purchase plan during the period he serves as a member of the compensation
committee. The proceeds received by Harbinger from the sale of common stock
pursuant to the stock purchase plan will be used for general corporate purposes.
The following discussion summarizes certain tax considerations for employees
participating in the stock purchase plan and certain tax effects to Harbinger.
However, the summary does not address every situation that may result in
taxation. For example, it does not discuss the state taxes or the tax
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implications arising from a participant's death. The stock purchase plan is not
subject to the provisions of the Employee Retirement Income Security Act of
1974, and the provisions of Section 401(a) of the Code are not applicable to the
stock purchase plan.
Amounts deducted from any employee's pay under the stock purchase plan are
included in the employee's compensation subject to federal income and social
security taxes, and Harbinger will withhold taxes on these amounts. An employee
of Harbinger will not recognize any additional income at the time he or she
elects to participate in the stock purchase plan, or purchase common stock under
the stock purchase plan.
If an employee of Harbinger disposes of common stock purchased pursuant to
the stock purchase plan within two years after the first business day of the
purchase period in which such stock was purchased, the employee will recognize
ordinary compensation income at the time of disposition in an amount equal to
the excess of the fair market value of the stock on the day the stock was
purchased over the purchase price the employee paid for the stock (i.e., the
amounts withheld from the employee's compensation used to purchase the stock).
This amount may be subject to withholding taxes, including social security
taxes. In addition, the employee generally will recognize a capital gain or loss
in an amount equal to the difference between the amount realized upon the sale
of the stock and his or her basis in the stock, which is his or her purchase
price plus the amount taxed as compensation income. Generally, if the shares
have been held for more than eighteen months, such gain or loss will be
long-term capital gain or loss.
If an employee of Harbinger disposes of common stock purchased pursuant to
the stock purchase plan more than two years after the first business day of the
purchase period in which such stock was purchased, the employee will recognize
as ordinary compensation income at the time of such disposition an amount equal
to the lesser of (a) the excess of the fair market value of the stock measured
at the time of such disposition over the amount paid for the stock, or (b) 15%
of the fair market value of the stock measured as of the first business day of
the purchase period in which the stock was purchased. This amount, however, is
not subject to social security taxes or other withholding. In addition, the
employee generally will recognize a long-term capital gain or loss in an amount
equal to the difference between the amount realized upon the disposition of the
stock and his or her basis in the stock.
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<PAGE>
HARBINGER RELATED PARTY TRANSACTIONS
Harbinger has purchased insurance on the life of Mr. Travers and at
December 1999 had similar insurance on the life of Mr. Howle. The policy for
Mr. Howle was cancelled in January 2000.
Harbinger earned $73,000 in revenue in 1999 for software development,
consulting and network services under an agreement with Lifeline Networks, B.V.,
an entity in which Ad Nederlof is a minority shareholder. Mr. Nederlorf has been
a director of Harbinger since April 1997. Harbinger also paid $23,000 to
Lifeline for expenses relating to support in terminating certain discontinued
lines of business in Harbinger's Dutch subsidiary.
173
<PAGE>
HARBINGER PRINCIPAL SHAREHOLDERS
The following table sets forth the amount and percent of shares of Harbinger
common stock which, as of March 31, 2000, are deemed under the rules of the
Securities and Exchange Commission to be beneficially owned by each member of
the board of directors of Harbinger's, by each executive officer of Harbinger's,
by all directors, nominees and executive officers of Harbinger's as a group, and
by any person or group known to Harbinger's as of that date to be a beneficial
owner of more than 5% of the outstanding shares of common stock.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED(1)
--------------------------------------
NUMBER OF SHARES
DIRECTORS AND EXECUTIVE OFFICERS OF COMMON STOCK PERCENTAGE OF CLASS
- -------------------------------- ---------------- -------------------
<S> <C> <C>
Stuart L. Bell(2)........................................... 101,687 *
David Hildes(3)............................................. 1,431,417 3.6
C. Tycho Howle(4)........................................... 704,809 1.8
William B. King(5).......................................... 99,474 *
Benn R. Konsynski(6)........................................ 52,715 *
David T. Leach(7)........................................... 982,687 2.5
John D. Lowenberg(8)........................................ 129,942 *
Ad Nederlof(9).............................................. 76,125 *
Klaus Neugebauer(10)........................................ 63,000 *
William D. Savoy(11)........................................ 2,844,166 7.2
James M. Travers(12)........................................ 120,507 *
David Bursiek(13)........................................... 9,552 *
Daniel Manack(14)........................................... 8,752 *
James McCormick(15)......................................... 17,500 *
Douglas Roberts (16)........................................ 50,000 *
Gerald Diamond(17).......................................... 26,696 *
Ray L. Dicasali(18)......................................... 16,000 *
All executive officers and directors as a group (17
persons)(19).............................................. 6,735,029 16.3%
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
PERCENTAGE 5% SHAREHOLDERS OF CLASS OF COMMON STOCK PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
Vulcan Ventures, Inc./Paul G. Allen......................... 2,740,854 6.9%
110 110(th) Avenue, N.E.
Suite 550
Bellevue, WA 98004
Massachusetts Financial Services Company.................... 4,196,566 10.6%
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------------
* Less than 1% of the outstanding common stock.
(1) Information with respect to beneficial ownership shown in the table above
is based on information supplied by the directors and executive officers of
Harbinger and filings made with the Commission or furnished to Harbinger by
other shareholders. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Except as indicated
by footnote, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. Percentage of beneficial ownership is based on
40,057,369 shares of common stock outstanding as of March 31, 2000 and
includes shares of common stock subject to options that may be exercised
within 60 days of March 31, 2000. These shares are deemed to be outstanding
for the purposes of
174
<PAGE>
computing the percentage ownership of the individual holding such shares,
but are not deemed outstanding for purposes of computing the percentage of
any other person shown in the table.
(2) Includes 50,437 shares subject to options exercisable within 60 days.
(3) Includes 1,144,217 shares held of record by Mr. Hildes, 240,000 shares held
by a charitable remainder trust of which Mr. Hildes and his wife are income
beneficiaries, and 47,200 shares subject to options exercisable within
60 days.
(4) Includes 526,074 shares held of record by Mr. Howle, 41,825 shares held of
record by Mr. Howle's wife, an aggregate of 16,585 held by Mr. Howle's
children, 32,325 shares held in a family limited partnership for the
benefit of Mr. Howle, his wife and children, and 88,000 shares held by a
family limited partnership. Mr. Howle disclaims beneficial ownership of all
such shares, other than shares held of record by him for his own benefit.
Mr. Howle resigned as Chairman and Chief Executive Officer of the Company
in January 2000.
(5) Includes 70,125 shares subject to options exercisable within 60 days.
(6) Includes 47,765 shares subject to options exercisable within 60 days.
(7) Includes 465,600 shares held by Mr. Leach, 5,212 shares held of record by
Mr. Leach's wife and 511,875 shares subject to options exercisable within
60 days.
(8) Includes 85,442 shares held jointly by Mr. Lowenberg and his wife, 11,500
shares held by the Lowenberg Charitable Trust, the trustees of which are
Mr. Lowenberg and his wife, and as to which Mr. Lowenberg disclaims
beneficial ownership, and 33,000 shares subject to options exercisable
within 60 days.
(9) Includes 61,125 shares subject to options exercisable within 60 days.
(10) Includes 9,000 shares subject to options exercisable within 60 days.
(11) Includes 72,375 shares subject to options exercisable within 60 days. Also
includes 2,740,854 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. Mr. Savoy's address is 110 110th Avenue
N.E., Bellevue, WA 98004.
(12) Includes 111,269 shares subject to options exercisable within 60 days.
(13) Includes 800 shares held of record by Mr. Bursiek's wife and 8,752 shares
subject to options exercisable within 60 days.
(14) Includes 8,752 shares subject to options exercisable within 60 days.
(15) Includes 17,500 shares subject to options exercisable within 60 days.
(16) Includes 50,000 shares subject to options exercisable within 60 days.
(17) Includes 3,801 shares held of record by Mr. Diamond's wife and 22,895
shares subject to options exercisable within 60 days.
(18) Includes 15,000 shares subject to options exercisable within 60 days.
(19) Includes 1,137,070 shares subject to options exercisable within 60 days and
3,174,389 shares as to which the respective director or officer disclaims
beneficial ownership.
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<PAGE>
DESCRIPTION OF PEREGRINE CAPITAL STOCK
GENERAL
Peregrine is authorized to issue 200,000,000 shares of Peregrine common
stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock,
$0.001 par value ("Peregrine preferred stock"). As of March 31, 2000, an
aggregate of 109,501,146 shares of Peregrine common stock were outstanding,
19,370,400 shares of Peregrine common stock were issuable upon exercise of
outstanding options, and no shares of Peregrine preferred stock were issued and
outstanding.
The following description of Peregrine's capital stock does not purport to
be complete and is subject to and qualified in its entirety by Peregrine's
amended and restated certificate of incorporation and bylaws and by the
provisions of applicable Delaware law.
The amended and restated certificate of incorporation and bylaws contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Peregrine board and which may have the
effect of delaying, deferring, or preventing a future takeover or change in
control of Peregrine unless such takeover or change in control is approved by
the Peregrine board.
COMMON STOCK
Holders of Peregrine common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Peregrine common stock
do not have cumulative voting rights, and, therefore, holders of a majority of
the shares voting for the election of directors can elect all of the directors.
In such event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Peregrine common stock are entitled to receive such dividends
as may be declared from time to time by the Peregrine board out of funds legally
available therefor, subject to the terms of any existing or future agreements
between Peregrine and its debtholders. Peregrine has never declared or paid cash
dividends on its capital stock, expects to retain future earnings, if any, for
use in the operation and expansion of its business, and does not anticipate
paying any cash dividends in the foreseeable future. In the event of the
liquidation, dissolution or winding up of Peregrine, the holders of Peregrine
common stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of Peregrine preferred stock then outstanding.
PREFERRED STOCK
Peregrine is authorized to issue 5,000,000 shares of undesignated Peregrine
preferred stock. The Peregrine board has the authority to issue the Peregrine
preferred stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by Peregrine's
stockholders. The issuance of Peregrine preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying deferring or preventing a
change in control of Peregrine without further action by the stockholders and
may adversely affect the market price of, and the voting and the other rights
of, the holders of Peregrine common stock. The issuance of Peregrine preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of Peregrine common stock, including the loss of voting control to
others. Peregrine has no current plans to issue any shares of Peregrine
preferred stock.
176
<PAGE>
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
Peregrine's amended and restated certificate of incorporation provides that
all stockholder actions must be effected at a duly called annual or special
meeting and may not be effected by written consent. Peregrine's bylaws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the Peregrine board, the chairman of the Peregrine board,
the Chief Executive Officer of Peregrine or stockholders holding shares in the
aggregate entitled to cast not less than 10% of the votes as such meeting. In
addition, Peregrine's bylaws establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders,
including proposed nominations of persons for election to the Peregrine board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Peregrine board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has delivered timely written notice in proper form to
Peregrine's secretary of the stockholder's intention to bring such business
before the meeting.
The foregoing provisions of Peregrine's amended and restated certificate of
incorporation and bylaws are intended to enhance the likelihood of continuity
and stability in the composition of the Peregrine board and in the policies
formulated by the Peregrine board and to discourage certain types of
transactions which may involve an actual or threatened change of control of
Peregrine. Such provisions are designed to reduce the vulnerability of Peregrine
to an unsolicited acquisition proposal and, accordingly, could discourage
potential acquisition proposals and could delay or prevent a change in control
of Peregrine. Such provisions are also intended to discourage certain tactics
that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for Peregrine's shares and,
consequently, may also inhibit fluctuations in the market price of Peregrine's
shares that could result from actual or rumored takeover attempts. These
provisions may also have the effect of preventing changes in the management of
Peregrine.
177
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF
HARBINGER COMMON STOCK AND
PEREGRINE COMMON STOCK
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN DIFFERENCES
BETWEEN HARBINGER COMMON STOCK AND PEREGRINE COMMON STOCK. WHILE WE BELIEVE THAT
THE DESCRIPTION COVERS THE MATERIAL DIFFERENCES BETWEEN THE TWO, THIS SUMMARY
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO HARBINGER
SHAREHOLDERS, INCLUDING THE CERTIFICATE OF INCORPORATION AND BYLAWS OF PEREGRINE
AND THE ARTICLES OF INCORPORATION AND BYLAWS OF HARBINGER. HARBINGER
SHAREHOLDERS SHOULD READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS REFERRED
TO CAREFULLY FOR A MORE COMPLETE UNDERSTANDING OF THE DIFFERENCES BETWEEN
HARBINGER COMMON STOCK AND PEREGRINE COMMON STOCK.
Harbinger's articles of incorporation and bylaws currently govern the rights
of shareholders of Harbinger. After the completion of the Harbinger merger,
Harbinger's common shareholders will become Shareholders of Peregrine. As a
result, former Harbinger shareholders' rights will be governed by Peregrine's
certification of incorporation and bylaws. Furthermore, because Peregrine is a
Delaware corporation, after the Harbinger merger former Harbinger shareholders'
rights will be governed by the Delaware General Corporation Law, rather than by
Georgia law. The following paragraphs summarize certain differences between the
rights of Peregrine stockholders and Harbinger shareholders under the
certificate of incorporation and bylaws of Peregrine and articles of
incorporation and bylaws of Harbinger, and under Delaware and Georgia law, as
applicable.
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
Common Stock................. One class is issued and One class is issued and
outstanding. Holders are outstanding. Holders are
entitled to one vote per entitled to one vote per
share. share.
Holders of common stock have The holders of Harbinger
no preemptive rights or common stock are entitled to
rights to convert their one vote for each share held
common stock into any other of record on all matters
securities. submitted to a vote of
shareholders.
There are no redemption or
sinking fund provisions There are no cumulative
applicable to the common voting rights and each share
stock. has no par value.
All outstanding shares of Subject to preferences that
common stock are fully paid may be applicable to any
and non-assessable and have a outstanding shares of
par value of $0.001 per preferred stock, the holders
share. of common stock are entitled
to receive such dividends, if
any, as may be declared by
the board of directors out of
funds legally available for
the payment of dividends.
In the event of a dissolution
of Harbinger, the holders of
common stock are entitled to
share ratably in all assets
</TABLE>
178
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
remaining after payment of
liabilities and liquidation
preferences of any
outstanding shares of
preferred stock.
Holders of common stock have
no preemptive rights or
rights to convert their
common stock into any other
securities.
There are no redemption or
sinking fund provisions
applicable to the common
stock.
All outstanding shares of
common stock are fully paid
and non-assessable and have a
par value of $0.001 per
share.
Preferred Stock.............. The Peregrine certificate of The Harbinger articles of
incorporation reserves for incorporation provide that
issuance 5,000,000 shares of Harbinger shall have the
undesignated preferred stock. authority to issue up to
20,000,000 shares of
Peregrine's certificate of preferred stock of which
incorporation authorizes the Harbinger's board of
board of directors to: directors has designated
385,000 shares as Series B
- issue shares of preferred preferred stock, 250,000
stock in series; shares as Series C preferred
stock, and 4,000,000 shares
- establish from time to time as redeemable zero coupon
the number of shares to be preferred stock.
included in such series;
and Harbinger articles of
incorporation authorize the
- fix the designation, powers board of directors to:
preferences and rights of
the shares to be included - issue shares of preferred
in each series and the stock in one or more series
qualifications, limitations and
and restrictions thereof.
- to set the designations,
- The preferred stock could preferences, conversion and
thus be issued quickly with other rights, voting
terms calculated to delay powers, restrictions,
or prevent a change in limitations as to
control of Peregrine or dividends, qualifications,
make removal of management and terms and conditions of
more difficult. redemption thereof.
- The preferred stock could
</TABLE>
179
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
- Additionally, the issuance thus be issued quickly with
of preferred stock may have terms calculated to delay
the effect of decreasing or prevent a change of
the market price of the control of Harbinger or
common stock, and may make removal of management
adversely affect the voting more difficult.
and other rights of the
holders of common stock. - Additionally, the issuance
There are no shares of of preferred stock may have
preferred stock outstanding the effect of decreasing
and Peregrine has no plans the market price of the
to issue any of the common stock and may
preferred stock. adversely affect the voting
and other rights of the
holders of common stock.
There are no shares of
preferred stock
outstanding, and Harbinger
has no plans to issue any
preferred stock.
Special meeting of
shareholders................. Under Delaware law, a special Under Georgia law, a special
meeting of stockholders may meeting of shareholders may
be called by the board of be called by the board of
directors or any other person directors or any other person
authorized to do so in the authorized to do so in the
certificate of incorporation Articles of Incorporation or
or the bylaws. the bylaws. In addition,
Georgia law provides that a
Peregrine's bylaws authorize special meeting of
the board of directors, the shareholders may also be
Chairman of the Board, the called by the holders of at
President, or a stockholder least 25%, or such greater or
holding shares entitled to lesser percentages as the
cost not less than 10% of the articles of incorporation or
votes at the meeting to call bylaws provide, of all votes
a special meeting of entitled to be cast on any
stockholders. issue proposed to be
considered at a special
meeting.
Harbinger's bylaws allow the
Chief Executive Officer, a
majority of the board of
directors, or a majority of
Harbinger's Executive
Committee to call special
meetings of shareholders, and
provide that a special
meeting of shareholders can
be called by the request of
the holders of at least 75%
of the shares entitled to
vote.
</TABLE>
180
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
Action by written consent
lieu of a shareholders'
meeting...................... Under Delaware law, Under Georgia law,
stockholders may take action shareholders may take action
by written consent in lieu of by written consent in lieu of
voting at a stockholders' voting at a shareholders
meeting. However, Delaware meeting. Under Georgia law,
law permits a corporation, all actions taken by written
pursuant to a provision in consent must be unanimous
the corporation's certificate unless the articles of
of incorporation, to incorporation provide
eliminate the ability of otherwise.
stockholders to act by
written consent. Harbinger's articles do not
eliminate the need for
Peregrine's certificate of unanimity for actions by
incorporation eliminates the written consent. Therefore,
ability of stockholders to all actions by Harbinger's
act by written consent. shareholders must be taken at
a meeting of the shareholders
or by unanimous written
consent.
Voting by written ballot..... Under Delaware law, the right Georgia law does not contain
to vote by written ballot may a provision regarding voting
be restricted if so provided by written ballot.
in the certificate of
incorporation. Harbinger's bylaws permit
voting by voice vote or by
Peregrine's certificate of show of hands unless any
incorporation do not restrict qualified voter demands vote
the right to vote by ballot. by written ballot.
Record date for determining
shareholders................. Peregrine's bylaws provide Harbinger's bylaws provide
that the board of directors that the board of directors
may fix a record date that is may fix a record date for the
not more than 60 days, nor purpose of determining the
less than 10 days, before the shareholders entitled to
date of the meeting. notice of or to vote at any
meeting or any adjournment
Furthermore, the bylaws thereof, or to make a
provide that if the board of determination of shareholders
directors does not fix a for any other purpose, and
record date in the manner such record date shall not be
described above, then the more than 70 days before the
record date for determining meeting or action requiring a
stockholders entitled to determination of
notice of or to vote at a shareholders.
meeting of stockholders shall
be at the close of business Furthermore, the bylaws
on the day next preceding the provide that the
day on which notice is given, determination of the board of
or, if notice is waived, at directors regarding the
the close of business on the record date shall apply to
day next preceding the any adjournment or reconvened
</TABLE>
181
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
day on which the meeting is meeting unless the board of
held. directors sets a new record
date for the reconvened
meeting. If the adjournment
is for a date more than 120
days after the date fixed for
the original meeting, a new
record date must be fixed.
Advance notice provisions for
board nomination and other
shareholders business--annual
meetings..................... Peregrine's bylaws require Harbinger's bylaws require
that nominations of persons that nominations of persons
for election to the board of for election to the board of
directors and the proposal of directors at an annual or
business to be considered at special meeting of
any meeting of stockholders shareholders must be made by:
must be made by:
- the board of directors or
- the corporation's notice of
meeting; - a stockholder who gives
proper notice.
- the board of directors; or
Pursuant to the bylaws,
- a shareholder who gives proposals by shareholders,
proper notice. including nomination of
persons for election to the
For nominations or other board of directors, must be
business to be properly made by advance written
brought before a stockholder notice delivered or received
meeting by a stockholder, the not less than 30 days prior
stockholder must have given to the date of the meeting;
timely notice thereof in provided however, if less
writing to the secretary of than 30 days' notice or prior
Peregrine and such other public disclosure of the date
business must otherwise be a of the scheduled meeting is
proper matter for stockholder given or made, notice by the
action. shareholder, to be timely,
must be delivered or received
To be timely, notice shall be not later than the close of
delivered to the the business on the 10th day
secretary of the corporation following the day on which
not less than 90 days prior the notice of the meeting is
to the meeting; provided, mailed or public disclosure
however, that in the event of the date of such meeting
that less than 100 days' is made.
notice or prior public
disclosure of the meeting is Harbinger's bylaws also
given to the stockholders, provide that any notice from
notice by the stockholder to a shareholder nominating a
be timely must be delivered director for election must
not later than the set
</TABLE>
182
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
close of business on the forth all information
tenth day following the day relating to that person that
on which the notice of the is required to be disclosed
meeting was mailed or public in solicitation of votes for
disclosure was made. election of directors or is
otherwise required in each
case under the Securities
Exchange Act of 1934. With
respect to any proposal, the
shareholder must provide the
name and address of the
shareholder as they appear on
Harbinger's books, the class
and number of shares held by
the shareholder.
Advance notice provisions for
board nomination and other
shareholders
business--special meetings... Peregrine's bylaws provide Harbinger's bylaws provide
for the same requirements for for the same requirements for
raising business at special nominations of persons to the
meetings of stockholders as board of directors at special
for raising business at meetings as at annual
annual meetings. meetings.
Number of directors.......... Peregrine's bylaws provide Harbinger's bylaws provide
that the board of directors that the number of the board
shall consist of eight of directors shall be not
members. less than one nor more than
15, the precise number to be
fixed by resolution of the
board of directors.
Classified board of
directors.................... Delaware law provides that a Georgia law provides that a
corporation's board of corporation's board of
directors may be divided into directors may be divided into
various classes with various classes with
staggered terms of office. staggered terms of office.
The board of directors of The board of directors of
Peregrine is not classified. Harbinger is divided into
three classes, as nearly
equal in size as possible,
with one class being elected
annually. Harbinger directors
are elected to a term of
three years and until their
successors are elected and
qualified.
Removal of directors......... Under Delaware law, except as Under Georgia law, except as
otherwise provided in the otherwise provided in the
</TABLE>
183
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
corporation's certificate of corporation's articles of
incorporation, a director of incorporation, a director of
a corporation without a a corporation that has a
classified board of directors classified board of directors
may be removed with or may be removed only with
without cause. cause.
The Peregrine bylaws provide The Harbinger bylaws provide
that any director or the that any director, or the
entire board of directors may entire Harbinger board of
be removed, with or without directors, may be removed by
cause, by the holders of a the shareholders. Harbinger's
majority of the shares then bylaws do not allow directors
entitled to vote at an to be removed without cause.
election of directors.
Board of director
vacancies.................... Under Delaware law, vacancies Under Georgia law, unless the
and newly created articles of incorporation or
directorships may be filled a bylaw adopted by the
by a majority of the shareholders provides
directors then in office, otherwise, vacancies and
even though less than a newly created directorships
quorum, unless otherwise may be filled by:
provided in the certificate
of incorporation or bylaws. - the shareholders;
The Peregrine bylaws provide - the board of directors; or
that vacancies on the board
of directors may be filled by - a majority of the directors
the vote of the majority of remaining in office, even
directors then in office,, if such directors
although such majority is constitute less than a
less than a quorum, or by a quorum.
plurality of the votes cast
at a meeting of stockholders. Harbinger's bylaws provide
that a vacancy may be filled
The Peregrine bylaws also by the affirmative vote of at
provide that vacancies and least two- thirds of the
newly created directorships remaining directors, even if
resulting from any increase less than a quorum.
in the authorized number of
directors elected by all of The Harbinger bylaws also
the stockholders having the provide that a vacancy
right to vote as a single occurring by reason of an
class may be filled by a increase in the number of
majority of the directors directors may be filled in
that are in office, although like manner, but only until
less than a quorum, or by a the next election of
sole remaining director. directors by the
Whenever the holders of any shareholders.
class or classes of stock or
series thereof are entitled
to elect one or more
directors by the provisions
of Peregrine's
</TABLE>
184
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
certificate of incorporation,
vacancies and newly created
directors of such class or
series may be fined by a
majority of the directors
elected by such class or
series, or by a sole
remaining director.
Notice of special meetings of
the board of directors....... The Peregrine bylaws provide The Harbinger bylaws provide
that special meetings of the that special meetings may be
board of directors may be called by the chief executive
called by: officer or, in his absence,
by the secretary of Harbinger
- the chairman of the board; or by any two directors upon
24 hour notice of the
- the president; meeting.
- any vice president;
- the secretary; or
- any two directors.
Notice of the time and place
of a special meeting shall be
delivered personally, by
telephone or by first class
mail or telegram. If by mail,
the notice must be deposited
in the United States mail at
least four days before the
time of the holding of the
meeting. If the notice is
delivered personally or by
telephone, or by telegram, it
must be delivered at least 48
hours before the time of the
holding of the meeting.
Approval of loans to and
guarantees of officers....... The Peregrine bylaws provide Harbinger's bylaws do not
that Peregrine may lend money specifically address loans to
to guaranty any obligation of officers or employees.
or otherwise assist any
officer or other employee
whenever the directors judge
such a loan, guaranty or
assistance reasonably to be
expected to benefit the
corporation.
</TABLE>
185
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
Indemnification.............. The Peregrine certificate of The Harbinger bylaws provide
incorporation provides that that Harbinger shall
the directors and officers indemnify to the fullest
shall be indemnified to the extent permitted by law any
fullest extent authorized by person who is made a party to
law against any action or a proceeding because he is or
proceeding brought against was a director or officer
such a person by reason of against liability if the
the fact that he or she is or individual acted in a manner
was a officer or employee of he believed in good faith to
the corporation or serves or be in or not opposed to the
served at any other best interests of Harbinger,
enterprise as at the request and in any criminal
of the corporation. proceeding, he had no
reasonable cause to believe
The Peregrine bylaws provide his conduct was unlawful;
that the corporation has the provided, however, that
power to indemnify each of Harbinger shall not indemnify
its directors and officers an individual (a) in
against expenses (including connection with a proceeding
attorneys fees), judgments, by or in the right of
fines, settlements and other Harbinger in which such
amounts actually and individual was adjudged
reasonably incurred in liable to Harbinger, or
connection with any (b) in connection with any
proceeding, arising by reason other proceeding in which
of the fact that such person such individual was adjudged
is or was an agent of the liable on the basis that
corporation. personal benefit was received
by him, unless and only to
the extent that a court of
competent jurisdiction
determines that such
individual is fairly and
reasonably entitled to
indemnification.
Indemnification in connection
with a proceeding by or in
the right of Harbinger is
limited to reasonable
expenses.
The Harbinger bylaws provide
that payment of reasonable
expenses in advance shall be
made if such individual
provides a written
affirmation of his good faith
belief that he has met the
applicable standard of
conduct and an undertaking to
repay any advances made if it
is ultimately determined that
he is not entitled to
indemnification. Such
individual may apply for
indemnification or advances
for
</TABLE>
186
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
expenses to the court, which
may order indemnification or
advances for expenses if it
determines the individual is
entitled to mandatory
indemnification under law or
is fairly and reasonably
entitled to indemnification,
or in the case of advances
for expenses, the individual
is entitled pursuant to the
Articles or any applicable
resolution or agreement.
If authorized by the article
of incorporation or a
contract or resolution
approved or ratified by the
shareholders by a majority of
votes entitled to be cast,
Harbinger may indemnify or
obligate itself to indemnify
a director or officer made
party to a proceeding without
regard to the limitations in
the bylaws; provided,
however, that no
indemnification is made for
(a) any appropriation by a
director, in violation of the
director's duties, of any
business opportunity;
(b) any acts or omissions of
a director that involve
intentional misconduct or
knowing violation of law;
(c) unlawful distributions;
or (d) any transaction for
which the director received
an improper personal benefit.
Harbinger may indemnify and
advance expenses to an
employee or agent of
Harbinger to the same extent,
consistent with public
policy, that may be provided
by the articles of
incorporation, bylaws,
general or specific action of
the board of directors, or
contract.
Limitations on liability..... The Peregrine certificate of The Harbinger articles of
incorporation limits or incorporation eliminate a
eliminates, to the fullest director's personal liability
extent for
</TABLE>
187
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
permitted by Delaware law, monetary damages to Harbinger
the personal liability of a or any of its shareholders
director to Peregrine or its for any breach of duties of
stockholders for monetary such position, except that
damages for breach of such liability is not
fiduciary duty as a director. eliminated for:
Under Delaware law, such - any appropriation, in
provision may not eliminate violation of such director's
or limit director monetary duties, of any business
liability for: opportunity of Harbinger,
- breaches of the director's - acts or omission which
duty of loyalty to the involve intentional
corporation or its misconduct or a knowing
stockholders, violation of law,
- acts or omissions not in - unlawful distributions, or
good faith involving
intentional misconduct or - any transaction from which
knowing violations of law, the director received an
improper personal benefit.
- the payment of unlawful
dividends or unlawful stock Harbinger's articles of
repurchases or redemptions, incorporation provide that
or if, at any time, Georgia law
is amended to further
- any transaction in which eliminate or limit the
the director received an liability of a director, then
improper personal benefit. the liability of each
director of Harbinger shall
be eliminated or limited to
the fullest extent permitted
thereby.
Shareholder approval of
certain business
combinations................. Under Delaware law, "business Under Georgia law, a resident
combinations" by corporations domestic corporation shall
with "interested not engage in any "business
stockholders" are subject to combination" with any
a moratorium of three or five "interested shareholder" for
years, respectively, unless a period of five years
specified conditions are met. following the time that such
The prohibited transactions shareholder became an
include: "interested shareholder,"
unless specified conditions
- a merger with, disposition are met. The prohibited
of assets to, or the issuance transactions include:
of stock to, the interested
stockholder, or - a merger with, disposition
of assets to, or the issuance
- certain transactions that of stock to, the interested
have the effect of increasing shareholder, or
the proportionate share of
the outstanding securities - certain transactions that
held by have
</TABLE>
188
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
the interested stockholder. the effect of increasing
the proportionate share of
Under Delaware law, an the outstanding securities
interested stockholder may held by the interested
avoid the prohibition against shareholder.
effecting certain significant
transactions with the Under Georgia law, an
corporation if: the board of interested shareholder may
directors, prior to the time avoid the prohibition against
such stockholder becomes an effecting certain significant
interested stockholder, transactions with the
approves such transaction or corporation if the board of
the transaction by which such directors, prior to the time
stockholder becomes an such shareholder becomes an
interested stockholder or if interested shareholder,
at or subsequent to such time approves the transaction by
the board of directors and which such shareholder
the stockholders approve such becomes an interested
transaction. These provisions shareholder. These provisions
of Delaware law apply to a of Georgia law do not apply
Delaware corporation unless to a Georgia corporation
the corporation "opts out" of unless it has affirmatively
the provisions in its elected in its bylaws to be
certificate of incorporation governed by them.
or bylaws.
The Harbinger bylaws contain
Peregrine has not opted out a provision electing to be
of these provisions in its governed by these provisions
certificate of incorporation of Georgia law.
or bylaws and consequently is
subject to these provisions. Georgia law also contains a
provision concerning "fair
price requirements." These
provisions provide that, in
addition to any other vote
otherwise required by law or
the articles of
incorporation, a "business
combination" shall be (a)
unanimously approved by all
of the directors who are not
affiliates or associates of
an "interested shareholder,"
provided that these
continuing directors
constitute at least three
members of the board of
directors at the time of such
approval; or (b) recommended
by at least two-thirds of the
continuing directors and
approved by a majority of the
votes entitled to be cast by
the
</TABLE>
189
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
holders of the voting shares,
other than voting shares
beneficially owned by the
interested shareholder who
is, or whose affiliate is, a
party to the business
combination.
The Harbinger bylaws contain
a provision electing to be
governed by these fair price
requirements.
Par value, dividends and
repurchases of shares........ The concepts of par value, Georgia law dispenses with
capital and surplus are the concept of par value of
retained under Delaware law. shares for most purposes as
well as statutory definitions
Delaware law permits a of capital, surplus and the
corporation to declare and like.
pay dividends out of surplus
or, if there is no surplus, Under Georgia law, a
out of the net profits for corporation may make
the fiscal year in which the distributions to its
dividend is declared and/or shareholders subject to any
for the preceding fiscal year restrictions imposed in the
as long as the amount of corporation's articles of
capital of the corporation incorporation, except that no
following the declaration and distribution may be made if,
payment of the dividend is as a result, the corporation
not less than the aggregate would not be able to pay its
amount of the capital debts as they become due in
represented by the issued and the usual course of business
outstanding stock of all or its total assets would be
classes having a preference less than the sum of its
upon the distribution of total liabilities plus the
assets. amount that would be needed,
if the corporation were to be
In addition, Delaware law dissolved at the time of the
generally provides that a distribution, to satisfy the
corporation may redeem or preferential rights upon
repurchase its shares only if dissolution of shareholders
such redemption or repurchase whose preferential rights are
would not impair the capital superior to those receiving
of the corporation. the distribution.
Notwithstanding the
foregoing, a Delaware A Georgia corporation may
corporation may redeem or acquire its own shares and
repurchase shares having a shares so acquired will
preference upon the constitute authorized but
distribution of any of its unissued shares, unless the
assets if such shares will be articles of incorporation
retired upon acquisition, and provide that such shares
provided that, after the become
reduction in capital
</TABLE>
190
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
made in connection with such treasury shares or prohibit
retirement of shares, the the reissuance of reacquired
corporation's remaining shares. If such reissuance is
assets are sufficient to pay prohibited, the number of
any debts not otherwise authorized shares will be
provided for. reduced by the number of
shares reacquired.
Dissenters' or appraisal
rights....................... Such rights are not available Same.
with respect to a merger or
consolidation by a
corporation the shares of
which are either listed on a
national securities exchange
or held of record by more
than 2,000 stockholders if
such stockholders are
required to receive only:
- shares of the surviving
corporation,
- shares of any other
corporation which are
either listed on a national
securities exchange or held
of record by more than
2,000 holders,
- cash in lieu of fractional
shares, or
- a combination of the
foregoing.
Description of Common
Stock........................ The holders of Peregrine Pursuant to Harbinger's
common stock are entitled to amended and restated articles
one vote for each share held of incorporation the board of
of record on all matters directors has the authority,
submitted to a vote of without further action by the
stockholders. shareholders, to issue up to
20,000,000 shares of
preferred stock, $0.0001 par
value per share for shares
issued after July 20, 1995
and $10.00 par value per
share for shares issued prior
to July 20, 1995, in one or
more series and to fix the
designations, preferences,
conversion rights, voting
rights, powers, restrictions,
limitations as to dividends,
qualifications or redemption,
any or all of which
</TABLE>
191
<PAGE>
<TABLE>
<CAPTION>
PEREGRINE HARBINGER
(DELAWARE) (GEORGIA)
----------------------------- -----------------------------
<S> <C> <C>
may be greater than the
rights of the common stock.
Shareholder derivative
suits........................ Under Delaware law, a Under Georgia law, a
stockholder may only bring a shareholder may not commence
derivative action on behalf or maintain a derivative
of the corporation if the proceeding unless the
stockholder was a stockholder shareholder was a shareholder
at the time of the of the corporation at the
transaction in question or time of the act or omission
his or her stock thereafter complained of or became a
devolved upon the stockholder shareholder through transfer
by operation of law. by operation of law from one
who was a shareholder at that
time.
In addition, Georgia law
requires that the shareholder
fairly and adequately
represent the interests of
the corporation in enforcing
the rights of the
corporation.
</TABLE>
192
<PAGE>
EXPERTS
The consolidated financial statements and schedule of Peregrine Systems,
Inc. as of March 31, 1999 and 2000 and for each of the three years in the period
ended March 31, 2000, included in this joint proxy/prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The consolidated financial statements of Harbinger Corporation as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999 included in this joint proxy statement/prospectus have
been so included in reliance upon the report of KPMG LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
The legality of the shares of Peregrine common stock offered will be passed
upon for Peregrine by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, of Palo Alto, California, counsel for Peregrine. Harbinger is
represented in connection with the merger by Brobeck, Phleger & Harrison LLP,
Palo Alto, California, and Morris, Manning & Martin, L.L.P., Atlanta, Georgia.
It is a condition to the completion of the merger that Harbinger receive an
opinion of Morris, Manning & Martin, L.L.P. and that Peregrine receive an
opinion from Wilson Sonsini Goodrich & Rosati, P.C., in each case to the effect
that, among other things, the merger will be a reorganization for federal income
tax purposes. See "The Merger--Material United States income tax considerations
of the merger."
PEREGRINE STOCKHOLDER PROPOSALS
As a Peregrine 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
Peregrine stockholders intended to be presented for consideration at our 2001
annual meeting of stockholders must be received by us no later than April 7,
2001, in order that they may be included in the proxy statement and form of
proxy related to that meeting.
The proxy card for our 2001 annual meeting will grant 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 June 21, 2001. 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.
