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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PEREGRINE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3773312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
3611 VALLEY CENTRE 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.
3611 VALLEY CENTRE 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:
DOUGLAS H. COLLOM
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
(650) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. 3,015,076 shares $18.625 $56,155,790.50 $14,039.00
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee. The estimate is made pursuant to Rule 457(c) of the Securities Act of
1933, as amended, based on the average of the high and low sales prices as
reported on the Nasdaq National Market on January 3, 2001.
--------------------------
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 SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
Peregrine Systems, Inc.
3611 Valley Centre Drive
San Diego, California 92130
Telephone Number: (858) 481-5000
[PEREGRINE SYSTEMS LOGO]
3,015,076 SHARES
COMMON STOCK
These shares of Peregrine common stock may be offered and sold from time to
time by International Business Machines Corporation, or IBM. We issued 3,015,076
shares of our common stock to IBM as part of the consideration we paid for our
December 2000 purchase of assets and liabilities associated with the Tivoli
Service Desk suite of products from Tivoli Systems Inc., or Tivoli, a wholly
owned subsidiary of IBM.
IBM will receive all of the net proceeds from the sale of the shares and
will pay all brokerage fees and selling commissions applicable to the sale of
the shares. We will not receive any proceeds from the sale of the shares.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.
Our common stock is quoted on the Nasdaq National Market under the symbol
"PRGN." On January 4, 2001, the last reported sale price of our common stock was
$21.1875 per share.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
January 5, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where to Find Additional Information About Peregrine........ 3
Information Incorporated by Reference....................... 3
Forward Looking Information................................. 4
Peregrine Systems, Inc...................................... 5
Risk Factors................................................ 6
Use of Proceeds............................................. 18
Selling Stockholder......................................... 19
Plan of Distribution........................................ 20
Legal Matters............................................... 21
Experts..................................................... 21
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDER IS OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE SHARES.
2
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WHERE TO FIND ADDITIONAL INFORMATION ABOUT PEREGRINE
We have filed reports, proxy statements, and other information with the
Securities and Exchange Commission. You may read and copy any document we file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
the reports, proxy statements and other information we file with the SEC. The
address of the SEC website is http://www.sec.gov. The documents that we file
with the SEC can also be accessed through our website at
http://www.peregrine.com.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede the information contained in this
prospectus, including the information incorporated by reference herein. We
incorporate by reference the documents listed below, and any future filings we
may make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 prior to the termination of this offering. This prospectus
is part of a Registration Statement we filed with the SEC. The documents we
incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended March 31, 2000.
2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, 2000 and September 30, 2000.
3. The amendment to our Current Report on Form 8-K/A, filed on May 22,
2000, relating to our acquisition of Telco Research Corporation.
4. Our Current Report on Form 8-K, filed on June 29, 2000, relating to our
acquisition of Harbinger Corporation.
5. Our Current Reports on Form 8-K, filed November 3, 2000, November 10,
2000 and November 14, 2000, relating to our sale of convertible
subordinated notes.
6. Our Current Report on Form 8-K, filed November 3, 2000, relating to
updates to various disclosure items previously made under the Securities
Exchange Act.
7. Our Current Report on Form 8-K, filed December 11, 2000, relating to our
acquisition of the Tivoli Service Desk suite of products from Tivoli.
8. The description of the common stock contained in our Registration
Statement on Form 8-A, filed with the SEC on March 7, 1997 under
Section 12(g) of the Exchange Act.
You may request, and we will provide, a copy of these filings, including any
exhibits to such filings, at no cost, by writing or telephoning us at the
following address: Investor Relations, Peregrine Systems, Inc., 3611 Valley
Centre Drive, San Diego, California 92130, telephone number (858) 481-5000.
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FORWARD LOOKING INFORMATION
This prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements contained in
this prospectus that are not historical facts. When used in this prospectus, the
words "expects," "anticipates," "estimates" and similar expressions are intended
to identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important facts that could cause our
actual results to differ materially from those expressed or implied by these
forward-looking statements, including statements under the caption "Risk
Factors." Please review these risk factors carefully. In addition, please review
the sections captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our annual report on Form 10-K for the
fiscal year ended March 31, 2000 and our quarterly reports on Form 10-Q for the
fiscal quarters ended June 30, 2000 and September 30, 2000. Please note that
these reports, including the "Management's Discussion and Analysis of Financial
Condition and Results of Operation" section of these reports, have been updated
in our current report on Form 8-K filed with the SEC on November 3, 2000 which
reports are incorporated herein by reference, and in the similarly captioned
section of any annual or quarterly report that we may file with the SEC. In
connection with forward-looking statements which appear in these disclosures,
you should carefully consider the factors set forth in this prospectus under
"Risk Factors" and under the caption "Factors That May Affect Future Results" in
the Management's Discussion and Analysis section of any subsequent annual or
quarterly report we file with the SEC.
4
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PEREGRINE SYSTEMS, INC.
Peregrine is a leading global provider of infrastructure resource management
applications, employee self-service solutions and e-commerce technologies and
services. We offer software products, services and enabling technologies that
permit large and medium-sized businesses to manage the acquisition, use,
maintenance and disposition of the various infrastructure assets used by
businesses and their employees. Our solutions are intended to make our customers
more competitive in their markets by optimizing the procurement and availability
of their assets and increasing the productivity of their employees. We believe
our products can result in more efficient deployment of capital and other
resources and can lower the costs of operating and maintaining organizational
infrastructure assets. We market our products through two groups:
- the infrastructure management group, which consists of products and
services representing our traditional infrastructure management business
and employee self-service products, and
- the e-markets group, which provides business-to-business software products
and creates and manages web-based catalogs and vertical exchange markets
for production supplies and commodities.
Our infrastructure management group provides software, technologies and
services to manage the procurement, maintenance, and disposition of
infrastructure assets throughout their life cycles. We offer management
solutions for diverse categories of business assets, including technology
equipment and systems, telecommunication networks, corporate vehicle fleets and
physical plant and facilities. Our products offer complete life-cycle management
of infrastructure assets. At the beginning of the cycle, we offer technologies
and services that enable buyers and sellers of infrastructure assets to purchase
and sell assets electronically over the Internet. Once an asset has been made
available for automated purchase or lease, we then automate and facilitate the
management and maintenance of the asset as well as its ultimate disposition. In
addition, our employee self-service applications offer individual employees
direct access to the resources, help, information, or infrastructure they
require.
