Document:

Exhibit
10.4

 

PEREGRINE
SYSTEMS, INC.

 

1999
NONSTATUTORY STOCK OPTION PLAN

 

(as
amended through October 17, 2001

and
applicable to Options granted on or after April 17, 2001)(1)

 

1.             Purposes
of the Plan.  The purposes of this
Nonstatutory Stock Option Plan are:

 

•                  to attract and
retain the best available personnel for positions of substantial
responsibility,

 

•                  to provide
additional incentive to Employees and Consultants, and

 

•                  to promote the
success of the Company’s business.

 

Options granted under the Plan will be Nonstatutory
Stock Options.

 

2.             Definitions.  As used herein, the following definitions
shall apply:

 

(a)           “Administrator”
means the Board or any of its Committees as shall be administering the Plan, in
accordance with Section 4 of the Plan.

 

(b)           “Applicable
Laws” means the requirements relating to the administration of stock option
plans under U.S. state corporate laws, U.S. federal and state securities laws,
the Code, any stock exchange or quotation system on which the Common Stock is
listed or quoted and the applicable laws of any foreign country or jurisdiction
where Options are, or will be, granted under the Plan.

 

(c)           “Board”
means the Board of Directors of the Company.

 

(d)           “Change
of Control” means the occurrence of any of the following events:

 

(i)            Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company’s
then outstanding voting securities; or

 

(ii)           The
consummation of the sale or disposition by the Company of all or substantially
all the Company’s assets; or

 

(1) Options granted prior
to April 17, 2001 shall be governed by the terms of the Plan in effect prior to
such date.

 

 

(iii)          The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining out-standing or by being converted into voting
securities of the surviving entity or its parent) at least fifty percent (50%)
of the total voting power represented by the voting securities of the Company
or such surviving entity or its parent outstanding immediately after such
merger or consolidation; or

 

(iv)          A
change in the composition of the Board occurring within a two-year period, as a
result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors” shall
mean directors who either (A) are directors of the Company as of April 17,
2001 or (B) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of those directors whose election or nomination
was not in connection with any transaction described in subsections (i), (ii),
or (iii) above, or in connection with an actual or threatened proxy contest
relating to the election of directors to the Company.

 

(e)           “Code”
means the Internal Revenue Code of 1986, as amended.

 

(f)            “Committee”  means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.

 

(g)           “Common
Stock” means the Common Stock of the Company.

 

(h)           “Company”
means Peregrine Systems, Inc., a Delaware corporation.

 

(i)            “Consultant”
means any person, including an advisor, engaged by the Company or a Parent or
Subsidiary to render services to such entity.

 

(j)            “Director”
means a member of the Board.

 

(k)           “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code.

 

(l)            “Employee”
means any person, including Officers, employed by the Company or any Parent or
Subsidiary of the Company.  A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company
or between the Company, its Parent, any Subsidiary, or any successor.  Neither service as a Director nor payment of
a director’s fee by the Company shall be sufficient to constitute “employment”
by the Company.

 

(m)          “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

(n)           “Fair
Market Value” means, as of any date, the value of Common Stock determined
as follows:

 

2

 

(i)            If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

 

(ii)           If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a Share of Common
Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

 

(iii)          In
the absence of an established market for the Common Stock, the Fair Market
Value shall be determined in good faith by the Administrator.

 

(o)           “Notice
of Grant” means a written or electronic notice evidencing certain terms and
conditions of an individual Option grant. 
The Notice of Grant is part of the Option Agreement.

 

(p)           “Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

 

(q)           “Option”
means a nonstatutory stock option granted pursuant to the Plan, that is not
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.

 

(r)            “Option
Agreement” means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant.  The Option Agreement is subject to the terms
and conditions of the Plan.

 

(s)           “Option
Exchange Program” means a program whereby outstanding options are
surrendered in exchange for options with a lower exercise price.

 

(t)            “Optioned
Stock” means the Common Stock subject to an Option.

 

(u)           “Optionee”
means the holder of an outstanding Option granted under the Plan.

 

(v)           “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

 

(w)          “Plan”
means this 1999 Nonstatutory Stock Option Plan.

 

(x)            “Service
Provider” means an Employee, Officer, Consultant or Director.

 

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(y)           “Share”
means a share of the Common Stock, as adjusted in accordance with
Section 12 of the Plan.

 

(z)            “Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined
in Section 424(f) of the Code.

 

3.             Stock
Subject to the Plan.  Subject to the
provisions of Section 12 of the Plan, the maximum aggregate number of
Shares, which may be optioned and sold under the Plan, is
7,000,000 Shares.  The Shares may
be authorized, but unissued, or reacquired Common Stock.

 

If an Option expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated).

 

4.             Administration
of the Plan.

 

(a)           Administration.  The Plan shall be administered by
(i) the Board or (ii) a Committee, which committee shall be
constituted to satisfy Applicable Laws.