HARBINGER SHAREHOLDER PROPOSALS
If the merger is not completed, as a Harbinger shareholder, you may be
entitled to present proposals for our 2001 annual meeting if you comply with the
requirements of the proxy rules established by the Securities and Exchange
Commission. Proposals of Harbinger shareholders intended to be presented for
consideration at our 2001 annual meeting of shareholders must be received by us
no later than December 25, 2000, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
193
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS
THIS JOINT PROXY STATEMENT/PROSPECTUS INCLUDES INFORMATION THAT HAS NOT BEEN
DELIVERED OR PRESENTED TO YOU BUT IS "INCORPORATED BY REFERENCE." This means
that Peregrine and Harbinger disclose information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The information incorporated by reference is considered a part of this joint
proxy statement/prospectus, except for any information superseded by information
contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents listed below, which
contain important business and financial information.
All documents filed by Peregrine or Harbinger under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act, after the date of this joint proxy
statement/prospectus and before the date of the Peregrine special meeting and
the Harbinger special meeting, are incorporated by reference into and deemed to
be a part of this joint proxy statement/prospectus from the date of filing of
those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR ON
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE ELSE TO
PROVIDE YOU WITH ANY INFORMATION.
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this joint proxy statement/prospectus to the extent
that a statement contained in this document or any other subsequently filed
document that is deemed to be incorporated in this document by reference
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of
this joint proxy statement/prospectus.
194
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this joint proxy
statement/prospectus are available from Peregrine and Harbinger upon request. We
will provide to you a copy of any and all of the information that is
incorporated by reference in this joint proxy statement/prospectus (not
including exhibits to the information unless those exhibits are specifically
incorporated by reference into this joint proxy statement/prospectus), without
charge, upon written or oral request. YOU SHOULD MAKE ANY REQUEST FOR DOCUMENTS
BY , , 2000 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
<TABLE>
<S> <C>
Requests for documents relating to Requests for documents relating to
Peregrine should be directed to: Harbinger should be directed to:
Peregrine Systems, Inc. Harbinger Corporation
12670 High Bluff Drive 1277 Lenox Park Boulevard
San Diego, California 92130 Atlanta, Georgia 30319
Telephone: (858) 481-5000 Telephone: (404) 467-3000
Attention: Eric P. Deller Attention: Loren B. Wimpfheimer
</TABLE>
Reports, proxy statements, and other information concerning Peregrine and
Harbinger may also be inspected at The National Association of Securities
Dealers, 1735 K Street N.W., Washington, D.C. 20006.
Peregrine and Harbinger have each filed reports, proxy statements, and other
information with the Securities and Exchange Commission. Copies of their
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding both Peregrine and Harbinger. The address of the SEC
website is HTTP://WWW.SEC.GOV.
Peregrine has filed a registration statement under the Securities Act with
the SEC with respect to Peregrine's common stock to be issued to Harbinger
shareholders in the merger. This joint proxy statement/prospectus constitutes
the prospectus of Peregrine filed as part of the registration statement. This
joint proxy statement/prospectus does not contain all of the information set
forth in the registration statement because certain parts of the registration
statement are omitted as provided by the rules and regulations of the SEC. You
may inspect and copy the registration statement at any of the addresses listed
above.
195
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PEREGRINE'S CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL
YEARS ENDED MARCH 31, 2000, 1999, AND 1998
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
HARBINGER'S CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Report of Independent Public Accountants.................... F-25
Consolidated Balance Sheets................................. F-26
Consolidated Statements of Operations....................... F-27
Consolidated Statement of Comprehensive Income (Loss)....... F-28
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-29
Consolidated Statements of Cash Flows....................... F-30
Notes to Consolidated Financial Statements.................. F-32
HARBINGER'S UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Condensed Consolidated Balance Sheets....................... F-54
Condensed Consolidated Statements of Operations............. F-55
Consolidated Statement of Comprehensive Income.............. F-56
Condensed Consolidated Statements of Cash Flows............. F-57
Notes to Consolidated Financial Statements.................. F-58
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Peregrine Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Peregrine
Systems, Inc. (a Delaware corporation) and subsidiaries as of March 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
March 31, 2000. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peregrine Systems, Inc. and
subsidiaries as of March 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2000 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
San Diego, California
April 25, 2000
F-2
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 33,511 $ 21,545
Short-term investments...................................... -- 2,000
Accounts receivable, net of allowance for doubtful accounts
of $2,179 and $1,248, respectively........................ 69,940 38,947
Deferred tax assets......................................... 4,024 5,798
Other current assets........................................ 18,802 10,370
-------- --------
Total current assets.................................... 126,277 78,660
Property and equipment, net................................. 29,537 15,895
Intangible assets, investments and other, net............... 367,616 113,158
-------- --------
$523,430 $207,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 19,850 $ 6,795
Accrued expenses.......................................... 49,064 26,460
Deferred revenue.......................................... 36,779 20,048
Current portion of long-term debt......................... 74 55
-------- --------
Total current liabilities............................... 105,767 53,358
Long-term debt, net of current portion...................... 1,257 594
Deferred revenue, net of current portion.................... 4,556 2,980
-------- --------
Total liabilities........................................... 111,580 56,932
-------- --------
Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000 shares authorized,
no shares issued or outstanding........................... -- --
Common stock, $0.001 par value, 200,000 shares authorized,
109,501 and 97,106 shares issued and outstanding,
respectively.............................................. 110 97
Additional paid-in capital.................................. 480,957 193,739
Accumulated deficit......................................... (64,863) (39,793)
Unearned portion of deferred compensation................... (678) (1,019)
Accumulated other comprehensive loss........................ (666) (518)
Treasury stock, at cost..................................... (3,010) (1,725)
-------- --------
Total stockholders' equity.................................. 411,850 150,781
-------- --------
$523,430 $207,713
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $168,467 $ 87,362 $38,791
Services.................................................. 84,833 50,701 23,086
-------- -------- -------
Total revenues.......................................... 253,300 138,063 61,877
-------- -------- -------
Costs and Expenses:
Cost of licenses.......................................... 1,426 1,020 326
Cost of services.......................................... 51,441 31,561 10,326
Sales and marketing....................................... 101,443 50,803 22,728
Research and development.................................. 28,517 13,919 8,394
General and administrative................................ 19,871 10,482 6,077
Amortization of intangible assets......................... 34,753 18,012 3,168
Acquired in-process research and development costs........ 24,505 26,005 6,955
-------- -------- -------
Total costs and expenses................................ 261,956 151,802 57,974
-------- -------- -------
Income (loss) from operations............................... (8,656) (13,739) 3,903
Interest income, net........................................ 38 664 839
-------- -------- -------
Income (loss) from operations before income taxes........... (8,618) (13,075) 4,742
Income taxes................................................ 16,452 10,295 5,358
-------- -------- -------
Net loss.................................................. $(25,070) $(23,370) $ (616)
======== ======== =======
Net loss per share--basic and diluted:
Net loss per share........................................ $ (0.24) $ (0.27) $ (0.01)
======== ======== =======
Shares used in computation................................ 102,332 87,166 69,520
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
NUMBER OF ADDITIONAL PORTION OF OTHER
SHARES COMMON PAID-IN ACCUMULATED DEFERRED COMPREHENSIVE
OUTSTANDING STOCK CAPITAL DEFICIT COMPENSATION LOSS
----------- -------- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997.............. 51,680 $ 52 $ 15,042 $(15,807) $(1,748) $(388)
Net loss............................. -- -- -- (616) -- --
Issuance of common stock in IPO, net
of issuance costs of $1,181........ 9,200 9 18,062 -- -- --
Stock options exercised and
restricted stock granted (net)..... 6,616 6 2,788 -- -- --
Stock issued for Apsylog
Acquisition........................ 7,664 8 30,498 -- -- --
Stock option tax benefit............. -- -- 7,905 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 414 --
Deferred compensation related to
options granted.................... -- -- -- -- (159) --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- (165)
------- ---- -------- -------- ------- -----
Balance, March 31, 1998.............. 75,160 75 74,295 (16,423) (1,493) (553)
Net loss............................. -- -- -- (23,370) -- --
Stock options exercised.............. 7,018 7 7,914 -- -- --
Stock issued for acquisitions........ 14,928 15 105,434 -- -- --
Stock option tax benefit............. -- -- 6,096 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 474 --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- 35
------- ---- -------- -------- ------- -----
Balance, March 31, 1999.............. 97,106 97 193,739 (39,793) (1,019) (518)
Net loss............................. -- -- -- (25,070) -- --
Stock options exercised.............. 7,345 5 23,422 -- -- --
Stock issued for acquisitions........ 5,050 5 169,643 -- -- --
Stock issued for strategic
investments........................ -- 3 83,558 -- -- --
Stock option tax benefit............. -- -- 10,595 -- -- --
Compensation expense related to
restricted stock and options....... -- -- -- -- 341 --
Stock repurchased.................... -- -- -- -- -- --
Equity adjustment from foreign
currency translation............... -- -- -- -- -- (148)
------- ---- -------- -------- ------- -----
Balance, March 31, 2000.............. 109,501 $110 $480,957 $(64,863) $ (678) $(666)
======= ==== ======== ======== ======= =====
<CAPTION>
TOTAL
STOCKHOLDERS'
TREASURY EQUITY COMPREHENSIVE
STOCK (DEFICIT) INCOME (LOSS)
-------- ------------- --------------
<S> <C> <C> <C>
Balance, March 31, 1997.............. $ $ (2,849) $ --
Net loss............................. -- (616) (616)
Issuance of common stock in IPO, net
of issuance costs of $1,181........ -- 18,071
Stock options exercised and
restricted stock granted (net)..... -- 2,794
Stock issued for Apsylog
Acquisition........................ -- 30,506
Stock option tax benefit............. -- 7,905
Compensation expense related to
restricted stock and options....... -- 414
Deferred compensation related to
options granted.................... -- (159)
Stock repurchased.................... (262) (262)
Equity adjustment from foreign
currency translation............... -- (165) (165)
------- -------- --------
Balance, March 31, 1998.............. (262) 55,639 (781)
========
Net loss............................. -- (23,370) (23,370)
Stock options exercised.............. -- 7,921
Stock issued for acquisitions........ -- 105,449
Stock option tax benefit............. -- 6,096
Compensation expense related to
restricted stock and options....... -- 474
Stock repurchased.................... (1,463) (1,463)
Equity adjustment from foreign
currency translation............... -- 35 35
------- -------- --------
Balance, March 31, 1999.............. (1,725) 150,781 (23,335)
========
Net loss............................. -- (25,070) (25,070)
Stock options exercised.............. -- 23,427
Stock issued for acquisitions........ -- 169,648
Stock issued for strategic
investments........................ -- 83,561
Stock option tax benefit............. -- 10,595
Compensation expense related to
restricted stock and options....... -- 341
Stock repurchased.................... (1,285) (1,285)
Equity adjustment from foreign
currency translation............... -- (148) (148)
------- -------- --------
Balance, March 31, 2000.............. $(3,010) $411,850 $(25,218)
======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
PEREGRINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................................... $(25,070) $(23,370) $ (616)
Adjustments to reconcile loss to net cash provided by
operating activities:
Depreciation and amortization........................... 43,788 21,776 4,901
Acquired in-process research and development costs...... 24,505 26,005 6,955
Increase (decrease) in cash resulting from changes,
net of business acquired, in:
Accounts receivable............................... (24,364) (18,984) (5,982)
Deferred tax asset................................ 1,774 1,499 (856)
Other current assets.............................. (289) (7,177) (1,116)
Accounts payable.................................. 4,755 2,939 674
Accrued expenses.................................. 6,733 6,390 (1,767)
Deferred revenue.................................. 12,467 4,874 1,361
Other assets...................................... 2,717 (245) 534
-------- -------- --------
47,016 13,707 4,088
-------- -------- --------
Net cash used by discontinued business...................... -- -- (170)
-------- -------- --------
Net cash provided by operating activities....... 47,016 13,707 3,918
-------- -------- --------
Cash flows from investing activities:
Technology acquisitions................................... (22,351) -- --
Purchases of short-term investments....................... -- (49,000) (45,732)
Maturities of short-term investments...................... 2,000 54,027 38,705
Equity investments purchased.............................. (11,291) -- --
Purchases of property and equipment....................... (20,713) (12,426) (2,427)
Cash expenditures related to acquisitions................. (7,752) (11,231) (2,410)
Other investing activities................................ 145 103 582
-------- -------- --------
Net cash used in investing activities........... (59,962) (18,527) (11,282)
-------- -------- --------
Cash flows from financing activities:
Repayments of bank line of credit, net.................... -- -- (3,387)
Repayments of long-term debt.............................. (7,832) (1,174) (2,541)
Issuance of common stock.................................. 34,022 14,017 28,770
Treasury stock purchased.................................. (1,285) (1,463) (262)
Principal payments under capital lease obligation......... -- -- (406)
-------- -------- --------
Net cash provided by financing activities....... 24,905 11,380 22,174
-------- -------- --------
Effect of exchange rate changes on cash..................... 7 35 (165)
-------- -------- --------
Net increase in cash and cash equivalents................... 11,966 6,595 14,645
Cash and cash equivalents, beginning of period.............. 21,545 14,950 305
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 33,511 $ 21,545 $ 14,950
======== ======== ========
Cash paid during the period for:
Interest.................................................. $ 451 $ 26 $ 38
Income taxes.............................................. $ 3,015 $ 155 $ 622
Supplemental Disclosure of Noncash Investing and Financial
Activities:
Stock issued and other noncash consideration for
acquisitions............................................ $169,648 $105,449 $ 30,506
Stock issued for strategic investments.................... $ 83,561 $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Peregrine Systems, Inc. (unless otherwise noted, "Peregrine Systems," "we,"
"PSI," "us," or "our" refers to Peregrine Systems, Inc.) is a leading provider
of Infrastructure Management and e-Infrastructure software solutions. Using
common shared data, our products help manage information technology assets as
well as assets relating to corporate facilities and fleets. In addition, we have
recently introduced products for rail management and internet-based asset
procurement. We sell our software and services in North America and
internationally through both a direct sales force and through business
partnerships.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PSI and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts previously reported have been
reclassified in order to ensure comparability among the years reported.
USE OF ESTIMATES
The preparation of our financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that may affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
We generate revenues from licensing the rights to use our software products
primarily to end users. We also generate revenues from post-contract support
(maintenance), consulting and training services performed for customers who
license our products. We do not provide professional services unrelated to our
products.
Revenues from direct and indirect license agreements are recognized
currently, provided that all of the following conditions are met: a
noncancelable license agreement has been signed, the product has been delivered,
there are no material uncertainties regarding customer acceptance, collection of
the resulting receivable is deemed probable, risk of concession is deemed
remote, and we have no other significant obligations associated with the
transaction. Revenues from post-contract support services are recognized ratably
over the term of the maintenance period, generally one year. Maintenance
revenues which are bundled with license agreements, are unbundled using vendor
specific objective evidence. Professional services revenues are primarily
related to implementation services most often performed on a time and material
basis under separate service agreements for the installation of our products.
Revenues from professional services and customer training are recognized as the
respective services are performed.
Cost of license revenues consists primarily of amounts paid to third-party
vendors, product media, manuals, packaging materials, personnel, and related
shipping costs. Cost of maintenance and services revenues consists primarily of
salaries, benefits, and allocated overhead costs incurred in providing telephone
support, professional services, and training to customers.
F-7
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred revenues primarily relates to maintenance fees, which have been
paid by our customers in advance of the performance of these services.
BUSINESS RISK AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which may subject us to concentrations of credit risk
consist principally of trade and other receivables. We perform ongoing credit
evaluations of our customers' financial condition. We believe that the
concentration of credit risk with respect to trade receivables is further
mitigated as our customer base consists primarily of large, well established
companies. We maintain reserves for credit losses and such losses historically
have been within our expectations.
A substantial portion of our license revenue is derived from the sale of our
Infrastructure Management applications and our e-Infrastructure solutions and is
expected to account for a substantial portion of revenues for the foreseeable
future. As a result, our future operating results are dependent upon continued
market acceptance of the Infrastructure Resource Management strategy and
applications, including future product enhancements and new product initiatives.
Factors adversely affecting the pricing, demand for, or market acceptance of our
Infrastructure Resource Management applications, such as competition or
technological change, could have a material adverse effect on our business,
operating results, and financial condition.
CASH AND CASH EQUIVALANTS
We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents primarily consist of
overnight repurchase agreements and money market accounts. The carrying amount
reported for cash and cash equivalents approximates its fair value.
SHORT-TERM INVESTMENTS
We account for our short-term investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Short-term investments consist of auction rate
preferred stock with original maturities at date of purchase beyond three
months. These securities are classified as available-for-sale and are carried at
market. Gross unrealized gains or gross unrealized losses as of March 31, 1999
were not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of our financial instruments, including
accounts receivable, accounts payable and accrued expenses approximates fair
value due to their short maturities. Based on borrowing rates currently
available to us for loans with similar terms, the carrying values of our notes
payable approximates the fair values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over estimated useful lives, generally three to five years for furniture
and equipment. Amortization of leasehold improvements is
F-8
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provided using the straight-line method over the lesser of the useful lives of
the assets or the terms of the related leases.
Maintenance and repairs are charged to operations as incurred. When assets
are sold, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations for the applicable period.
LONG-LIVED ASSETS
We evaluate potential impairment of long-lived assets and long-lived assets
to be disposed of in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes procedures for review of
recoverability, and measurement of impairment, if necessary, of long-lived
assets and certain identifiable intangibles held and used by an entity. SFAS
No. 121 requires that those assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable based on expected undiscounted cash flows attributable to
that asset. The amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset. As of March 31,
2000, we believe that there has not been any impairment of our long-lived assets
or other identifiable intangibles.
STRATEGIC INVESTMENTS
During fiscal 2000, we entered into a strategic relationship with Goldmine
Software Corporation ("Goldmine"), a developer of service desk and customer
relationship management software, to collaborate on sales and distribution
efforts and in the development of marketing and software content. As part of the
agreement, we invested approximately $74.5 million of our Common Stock in
exchange for approximately a 10% ownership of Goldmine, subsequent to our
investment. Our investment in Goldmine is being accounted for using the cost
method.
During fiscal 2000, we entered into a strategic relationship with
SupplyAccess, Inc. ("SupplyAccess"), a business-to-business electronic
marketplace provider for information technology equipment, to collaborate on the
sales and distribution efforts surrounding the information technology equipment
procurement market. As part of the agreement, we invested approximately
$9.1 million of our Common Stock in exchange for approximately an 18% ownership
of SupplyAccess, subsequent to our investment. Our investment in SupplyAccess is
being accounted for using the cost method.
In addition, we have made several other strategic investments for aggregate
consideration of approximately $11.3 million during fiscal 2000, all of which
are being accounted for using the cost method.
Many of our investments are in companies whose operations are not yet
sufficient to establish them as profitable concerns. Adverse changes in market
conditions or poor operating results of underlying investments could result in
losses or an inability to recover the carrying value of our investments.
F-9
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are comprised of purchase price in excess of identifiable
assets associated with our acquired businesses and purchased technology.
Intangible assets are carried at cost less accumulated amortization, which is
being amortized on a straight-line basis over generally five years.
CAPITALIZED COMPUTER SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", software development costs are capitalized from the time the
product's technological feasibility has been established until the product is
released for sale to the general public. During the three years in the period
ended March 31, 2000, no software development costs were capitalized as the
costs incurred between achieving technological feasibility and product release
were minimal. Research and development costs, including the design of product
enhancements, are expensed as incurred.
FOREIGN CURRENCY TRANSLATION AND RISK MANAGEMENT
Assets and liabilities of our foreign operations are translated into United
States dollars at the exchange rate in effect at the balance sheet date, and
revenue and expenses are translated at the average exchange rate for the period.
Translation gains or losses of our foreign subsidiaries are not included in
operations but are reported as other comprehensive income. The functional
currency of those subsidiaries is the primary currency in which the subsidiary
operates. Gains and losses on transactions in denominations other than the
functional currency of our foreign operations, while not significant in amount,
are included in the results of operations.
We enter into forward exchange contracts of approximately one month in
length to minimize the short-term impact of foreign currency fluctuations on
assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts are
designated and effective as a hedge and are inversely correlated to the hedged
item as required by generally accepted accounting principles.
Gains and losses on the contracts are included in other income and offset
foreign exchange gains or losses from the revaluation of intercompany balances
or other current assets and liabilities denominated in currencies other than the
functional currency of the reporting entity.
INCOME TAXES
Deferred taxes are provided for utilizing the liability method as prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Deferred tax assets are
reduced by a valuation allowance when, in our opinion, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
F-10
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTATION OF NET LOSS PER SHARE
Our computation of net loss per share is performed in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). SFAS No. 128 requires companies to compute net income
(loss) per share under two different methods, basic and diluted per share data
for all periods for which an income statement is presented. Basic earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Potential dilutive common shares
are calculated using the treasury stock method and represent incremental shares
issuable upon exercise of our outstanding stock options. For the years ended
March 31, 2000, 1999, and 1998, the diluted loss per share calculation excludes
the effect of outstanding stock options as inclusion would be anti-dilutive.
STOCK SPLIT
On January 20, 2000, our board of directors declared a two-for-one stock
split of our Common Stock, effected in the form of a stock dividend.
Stockholders of record as of the close of business on February 4, 2000 were
issued a certificate representing one additional share of our Common Stock for
each share of Common Stock held on the record date. All stock related data in
the consolidated financial statements and related notes reflect this stock split
for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in a
derivative's fair value be recognized currently in operations unless specific
hedge accounting criteria are met. SFAS No. 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We do not anticipate that the adoption of this amendment will have a
material impact on our financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101, as amended,
is effective no later than the second calendar quarter of fiscal 2001. We are in
the process of evaluating the potential impact of SAB No. 101, but we anticipate
that the impact to our consolidated financial statements, if any, will be
insignificant.
2. ACQUISITIONS
In September 1997, we completed the acquisition of all of the outstanding
stock of Apsylog, a developer of decision software solutions designed for asset
management. The consideration given for the stock of Apsylog included
approximately 7,664,000 shares of our Common Stock valued at a total purchase
price of $38.6 million, including merger costs and assumed liabilities.
On July 30, 1998, we completed the acquisition of Innovative Tech
Systems, Inc. ("Innovative"), a developer of facilities infrastructure
management software. This acquisition was structured as a tax-free
F-11
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
stock-for-stock exchange resulting in the issuance of approximately 11,837,000
shares of our Common Stock for all outstanding shares of Innovative Common Stock
valued at a total purchase price of $85.9 million, including merger costs and
assumed liabilities.
On September 23, 1998, we completed the acquisition of certain technology
and other assets and liabilities from International Software Solutions and
related persons and entities (collectively "ISS"), a developer of remote
management software. We issued approximately 1,569,000 shares of our Common
Stock in exchange for these assets valued at a total purchase price, including
merger costs, of $15.6 million.
On March 2, 1999, we completed the acquisition of Prototype, Inc.
("Prototype"), a developer of fleet infrastructure management software. We
issued approximately 1,522,000 shares of our Common Stock and $1.1 million in
cash for all of the outstanding shares of Prototype. The purchase price,
including merger costs and assumed liabilities, totaled $25.9 million.
On April 2, 1999, we completed the acquisition of F.Print UK Ltd.
("FPrint"), a developer of desktop inventory and asset discovery software. We
issued approximately 1,508,000 shares of our Common Stock and $1.3 million in
cash for all the outstanding shares of FPrint for a total purchase price,
including merger costs, of $26.2 million.
On September 29, 1999, we completed the acquisition of Knowlix Corporation
("Knowlix"), a developer of knowledge management software. We issued
approximately 706,000 shares of our Common Stock for all the outstanding shares
of Knowlix for a total purchase price, including merger costs, of
$17.8 million.
On March 23, 2000, we completed the acquisition of Telco Research
Corporation Limited ("Telco Research"), a developer of telephony infrastructure
management software and related ancillary products. We issued approximately
2,563,000 shares of our Common Stock for all of the outstanding shares of Telco
Research for a total purchase price, including merger costs, of $123.9 million.
On March 24, 2000, we completed the acquisition of Barnhill Management
Corporation ("Barnhill"), a provider of infrastructure management system
solutions and related professional services. We issued approximately 273,000
shares of our Common Stock for all of the outstanding shares of Barnhill for a
total purchase price, including merger costs and assumed liabilities, of
$32.2 million.
ACCOUNTING TREATMENT OF ACQUISITIONS
All of the transactions above were accounted for under the purchase method
of accounting and, accordingly, the assets, including in-process research and
development, and liabilities, were recorded based on their fair values, as
determined by independent appraisals, at the date of acquisition and the results
of operations for each of the acquisitions have been included in the financial
statements for the periods subsequent to acquisition.
F-12
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
We allocated each purchase price between acquired in-process research and
development, the fair value of the net assets acquired, and the purchase price
in excess of the acquired assets. The allocations of values are as follows (in
thousands):
<TABLE>
<CAPTION>
ACQUIRED
IN-PROCESS PURCHASE PRICE IN
RESEARCH AND FAIR VALUE OF NET EXCESS OF THE
DEVELOPMENT ASSETS ACQUIRED ACQUIRED ASSETS TOTAL
------------ ----------------- ----------------- --------
<S> <C> <C> <C> <C>
FISCAL 2000
Fprint........................... $ 4,194 $ -- $ 22,018 $ 26,212
Knowlix.......................... 2,852 -- 14,973 17,825
Barnhill......................... -- -- 32,192 32,192
Telco Research................... 17,459 7,520 98,934 123,913
------- ------ -------- --------
$24,505 $7,520 $168,117 $200,142
======= ====== ======== ========
FISCAL 1999
Innovative....................... $18,907 $ -- $ 67,032 $ 85,939
ISS.............................. 2,959 -- 12,614 15,573
Prototype........................ 4,139 -- 21,728 25,867
------- ------ -------- --------
$26,005 $ -- $101,374 $127,379
======= ====== ======== ========
FISCAL 1998
Apsylog.......................... $ 6,955 $ -- $ 31,684 $ 38,639
------- ------ -------- --------
$ 6,955 $ -- $ 31,684 $ 38,639
======= ====== ======== ========
</TABLE>
The value of each acquisition's acquired in-process technology was computed
using a discounted cash flow analysis on the anticipated income stream of the
related product sales. The value assigned to acquired in-process technology was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from the projects and discounting the net cash flows to their present
value. With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of the companies
acquired prior to the close of each acquisition.
The nature of the efforts required to develop acquired in-process technology
into commercially viable products principally relates to the completion of all
planning, designing and testing activities that are necessary to establish that
the products can be produced to meet their design requirements, including
functions, features and technical performance requirements. If the research and
development project and technologies are not completed as planned, they will
neither satisfy the technical requirements of a changing market nor be cost
effective.
No assurance can be given, however, that the underlying assumptions used to
estimate expected product sales, development costs or profitability, or the
events associated with such projects, will transpire as estimated. We currently
believe that actual results have been consistent with forecasts with respect to
acquired in-process revenues. Because we do not account for expenses by product,
it is not possible to determine the actual expenses associated with any of the
acquired technologies. However,
F-13
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
we believe that expenses incurred to date associated with the development and
integration of the acquired in-process research and development projects are
substantially consistent with our previous estimates.
We have completed many of the original research and development projects in
accordance with our plans. We continue to work toward the completion of other
projects. The majority of the projects are on schedule, but delays may occur due
to changes in technological and market requirements for our products. The risks
associated with these efforts are still considered high and no assurance can be
made that any upcoming products will meet with market acceptance. Delays in the
introduction of certain products may adversely affect our revenues and earnings
in future quarters.
During fiscal years 2000, 1999, and 1998 we expended $7.8 million, $11.2
million, and $2.4 million, respectively, for acquisition costs and liabilities
assumed related to the acquisitions detailed above. These expenditures relate to
advisory fees (investment bankers, attorneys, accountants and other consultant
fees); employee severance and relocation costs; costs associated with the
reduction of duplicate facilities, equipment and efforts; and other merger
related costs (e.g. filing fees, travel costs, etc.).
Acquisition related liabilities of $3.4 million at March 31, 1999 related
principally to severance, relocation and lease termination costs. These amounts
were expended in fiscal 2000 in amounts approximating the recorded liability.
With respect to the acquisition related liabilities at March 31, 2000, we
have both approved and preliminary plans of integration and consolidation. These
plans include the steps we believe will be necessary within the year to
integrate the operations of these acquisitions. The plans provide for the
consolidation of duplicate facilities and infrastructure assets and the
elimination of duplicative efforts and positions within the combined company. In
connection with the integration plans we have accrued approximately $15.1
million in merger related costs comprised principally of the following
components (in thousands):
<TABLE>
<CAPTION>
ESTIMATED LIABILITY
-------------------
<S> <C>
Estimated advisory fees..................................... 3,650
Employee severance and relocation........................... 5,854
Duplicative facilities, equipment and efforts............... 4,991
Other merger related costs.................................. 629
-------
$15,124
=======
</TABLE>
This accrual represents our best estimate, based on information available as
of March 31, 2000, of the identifiable and quantifiable charges that we may
incur as a result of the acquisition and integration plans, however these
estimates may change. Any changes in the estimates during the next year will
increase or decrease goodwill as appropriate. We believe substantially all of
the above costs will be paid for within the next year.
In addition to the costs included in the accrual for our acquisition and
integration plans we will incur other incremental costs as a direct result of
our integration efforts. These costs will be accounted for as incurred in future
periods. To the extent these costs become significant they could have a material
adverse effect on our future operating results.
F-14
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION
The following table presents the unaudited pro forma results assuming we had
acquired each of Telco Research and Innovative at the beginning of fiscal years
2000 and 1999, as applicable. Net loss and diluted loss per share amounts have
been adjusted to exclude acquired in process research and development write-offs
of $24.5 million and $26.0 million in fiscal years 2000 and 1999, respectively
and to include goodwill amortization of $51.9 million and $35.2 million in
fiscal years 2000 and 1999, respectively. This information may not necessarily
be indicative of our future combined results.
The unaudited pro forma results of operations exclude the results of
operations of certain acquisitions consummated during fiscal 2000 and 1999. The
inclusion of the results associated with these acquisitions would not materially
affect the pro forma financial information presented below.
In thousands, except per share data:
<TABLE>
<CAPTION>
PRO FORMA RESULTS
FOR THE YEARS ENDED
MARCH 31,
-------------------
(UNAUDITED)
2000 1999
-------- --------
<S> <C> <C>
Revenues................................................ $283,911 $174,409
Net loss................................................ $(40,874) $(52,014)
Basic and diluted loss per share........................ $ (0.40) $ (0.58)
</TABLE>
3. SENIOR CREDIT FACILITY
In July 1999, we entered into a $20 million senior credit facility for a
term of three years with a syndicate of financial institutions. Any borrowings
under the credit facility are secured by substantially all assets and shall bear
interest at a rate equal to LIBOR plus the applicable margin rate. Proceeds of
the senior credit facility may be used for general corporate purposes, including
acquisitions.
4. BALANCE SHEET COMPONENTS
Other current assets consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Prepaid expenses.......................................... $ 8,505 $ 4,928
Other..................................................... 10,297 5,442
------- -------
$18,802 $10,370
======= =======
</TABLE>
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Furniture and equipment................................. $ 44,197 $ 23,075
Leasehold improvements.................................. 8,830 5,035
-------- --------
53,027 28,110
Less accumulated depreciation........................... (23,490) (12,215)
-------- --------
$ 29,537 $ 15,895
======== ========
</TABLE>
F-15
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET COMPONENTS (CONTINUED)
Intangible assets, net and other consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Strategic investments................................... $ 94,852 --
Intangible assets and purchased technology.............. 323,957 133,550
Other................................................... 4,740 788
-------- --------
423,549 134,338
Less accumulated amortization........................... (55,933) (21,180)
-------- --------
$367,616 $113,158
======== ========
</TABLE>
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Employee compensation..................................... $ 6,146 $ 7,370
Commissions............................................... 11,673 6,066
Taxes..................................................... 8,340 5,030
Acquisition related liabilities........................... 15,124 3,379
Other..................................................... 7,781 4,615
------- -------
$49,064 $26,460
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Note payable to lessor. Unsecured; interest at 8%. Monthly
Payments of principal and interest of $4 through November
2003...................................................... $ 158 $194
Note payable to lessor. Unsecured; interest at 8%. Monthly
Payments of principal and interest of $4 through September
2003...................................................... 129 --
Note payable to shareholders of an acquired company.
Secured; interest at 7%. Specified Payments of principal
and interest through December 2001........................ 700 --
Note payable to third party. Unsecured; interest at 9%.
Monthly payments of principal and interest of $3 through
April 2004................................................ 180 --
French Government Agency loans and other.................... 164 455
------ ----
1,331 649
Less current portion........................................ (74) (55)
------ ----
$1,257 $594
====== ====
</TABLE>
F-16
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Scheduled fiscal year principal payments on long-term debt due as of
March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
FUTURE SCHEDULED
PRINCIPAL PAYMENTS
------------------
<S> <C>
2001........................................................ $ 74
2002........................................................ 1,015
2003........................................................ 134
2004........................................................ 106
2005........................................................ 2
------
$1,331
======
</TABLE>
6. INCOME TAXES
The geographic distribution of income (loss) before taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $(23,275) $(21,041) $ (772)
Foreign......................................... 14,657 7,966 5,514
-------- -------- ------
Total........................................... $ (8,618) $(13,075) $4,742
======== ======== ======
</TABLE>
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current
Federal......................................... $ 9,670 $ 5,304 $5,197
State........................................... 925 792 1,017
Foreign......................................... 4,083 2,700 --
------- ------- ------
Total current..................................... 14,678 8,796 6,214
------- ------- ------
Deferred
Federal......................................... 1,265 1,262 (728)
State........................................... 331 188 (128)
Foreign......................................... 178 49 --
------- ------- ------
Total deferred.................................... 1,774 1,499 (856)
------- ------- ------
Total provision................................... $16,452 $10,295 $5,358
======= ======= ======
</TABLE>
We realize an income tax benefit from disqualifying dispositions of certain
stock options. This benefit results in a decrease in current income taxes
payable and an increase in additional paid-in capital at the time the benefit is
realized. The amount of the benefit realized for the years ended March 31, 2000,
1999, and 1998 was $10,595,000, $6,096,000 and $7,905,000, respectively.
F-17
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of expected income taxes using the statutory federal income
tax rate to the effective income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Federal tax provision (benefit) at the statutory
rate............................................ $(3,016) $(4,446) $1,612
State tax provision (benefit), net of federal
effect.......................................... (345) (654) 237
Effect of foreign earnings taxed at different
rates........................................... (437) (912) --
Foreign sales corporation......................... (985) -- --
Tax credits....................................... (1,184) (860) --
Non-deductible acquired R&D and amortization of
intangibles..................................... 21,792 14,023 3,943
Other............................................. 78 1 16
Change in valuation allowance..................... 549 3,143 (449)
------- ------- ------
Total income tax provision........................ $16,452 $10,295 $5,359
======= ======= ======
</TABLE>
The amounts stated in the table above for the years ended March 31, 2000,
1999, and 1998 are based upon income before taxes which include expenses (a
significant portion of which are not tax deductible) of $59,258,000,
$44,017,000, and $10,123,000, respectively, related to the acquisition of
in-process research and development and amortization of purchased intangibles.
Excluding these acquisition-related expenses, the effective tax rate for the
years ended March 31, 2000, 1999, and 1998 was 32.5, 33.3 and 37.0 percent,
respectively.
U.S. income taxes and foreign withholding taxes were not provided for on a
cumulative total of approximately $14.7 million of undistributed earnings for
certain non-U.S. subsidiaries. We intend to reinvest these earnings indefinitely
in operations outside of the U.S.
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,197 $ 3,148
Intangible Assets....................................... 5,192 3,143
Deferred maintenance revenue............................ 1,576 2,752
Other................................................... 726 1,030
------- -------
Total gross deferred tax assets........................... 8,691 10,073
Deferred tax liabilities:
Depreciation............................................ (167) (324)
Net deferred tax asset prior to valuation allowance....... 8,524 9,749
Valuation allowance....................................... (4,500) (3,951)
------- -------
Net deferred tax assets................................... $ 4,024 $ 5,798
======= =======
</TABLE>
F-18
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
As of March 31, 2000, we had total net operating loss carryforwards of
approximately $66.8 million for domestic federal income tax reporting purposes,
which expire beginning in 2012. Approximately $63.7 million of the net operating
loss carryforwards (excluded from the table above) relate to disqualifying
dispositions of stock options which will result in an increase in additional
paid-in capital and a decrease in income taxes payable at such time that the tax
benefit is realized. In certain circumstances, as specified in the Internal
Revenue Code, an ownership change of fifty percent or more by certain
combinations of our stockholders during any three year period could result in an
annual limitation on our ability to utilize portions of our domestic net
operating loss carryforwards.
A valuation allowance in the amount set forth in the table above has been
recorded to properly reserve for a portion of the deferred tax assets due to
uncertainties surrounding their realization. We evaluate on a quarterly basis
the recoverability of the deferred tax assets and the amount of the valuation
allowance. At such time as it is determined that it is more likely than not that
the deferred tax assets are realizable, the valuation allowance will be reduced.
7. COMMITMENTS AND CONTINGENCIES
We lease certain buildings and equipment under noncancelable operating lease
agreements. The leases generally require us to pay all execution costs such as
taxes, insurance and maintenance related to the leased assets. Certain of the
leases contain provisions for periodic rate escalations to reflect
cost-of-living increases. Rent expense for such leases totaled approximately
$9.1 million, $4.6 million, and $2.6 million in fiscal years 2000, 1999, and
1998, respectively.
Future minimum lease payments under noncancelable operating leases, at
March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2001........................................................ $ 14,257
2002........................................................ 18,362
2003........................................................ 18,578
2004........................................................ 17,291
2005........................................................ 13,535
Thereafter.................................................. 105,746
--------
Total minimum lease payments................................ $187,769
========
</TABLE>
We sublease office space at our corporate headquarters to an affiliated
company. The term of the sublease is from June 1996 to October 2003 and requires
monthly rental payments of approximately $17,000.