Our e-markets group provides business-to-business software products and
solutions to facilitate the processes of selling and purchasing direct goods
used in the manufacture of finished products. Specifically, our e-markets group
provides e-commerce connectivity and data transformation solutions, creates and
manages web-based catalogs of supplies and materials, and maintains and hosts
vertical exchange markets for supply and commodity markets in the automotive,
energy, industrial component and retail/distribution industries.
Our principal executive offices are located at 3611 Valley Centre Drive, San
Diego, California 92130. Our telephone number at that address is
(858) 481-5000. We have offices in the metropolitan areas of most major cities
in the United States and Canada. In addition, we have international sales
offices in the metropolitan areas of Amsterdam, Copenhagen, Dublin, Frankfurt,
London, Milan, Munich, Paris, Singapore, Sydney and Tokyo.
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RISK FACTORS
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS MADE IN THIS
PROSPECTUS OR IN DOCUMENTS INCORPORATED BY REFERENCE HEREIN THAT ARE NOT
DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE CURRENTLY ANTICIPATED BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE
IDENTIFIED HEREIN UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS OR IN
DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL BE PROFITABLE IN THE
FUTURE ON AN OPERATING BASIS OR OTHERWISE.
We have incurred substantial losses in recent years, and predicting our
future operating results is difficult. If we continue to incur losses, if our
revenues decline or grow at a slower rate, or if our expenses increase without
commensurate increases in revenues, our operating results will suffer and the
price of our common stock may fall. Through September 30, 2000, we had recorded
cumulative net losses of approximately $242.8 million, including approximately
$226.6 million related to the write-off of acquired in-process research and
development and the amortization of goodwill and other intangible assets in
connection with a series of acquisitions completed since late 1997. We have
incurred, and expect to continue to incur, substantial expenses associated with
the amortization of intangible assets. In addition, we do not believe recent
revenue growth rates are sustainable in the future or indicative of future
growth rates. If our revenue growth rates slow or our revenues decline, our
operating results could be seriously impaired because many of our expenses are
fixed and cannot be easily or quickly changed.
OUR JUNE 2000 ACQUISITION OF HARBINGER CORPORATION MAY REDUCE OUR REVENUE GROWTH
RATES AND MAKE PREDICTION OF OUR FUTURE REVENUES AND OPERATING RESULTS MORE
DIFFICULT AS WE INTEGRATE OUR BUSINESSES AND ATTEMPT TO FOCUS THE STRATEGIC
MODEL OF THE COMBINED COMPANY.
Harbinger's revenues prior to the acquisition were growing at a
substantially slower rate than our revenues, due in large part to declining
revenues for Harbinger's legacy electronic commerce software business. If our
efforts to refocus Harbinger's business and integrate it with that of Peregrine
are not successful, our future revenue growth rates could be substantially less
than our historic growth rates, and our future revenues and operating results
could be impaired. We have already determined to de-emphasize and discontinue
certain businesses of Harbinger that we do not believe are strategic to the
combined company. In September 2000, we completed the sale of one of Harbinger's
product lines and may determine to sell or discontinue other Harbinger products
or businesses in the future. We expect this recent divestiture and any future
discontinuations or divestitures to result in revenue reductions that may not be
offset by revenues from other sources.
In October 2000, we announced that we were implementing a strategic
segmentation of our business into an infrastructure management group and
e-markets group. Our infrastructure management group focuses principally on the
sale of our historic infrastructure management product line together with
procurement solutions and technologies acquired from Harbinger that were
complementary with or otherwise relevant to managing internal infrastructure
assets. Our e-markets group focuses on the acquisition of supplies and materials
used in the manufacture and production of finished goods. The e-markets group is
comprised substantially of Harbinger's legacy e-commerce software and data
transformation businesses as well as web-based supply catalogs and vertical
exchange markets for supply and commodity markets in the automotive, energy,
industrial component and retail industries.
We expect the continuing strategic and operational integration of Harbinger
into Peregrine will make prediction of our future revenues and operating results
particularly difficult because our results of operations in future periods will
reflect a substantially different business than the historical businesses
6
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of either Peregrine or Harbinger. We may not be able to accurately predict how
the combined businesses, or the individual businesses represented by our
infrastructure management and e-markets groups, will evolve. In particular, our
future revenue and operating results may be adversely affected for a number of
reasons resulting from the acquisition and subsequent integration processes,
including the following:
- Revenues for Harbinger's e-commerce software products may continue to
decline.
- Harbinger's web-based supply catalog and vertical supply businesses are
still in their early stages, and a sustainable market may not develop for
these services as offered by our e-markets group.
- The businesses associated with our infrastructure management and e-markets
groups may be sufficiently distinct that customers perceive no benefit
from our combined product offerings, in which case we will not realize the
anticipated financial and product synergies of the acquisition.
- We may experience substantial unanticipated integration costs.
OUR REVENUES VARY SIGNIFICANTLY FROM QUARTER-TO-QUARTER FOR NUMEROUS REASONS
BEYOND OUR CONTROL. QUARTER-TO-QUARTER VARIATIONS COULD RESULT IN A SUBSTANTIAL
DECREASE IN OUR STOCK PRICE IF OUR REVENUES OR OPERATING RESULTS ARE LESS THAN
MARKET ANALYSTS ANTICIPATE.
Our revenues or operating results in a given quarter could be substantially
less than anticipated by market analysts, which could result in a substantial
decline in our stock price. In addition, quarter-to-quarter variations could
create uncertainty about the direction or progress of our business, which could
also result in a decline in the price of our common stock. Our revenues and
operating results will vary from quarter to quarter for many reasons beyond our
control. As a result, our quarterly revenues and operating results are not
predictable with any significant degree of accuracy. Reasons for variability of
our revenues and operating results include the following:
- SIZE, TIMING, AND CONTRACTUAL TERMS OF ORDERS. Our revenues in a given
quarter could be adversely affected if we are unable to complete one or
more large license agreements, if the completion of a large license
agreement is delayed, or if the contract terms were to prevent us from
recognizing revenue during that quarter. In addition, when negotiating
large software licenses, many customers time their negotiations until
quarter-end in an effort to improve their ability to negotiate more
favorable pricing terms. As a result, we recognize a substantial portion
of our revenues in the last month or weeks of a quarter, and license
revenues in a given quarter depend substantially on orders booked during
the last month or weeks of a quarter. Our revenue growth in recent periods
has been attributable in part to an increase in the number of large
license transactions we completed in a given period. We expect our
reliance on these large transactions to continue for the foreseeable
future. If we are unable to complete a large license transaction by the
end of a particular quarter, our revenues and operating results could be
materially below the expectations of market analysts, and our stock price
could fall. In particular, our dependence on a few relatively large
license transactions could have an adverse effect on our quarterly
revenues or revenue growth rates to the extent we are unable to complete a
large license transactions because a large prospective customer determines
to reduce its capital investments in technology in response to slowing
economic growth.