 

(b)           Powers
of the Administrator.  Subject to
the provisions of the Plan, and in the case of a Committee, subject to the
specific duties delegated by the Board to such Committee, the Administrator
shall have the authority, in its discretion:

 

(i)            to
determine the Fair Market Value of the Common Stock;

 

(ii)           to
select the Service Providers to whom Options may be granted hereunder;

 

(iii)          to
determine whether and to what extent Options are granted hereunder;

 

(iv)          to
determine the number of shares of Common Stock to be covered by each Option
granted hereunder;

 

(v)           to
approve forms of agreement for use under the Plan;

 

(vi)          to
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder. 
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option  or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;

 

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(vii)         to
reduce the exercise price of any Option to the then current Fair Market Value
if the Fair Market Value of the Common Stock covered by such Option shall have
declined since the date the Option was granted;

 

(viii)        to
institute an Option Exchange Program;

 

(ix)           to
construe and interpret the terms of the Plan and awards granted pursuant to the
Plan;

 

(x)            to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the
purpose of qualifying for preferred tax treatment under foreign tax laws;

 

(xi)           to
modify or amend each Option (subject to Section 14(b) of the Plan),
including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;

 

(xii)          to
authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an Option previously granted by the
Administrator;

 

(xiii)         to
determine the terms and restrictions applicable to Options;

 

(xiv)        to
allow Optionees to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares to be issued upon exercise of an Option that
number of Shares having a Fair Market Value equal to the amount required to be
withheld.  The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined.  All
elections by an Optionee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable; and

 

(xv)         to
make all other determinations deemed necessary or advisable for administering
the Plan.

 

(c)           Effect
of Administrator’s Decision.  The
Administrator’s decisions, determinations and interpretations shall be final
and binding on all Optionees and any other holders of Options.

 

5.             Eligibility.  Options may be granted to Service Providers;
provided, however, that notwithstanding anything to the contrary contained in
the Plan, Options may not be granted to Officers and Directors, except in
connection with an Officer’s initial service to the Company.

 

6.             Limitation.  Neither the Plan nor any Option shall confer
upon an Optionee any right with respect to continuing the Optionee’s
relationship as a Service Provider with the Company, nor shall they interfere
in any way with the Optionee’s right or the Company’s right to terminate such
relationship at any time, with or without cause.

 

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7.             Term
of Plan.  The Plan shall become
effective upon its adoption by the Board. 
It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.

 

8.             Term
of Option.  The term of each Option
shall be stated in the Option Agreement.

 

9.             Option
Exercise Price and Consideration.

 

(a)           Exercise
Price.  The per share exercise price
for the Shares to be issued pursuant to exercise of an Option shall be
determined by the Administrator.

 

(b)           Waiting
Period and Exercise Dates.  At the
time an Option is granted, the Administrator shall fix the period within which
the Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised.

 

(c)           Form
of Consideration.  The Administrator
shall determine the acceptable form of consideration for exercising an Option,
including the method of payment.  Such
consideration may consist entirely of:

 

(i)            cash;

 

(ii)           check;

 

(iii)          promissory
note;

 

(iv)          other
Shares which (A) in the case of Shares acquired upon exercise of an
option, have been owned by the Optionee for more than six months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal
to the aggregate exercise price of the Shares as to which said Option shall be
exercised;

 

(v)           consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;

 

(vi)          a
reduction in the amount of any Company liability to the Optionee, including any
liability attributable to the Optionee’s participation in any Company-sponsored
deferred compensation program or arrangement;

 

(vii)         such
other consideration and method of payment for the issuance of Shares to the
extent permitted by Applicable Laws; or

 

(viii)        any
combination of the foregoing methods of payment.

 

10.           Exercise
of Option.

 

(a)           Procedure
for Exercise; Rights as a Shareholder. Any Option granted hereunder shall
be exercisable according to the terms of the Plan and at such times and under
such

 

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conditions as determined by the Administrator and set
forth in the Option Agreement.  An
Option may not be exercised for a fraction of a Share.

 

An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised.  Full payment may consist of
any consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan.  Shares issued upon exercise of an Option shall be issued in the
name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse.  Until
the Shares are issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be
issued) such Shares promptly after the Option is exercised.  No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are issued,
except as provided in Section 12 of the Plan.

 

Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

 

(b)           Termination
of Relationship as a Service Provider. 
If an Optionee ceases to be a Service Provider, other than upon the
Optionee’s death or Disability, the Optionee may exercise his or her Option,
but only within such period of time as is specified in the Option Agreement,
and only to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement).  In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for ninety (90) days following the Optionee’s termination.  If, on the date of termination, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan.  If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.