On June 9, 1999, we entered into a series of leases covering up to
approximately 540,000 square feet of office space in San Diego, including an
option on approximately 118,000 square feet of office space. We have moved into
a portion of the completed new facilities with the remaining uncompleted space
currently scheduled for completion over the next four years. The future minimum
lease commitments detailed above contain our future commitments associated with
these leases. To the extent we do not require all of the space under these
leases, we have the right to sublet excess space.
F-19
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
We pay commissions to employees who have authored certain of our products
based on a percentage of the respective product's sales. Commissions paid under
such agreements are included in research and development expense in the
accompanying consolidated statements of operations and were approximately,
$3.6 million, $3.2 million and $1.7 million for fiscal years 2000, 1999, and
1998, respectively.
On March 31, 2000, we had outstanding forward contracts to buy foreign
currencies totaling $19.6 million U.S. Dollars. Additionally, we had outstanding
forward contracts to sell foreign currencies totaling $11.8 million U.S.
Dollars. These hedging exposures are consistent with transaction flows with
respect to our international operations. These contracts typically expire within
one month.
From time to time we are involved in various legal proceedings and claims
arising in the ordinary course of business, none of which, in our opinion, is
expected to have a material adverse effect on our consolidated financial
position or results of operations.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
We have authorized 5,000,000, $0.001 par value, undesignated preferred
shares, none of which were issued or outstanding at March 31, 2000 and 1999. Our
board of directors has the authority to issue the preferred stock in one or more
series, and to fix the price, rights, preferences, privileges, and restrictions,
including dividend rights and rates, conversion and voting rights, and
redemption terms and pricing without any further vote or action by our
shareholders.
STOCK OPTIONS
We have five stock option plans, the 1990 Nonqualified Stock Option Plan
("1990 Plan"), the 1991 Nonqualified Stock Option Plan ("1991 Plan"), the 1994
Stock Option Plan ("1994 Plan"), the 1997 Director Option Plan (the "Director
Plan") and the 1999 Nonqualified Stock Option Plan ("the 1999 Plan").
We may no longer grant options under the 1990 and 1991 Plans. We may grant
up to 32,553,000, 600,000, and 2,000,000 options under the 1994 Plan, Director
Plan and the 1999 Plan, respectively. All options granted pursuant to the plans
have an exercise price determined by our board of directors on a per-grant
basis, which may not be less than fair market value on the date of grant. Option
grants under all five stock option plans generally vest over four years. During
December 1996, we recorded $631,000 in deferred compensation related to the
grant of 740,000 options. This deferred compensation is being amortized on a
straight-line basis to expense over the options' four year vesting period.
The following table summarizes our five stock option plans at March 31,
2000, 1999, and 1998 as well as changes during the periods then ended. The table
excludes all option plans acquired as the
F-20
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
result of acquisitions during the periods presented, which represent options to
purchase 497,000 shares at March 31, 2000.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE PER SHARE
---------------- ------------------------
(IN THOUSANDS)
<S> <C> <C>
Balances, March 31, 1997................... 16,213.1 $ 0.52
Options granted............................ 6,514.9 3.40
Options exercised.......................... (7,290.6) 0.39
Options canceled........................... (1,142.5) 3.05
-------- ------
Balances, March 31, 1998................... 14,294.9 1.70
Options granted............................ 14,067.4 6.57
Options exercised.......................... (7,201.5) 0.96
Options canceled........................... (1,715.6) 1.52
-------- ------
Balances, March 31, 1999................... 19,445.2 5.52
Options granted............................ 5,989.6 19.01
Options exercised.......................... (4,791.0) 4.22
Options canceled........................... (776.1) 8.35
-------- ------
Balances, March 31, 2000................... 19,867.7 $ 9.79
======== ======
</TABLE>
As of March 31, 2000, 1999 and 1998 exercisable options outstanding were
4,064,000, 2,329,000 and 4,660,000, respectively, with weighted average exercise
prices of $5.21, $2.00, and $0.68, respectively.
We have adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Accordingly, we continue to account for stock options using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25.
Pursuant to SFAS No. 123, we are required to disclose the pro forma effects
on net income (loss) and net income (loss) per share data as if we had elected
to use the fair value approach to account for all of our employee stock-based
compensation plans. Had compensation cost for our plans been determined
consistent with the fair value approach enumerated in SFAS No. 123, our net
income (loss)
F-21
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
and net income (loss) per share for the years ended March 31, 2000, 1999, and
1998 would have been as indicated below:
In thousands, except per share data:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss:
As reported.................................. $(25,070) $(23,370) $ (616)
Pro forma expense effect of SFAS No. 123..... (15,216) (5,546) (1,300)
-------- -------- --------
Pro forma after giving effect to SFAS No.
123........................................ $(40,286) $(28,916) $ (1,916)
======== ======== ========
Basic and diluted pro forma net loss per share
As reported.................................. $ (0.24) $ (0.27) $ (0.01)
Pro forma expense effect of SFAS No. 123..... (0.15) (0.06) (0.02)
-------- -------- --------
Pro forma after giving effect to SFAS No.
123........................................ $ (0.39) $ (0.33) $ (0.03)
======== ======== ========
</TABLE>
The fair value of options was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for option grants:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate....................... 6.38% 5.65% 6.11%
Expected life (in years)...................... 4 4 4
Expected volatility........................... 89.03% 78.92% 63.06%
</TABLE>
RESTRICTED STOCK
During fiscal 1996, we granted 2,400,000 shares of nontransferable Common
Stock under restricted stock agreements to certain employees. These shares were
valued at a fair value of $0.59. The restrictions lapse on the shares ten years
from the date of grant or, if we achieve certain objectives for earnings growth
from fiscal 1997 through fiscal 2002, or, on a change in control of PSI. The
unearned portion of restricted stock is included in stockholders' equity and is
being amortized as compensation expense on a straight-line basis over the
vesting period. During fiscal 1998, 808,000 of the above shares were canceled.
During fiscal year 1998, we granted an additional 200,000 shares of
nontransferable Common Stock under restricted stock agreements valued at $3.16.
These shares vest over a six-year term and deferred compensation of $631,000 is
currently being amortized as compensation expense over this term.
1997 EMPLOYEE STOCK PURCHASE PLAN
In February 1997, our board of directors adopted, and the stockholders
approved, the 1997 Employee Stock Purchase Plan ("Purchase Plan"). We have
reserved 1,000,000 shares of common stock for issuance under the Purchase Plan.
The Purchase Plan enables eligible employees to purchase common stock at 85% of
the lower of the fair market value of the Company's common stock on the
F-22
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
first or last day of each option purchase period, as defined. During fiscal
years 2000, 1999, and 1998 we issued 100,000, 124,000, and 140,000 shares,
respectively, pursuant to the Purchase Plan.
DIRECTOR OPTION PLAN
In February 1997, our board of directors adopted, and the stockholders
approved, the 1997 Director Option Plan ("Director Plan"). We have reserved
600,000 shares of our Common Stock for issuance under the Director Plan. The
Director Plan provides each new eligible outside PSI director an initial option
grant to purchase 50,000 shares of our Common Stock upon election to our board
of directors. In addition, commencing with the 1998 Annual Stockholders meeting,
such eligible outside directors are granted an option to purchase 10,000 shares
of our Common Stock at each annual meeting. The exercise price per share of all
options granted under the Director Plan will be equal to the fair market value
of our Common Stock on the date of grant. Options may be granted for periods up
to ten years and generally vest over four years. No grants were made under the
Director Plan during fiscal 1998. We granted 50,000 and 100,000 shares of our
Common Stock under the Director Plan in fiscal 2000 and 1999, respectively.
9. EMPLOYEE BENEFIT PLAN
We have a 401(k) Employee Savings Plan ("Plan") covering substantially all
employees. The Plan provides for savings and pension benefits and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. Those
employees who participate in the Plan are entitled to make contributions of up
to 20 percent of their compensation, limited by IRS statutory contribution
limits. In addition to employee contributions, we may also contribute to the
Plan by matching 25% of employee contributions. Amounts we contributed to the
Employee Savings Plan during fiscal 2000, 1999, and 1998, were $905,000,
$467,000, and $200,000, respectively.
10. GEOGRAPHIC OPERATIONS
We operate exclusively in the Infrastructure Resource Management software
industry. A summary of our operations by geographic area is presented below:
<TABLE>
<CAPTION>
NORTH EUROPE &
AMERICA OTHER CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Year ended March 31, 2000
Revenues.................................... $149,582 $103,718 $253,300
Identifiable assets......................... $503,237 $ 20,193 $523,430
Year ended March 31, 1999
Revenues.................................... $ 88,649 $ 49,414 $138,063
Identifiable assets......................... $179,376 $ 28,337 $207,713
Year ended March 31, 1998
Revenues.................................... $ 39,512 $ 22,365 $ 61,877
Identifiable assets......................... $ 72,434 $ 11,134 $ 83,568
</TABLE>
Amounts included in Europe and Other above relate principally to our European
operations.
F-23
<PAGE>
PEREGRINE SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY INFORMATION (UNAUDITED)
The following unaudited quarterly financial information includes, in our
opinion, all normal and recurring adjustments (in thousands) necessary to fairly
state our consolidated results of operations and related information for the
periods presented.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 2000
License revenues.................................... $ 32,092 $ 37,102 $ 46,524 $ 52,749
Services revenues................................... 19,513 20,705 21,020 23,595
Total costs and expenses............................ (53,093) (56,006) (63,233) (89,624)
-------- -------- -------- --------
Income (loss) from operations....................... (1,488) 1,801 4,311 (13,280)
Interest income (expense) and other................. 86 7 5 (60)
Income tax expense.................................. 3,439 4,042 4,183 4,788
-------- -------- -------- --------
Net income (loss)................................... $ (4,841) $ (2,234) $ 133 $(18,128)
======== ======== ======== ========
Basic income (loss) per share....................... $ (0.05) $ (0.02) $ -- $ (0.17)
======== ======== ======== ========
Diluted income (loss) per share..................... $ (0.05) $ (0.02) $ -- $ (0.17)
======== ======== ======== ========
FISCAL 1999
License revenues.................................... $ 13,882 $ 17,375 $ 26,064 $ 30,041
Services revenues................................... 7,868 12,279 14,485 16,069
Total costs and expenses............................ (18,432) (49,960) (37,051) (46,359)
-------- -------- -------- --------
Income (loss) from operations....................... 3,318 (20,306) 3,498 (249)
Interest income (expense) and other................. 260 193 100 111
Income tax expense.................................. 1,742 2,209 2,969 3,375
-------- -------- -------- --------
Net income (loss)................................... $ 1,836 $(22,322) $ 629 $ (3,513)
======== ======== ======== ========
Basic income (loss) per share....................... $ 0.03 $ (0.26) $ 0.01 $ (0.04)
======== ======== ======== ========
Diluted income (loss) per share..................... $ 0.02 $ (0.26) $ 0.01 $ (0.04)
======== ======== ======== ========
</TABLE>
12. SUBSEQUENT EVENT
On April 5, 2000 we entered into an Agreement and Plan of Merger and
Reorganization with Harbinger Corporation ("Harbinger"), a Georgia corporation,
in which each outstanding share of Harbinger common stock will be converted into
the right to receive 0.75 of a share of our Common Stock (the "Merger"), or
approximately 36 million shares, inclusive of approximately 5 million shares
associated with Harbinger's outstanding stock options.
The Merger is intended to constitute a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended, and is to be accounted for as
a purchase transaction. Consummation of the Merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
our stockholders, the stockholders of Harbinger and certain regulatory agencies.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Harbinger Corporation:
We have audited the accompanying consolidated balance sheets of Harbinger
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harbinger
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Atlanta, Georgia
February 10, 2000
F-25
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 12,934 $ 33,059
Short-term investments...................................... 60,086 59,248
Accounts receivable, less allowances for returns and
doubtful accounts of $8,455 and $5,464 in 1999 and 1998,
respectively.............................................. 43,975 35,891
Royalties receivable, less allowance for doubtful accounts
of $3,614 in 1998......................................... 1,200 1,730
Deferred income taxes....................................... 2,103 2,103
Other current assets........................................ 3,621 5,622
-------- --------
Total current assets........................................ 123,919 137,653
-------- --------
Property and equipment, less accumulated depreciation and
amortization.............................................. 26,339 23,150
Intangible assets, less accumulated amortization............ 16,863 16,803
Deferred income taxes....................................... 698 698
Other non-current assets.................................... 1,640 65
-------- --------
$169,459 $178,369
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,478 $ 5,566
Accrued expenses.......................................... 15,995 31,571
Deferred revenues......................................... 21,212 21,213
-------- --------
Total current liabilities............................... 44,685 58,350
-------- --------
Commitments and contingencies...............................
Zero coupon redeemable preferred stock, no par value; 0 and
2,000,000 shares authorized, issued and outstanding as of
December 31, 1999 and 1998................................ -- --
Shareholders' equity:
Preferred stock, no par value; 20,000,000 and 18,000,000
shares authorized as of December 31, 1999 and 1998
respectively; none issued and outstanding............... -- --
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 43,404,247 and 42,313,031 shares issued as
of December 31, 1999 and 1998, respectively............. 4 4
Additional paid-in capital................................ 208,226 201,615
Accumulated deficit....................................... (56,968) (73,528)
Accumulated other comprehensive loss...................... (1,444) (622)
Treasury stock, 4,323,050 shares and 1,562,100 shares as
of December 31, 1999 and 1998, respectively............. (25,044) (7,450)
-------- --------
Total shareholders' equity.............................. 124,774 120,019
-------- --------
$169,459 $178,369
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Services.................................................. $108,673 $ 88,067 $ 63,417
Software.................................................. 46,841 47,084 54,804
-------- -------- --------
Total revenues.......................................... 155,514 135,151 118,221
-------- -------- --------
Direct costs:
Services.................................................. 46,442 34,487 22,710
Software.................................................. 4,555 3,730 7,800
-------- -------- --------
Total direct costs...................................... 50,997 38,217 30,510
-------- -------- --------
Gross margin.......................................... 104,517 96,934 87,711
-------- -------- --------
Operating costs:
Selling and marketing..................................... 39,559 31,618 26,723
General and administrative................................ 30,970 32,205 20,775
Depreciation and amortization............................. 9,522 8,100 7,096
Product development....................................... 11,836 10,636 15,267
Charge for purchased in-process product development,
write-off of software development costs, restructuring,
acquisition-related and other charges................... -- 27,027 40,555
-------- -------- --------
Total operating costs................................... 91,887 109,586 10,416
-------- -------- --------
Operating income (loss)............................... 12,630 (12,652) (22,705)
Interest income, net........................................ 3,467 4,830 3,914
Equity in losses of joint ventures.......................... (80) -- (313)
Minority interest income.................................... -- -- 2
-------- -------- --------
Income (loss) from continuing operations before income
taxes............................................... 16,017 (7,822) (19,102)
Income tax expense.......................................... (813) (705) (3,093)
-------- -------- --------
Income (loss) from continuing operations.............. 15,204 (8,527) (22,195)
Discontinued operations:
Loss from operations of TrustedLink Procurement business
and TrustedLink Banker division......................... -- (1,793) (10,433)
Income (loss) on disposal of TrustedLink Procurement
business, and TrustedLink Banker division, including
provisions for operating losses during phase-out
periods................................................. 1,356 (4,392) (4,000)
-------- -------- --------
Income (loss) before extraordinary item............... 16,560 (14,712) (36,628)
Extraordinary loss on debt extinguishment................... -- -- (2,419)
-------- -------- --------
Net income (loss)..................................... $ 16,560 $(14,712) $(39,047)
======== ======== ========
Basic earnings (loss) per share............................. $ 0.43 $ (0.35) $ (1.02)
======== ======== ========
Weighted average number of shares outstanding............... 38,938 41,557 38,162
======== ======== ========
Diluted earnings (loss) per share........................... $ 0.41 $ (0.35) $ (1.02)
======== ======== ========
Weighted average number of common shares outstanding
assuming dilution......................................... 40,739 41,557 38,162
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $16,560 $(14,712) $(39,047)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments.................. (822) 260 (744)
------- -------- --------
Comprehensive income (loss)............................... $15,738 $(14,452) $(39,791)
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
--------------------- ACCUMULATED ---------------------
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT LOSS SHARES AMOUNT
---------- -------- ---------- ------------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.... 35,806,596 $ 3 $113,846 $(19,593) $ (138) -- $ --
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 1,039,749 -- 5,098 -- -- -- --
Tax benefits from stock plans -- -- 498 -- -- -- --
Issuance of stock and stock
options to purchase a
debenture and acquire
minority interest of
subsidiary.................. 363,432 -- 6,416 -- -- -- --
Issuance of common stock and
vesting of contingent option
in connection with
acquisitions................ 513,079 -- 3,958 (296) -- -- --
Issuance of stock in secondary
offering, net............... 3,105,000 1 60,025 -- -- -- --
Other transactions............ -- -- -- (9) -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- (744) -- --
Net loss...................... -- -- (39,047) -- -- --
---------- -------- -------- -------- ------- ---------- --------
BALANCE, DECEMBER 31, 1997.... 40,827,856 4 189,841 (58,945) (882) -- --
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 1,289,178 -- 11,803 -- -- -- --
Shares purchased.............. -- -- -- -- -- (1,562,100) (7,450)
Immaterial
pooling-of-interests........ 194,497 -- -- 129 -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- 260 -- --
Other transactions............ 1,500 -- (29) -- -- -- --
Net loss...................... -- -- -- (14,712) -- -- --
---------- -------- -------- -------- ------- ---------- --------
BALANCE, DECEMBER 31, 1998.... 42,313,031 4 201,615 (73,528) (622) (1,562,100) (7,450)
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 1,091,216 -- 6,611 -- -- -- --
Shares purchased.............. -- -- -- -- -- (2,760,950) (17,594)
Foreign currency translation
adjustment.................. -- -- -- -- (822) -- --
Net income.................... -- -- -- 16,560 -- -- --
---------- -------- -------- -------- ------- ---------- --------
BALANCE, DECEMBER 31, 1999.... 43,404,247 $ 4 $208,226 $(56,968) $(1,444) (4,323,050) $(25,044)
========== ======== ======== ======== ======= ========== ========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, DECEMBER 31, 1996.... $ 94,118
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 5,098
Tax benefits from stock plans 498
Issuance of stock and stock
options to purchase a
debenture and acquire
minority interest of
subsidiary.................. 6,416
Issuance of common stock and
vesting of contingent option
in connection with
acquisitions................ 3,662
Issuance of stock in secondary
offering, net............... 60,026
Other transactions............ (9)
Foreign currency translation
adjustment.................. (744)
Net loss...................... (39,047)
--------
BALANCE, DECEMBER 31, 1997.... 130,018
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 11,803
Shares purchased.............. (7,450)
Immaterial
pooling-of-interests........ 129
Foreign currency translation
adjustment.................. 260
Other transactions............ (29)
Net loss...................... (14,712)
--------
BALANCE, DECEMBER 31, 1998.... 120,019
Exercise of stock options and
warrants and issuance of
stock under employee stock
purchase plan............... 6,611
Shares purchased.............. (17,594)
Foreign currency translation
adjustment.................. (822)
Net income.................... 16,560
--------
BALANCE, DECEMBER 31, 1999.... $124,774
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 16,560 $(14,712) $(39,047)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Allowance for returns and doubtful accounts........... 12,072 10,016 4,709
Charge for purchased in-process product development,
write-off of software development costs,
acquisition-related and other noncash charges....... -- 3,981 26,761
Income (loss) on disposal of discontinued
operations.......................................... (1,356) 5,737 4,000
Loss on debt extinguishment........................... -- -- 2,419
Depreciation and amortization......................... 11,530 10,847 10,917
Loss on sale of property and equipment................ -- -- 389
Discount amortization on investments.................. -- (153) 88
Equity in losses of joint ventures.................... 197 -- 302
Minority interest and other........................... -- -- (287)
Deferred income taxes................................. -- -- 1,110
Changes in operating assets and liabilities:
Accounts receivable................................. (20,815) (7,451) (17,680)
Royalties receivable................................ 530 20 (4,027)
Other assets........................................ 1,454 (2,256) 1,410
Accounts payable and accrued expenses............... (11,183) (2,724) 9,300
Deferred revenues................................... (1) 2,864 1,260
-------- -------- --------
Net cash provided by operating activities......... 8,988 6,169 1,624
-------- -------- --------
Cash flows from investing activities:
Net purchases of short-term investments................... (838) (26,762) (2,577)
Purchases of property and equipment....................... (11,398) (12,887) (8,576)
Additions to software development costs................... (5,806) (3,572) (5,014)
Investment in acquisitions and joint venture.............. (300) (3,547) (13,924)
Proceeds from disposal of property and equipment.......... -- -- 7
Proceeds from sale of discontinued operations............. 500 -- --
Net additions to notes receivable......................... (125) -- --
-------- -------- --------
Net cash used in investing activities............. (17,967) (46,768) (30,084)
-------- -------- --------
</TABLE>
F-30
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Exercise of stock options and warrants and issuance of
stock under employee stock purchase plan................ 6,611 11,803 5,098
Principal payments under notes payable and long-term
debt.................................................... -- (623) (2,968)
Proceeds from issuance of common stock.................... -- -- 60,026
Purchases of common stock................................. (17,594) (7,450) --
Repayments under credit agreement......................... -- -- (1,550)
Purchase of subordinated debenture........................ -- -- (1,500)
-------- -------- -------
Net cash (used in) provided by financing activities..... (10,983) 3,730 59,106
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (19,962) (36,869) 30,646
Cash and cash equivalents at beginning of year.............. 33,059 69,811 35,697
Effect of exchange rates on cash held in foreign
currencies................................................ (163) 65 (76)
Cash received from acquisitions............................. -- 52 3,544
-------- -------- -------
Cash and cash equivalents at end of year.................. $ 12,934 $ 33,059 $ 9,811
======== ======== =======
Supplemental disclosures:
Cash paid for interest.................................... $ -- $ 50 $ 90
======== ======== =======
Cash paid for income taxes................................ $ 788 $ 991 $ --
======== ======== =======
Supplemental disclosures of noncash investing and financing
activities:
Purchase of subordinated debenture in exchange for common
stock................................................... $ -- -- $ 4,200
======== ======== =======
Acquisition of minority interest in exchange for issuance
of common stock......................................... $ -- $ -- $ 2,216
======== ======== =======
Acquisition of minority interest in exchange for common
stock................................................... $ -- $ -- $ 392
======== ======== =======
Acquisition of businesses in exchange for assumption of
liabilities and issuance of common stock, options and
warrants to acquire common stock........................ $ -- $ -- $ 454
======== ======== =======
Issuance of notes receivable in exchange for sale of
discontinued operations................................. $ 800 $ -- $ --
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRESENTATION
Harbinger Corporation and subsidiaries (the Company) develops, markets and
supports software products, provides computer communications networks and
provides professional consulting services to enable businesses to engage in
e-commerce. The Company's products and services are used by customers in
targeted industries, including the petroleum, chemicals, utilities, electronics,
distribution, aerospace, automotive, communications, transportation,
textile/apparel and healthcare industries both in the United States and certain
international markets including Europe, South America and Asia.
The consolidated financial statements of the Company include the accounts of
Harbinger Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
SERVICES
Revenues for services principally include subscription fees for transactions
on harbinger.net, the Company's e-commerce portal; software maintenance; and
professional service fees for outsourcing, training and e-commerce enablement.
Subscription fees are a combination of monthly access charges and
transaction-based usage charges and are recognized as incurred each month.
Software maintenance is billed in advance with revenue deferred and recognized
ratably over the one-year service period. Revenues for professional services are
based on actual services rendered and are recognized as services are performed.
SOFTWARE
The Company recognizes revenue in accordance with Statement of Position
(SOP) 97-2, SOFTWARE REVENUE RECOGNITION, and SOP 98-4, DEFERRAL OF THE
EFFECTIVE DATE OF A PROVISION OF SOP 97-2. Revenue is derived from the sale of
software licenses, hardware and software services and is allocated to each
element of the arrangement based on the relative fair values of the elements
established by the price charged when the respective element is sold separately.
Revenues derived from software license fees are recognized upon shipment,
net of estimated returns. Software revenues also include royalties due to the
Company under distribution agreements with third parties that are recognized
either on shipment of software to a distributor or upon sales to end users by a
distributor, depending on the terms of the distribution agreement.
In December 1998 the Accounting Standards Committee of the American
Institute of Certified Public Accountants issued SOP 98-9, SOFTWARE REVENUE
RECOGNITION WITH RESPECT TO CERTAIN TRANSACTIONS. SOP 98-9 is effective for
fiscal years beginning after March 15, 1999 and the Company does not expect a
material change to its accounting for revenues as a result of adopting the
provisions of SOP 98-9.
F-32
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUES
Deferred revenues represent payments received from customers or billings
invoiced to customers for software and services billed in advance of revenue
recognition.
DIRECT COSTS
Direct costs for services include network asset depreciation and
amortization, telecommunications charges and the costs of personnel to manage
network operations, customer support, professional service engagements and
consulting. Direct costs for software include duplication, packaging and
shipping of software, amortization of purchased technology and software
development costs and royalties paid to third-party distributors.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments are stated at cost, which
approximates fair value, and consist primarily of money market funds and U.S.
Treasury bills. The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents. Investments
maturing between three and 12 months from the date of purchase are classified as
short-term investments.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designations quarterly. As of
December 31, 1999 debt securities were classified as held-to-maturity as the
Company intended to hold, and had the ability to hold, these securities to
maturity. Held-to-maturity securities are stated at amortized cost, which
approximates fair market value.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and other short-term obligations of the U.S. Government.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets, generally three to 10
years. Leasehold improvements are amortized straight-line over the shorter of
the lease or estimated useful life of the asset.
NONMONETARY TRANSACTION
The Company accounts for nonmonetary transactions based on the fair value of
the assets or services involved. During 1999 the Company acquired software to
use in its internal purchasing system as part of its overall ERP project in
exchange for certain Company software products that the acquiring company used
internally. The fair value, based on a combination of market comparables,
competitive bids and prior sales histories, was $330,000. This value was
recorded as property and equipment on the consolidated balance sheets and as
software revenue on the consolidated statements of operations.
F-33
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN JOINT VENTURES
During 1999 the Company became one-third owner of GLINK, LLC (GLINK), a
joint venture established to develop an electronic marketplace for the grocery
industry. The Company accounts for its ownership in GLINK using the equity
method of accounting, which requires the Company to record its share of income
and losses of GLINK to the consolidated statements of operations under "Equity
in losses of joint ventures" in the period they occur. The Company also applied
the equity method of accounting for its holdings in other immaterial joint
ventures in 1997 that have since been dissolved.
INTANGIBLE ASSETS
PURCHASED TECHNOLOGY, GOODWILL AND OTHER INTANGIBLE ASSETS
Purchased technology, goodwill and other intangible assets are amortized on
a straight-line basis over the expected periods to be benefited, generally five
to 10 years. The Company evaluates the recoverability of these intangible assets
at each period end using the undiscounted estimated future net operating cash
flows expected to be derived from such assets. If such evaluation indicates a
potential impairment, the Company uses the fair value to determine the amount of
these intangible assets that should be written off.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Costs
incurred internally to create a computer software product or to develop an
enhancement to an existing product are charged to expense when incurred as
research and development until technological feasibility has been established
for the product or enhancement. Thereafter, all software production costs are
capitalized and reported at the lower of unamortized cost or net realizable
value. Capitalization ceases when the product or enhancement is available for
general release to customers. Software development costs are amortized on a
product-by-product basis at the greater of the amounts computed using (a) the
ratio of current gross revenues for a product or enhancement to the total
current and anticipated future gross revenues for that product or enhancement,
or (b) the straight-line method over the remaining estimated economic life of
the product or enhancement, not to exceed five years. The Company evaluates the
net realizable value of its software development costs at each period end using
undiscounted estimated future net operating cash flows expected to be derived
from the respective software product or enhancement. If such evaluation
indicates that the unamortized software development costs exceed the net
realizable value, such amount is written off.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
of SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109 deferred income
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on
F-34
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform with the 1999 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its business.
The carrying values of cash equivalents, short-term investments, accounts and
royalties receivable, accounts payable, accrued expenses and deferred revenues
approximate fair value due to the short-term maturities of these assets and
liabilities.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's international operations are
translated into U.S. dollars at current exchange rates while the related
statements of operations are translated at average exchange rates during each
quarterly reporting period. Net exchange gains or losses resulting from the
translation of assets and liabilities are recorded as cumulative foreign
currency translation adjustments and reported in the consolidated statements of
comprehensive income (loss).
STOCK COMPENSATION PLANS
The Company applies the intrinsic-value-based method of accounting for its
nonvariable stock option plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB
Opinion No. 25), and related interpretations. As such, compensation expense
would generally be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
2. ACQUISITIONS AND INVESTMENTS
1999 INVESTMENT
GLINK
The Company became one-third owner of GLINK, a joint venture established to
develop an electronic marketplace for the grocery industry. The Company made an
initial $300,000 cash investment, which was recorded in "Other assets" on the
consolidated balance sheets (see note 13) .
1998 ACQUISITIONS
EDI WORKS! LLC (EDI WORKS!)
Effective March 31, 1998 the Company acquired EDI Works!, a Texas limited
liability company, for 194,497 shares of the Company's common stock in a
transaction accounted for using the pooling-of-interests method of accounting.
The EDI Works! business combination is not material, and therefore has been
accounted for as an immaterial pooling, with the accumulated earnings of EDI
Works! of
F-35
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
$129,000 being added directly to the Company's accumulated deficit on the date
of acquisition. The results of operations of EDI Works! are included in the
Company's consolidated statements of operations for the year ended December 31,
1998. In connection with the EDI Works! acquisition the Company recorded a
charge of $805,000 for acquisition-related expenses, asset write-downs and
integration costs (see note 10).
MACTEC, INC. (MACTEC)
Effective July 9, 1998 the Company acquired substantially all of the assets
of the Materials Management Division of MACTEC, located in Tulsa, Oklahoma, for
approximately $3.5 million in cash. The Company recorded the acquisition using
the purchase method of accounting, with approximately $3.5 million recorded to
goodwill in 1998 and an additional $128,000 recorded to goodwill in 1999. The
goodwill will be amortized ratably over 10 years.
1997 ACQUISITIONS
SUPPLYTECH, INC. (STI)
On January 3, 1997 the Company acquired STI for 3,600,000 unregistered
shares of the Company's common stock in a transaction accounted for using the
pooling-of-interests method of accounting. Effective January 3, 1997 the results
of operations of the Company and STI were retroactively combined. In connection
with the STI acquisition, the Company incurred a charge of $12.4 million for
acquisition-related expenses, asset write-downs and integration costs incurred
(including a $3.2 million charge for the vesting of a contingent option which
became exercisable upon the closing of the merger) (see note 10). The Company
recorded a net deferred income tax asset during the first quarter of 1997 of
$1.8 million relating to the STI acquisition and provided a valuation allowance
against such net deferred income tax asset to reduce it to zero.
PREMENOS TECHNOLOGY CORP. (PREMENOS)
On December 19, 1997 the Company acquired Premenos, a Delaware corporation
based in Concord, California. In connection with the transaction, which was
accounted for using the pooling-of-interests method of accounting, the Company
issued 8,037,982 shares of its common stock in exchange for all of the shares of
Premenos common stock. All Premenos options and warrants were converted into the
Company's options and warrants in accordance with the conversion ratio. In
connection with the Premenos acquisition, the Company incurred charges for
acquisition-related expenses, asset write downs and integration costs of $13.7
million in 1998 and $15.3 million in 1997 (see note 10).
F-36
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
The financial position and results of operations of the Company have been
restated for all periods presented to give retroactive effect to the Premenos
acquisition. Total revenues and net income (loss) for the Company and Premenos
as previously reported are as follows (in thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Total revenues:
Harbinger Corporation....................................... $ 77,414
Premenos.................................................... 40,807
--------
$118,221
========
Net income (loss):
Harbinger Corporation....................................... $(42,832)
Premenos.................................................... 3,785
--------
$(39,047)
========
</TABLE>
On September 30, 1998 the Company discontinued its TrustedLink Procurement
business (TLP) and on December 31, 1997 the Company discontinued its TrustedLink
Banker division (Banker). The revenues of Harbinger Corporation reported above
have been restated accordingly (see note 11).
HARBINGER NET SERVICES (HNS)
On January 1, 1997 the Company exercised its rights as majority shareholder
of HNS to appoint a majority of the members of the HNS Board of Managers. As a
result, effective January 1, 1997 the Company began accounting for its
investment in HNS by consolidating the balance sheets and statements of
operations of HNS with those of the Company. Prior to the January 1, 1997
acquisition date the Company accounted for its investment in HNS using the
equity method of accounting.
Also on January 1, 1997 the Company entered into a debenture purchase
agreement with the holder of the debenture whereby the Company acquired the
debenture in exchange for $1.5 million in cash and 363,432 shares of the
Company's common stock valued at $4.2 million. The Company recorded an
extraordinary loss on debt extinguishment of $2.4 million in the first quarter
of 1997 related to this transaction.
Immediately after this transaction the Company acquired the remaining
minority interest in HNS, consisting of 585,335 shares of HNS common stock and
stock options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 532,975 shares of the Company's common
stock at exercise prices ranging from $10.14 per share to $11.02 per share which
were valued at $2.2 million. Including transaction and other costs of $350,000,
the Company paid $4.1 million for the acquisition of the HNS minority interest
which was accounted for using the purchase method of accounting, with $2.7
million of the purchase price allocated to in-process product development and
charged to the consolidated statement of operations on January 1, 1997, and $1.4
million allocated to goodwill and purchased technology. The Company also
incurred acquisition-related expenses and asset write-downs related to this
acquisition of $2.0 million in 1997 (see note 10). The Company recorded a net
deferred income tax asset of approximately $840,000 as a result of this
acquisition and provided a valuation allowance against such net deferred income
tax asset to reduce it to zero.
F-37
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
SMART SOLUTIONS FOR ELECTRONIC COMMERCE, INC. (SMART SOLUTIONS)
Effective May 1, 1997 the Company acquired all of the common stock of Smart
Solutions, a Michigan corporation based in Traverse City, Michigan, for
$677,000, consisting of 29,635 unregistered shares of the Company's common stock
valued at $454,000 and the assumption of $223,000 in liabilities. The Company
recorded the acquisition using the purchase method of accounting with $100,000
of the purchase price allocated to purchased technology, $71,000 allocated to
tangible assets and $506,000 allocated to goodwill.
ACQUION, INC. (ACQUION)
Effective August 22, 1997 the Company acquired all of the common stock of
Acquion, a California corporation based in Greenville, South Carolina, for
approximately $13.6 million, consisting of $12.0 million in cash and the
assumption of approximately $1.6 million in liabilities including transaction
costs. The Company recorded the acquisition using the purchase method of
accounting with $10.9 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations in
1997, $641,000 allocated to purchased technology and $2.0 million allocated to
goodwill. The Company also incurred acquisition-related expenses and asset write
downs of $2.5 million during 1997 related to this acquisition (see note 10). The
Company recorded a net deferred income tax asset of approximately $4.1 million
as a result of this acquisition and provided a valuation allowance against such
net deferred income tax asset to reduce it to zero. TLP, a separate business
within Acquion, was discontinued by the Company on September 30, 1998 (see note
11).
ATLAS PRODUCTS INTERNATIONAL, LIMITED (ATLAS)
Effective October 23, 1997 the Company acquired Atlas, a company organized
under the laws of England, based in Manchester, United Kingdom, for 467,098
unregistered shares of the Company's common stock in a transaction accounted for
using the pooling-of-interests method of accounting. In connection with the
acquisition the Company recorded charges for acquisition-related expenses, asset
write downs and integration costs incurred of $1.4 million in 1998 and $2.0
million in 1997, respectively (see note 10). The Atlas business combination was
not material, and therefore was accounted for as an immaterial pooling, with
Atlas' accumulated deficit of $296,000 being credited directly to the Company's
accumulated deficit on the date of acquisition.
PRO FORMA FINANCIAL INFORMATION
The results of operations of the acquired companies have been included in
the Company's consolidated statements of operations beginning on the following
dates: EDI Works!: March 31, 1998; MACTEC: July 9, 1998; HNS: January 1, 1997;
Smart Solutions: May 1, 1997; Acquion: August 22, 1997; and Atlas: October 1,
1997.
Unaudited pro forma results of operations of the Company for 1998 would not
be materially different as a result of the 1998 acquisitions of EDI Works! and
MACTEC and are therefore not presented for 1998.
F-38
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASED TECHNOLOGY AND DISTRIBUTION AGREEMENTS
SYSTEM SOFTWARE ASSOCIATES, INC. (SSA)
On May 26, 1999 the Company executed an agreement (the Agreement) with SSA
terminating its distributor arrangement that had existed since 1995. Under the
Agreement, SSA paid the Company a total of approximately $2.0 million in
settlement of certain royalty receivables, maintenance services provided to
SSA's customers by the Company from 1995 through 1999 and an additional license
of source code provided to SSA. The settlement proceeds were allocated pro-rata
to the three components of the Agreement based on their relative fair values.
The following credits were recorded to the Company's accompanying consolidated
statement of operations in 1999: $1.0 million to general and administrative
costs for collection of accounts that had been reserved for in 1998, $628,000 to
direct costs of services for reimbursement of maintenance costs, and $420,000 to
software revenue for license of source code.
At December 31, 1998 the Company had a net provision of $3.6 million in its
allowance for doubtful accounts related to royalty receivables due from SSA.