- FLUCTUATIONS IN REVENUE SOURCES. If our sales through indirect channels
were to decrease in a given quarter, our total revenues and operating
results could be harmed. Sales through indirect channels, including
distributors, third party resellers, and system integrators, represent a
significant percentage of our total sales. We expect this trend to
continue in the future. As a result, we could experience a shortfall in
our revenues, or a substantial decline in our rate of revenue growth, if
sales through indirect channels were to decrease or were to increase at a
slower rate than recently experienced. We have less ability to manage
sales through indirect
7
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channels, relative to direct sales, and less visibility about our channel
partners' success in selling our products. As a result, we could
experience unforeseen variability in our revenues and operating results
for a number of reasons, including the following: inability of our channel
partners to sell our products; a decision by our channel partners to favor
competing products; or inability of our channel partners to manage the
timing of their purchases from us against their sales to end-users,
resulting in inventories of unsold licenses held by channel partners.
- CUSTOMER BUDGETING AND INVESTMENT 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. Many analysts predict substantially slower growth
rates for, and potential reductions in, information technology capital
investment in 2001. To the extent these projections prove accurate we
expect our quarterly revenues and operating results will be adversely
affected.
- PRODUCT AND PRICING ANNOUNCEMENTS. Announcements of new products or
releases by us or our competitors could cause customers to delay purchases
pending the introduction of the new product or release. In addition,
announcements by us or our competitors concerning pricing policies could
have an adverse effect on our revenues in a given quarter.
- CHANGES IN PRODUCT MIX. Changes in our product mix could adversely affect
our operating results because some products provide higher margins than
others. For example, margins on software licenses tend to be higher than
margins on maintenance and services.
- CANCELLATION OF LICENSES, SUBSCRIPTION OR MAINTENANCE
AGREEMENTS. Cancellations of licenses, subscription or maintenance
contracts could reduce our revenues and harm our operating results. In
particular, our maintenance contracts with customers terminate on an
annual basis. Substantial cancellations of maintenance or subscription
agreements, or a substantial failure to renew these contracts, would
reduce our revenues and harm our operating results.
THE LONG SALES CYCLE FOR OUR PRODUCTS MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN OUR
REVENUES AND OPERATING RESULTS.
Delays in customer orders could result in our revenues being substantially
below the expectations of market analysts. Our customers' planning and purchase
decisions involve a significant commitment of resources and a lengthy evaluation
and product qualification process. As a result, we may incur substantial sales
and marketing expenses during a particular period in an effort to obtain orders.
If we are unsuccessful in generating offsetting revenues during that period, our
revenues and earnings could be substantially reduced, or we could experience a
large loss. The sales cycle for our products typically takes six to nine months
to complete, and we may experience delays that further extend this period. The
length of the sales cycle may be extended beyond six or nine months due to
factors over which we have little or no control, including the size of the
transaction and the level of competition we encounter. The average size of our
transactions has increased in recent periods, and this could have the effect of
further extending our sales cycle. During the sales cycle, we typically provide
a significant level of education to prospective customers regarding the use and
benefits of our products. Any delay in the sales cycle of a large license or a
number of smaller licenses could have an adverse effect on our operating results
and financial condition.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY RESULT IN PERIODIC
REDUCTIONS IN OUR REVENUES AND IMPAIRMENT OF OUR OPERATING RESULTS.
Seasonality in our business could result in our revenues in a given period
being less than market estimates. Seasonality could also result in
quarter-to-quarter decreases in our revenues. In either of these events,
seasonality could have an adverse impact on our results of operations.
Historically, our revenues and operating results in our December quarter have
tended to benefit, relative to our June
8
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and September quarters, from purchase decisions made by the large concentration
of our customers with calendar year-end budgeting requirements. Our June and
September quarters tend to be our weakest. Revenues and operating results in the
March quarter have tended to benefit from the efforts of our sales force to meet
fiscal year-end sales quotas. These historical patterns may change over time,
however, particularly as our operations become larger and the sources of our
revenue change or become more diverse. For example, our international operations
have expanded significantly in recent years, particularly in Europe. We also
have an international presence in the Pacific Rim and Latin America. We may
experience variability in demand associated with seasonal buying patterns in
these foreign markets. As an example, our September quarter is typically weaker
in part due to the European summer holiday season.
OUR BUSINESS AND OPERATING RESULTS WILL BE HARMED IF WE CANNOT COMPETE
EFFECTIVELY AGAINST OTHER COMPANIES IN OUR MARKETS.
The market for our products is intensely competitive and diverse, and the
technologies for our products can change rapidly. New products are introduced
frequently and existing products are continually enhanced. We face competition
from a number of sources in the markets for our infrastructure resource
management, procurement and e-business connectivity solutions.
- In the markets for our infrastructure resource management and employee
self-service software solutions, we face competition from providers of
internal help desk software applications for managing information
technology service desks, such as Remedy Corporation and Computer
Associates; providers of asset management software, including Remedy,
MainControl, and Janus Technologies; providers of facilities management
software, including Archibus, Facilities Information Systems, and
Assetworks (a division of CSI-Maximus); providers of transportation
management software that competes with our fleet management and rail
management software, including Control Software (a division of
CSI-Maximus) and Project Software and Development Inc.; information
technology and systems management companies such as Tivoli systems (a
division of IBM), Computer Associates, Network Associates,
Hewlett-Packard, and Microsoft; numerous start-up and other
entrepreneurial companies offering products that compete with the
functionality offered by one or more of our infrastructure management
products; and the internal information technology departments of those
companies with infrastructure management needs.
- In the markets for employee self-service, including procurement and
e-service solutions, we have experienced competition from established
competitors in the business-to-business Internet commerce solution market,
such as Ariba and CommerceOne, and established providers of enterprise
resource planning software that are entering the market for procurement
and e-procurement solutions, including Oracle and SAP.
- In the markets served by our e-commerce enablement technology, we have
experienced competition from Sterling Commerce, a division of SBC
Communications, and General Electric Exchange Solutions, each a provider
of electronic commerce software; Aspect Development, a provider of
internet business software solutions; Requisite Technology, a provider of
catalog management solutions; and webMethods, a provider of e-commerce
enablement software.