On July 21, 1995 the Company entered into a distribution agreement and
purchased certain software products from SSA in exchange for the issuance of
1,237,500 shares of the Company's common stock valued at $4.7 million at the
date of issuance and the issuance of 4,000,000 shares of the Company's zero
coupon redeemable preferred stock (see note 8). The Company allocated the
consideration associated with these transactions of $4.8 million (including
transaction costs of $122,000) as follows: $2.3 million to purchased technology
and $2.5 million to the distribution agreement based upon the estimated fair
values of the purchased technology and distribution agreement at the date of the
exchange. During 1997 the purchased technology was written down due to the
acquisition of other replacement technology that was licensed to SSA. In 1998
the intangible asset associated with the distribution agreement was written off
based upon estimated future net cash flows from the arrangement (see note 10).
GENERAL ELECTRIC INFORMATION SERVICES, INC. (GEIS)
On September 30, 1999 the Company entered into an agreement with GEIS that
terminated all prior existing arrangements between the Company and GEIS relating
to GEIS' distribution and support of a certain product. As part of the 1999
agreement GEIS paid the Company $665,000 for the license of certain object and
source codes.
On December 31, 1995 the Company entered into an alliance agreement with
GEIS and an agreement to purchase certain software products from GEIS. The total
purchase price was $2.5 million, consisting of $300,000 in cash and the
assumption of a note payable to GEIS in the amount of $2.2 million. The Company
recorded the purchase of the technology and the alliance agreement based upon
fair value with $1.2 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations in
1995, $375,000 allocated to purchased technology, $950,000 allocated to the
alliance agreement, and $15,000 allocated to tangible assets. During 1997 the
purchased technology was written down due to the acquisition of other
replacement technology that was licensed to GEIS and the distribution agreement
was written down based upon future expectations of net cash flows from the
arrangement (see note 10).
Certain terms of the alliance agreement include the referral of customers to
the Company by GEIS, the performance of certain software maintenance services by
GEIS and a $1.2 million
F-39
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASED TECHNOLOGY AND DISTRIBUTION AGREEMENTS (CONTINUED)
guaranteed payment by GEIS to the Company for the two-year period ended
December 31, 1997, relating to software maintenance revenues to be paid by GEIS
to the Company. GEIS' subsequent sales to end-users exceeded the $1.2 million
guaranteed payment each year.
DISTRIBUTION AGREEMENT
On February 5, 2000 the Company entered into an agreement with an existing
distributor whereby the distributor agreed to pay $1.2 million to the Company
for royalties owed from prior agreements dating back to 1992. This amount was
recorded as software revenues in the fourth quarter of 1999 in the accompanying
consolidated statements of operations.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computer and communications equipment................... $ 45,648 $ 34,632
Furniture, fixtures and leasehold Improvements.......... 10,900 10, 210
Other................................................... 83 438
-------- --------
Less accumulated depreciation and 56,631 45,280
amortization.......................................... (30,292) (22,130)
-------- --------
$ 26,339 $ 23,150
======== ========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Purchased technology (note 10)............................ $ 1,296 $ 1,521
Goodwill, GEIS alliance and SSA distribution Agreements
(notes 3 and 10)........................................ 8,222 12,130
Software development costs (note 10)...................... 17,250 9,041
------- -------
26,768 22,692
Less accumulated amortization............................. (9,905) (5,889)
------- -------
$16,863 $16,803
======= =======
</TABLE>
F-40
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accrued salaries, wages and benefits...................... $ 5,816 $ 9,522
State income, property, sales and other taxes............. 1,168 3,870
Accrued severance, lease exit costs and other (note 10)... 2,750 6,129
Accrued discontinued operations costs (note 11)........... 3,336 6,518
Accrued integration costs incurred (note 10).............. 169 1,358
Other accrued expenses.................................... 2,756 4,174
------- -------
$15,995 $31,571
======= =======
</TABLE>
7. INCOME TAXES
Income (loss) from continuing operations before income taxes for the years
ended December 31, 1999, 1998 and 1997 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. operations................................. $13,708 $(5,835) $(21,063)
Foreign operations.............................. 2,309 (1,987) 1,961
------- ------- --------
$16,017 $(7,822) $(19,102)
======= ======= ========
</TABLE>
Income tax expense from continuing operations for the years ended December
31, 1999, 1998 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ 442 $ 581
Foreign............................................. 495 (124) 1,187
State............................................... 318 387 215
---- ----- ------
Total current..................................... 813 705 1,983
---- ----- ------
Deferred:
Federal............................................. -- -- 981
State............................................... -- -- 129
---- ----- ------
Total deferred.................................... -- -- 1,110
---- ----- ------
$813 $ 705 $3,093
==== ===== ======
</TABLE>
The Company's income taxes currently payable for federal and state purposes
have been reduced by the tax benefit derived from stock option transactions. The
benefit, which totaled $498,000 for the year ended December 31, 1997, has been
credited directly to stockholders' equity.
There is no income tax expense or benefit for discontinued operations of TLP
(from operations) in 1999 and 1998. There was no income tax expense for
discontinued operations of Banker (from operations) in 1997. There was no income
tax expense or benefit relating to loss on disposal of TLP or Banker or
extraordinary loss on debt extinguishment.
F-41
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Income tax expense differs from the amounts computed by applying the federal
statutory income tax rate of 34% to income (loss) from continuing operations
before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)............ $ 5,445 $(2,660) $(6,495)
Increase (decrease) in income tax expense (benefit)
resulting from:
State income taxes, net of federal income tax benefit....... 210 255 227
Tax-exempt income......................................... (13) (168) (157)
Change in tax status of STI............................... -- -- (1,798)
Nondeductible charge for purchased in-process product
development and other costs............................. -- 488 1,431
Increase (decrease) in the valuation allowance for
deferred tax assets allocated to income tax expense..... (5,092) 2,759 10,003
Other..................................................... 263 31 (118)
------- ------- -------
$ 813 $ 705 $ 3,093
======= ======= =======
</TABLE>
The significant components of deferred income tax expense (benefit) from
continuing operations for the years ended December 31, 1999, 1998 and 1997 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Deferred income tax expense (benefit)....................... $ 5,092 $(2,759) $(12,399)
Increase (decrease) in the valuation allowance for deferred
income tax assets......................................... (5,092) 2,759 13,509
------- ------- --------
$ -- $ -- $ 1,110
======= ======= ========
</TABLE>
The income tax effects of the temporary differences that give rise to the
Company's deferred income tax assets and liabilities as of December 31, 1999 and
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards.......................... $12,655 $ 4,269
Intangible assets......................................... 1,588 7,446
Accrued expenses.......................................... 5,807 13,992
Discontinued operations................................... 1,301 1,762
Research tax credit....................................... 1,561 2,082
Other..................................................... 132 790
------- --------
Gross deferred income tax assets........................ 23,044 30,341
Valuation allowance......................................... (18,624) (23,716)
------- --------
Deferred income tax assets, net of the valuation
allowance................................................. 4,420 6,625
Deferred income tax liabilities--principally due to software
development costs......................................... (1,619) (3,824)
------- --------
Net deferred income tax assets.......................... 2,801 2,801
Less current deferred income tax assets..................... 2,103 2,103
------- --------
Noncurrent deferred income tax assets....................... $ 698 $ 698
======= ========
</TABLE>
F-42
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
During 1999 the net decrease in the valuation allowance was $5.1 million.
During 1998 the net increase in the valuation allowance was $2.8 million. A
valuation allowance is established to reduce the deferred income tax assets to
the level at which it is 'more likely than not' that the tax benefits will be
realized. Realization of tax benefits of deductible temporary differences and
operating loss and tax credit carryforwards depends on having sufficient taxable
income within the carryback and carryforward periods. Sources of taxable income
that may allow for the realization of tax benefits include: (a) taxable income
in the current year or prior years that is available through carryback, (b)
future taxable income that will result from the reversal of existing taxable
temporary differences, and (c) future taxable income generated by future
operations. The Company continually reviews the adequacy of the valuation
allowance and recognizes these benefits as reassessment indicates that it is
more likely than not that the benefits will be realized.
The Company acquired net operating losses and research tax credit
carryforwards in the 1997 Premenos acquisition (see note 2) of approximately
$1.3 million and $1.7 million, respectively. The utilization of these net
operating loss and research tax credit carryforwards is restricted, based on the
ability of Premenos as a separate company to generate taxable income.
At December 31, 1999 the Company had domestic and foreign net operating loss
carryforwards and research tax credit carryforwards of approximately $48.0
million, $11.8 million and $1.5 million, respectively. The domestic net
operating loss carryforwards expire at various dates through 2021 unless
utilized. The foreign net operating loss carryforwards do not expire and the
research tax credit carryforwards expire beginning in 2007 through 2012. The
Company's domestic net operating loss carryforwards at December 31, 1999 include
$30.5 million in income tax deductions related to stock options excluded from
the table of deferred income tax assets above, which will be reflected as a
credit to additional paid-in capital when realized.
8. REDEEMABLE PREFERRED STOCK
In 1995 the Company issued 4,000,000 shares of zero coupon redeemable
preferred stock to SSA. The zero coupon redeemable preferred stock issued had no
voting or dividend rights, vested at a rate of 1,000,000 shares per year only if
SSA attained certain royalty targets for the years 1997 through 2000, and
contained mandatory redemption provisions of $0.67 per share payable in cash or
the Company's common stock, at the option of the holder, 30 days after the end
of each year. The royalty targets for 1998 and 1997 were not met and 2,000,000
of the shares of the zero coupon redeemable preferred stock were forfeited by
December 31, 1998. The remaining 2,000,000 shares were terminated in 1999 per
the terms of an agreement executed between the Company and SSA on May 26, 1999
that dissolved the distributor relationship (see note 3).
9. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue from time to
time up to an aggregate of 20,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking
F-43
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. As of
December 31, 1999 there were no shares of redeemable preferred stock issued and
outstanding.
COMMON STOCK
On April 24, 1998 the Board of Directors declared a three-for-two stock
split in the form of a stock dividend on the Company's common stock paid on May
15, 1998 to shareholders of record on May 1, 1998. All share, per share and
shareholders' equity amounts included in the Company's consolidated financial
statements have been restated to reflect the split for all periods presented.
WARRANTS
The Company issued warrants in December 1997 related to the acquisition of
Premenos. The warrants enable the holders to acquire 26,199 shares of the
Company's common stock at $5.63 per share, representing the exchange ratio
agreed to in the merger agreement. As of December 31, 1999, 25,913 warrants were
exercised and 286 warrants were cancelled, leaving no warrants outstanding.
The Company issued warrants in April 1996 related to the acquisition of NTEX
and INOVIS. The warrants enable the holders to acquire 73,125 shares of the
Company's common stock at a range of $7.55 to $7.61 per share, representing the
fair value of the common stock at the date of issuance. There were 20,000
warrants outstanding as of December 31, 1999, all at an exercise price of $7.61.
STOCK COMPENSATION PLANS
As of December 31, 1999 the Company had five stock-based compensation plans,
of which four were related to stock options and one was related to stock
purchases, more fully described below.
STOCK OPTIONS
The Company's 1989 Stock Option Plan (the 1989 Plan) and 1996 Stock Option
Plan (the 1996 Plan), together combined (the Plans), provide for the grant of
options to officers, directors, consultants and key employees. The 1996 Plan was
amended in 1998 to add 1,050,000 options available for grant. The maximum number
of shares of stock that may be issued under the 1996 Plan may not exceed the sum
of 8,737,500 plus an amount equal to the number of all shares that are either
not subject to options granted under the 1989 Plan or were subject to options
granted thereunder that expire without exercise to officers, directors,
consultants and key employees. There were 1,044,628 options available for grant
at December 31, 1999. Options granted under the terms of the 1996 Plan generally
vest ratably over four years and are granted with an exercise price no less than
the fair market value of the common stock on the grant date. Options granted
prior to July 1994 vested ratably over three years and options granted since
July 1994 vest ratably over four years. All options granted expire seven years
from the date of grant. At December 31, 1999 there were options outstanding to
purchase 6,373,845 shares of the Company's common stock, of which options to
purchase 2,358,682 shares were exercisable. In 1998 the Board of Directors
authorized a repricing of certain unexercised employee stock options held by
employees other than certain senior executive officers. The number of shares
repriced to $6.91 was approximately 2.6 million. The four-year vesting period
for all repriced shares began in October 1998.
F-44
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
In 1993 the Board of Directors authorized the creation of a stock option
plan for nonemployee members of the Company's Board of Directors (the
Nonemployee Directors Plan). The Nonemployee Directors Plan was amended in 1998
to add 187,500 options, for a total of 525,000 shares of common stock reserved
for issuance under the Nonemployee Directors Plan at an option price no less
than the fair market value of the common stock on the option grant date. Options
expire seven years from the date of grant. The options granted under the
Nonemployee Directors Plan vest ratably in the year of grant based on attendance
at regularly scheduled board meetings. Options which have not vested in the year
of grant expire and become available for grant under the Nonemployee Directors
Plan. At December 31, 1999 there were options outstanding and exercisable to
purchase 372,749 shares of the Company's common stock and 57,939 options
available to grant.
In addition to outstanding options granted under the Plans and Nonemployee
Directors Plan, the Company has granted options to acquire 157,500 shares of
common stock to certain existing and former nonemployee directors for past
services. As of December 31, 1999, all of these options had been exercised.
At December 31, 1999 the Company had five stock-based compensation plans
which are described herein. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its nonvariable stock option plans and its stock
purchase plan. Had compensation cost for the Company's five stock-based
compensation plans been determined in accordance with SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, the Company's net income (loss) and income (loss)
per share would have been the pro forma amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported.......................................... $16,560 $(14,712) $(39,047)
Pro forma............................................ $ 287 $(28,254) $(48,221)
Diluted income (loss) per share:
As reported.......................................... $ 0.41 $ (0.35) $ (1.02)
Pro forma............................................ $ 0.01 $ (0.68) $ (1.26)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: 1999:
dividend yield of 0.5%, expected volatility of 92.9%, risk-free interest rate of
6.17% and expected lives of five years for all the Plan options; 1998: dividend
yield of 0.5%, expected volatility of 82.6%, risk-free interest rate of 5.3% and
expected lives of five years for all of the Plan options; 1997: dividend yield
of 0.5%, expected volatility of 67.3%, risk-free interest rate of 5.7% and
expected lives of five years for all of the Plan options.
F-45
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option plans as of and for the years ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
NONVARIABLE OPTIONS (000S) PRICE (000S) PRICE (000S) PRICE
- ---------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 7,290 $8.90 7,267 $10.73 4,567 $ 7.51
Granted........................... 2,029 $9.98 5,185 $12.55 4,497 $13.99
Exercised......................... (992) $5.95 (1,118) $ 8.79 (858) $ 3.61
Forfeited/canceled................ (1,049) $8.87 (4,044) $16.70 (939) $17.19
------ ------ ------
Outstanding at end of year........ 7,278 $9.57 7,290 $ 8.90 7,267 $10.73
====== ====== ======
Options exercisable at end of
year............................ 2,731 $9.30 2,070 $ 7.88 1,875 $ 6.01
Weighted average fair value of
options granted during the
year............................ $10.15 $ 6.72 $ 6.03
</TABLE>
The following table summarizes information about nonvariable stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISABLE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISE PRICE
- -------------------------------- ----------- ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.01 -- $ 2.83 522,144 1.71 2.65 510,894 2.64
$ 2.84 -- $ 6.89 519,293 5.31 5.95 113,751 4.19
$ 6.91 -- $ 6.91 1,909,981 5.81 6.91 349,717 6.91
$ 7.61 -- $ 7.78 883,266 3.95 7.75 498,015 7.77
$ 8.71 -- $10.50 1,410,194 6.39 10.21 171,953 10.18
$10.67 -- $13.50 1,053,433 4.95 11.48 636,390 11.37
$13.61 -- $35.00 979,889 5.55 19.03 450,712 18.41
--------- ---------
$ 0.01 -- $35.00 7,278,200 5.21 9.57 2,731,432 9.30
========= =========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company offers employees the right to purchase shares of the Company's
common stock at 85% of the market price, as defined, pursuant to the Employee
Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan, full-time
employees, except persons owning 5% or more of the Company's common stock, are
eligible to participate after six months of employment. Employees may contribute
up to 15% of their annual salary toward the Purchase Plan up to a maximum of
$15,000 per year. A maximum of 487,500 shares of common stock are reserved for
issuance under the Purchase Plan. During the years ended December 31, 1999, 1998
and 1997 shares issued under the Purchase Plan were 96,000, 89,247 and 160,813,
respectively. A portion of the shares issued in 1997 disclosed above was
authorized under existing purchase plans of acquired companies and is excluded
from the calculation of shares available to issue under the Purchase Plan.
F-46
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
Under SFAS No. 123, compensation cost is disclosed for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1999: dividend yield of 0.5%, expected
volatility of 92.9% and risk-free interest rate of 6.17%; 1998: dividend yield
of 0.5%, expected volatility of 82.6%, and risk-free interest rate of 5.3%; and
for 1997: dividend yield of 0.5%, expected volatility of 67.3% and risk-free
interest rate of 5.7%. The expected life of the employees' purchase rights was
three months for all years. The weighted average fair value of those purchase
rights granted in 1999, 1998 and 1997 was $10.32, $7.11 and $5.95, respectively.
The impact of the Purchase Plan on the Company's pro forma net income (loss) and
income (loss) per share presentation required per SFAS No. 123 has been included
in STOCK OPTIONS above.
10. CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE
DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION-RELATED AND OTHER CHARGES
In connection with acquisitions and restructurings in 1998 and 1997, the
Company incurred charges for purchased in-process product development, write-off
of software development costs, restructuring, acquisition-related and other
charges (Charges). A summary of the components, as adjusted for discontinued
TLP, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
In-process product development............................ $ -- $ 2,853
Integration costs......................................... 13,154 14,319
Transaction charges....................................... 638 9,515
Lease termination......................................... 2,335 --
Intangible asset write-downs.............................. 3,963 8,431
Asset write-downs......................................... 396 1,599
Severance costs........................................... 4,281 3,838
Other costs to exit activities............................ 2,260 --
------- -------
$27,027 $40,555
======= =======
</TABLE>
Integration costs associated with business combinations include costs
incurred for cross training, planning, product integration and marketing. For
1998 and 1997 approximately $4.1 million and $7.8 million of integration costs,
respectively, resulted from the redirection of internal resources and their
associated costs (Integration Activity Costs) to manage integration activities.
At December 31, 1999 the accrued liabilities related to the Charges were
approximately $3.0 million, compared to $7.5 million at December 31, 1998 (see
note 6). The reduction to accrued liabilities in 1999 was all due to cash
payments made. The liabilities at December 31, 1999 consist primarily of
reserves for lease terminations, severance costs and legal fees. The remaining
liabilities involve management estimates and the actual results could vary from
these estimates.
Charges for in-process product development are recorded as a result of
acquiring research and development efforts through business combinations that,
at the date of acquisition, have not yet generated commercializable products and
have no alternative future use. The valuations for such purchased in-process
product developments are made with the assistance of third-party experts based
on fair value. Intangible asset write downs consist primarily of capitalized
software and goodwill that have become impaired as a result of product
phase-outs.
F-47
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DISCONTINUED OPERATIONS
The Company discontinued TLP on September 30, 1998 and established a $6.4
million reserve for the estimated loss on disposal of TLP, including
$2.9 million for anticipated operating losses during the phase-out period. In
the second quarter of 1999 the Company sold the intangible assets and certain
property and equipment of TLP for $1.3 million, comprised of cash of $500,000
and a note receivable of $800,000. The resulting loss on disposal of TLP was
$2.0 million. Repayment on the note will occur at the earlier of the buyer
achieving certain sales targets or December 31, 2000.
At December 31, 1999, the remaining balance in the loss reserve was
$3.3 million, available for certain remaining contingencies associated with the
disposal of TLP. Such contingencies primarily relate to lease termination costs,
customer transition issues and collection risks associated with notes and
accounts receivable. Management presently does not have an estimate on when
these final contingencies will settle.
The operating loss during the phase-out period from the measurement date of
September 30, 1998 to December 31, 1999 was $1.2 million.
The results of operations for TLP for 1998 and 1997 are reported in the
accompanying reclassified statements of operations under "Loss from operations
of TrustedLink Procurement business and TrustedLink Banker division". Revenues
from TLP for the years ended December 31, 1998 and 1997 were $2.9 million and
$2.5 million, respectively. No income tax benefit was recognized in 1998 or 1997
due to the Company's net operating loss carryforwards.
The assets and liabilities of TLP are included in the Company's consolidated
balance sheets as of December 31, 1999 and 1998 and are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable......................................... $457 $ 454
Other current assets........................................ 62 106
Property and equipment, net................................. -- 766
Intangible assets, net...................................... -- 2,454
Deferred revenues........................................... -- (45)
Other current liabilities................................... (67) (281)
---- ------
$452 $3,454
==== ======
</TABLE>
In the fourth quarter of 1997 the Board of Directors approved the
discontinuance of Banker. Revenues from Banker were $4.0 million for the year
ended December 31, 1997. The results of operations for Banker for all years
presented are reported in the accompanying reclassified statements of operations
under "Loss from operations of TrustedLink Procurement business and TrustedLink
Banker division". In the fourth quarter of 1997 the Company established a $4.0
million reserve for the estimated loss on disposal of Banker, including $2.3
million for anticipated operating losses during the phase-out period. No income
tax expense or benefit was recognized in 1997 due to the Company's net operating
loss carryforwards. As of December 31, 1998 the disposal of Banker was
substantially completed and $2.0 million in estimated losses not incurred was
recorded as a reduction to "Loss on disposal of TrustedLink Banker" on the
statement of operations. During 1999 the remaining contingencies associated with
Banker were settled and $1.4 million in estimated losses not incurred was
recorded as a reduction to "Loss on disposal of TrustedLink Banker" in 1999. The
operating loss of Banker during 1998 was $280,000. The assets and liabilities of
Banker included in the Company's consolidated balance sheets were immaterial at
December 31, 1999 and 1998.
F-48
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DISCONTINUED OPERATIONS (CONTINUED)
A reconciliation of the amounts appearing on the consolidated statements of
operations for the years ended December 31, 1999, 1998 and 1997 is as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Loss from operations of:
TLP............................................ $ -- $(1,793) $(10,311)
Banker......................................... -- -- (122)
------ ------- --------
$ -- $(1,793) $(10,433)
====== ======= ========
Income (loss) on disposal, including provisions
for operating losses during phase-out periods,
for:...........................................
TLP............................................ $ -- $(6,392) $ --
Banker......................................... 1,356 2,000 (4,000)
------ ------- --------
$1,356 $(4,392) $ (4,000)
====== ======= ========
</TABLE>
12. EARNINGS (LOSS) PER SHARE
The following sets forth the computations of basic and diluted earnings
(loss) per share for the years ended December 31, 1999, 1998 and 1997 (in
thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic earnings per share:
Income (loss) from continuing operations.................. $ 0.39 $ (0.20) $ (0.58)
Loss from discontinued operations......................... -- (0.04) (0.27)
Income (loss) on disposal of discontinued operations...... 0.04 (0.11) (0.11)
Extraordinary loss on debt extinguishment................. -- -- (0.06)
------- ------- -------
Net earnings (loss) per share........................... $ 0.43 $ (0.35) $ (1.02)
======= ======= =======
Weighted average number of shares outstanding:.............. 38,938 41,557 38,162
======= ======= =======
Earnings per share assuming dilution:
Income (loss) from continuing operations.................. $ 0.38 $ (0.20) $ (0.58)
Loss from discontinued operations......................... -- (0.04) (0.27)
Income (loss) on disposal of discontinued operations...... 0.03 (0.11) (0.11)
Extraordinary loss on debt extinguishment................. -- -- (0.06)
------- ------- -------
Net earnings (loss) per share........................... $ 0.41 $ (0.35) $ (1.02)
======= ======= =======
Weighted average number of shares outstanding:.............. 38,938 41,577 38,162
Effect of potentially dilutive stock options................ 1,801 -- --
------- ------- -------
Weighted average number of shares outstanding assuming
dilution.................................................. 40,739 41,557 38,162
======= ======= =======
</TABLE>
Options to purchase l.6 million shares of common stock outstanding during
1999 were excluded from the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of the
common shares, and therefore, the effect would be antidilutive.
F-49
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS (LOSS) PER SHARE (CONTINUED)
Options to purchase 4.4 million and 3.0 million shares of common stock
outstanding during 1998 and 1997, respectively, were excluded from the
computation of diluted earnings per share due to their antidilutive effect as a
result of the Company's loss from continuing operations in those years.
13. OTHER RELATED PARTY TRANSACTIONS
During 1999 the Company became one-third owner of GLINK, which licensed
certain Company software for $250,000 and contracted for $252,000 in
professional services for which the Company received a 12-month note receivable
that matures on September 30, 2000. One-third of the aforementioned revenues
were eliminated in consolidation. Additionally, the Company provided $80,000 in
consulting services to GLINK in 1999 that was recorded as work-in-process and
deferred revenue on the accompanying consolidated balance sheets because payment
terms by GLINK had not been finalized (see note 2).
The Company received notes receivable during the first quarter of 1999
totaling $605,000 from five employees who were former shareholders of EDI
Works!. The terms of the full-recourse notes are 18 months with an annual
interest rate of 8.75%. Interest accrues on a monthly basis with principal and
interest due at the end of the term of the notes. At December 31, 1999 four of
the notes, including interest, were paid in full to the Company resulting in a
remaining balance of principal and interest of $135,000.
The Company received $40,000, $284,000 and $465,000 in 1999, 1998 and 1997,
respectively, in revenue from an affiliated company that is partially owned by
an employee of one of the Company's foreign subsidiaries. This same affiliated
company also billed the Company $22,000, $189,000 and $63,000 in 1999, 1998 and
1997, respectively, for services.
The Company has a note receivable of $50,000 from a former executive officer
with an annual interest rate of 9%, renewable at the end of each year. At
December 31, 1999 this note was fully reserved, as it is anticipated this debt
will be forgiven as part of a severance agreement (see note 6).
Prior to the acquisition of Premenos, one of Premenos' directors was a
partner of a law firm that provided various legal services to Premenos. Two
other directors of Premenos also provided training and consulting services to
the Company from time to time. Amounts incurred for all such services in 1997
were $493,000.
14. SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
SEGMENT INFORMATION
The Company operates in a single industry segment: the establishment and
management of e-commerce relationships between businesses. The Company manages
its business along geographical lines, thus resulting in three reportable
segments: North America, Europe, and Asia Pacific and Latin America. The
accounting policies of each segment are the same as those described in the
summary of significant accounting policies. Revenues are attributed to a
reportable segment based on the location of the customer. Management evaluates
the performance of each segment on the basis of operating income, excluding
Charges and certain net general and administrative charges. Intersegment
royalties are calculated based upon revenues, as defined, derived from the sales
of certain software products and
F-50
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
services at agreed upon percentages between the segments. The measurement of
long-term assets is not a significant factor in management's evaluation of the
results of the reportable segments.
A summary of the Company's reportable segments as of and for the years ended
December 31, 1999, 1998 and 1997 is presented below (in thousands):
<TABLE>
<CAPTION>
ASIA
PACIFIC
AND
NORTH LATIN
AMERICA EUROPE AMERICA TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
1999................................................. $133,685 $22,653 $4,309 $160,647
1998................................................. $115,800 $20,285 $2,950 $139,035
1997................................................. $ 98,816 $17,676 $3,272 $119,764
Intersegment royalties:
1999................................................. $ 5,133 $ -- $ -- $ 5,133
1998................................................. $ 3,884 $ -- $ -- $ 3,884
1997................................................. $ 1,543 $ -- $ -- $ 1,543
Operating income
(AS DEFINED):
1999................................................. $ 9,294 $ 3,831 $1,051 $ 14,176
1998................................................. $ 18,747 $ 754 $ 637 $ 20,138
1997................................................. $ 16,071 $ 1,300 $ 479 $ 17,850
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Total gross revenues for reportable segments................ $160,647 $139,035 $119,764
Elimination of intersegment royalties....................... (5,133) (3,884) (1,543)
-------- -------- --------
Total consolidated revenues............................... $155,514 $135,151 $118,221
======== ======== ========
Operating income (AS DEFINED):
Total operating income for reportable segments.............. $ 14,176 $ 20,138 $ 17,850
Charges for integration and restructuring................... -- (27,027) (40,555)
Certain net general and administrative costs................ (1,546) (5,763) --
-------- -------- --------
Total consolidated operating income (loss)................ $ 12,630 $(12,652) $(22,705)
======== ======== ========
</TABLE>
F-51
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
GEOGRAPHIC INFORMATION
Revenues attributed to the United States, the Company's country of domicile,
are substantially the same as revenues reported for the reportable segment of
North America (above) for all years presented. Revenues derived from customers
in foreign countries did not exceed 10% in any one country of the Company's
consolidated revenues in 1999, 1998 or 1997.
The Company's long-lived assets, excluding net intangible and deferred tax
assets, as of December 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
United States............................................. $23,984 $21,203
Foreign countries......................................... 2,355 1,947
------- -------
$26,339 $23,150
======= =======
</TABLE>
MAJOR CUSTOMERS
No single customer comprised greater than 10% of the Company's consolidated
revenues in 1999, 1998 or 1997.
15. COMMITMENTS AND CONTINGENCIES
401(K) PROFIT SHARING PLAN
During 1998 the Company consolidated its three separate 401(k) savings and
retirement plans into one plan (Plan) for all its domestic employees. In
general, all domestic employees are eligible to participate in the plan after
one month of employment and may contribute up to 15% of their annual salary up
to the maximum allowed by the Internal Revenue Code. Under the consolidated plan
the Company matches employee contributions at 50% to a maximum of 4% of their
annual salary, subject to a $2,200 limit per employee. Prior to consolidating
the plans the Company's matching contributions in 1997 varied from a range of
discretionary to 50% of employees' contributions. Total Company contributions
for its 401(k) plans totaled $776,000, $736,000 and $454,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
CREDIT FACILITY
During 1998 the Company converted its $10.0 million committed line of credit
to an uncommitted credit facility. There are no restrictive covenants or
commitment fees associated with the uncommitted facility. No amounts were
outstanding at December 31, 1999 and 1998.
LEASES
The Company leases office facilities, automobiles, fixtures and equipment
under operating leases which extend through 2005. Rent expense under all
operating leases was approximately $5.9 million, $5.5 million and $4.3 million
for the years ended December 31, 1999, 1998 and 1997, respectively. At
F-52
<PAGE>
HARBINGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
December 31, 1999 the Company is obligated under these agreements to make the
following lease payments (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 6,127
2001........................................................ 5,332
2002........................................................ 4,056
2003........................................................ 3,675
2004........................................................ 3,626
Thereafter.................................................. 9,727
-------
Total minimum lease payments............................ $32,543
=======
</TABLE>
In conjunction with one building lease, the Company was required to provide
a standby letter of credit, which was $350,000 at December 31, 1999.
CONTINGENCIES
The Company is involved in claims and other legal actions arising out of the
ordinary course of business, including discontinued operations and the phase-out
of certain non-strategic software products. Additionally, a shareholder class
action lawsuit was filed against the Company in September 1999 (see part I, Item
3 of the Company's December 31, 1999 Form 10-K). While the ultimate results and
outcomes cannot be determined, management does not expect that they will have a
material adverse effect on the Company's results of operations or financial
position.
F-53
<PAGE>
HARBINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 21,049 $ 12,934
Short-term investments.................................... 58,149 60,086
Accounts receivable, less allowances for returns and
doubtful accounts of $8,102 at March 31, 2000 and $8,455
at December 31, 1999.................................... 48,289 43,975
Royalties receivable...................................... -- 1,200
Deferred income taxes..................................... 2,103 2,103
Other current assets...................................... 5,393 5,130
-------- --------
Total current assets.................................... 134,983 125,428
-------- --------
Property and equipment, less accumulated depreciation and
amortization.............................................. 25,903 26,339
Intangible assets, less accumulated amortization............ 17,302 16,863
Deferred income taxes....................................... 698 698
Other non-current assets.................................... 4,327 131
-------- --------
$183,213 $169,459
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,452 $ 7,478
Accrued expenses.......................................... 19,859 15,995
Deferred revenues......................................... 23,448 21,212
-------- --------
Total current liabilities............................... 48,759 44,685
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares
authorized; none issued and outstanding................. -- --
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 44,380,419 shares and 43,404,247 shares
issued as of March 31, 2000 and December 31, 1999....... 4 4
Additional paid-in capital................................ 216,678 208,226
Accumulated deficit....................................... (55,596) (56,968)
Accumulated other comprehensive loss...................... (1,588) (1,444)
Treasury stock, 4,323,050 shares as of March 31, 2000 and
December 31, 1999....................................... (25,044) (25,044)
-------- --------
Total shareholders' equity.............................. 134,454 124,774
-------- --------
$183,213 $169,459
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-54
<PAGE>
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Services.................................................. $27,236 $25,372
Software.................................................. 11,171 8,131
------- -------
Total revenues.......................................... 38,407 33,503
------- -------
Direct costs:
Services.................................................. 10,738 10,626
Software.................................................. 1,058 1,131
------- -------
Total direct costs...................................... 11,796 11,757
------- -------
Gross margin............................................ 26,611 21,746
------- -------
Operating costs:
Selling and marketing..................................... 12,504 8,386
General and administrative................................ 8,684 6,560
Depreciation and amortization............................. 2,866 2,233
Product development....................................... 2,193 3,011
------- -------
Total operating costs................................... 26,247 20,190
------- -------
Operating income...................................... 364 1,556
------- -------
Interest income, net........................................ 1,391 898
Equity in losses of joint ventures.......................... (241) --
------- -------
Income before income taxes............................ 1,514 2,454
Income tax expense.......................................... 142 113
------- -------
Net income............................................ $ 1,372 $ 2,341
======= =======
Basic earnings per share.................................... $ 0.03 $ 0.06
======= =======
Weighted average number of common shares outstanding........ 39,439 39,879
======= =======
Earnings per share assuming dilution........................ $ 0.03 $ 0.06
======= =======
Weighted average number of common shares outstanding
assuming dilution......................................... 42,246 40,451
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-55
<PAGE>
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income.................................................. $1,372 $2,341
Other comprehensive loss, net of tax:
Foreign currency translation adjustments.................. (144) (635)
------ ------
Comprehensive income.................................... $1,228 $1,706
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-56
<PAGE>
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,T
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows provided by operating activities................. $ 3,670 $ 454
Cash flows from investing activities:
Net redemptions (purchases) of short-term investments..... 1,937 (653)
Purchases of property and equipment....................... (2,216) (2,378)
Additions to software development costs................... (1,503) (887)
Investments in joint ventures, net........................ (1,855) -
------- --------
Net cash used in investing activities................. (3,637) (3,918)
------- --------
Cash flows from financing activities:
Exercises of stock options and warrants and issuance of
stock under employee stock purchase plan................ 8,452 486
Purchases of common stock................................. - (15,778)
------- --------
Net cash provided by (used in) financing activities... 8,452 (15,292)
------- --------
Net increase (decrease) in cash and cash equivalents........ 8,485 (18,756)
Cash and cash equivalents at beginning of period............ 12,934 33,059
Effect of exchange rates on cash held in foreign
currencies................................................ (370) (194)
------- --------
Cash and cash equivalents at end of period.................. $21,049 $ 14,109
======= ========
Supplemental disclosures:
Cash paid for income taxes.................................. $ - $ 45
======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-57
<PAGE>
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial
information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary to a fair presentation of the financial
position, results of operations, comprehensive income, and cash flows for the
interim periods. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in Harbinger Corporation's
("Harbinger" or the "Company") Form 10-K for the year ended December 31, 1999
and the Company's current reports on Form 8-K dated January 24, 2000, April 6,
2000 and April 17, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the quarter ended March 31, 1999
unaudited and the December 31, 1999 audited consolidated financial statements to
conform to the presentation of the quarter ended March 31, 2000.
REVENUE RECOGNITION
On January 1, 2000 the Company adopted Statement of Position 98-9, Software
Revenue Recognition with Respect to Certain Transactions, which did not have a
material impact on accounting for revenues.
2. INVESTMENTS IN JOINT VENTURES
During the three months ended March 31, 2000 the Company acquired equity
positions in two privately- held ventures and issued a letter of intent to
invest in a third privately-held venture, fundamentally exchanging the Company's
technologies and services for equity positions in the ventures. Each investment
will be accounted for using the equity method of accounting, which requires the
Company to record its share of income or loss to the consolidated statements of
operations under "Equity in losses of joint ventures" in the period they occur.
The Company has chosen to use the equity method for these investments due to its
belief that it has the ability to exercise significant influence over the
entities. More specifically, the Company invested $2.0 million in
FactorWorks.com Inc. ("FactorWorks") for a 7.8% ownership position and recorded
approximately $1.4 million in services revenues net of $117,000 of revenue
eliminated in consolidation; invested $3.0 million for a 7.4% ownership of
Edaflow Corporation and recorded $1.4 million in software revenue net of
$117,000 of revenue eliminated in consolidation; and committed to an estimated
$4 million investment for an estimated 20% ownership of a joint venture in the
golf and hospitality industry and recognized $1.9 million of software revenue,
net of $476,000 of revenue eliminated in consolidation. The Company's share of
income or loss in these investments for the three months ended March 31, 2000
was not
F-58
<PAGE>
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
2. INVESTMENTS IN JOINT VENTURES (CONTINUED)
material. These ventures are early-stage enterprises which therefore may be
financially volatile, with no assurances on the ultimate value of the Company's
investments. The Company's investments are recorded as "Other non-current
assets" on the consolidated balance sheets.
3. ACCRUED LIABILITIES
At March 31, 2000 the Company had a remaining reserve of $2.4 million
related to charges for purchased in-process product development, write-off of
software developed costs, restructuring, acquisition related and other charges,
compared to $3.0 million at December 31, 1999. The reduction to the reserve in
2000 was due to cash payments made for $600,000. The liabilities at March 31,
2000 consist primarily of reserves for lease terminations, severance costs and
legal fees. The remaining liabilities are based on management estimates and the
actual results could vary from these estimates.
4. DISCONTINUED OPERATIONS
The Company discontinued its TrustedLink Procurement business ("TLP") in
September 30, 1998 and established a $6.4 million reserve for an estimated loss
on disposal of TLP, including anticipated losses during the phase-out period.
The Company sold the business in 1999 and wrote off certain additional assets in
2000, resulting in a $2.3 million loss on disposal. The Company presently has an
$800,000 note receivable from the purchaser of TLP. Repayment of this note will
occur at the earlier of the buyer achieving certain sales targets or December
31, 2000.
At March 31, 2000 the remaining balance in the loss reserve was $ 2.9
million, available for certain remaining contingencies associated with TLP. Such
contingencies relate to lease termination costs, customer transition issues and
collection risks associated with notes and accounts receivables. At present,
management is not able to estimate specific time frames during which these
contingencies will be resolved. The operating loss during the phase-out period
from the measurement date of September 30, 1998 to March 31, 2000 was $ 1.2
million. The net assets and liabilities of TLP included in the Company's
consolidated balance sheets were $5,228 at March 31, 2000 and $452,000,
primarily consisting of account receivables, at December 31, 1999.
5. SEGMENT INFORMATION
The Company operates in a single industry segment: the development,
marketing and support of software products and the providing of network and
professional services to enable businesses to engage in business-to-business
e-commerce. The Company manages its business along geographical lines, thus
resulting in three reportable segments: North America, Europe, and Asia Pacific
and Latin America. The accounting policies of each segment are the same as those
described in the summary of significant accounting policies. Revenues are
attributed to a reportable segment based on the location of the customer.
Management evaluates the performance of each segment on the basis of operating
income, excluding certain general and administrative charges and credits.
Intersegment royalties are calculated based upon revenues, as defined, derived
from the sales of certain software products and services at agreed upon
percentages between the segments.
F-59
<PAGE>
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
5. SEGMENT INFORMATION (CONTINUED)
A summary of the Company's reportable segments as of March 31, 2000 and
March 31, 1999 is presented below (in thousands):
<TABLE>
<CAPTION>
ASIA PACIFIC AND
NORTH AMERICA EUROPE LATIN AMERICA TOTAL
------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Revenues:
2000.......................... $34,697 $ 3,976 $1,206 $39,879
1999.......................... $28,413 $ 5,729 $ 511 $34,653
Intersegment Royalties:
2000.......................... $ 1,472 $ -- $ -- $ 1,472
1999.......................... $ 1,150 $ -- $ -- $ 1,150
Operating Income (as defined):
2000.......................... $ 1,915 $(1,654) $ 103 $ 364
1999.......................... $ 54 $ 833 $ (81) $ 806
</TABLE>
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Total gross revenues for reportable segments.............. $39,879 $34,653
Elimination of intersegment royalties..................... (1,472) (1,150)
------- -------
Total consolidated revenues............................. $38,407 $33,503
======= =======
</TABLE>
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING INCOME:
Total operating income for reportable segments, as
defined................................................. $ 364 $ 806
Certain general and administrative credits................ -- 750
------- -------
Total consolidated operating income, as reported........ $ 364 $ 1,556
======= =======
</TABLE>
6. CONTINGENCIES
The Company is involved in claims and other legal actions arising out of the
ordinary course of business, including discontinued operations and the phase-out
of certain non-strategic software products. Additionally, a shareholder class
action lawsuit was filed against the Company in September 1999 (see Part I, Item
3 of the Company's December 31, 1999 Form 10-K). While the ultimate results of
such claims and legal actions cannot be determined, management does not expect
that they will have a material adverse effect on the Company's results of
operations or financial position.
7. SUBSEQUENT EVENT
PENDING MERGER
On April 5, 2000 the Company entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") with Peregrine Systems, Inc.
("Peregrine"), a Delaware
F-60
<PAGE>
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
7. SUBSEQUENT EVENT (CONTINUED)
corporation, and Soda Acquisition Company, a Delaware Corporation and a
wholly-owned subsidiary of Peregrine, in which each outstanding share of
Harbinger common stock will be converted into the right to receive 0.75 of a
share of Peregrine common stock (the "Merger").
The Merger is intended to constitute a reorganization under Section 368 (a)
of the Internal Revenue Code of 1986, as amended, and is to be accounted for as
a purchase transaction. Consummation of the Merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
the stockholders of Peregrine, shareholders of Harbinger and certain regulatory
bodies. (See Annex A of this Form S-4, Agreement and Plan of Merger and
Reorganization)
In connection with the proposed merger, Peregrine will file a proxy
statement and Registration Statement on Form S-4 with the Securities and
Exchange Commission ("SEC"), and Harbinger will file a proxy statement with the
SEC. Harbinger and Peregrine will mail a Joint Proxy Statement/Prospectus to
stockholders of Harbinger and Peregrine containing additional information about
the proposed merger after approval from the SEC. Depending on whether the SEC
reviews the proposed merger, the transaction is expected to close in summer or
early fall of 2000.
F-61
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
PEREGRINE SYSTEMS, INC.
SODA ACQUISITION CORPORATION
AND
HARBINGER CORPORATION
DATED AS OF APRIL 5, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 Effective Time; Closing..................................... A-2
1.3 Effect of the Merger........................................ A-2
1.4 Articles of Incorporation; Bylaws........................... A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-2
1.7 Surrender of Certificates................................... A-3
1.8 No Further Ownership Rights in Company Common Stock......... A-5
1.9 Lost, Stolen or Destroyed Certificates...................... A-5
1.10 Tax and Accounting Consequences............................. A-5
1.11 Taking of Necessary Action; Further Action.................. A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY................... A-6
2.1 Organization and Qualification; Subsidiaries................ A-6
2.2 Articles of Incorporation and Bylaws........................ A-6
2.3 Capitalization.............................................. A-6
2.4 Authority Relative to this Agreement........................ A-8
2.5 No Conflict; Required Filings and Consents.................. A-8
2.6 Compliance; Permits......................................... A-9
2.7 SEC Filings; Financial Statements........................... A-9
2.8 No Undisclosed Liabilities.................................. A-10
2.9 Absence of Certain Changes or Events........................ A-10
2.10 Absence of Litigation....................................... A-10
2.11 Employee Benefit Plans...................................... A-11
2.12 Labor Matters............................................... A-13
2.13 Registration Statement/Joint Proxy Statement/Prospectus..... A-13
2.14 Restrictions on Business Activities......................... A-13
2.15 Title to Property........................................... A-14
2.16 Taxes....................................................... A-14
2.17 Environmental Matters....................................... A-15
2.18 Brokers..................................................... A-15
2.19 Intellectual Property....................................... A-15
2.20 Agreements, Contracts and Commitments....................... A-18
2.21 Insurance................................................... A-19
2.22 Opinion of Financial Advisor................................ A-19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
2.23 Board Approval.............................................. A-20
2.24 Vote Required............................................... A-20
2.25 State Takeover Statutes..................................... A-20
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... A-20
ARTICLE III
3.1 Organization and Qualification; Subsidiaries................ A-20
3.2 Certificate of Incorporation and Bylaws..................... A-21
3.3 Capitalization.............................................. A-21
3.4 Parent Common Stock......................................... A-21
3.5 Authority Relative to this Agreement........................ A-21
3.6 SEC Filings; Financial Statements........................... A-21
3.7 No Undisclosed Liabilities.................................. A-22
3.8 Compliance; Permits......................................... A-22
3.9 Absence of Certain Changes or Events........................ A-22
3.10 Absence of Litigation....................................... A-23
3.11 Registration Statement; Joint Proxy Statement/Prospectus.... A-23
3.12 Brokers..................................................... A-23
3.13 Opinion of Financial Advisor................................ A-23
3.14 Board Approval.............................................. A-23
3.15 Vote Required............................................... A-23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... A-24
4.1 Conduct of Business by Company.............................. A-24
4.2 Conduct of Business by Parent............................... A-26
ARTICLE V ADDITIONAL AGREEMENTS....................................... A-27
5.1 Joint Proxy Statement/Prospectus; Registration Statement.... A-27
5.2 Shareholder and Stockholder Meetings........................ A-27
5.3 Confidentiality; Access to Information...................... A-28
5.4 No Solicitation............................................. A-28
5.5 Public Disclosure........................................... A-30
5.6 Reasonable Efforts; Notification............................ A-30
5.7 Third Party Consents........................................ A-31
5.8 Stock Options and Employee Benefits; Warrants............... A-31
5.9 Form S-8.................................................... A-32
5.10 Indemnification............................................. A-32
5.11 Nasdaq Listing.............................................. A-33
5.12 Affiliates.................................................. A-33
5.13 Regulatory Filings; Reasonable Efforts...................... A-33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.14 Parent Board of Directors................................... A-33
5.15 Shareholder Litigation...................................... A-33
ARTICLE VI CONDITIONS TO THE MERGER.................................... A-33
Conditions to Obligations of Each Party to Effect the
6.1 Merger.................................................... A-33
6.2 Additional Conditions to Obligations of Company............. A-34
Additional Conditions to the Obligations of Parent and
6.3 Merger Sub................................................ A-34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... A-35
7.1 Termination................................................. A-35
7.2 Notice of Termination; Effect of Termination................ A-36
7.3 Fees and Expenses........................................... A-37
7.4 Amendment................................................... A-38
7.5 Extension; Waiver........................................... A-38
ARTICLE VIII GENERAL PROVISIONS.......................................... A-38
8.1 Survival of Representations and Warranties.................. A-38
8.2 Notices..................................................... A-38
8.3 Interpretation; Definitions................................. A-39
8.4 Counterparts................................................ A-40
8.5 Entire Agreement; Third Party Beneficiaries................. A-40
8.6 Severability................................................ A-40
8.7 Other Remedies; Specific Performance........................ A-41
8.8 Governing Law............................................... A-41
8.9 Rules of Construction....................................... A-41
8.10 Assignment.................................................. A-41
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 Form of Company Voting Agreement
Exhibit A-2 Form of Parent Voting Agreement
Exhibit B Form of Stock Option Agreement
Exhibit C Form of Affiliate Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of April 5, 2000, among Peregrine Systems, Inc., a Delaware corporation
("PARENT"), Soda Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Harbinger Corporation, a
Georgia corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Georgia Business
Corporation Code ("GEORGIA LAW") and the Delaware General Corporation Law
("DELAWARE LAW"), Parent and Company intend to enter into a business combination
transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its shareholders, (ii) has unanimously approved and declared advisable this
Agreement, and has approved the Merger (as defined in Section 1.1) and the other
transactions contemplated by this Agreement, and (iii) has determined to
recommend that the shareholders of Company adopt and approve this Agreement and
approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and is fair to, and in the best interests of, Parent and its stockholders,
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement, and (iii) has determined to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock (as
defined below) pursuant to the Merger (the "SHARE ISSUANCE").
D. Concurrently with the execution of this Agreement, (i) as a condition and
inducement to Parent's willingness to enter into this Agreement, each affiliate
of Company is entering into Voting Agreements in the form attached hereto as
EXHIBIT A-1 (the "COMPANY VOTING AGREEMENTS") and (ii) as a condition and
inducement to Company's willingness to enter into this Agreement, certain
affiliates of Parent are entering into Voting Agreements in the form attached
hereto as EXHIBIT A-2 (the "PARENT VOTING AGREEMENT").
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Company
shall execute and deliver a Stock Option Agreement in favor of Parent in the
form attached hereto as EXHIBIT B (the "STOCK OPTION AGREEMENT").
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Georgia Law and Delaware Law, Merger Sub shall be
merged with and into Company (the "MERGER"), the separate corporate existence of
Merger Sub shall cease, and Company shall continue as the surviving corporation
and as a
A-1
<PAGE>
wholly-owned subsidiary of Parent. Company as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger with the Secretary of State of the State of Georgia in
accordance with the relevant provisions of Georgia Law (the "CERTIFICATE OF
MERGER") and a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of Delaware Law (the
"DELAWARE CERTIFICATE OF MERGER") (the time of the later of such filings (or
such later time as may be agreed in writing by Company and Parent and specified
in the Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable
on or after the Closing Date (as herein defined). The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050
at a time and date to be specified by the parties, which shall be no later than
the second business day after the satisfaction or waiver of all of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Georgia
Law and Delaware Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers, and franchises of Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Company and Merger Sub
shall become the debts, liabilities, and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of Company, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving
Corporation.
(b) The Bylaws of Company, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified. The initial officers of
the Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock,
par value $.0001 per share, of Company (the "COMPANY COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any
shares of Company Common Stock to be cancelled pursuant to Section 1.6(b),
will be cancelled and extinguished and automatically converted (subject to
Sections 1.6(e) and (f)) into the right to receive that number of shares of
Common Stock, $0.001 par value per share, of Parent (the "PARENT COMMON
STOCK") equal to 0.75 (the "EXCHANGE RATIO") upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.9). If any shares of Company Common Stock
outstanding immediately prior to the Effective Time are
A-2
<PAGE>
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with the Company, then the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends. The Company shall
take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option or
other right set forth in any such restricted stock purchase agreement or
other agreement.
(b) CANCELLATION OF PARENT-OWNED STOCK. Each share of Company Common
Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior
to the Effective Time shall be cancelled and extinguished without any
conversion thereof.
(c) STOCK OPTIONS; WARRANTS; EMPLOYEE STOCK PURCHASE PLANS. At the
Effective Time, each outstanding Warrant (as defined in Section 2.3), all
options to purchase Company Common Stock and stock appreciation rights then
outstanding under Company's Amended and Restated 1989 Stock Option Plan (the
"1989 PLAN"), Company's 1996 Stock Option Plan, as amended, (the "INCENTIVE
PLAN"), Company's 1993 Stock Option Plan for Nonemployee Directors (the
"DIRECTOR PLAN" and, together with the 1989 Plan and the Incentive Plan, the
"COMPANY OPTION PLANS"), and each of the Company Option Plans shall be
assumed by Parent in accordance with Section 5.8 hereof. Purchase rights
outstanding under Company's Amended and Restated Employee Stock Purchase
Plan (the "ESPP") shall be treated as set forth in Section 5.8.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, $0.001
par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of Common Stock,
$0.001 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect proportionately and equitably the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Common Stock), reorganization, recapitalization, reclassification or other
like change with respect to Parent Common Stock or Company Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof, each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock that otherwise would be received by such holder)
shall, upon surrender of such holder's Certificates(s) (as defined in
Section 1.7(c)), receive from Parent an amount of cash (rounded to the
nearest whole cent), without interest, equal to the product of (i) such
fraction and (ii) the average closing price of Parent Common Stock for the
five trading days immediately preceding the last full trading day prior to
the Effective Time, as reported on the Nasdaq National Market System
("NASDAQ").
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Within five (5) business days
after the Effective Time, Parent shall make available to the Exchange Agent,
for exchange in accordance with this Article I,
A-3
<PAGE>
(i) the shares of Parent Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of Company Common Stock and (ii) cash in an
amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.6(f) and any dividends or distributions to which holders of shares
of Company Common Stock may be entitled pursuant to Section 1.7(d).
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record
(as of the Effective Time) of a certificate or certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into
the right to receive shares of Parent Common Stock pursuant to Section 1.6,
cash in lieu of any fractional shares pursuant to Section 1.6(f), and any
dividends or other distributions pursuant to Section 1.7(d), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain such other provisions
as Parent may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock, cash in lieu of any fractional shares
pursuant to Section 1.6(f) and any dividends or other distributions pursuant
to Section 1.7(d). Upon surrender of Certificates for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which
their shares of Company Common Stock were converted at the Effective Time,
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d), and the Certificates so surrendered
shall forthwith be cancelled. Until so surrendered, outstanding Certificates
will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.7(d) as to the payment of dividends, to
evidence only the ownership of the number of full shares of Parent Common
Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6(f) and any dividends
or distributions payable pursuant to Section 1.7(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificate(s) with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificate(s) shall surrender such Certificate(s).
Subject to applicable law, following surrender of any such Certificate(s),
the Exchange Agent shall deliver to the record holders thereof, without
interest, a certificate(s) representing whole shares of Parent Common Stock
issued in exchange therefor along with payment in lieu of fractional shares
pursuant to Section 1.6(f) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable with
respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate representing shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid any transfer or other taxes
required by reason of the issuance of certificates representing shares of
Parent Common Stock in any name other than that of the registered holder of
the Certificates surrendered, or established to the satisfaction of Parent
or any agent designated by it that such tax has been paid or is not payable.
A-4
<PAGE>
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, Parent, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable
legal requirement. To the extent such amounts are so deducted or withheld,
such amounts shall be treated for all purposes under this Agreement as
having been paid to the person to whom such amounts would otherwise have
been paid.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither of the Exchange Agent, Parent, the Surviving
Corporation, or any party hereto shall be liable to a holder of shares of
Parent Common Stock or Company Common Stock for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat, or
similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Shares of Company
Common Stock in accordance with the terms hereof (together with any cash paid in
respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificate shall have been lost, stolen, or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen, or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 1.6, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to
Section 1.7(d); PROVIDED, HOWEVER, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash, and other distributions, require the owner of such
lost, stolen, or destroyed Certificate to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation, or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall be
treated as a purchase for accounting purposes.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title, and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub are fully authorized in the manner of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof and as of the Closing Date, Company represents and
warrants to Parent and Merger Sub, subject to such exceptions as are
specifically disclosed in writing in the disclosure schedules, dated as of the
date hereof delivered by Company to Parent (the "COMPANY SCHEDULE"), as follows.
The Company Schedule shall be arranged in sections corresponding to the numbered
sections contained in this Article and the disclosure in any paragraph shall
qualify other sections in this Article only to the extent it is reasonably
apparent from a reading of such disclosure that it also qualifies such other
sections.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. Each of Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("APPROVALS") necessary to own, lease and operate the properties it purports
to own, operate or lease and to carry on its business as it is now being
conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
Each of Company and its subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated
by it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and
in good standing that would not, either individually or in the aggregate,
have a Material Adverse Effect on Company.
(b) Company has no subsidiaries except for the corporations identified
in Section 2.1(b) of the Company Schedule. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor be bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or as may hereafter be in effect (a
"CONTRACT") under which it may become obligated to make, any future
investment in or capital contribution to any other entity. Neither Company
nor any of its subsidiaries directly or indirectly owns any equity or
similar interest in or any interest convertible, exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business, association or entity, other than passive
investments in equity interests of public companies constituting less than
5% interests therein as part of Company's cash management program
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Company has previously furnished
to Parent a complete and correct copy of its Articles of Incorporation and
Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of 100,000,000
shares of Company Common Stock, par value $0.0001 per share, and 20,000,000
shares of Preferred Stock, without par value ("COMPANY PREFERRED STOCK"). At
the close of business on March 31, 2000, (i) 40,057,369 shares of Company
Common Stock were issued and outstanding, all of which are validly issued,
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fully paid and nonassessable; (ii) 4,323,050 shares of Company Common Stock
were held in treasury by Company or by subsidiaries of Company;
(iii) 233,633 shares of Company Common Stock were available for future
issuance pursuant to Company's ESPP; (iv) 6,505,987 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding options to
purchase Company Common Stock under the Incentive Plan; (v) 346,874 shares
of Company Common Stock were reserved for issuance upon the exercise of
outstanding options to purchase Company Common Stock under the Director
Plan; (vi) 266,168 shares of Company Common Stock were reserved for issuance
upon the exercise of outstanding options to purchase Company Common Stock
under the 1989 Plan; (vii) 8,007,468 shares of Company Common Stock were
reserved for issuance upon the exercise of the Stock Option Agreement;
(viii) 43,200 shares of Company Common Stock were reserved for issuance upon
the exercise of outstanding warrants to purchase Company Common Stock (the
"WARRANTS"); (ix) 106,473 shares of Company Common Stock were available for
future grant under the Incentive Plan; (x) 83,814 shares of Company Common
Stock were available for future grant under the Director Plan; and (xi) no
shares of Company Common Stock were reserved for future grant under the 1989
Plan. As of the date hereof, no shares of Company Preferred Stock were
issued or outstanding. There are no commitments or agreements of any
character to which the Company is bound obligating the Company to accelerate
the vesting of any Company Stock Option as a result of the Merger.
(b) Section 2.3(b) of the Company Schedule sets forth the following
information with respect to each Company Stock Option (as defined in
Section 5.8) outstanding as of the date of this Agreement: (i) the name and
address of the optionee; (ii) the particular plan pursuant to which such
Company Stock Option was granted; (iii) the number of shares of Company
Common Stock subject to such Company Stock Option; (iv) the exercise price
of such Company Stock Option; (v) the date on which such Company Stock
Option was granted; (vi) the applicable vesting schedule; and (vii) the date
on which such Company Stock Option expires. Company has made available to
Parent accurate and complete copies of all stock option plans pursuant to
which the Company has granted such Company Stock Options that are currently
outstanding and the form of all stock option agreements evidencing such
Company Stock Options. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified
in the instrument pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
(c) All outstanding shares of Company Common Stock, all outstanding
Company Stock Options, and all outstanding shares of capital stock of each
subsidiary of the Company have been issued and granted in compliance with
(i) all applicable securities laws and other applicable Legal Requirements
(as defined below) and (ii) all requirements set forth in applicable
Contracts. For the purposes of this Agreement, "LEGAL REQUIREMENTS" means
any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Entity (as defined below) and (ii) all
requirements set forth in applicable contracts, agreements, and instruments.
(d) Section 2.3(d) of the Company Schedule describes the interests of
all persons in the subsidiaries of Company, other than interests held by the
Company or any other of its subsidiaries and other than interests of
subsidiaries held by certain nominee holders as required by the laws of a
subsidiary's jurisdiction of incorporation (which interests do not
materially affect the Company's control of such subsidiary).
(e) Except as set forth in Section 2.3(d) and except for the Stock
Option Agreement, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any
character
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to which Company or any of its subsidiaries is a party or by which it is
bound obligating Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition of,
any shares of capital stock, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to grant, extend, accelerate the vesting
of or enter into any such subscription, option, warrant, equity security,
call, right, commitment or agreement. As of the date of this Agreement,
except as contemplated by this Agreement, there are no registration rights
and there is, except for the Company Voting Agreements, no voting trust,
proxy, rights plan, antitakeover plan or other agreement or understanding to
which the Company or any of its subsidiaries is a party or by which they are
bound with respect to any equity security of any class of the Company or
with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries. Shareholders of
the Company will not be entitled to dissenters' rights under Georgia Law in
connection with the Merger.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement and to perform its obligations hereunder and thereunder
and, subject to obtaining the approval of the shareholders of Company of the
Merger, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement by
Company and the consummation by Company of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of Company, and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement and the Stock Option Agreement
or to consummate the transactions so contemplated (other than, with respect to
the Merger, the approval and adoption of this Agreement by holders of a majority
of the outstanding shares of Company Common Stock in accordance with Georgia
Law, the Company Charter Documents) and duly adopted resolutions of the Board of
Directors of Company. This Agreement and the Stock Option Agreement have been
duly and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitute legal
and binding obligations of Company, enforceable against Company in accordance
with their respective terms.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement and the
Stock Option Agreement by Company will not, (i) conflict with or violate the
Company Charter Documents or the equivalent organizational documents of any
of Company's subsidiaries; (ii) subject to obtaining the approval of
Company's shareholders of the Merger and compliance with the requirements
set forth in Section 2.5(b) below, conflict with, or result in any violation
of, any law, rule, regulation, order, judgment or decree applicable to
Company or any of its subsidiaries or by which either Company or any of its
subsidiaries or any of their respective properties is bound or affected; or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or impair
Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a
party or by which Company or any of its subsidiaries or its or any of their
respective properties are bound or affected. Except where such conflict,
violation, breach, default, impairment or other effect could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
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(b) The execution and delivery of this Agreement and the Stock Option
Agreement by Company do not, and the performance of this Agreement by
Company will not, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any court, administrative
agency, commission, governmental or regulatory authority, domestic or
foreign (a "GOVERNMENTAL ENTITY"), except (A) for applicable requirements,
if any, of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state
securities laws ("BLUE SKY LAWS"), the pre-merger notification requirements
(the "HSR APPROVAL") of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), the rules and regulations of Nasdaq, and
the filing and recordation of the Certificate of Merger as required by
Georgia Law and the Delaware Certificate of Merger as required by Delaware
Law and (B) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the parties hereto, prevent consummation of the
Merger or otherwise prevent the parties hereto from performing their
obligations under this Agreement.
2.6 COMPLIANCE; PERMITS.
(a) Neither Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment
or decree applicable to Company or any of its subsidiaries or by which its
or any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except for
any conflicts, defaults or violations that (individually or in the
aggregate) would not cause the Company to lose any material benefit or incur
any material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to the knowledge of Company,
threatened against Company or its subsidiaries, nor has any governmental or
regulatory body or authority indicated an intention to conduct the same,
other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of the Company
or any of its subsidiaries, any acquisition of material property by the
Company or any of its subsidiaries or the conduct of business by the Company
or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities, the absence
of which could not reasonably be expected to have a Material Adverse Effect
on Company (collectively, the "COMPANY PERMITS"). Company and its
subsidiaries are in compliance in all material respects with the terms of
the Company Permits.
2.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Company with the Securities and Exchange Commission ("SEC") since
December 31, 1999 (the "COMPANY SEC REPORTS"), which are all the forms,
reports and documents required to be filed by Company with the SEC since
December 31, 1999. The Company SEC Reports (A) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (B) did not at the time they were filed (and if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of Company's subsidiaries is required to
file any reports or other documents with the SEC.
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(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited financial statements, do not contain footnotes as permitted by the
SEC on Form 10-Q, Form 8-K or any successor form under the Exchange Act) and
each fairly presents the consolidated financial position of Company and its
subsidiaries at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to be material in amount.
(c) Company has previously furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.8 NO UNDISCLOSED LIABILITIES. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Company and its subsidiaries taken as a whole, except
(i) liabilities provided for in Company's balance sheet as of December 31, 1999
and (ii) liabilities incurred since December 31, 1999 in the ordinary and usual
course of business, consistent with past practice. None of the liabilities
described in the foregoing sections (i) or (ii) could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on Company.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999, there
has not been: (i) any Material Adverse Effect on Company; (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock, or property) in respect of, any of Company's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
Company of any of Company's capital stock or any other securities of Company or
its subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements; (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' capital stock; (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash compensation to non-officer employees in the
ordinary and usual course of business consistent with past practice, or any
payment by Company or any of its subsidiaries of any bonus, except for bonuses
made to non-officer employees in the ordinary course of business consistent with
past practice, or any granting by Company or any of its subsidiaries of any
increase in severance or termination pay or any entry by Company or any of its
subsidiaries into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Company of the nature contemplated hereby; (v) entry by
Company or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any Intellectual Property (as
defined in Section 2.19) other than licenses in the ordinary and usual course of
business, consistent with past practice, or any amendment or consent with
respect to any licensing agreement filed or required to be filed by Company with
the SEC; (vi) any material change by Company in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP; or
(vii) any material revaluation by Company of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable or any sale of assets of the Company other than
in the ordinary and usual course of business, consistent with past practice.
2.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory
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investigation pending or threatened) against Company or any of its subsidiaries
or any properties or rights of Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign which, if decided adversely to Company, could
reasonably be expected to have a Material Adverse Effect on Company.
2.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, material fringe or benefit
plans, programs, policies, commitments or other arrangements or remuneration
of any kind (whether or not set forth in a written document and including,
without limitation, all "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) for the benefit of any active, former employee, director
or consultant of Company ("EMPLOYEE"), any domestic subsidiary of Company or
any trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (a "PLAN AFFILIATE"), or with respect to
which Company has or may in the future have liability, are listed in
Section 2.11(a) of the Company Schedule (the "PLANS"); PROVIDED, HOWEVER,
consulting agreements not material to the Company's business or operations
are not listed on Schedule 2.11(a). Company has made available to Parent
correct and complete copies of all (i) documents embodying each Plan
including (without limitation) all amendments thereto, all related trust
documents, and all material written agreements and contracts relating to
each such Plan; (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Plan;
(iii) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Plan; (iv) all Internal Revenue Service ("IRS") or
United States Department of Labor ("DOL") determination, opinion,
notification and advisory letters; (v) all material correspondence to or
from any governmental agency relating to any Plan; (vi) all COBRA (as
defined below) forms and related notices (or such forms and notices as
required under comparable law); (vii) all discrimination tests for each Plan
for the most recent three (3) plan years; (viii) the most recent annual
actuarial valuations, if any, prepared for each Plan; (ix) if the Plan is
funded, the most recent annual and periodic accounting of Plan assets;
(x) all material written agreements and contracts relating to each Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (xi) all material
communications to employees or former employees regarding in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability under any Plan or
proposed Plan; (xii) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Plan; and (xiii) all
registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with any Plan.
(b) Each Plan has been established, maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code, which are
applicable to such Plans. No suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Plan activities) is
pending, or to the knowledge of Company, threatened, against or with respect
to any such Plan. There are no audits, inquiries or proceedings pending or,
to the knowledge of Company, threatened by the IRS or DOL with respect to
any Plan. All contributions, reserves or premium payments required to be
made or accrued as of the date hereof to the Plans have been timely made or
accrued. Any Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or
still has a remaining period of time under
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applicable Treasury Regulations or IRS pronouncements in which to apply for
such letter and to make any amendments necessary to obtain a favorable
determination and (ii) incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation enacted on or before December 6, 1994. Company does not have any
plan or commitment to establish any new Plan, to modify any Plan (except to
the extent required by law or to conform any such Plan to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any new Plan.
Each Plan (including any stock option plan in respect of future stock
grants) can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Plan Affiliates (other than ordinary administration
expenses).
(c) Neither Company nor any Plan Affiliate has at any time ever
maintained, established, sponsored, participated in, or contributed to any
plan subject to Title IV of ERISA or Section 412 of the Code or to any
multiple employer plan, or to any plan described in Section 413 of the Code,
at no time has Company or any Plan Affiliate contributed to or been
obligated to contribute to any "multiemployer plan," as such term is defined
in ERISA. Neither Company, nor any of its Plan Affiliates, nor any officer
or director of Company or any of its Plan Affiliates is subject to any
liability, penalty or tax under Sections 4975 through 4980B of the Code or
Title I of ERISA. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA (or any administrative class exemption
thereunder) or Section 4975 of the Code, has occurred with respect to any
Plan.
(d) Neither Company nor any Plan Affiliate has, prior to the Effective
Time and in any material respect, violated any of the health continuation
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), the requirements of the Family Medical Leave Act of
1993, as amended, the requirements of the Women's Health and Cancer Rights
Act, as amended, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, as amended, or any similar provisions of state law
applicable to Employees of the Company or any of its Plan Affiliates. None
of the Plans promises or provides retiree health benefits to any person
except as required by applicable law, and neither Company nor any of its
Plan Affiliates has represented, promised or contracted (whether in oral or
written form) to provide such retiree benefits to any employee, former
employee, director, consultant or other person, except to the extent
required by statute.
(e) Neither Company nor any of its subsidiaries is bound by or subject
to (and none of its respective assets or properties is bound by or subject
to) any arrangement with any labor union. No employee of Company or any of
its subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Company, no
campaign to establish such representation is in progress. There is no
pending or, to the knowledge of Company, threatened labor dispute involving
Company or any of its subsidiaries and any group of its employees nor has
Company or any of its subsidiaries experienced any labor interruptions over
the past three (3) years, and Company and its subsidiaries consider their
relationships with their employees to be good. The Company and its
subsidiaries are in compliance in all material respects with all applicable
material foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any shareholder, director or employee of
Company or any of its subsidiaries under any Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Plan, or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits. Without limiting the
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foregoing, no payment or benefit which will or maybe made by the Company
with respect to any person as a result of the transactions contemplated by
this Agreement will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code.
(g) Each employee compensation, incentive, fringe or benefit plans,
program, policy, commitment or other remuneration of any kind (whether or
not set forth in a written document) that has been adopted or maintained by
Company or any Plan Affiliate, whether informally or formally, or with
respect to which Company or any Plan Affiliate will or may have any
liability, for the benefit of Employees who perform services outside the
United States (each an "INTERNATIONAL EMPLOYEE PLAN") has been established,
maintained and administered in compliance with its terms and conditions and
with the requirements prescribed by any and all statutory or regulatory laws
that are applicable to such International Employee Plan. Furthermore, no
International Employee Plan has unfunded liabilities, that as of the
Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent Company or Parent
from terminating or amending any International Employee Plan at any time for
any reason without liability to Company or its Plan Affiliates (other than
ordinary administration expenses or routine claims for benefits).
2.12 LABOR MATTERS. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective employees
that would reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on Company; (ii) as of the date of this Agreement,
neither Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Company or its subsidiaries nor does Company or its subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees; and (iii) as of the date of this Agreement, neither Company nor any
of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of Company or any of its subsidiaries.
2.13 REGISTRATION STATEMENT/JOINT PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by Company for inclusion or incorporation
by reference in (i) the registration statement on Form S-4 to be filed with the
SEC by Parent in connection with the issuance of the Parent Common Stock in or
as a result of the Merger (the "S-4") will, at the time the S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading; and (ii) the joint proxy
statement/prospectus to be filed with the SEC by Company pursuant to
Section 5.1 hereof (the "JOINT PROXY STATEMENT/ PROSPECTUS") will, at the dates
mailed to the shareholders of Company, at the times of the shareholders meeting
of Company (the "COMPANY SHAREHOLDERS' MEETING") in connection with the
transactions contemplated hereby, at the dates mailed to the stockholders of
Parent, at the times of the stockholders' meeting of Parent (the "PARENT
STOCKHOLDERS' MEETING") in connection with the Share Issuance and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/ Prospectus will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of
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property by Company or any of its subsidiaries or the conduct of business by
Company or any of its subsidiaries as currently conducted.
2.15 TITLE TO PROPERTY. Neither Company nor any of its subsidiaries owns
any material real property. Company and each of its subsidiaries have good and
valid title to all of their material properties and assets, free and clear of
all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby; and all leases pursuant to which Company or any of
its subsidiaries lease from others material real or personal property are in
good standing, valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing material default or
event of default (or any event which with notice or lapse of time, or both,
would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.16 TAXES.
(a) For the purposes of this Agreement, "TAX" or "TAXES" refers to any
and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) (i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements
and reports ("RETURNS") relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority, except Returns
which are not material to the Company. Such returns are true and correct in
all material respects and have been completed in accordance with applicable
law, and the Company and each of its subsidiaries have paid all Taxes shown
to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes
required to be withheld, except Taxes which are not material to the
Company.
(iii) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material
Tax deficiency outstanding, proposed or assessed against the Company or
any of its subsidiaries, nor has the Company or any of its subsidiaries
executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company or any
of its subsidiaries by any Tax authority is presently in progress, nor
has the Company or any of its subsidiaries been notified of any request
for such an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company or any
of its subsidiaries has been proposed in writing formally or informally
by any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved
on the Company balance sheet dated December 31, 1999 in accordance with
GAAP, whether asserted or unasserted, contingent or
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otherwise, which is material to the Company, other than any liability for
unpaid Taxes that may have accrued since June 30, 1999 in connection with
the operation of the business of the Company and its subsidiaries in the
ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
the Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which the Company or any
of its subsidiaries is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned
by the Company or any of its subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) None of the Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
2.17 ENVIRONMENTAL MATTERS. Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under Environmental
Laws the absence of which would have a Material Adverse Effect on Company; and
(ii) is in compliance in all material respects with all material terms and
conditions of such required permits, licenses and authorizations, and also is in
compliance in all material respects with all other material limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. "ENVIRONMENTAL LAWS" means all Federal,
state, local and foreign laws and regulations relating to pollution of the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. "HAZARDOUS MATERIALS"
means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive
and biological materials, asbestos-containing materials, hazardous substances,
petroleum and petroleum products or any fraction thereof, excluding, however,
Hazardous Materials contained in products typically used for office and
janitorial purposes properly and safely maintained in accordance with
Environmental Laws.
2.18 BROKERS. Except for fees payable to Goldman Sachs & Co. pursuant to
an engagement letter dated March 21, 2000, a copy of which has been provided to
Parent, Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated hereby
2.19 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, or arising out of: (i) all United States and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof ("PATENTS");
(ii) all inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of
the foregoing; (iii) all copyrights, copyright registrations and
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applications therefor and all other rights corresponding thereto throughout
the world; (iv) all semiconductor and semiconductor circuit designs;
(v) all rights to all mask works and reticles, mask work registrations and
applications therefor; (vi) all industrial designs and any registrations and
applications therefor throughout the world; (vii) all trade names, logos,
common law trademarks and service marks; trademark and service mark
registrations and applications therefor and all goodwill associated
therewith throughout the world; (viii) all databases and data collections
and all rights therein throughout the world; (ix) all computer software
including all source code, object code, firmware, development tools, files,
records and data, all media on which any of the foregoing is recorded, all
Web addresses, sites and domain names; (x) any similar, corresponding or
equivalent rights to any of the foregoing; and (xi) all documentation
related to any of the foregoing
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that is
owned by or exclusively licensed to the Company or any of its subsidiaries.
Without in any way limiting the generality of the foregoing, Company
Intellectual Property includes all Intellectual Property owned or licensed
by the Company related to the Company's products, including without
limitation all rights in any design code, documentation, and tooling for
packaging of semiconductors in connection with all current products and
products in design and development.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations
and applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by, any state, government or other public legal authority
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
of its subsidiaries.