If we cannot compete effectively in our markets by offering products that
are comparable in functionality, ease of use and price to those of our
competitors, our revenues will decrease, and our operating results will be
adversely affected. Many of our current and potential competitors have
substantially greater financial, technical, marketing and other resources than
we have. As a result, they may be able to devote greater resources than we can
to the development, promotion and sale of their products and may be able to
respond more quickly to new or emerging technologies and changes in customer
needs.
9
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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.
OUR FUTURE REVENUES AND OPERATING RESULTS MAY BE ADVERSELY AFFECTED IF THE
SOFTWARE APPLICATION MARKET CONTINUES TO EVOLVE TOWARD A SUBSCRIPTION-BASED
MODEL, WHICH MAY PROVE LESS PROFITABLE FOR US.
We expect our revenue growth rates and operating results to be adversely
affected as customers require us to offer our products under a
subscription-based application service provider model. Historically, we have
sold our infrastructure management solutions on a perpetual license basis in
exchange for an up-front license fee. Customers are increasingly attempting to
reduce their up-front capital expenditures by purchasing software applications
under a hosted subscription service model. Under the hosted model, the customer
subscribes to use an application from the software provider. The application is
generally hosted on a server managed by the service provider or a third-party
hosting service. We expect that a substantial portion of future revenues
generated by our e-markets group will be realized under a subscription model. We
also expect that an increasing portion of our infrastructure management group
revenues may be represented by subscriptions.
Under the subscription revenue model, we generally will recognize revenue
and receive payment ratably over the term of the customer's subscription. As a
result, our rates of revenue growth under a subscription model may be less than
our historical rates under a license model. In addition, the price of our
services will be fixed at the time of entering into the subscription agreement.
If we are unable to adequately predict the costs associated with maintaining and
servicing a customer's subscription, then the periodic expenses associated with
a subscription may exceed the revenues we recognize for the subscription in the
same period, which would adversely affect our operating results.
In addition, if we are not successful in implementing the subscription
revenue model, or if market analysts or investors do not believe that the model
is attractive relative to our traditional license model, our business could be
impaired, and our stock price could decline dramatically.
IF WE, OR THIRD PARTIES ON WHICH WE WILL RELY, ARE UNABLE TO ADEQUATELY DELIVER
OUR INTERNET-BASED APPLICATIONS, OUR OPERATING RESULTS MAY BE ADVERSELY
AFFECTED.
We currently use our own servers to deliver our Internet-based products to
customers. We intend, however, to engage one or more third parties to provide a
full complement of services that will enable us to outsource the delivery of
these Internet-based products to our customers. For example, our third-party
service providers will manage the application servers, maintain communications
equipment, manage the network data centers where our software and data will be
stored, and provide client support. If we are unable to adequately deliver our
Internet-based applications, we may lose customers or be unable to attract new
customers, which would adversely affect our revenues.
In addition, the third-party service providers that we engage may not
deliver adequate support or service to our clients, which may harm our
reputation and our business. Because these third-party service providers handle
the installation of the computer and communications equipment and software
needed for the day-to-day operations of our Internet-based applications, we will
be dependent on them to manage, maintain and provide adequate security for
customer applications. If our customers experience any delays in response time
or performance problems while using our Internet applications,
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as hosted by a third-party or by us, our customers may perceive such delays as
defects with our products and may stop using our applications, which will
adversely affect our revenues.
We have limited experience outsourcing these services and may have
difficulty managing this process. We will be required to monitor our third-party
service providers to ensure that they perform these services adequately. In
addition, if we do not maintain good relations with these third-party service
providers, or if they go out of business, they may be unable to perform critical
support functions for us. If we were unable to find replacement third-party
service providers, we would be required to perform these functions ourselves. We
may not be successful in obtaining or performing these services on a timely or
cost-effective basis.
OUR OUTSTANDING INDEBTEDNESS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, AND WE MAY INCUR SUBSTANTIALLY MORE DEBT.
We have approximately $270 million of indebtedness outstanding, consisting
principally of our 5 1/2% Convertible Subordinated Notes due 2007. Our
indebtedness could adversely affect our results of operations and financial
condition. For example, our results of operations will be adversely affected by
approximately $14.65 million in annual interest expenses, payable semi-annually.
In addition, our indebtedness could:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- place us at a competitive disadvantage relative to our competitors with
less debt.
Our indebtedness will require the dedication of a substantial portion of our
cash flow from operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund our
growth strategy, working capital, capital expenditures and other general
corporate purposes.
We may incur substantial additional debt in the future. The terms of our
existing indebtedness does not, and future indebtedness may not, prohibit us
from doing so. If new debt is added to our current levels, the related risks
described above could intensify.
WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS.
We will be required to generate cash sufficient to pay all amounts due on
our outstanding indebtedness and to conduct our business operations. We have
incurred net losses, and we may not be able to cover our anticipated debt
service obligations. This may materially hinder our ability to make payments on
our indebtedness. Our ability to meet our future debt service obligations will
be dependent upon our future operating performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUALLY DEVELOP PRODUCTS THAT MEET THE COMPLEX AND EVOLVING NEEDS
OF OUR CUSTOMERS, SALES OF OUR PRODUCTS MAY DECREASE.
As a result of rapid technological change in our industry, our competitive
position in existing markets, or in markets we may enter in the future, can be
eroded rapidly by product advances and technological changes. We may be unable
to improve the performance and features of our products as necessary to respond
to these developments. In addition, the life cycles of our products are
difficult to estimate. Our growth and future financial performance depend in
part on our ability to improve existing products and develop and introduce new
products that keep pace with technological advances,
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meet changing customer needs, and respond to competitive products. Our product
development efforts will continue to require substantial investments. In
addition, competitive or technological developments may require us to make
substantial, unanticipated investments in new products and technologies, and we
may not have sufficient resources to make these investments.
IF WE CANNOT ATTRACT AND RETAIN QUALIFIED SALES PERSONNEL, SOFTWARE DEVELOPERS
AND CUSTOMER SERVICE PERSONNEL, WE WILL NOT BE ABLE TO SELL AND SUPPORT OUR
PRODUCTS.
Competition for qualified employees is intense, particularly in the
technology industry, and we have in the past experienced difficulty recruiting
qualified employees. If we are not successful in attracting and retaining
qualified sales personnel, software developers and customer service personnel,
our revenue growth rates could decrease, or our revenues could decline, and our
operating results could be materially harmed. Our products and services require
a sophisticated selling effort targeted at several key people within a
prospective customer's organization. This process requires the efforts of
experienced sales personnel as well as specialized consulting professionals. In
addition, the complexity of our products, and issues associated with installing
and maintaining them, require highly-trained customer service and support
personnel. We intend to hire a significant number of these personnel in the
future and train them in the use of our products. We believe our success will
depend in large part on our ability to attract and retain these key employees.