(a) Section 2.19(a) of the Company Schedule is a complete and accurate
list of all Company Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of Company Registered
Intellectual Property has been issued or registered and lists any
proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority
anywhere in the world) related to any of the Company Registered Intellectual
Property.
(b) Company has made available to Parent a complete and accurate price
list of all products and services currently offered by Company or any of its
subsidiaries ("COMPANY PRODUCTS").
(c) No Company Intellectual Property or Company Product is subject to
any proceeding or outstanding decree, order, judgment, contract, license,
agreement, or stipulation restricting in any manner the use, transfer, or
licensing thereof by Company or any of its subsidiaries, or which may affect
the validity, use or enforceability of such Company Intellectual Property or
Company Product, except for provisions contained in the documents granting
licenses as ownership to any portion of the Company Intellectual Property or
Company Product and in amendments thereto and provisions of licenses granted
to customers of Company.
(d) Each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal
fees currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Company Registered Intellectual
Property.
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(e) Company owns and has good and exclusive title to, each material item
of Company Intellectual Property free and clear of any lien or encumbrance
(excluding non-exclusive licenses and related restrictions granted in the
ordinary course). Without limiting the foregoing: (i) Company is the
exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of Company and its subsidiaries,
including the sale, distribution or provision of any Company Products by
Company or its subsidiaries; (ii) Company owns exclusively, and has good
title to, all copyrighted works that are Company Products or which Company
or any of its subsidiaries otherwise purports to own; and (iii) to the
extent that any Patents would be infringed by any Company Products, Company
is the exclusive owner of such Patents.
(f) To the extent that any technology, software or material Intellectual
Property has been developed or created independently or jointly by a third
party for Company or any of its subsidiaries or is incorporated into any of
the Company Products, Company has a written agreement with such third party
with respect thereto and Company thereby either (i) has obtained ownership
of, and is the exclusive owner of, or (ii) has obtained a perpetual,
non-terminable license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so.
(g) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is or was material Company Intellectual Property,
to any third party, or permitted Company's rights in such material Company
Intellectual Property to lapse or enter the public domain.
(h) Section 2.19(h) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its
subsidiaries is a party: (i) with respect to Company Intellectual Property
licensed or transferred to any third party (other than end-user licenses in
the ordinary course); or (ii) pursuant to which a third party has licensed
or transferred any material Intellectual Property to Company.
(i) All material contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a third
party licensed to Company or any of its subsidiaries, are in full force and
effect. The consummation of the transactions contemplated by this Agreement
will neither violate nor result in the breach, modification, cancellation,
termination or suspension of such contracts, licenses and agreements. Each
of Company and its subsidiaries is in material compliance with, and has not
materially breached any term of any such contracts, licenses and agreements
and, to the knowledge of Company, all other parties to such contracts,
licenses and agreements are in compliance with, and have not materially
breached any term of, such contracts, licenses and agreements. Following the
Closing Date, the Surviving Corporation will be permitted to exercise all of
Company's rights under such contracts, licenses and agreements to the same
extent Company and its subsidiaries would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Company would otherwise be required to pay.
Neither this Agreement nor the transactions contemplated by this Agreement,
including the assignment to Parent or Merger Sub by operation of law or
otherwise of any contracts or agreements to which the Company is a party,
will result in (i) either Parent's or the Merger Sub's granting to any third
party any right to or with respect to any material Intellectual Property
right owned by, or licensed to, either of them, (ii) either the Parent's or
the Merger Sub's being bound by, or subject to, any non-compete or other
material restriction on the operation or scope of their respective
businesses, or (iii) either the Parent's or the Merger Sub's being obligated
to pay any royalties or other material amounts to any third party in excess
of those payable by Parent or Merger Sub, respectively, prior to the
Closing.
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(j) The operation of the business of the Company and its subsidiaries as
such business currently is conducted, including (i) Company's and its
subsidiaries' design, development, manufacture, distribution, reproduction,
marketing or sale of the products or services of Company and its
subsidiaries (including Company Products) and (ii) the Company's use of any
product, device or process, has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(k) Neither Company nor any of its subsidiaries has received notice from
any third party that the operation of the business of Company or any of its
subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction.
(l) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(m) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade secrets
or confidential information of third parties provided to Company or any of
its subsidiaries, and, without limiting the foregoing, each of Company and
its subsidiaries has and enforces a policy requiring each employee and
contractor to execute a proprietary information/confidentiality agreement
substantially in the form provided to Parent and all current and former
employees and contractors of Company and any of its subsidiaries have
executed such an agreement, except where the failure to do so is not
reasonably expected to be material to Company.
2.20 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or member of Company's Board of Directors, other than those that
are terminable by Company or any of its subsidiaries on no more than thirty
(30) days' notice without liability or financial obligation to the Company
(other than termination provisions provided by law);
(b) any agreement or plan for the benefit of any director, employee or
consultant, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of software products in the ordinary course of business or guaranty
of a subsidiary's obligation by Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than Company's
subsidiaries;
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(f) any dealer, distributor, joint marketing or development agreement
(other than reseller agreements not material to Company's business)
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety
(90) days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole (other than
(i) licenses granted in the ordinary course of business to the Company's
customers to use (but not to copy, sublicense, market, or otherwise
distribute) source code that do not in any way impair Company's ownership
interests in such source code and (ii) agreements requiring the Company to
place source code in escrow for the benefit of a customer in the event of
the Company's default, bankruptcy, insolvency, or similar event);
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Company product, service or
technology, or any agreement, contract or commitment currently in force to
sell or distribute any Company products, service or technology except
agreements with distributors or sales representative in the normal course of
business cancelable without penalty upon notice of ninety (90) days or less
and substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit in excess of $250,000 individually
or $500,000 in the aggregate, other than between Company and its
subsidiaries and except as disclosed in the Company's balance sheet as of
December 31, 1999 or in the related footnotes;
(j) any settlement agreement entered into within three (3) years prior
to the date of this Agreement that involves a continuing material obligation
of Company; or
(k) any other agreement that has an aggregate value of (or represents
future aggregate obligations in excess of) $2,000,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Company or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Company Schedule (any such agreement, contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate), the effect of which would not,
individually or in the aggregate have a Material Adverse Effect on Company.
2.21 INSURANCE. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.22 OPINION OF FINANCIAL ADVISOR. Company has been advised by its
financial advisor, Goldman Sachs & Co., that in its opinion, as of the date of
this Agreement, the Exchange Ratio is fair to the shareholders of Company from a
financial point of view. Company shall provide Parent a copy of the
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written confirmation of such opinion, dated as of the date of this Agreement,
promptly after receipt thereof.
2.23 BOARD APPROVAL. The Board of Directors of Company has, as of the date
of this Agreement, unanimously (i) approved and declared advisable this
Agreement and has approved the Merger and the other transactions contemplated
hereby, (ii) determined that the Merger is consistent with and in furtherance of
the long-term business strategy of Company and fair to, and in the best
interests of, Company and its shareholders and (iii) determined to recommended
that the shareholders of Company adopt and approve this Agreement and approve
the Merger.
2.24 VOTE REQUIRED. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock are entitled to vote
with respect to the Merger is the only vote of the holders of any class or
series of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.25 STATE TAKEOVER STATUTES. The Board of Directors of the Company has
approved the Merger, the Merger Agreement, the Stock Option Agreement, the
Company Voting Agreements and the transactions contemplated hereby and thereby,
and such approval is sufficient to render inapplicable to the Merger, the Merger
Agreement, the Stock Option Agreement, the Company Voting Agreements and the
transactions contemplated hereby and thereby the provisions of Code
Section 14-2-1110 et seq. and 14-2-1131 et seq. of the Georgia Law to the
extent, if any, such section is applicable to the Merger, the Merger Agreement,
the Stock Option Agreement, the Company Voting Agreements and the transactions
contemplated hereby and thereby. To Company's knowledge, no other state takeover
statute or similar statute or regulation applies to or purports to apply to the
Merger, the Merger Agreement, the Stock Option Agreement, the Company Voting
Agreements or the transactions contemplated hereby and thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure schedules dated as of the date hereof delivered by Parent to
Company (the "PARENT SCHEDULE"), as follows. The Parent Schedule shall be
arranged in sections corresponding to the numbered sections contained in this
Article and the disclosure in any paragraph shall qualify other sections in this
Article only to the extent it is reasonably apparent from a reading of such
disclosure that it also qualifies such other sections.
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
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3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws as amended to date (together, the "PARENT CHARTER
DOCUMENTS"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 200,000,000 shares of Parent Common Stock, and (ii) 5,000,000 shares of
Preferred Stock, $0.001 par value per share ("PARENT PREFERRED STOCK"). At the
close of business on March 31, 2000, (i) 109,228,419 shares of Parent Common
Stock were issued and outstanding, (ii) 157,472 shares of Parent Common Stock
were held in treasury by Parent or by subsidiaries of Parent, (iii) 609,764
shares of Parent Common Stock were reserved for future issuance pursuant to
Parent's employee stock purchase plan, and (iv) 19,853,100 shares of Parent
Common Stock were reserved for issuance upon the exercise of outstanding options
to purchase Parent Common Stock. As of the date hereof, no shares of Parent
Preferred Stock were issued or outstanding. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $0.001 per share,
all of which, as of the date hereof, are issued and outstanding.
3.4 PARENT COMMON STOCK. The Parent Common Stock to be issued pursuant to
the Merger has been duly authorized and will, when issued in accordance with
this Agreement be validly issued, fully paid, and unassessable and will not be
subject to any restrictions on resale under the Securities Act, other than
restrictions imposed by Rule 145 under the Securities Act.
3.5 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement and the Stock Option Agreement, or to
consummate the transactions so contemplated, subject only to the approval of the
Share Issuance by Parent's stockholders and the filing of the Certificate of
Merger pursuant to Georgia Law and the Delaware Certificate of Merger pursuant
to Delaware Law. This Agreement and the Stock Option Agreement have been duly
and validly executed and delivered by Parent and Merger Sub and, assuming the
due authorization, execution and delivery by Company, constitute legal and
binding obligations of Parent and Merger Sub, enforceable against Parent and
Merger Sub in accordance with their respective terms.
3.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC on or after April 1, 1999 (the "PARENT SEC
REPORTS"), which are all the forms, reports and documents required to be
filed by Parent with the SEC since April 1, 1999. The Parent SEC Reports
(A) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and (B) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of Parent's subsidiaries is required to file any reports or other documents
with the SEC.
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(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited statements, do not contain footnotes as permitted by
Form 10-Q of the Exchange Act) and each fairly presents the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are
not expected to be material in amount.
(c) Parent has previously furnished to Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.7 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent, or otherwise), which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole, except
(i) liabilities provided for in Company's balance sheet as of December 31, 1999;
(ii) liabilities provided for in the balance sheet as of October 31, 1999 of
Telco Research Corporation Limited ("TELCO"), a copy of which has been made
available to Company; (iii) liabilities of Barnhill Management Group, a Nevada
corporation acquired by Parent in March 2000 ("BARNHILL"), which liabilities are
not material to Parent and its subsidiaries, taken as a whole; and
(iv) liabilities incurred since December 31, 1999 by Parent and its subsidiaries
(including Telco and Barnhill) and liabilities incurred by Telco between
October 31, 1999 and December 31, 2000. None of the liabilities described in the
foregoing sections (i), (ii), (iii), or (iv) could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on Parent.
3.8 COMPLIANCE; PERMITS.
(a) Neither Parent nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment
or decree applicable to Parent or any of its subsidiaries or by which its or
any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its
or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate)
would not cause the Parent to lose any material benefit or incur any
material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to the knowledge of Parent,
threatened against Parent or its subsidiaries, nor has any governmental or
regulatory body or authority indicated an intention to conduct the same,
other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of Parent or
any of its subsidiaries, any acquisition of material property by Parent or
any of its subsidiaries or the conduct of business by Parent or any of its
subsidiaries.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities, the absence
of which could not reasonably be expected to have a Material Adverse Effect
on Parent (collectively, the "PARENT PERMITS"). Parent and its subsidiaries
are in compliance in all material respects with the terms of the Parent
Permits.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999, there
has not been: (i) any Material Adverse Effect on Parent, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's or any of its
subsidiaries' capital stock (other than a two-for-one stock split in the form of
a dividend effected in
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February 2000), or any purchase, redemption or other acquisition by Parent of
any of Parent's capital stock or any other securities of Parent or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Parent's
or any of its subsidiaries' capital stock, (iv) any material change by Parent in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (v) any material revaluation by Parent of any of
its assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
the Parent other than in the ordinary course of business.
3.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Parent, threatened (or, to the
knowledge of Parent, any governmental or regulatory investigation pending or
threatened) against Parent or any of it subsidiaries or any properties or rights
of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which, if decided adversely to Parent, could reasonably be expected to
have a Material Adverse Effect on Parent.
3.11 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in (i) the S-4 will, at the time the S-4 becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading; and (ii) the Joint Proxy Statement/Prospectus will, at the
dates mailed to the shareholders of Company and of Parent, at the time of the
Company Shareholders' Meeting, the time of the Parent Shareholders' Meeting and
as of the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated by the SEC thereunder. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.
3.12 BROKERS. Except for fees payable to Deutsche Bank Securities, Inc.,
Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.13 OPINION OF FINANCIAL ADVISOR. Parent's Board of Directors has
received an opinion from Deutsche Bank Securities, Inc., dated as of the date
hereof, to the effect that as of the date hereof, the Exchange Ratio is fair to
Parent from a financial point of view.
3.14 BOARD APPROVAL. The Board of Directors of Parent has, as of the date
of this Agreement, unanimously (i) has determined that the Merger is consistent
with and in furtherance of the long-term business strategy of Parent and is fair
to, and in the best interests of, Parent and its stockholders; (ii) has approved
this Agreement, the Merger and the other transactions contemplated by this
Agreement; and (iii) has determined to recommend that the stockholders of Parent
approve the Share Issuance.
3.15 VOTE REQUIRED. The affirmative vote of a majority of the shares of
Parent Common Stock that cast votes regarding the Share Issuance in person or by
proxy at the Parent Stockholders' Meeting is the only vote of the holders of any
class or series of Parent's capital stock necessary to approve this Agreement
and the transactions contemplated hereby.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the usual, regular and ordinary course and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due and pay or perform other material obligations when due, subject to good
faith disputes over such debts, taxes, and obligations, and use its commercially
reasonable efforts, consistent with past practices (except as set forth in
Schedule 4.1), and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings, except in each case as set forth in Section 4.1 of the Company
Schedule.
In addition, except as expressly permitted by the terms of this Agreement
and, except in each case as set forth in Section 4.1 of the Company Schedule,
without the prior written consent of Parent, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans except pursuant to plans and agreements existing as of the date
hereof the relevant terms of which are described in the Company Schedule;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights, other
than in the ordinary course of business consistent with past practices,
provided that in no event shall Company license to any person or entity on
an exclusive basis or sell any Company Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance delivery
and/or sale of (i) shares of Company Common Stock pursuant to the exercise
of stock options outstanding as of the date of this Agreement or granted
pursuant to
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clause (y) hereof, and (ii) shares of Company Common Stock issuable to
participants in the ESPP consistent with the terms thereof and (y) the
granting of non-discretionary stock options to non-employee directors under
the Director Plan in an amount not to exceed options to purchase 135,000
shares in the aggregate;
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets or enter into any joint ventures, strategic
partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory or non-exclusive licenses of
Company intellectual property in the ordinary course of business consistent
with past practice and, except for the sale, lease or disposition (other
than through licensing) of property or assets which are not material,
individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or arrangement, any
employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer
letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors,
officers, employees or consultants;
(l) (i) Pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of
this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, or liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) of Company included in the Company SEC Reports or incurred since
the date of such financial statements, or (ii) waive the benefits of, agree
to modify in any manner, terminate, release any person from or fail to
enforce any confidentiality or similar agreement to which Company or any of
its subsidiaries is a party or of which Company or any of its subsidiaries
is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business (other than payments to financial, legal,
accounting or other professional service advisors not in excess of the
estimates thereof set forth in Section 4.1 of the Company Schedule);
(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
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(o) Enter into or materially modify any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by
third parties of Company's products or products licensed by Company on an
exclusive basis;
(p) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment outside of
the ordinary course of business calling for payments by Company in excess of
$350,000 individually;
(r) Engage in any action that could cause the Merger to fail to qualify
as a "reorganization" under Section 368(a) of the Code, whether or not
otherwise permitted by the provisions of this Article IV;
(s) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(t) Make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or any of its subsidiaries or settle
or compromise any material income tax liability; or
(u) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (t) above.
4.2 CONDUCT OF BUSINESS BY PARENT. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Declare, set aside, or pay any dividends or make any other
distributions (whether in cash, stock, equity securities or property) in
respect to Parent's capital stock, except where (i) an adjustment is made to
the Exchange Ratio in accordance with Section 1.6(e) or (ii) the holders of
Company Common Stock will otherwise receive an equivalent, proportional
dividend or distribution (based on the Exchange Ratio, as adjusted pursuant
to Section 1.6(e)) in connection with the Merger as if they had been holders
of Parent Common Stock on the record date for such dividend or distribution;
(b) Purchase, redeem, or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries in any amounts that
would adversely affect Parent's financial condition or liquidity;
(c) Effect any amendment to the Company's Certificate of Incorporation
that would have an adverse effect on the rights of holders of Parent's
Common Stock (including the Parent Common Stock to be issued pursuant to
this Agreement);
(d) Engage in any action that could cause the Merger to fail to qualify
as a "reorganization" under Section 368(a) of the Code, whether or not
otherwise permitted by the provisions of this Article IV;
(e) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(f) Following the filing of the S-4, acquire or agree to acquire any
business or any corporation, partnership, association or other business
organization or division if such acquisition or agreement would require the
inclusion in the S-4 of proforma financial information regarding such
acquisition; or
(g) Agree in writing or otherwise to take any of the actions described
in Section 4.1(a) through (f) above.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and shall file with the SEC a
document or documents that will constitute (i) the S-4 and (ii) the Joint
Proxy Statement/Prospectus. Each of the parties hereto shall use
commercially reasonable efforts to cause the S-4 to become effective as
promptly as practicable after the date hereof, and, prior to the effective
date of the S-4, the parties hereto shall take all action required under any
applicable Laws in connection with the issuance of shares of Parent Common
Stock pursuant to the Merger. Parent or Company, as the case may be, shall
furnish all information concerning Parent or Company as the other party may
reasonably request in connection with such actions and the preparation of
the S-4 and the Joint Proxy Statement/ Prospectus. As promptly as
practicable after the effective date of the S-4, the Joint Proxy
Statement/Prospectus shall be mailed to the shareholders of Company and of
Parent. Each of the parties hereto shall cause the Joint Proxy
Statement/Prospectus to comply as to form and substances to such party in
all material respects with the applicable requirements of (i) the Exchange
Act, (ii) the Securities Act, (iii) the rules and regulations of the Nasdaq.
(b) The Joint Proxy Statement/Prospectus shall include the approval of
this Agreement and the Merger and the recommendation of the Board of
Directors of Company to Company's shareholders that they vote in favor of
approval of this Agreement and the Merger, subject to the right of the Board
of Directors of the Company to withdraw its recommendation and to recommend
a Superior Proposal determined to be such in compliance with Section 5.4 of
this Agreement; PROVIDED, HOWEVER, that the Board of Directors of Company
shall submit this Agreement to Company's shareholders whether or not at any
time subsequent to the date hereof such board determines that it can no
longer make such recommendation. The Joint Proxy Statement/Prospectus shall
also include the approval of the Share Issuance and the recommendation of
the Board of Directors of Parent to Parent's stockholders that they vote in
favor of approval of the Share Issuance.
(c) No amendment or supplement to the Joint Proxy Statement/Prospectus
or the S-4 shall be made without the approval of Parent and Company, which
approval shall not be unreasonably withheld or delayed. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the S-4 has become effective or any
supplement or amendment has been filed, of the issuance of any stop order,
of the suspension of the qualification of the Parent Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or
of any request by the SEC for amendment of the Joint Proxy Statement/
Prospectus or the S-4 or comments thereon and responses thereto or requests
by the SEC for additional information.
5.2 SHAREHOLDER AND STOCKHOLDER MEETINGS. Company shall call and hold the
Company Shareholders' Meeting and Parent shall call and hold the Parent
Stockholders' Meeting as promptly as practicable after the date hereof for the
purpose of voting upon the adoption and approval of this Agreement and the
approval of the Merger (in the case of the Company Shareholders' Meeting) and
the Share Issuance (in the case of the Parent Stockholders' Meeting) pursuant to
the Joint Proxy Statement/Prospectus, and Company and Parent shall use all
reasonable efforts to hold the Parent Stockholders' Meeting and the Company
Shareholders' Meeting on the same day and as soon as practicable after the date
on which the S-4 becomes effective. Nothing herein shall prevent Company or
Parent from adjourning or postponing the Company Shareholders' Meeting or the
Parent Stockholders' Meeting, as the case may be, if there are insufficient
shares of Company Common Stock or Parent Common Stock, as the case may be,
necessary to conduct business at their respective meetings of the
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shareholders or stockholders. The Board of Directors of Company shall submit
this Agreement and the Merger for shareholder approval pursuant to
Section 14-2-1103(c) of Georgia Law subject only to the condition of shareholder
approval as described in Section 2.24. Unless Company's Board of Directors has
withdrawn its recommendation of this Agreement and the Merger in compliance with
Section 5.4, Company shall use commercially reasonable efforts to solicit from
its shareholders proxies in favor of the adoption and approval of this Agreement
and the approval of the Merger pursuant to the Joint Proxy Statement/Prospectus
and shall take all other commercially reasonable action necessary or advisable
to secure the vote or consent of shareholders required by Georgia Law or
applicable stock exchange requirements to obtain such approval. Parent shall use
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the Share Issuance pursuant to the Joint Proxy Statement/Prospectus and
shall take all other commercially reasonable action necessary or advisable to
secure the vote or consent of stockholders required by the Delaware Law or
applicable stock exchange requirements to obtain such approval. Company shall
call and hold the Company Shareholders' Meeting for the purpose of voting upon
the adoption and approval of this Agreement and the approval of the Merger
whether or not Company's Board of Directors at any time subsequent to the date
hereof determines that this Agreement is no longer advisable or recommends that
Company's shareholders reject it.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have previously
executed a Confidentiality Agreement, dated as of March 1, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue
in full force and effect in accordance with its terms.
(b) Each of the Company and Parent will afford the other and the other's
accountants, counsel and other representatives reasonable access to its
properties, books, records and personnel during the period prior to the
Effective Time to obtain all information concerning its business as such
other party may reasonably request. No information or knowledge obtained in
any investigation pursuant to this Section 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as defined
below), (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or would reasonably be expected to lead to, any Acquisition
Proposal, (iii) engage in discussions with any person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction (as defined below); PROVIDED, HOWEVER, that nothing
contained in this Section 5.4 shall prohibit the Board of Directors of
Company from (i) complying with Rule 14d-9 or 14e-2(a) promulgated under the
Exchange Act with regard to a tender or exchange offer or (ii) in response
to an unsolicited, bona fide written Acquisition Proposal that Company's
Board of Directors reasonably concludes constitutes a Superior Offer (as
defined below), engaging in discussions or participating in negotiations
with and furnishing information to the party making such Acquisition
Proposal to the extent (A) the Board of Directors of the Company determines
in good faith after consultation with its outside legal
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counsel that failure to take such action would be inconsistent with its
fiduciary obligations under applicable law, (B) (x) at least two business
days prior to furnishing any such nonpublic information to, or entering into
discussions or negotiations with, such party, Company gives Parent written
notice of Company's intention to furnish nonpublic information to, or enter
into discussions or negotiations with, such party and (y) Company receives
from such party an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such party by or on behalf of Company, and
(C) contemporaneously with furnishing any such nonpublic information to such
party, Company furnishes such nonpublic information to Parent (to the extent
such nonpublic information has not been previously furnished by the Company
to Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth
in this Section 5.4 by any officer, director or employee of Company or any
of its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4 by Company.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 15% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the Company
pursuant to which the shareholders of the Company immediately preceding such
transaction hold less than [85]% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
assets of the Company; or (C) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company; and (C) "SUPERIOR
PROPOSAL" shall mean an Acquisition Proposal with respect to which (x) if any
cash consideration is involved, shall not be subject to any financing
contingency (or, after consultation with Company's financial advisors, the Board
of Directors shall have determined in good faith that such financing is
reasonably likely to be obtained by such acquiring party on a timely basis), and
with respect to which Company's Board of Directors shall have determined in good
faith (after consultation with Company's financial advisors) that the acquiring
party is capable of consummating the proposed Acquisition Transaction on the
terms proposed, and (y) Company's Board of Directors shall have determined in
good faith that the proposed Acquisition Transaction provides greater value to
the shareholders of Company than the Merger (taking into account the advice of
Company's independent financial advisors).
(b) In addition to the obligations of Company set forth in paragraph
(a) of this Section 5.4, Company as promptly as practicable, and in any
event within 24 hours, shall advise Parent orally and in writing of any
request for information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with
respect to or which Company reasonably believes would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Acquisition Proposal or inquiry. Company will keep
Parent informed in all material respects of the status and terms (including
material amendments or proposed amendments) of any such request, Acquisition
Proposal or inquiry. In addition to the foregoing,
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Company shall (i) provide Parent with at least 48 hours prior notice (or
such lesser prior notice as provided to the members of Company's Board of
Directors but in no event less than eight hours) of any meeting of Company's
Board of Directors at which Company's Board of Directors is reasonably
expected to consider an Acquisition Proposal and (ii) provide Parent with at
least 48 hours prior written notice (or such lesser prior notice as provided
to the members of the Company's Board of Directors but in no event less than
eight hours) of a meeting of Company's Board of Directors at which Company's
Board of Directors is reasonably expected to recommend a Superior Offer to
its shareholders and together with such notice a copy of the definitive
documentation relating to such Superior Offer.
5.5 PUBLIC DISCLOSURE. Parent and Company will consult with each other and
agree before issuing any press release or otherwise making any public statement
with respect to the Merger, this Agreement or an Acquisition Proposal and will
not issue any such press release or make any such public statement prior to such
agreement, except as may be required by law or any listing agreement with a
national securities exchange, in which case reasonable efforts to consult with
the other party will be made prior to any such release or public statement. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement (including the provisions of Section 5.4), each of the parties
agrees to use commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using commercially reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed and (v) the execution or delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry
out the purposes of, this Agreement. In connection with and without limiting
the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable
to the Merger, this Agreement or any of the transactions contemplated by
this Agreement, use commercially reasonable efforts to ensure that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation
on the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement
shall be deemed to require Parent or Company or any subsidiary or affiliate
thereof to agree to any divestiture by itself or any of its affiliates of
shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to
conduc their business or to own or exercise control of such assets,
properties and stock.
(b) Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of Company to comply
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with or satisfy in any material respect any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement, in each case,
such that the conditions set forth in Section 6.3(a) or 6.3(b) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Parent or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 STOCK OPTIONS AND EMPLOYEE BENEFITS; WARRANTS.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock (each, a "COMPANY STOCK OPTION") under the Company
Option Plans, whether or not vested, shall by virtue of the Merger be
assumed by Parent. Each Company Stock Option and Warrant so assumed by
Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions of such options or Warrant immediately prior to
the Effective Time (including, without limitation, any repurchase rights or
vesting provisions of outstanding options), except that (i) each Company
Stock Option and Warrant will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock
that were issuable upon exercise of such Company Stock Option and Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Stock Option and Warrant will
be equal to the quotient determined by dividing the exercise price per share
of Company Common Stock at which such Company Stock Option and each
outstanding Warrant was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded up to the nearest whole cent.
(b) ESPP. Prior to the Effective Time, outstanding purchase rights
under Company's ESPP shall be exercised in accordance with Sections 14 and
16 of the ESPP and each share of Company Common Stock purchased pursuant to
such exercise shall by virtue of the Merger, and without any action on the
part of the holder thereof, be converted into the right to receive a number
of shares of Parent Common Stock equal to the Exchange Ratio without
issuance of certificates representing issued and outstanding shares of
Company Common Stock to ESPP participants. Company agrees that it shall
terminate the ESPP immediately following the aforesaid purchase of shares of
Company Common Stock thereunder.
(c) 401(k) PLANS. Company and its Plan Affiliates, as applicable,
shall each terminate (i) any and all group severance, separation or salary
continuation plans, programs, or arrangements and (ii) any and all 401(k)
plans, effective as of the day immediately preceding the Closing Date.
Parent shall receive from Company evidence that Company's and each Plan
Affiliate's, as applicable, program(s) have been terminated pursuant to
resolutions of each such entity's Board of Directors (the form and substance
of such resolutions shall be subject to review and approval of Parent),
effective as of the day immediately preceding the Effective Time.
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(d) SERVICE CREDIT. To the extent permitted by Parent's employee
benefit plan and applicable law, Parent will use reasonable efforts, or will
cause Company to use reasonable efforts, give individuals who are employed
by Company and its subsidiaries as of the Effective Time ("AFFECTED
EMPLOYEES") full credit for purposes of eligibility, vesting, benefit
accrual (excluding, however, benefit accrual under any defined benefit
pension plans) and determination of the level of benefits under any employee
benefit plans or arrangements maintained by Parent or any subsidiary of
Parent for such Affected Employees' service with Company or any subsidiary
of the Company to the same extent recognized by Company immediately prior to
the Effective Time. To the extent permitted by Parent's employee benefit
plans and applicable law, Parent will, or will cause Company to (i) waive
all limitations as to preexisting conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Affected Employees under any welfare benefit plans that such employees may
be eligible to participate in after the Effective Time, other than
limitations or waiting periods that are already in effect with respect to
such employees and that have not been satisfied as of the Effective Time
under any welfare plan maintained for the Affected Employees immediately
prior to the Effective Time, and (ii) provide each Affected Employee with
credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under
any welfare plans that such employees are eligible to participate in after
the Effective Time.
5.9 FORM S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Stock Options as soon as is reasonably practicable (and in any event within
twenty business days) after the Effective Time.
5.10 INDEMNIFICATION.
(a) From and after the Effective Time, Parent will, and will cause the
Surviving Corporation to, fulfill and honor in all respects the obligations
of Company pursuant to any indemnification agreements between Company and
its directors and officers in effect immediately prior to the Effective Time
and any indemnification provisions under the Company Charter Documents as in
effect on the date hereof. The Certificate of Incorporation and Bylaws of
the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
indemnified parties thereunder (the "INDEMNIFIED PARTIES") as those
contained in the Company Charter Documents as in effect on the date hereof,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of the Indemnified Parties, unless
such modification is required by law.
(b) For a period of six years after the Effective Time, Parent will, and
will cause the Surviving Corporation to, use its commercially reasonable
efforts to maintain in effect directors' and officers' liability insurance
covering those persons or classes of persons who are currently covered by
Company's directors' and officers' liability insurance policy with coverage
in an amount and scope at least as favorable as that applicable to the
current directors and officers of Company; PROVIDED, HOWEVER, that in no
event will Parent or the Surviving Corporation be required to expend an
annual premium for such coverage in excess of 150% of the annual premium
most recently paid by Company (the "PREMIUM CAP"); PROVIDED, FURTHER, that
if the annual premium for such coverage would at any time exceed the Premium
Cap, then the Surviving Corporation shall maintain insurance policies that
provide the maximum coverage available at an annual premium equal to the
Premium Cap.
(c) The provisions of this Section 5.10 are intended to be in addition
to the rights otherwise available to the Indemnified Parties by law,
charter, statute, bylaw or agreement, and shall operate for the benefit of,
and shall be enforceable by, each of the Indemnified Parties.
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5.11 NASDAQ LISTING. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.12 AFFILIATES. Set forth in Section 5.12 of the Company Schedule is a
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "COMPANY AFFILIATE"). Company will provide Parent with
such information and documents as Parent reasonably requests for purposes of
reviewing such list. Company will use its commercially reasonable efforts to
deliver or cause to be delivered to Parent, as promptly as practicable on or
following the date hereof, from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as EXHIBIT C (the "COMPANY
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. Parent will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Agreement.
5.13 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Company and Parent each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; PROVIDED,
HOWEVER, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.14 PARENT BOARD OF DIRECTORS. The Board of Directors of Parent will take
all actions necessary such that two members of Company's Board of Directors
reasonably acceptable to Parent, at least one of whom is an independent director
of the Company's Board of Directors, shall be appointed to Parent's Board of
Directors as of the Effective Time with a term expiring at the next annual
meeting of Parent's stockholders.
5.15 SHAREHOLDER LITIGATION. Until the earlier of termination of this
Agreement in accordance with its terms or the Effective Time, Company shall give
Parent the opportunity to participate in the defense or settlement of any
shareholder litigation against Company or members of its Board of Directors
relating to this Agreement and the transactions contemplated hereby or
otherwise, and shall not settle any such litigation without Parent' prior
written consent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) SHAREHOLDER AND STOCKHOLDER APPROVALS. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable
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law, by the shareholders of Company. The Share Issuance shall have been
approved by the requisite vote under applicable Nasdaq rules by the
stockholders of Parent.
(b) REGISTRATION STATEMENT EFFECTIVE; JOINT PROXY STATEMENT. The SEC
shall have declared the S-4 effective. No stop order suspending the
effectiveness of the S-4 or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Joint Proxy Statement/Prospectus, shall be pending or shall then be
threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) TAX OPINIONS. Parent and Company shall each have received written
opinions from their respective tax counsel, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn; PROVIDED, HOWEVER, that if the
counsel to either Parent or Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such
party if counsel to the other party renders such opinion to such party. The
parties to this Agreement agree to make such reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct on and as of the Closing Date with the
same force and effect as if made on the Closing Date except, in the case of
each of clauses (i) and (ii), (A) for such failures to be true and correct
that do not in the aggregate constitute a Material Adverse Effect on Parent
and Merger Sub, and (B) for those representations and warranties which
address matters only as of a particular date (which representations shall
have been true and correct (subject to the qualifications set forth in the
preceding clause (A)) as of such particular date) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Parent Schedule made or purported to have been made
after the date of this Agreement shall be disregarded). Company shall have
received a certificate with respect to the foregoing signed on behalf of
Parent by an authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to
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the Closing Date of each of the following conditions, any of which may be
waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
in all material respects as of the date of this Agreement and (ii) shall be
true and correct on and as of the Closing Date with the same force and
effect as if made on and as of the Closing Date except, in the case of each
of clauses (i) and (ii), (A) for such failures to be true and correct that
do not in the aggregate constitute a Material Adverse Effect on the Company
PROVIDED, HOWEVER, such Material Adverse Effect qualifier shall be
inapplicable with respect to representations and warranties contained in
Section 2.3(a), 2.3(e), 2.23, and 2.24, which shall be true and correct in
all material respects, and (B) for those representations and warranties
which address matters only as of a particular date (which representations
shall have been true and correct (subject to the qualifications set forth in
the preceding clause (A)) as of such particular date) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" contained in such
representations and warranties shall be disregarded and (ii) any update of
or modification to the Company Schedule made or purported to have been made
after the date of this Agreement shall be disregarded). Parent shall have
received a certificate with respect to the foregoing signed on behalf of
Company by an authorized officer of Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
(c) CONSENTS. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Schedule 6.3(c).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
shareholders of Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent, by written notice to the other, if the
Merger shall not have been consummated by October 31, 2000 for any reason;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach
of this Agreement;
(c) by either Company or Parent, by written notice to the other, if a
Governmental Entity shall have issued an order, decree or ruling or taken
any other action that has the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger and is final and nonappealable;
(d) by either Company or Parent, by written notice to the other, if
(i) the required approval of the shareholders of Company contemplated by the
first sentence of Section 6.1(a) of this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a
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meeting of Company shareholders duly convened therefor or at any adjournment
or postponement therefor or (ii) the required approval by the stockholders
of Parent of the Share Issuance required under applicable Nasdaq
rules shall not have been obtained by reason of the failure to obtain the
required vote at a meeting of Parent stockholders duly convened therefor or
at any adjournment or postponement thereof;
(e) by Company, by written notice to Parent, upon a breach of any
representation, warranty, covenant or agreement on the part of Parent set
forth in this Agreement, or if any representation or warranty of Parent
shall have become untrue, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, PROVIDED, that if such inaccuracy in Parent's representations
and warranties or breach by Parent is curable by Parent, then Company may
not terminate this Agreement under this Section 7.1(e) for thirty (30) days
after delivery of written notice from Company to Parent of such breach,
provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Company may not terminate this
Agreement pursuant to this paragraph (e) if such breach by Parent is cured
during such thirty (30)-day period);
(f) by Parent, by written notice to Company, upon a breach of any
representation, warranty, covenant or agreement on the part of Company set
forth in this Agreement, or if any representation or warranty of Company
shall have become untrue, in either case such that the conditions set forth
in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, PROVIDED, that if such inaccuracy in Company's
representations and warranties or breach by Company is curable by Company,
then Parent may not terminate this Agreement under this Section 7.1(f) for
thirty (30) days after delivery of written notice from Parent to Company of
such breach, provided Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Parent may not
terminate this Agreement pursuant to this paragraph (f) such breach by
Company is cured during such thirty (30)-day period); or
(g) by Parent, by written notice to Company, if (i) the Board of
Directors of Company withdraws, modifies or changes its recommendation of
this Agreement or the Merger in a manner adverse to Parent or its
stockholders, (ii) the Board of Directors of Company shall have recommended
to the shareholders of Company an Acquisition Proposal, (iii) the Company
fails to comply with Section 5.4, (iv) a bona fide Acquisition Proposal
shall have been publicly announced or otherwise become publicly known and
the Board of Directors of Company shall have (A) failed to recommend against
acceptance of such by its shareholders (including by taking no position, or
indicating its inability to take a position, with respect to the acceptance
by its shareholders of an Acquisition Proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and recommendation
of this Agreement and the transactions contemplated hereby within ten
business days thereafter, or (v) the Board of Directors of Company resolves
to take any of the actions described above.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto
(or such later time as may be required by Section 7.1). In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 7.2,
Section 5.3(a), Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
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7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and
Company shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses, incurred in relation to the printing and
filing of the Joint Proxy Statement/Prospectus (including any preliminary
materials related thereto) and the S-4 (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) TERMINATION FEE.