OUR BUSINESS COULD BE HARMED IF WE LOST THE SERVICES OF ONE OR MORE MEMBERS OF
OUR SENIOR MANAGEMENT TEAM.
The loss of the services of one or more of our executive officers or key
employees, or the decision of one or more of these individuals to join a
competitor, could adversely affect our business and harm our operating results
and financial condition. Our success depends to a significant extent on the
continued service of our senior management and other key sales, consulting,
technical and marketing personnel. None of our senior management is bound by an
employment or non-competition agreement. We do not maintain key man life
insurance on any of our employees.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, THIS WILL PLACE A SIGNIFICANT STRAIN
ON OUR MANAGEMENT AND OPERATIONAL RESOURCES.
Our recent growth rates, together with integration of numerous acquisitions,
have placed a significant strain on our management and operational resources. We
have expanded the size and geographic scope of our operations rapidly in recent
years, both internally and through acquisitions, and intend to continue to
expand in order to pursue market opportunities that our management believes are
attractive. Our customer relationships could be strained if we are unable to
devote sufficient resources to them as a result of our growth, which could have
an adverse effect on our future revenues and operating results.
SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE INFRASTRUCTURE MANAGEMENT AND/OR HELP
DESK SOFTWARE COMPANIES AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, HARMING OUR
ABILITY TO SELL OUR PRODUCTS.
If large system management providers close their systems to our products,
our revenues and operating results would be seriously harmed. Our ability to
sell our products depends in large part on their compatibility with and support
by providers of system management products, including Tivoli, Computer
Associates, and Hewlett-Packard. These large, established providers of system
management products and services may decide to close their systems to competing
vendors like us. They may also decide to bundle the products that compete with
our products with other products for enterprise licenses for promotional
purposes or as part of a long-term pricing strategy. If that were to happen, our
ability to sell our products could be adversely affected. Increased competition
may result from acquisitions of help desk and other infrastructure management
software vendors by system management
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companies. Increased competition could result in price reductions, reductions in
our gross margins, or reductions in our market share. Any of these events would
adversely affect our business and operating results.
WE MAY BE UNABLE TO EXPAND OUR BUSINESS AND INCREASE OUR REVENUES IF WE ARE
UNABLE TO EXPAND OUR DISTRIBUTION CHANNELS.
If we are unable to expand our distribution channels effectively, our
business, revenues and operating results could be harmed. In particular, we will
need to expand our direct sales force and establish relationships with
additional system integrators, resellers and other third party channel partners
who market and sell our products. If we cannot establish these relationships, or
if our channel partners are unable to market our products effectively or provide
cost-effective customer support and service, our revenues and operating results
will be harmed. Even where we are successful in establishing a new third-party
relationship, our agreement with the third party may not be exclusive. As a
result, our partner may carry competing product lines.
IF WE ARE UNABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, OUR BUSINESS, REVENUES
AND OPERATING RESULTS COULD BE HARMED.
In order to grow our business, increase our revenues, and improve our
operating results, we believe we must continue to expand internationally. If we
expend substantial resources pursuing an international strategy and are not
successful, our revenues will be less than our management or market analysts
anticipate, and our operating results will suffer. International revenues
represented approximately 36.0% of our business in each of fiscal 1998 and 1999
and approximately 41.0% of our business in fiscal 2000. We have several
international sales offices in Europe as well as offices in Japan, Singapore and
Australia. International expansion will require significant management attention
and financial resources, and we may not be successful expanding our
international operations. We have limited experience in developing local
language versions of our products or in marketing our products to international
customers. We may not be able to successfully translate, market, sell, and
deliver our products internationally.
CONDUCTING BUSINESS INTERNATIONALLY POSES RISKS THAT COULD AFFECT OUR FINANCIAL
RESULTS.
Even if we are successful in expanding our operations internationally,
conducting business outside North America poses many risks that could adversely
affect our operating results. In particular, we may experience gains and losses
resulting from fluctuations in currency exchange rates, for which hedging
activities may not adequately protect us. Moreover, exchange rate risks can have
an adverse effect on our ability to sell our products in foreign markets. Where
we sell our products in U.S. dollars, our sales could be adversely affected by
declines in foreign currencies relative to the dollar, thereby making our
products more expensive in local currencies. Where we sell our products in local
currencies, we could be competitively unable to change our prices to reflect
exchange rate changes. In recent periods, for example, our revenues in Europe
have been adversely affected by the decline in the value of the Euro and its
component currencies relative to the U.S. dollar.
Additional risks we face in conducting business internationally include the
following:
- longer payment cycles;
- difficulties in staffing and managing international operations;
- problems in collecting accounts receivable; and
- the adverse effects of tariffs, duties, price controls or other
restrictions that impair trade.
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WE MAY EXPERIENCE INTEGRATION OR OTHER PROBLEMS WITH NEW ACQUISITIONS, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS. NEW
ACQUISITIONS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS, AND THE
ANNOUNCEMENT OF NEW ACQUISITIONS COULD RESULT IN A DECLINE IN THE PRICE OF OUR
COMMON STOCK.
In addition to the acquisition of Harbinger, we have made a number of
acquisitions of businesses and technologies over the last three years. We are
frequently in formal or informal discussions with potential acquisition
candidates. Accordingly, we may in the future make acquisitions of, or large
investments in, businesses that offer products, services and technologies that
we believe would complement our products or services. We may also make
acquisitions of or investments in businesses that we believe could expand our
distribution channels. Even though we announce an acquisition, however, we may
not be able to complete it. Any future acquisition or substantial investment
would present numerous risks. The following are examples of these risks:
- difficulty in combining the technology, operations or work force of the
acquired business;
- disruption of our on-going business;
- difficulty in realizing the potential financial or strategic benefits of
the transaction;
- difficulty in maintaining uniform standards, controls, procedures and
policies;
- possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel;
- impairment of assets related to resulting goodwill, and reductions in our
future operating results from amortization of goodwill and other
intangible assets.
We expect that future acquisitions could provide for consideration to be
paid in cash, shares of our common stock, or a combination of cash and our
common stock. If the consideration for the transaction were paid in common
stock, this would further dilute our existing stockholders. Any amortization of
goodwill or other assets resulting from the acquisition could materially impair
our operating results and financial condition. If an acquisition were to take
place, the risks described above could materially and adversely affect our
business and operating results.
HARBINGER AND SOME OF ITS FORMER OFFICERS AND DIRECTORS ARE DEFENDANTS IN
SHAREHOLDER LITIGATION FOR WHICH HARBINGER IS NOT INSURED. THE OUTCOME OF THIS
LITIGATION, IF DETERMINED ADVERSELY TO HARBINGER, COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION.