(i) In the event that (A) Parent shall terminate this Agreement
pursuant to Section 7.1(g), or (B) this Agreement shall be terminated (x)
pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and, in
the case of clause (B)(x) or clause (B)(y), (1) prior to such
termination, a bona fide Acquisition Proposal shall have been announced
or shall otherwise have become publicly known and (2) within 12 months
after such termination, Company shall enter into a definitive agreement
providing for any Company Acquisition or any Company Acquisition shall be
consummated, then, in the case of clause (A) or (B), respectively,
Company shall pay to Parent cash and issue to Parent shares of Company
Common Stock, in such combination as Company may elect (provided that the
cash component must be at least $20 million) with an aggregate value
(such shares of Company Common Stock to be valued at $24.125 per share
for all purposes of this Section 7.3(b)(i)) of $50 million (the
"TERMINATION FEE"). In the event this Agreement shall be terminated as
set forth in clause (A), the Termination Fee shall be payable in two
installments of equal value, the first of which shall be paid
contemporaneously with the termination of this Agreement pursuant to
Section 7.1(g), and the second of which shall be due and payable on the
30th day after such termination. In the event this Agreement shall be
terminated as set forth in clause (B), the Termination Fee shall be
payable in two installments of equal value, the first of which shall be
paid contemporaneously with the execution of a definitive agreement
providing for the Company Acquisition, and the second of which shall be
due and payable on the earlier to occur of (i) the consummation of such
Company Acquisition and (ii) the 90th days after the date of execution of
the definitive agreement relating to such Company Acquisition. If Company
satisfies its obligation to pay the Termination Fee in part by delivering
to Parent shares of Company Common Stock (the "TERMINATION FEE SHARES"),
then Parent shall be entitled to registration rights with respect to such
shares as described in the Option Agreement (treating the Termination Fee
Shares for all purposes of Section 7 of the Option Agreement as if they
were Option Shares (as defined in the Option Agreement)).
(ii) The Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not
enter into this Agreement; accordingly, if the Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in
order to obtain such payment, Parent makes a claim that results in a
judgment against the Company for the amounts set forth in this
Section 7.3(b), the Company shall pay to Parent its actual out-of-pocket
costs and expenses (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set
forth in this Section 7.3(b) at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made. Payment of the
fees described in this Section 7.3(b) shall not be in lieu of damages
incurred in the event of fraud in connection with or willful breach of
this Agreement.
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<PAGE>
(iii) In the event that Parent shall terminate this Agreement pursuant
to Section 7.1(f), then Company shall promptly reimburse Parent for
Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(iv) For the purposes of this Agreement, "COMPANY ACQUISITION" shall
mean any of the following transactions (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the shareholders of
the Company immediately preceding such transaction hold less than 60% of
the aggregate equity interests in the surviving or resulting entity of
such transaction, (ii) a sale or other disposition by the Company of
assets representing in excess of 40% of the aggregate fair market value
of the Company's business immediately prior to such sale or (iii) the
acquisition by any person or "group" (as defined under Section 13(d) of
the Exchange Act) (including by way of a tender offer or an exchange
offer or issuance by the Company), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares
representing in excess of 40% of the voting power of the then outstanding
shares of capital stock of the Company.
(v) For purposes only of this Section 7.3(b), each reference to "15%"
in the definition of Acquisition Transaction set forth in Section
5.4(a) shall be deemed to be "40%," and the reference to "85%" in such
definition shall be deemed to be "60%."
(vi) In the event that Company shall terminate this Agreement
pursuant to Section 7.1(e), then Parent shall promptly reimburse Company
for Company's costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and Company.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: Richard Nelson
Eric Deller
Telecopy No.: (858) 794-5057
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<PAGE>
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Douglas H. Collom
Telecopy No.: (650) 493-6811
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort
Telecopy No.: (415) 947-2099
(b) if to Company, to:
Harbinger Corporation
1277 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: James Travers
Loren B. Wimpfheimer
Telecopy No.: (404) 848-2864
and (404) 467-3476
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Telecopy No.: (650) 496-2885 and (650) 496-2777
and
Morris Manning & Martin LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, Georgia 30326
Attention: John C. Yates
Telecopy No.: (404) 365-9532
8.3 INTERPRETATION; DEFINITIONS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this
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<PAGE>
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. When reference is made
herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all
direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party hereto, with
respect to any matter in question, knowledge of the executive officers of
such party after reasonable inquiry;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection with
an entity means any change, event, violation, inaccuracy, circumstance or
effect, individually or when aggregated with other such changes, events,
violations, inaccuracies, circumstances or effects, that is materially
adverse to the business, assets, liabilities, financial condition or
results of operations of such entity and its subsidiaries taken as a
whole; PROVIDED, HOWEVER, in no event shall either of the following,
alone or in combination, be deemed to constitute, nor shall either of the
following be taken into account in determining whether there has been or
will be a Material Adverse Effect on any entity: (A) any change in such
entity's stock price or trading volume or the failure to meet or exceed
Wall Street research analysts' or such entity's internal earnings or
other estimates or projections in and of itself constitute a Material
Adverse Effect or (B) any change, event, violation, inaccuracy,
circumstance or effect that such entity successfully bears the burden of
proving results from (x) changes affecting the industry in which such
entity operates generally (which changes do not disproportionately affect
such entity), (y) changes affecting the United States economy generally
or (z) the public announcement or pendency of the transactions
contemplated hereby;
(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization, entity or
Governmental Entity; and
(iv) the term "SUBSIDIARY" shall mean any corporation, association,
joint venture, partnership, or similar business arrangement or entity in
which Company or Parent, as the case may require, owns 50% or more of the
outstanding voting interests.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.10.
8.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision
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<PAGE>
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. Except to the extent mandatorily governed by Georgia
Law, this Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
****
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Reorganization to be executed by their duly authorized respective officers as
of the date first written above.
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
a Delaware corporation
By: /s/ STEPHEN P. GARDNER
--------------------------------------
Name: Stephen P. Gardner
--------------------------------------
Title: President
--------------------------------------
SODA ACQUISITION CORPORATION
a Georgia corporation
By: /s/ ERIC P. DELLER
--------------------------------------
Name: Eric P. Deller
--------------------------------------
Title: Secretary
--------------------------------------
HARBINGER CORPORATION
a Georgia corporation
By: /s/ JAMES M. TRAVERS
--------------------------------------
Name: James M. Travers
--------------------------------------
Title:
--------------------------------------
</TABLE>
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "AGREEMENT") is made and entered into as
of April 5, 2000, between Peregrine Systems, Inc., a Delaware corporation
("PARENT"), and Harbinger Corporation, a Georgia corporation (the "COMPANY").
Capitalized terms used but not otherwise defined herein will have the meanings
ascribed to them in the Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company will be converted into the right to
receive Common Stock of Parent.
B. As a condition to Parent's willingness to enter into the Reorganization
Agreement, Parent has requested that Company agree, and Company has so agreed,
to grant to Parent an option to acquire shares of Company's Common Stock, $0.01
par value per share (the "COMPANY SHARES"), upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Parent an irrevocable
option (the "OPTION") to acquire up to 8,007,468 Company Shares (as adjusted as
set forth herein) (the "OPTION SHARES"), in the manner set forth below by paying
cash at a price of $43.50 per share (the "EXERCISE PRICE").
2. EXERCISE OF OPTION.
(a) The Option may be exercised by Parent, in whole or in part, at any
time or from time to time after (i) termination of the Reorganization
Agreement pursuant to Section 7.1(g) thereof or (ii) the time immediately
prior to the occurrence of an event within the scope of
Section 7.3(b)(i)(B)(2) of the Reorganization Agreement that causes the
Termination Fee to become payable pursuant to Section 7.3(b)(i)(B) of the
Reorganization Agreement (any of the events being referred to herein as an
"EXERCISE EVENT"). In the event Parent wishes to exercise the Option, Parent
will deliver to the Company a written notice (each an "EXERCISE NOTICE")
specifying the total number of Option Shares it wishes to acquire. Each
closing of a purchase of Option Shares (a "CLOSING") will occur on a date
and at a time prior to the termination of the Option designated by Parent in
an Exercise Notice delivered at least two business days prior to the date of
such Closing, which Closing will be held at the principal offices of the
Company.
(b) The Option will terminate upon the earliest of (i) the Effective
Time, (ii) twelve (12) months following the date on which the Reorganization
Agreement is terminated pursuant to Section 7.1(b) or 7.1(d)(i) thereof, if
no event causing the Termination Fee to become payable pursuant to
Section 7.3(b)(i)(B) of the Reorganization Agreement has occurred during
such 12-month period, (iii) twelve (12) months following payment of the
Termination Fee in connection with termination of the Reorganization
Agreement pursuant to Section 7.1(g) thereof, (iv) in the event the
Reorganization Agreement has been terminated pursuant to Section 7.1(b) or
7.1(d)(i) thereof and the Termination Fee became payable pursuant to
Section 7.3(b)(i)(B) thereof, 12 months after payment of the Termination
Fee; and (v) the date on which the Reorganization
B-1
<PAGE>
Agreement is otherwise terminated; PROVIDED, HOWEVER, that if the Option
cannot be exercised by reason of any applicable government order or because
the waiting period related to the issuance of the Option Shares under the
HSR Act will not have expired or been terminated, then the Option will not
terminate until the tenth business day after such impediment to exercise
will have been removed or will have become final and not subject to appeal.
3. CONDITIONS TO CLOSING. The obligation of Company to issue Option Shares
to Parent hereunder is subject to the conditions that (A) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder will
have expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that at
any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. CLOSING. At any Closing, (A) the Company will deliver to Parent a
single certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent and to bear the legend set forth in Section 9 hereof,
against delivery of (B) payment by Parent to the Company of the aggregate
purchase price for the Company Shares so designated and being purchased by
delivery of a certified check or bank check.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Company represents and
warrants to Parent that (A) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by the
Company and consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (C) this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company and,
assuming this Agreement constitutes a legal, valid and binding obligation of
Parent, is enforceable against the Company in accordance with its terms;
(D) except for any filings required under the HSR Act, the Company has taken all
necessary corporate and other actions to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued Company Shares for Parent to exercise the Option
in full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional Company Shares or other securities which may
be issuable pursuant to Section 9(a) upon exercise of the Option, all of which,
upon their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable; (E) upon delivery of the
Company Shares and any other securities to Parent upon exercise of the Option,
Parent will acquire such Company Shares or other securities free and clear of
all material claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever, excluding those imposed by Parent; (F) the execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws or equivalent organizational documents of
the Company or any of its subsidiaries, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (iii) result in any breach of or constitute a default (or an
event that with notice
B-2
<PAGE>
or lapse of time or both would become a default) under, or impair the Company's
or any of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties are bound or affected; and (G) the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Entity except pursuant to the
HSR Act.
6. CERTAIN RIGHTS.
(a) PARENT PUT. At the request of and upon notice by Parent (the "PUT
NOTICE"), at any time during the period during which the Option is
exercisable pursuant to Section 2 (the "PURCHASE PERIOD"), the Company (or
any successor entity thereof) will purchase from Parent the Option, to the
extent not previously exercised, at the price set forth in subparagraph
(i) below (as limited by subparagraph (iii) below), and the Option Shares,
if any, acquired by Parent pursuant thereto, at the price set forth in
subparagraph (ii) below (as limited by subparagraph (iii) below):
(i) The difference between the "MARKET/TENDER OFFER PRICE" for the
Company Shares as of the date Parent gives notice of its intent to
exercise its rights under this Section 6(a) (defined as the higher of
(A) the highest price per share offered as of such date pursuant to any
Acquisition Proposal which was made prior to such date and (B) the
highest closing sale price of Company Shares then on the NASDAQ National
Market during the 20 trading days ending on the trading day immediately
preceding such date) and the Exercise Price, multiplied by the number of
Company Shares purchasable pursuant to the Option that remain, but only
if the Market/Tender Offer Price is greater than the Exercise Price. For
purposes of determining the highest price offered pursuant to any
Acquisition Proposal which involves consideration other than cash, the
value of such consideration will be equal to the higher of (x) if
securities of the same class of the proponent as such consideration are
traded on any national securities exchange or by any registered
securities association, a value based on the closing sale price or asked
price for such securities on their principal trading market on such date
and (y) the value ascribed to such consideration by the proponent of such
Acquisition Proposal, or if no such value is ascribed, a value determined
in good faith by the Board of Directors of the Company.
(ii) The Exercise Price paid by Parent for Company Shares acquired
pursuant to the Option PLUS the difference between the Market/Tender
Offer Price and such Exercise Price (but only if the Market/Tender Offer
Price is greater than the Exercise Price) multiplied by the number of
Company Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to
this Section 6 Company will not be required to pay Parent in excess of an
aggregate of (x) $50,000,000 minus (z) any cash amounts paid (or due to
be paid in the future) to Parent by the Company pursuant to
Section 7.3(b) of the Reorganization Agreement.
(b) PAYMENT AND REDELIVERY OF OPTION OR SHARES. In the event Parent
exercises its rights under Section 6(a), the Company will, within five
business days after Parent delivers notice pursuant to Section 6(a), pay the
required amount to Parent in immediately available funds and Parent will
surrender to the Company the Option and the certificates evidencing the
Company Shares purchased by Parent pursuant thereto.
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<PAGE>
7. REGISTRATION RIGHTS.
(a) Following the termination of the Reorganization Agreement, Parent
(sometimes referred to herein as the "HOLDER") may by written notice (a
"REGISTRATION NOTICE") to the Company (the "REGISTRANT") request the
Registrant to register under the Securities Act all or any part of the
shares acquired by the Holder pursuant to this Agreement (such shares
requested to be registered, the "REGISTRABLE SECURITIES") in order to permit
the sale or other disposition of any or all shares of the Registrable
Securities that have been acquired by or are issuable to Holder upon
exercise of the Option in accordance with the intended method of sale or
other disposition stated by Holder, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor
provision. Holder agrees to cause, and to cause any underwriters of any sale
or other disposition to cause, any sale or other disposition pursuant to
such registration statement to be effected on a widely distributed basis so
that upon consummation thereof no purchaser or transferee will own
beneficially more than 5.0% of the then-outstanding voting power of
Registrant.
(b) The Registrant will use all reasonable efforts to effect, as
promptly as practicable, the registration under the Securities Act of the
Registrable Securities requested to be registered in the Registration Notice
and to keep such registration statement effective for such period not in
excess of 120 calendar days from the day such registration statement first
becomes effective as may be reasonably necessary to effect such sale or
other disposition; PROVIDED, HOWEVER, that the Holder will not be entitled
to more than an aggregate of two effective registration statements
hereunder. The obligations of Registrant hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 120
calendar days in the aggregate if the Board of Directors of Registrant shall
have determined that the filing of such registration statement or the
maintenance of its effectiveness would require premature disclosure of
material nonpublic information that would materially and adversely affect
Registrant or otherwise interfere with or adversely affect any pending or
proposed offering of securities of Registrant or any other material
transaction involving Registrant. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 120 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 will again be
applicable to any proposed registration. The Registrant will use
commercially reasonable efforts to cause any Registrable Securities
registered pursuant to this Section 7 to be qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder may
reasonably request and will continue such registration or qualification in
effect in such jurisdictions; PROVIDED, HOWEVER, that the Registrant will
not be required to qualify to do business in, or consent to general service
of process in, any jurisdiction by reason of this provision. If Registrant
effects a registration under the Securities Act of Company Common Stock for
its own account or for any other stockholders of Registrant (other than on
Form S-4 or Form S-8, or any successor form), it will allow Holder the right
to participate in such registration by selling its Registrable Securities,
and such participation will not affect the obligation of Registrant to
effect demand registration statements for Holder under this Section 7;
PROVIDED that, if the managing underwriters of such offering advise
Registrant in writing that in their opinion the number of shares of Company
Common Stock requested to be included in such registration exceeds the
number which can be sold in such offering, Registrant will include the
shares requested to be included therein by Holder pro rata with the shares
intended to be included therein by Registrant and such other stockholders.
(c) The registration rights set forth in this Section 7 are subject to
the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan
for distribution thereof, and such other information with respect to the
Holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in a registration statement
all facts required to be disclosed with respect to a registration
thereunder.
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<PAGE>
(d) A registration effected under this Section 7 will be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant will
provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings and as such underwriters may
reasonably require. In connection with any registration, the Holder and the
Registrant agree to enter into an underwriting agreement reasonably
acceptable to each such party, in form and substance customary for
transactions of this type with the underwriters participating in such
offering.
(e) INDEMNIFICATION.
(i) The Registrant will indemnify the Holder, each of its directors
and officers and each person who controls the Holder within the meaning
of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification
or compliance which has been effected pursuant to this Agreement, against
all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any
violation by the Registrant of any rule or regulation promulgated under
the Securities Act applicable to the Registrant in connection with any
such registration, qualification or compliance, and the Registrant will
reimburse the Holder, each of its directors and officers and each person
who controls the Holder within the meaning of Section 15 of the
Securities Act, and each underwriter for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; PROVIDED,
that the Registrant will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement
or omission, made in reliance upon and in conformity with written
information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities covered
by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Holder of any rule or regulation promulgated under the Securities Act
applicable to the Holder in connection with any such registration,
qualification or compliance, and will reimburse the Registrant, such
directors, officers or control persons or underwriters for any legal or
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written
information furnished to the Registrant by the Holder for use therein;
PROVIDED, that in no event will any
B-5
<PAGE>
indemnity under this Section 7(e) exceed the net proceeds of the offering
received by the Holder.
(iii) Each party entitled to indemnification under this Section 7(e)
(the "INDEMNIFIED PARTY") will give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and will permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom,
PROVIDED, that counsel for the Indemnifying Party, who will conduct the
defense of such claim or litigation, will be approved by the Indemnified
Party (whose approval will not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's
expense; PROVIDED, HOWEVER, that the Indemnifying Party will pay such
expense if representation of the Indemnified Party by counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding, and PROVIDED FURTHER,
HOWEVER, that the failure of any Indemnified Party to give notice as
provided herein will not relieve the Indemnifying Party of its
obligations under this Section 7(e) unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such
claim or litigation will, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. No Indemnifying Party
will be required to indemnify any Indemnified Party with respect to any
settlement entered into without such Indemnifying Party's prior consent
(which will not be unreasonably withheld).
8. PROFIT LIMITATION.
(a) Notwithstanding any other provision in this Agreement or the
Reorganization Agreement, in no event shall Parent's Total Profit (as
defined below) exceed $60,000,000 (the "MAXIMUM PROFIT") and, if Parent's
Total Profit otherwise would exceed the Maximum Profit, Parent, at its sole
discretion, shall either (i) reduce the number of Option Shares subject to
the Option, (ii) deliver to the Company for cancellation Option Shares (or
other securities into which such Option Shares are converted or exchanged)
previously purchased by, or Company Shares issued by the Company pursuant to
Section 7.3 of the Reorganization Agreement ("TERMINATION FEE SHARES") (or
other securities into which such Termination Fee Shares are converted or
exchanged) to, Parent, (iii) pay cash to the Company, (iv) reduce the number
of Termination Fee Shares to be paid by the Company or (v) any combination
of the foregoing, so that Parent's actually realized Total Profit shall not
exceed the Maximum Profit after taking into account the foregoing actions;
PROVIDED, HOWEVER, that to the extent the payment by the Company of cash to
Parent in satisfaction of the Termination Fee pursuant to Section 7.3 of the
Reorganization Agreement would cause Parent's Total Profit to exceed the
Maximum Profit (after Parent has had an opportunity to reduce Parent's Total
Profit pursuant to clause (iv) of this sentence), then the Company need not
pay such cash portion of the Termination Fee.
(b) For purposes of this Agreement, "TOTAL PROFIT" shall mean: (i) the
aggregate amount (before taxes) of (A) any excess of (x) the net cash
amounts or fair market value of any property received by Parent pursuant to
a sale of Option Shares or Termination Fee Shares (or securities into which
such shares are converted or exchanged) over (y) the Parent's aggregate
purchase price for such Option Shares (or other securities), plus (B) any
amounts received by Parent pursuant on the repurchase of the Option by the
Company pursuant to Section 6, plus (C) any termination fee paid in cash by
the Company and received by Parent pursuant to the Reorganization Agreement,
minus (ii) the amounts of any cash previously paid by Parent to the Company
pursuant to this
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<PAGE>
Section 8 plus the value of the Option Shares or Termination Fee Shares (or
other securities) previously delivered by Parent to the Company for
cancellation pursuant to this Section 8.
(c) For purposes of Section 8(a) and clause (ii) of Section 8(b), the
value of any Option Shares delivered by Parent to the Company shall be the
Market/Tender Offer Price of such Option Shares, and the value of any
Termination Fee Shares delivered by Parent to the Company shall be the
Market/Tender Offer Price of such Termination Fee Shares (deeming the date
of notice of intent described in Section 6(a)(i) to be the date on which
such Termination Fee Shares have been issued to Parent).
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR ISSUANCE OF TERMINATION FEE
SHARES.
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like,
the type and number of shares or securities subject to the Option, the
Exercise Price will be adjusted appropriately, and proper provision will be
made in the agreements governing such transaction so that Parent will
receive, upon exercise of the Option, the number and class of shares or
other securities or property that Parent would have received in respect of
the Company Shares if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under
the Reorganization Agreement, if the number of outstanding Company Shares
increases or decreases after the date of this Agreement (other than pursuant
to an event described in Section 9(a)) or if the Company satisfies a portion
of its obligation to pay Parent the Termination Fee pursuant to Section 7.3
by issuing to Parent shares of Company Common Stock (the "TERMINATION FEE
SHARES"), then the number of Company Shares subject to the Option (including
those Option Shares which may have already been exercised) will be adjusted
so that the sum of the number of Company Shares subject to the Option and
the number of Termination Fee Shares equals 19.99% of the number of Company
Shares then issued and outstanding, without giving effect to any Option
Shares or Termination Fee Shares; provided, however, that if any such
reduction in the number of Company Shares subject to the Option shall
decrease Parent's Total Profit and if such decreased Total Profit would be
below the Maximum Profit, then the Exercise Price of the Company Shares then
subject to the Option shall be reduced to the extent necessary to cause
Parent's Total Profit to equal the lesser of (i) the Maximum Profit or
(ii) Parent's Total Profit in the absence of such reduction in the number of
Company Shares subject to the Option.
10. RESTRICTIVE LEGENDS. Each certificate representing Option Shares
issued to Parent hereunder will include a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF APRIL 5,
2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
B-7
<PAGE>
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Holder
has delivered to Registrant a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Registrant
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
11. LISTING AND HSR FILING. The Company, upon the request of Parent, will
promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on the Nasdaq National Market and will use
commercially reasonable efforts to obtain approval of such listing as soon as
practicable. Promptly after the date hereof, each of the parties hereto will
promptly file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice all required premerger notification and
report forms and other documents and exhibits required to be filed under the HSR
Act to permit the acquisition of the Company Shares subject to the Option at the
earliest possible date.
12. BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 7 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 7 will not be required to bear the legend set forth in Section 10.
13. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
14. ENTIRE AGREEMENT. This Agreement and the Reorganization Agreement
(including the appendices thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof.
15. FURTHER ASSURANCES. Each party hereto will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
16. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of the other provisions
of this Agreement, which will remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto will negotiate
in good faith and will
B-8
<PAGE>
execute and deliver an amendment to this Agreement in order, as nearly as
possible, to effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision.
17. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to Parent, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: General Counsel
Telecopy No.: (858) 794-5057
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Douglas H. Collom
Telecopy No.: (650) 493-6811
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort
Telecopy No.: (415) 947-2099
(b) if to the Company, to:
Harbinger Corporation
1277 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: James Travers
Loren B. Wimpfheimer
Telecopy No.: (404) 848-2864
And (404) 467-3476
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Telecopy No.: (650) 496-2885 and (650) 496-2777
18. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
conflicts of law principles thereof.
B-9
<PAGE>
19. EXPENSES. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
20. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
21. ASSIGNMENT. Neither of the parties hereto may sell, transfer, assign
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.
23. EFFECT OF HEADINGS. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
PEREGRINE SYSTEMS, INC.
Signature:
--------------------------------------------------------------------
Print Name:
--------------------------------------------------------------------
Print Title:
--------------------------------------------------------------------
HARBINGER CORPORATION
Signature:
--------------------------------------------------------------------
Print Name:
--------------------------------------------------------------------
Print Title:
--------------------------------------------------------------------
B-10
<PAGE>
ANNEX C
FORM OF COMPANY VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
April 5, 2000, among Peregrine Systems, Inc., a Delaware corporation ("PARENT"),
and the undersigned shareholder and/or option holder (the "SHAREHOLDER") of
Harbinger Corporation, a Georgia corporation (the "COMPANY").
RECITALS
The Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT"), which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company shall be converted into the right to
receive common stock of Parent, as set forth in the Reorganization Agreement;
and
Shareholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such number
of shares of the outstanding capital stock of the Company and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Reorganization Agreement. For purposes of
this Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated pursuant
to Article VII thereof, or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of the Company (including
all shares of Company Common Stock and all options, warrants and other
rights to acquire shares of Company Common Stock) beneficially owned by
Shareholder as of the date of this Agreement; and (ii) all additional
securities of the Company (including all additional shares of Company Common
Stock and all additional options, warrants and other rights to acquire
shares of Company Common Stock) of which Shareholder beneficial acquires
ownership during the period from the date of this Agreement through the
Expiration Date.
(d) TRANSFER. A Person shall be deemed to have effected a "TRANSFER"
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of
an option with respect to, transfer of or disposition of such security or
any interest therein.
2. TRANSFER OF SHARES.
(a) TRANSFEREE OF SHARES TO BE BOUND BY THIS AGREEMENT. Shareholder
agrees that, during the period from the date of this Agreement through the
Expiration Date, except as may be required by court order or operation of
law, Shareholder shall not cause or permit any Transfer of any of the Shares
to be effected unless each Person to which such Shares or any interest in
any of such Shares is or may be transferred shall have (i) executed a
counterpart of this Voting Agreement and a proxy in the form attached hereto
as EXHIBIT A and (ii) agreed to hold such Shares or interest in such Shares
subject to all of the terms and provisions of this Agreement.
C-1
<PAGE>
(b) TRANSFER OF VOTING RIGHTS. Shareholder agrees that, during the
period from the date of this Agreement through the Expiration Date,
Shareholder shall not deposit (or permit the deposit of) any Shares in a
voting trust or grant any proxy or enter into any voting agreement or
similar agreement in contravention of the obligations of Shareholder under
this Agreement with respect to any of the Shares.
3. AGREEMENT TO VOTE SHARES. At every meeting of the shareholders of the
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company, Shareholder (in
his or her capacity as such) shall cause the Shares to be voted (to the extent
such Shares have voting rights and are entitled to vote thereon) (i) in favor of
adoption and approval of the Reorganization Agreement and approval of the
Merger, (ii) in favor of any matter that could reasonably be expected to
facilitate the Merger, (iii) against any Acquisition Proposal and (iv) against
any matter that could reasonably be expected to facilitate any Acquisition
Proposal. Notwithstanding the foregoing, and notwithstanding any other provision
of this Agreement, nothing in this Agreement shall limit or restrict Shareholder
from acting in Shareholder's capacity as a director or officer of Company (it
being understood that this Agreement shall apply to Shareholder solely in
Shareholder's capacity as a shareholder of Company) or voting in Shareholder's
sole discretion on any matter other than those matters referred to in the
foregoing clauses (i), (ii), (iii) and (iv) of this Section 3.
4. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Shareholder agrees to deliver to Parent a proxy in the form attached hereto as
EXHIBIT A (the "PROXY"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Shareholder (i) is
the beneficial owner of the shares of Company Common Stock and the options and
warrants to purchase shares of Common Stock of the Company indicated on the
final page of this Agreement, free and clear of any liens, claims, options,
rights of first refusal, co-sale rights, charges or other encumbrances that, in
each case, would deprive Parent of the benefits of this Agreement; (ii) does not
beneficially own any securities of the Company other than the shares of Company
Common Stock and options and warrants to purchase shares of Common Stock of the
Company indicated on the final page of this Agreement; and (iii) has full power
and authority to make, enter into and carry out the terms of this Agreement and
the Proxy.
6. LEGENDING OF SHARES. If so requested by Parent, Shareholder agrees that
the Shares shall bear a legend stating that they are subject to this Agreement
and to an irrevocable proxy. Subject to the terms of Section 2 hereof,
Shareholder agrees that Shareholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
7. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. MISCELLANEOUS.
(a) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
C-2
<PAGE>
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or
agreements of Shareholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Parent upon any such
violation, Parent shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Parent at law or in equity.
(e) NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party
as shall be specified by like notice):
<TABLE>
<S> <C> <C>
If to Parent: Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attention: Richard T. Nelson, Vice President
Corporate Development
Eric Deller, Vice President, General
Counsel
Telecopy No.: (858) 794-5057
With copies to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Douglas H. Collom
Facsimile No.: (650) 845-5000
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort
Facsimile No.: (415) 947-2099
If to Shareholder: To the address for notice set forth on the signature
page hereof.
With a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Telecopy No.: (650) 496-2885 and (650) 496-2771
and
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C>
Morris Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: John C. Yates
Facsimile No.: (404) 365-9532
</TABLE>
(f) GOVERNING LAW. Except to the extent mandatorily governed by the
laws of the State of Georgia, this Agreement shall be governed by the laws
of the State of Delaware, without giving effect to the conflicts of law
principles thereof.
(g) ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) EFFECT OF HEADINGS. The section headings are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(j) PERMITTED ACTIVITIES. Nothing in this Agreement shall be construed
to require Shareholder to exercise any option, warrant or other right to
acquire Company Common Stock, and nothing in this Agreement shall be
construed to prohibit Shareholder from (i) engaging in customary sales of
Shares consistent with Shareholder's past sales (but in no event aggregating
more than 15% of Shareholder's total Shares), or (ii) engaging in a net
exercise of any option, warrant or other right to acquire Company Common
Stock (if the contractual terms of such option, warrant, or other right
currently permit such a net exercise).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
C-4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C>
PEREGRINE SYSTEMS, INC. SHAREHOLDER
- ------------------------------------------- -------------------------------------------
Signature Signature
- ------------------------------------------- -------------------------------------------
Print Name Print Name
- ------------------------------------------- -------------------------------------------
Print Title Print Title
-------------------------------------------
-------------------------------------------
Print Address
-------------------------------------------
Print Telephone
-------------------------------------------
Print Facsimile No.
Shares beneficially owned:
------------ shares of Company Common Stock
------------ shares of Company Common Stock issuable
upon exercise of outstanding options or
warrants
</TABLE>
C-5
<PAGE>
IRREVOCABLE PROXY
The undersigned shareholder of Harbinger Corporation, a Georgia corporation
(the "COMPANY"), hereby irrevocably (to the fullest extent permitted by law)
appoints the members on the Board of Directors of Peregrine Systems, Inc., a
Delaware corporation ("PARENT"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned by the undersigned, and any and all other shares or
securities of the Company issued or issuable in respect thereof on or after the
date hereof (collectively, the "SHARES") in accordance with the terms of this
Proxy. The Shares beneficially owned by the undersigned shareholder of the
Company as of the date of this Proxy are listed on the final page of this Proxy.
Upon the undersigned's execution of this Proxy, any and all prior proxies given
by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares on any matters covered hereby until after the Expiration Date (as defined
below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Parent and the undersigned
shareholder (the "VOTING AGREEMENT"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization (the
"REORGANIZATION AGREEMENT"), among Parent, Soda Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and
the Company. The Reorganization Agreement provides for the merger of Merger Sub
with and into the Company in accordance with its terms (the "MERGER"). As used
herein, the term "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Reorganization Agreement shall have been validly terminated
pursuant to Article VII thereof or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of shareholders
of the Company and in every written consent in lieu of such meeting (i) in favor
of approval of the Reorganization Agreement and the Merger, (ii) in favor of any
matter that could reasonably be expected to facilitate the Merger,
(iii) against any Acquisition Proposal (as defined in the Reorganization
Agreement) and (iv) against any matter that could reasonably be expected to
facilitate any Acquisition Proposal.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote, and
grant proxies with respect to, the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
C-6
<PAGE>
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
<TABLE>
<S> <C> <C>
Dated: April 5, 2000
Signature of Shareholder:
------------------------------------------
Print Name of Shareholder:
------------------------------------------
Shares beneficially owned:
------------------------------------------
shares of Company Common Stock
shares of the Company Common Stock
issuable upon exercise of outstanding
options or warrants
</TABLE>
C-7
<PAGE>
ANNEX D
FORM OF PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
April 5, 2000, among Harbinger Corporation, a Georgia corporation ("COMPANY"),
and the undersigned stockholder and/or option holder (the "STOCKHOLDER") of
Peregrine Systems, Inc., a Delaware corporation ("PARENT").
RECITALS
A. Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT"), which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company shall be converted into the right to
receive common stock of Parent, as set forth in the Reorganization Agreement;
and
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such number
of shares of the outstanding capital stock of Parent and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Reorganization Agreement. For purposes of
this Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated pursuant
to Article VII thereof, or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of the Parent (including all
shares of Parent Common Stock and all options, warrants and other rights to
acquire shares of Parent Common Stock) beneficially owned by Stockholder as
of the date of this Agreement; and (ii) all additional securities of Parent
(including all additional shares of Parent Common Stock and all additional
options, warrants and other rights to acquire shares of Parent Common Stock)
of which Stockholder acquires beneficial ownership during the period from
the date of this Agreement through the Expiration Date.
(d) TRANSFER. A Person shall be deemed to have effected a "TRANSFER"
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of
an option with respect to, transfer of or disposition of such security or
any interest therein.
2. TRANSFER OF SHARES.
(a) TRANSFEREE OF SHARES TO BE BOUND BY THIS AGREEMENT. Stockholder
agrees that, during the period from the date of this Agreement through the
Expiration Date, except as may be required by court order or operation of
law, Stockholder shall not cause or permit any Transfer of any of the Shares
to be effected unless each Person to which any of such Shares or any
interest in any of such Shares is or may be transferred shall have (i)
executed a counterpart of this Voting
D-1
<PAGE>
Agreement and a proxy in the form attached hereto as EXHIBIT A and (ii)
agreed to hold such Shares or interest in such Shares subject to all of the
terms and provisions of this Agreement.
(b) TRANSFER OF VOTING RIGHTS. Stockholder agrees that, during the
period from the date of this Agreement through the Expiration Date,
Stockholder shall not deposit (or permit the deposit of) any Shares in a
voting trust or grant any proxy or enter into any voting agreement or
similar agreement in contravention of the obligations of Stockholder under
this Agreement with respect to any of the Shares.
3. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
Parent called, and at every adjournment thereof, and on every action or approval
by written consent of the stockholders of Parent, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted (to the extent such Shares
have voting rights and are entitled to vote thereon) (i) in favor of the Share
Issuance, (ii) in favor of any matter that could reasonably be expected to
facilitate the Share Issuance, and (iii) against any matter that could
reasonably be expected to prevent the Merger. Notwithstanding the foregoing, and
notwithstanding any other provision of this Agreement, nothing in this Agreement
shall limit or restrict Stockholder from acting in Stockholder's capacity as a
director or officer of Parent (it being understood that this Agreement shall
apply to Stockholder solely in Stockholder's capacity as a stockholder of
Parent) or voting in Stockholder's sole discretion on any matter other than
those matters referred to in the foregoing clauses (i), (ii), and (iii) of this
Section 3.
4. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Company a proxy in the form attached hereto as
EXHIBIT A (the "PROXY"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder (i) is
the beneficial owner of the shares of Parent Common Stock and the options and
warrants to purchase shares of Common Stock of Parent indicated on the final
page of this Agreement, free and clear of any liens, claims, options, rights of
first refusal, co-sale rights, charges or other encumbrances that, in each case,
would deprive Company of the benefits of this Agreement; (ii) does not
beneficially own any securities of Parent other than the shares of Parent Common
Stock and options and warrants to purchase shares of Common Stock of Parent
indicated on the final page of this Agreement; and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
6. LEGENDING OF SHARES. If so requested by Company, Stockholder agrees
that the Shares shall bear a legend stating that they are subject to this
Agreement and to an irrevocable proxy. Subject to the terms of Section 2 hereof,
Stockholder agrees that Stockholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
7. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. MISCELLANEOUS.
(a) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
D-2
<PAGE>
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Company upon any
such violation, Company shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Company at law or in equity.
(e) NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party
as shall be specified by like notice):
<TABLE>
<S> <C>
If to Company: Harbinger Corporation
1277 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: James Travers
Loren B. Wimpfheimer
Telecopy No.: (404) 467-3476
With a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Facsimile No.: (650) 496-2885 and (650) 496-2777
and
Morris Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, Georgia 30326
Attention: John C. Yates
Facsimile No.: (404) 365-9532
</TABLE>
If to Stockholder: To the address for notice set forth on the signature page
hereof.
(f) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of law principles
thereof.
(g) ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) EFFECT OF HEADINGS. The section headings are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
D-3
<PAGE>
(j) Nothing in this Agreement shall be construed to require Stockholder
to exercise any option, warrant or other right to acquire Parent Common
Stock, and nothing in this Agreement shall be construed to prohibit
Stockholder from (i) engaging in customary sales of Shares consistent with
Stockholder's past sales (but in no event aggregating more than 15% of
Stockholder's total Shares), or (ii) engaging in a net exercise of any
option, warrant or other right to acquire Parent Common Stock (if the
contractual terms of such option, warrant, or other right currently permit
such a net exercise).
[Remainder Of This Page Left Blank Intentionally]
D-4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C>
COMPANY STOCKHOLDER
- -------------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------------- --------------------------------------------
Print Name Print Name
- -------------------------------------------- --------------------------------------------
Print Title Print Title
--------------------------------------------
--------------------------------------------
Print Address
--------------------------------------------
Print Telephone
--------------------------------------------
Print Facsimile No.
Shares beneficially owned:
------------ shares of Parent Common Stock
------------ shares of Parent Common Stock
issuable upon exercise of
outstanding options or warrants
</TABLE>
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
D-5
<PAGE>
IRREVOCABLE PROXY
The undersigned stockholder of Peregrine Systems, Inc., a Delaware
corporation (the "PARENT"), hereby irrevocably (to the fullest extent permitted
by law) appoints the directors on the Board of Directors of Harbinger
Corporation, a Georgia corporation ("COMPANY"), and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Parent that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Parent issued or issuable in respect thereof on or after
the date hereof (collectively, the "SHARES") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned stockholder of
Parent as of the date of this Proxy are listed on the final page of this Proxy.
Upon the undersigned's execution of this Proxy, any and all prior proxies given
by the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares on any matters covered hereby until after the Expiration Date (as defined
below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Company and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of Company
entering into that certain Agreement and Plan of Reorganization (the
"REORGANIZATION AGREEMENT"), among Parent, Soda Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and
the Company. The Reorganization Agreement provides for the merger of Merger Sub
with and into the Company in accordance with its terms (the "MERGER"). As used
herein, the term "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Reorganization Agreement shall have been validly terminated
pursuant to Article VII thereof or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Parent and in every written consent in lieu of such meeting (i) in favor of
the Share Issuance (as defined in the Reorganization Agreement), (ii) in favor
of any matter that reasonably be expected to facilitate the Stock Issuance or
the Merger, and (iii) against any matter that could reasonably be expected to
prevent the Merger.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote, and
grant proxies with respect to, the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
D-6
<PAGE>
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: April 5, 2000
<TABLE>
<S> <C>
Signature of Stockholder:
------------------------------------------------
Print Name of Stockholder:
------------------------------------------------
Shares beneficially owned:
shares of Parent Common Stock
------------
shares of the Parent Common Stock issuable upon
------------ exercise of outstanding options or warrants
</TABLE>
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
D-7
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
April 5, 2000, among Harbinger Corporation, a Georgia corporation ("COMPANY"),
and the undersigned stockholder and/or option holder (the "STOCKHOLDER") of
Peregrine Systems, Inc., a Delaware corporation ("PARENT").
RECITALS
A. Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT"), which
provides for the merger (the "MERGER") of a wholly-owned subsidiary of Parent
("MERGER SUB") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company shall be converted into the right to
receive common stock of Parent, as set forth in the Reorganization Agreement;
and
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such number
of shares of the outstanding capital stock of Parent and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Reorganization Agreement. For purposes of
this Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated pursuant
to Article VII thereof, or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean all securities of the Parent (including all
shares of Parent Common Stock and all options, warrants and other rights to
acquire shares of Parent Common Stock) beneficially owned by Stockholder as
of the record date for the determination of stockholders of Parent entitled
to vote on any matter subject to this Agreement.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
Parent called, and at every adjournment thereof, and on every action or approval
by written consent of the stockholders of Parent, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted (to the extent such Shares
have voting rights and are entitled to vote thereon) (i) in favor of the Share
Issuance, (ii) in favor of any matter that could reasonably be expected to
facilitate the Share Issuance, and (iii) against any matter that could
reasonably be expected to prevent the Merger. Notwithstanding the foregoing, and
notwithstanding any other provision of this Agreement, nothing in this Agreement
shall limit or restrict Stockholder from acting in Stockholder's capacity as a
director or officer of Parent (it being understood that this Agreement shall
apply to Stockholder solely in Stockholder's capacity as a stockholder of
Parent) or voting in Stockholder's sole discretion on any matter other than
those matters referred to in the foregoing clauses (i), (ii), and (iii) of this
Section 2.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Company a proxy in the form attached hereto as
EXHIBIT A (the "PROXY"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder (i) is
the beneficial owner of the shares of Parent Common Stock and the options and
warrants to purchase shares of Common Stock of Parent indicated on the final
page of this Agreement, free and clear of any liens, claims,
D-8
<PAGE>
options, rights of first refusal, co-sale rights, charges or other encumbrances
that, in each case, would deprive Company of the benefits of this Agreement;
(ii) does not beneficially own any securities of Parent other than the shares of
Parent Common Stock and options and warrants to purchase shares of Common Stock
of Parent indicated on the final page of this Agreement; and (iii) has full
power and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
5. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. MISCELLANEOUS.
(a) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(b) BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
(c) AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Company upon any
such violation, Company shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Company at law or in equity.
(e) NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party
as shall be specified by like notice):
<TABLE>
<S> <C>
If to Company: Harbinger Corporation
1055 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: James Travers, Chief Executive Officer
Loren B. Wimpfheimer, Vice President, Business
Development/General Counsel
Facsimile No.: (404) 848-2864 and (404) 467-3476
</TABLE>
D-9
<PAGE>
<TABLE>
<S> <C>
With a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Rod J. Howard
Facsimile No.: (650) 496-2885 and (650) 496-2777
and
Morris Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, Georgia 30326
Attention: John C. Yates
Facsimile No.: (404) 365-9532
</TABLE>
If to Stockholder: To the address for notice set forth on the signature page
hereof.
(f) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of law principles
thereof.
(g) ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) EFFECT OF HEADINGS. The section headings are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(j) Nothing in this Agreement shall be construed to require Stockholder
to exercise any option, warrant or other right to acquire Parent Common
Stock.
D-10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C>
HARBINGER CORPORATION STOCKHOLDER
- -------------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------------- --------------------------------------------
Print Name Print Name
- -------------------------------------------- --------------------------------------------
Print Title Print Title
--------------------------------------------
--------------------------------------------
Print Address
--------------------------------------------
Print Telephone
--------------------------------------------
Print Facsimile No.
</TABLE>
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
D-11
<PAGE>
IRREVOCABLE PROXY
The undersigned stockholder of Peregrine Systems, Inc., a Delaware
corporation (the "PARENT"), hereby irrevocably (to the fullest extent permitted
by law) appoints the directors on the Board of Directors of Harbinger
corporation, a Georgia corporation ("COMPANY"), and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Parent that are beneficially
owned by the undersigned as of the record date for the determination of
stockholders of Parent entitled to vote on any matter subject to this Agreement
(collectively, the "SHARES") in accordance with the terms of this Proxy. Upon
the undersigned's execution of this Proxy, any and all prior proxies given by
the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares on any matters covered hereby until after the Expiration Date (as defined
below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Company and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of Company
entering into that certain Agreement and Plan of Reorganization (the
"REORGANIZATION AGREEMENT"), among Parent, Soda Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and
the Company. The Reorganization Agreement provides for the merger of Merger Sub
with and into the Company in accordance with its terms (the "MERGER"). As used
herein, the term "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Reorganization Agreement shall have been validly terminated
pursuant to Article VII thereof or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Parent and in every written consent in lieu of such meeting (i) in favor of
the Share Issuance (as defined in the Reorganization Agreement), (ii) in favor
of any matter that reasonably be expected to facilitate the Stock Issuance or
the Merger, and (iii) against any matter that could reasonably be expected to
prevent the Merger.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote, and
grant proxies with respect to, the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
D-12
<PAGE>
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: April 5, 2000
<TABLE>
<S> <C>
Signature of Stockholder:
------------------------------------------------
Print Name of Stockholder:
------------------------------------------------
</TABLE>
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
D-13
<PAGE>
[Goldman, Sachs & Co. Letterhead]
PERSONAL AND CONFIDENTIAL
April 5, 2000
Board of Directors
Harbinger Corporation
1277 Lenox Park Blvd
Atlanta, GA 30319-5396
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $.0001
per share (the "Shares"), of Harbinger Corporation (the "Company") of the
Exchange Ratio (as defined below) pursuant to the Agreement and Plan of
Reorganization, dated as of April 5, 2000, among Peregrine Systems, Inc.
("Peregrine"), Soda Acquisition Corporation, a wholly-owned subsidiary of
Peregrine ("Merger Sub"), and the Company (the "Agreement"). Pursuant to the
Agreement, Merger Sub will be merged with and into the Company (the "Merger")
and each Share will be converted into the right to receive 0.75 of a share (the
"Exchange Ratio") of Common Stock, par value $0.001 per share, of Peregrine (the
"Peregrine Common Stock").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. In addition, Goldman, Sachs & Co. is a full service securities firm
and in the ordinary course of its trading activities it may from time to time
effect transactions, for its own account or the account of customers, and hold
positions in securities or options on securities of the Company and Peregrine.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1999 and of Peregrine for the
three fiscal years ended March 31, 1999, certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of the Company and Peregrine; certain other
communications from the Company and Peregrine to their respective stockholders;
certain internal financial analyses and forecasts for the Company prepared by
its management; and certain cost savings and operating synergies projected by
the management of the Company to result from the transaction contemplated by the
Agreement (the "Synergies"). We also have held discussions with members of the
senior management of the Company and Peregrine regarding their assessment of the
strategic rationale for, and the potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Shares and the Peregrine Common Stock, which like many Internet related stocks
have been and are likely to continue to be subject to significant short term
price and trading volatility, compared certain financial and stock market
information for the Company and Peregrine with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the enterprise
software, B2B e-commerce and enterprise e-
E-1
<PAGE>
Board of Directors
Harbinger Corporation
April 5, 2000
Page Two
commerce industries specifically and in other industries generally and performed
such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed, with your consent, that the Synergies have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the management of the Company. As you are aware, Peregrine did
not make available to us its projections of expected future performance.
Accordingly, our review of such matters was limited to discussions with the
senior management of Peregrine of certain publicly available estimates of
research analysts for Peregrine (as commented on by senior management of
Peregrine, the "Analyst Projections"). We have also assumed, with your consent,
that the Analyst Projections have been prepared on a basis that does not
materially differ from the view of the management of Peregrine as to the future
performance of Peregrine. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or
Peregrine or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of Directors
of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that, as of the date hereof, the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders of Shares.
Very truly yours,
E-2
<PAGE>
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
April 5, 2000
Board of Directors
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, CA 92130
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Peregrine Systems, Inc. ("Peregrine") in connection with the proposed
merger of Peregrine and Harbinger Corporation (the "Company") pursuant to the
Agreement and Plan of Merger and Reorganization (the "Merger Agreement") among
the Company, Peregrine and Soda Acquisition Corporation, a wholly owned
subsidiary of Peregrine ("Merger Sub"), which provides, among other things, for
the merger of Merger Sub with and into the Company (the "Transaction"), as a
result of which the Company will become a wholly owned subsidiary of Peregrine.
As set forth more fully in the Merger Agreement, as a result of the Transaction,
each share of the Common Stock, par value $.0001 per share, of the Company
("Company Common Stock") not owned directly or indirectly by the Company or
Peregrine will be converted into the right to receive 0.75 shares (the "Exchange
Ratio") of Common Stock, par value $0.001 per share, of Peregrine ("Peregrine
Common Stock"). The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to the
fairness, from a financial point of view, to Peregrine of the Exchange Ratio.
In connection with Deutsche Bank's role as financial advisor to Peregrine,
and in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning the Company and Peregrine
and certain internal analyses and other information furnished to it by the
Company and Peregrine. Deutsche Bank has also held discussions with members of
the senior managements of the Company and Peregrine regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, Deutsche Bank has (i) reviewed the reported prices and
trading activity for Company Common Stock and Peregrine Common Stock,
(ii) compared certain financial and stock market information for the Company and
Peregrine with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part,
(iv) reviewed the terms of drafts of the Merger Agreement and certain related
documents, and (v) performed such other studies and analyses and considered such
other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or Peregrine, including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank has assumed and relied upon the accuracy
and completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of the Company or Peregrine. With respect to the financial
forecasts and projections made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of
F-1A
<PAGE>
Peregrine Systems, Inc.
April 3, 2000
Page 2
the Company or Peregrine, as the case may be, as to the matters covered thereby.
In rendering its opinion, Deutsche Bank expresses no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based. Deutsche Bank's opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made available
to it as of, the date hereof. Although subsequent developments may affect this
opinion, Deutsche Bank assumes no obligation to update, revise or reaffirm this
opinion.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Peregrine, Merger Sub and the Company contained in the Merger Agreement are true
and correct, Peregrine, Merger Sub and the Company each will perform all of the
covenants and agreements to be performed by it under the Merger Agreement, and
all conditions to the obligations of each of Peregrine, Merger Sub and the
Company to consummate the Transaction will be satisfied without any waiver
thereof. Deutsche Bank has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Peregrine or the Company is a party or is
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Peregrine or the Company or materially reduce the
contemplated benefits of the Transaction to Peregrine. In addition, you have
informed Deutsche Bank, and accordingly for purposes of rendering its opinion
Deutsche Bank has assumed, that the Transaction will be tax-free to each of
Peregrine and the Company and their respective stockholders and that the
Transaction will be accounted for as a purchase transaction. Finally, Deutsche
Bank, with your permission, has given no consideration to the lawsuit described
in Section 2.10(A) of the Company Schedule (as defined in the Merger Agreement)
and has assumed that such lawsuit will not have a material adverse effect on the
Company or Peregrine.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Peregrine and is not a recommendation to the stockholders of
Peregrine to approve the Transaction and the issuance of shares of Peregrine
Common Stock in the Transaction. This opinion is limited to the fairness, from a
financial point of view, to Peregrine of the Exchange Ratio, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by Peregrine to
engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Peregrine in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. We are an affiliate of Deutsche
Bank AG (together with its affiliates, the "DB Group"). One or more members of
the DB Group have, from time to time, provided investment banking services to
Peregrine and the Company for which it has received compensation, including the
acquisition of Innovative Technology, Inc. by Peregrine. In addition, one or
more members of the DB Group have provided investment banking services to the
Company, including in connection with the initial public offering of the
Company, a follow-on equity offering of the Company, and the Company's
acquisition of Premenos Technology Corporation. In the ordinary course of
business, members of the DB Group may actively trade in the securities and other
instruments and obligations of Peregrine and the Company for their own accounts
and for the accounts of their customers. Accordingly, the DB Group may at any
time hold a long or short position in such securities, instruments and
obligations.
F-2A
<PAGE>
Peregrine Systems, Inc.
April 3, 2000
Page 3
This opinion may not be published or otherwise used or referred to, nor
shall any public reference to Deutsche Bank be made, without the prior written
consent of Deutsche Bank. Deutsche Bank hereby consents, however, to the
inclusion of this opinion in its entirety as an exhibit to any proxy or
registration statement distributed to the shareholders of Peregrine in
connection with the approval of the proposed Transaction and to any description
of, or reference to, this opinion therein in form and substance acceptable to
Deutsche Bank and its legal counsel.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to Peregrine.
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
F-3A
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Peregrine amended and restated certificate of
incorporation provides for the indemnification of directors to the fullest
extent permitted under Delaware law.
Article VI of the Peregrine bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation to the
fullest extent permitted under the General Corporation Law of Delaware.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
Peregrine's amended and restated certificate of incorporation and bylaws, and
intends to enter into indemnification agreements with any new directors and
executive officers in the future.
In addition, pursuant to the terms of the merger agreement, Peregrine has
agreed to fulfill and honor in all respects the obligations of Harbinger
pursuant to any indemnification agreements between Harbinger and its directors
and officers in effect immediately prior to the merger (the "Indemnified
Parties") and any indemnification provisions under Harbinger's certificate of
incorporation or bylaws as in effect immediately prior to the merger. The
certificate of incorporation and bylaws of the surviving corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
certificate of incorporation and bylaws of Harbinger as in effect on April 5,
2000, which provisions will not be amended, repealed or otherwise modified for a
period of six years from the effective time of the merger in any manner that
would adversely affect the rights thereunder of individuals who, immediately
prior to the effective time of the merger, were directors, officers, employees
or agents of Harbinger, unless such modification is required by law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------------------------ ------------------------------------------------------------
<C> <C> <S>
*2.1 (a) Agreement and Plan of Merger and Reorganization by and among
Peregrine Systems, Inc., Soda Acquisition Corporation and
Harbinger Corporation, dated as of April 5, 2000.
3.1 (c) Amended and Restated Certificate of Incorporation as filed
with the Secretary of the State of Delaware on February 11,
1997.
3.2 (c) Bylaws, as amended.
4.1 (c) Specimen Common Stock Certificate.
5.1 (a) Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------------------------ ------------------------------------------------------------
<C> <C> <S>
+8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to Tax Matters.
+8.2 Opinion of Morris Manning & Martin, L.L.P., as to Tax
Matters.
*9.1 (a) Form of Voting Agreement between Peregrine Systems, Inc. and
certain shareholders of Harbinger Corporation dated as of
April 5, 2000.
*9.2 (a) Form of Voting Agreement between Harbinger Corporation and
certain stockholders of Peregrine Systems, Inc. dated as of
April 5, 2000.
*9.3 (a) Stock Option Agreement between Peregrine Systems, Inc. and
Harbinger Corporation dated as of April 5, 2000.
*9.4 (a) Affiliate Agreement between Peregrine Systems, Inc. and
certain shareholders of Harbinger Corporation dated April 5,
2000.
10.1 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.2 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.3(a) (f) 1994 Stock Option Plan, as amended through July 1998.
10.3(b) (f) 1995 Stock Option Plan for French Employees (a supplement to
the 1994 Stock Option Plan).
10.4 (d) Form of Stock Option Agreement under the 1994 Stock Option
Plan, as amended through February 6, 1997.
10.5 (d) 1997 Employee Stock Purchase Plan and forms of participation
agreement thereunder.
10.6 (d) 1997 Director Option Plan.
10.7 (c) Form of Indemnification Agreement for directors and
officers.
10.8 (h) Credit Agreement dated as of July 30, 1999 by and between
the Registrant and Bank of America, N.A., Banc of America
Securities LLC and BankBoston, N.A.
10.9 (c) Sublease between the Registrant and JMI Services, Inc.
10.10 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notifications of Assignment dated June 14,
1996 and December 9, 1996 for the Registrant's headquarters
at 12670 High Bluff Drive, San Diego, CA.
10.11 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notification of Assignment dated December
9, 1996 for the Registrant's headquarters at 12680 High
Bluff Drive, San Diego, CA.
10.14 (c) XVT Stock Option Agreement dated January 18, 1995 between
the Registrant and Christopher Cole, as amended on October
3, 1996.
10.16 (d) Restricted Stock Agreement dated November 1, 1995 between
the Registrant and David Farley.
10.17 (c) Stock Option Agreement dated as of December 7, 1990 between
the Registrant and Christopher Cole, as amended on October
26, 1995.
10.18 (c) Form of Stock Option Agreement under 1995 Stock Option Plan
for French Employees.
10.19 (c) Form of Stock Option Agreement under 1997 Director Option
Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
- ------------------------------ ------------------------------------------------------------
<C> <C> <S>
10.22 (b) Executive Officer Incentive Program and Form of Restricted
Stock Agreement.
10.24 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 1 of the Registrant's
future campus in San Diego, CA.
10.25 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 2 of the Registrant's
future campus in San Diego, CA.
10.26 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 3 of the Registrant's
future campus in San Diego, CA.
10.27 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 5 of the Registrant's
future campus in San Diego, CA.
10.28 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 4 of the Registrant's
future campus in San Diego, CA.
10.29 (h) 1999 Nonstatutory Stock Option Plan.
21.1 (h) Peregrine Systems, Inc. Subsidiaries.
23.1A (a) Consent of Arthur Andersen LLP, Independent Public
Accountants (relating to financial statements for Peregrine
Systems).
23.2A (a) Consent of KPMG LLP, Independent Accountants (relating to
financial statements for Harbinger Corporation).
23.3 (a) Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
+23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 8.1)
+23.5 Consent of Morris Manning & Martin, L.L.P. (included in
Exhibit 8.2).
+23.6 Consent of Goldman, Sachs & Co.
*23.7 (a) Consent of Deutsche Bank Securities Inc. (included in
Exhibit 99.2).
24.1 (a) Power of Attorney (see page II-6).
27.1 (a) Financial Data Schedule for Peregrine Systems, Inc.
27.2 (a) Financial Data Schedule for Harbinger Corporation.
*99.1 (a) Opinion of Goldman, Sachs & Co.
*99.2 (a) Opinion of Deutsche Banc Securities Inc.
99.3 (a) Form of Proxy Card of Peregrine Systems, Inc.
99.4 (a) Form of Proxy Card of Harbinger Corporation.
</TABLE>
- ------------------------
* Filed as an annex to the Proxy Statement/Prospectus constituting part of
this Registration Statement and incorporated herein by reference.
+ To be filed by amendment.
(a) Filed herewith.
(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-39891), which the Securities and Exchange Commission declared effective
on November 19, 1997.
(c) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-21483), which the Securities and Exchange Commission declared effective
on April 8, 1997.
II-3
<PAGE>
(d) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1997.
(e) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(f) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-8 (Registration Statement
333-65541) which became effective upon its filing on October 9, 1998.
(g) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1999.
(h) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
2000.
(B) FINANCIAL STATEMENTS SCHEDULES
PEREGRINE SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2000, 1999, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED ADDITIONS AT END
OF PERIOD TO EXPENSE ACQUIRED DEDUCTIONS OF PERIOD
------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 2000
Allowance for doubtful accounts......... $1,248 $635 $ 430 $ (134) $ 2,179
Accrued acquisition costs............... $3,379 $ -- $19,555 $ (7,810) $15,124
Year ended March 31, 1999
Allowance for doubtful accounts......... $ 485 $516 $ 325 $ (78) $ 1,248
Accrued acquisition costs............... $1,112 $ -- $13,510 $ (11,243) $ 3,379
Year ended March 31, 1998
Allowance for doubtful accounts......... $ 220 $168 $ 97 $ -- $ 485
Accrued acquisition costs............... $ -- $ -- $ 3,500 $ (2,388) $ 1,112
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning the transaction, and the
company being acquired therein, that was not subject of and included in the
registration statement when it became effective.
(c) The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) To include
any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective
II-4
<PAGE>
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; (iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material changes to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1993 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes as follows:
(1) Prior to any public offering of the securities registered hereunder
through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable forms; and
(2) That every prospectus (i) that is filed pursuant to
paragraph (f)(1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining liability
under the Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Peregrine Systems, Inc.
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on May , 2000.
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
By: /s/ STEPHEN P. GARDNER
-----------------------------------------
Stephen P. Gardner
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS STEPHEN P. GARDNER AND DAVID A. FARLEY AND EACH
OF THEM, HIS ATTORNEYS-IN-FACT, EACH WITH THE POWER OF SUBSTITUTION, FOR HIM AND
IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT,
AND TO SIGN ANY REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY THIS
REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO
RULE 426(B) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
POST-EFFECTIVE AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH
OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SUCH ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR HIS OR
THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
President and Chief
/s/ STEPHEN P. GARDNER Executice Officer
------------------------------------------- (Principal Executive May , 2000
Stephen P. Gardner Officer) and Director
Senior Vice President,
Finance and
/s/ DAVID A. FARLEY Administration, Chief
------------------------------------------- Financial Officer May , 2000
David A. Farley (Principal Financial
Officer) and Director
Vice President, Finance,
/s/ MATTHEW C. GLESS and Chief Accounting
------------------------------------------- Officer (Principal May , 2000
Matthew C. Gless Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOHN J. MOORES
------------------------------------------- Chairman of the Board of May , 2000
John J. Moores Directors
/s/ CHRISTOPHER A. COLE
------------------------------------------- Director May , 2000
Christopher A. Cole
/s/ RICHARD A. HOSLEY II
------------------------------------------- Director May , 2000
Richard A. Hosley
/s/ CHARLES E. NOELL III
------------------------------------------- Director May , 2000
Charles E. Noell III
/s/ NORRIS VAN DEN BERG
------------------------------------------- Director May , 2000
Norris Van Den Berg
/s/ THOMAS G. WATROUS, SR.
------------------------------------------- Director May , 2000
Thomas G. Watrous, Sr.
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- ------------------------------------------------------------
<C> <C> <S>
*2.1 (a) Agreement and Plan of Merger and Reorganization by and among
Peregrine Systems, Inc., Soda Acquisition Corporation and
Harbinger Corporation, dated as of April 5, 2000.
3.1 (c) Amended and Restated Certificate of Incorporation as filed
with the Secretary of the State of Delaware on February 11,
1997.
3.2 (c) Bylaws, as amended.
4.1 (c) Specimen Common Stock Certificate.
5.1 (a) Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
+8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to Tax Matters.
+8.2 Opinion of Morris Manning & Martin, L.L.P., as to Tax
Matters.
*9.1 (a) Form of Voting Agreement between Peregrine Systems, Inc. and
certain shareholders of Harbinger Corporation dated as of
April 5, 2000.
*9.2 (a) Form of Voting Agreement between Harbinger Corporation and
certain stockholders of Peregrine Systems, Inc. dated as of
April 5, 2000.
*9.3 (a) Stock Option Agreement between Peregrine Systems, Inc. and
Harbinger Corporation dated as of April 5, 2000.
*9.4 (a) Affiliate Agreement between Peregrine Systems, Inc. and
certain shareholders of Harbinger Corporation dated April 5,
2000.
10.1 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.2 (c) Nonqualified Stock Option Plan, as amended, and forms of
Stock Option Agreement and Stock Buy-Sell Agreement.
10.3(a) (f) 1994 Stock Option Plan, as amended through July 1998.
10.3(b) (f) 1995 Stock Option Plan for French Employees (a supplement to
the 1994 Stock Option Plan).
10.4 (d) Form of Stock Option Agreement under the 1994 Stock Option
Plan, as amended through February 6, 1997.
10.5 (d) 1997 Employee Stock Purchase Plan and forms of participation
agreement thereunder.
10.6 (d) 1997 Director Option Plan.
10.7 (c) Form of Indemnification Agreement for directors and
officers.
10.8 (h) Credit Agreement dated as of July 30, 1999 by and between
the Registrant and Bank of America, N.A., Banc of America
Securities LLC and BankBoston, N.A.
10.9 (c) Sublease between the Registrant and JMI Services, Inc.
10.10 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notifications of Assignment dated June 14,
1996 and December 9, 1996 for the Registrant's headquarters
at 12670 High Bluff Drive, San Diego, CA.
10.11 (c) Lease between the Registrant and the Mutual Life Insurance
Company of New York dated October 26, 1994, as amended in
August 1995, and Notification of Assignment dated December
9, 1996 for the Registrant's headquarters at 12680 High
Bluff Drive, San Diego, CA.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- ------------------------------------------------------------
<C> <C> <S>
10.14 (c) XVT Stock Option Agreement dated January 18, 1995 between
the Registrant and Christopher Cole, as amended on October
3, 1996.
10.16 (d) Restricted Stock Agreement dated November 1, 1995 between
the Registrant and David Farley.
10.17 (c) Stock Option Agreement dated as of December 7, 1990 between
the Registrant and Christopher Cole, as amended on October
26, 1995.
10.18 (c) Form of Stock Option Agreement under 1995 Stock Option Plan
for French Employees.
10.19 (c) Form of Stock Option Agreement under 1997 Director Option
Plan.
10.22 (b) Executive Officer Incentive Program and Form of Restricted
Stock Agreement.
10.24 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 1 of the Registrant's
future campus in San Diego, CA.
10.25 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 2 of the Registrant's
future campus in San Diego, CA.
10.26 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 3 of the Registrant's
future campus in San Diego, CA.
10.27 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 5 of the Registrant's
future campus in San Diego, CA.
10.28 (g) Lease between the Registrant and KR-Carmel Partners LLC
dated June 9, 1999 for Building No. 4 of the Registrant's
future campus in San Diego, CA.
10.29 (h) 1999 Nonstatutory Stock Option Plan.
21.1 (h) Peregrine Systems, Inc. Subsidiaries.
23.1A (a) Consent of Arthur Andersen LLP, Independent Public
Accountants (relating to financial statements for Peregrine
Systems).
23.2A (a) Consent of KPMG LLP, Independent Accountants (relating to
financial statements for Harbinger Corporation).
23.3 (a) Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
+23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 8.1).
+23.5 Consent of Morris Manning & Martin, L.L.P. (included in
Exhibit 8.2).
+23.6 Consent of Goldman, Sachs & Co.
*23.7 (a) Consent of Deutsche Bank Securities Inc. (included in
Exhibit 99.2).
24.1 (a) Power of Attorney (see page II-6).
27.1 (a) Financial Data Schedule for Peregrine Systems, Inc.
27.2 (a) Financial Data Schedule for Harbinger Corporation.
*99.1 (a) Opinion of Goldman, Sachs & Co.
*99.2 (a) Opinion of Deutsche Banc Securities Inc.
99.3 (a) Form of Proxy Card of Peregrine Systems, Inc.
99.4 (a) Form of Proxy Card of Harbinger Corporation.
</TABLE>
- ------------------------
* Filed as an annex to the Proxy Statement/Prospectus constituting part of
this Registration Statement and incorporated herein by reference.
+ To be filed by amendment.
<PAGE>
(a) Filed herewith.
(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-39891), which the Securities and Exchange Commission declared effective
on November 19, 1997.
(c) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration Statement
333-21483), which the Securities and Exchange Commission declared effective
on April 8, 1997.
(d) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1997.
(e) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(f) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-8 (Registration Statement
333-65541) which became effective upon its filing on October 9, 1998.
(g) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
1999.
(h) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended March 31,
2000.
<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 650-493-9300 FACSIMILE 650-493-6811
May 10, 2000
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
RE: REGISTRATION STATEMENT ON FORM S-4
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by
Peregrine Systems, Inc. (the "Company") with the Securities and Exchange
Commission on May 10, 2000 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of 32,331,087 shares
of the Company's Common Stock (the "Shares"). As your counsel in connection with
this transaction, we have examined the proceedings taken and are familiar with
the proceedings proposed to be taken by you in connection with the sale and
issuance of the Shares.
It is our opinion that the Shares will be, as or when issued and sold
in the manner described in the Registration Statement and in accordance with the
resolutions of the Company's Board of Directors, and upon completion of the
proceedings being taken in order to permit such transactions to be carried out
in accordance with the securities laws of the various states where required,
legally and validly issued. It is our further opinion, subject to the
assumptions set forth in the preceding sentence, that the Shares will be fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement and information
statement/prospectus constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 23.1A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement of our reports dated April 25, 2000, on Peregrine
Systems, Inc. and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
San Diego, California
May 9, 2000
<PAGE>
Exhibit 23.2A
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Harbinger Corporation
We consent to the inclusion of our report dated February 10, 2000, with
respect to the consolidated balance sheets of Harbinger Corporation and
subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999, which report appears in the Form S-4 of
Peregrine Systems, Inc. dated May 9, 2000, and to the references to our firm
under the captions, "Selected Financial Data of Harbinger" and "Experts" in
the Joint Proxy Statement Prospectus.
Atlanta, Georgia
May 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 33,511
<SECURITIES> 0
<RECEIVABLES> 72,119
<ALLOWANCES> (2,179)
<INVENTORY> 0
<CURRENT-ASSETS> 126,277
<PP&E> 53,027
<DEPRECIATION> (23,490)
<TOTAL-ASSETS> 523,430
<CURRENT-LIABILITIES> 105,767
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 411,740
<TOTAL-LIABILITY-AND-EQUITY> 523,430
<SALES> 253,300
<TOTAL-REVENUES> 253,300
<CGS> 52,917
<TOTAL-COSTS> 261,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (8,618)
<INCOME-TAX> 16,452
<INCOME-CONTINUING> (25,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,070)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE QUARTER ENDED
MAR-31-2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,049
<SECURITIES> 58,149
<RECEIVABLES> 56,391
<ALLOWANCES> 8,102
<INVENTORY> 0
<CURRENT-ASSETS> 134,983
<PP&E> 58,797
<DEPRECIATION> (32,894)
<TOTAL-ASSETS> 183,213
<CURRENT-LIABILITIES> 48,759
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 134,450
<TOTAL-LIABILITY-AND-EQUITY> 183,213
<SALES> 11,171
<TOTAL-REVENUES> 38,407
<CGS> 1,058
<TOTAL-COSTS> 11,796
<OTHER-EXPENSES> 26,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,514
<INCOME-TAX> 142
<INCOME-CONTINUING> 1,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,372
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
<PAGE>
PEREGRINE SYSTEMS, INC.
________, 2000 SPECIAL MEETING OF STOCKHOLDERS
PROXY FOR HOLDERS OF COMMON STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen P. Gardner, David A. Farley and Richard
T. Nelson and each of them, with full power of substitution, to represent the
undersigned and to vote all the shares of stock in Peregrine Systems, Inc., a
Delaware corporation (the "Company" or "Peregrine"), which the undersigned is
entitled to vote at the Special Meeting of Stockholders of said Company to be
held on __________, 2000 at ___________, San Diego, California at 9:00 a.m.
local time, and any adjournment or postponement thereof, (1) as hereinafter
specified upon Proposal 1 listed below and as more particularly described in the
Joint Proxy Statement/Prospectus dated _________, 2000, receipt of which is
hereby acknowledged, and (2) in their discretion upon such other matters as may
properly come before the meeting, including any motion to adjourn to permit
further solicitation of proxies if necessary, or any postponements or
adjournments thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED UPON PROPOSAL 1 AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSAL 1 AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING, INCLUDING ANY MOTION TO ADJOURN TO PERMIT FURTHER SOLICITATION OF
PROXIES, IF NECESSARY, TO ESTABLISH A QUORUM OR TO OBTAIN ADDITIONAL VOTES IN
FAVOR OF THE ISSUANCE OF SHARES OF PEREGRINE COMMON STOCK, OR ANY POSTPONEMENTS
OR ADJOURNMENTS THEREOF.
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
The Board of Directors of Peregrine Systems, Inc. recommends a vote FOR the
following proposals:
1. To issue shares of Peregrine common stock in connection with the
proposed merger of Harbinger Corporation, a Georgia corporation, with a
wholly-owned subsidiary of Peregrine as set forth in the Agreement and
Plan of Merger and Reorganization, dated as of April 5, 2000, among
Peregrine, Harbinger and Soda Acquisition Corporation, a wholly-owned
subsidiary of Peregrine. Each outstanding share of Harbinger common
stock will be converted into 0.75 of a share of Peregrine common stock
in connection with the merger.
/ / FOR / / AGAINST / / ABSTAIN
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
2. To transact any other business that may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED.
Please sign below. If shares of stock are held jointly, both or all of such
persons should sign. Corporate or partnership proxies should be signed in full
corporate or partnership name by an authorized person. Persons signing in a
fiduciary capacity should indicate their full titled in such capacities.
Signature:
-----------------------
Date:
----------------------------
Signature:
-----------------------
Date:
----------------------------
<PAGE>
HARBINGER CORPORATION
________, 2000 SPECIAL MEETING OF SHAREHOLDERS
PROXY FOR HOLDERS OF COMMON STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James M. Travers, James K. McCormick and Loren
B. Wimpfheimer and each of them, with full power of substitution, to represent
the undersigned and to vote all the shares of stock in Harbinger Corporation, a
Georgia corporation (the "Company" or "Harbinger"), which the undersigned is
entitled to vote at the Special Meeting of Shareholders of said Company to be
held on __________, 2000 at ___________, Atlanta, Georgia at 9:00 a.m. local
time, and any adjournment or postponement thereof, (1) as hereinafter specified
upon Proposal 1 listed below and as more particularly described in the Joint
Proxy Statement/Prospectus dated _________, 2000, receipt of which is hereby
acknowledged, and (2) in their discretion upon such other matters as may
properly come before the meeting, including any motion to adjourn to permit
further solicitation of proxies if necessary, or any postponements or
adjournments thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED UPON PROPOSAL 1 AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSAL 1 AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING, INCLUDING ANY MOTION TO ADJOURN TO PERMIT FURTHER SOLICITATION OF
PROXIES, IF NECESSARY, TO ESTABLISH A QUORUM OR TO OBTAIN ADDITIONAL VOTES IN
FAVOR OF THE MERGER AGREEMENT AND THE MERGER (AS DEFINED IN THE JOINT PROXY
STATEMENT/PROSPECTUS), OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
The Board of Directors of Harbinger Corporation recommends a vote FOR the
following proposals:
1. - To approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of April 5, 2000, by and among Peregrine
Systems, Inc., Soda Acquisition Corporation and Harbinger
Corporation; and
- To approve the merger of Harbinger Corporation and Soda Acquisition
Corporation , a wholly-owned subsidiary of Peregrine, whereby
holders of Harbinger common stock will receive 0.75 of a share of
Peregrine common stock for each share of Harbinger common stock
they own.
/ / FOR / / AGAINST / / ABSTAIN
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
2. To transact any other business that may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED.
Please sign below. If shares of stock are held jointly, both or all of such
persons should sign. Corporate or partnership proxies should be signed in full
corporate or partnership name by an authorized person. Persons signing in a
fiduciary capacity should indicate their full titled in such capacities.
Signature:
-----------------------
Date:
----------------------------
Signature:
-----------------------
Date:
----------------------------