In September 1999, a complaint was filed against Harbinger and some of its
current and former officers and directors in the United States District Court
for the Northern District of Georgia. The complaint alleges that the defendants
misrepresented or omitted material facts in violation of federal securities
laws. An amended complaint was filed in March 2000, expanding upon the
allegations of the initial complaint by, among other things, alleging accounting
improprieties. The complaints relate to actions by Harbinger during the period
from February 1998 to October 1998. Harbinger did not maintain directors' and
officers' liability insurance during this period. As a result, we are not
insured with respect to any potential liability of Harbinger or any officer or
director of Harbinger. Harbinger was, however, obligated under agreements with
each of its officers and directors to indemnify them for the costs incurred in
connection with defending themselves against this litigation and is obligated to
indemnify them to the maximum extent permitted under applicable law if they are
held liable. In connection with the acquisition, we agreed to honor these
contractual arrangements.
In October 2000, we entered into an agreement in principle to settle this
class action lawsuit. If the settlement is finalized and approved by the court,
we will be required to make an aggregate cash payment of $2.25 million to a
class of former shareholders of Harbinger in exchange for dismissal of all
claims against Harbinger. Although the parties to the litigation have agreed in
principle to this
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settlement, final settlement is subject to further documentation, various
contingencies, and approval by the court. The court may not approve the
settlement. If the court does not approve the settlement, the plaintiffs in the
lawsuit may proceed with their claims, without prejudice. It is also possible
that if the settlement is approved by the court, claims could be pursued by
class members who opt out of the class settlement by filing appropriate notices
with the court. If the litigation were to continue to proceed, we could be
required to spend substantial sums in an effort to litigate this matter.
Continued litigation would be likely to result in a diversion of management's
time and attention away from business operations. If the litigation were decided
adversely to Harbinger, or we agree in the future to settle this litigation for
a substantial sum as a result of failure to obtain court approval of the pending
settlement or for any other reason, our financial condition and results of
operations could be materially and adversely affected.
IF IMMIGRATION LAWS LIMIT OUR ABILITY TO RECRUIT AND EMPLOY SKILLED TECHNICAL
PROFESSIONALS FROM OTHER COUNTRIES, OUR BUSINESS AND OPERATING RESULTS COULD BE
HARMED.
Limitations under United States immigration laws could prevent us from
recruiting skilled technical personnel from foreign countries, which could harm
our business if we do not have sufficient personnel to develop new products and
respond to technological changes. This inability to hire technical personnel
could lead to future decreases in our revenues, or decreases in our revenue
growth rates, either of which would adversely affect our operating results.
Because of severe shortages for qualified technical personnel in the United
States, many companies, including Peregrine, have recruited engineers and other
technical personnel from foreign countries. Foreign computer professionals such
as those we have employed typically become eligible for employment in the United
States by obtaining a nonimmigrant visa. The number of nonimmigrant visas is
limited annually by federal immigration laws. In recent years, despite increases
in the number of available visas, the annual allocation has been exhausted well
before year-end.
WE HAVE MADE SUBSTANTIAL CAPITAL COMMITMENTS THAT COULD HAVE AN ADVERSE EFFECT
ON OUR OPERATING RESULTS AND FINANCIAL CONDITION IF OUR BUSINESS DOES NOT GROW.
We have made substantial capital commitments as a result of recent growth in
our business that could seriously harm our financial condition if our business
does not grow and we do not have adequate resources to satisfy our obligations.
In June 1999, we entered into a series of leases providing us with approximately
540,000 square feet of office space and an option to lease 118,000 square feet
for our headquarters in San Diego, California. Even excluding the exercise of
the option, the leases require a minimum aggregate lease payment of
approximately $119.3 million over the twelve year term of the leases. The office
space (including the option) relates to a five building campus. We have
relocated our San Diego operations to three of these buildings and intend for
the present time to sublease the remaining two buildings. The capital
commitments, construction oversight, and movement of personnel and facilities
involved in a transaction of this type and magnitude present numerous risks,
including:
- failure to properly estimate the future growth of our business;
- inability to sublease excess office space if we overestimate future
growth;
- disruption of operations; and
- inability to match fixed lease payments with fluctuating revenues, which
could impair our earnings or result in losses.
PRODUCT DEVELOPMENT DELAYS COULD HARM OUR COMPETITIVE POSITION AND REDUCE OUR
REVENUES.
If we experience significant product development delays, our position in the
market would be harmed, and our revenues could be substantially reduced, which
would adversely affect our operating results. We have experienced product
development delays in the past and may experience delays in the
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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 software bugs and errors, or a failure of our current
or future products to conform to industry requirements.
ERRORS OR OTHER SOFTWARE BUGS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT
EXPENDITURES TO REMEDY OR CORRECT THE ERRORS OR BUGS AND COULD RESULT IN PRODUCT
LIABILITY CLAIMS.
If we were required to expend significant amounts to correct software bugs
or errors, our revenues could be harmed as a result of an inability to deliver
the product, and our operating results could be impaired as we incur additional
costs without offsetting revenues. Errors can be detected at any point in a
product's life cycle. We have experienced errors in the past that resulted in
delays in product shipment and increased costs. Discovery of errors could result
in any of the following:
- loss of or delay in revenues and loss of customers or market share;
- failure to achieve market acceptance;
- diversion of development resources and increased development expenses;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
If we were held liable for damages incurred as a result of our products, our
operating results could be significantly impaired. Our license agreements with
our customers typically contain provisions designed to limit exposure to
potential product liability claims. These limitations may not be effective under
the laws of some jurisdictions, however. Although we have not experienced any
product liability claims to date, the sale and support of our products entails
the risks of these claims.
WE COULD BE COMPETITIVELY DISADVANTAGED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY.
If we fail to adequately protect our proprietary rights, competitors could
offer similar products relying on technologies we developed, potentially harming
our competitive position and decreasing our revenues. We attempt to protect our
intellectual property rights by limiting access to the distribution of our
software, documentation, and other proprietary information and by relying on a
combination of patent, copyright, trademark, and trade secret laws. In addition,
we enter into confidentiality agreements with our employees and certain
customers, vendors, and strategic partners. In some circumstances, however, we
may, if required by a business relationship, provide our licensees with access
to our data model and other proprietary information underlying our licensed
applications.
Despite precautions that we take, it may be possible for unauthorized third
parties to copy aspects of our current or future products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of software
is difficult, and some foreign laws do not protect proprietary rights to the
same extent as United States laws. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, or to
determine the validity and scope of the proprietary rights of others, any of
which could adversely affect our revenues and operating results.
IF WE BECOME INVOLVED IN AN INTELLECTUAL PROPERTY DISPUTE, WE MAY INCUR
SIGNIFICANT EXPENSES OR MAY BE REQUIRED TO CEASE SELLING OUR PRODUCTS, WHICH
WOULD SUBSTANTIALLY IMPAIR OUR REVENUES AND OPERATING RESULTS.
In recent years, there has been significant litigation in the United States
involving intellectual property rights, including rights of companies in the
software industry. Intellectual property claims against us, and any resulting
lawsuit, may result in our incurring significant expenses and could subject
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us to significant liability for damages and invalidate what we currently believe
are our proprietary rights. These lawsuits, regardless of their success, would
likely be time-consuming and expensive to resolve and could divert management's
time and attention. Any potential intellectual property litigation against us
could also force us to do one or more of the following:
- cease selling, incorporating or using products or services that
incorporate the infringed intellectual property;
- obtain from the holder of the infringed intellectual property a license to
sell or use the relevant technology, which license may not be available on
acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology, which could result in substantial unanticipated development
expenses.
If we are subject to a successful claim of infringement and we fail to
develop noninfringing technology or license the infringed technology on
acceptable terms and on a timely basis, our revenues could decline or our
expenses could increase.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of competitors. These claims
could also result in significant expense and the diversion of technical and
management personnel's attention.
CONTROL BY OUR OFFICERS AND DIRECTORS MAY LIMIT OUR STOCKHOLDERS' ABILITY TO
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DELAY OR PREVENT A
CHANGE IN CONTROL, WHICH COULD PREVENT OUR STOCKHOLDERS FROM REALIZING A PREMIUM
IN THE MARKET PRICE OF THEIR COMMON STOCK.
The concentration of ownership of our common stock by our officers and
directors could delay or prevent a change in control or discourage a potential
acquirer from attempting to obtain control of Peregrine. This could cause the
market price of our common stock to fall or prevent our stockholders from
realizing a premium in the market price in the event of an acquisition.
WE COULD EXPERIENCE LOSSES AS A RESULT OF OUR STRATEGIC INVESTMENTS.
If our strategic investments in other companies are not successful, we could
incur losses. We have made and expect to continue to make minority investments
in companies with businesses or technologies that we consider to be
complementary with our business or technologies. These investments have
generally been made by issuing shares of our common stock or, to a lesser
extent, by paying cash. Many of these investments are in companies whose
operations are not yet sufficient to establish them as profitable concerns.
Adverse changes in market conditions or poor operating results of underlying
investments could result in our incurring losses or our being unable to recover
the carrying value of our investments.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR PEREGRINE AND MAY PREVENT CHANGES IN OUR MANAGEMENT THAT
STOCKHOLDERS OTHERWISE WOULD APPROVE.
Some provisions of our charter documents eliminate the right of stockholders
to act by written consent without a meeting and impose specific procedures for
nominating directors and submitting proposals for consideration at a stockholder
meeting. These provisions are intended to increase the likelihood of continuity
and stability in the composition of our board of directors and the policies
established by the board of directors. These provisions also discourage some
types of transactions, which may involve an actual or threatened change of
control. These provisions are designed to reduce Peregrine's vulnerability to an
unsolicited acquisition proposal. As a result, these provisions could discourage
potential acquisition proposals and could delay or prevent a change of control
transaction. These provisions are also intended to discourage common tactics
that may be used in proxy fights. As a
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result, they could have the effect of discouraging third parties from making
tender offers for our shares. These provisions may prevent the market price of
our common stock from reflecting the effects of actual or rumored take-over
attempts. These provisions may also prevent changes in our management.
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preference, privileges, and restrictions of this preferred stock without
any further vote or action by our stockholders. The issuance of preferred stock
allows us to have flexibility in connection with possible acquisitions and for
other corporate purposes. The issuance of preferred stock, however, may delay or
prevent a change in control transaction. As a result, the market price of our
common stock and other rights of holders of our common stock may be adversely
affected, including the loss of voting control to others.
OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE HIGHLY VOLATILE, WHICH
MAY MAKE THE COMMON STOCK DIFFICULT TO RESELL AT ATTRACTIVE TIMES AND PRICES.
The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations;
- new products or services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the software industry generally or specifically in
the markets for infrastructure management or e-business connectivity
solutions;
- changes in the economic performance and/or market valuations of our
competitors and the software industry in general;
- announcements by us or our competitors of significant contracts, changes
in pricing policies, acquisitions, strategic partnerships, joint ventures
or capital commitments;
- adoption of industry standards and the inclusion of our technology in, or
compatibility of our technology with, such standards;
- adverse or unfavorable publicity regarding us or our products;
- our loss of a major customer;
- additions or departures of key personnel;
- sales of our common stock in the public market; and
- other events or factors that may be beyond our control.
In addition, the stock markets in general, and in particular the markets for
securities of technology and software companies, have experienced extreme price
and volume volatility and a significant cumulative decline in recent months.
This volatility has affected many companies irrespective of or
disproportionately to the operating performance of these companies. These broad
market and industry factors can materially and adversely affect the market price
of our common stock, regardless of our actual operating performance.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholder. The selling stockholder will receive all net proceeds from the sale
of our common stock under this prospectus.
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SELLING STOCKHOLDER
The following table sets forth information with respect to the number of
shares of our common stock beneficially owned by IBM prior to this offering and
assuming the sale of all shares registered to be offered under this prospectus.
The information in the table below is current as of the date of this prospectus.
The percentage ownership is based on shares of common stock outstanding as of
September 30, 2000, plus the 3,015,076 shares of common stock issued to IBM in
December 2000 and excludes shares of common stock issuable upon exercise or
conversion of outstanding options, warrants or other rights to purchase common
stock. The shares are being registered to permit public secondary trading of the
shares, and IBM may offer the shares for resale from time to time.
IBM acquired the shares being offered in connection with our December 2000
purchase of assets associated with the Tivoli Service Desk suite of products of
Tivoli Systems Inc., a wholly owned subsidiary of IBM. The shares of common
stock were issued to IBM pursuant to exemptions from the registration
requirements of the Securities Act of 1933. In connection with our purchase of
the Tivoli Service Desk assets and the issuance of our common stock to IBM, we
agreed to register the shares of common stock received by IBM pursuant to the
registration statement, of which this prospectus is a part. IBM may distribute
its shares of our common stock to affiliated entities of IBM. Any shares so
distributed may be offered under this prospectus by the IBM-affiliated
distributees. Each IBM-affiliated distributee will be deemed a selling
stockholder for purposes of this prospectus with respect to the distributed
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING
-------------------- SHARES -------------------
SELLING STOCKHOLDER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
International Business Machines.............. 3,015,076 2.0% 3,015,076 --
</TABLE>
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PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the shares of common stock
under this prospectus. The shares may be sold or distributed from time to time
by the selling stockholder or by pledgees, donees, transferees of, or other
successors in interest to, the selling stockholder directly to one or more
purchasers (including pledgees) or through brokers, dealers or underwriters who
may act solely as agents or may acquire shares as principals at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, all of which may be changed.
The distribution of the shares may be effected in one or more transactions that
may take place through the Nasdaq National Market, including block trades or
ordinary broker's transactions, or through privately negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of the shares or through a combination of any such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
stockholder in connection with such sales.
The aggregate proceeds to the selling stockholder from the sale of the
shares will be the purchase price of the common stock sold less the aggregate
agents' commissions, if any, and other expenses of issuance and distribution not
borne by us. The selling stockholder and any dealers or agents that participate
in the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the shares by them
and any commissions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
The selling stockholder or its successors in interest may enter into hedging
transactions with broker-dealers who may engage in short sales of shares in the
course of hedging the positions they assume with the selling stockholder. The
selling stockholder or its successors in interest may also enter into option or
other transactions with the broker-dealers that require the delivery to such
broker-dealers of the shares, which shares may be resold thereafter by such
broker-dealer pursuant to this prospectus.
To the extent required, the specific shares of common stock to be sold, the
names of the selling stockholders, the purchase price, the public offering
price, the names of any such agent, dealer or underwriter and any applicable
commission or discount with respect to a particular offering will be set forth
in an accompanying prospectus supplement.
We have agreed to bear certain expenses of registration of the common stock
under federal and state securities laws and of any offering and sale hereunder
not including certain expenses, such as commissions of dealers or agents and
fees attributable to the sale of the shares. We have agreed to indemnify the
selling stockholder against certain liabilities, including certain potential
liabilities under the Securities Act. The selling stockholder has also agreed to
indemnify us against certain liabilities, including certain potential
liabilities under the Securities Act.
We may suspend the use of this prospectus for a discrete period of time, not
longer than 90 days, if, in our reasonable judgment, a development has occurred
or condition exists as a result of which the prospectus does not contain
material non-public information which is in our reasonable judgment is required
to be included in the prospectus for sales of the shares to be made hereunder
and the immediate disclosure of such information would be seriously detrimental
to Peregrine. This offering will terminate on the earlier of the date on which
all shares offered hereby have been sold by the selling stockholder or 60 days
after the effectiveness of the registration statement, of which this prospectus
is a part.
Any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this prospectus.
There can be no assurance that the selling stockholder will sell any or all
of the shares of common stock offered by it under this prospectus.
20
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed
upon for Peregrine by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The audited consolidated financial statements of Peregrine for each of the
three years in the period ended March 31, 2000, the consolidated financial
statements of Telco Research Corporation Limited as of January 31, 2000 and
December 31, 1998 and for the thirteen months ended January 31, 2000 and the
year ended December 31, 1998 and the financial statements of Telco Research
Corporation as of December 31, 1997 and 1996 and for the years then ended,
incorporated by reference in this prospectus and the Registration Statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
The audited consolidated financial statements of Harbinger Corporation as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997, incorporated by reference in this prospectus and the Registration
Statement, have been audited by KPMG LLP, independent auditors, as indicated in
their report thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said report.
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by us in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $14,039.00
Printing expenses........................................... $ 5,000.00
Legal fees and expenses..................................... $20,000.00
Accounting fees and expenses................................ $10,000.00
Miscellaneous expenses...................................... $ 5,961.00
----------
Total................................................... $55,000.00
==========
</TABLE>
ITEM 15. 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 our Amended and Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permitted under
Delaware law.
Article VI of our 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.
We have entered into indemnification agreements with our directors and
executive officers, in addition to the indemnification provided for in our
Bylaws, and we intend to enter into indemnification agreements with any new
directors and executive officers in the future.
The Asset Purchase Agreement, dated as of December 10, 2000, by and among
Peregrine, IBM and Tivoli, entered into in connection with our purchase of the
Tivoli Service Desk suite of products from Tivoli, provides that we will
indemnify the selling stockholder against certain liabilities, including
liabilities under the Securities Act and the selling stockholder will indemnify
us and our executive officers and directors against certain liabilities,
including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling us pursuant to
the foregoing provisions, we have 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.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees, or other agents in which indemnification is
being sought, nor are we aware of any threatened litigation that may result in a
claim for indemnification by any of our directors, officers, employees or other
agents.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2 Consent of KPMG LLP, Independent Auditors
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a) and (b) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each 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.
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.
4. That, for the purpose of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a
II-2
<PAGE>
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.
5. To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act 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 SEC such indemnification is against
public policy as expressed in the Securities 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 its 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 5th day
of January, 2001.
<TABLE>
<S> <C> <C>
PEREGRINE SYSTEMS, INC.
By: /s/ STEPHEN P. GARDNER
------------------------------------------
Stephen P. Gardner
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
</TABLE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Stephen P. Gardner and Mathew C. Gless, and each
of them, as his true and lawful attorneys-in-fact and agent, each with the power
of substitution, for him in his name, place and stead, in any and all
capacities, to sign the Registration Statement filed herewith and 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 462(b) promulgated under the Securities Act of 1933, 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, 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 foregoing, as full to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
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, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN P. GARDNER Chief Executive Officer (Principal January 5, 2001
------------------------------------ Executive Officer) and Chairman
Stephen P. Gardner
/s/ MATHEW C. GLESS Vice President Chief Financial January 5, 2001
------------------------------------ Officer (Principal Financial and
Mathew C. Gless Accounting Officer) and Director
/s/ CHRISTOPHER A. COLE Director January 5, 2001
------------------------------------
Christopher A. Cole
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN J. MOORES Director January 5, 2001
------------------------------------
John J. Moores
/s/ CHARLES E. NOELL, III Director January 5, 2001
------------------------------------
Charles E. Noell, III
/s/ WILLIAM D. SAVOY Director January 5, 2001
------------------------------------
William D. Savoy
/s/ THOMAS G. WATROUS, SR. Director January 5, 2001
------------------------------------
Thomas G. Watrous, Sr.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2 Consent of KPMG LLP, Independent Auditors
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
</TABLE>