 

(c)           Disability
of Optionee.  If an Optionee ceases
to be a Service Provider as a result of the Optionee’s Disability, the Optionee
may exercise his or her Option within such period of time as is specified in
the Option Agreement, to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). 
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for six (6) months following the Optionee’s
termination.  If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.  If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

 

7

 

(d)           Death
of Optionee. In the event of the death of an Optionee, the Option shall
vest and become exercisable as to all of the Shares subject thereto and may be
exercised within such period of time as is specified in the Option Agreement
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Optionee’s estate or by a person who
acquires the right to exercise the Option by bequest or inheritance.  In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee’s termination. 
The Option may be exercised by the executor or administrator of the
Optionee’s estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee’s will or the laws of descent or distribution.  If the Option is not so exercised with the
specified time, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

 

(e)           Buyout
Provisions.  The Administrator may
at any time offer to buy out for a payment in cash or Shares, an Option
previously granted based on such terms and conditions as the Administrator
shall establish and communicate to the Optionee at the time that such offer is
made.

 

11.           Non-Transferability
of Options.  Unless determined otherwise
by the Administrator, an Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.  If the Administrator makes an Option transferable, such Option
shall contain such additional terms and conditions as the Administrator deems
appropriate.

 

12.           Adjustments
Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

 

(a)           Changes
in Capitalization.  Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
“effected without receipt of consideration.” 
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.

 

(b)           Dissolution
or Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction.  The Administrator
in its discretion may provide for an Optionee to have the right to exercise his
or her Option until fifteen (15) days prior to such

 

8

 

transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable.  In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated.  To the extent
it has not been previously exercised, an Option will terminate immediately
prior to the consummation of such proposed action.

 

(c)           Merger
or Asset Sale.  In the event of a
merger of the Company with or into another corporation, or the sale of substantially
all of the assets of the Company, each outstanding Option shall be assumed or
an equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. 
In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right
to exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable.  If an Option is not assumed or substituted
(and already was exercisable or becomes fully vested and exercisable in lieu of
assumption or substitution), the Administrator shall notify the Optionee in
writing or electronically that the Option shall be fully vested and exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period.  For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation
or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.

 

13.           Date
of Grant.  The date of grant of an
Option shall be, for all purposes, the date on which the Administrator makes
the determination granting such Option, or such other later date as is
determined by the Administrator.  Notice
of the determination shall be provided to each Optionee within a reasonable
time after the date of such grant.

 

14.           Amendment
and Termination of the Plan.

 

(a)           Amendment
and Termination.  The Board may at
any time amend, alter, suspend or terminate the Plan.

 

(b)           Effect
of Amendment or Termination.  No
amendment, alteration, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the

 

9

 

Optionee and the Company.  Termination of the Plan shall not affect the Administrator’s
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.

 

15.           Conditions
Upon Issuance of Shares.

 

(a)           Legal
Compliance.  Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares shall comply with Applicable Laws
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

 

(b)           Investment
Representations.  As a condition to
the exercise of an Option the Company may require the person exercising such
Option  to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.

 

16.           Inability
to Obtain Authority.  The inability
of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

 

17.           Reservation
of Shares.  The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.

 

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PEREGRINE
SYSTEMS, INC.

 

1999
NONSTATUTORY STOCK OPTION PLAN

 

STOCK
OPTION AGREEMENT

 

Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.

 

I               NOTICE OF STOCK OPTION GRANT

 

[Optionee’s
Name]

 

You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:

 

	
  Date of Grant:

  	
   

  
	
   

  	
   

  
	
  Vesting Commencement Date:

  	
   

  
	
   

  	
   

  
	
  Exercise Price per Share:

  	
  $

  
	
   

  	
   

  
	
  Total Number of Shares Granted:

  	
   

  
	
   

  	
   

  
	
  Type of Option:

  	
  Nonstatutory Stock Option

  
	
   

  	
   

  
	
  Term/Expiration Date:

  	
   

  

 

Vesting Schedule:

 

25% of the total number of Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and 6.25% of the total
number of Shares subject to the Option shall vest each quarter thereafter,
provided that Shares actually will vest on any such date only if the Optionee
continues to be a Service Provider on such date.

 

Notwithstanding the preceding, all of the Shares subject to the Option
shall vest on the date the Optionee ceases to be a Service Provider if (and
only if) the cessation as a Service Provider both (1) occurs within 12 months
after a Change of Control, and (2) either was by action (a) of the Company for
a reason other than Cause, or (b) of the Employee for Good Reason.

 

For purposes of the preceding paragraph, Cause means (i) any act
of personal dishonesty taken in connection with the Optionee’s responsibilities
as a Service Provider that is intended to result in his or her substantial personal
enrichment, (ii) the Optionee’s conviction or plea of no contest to a
crime that will have a detrimental effect on the Company’s reputation or
business, (iii) willful misconduct by the Optionee that is injurious to
the Company, or (iv) the Optionee’s continued violation of his or her

 

1

 

obligations to the
Company after the Optionee has been delivered written notice of the violation
and given a reasonable opportunity to cure. Good Reason means, without the
Optionee’s written consent (i) a material reduction in the optionee’s duties
and/or status at the Company, (ii) the Optionee’s principal work location being
moved more than 30 miles, (iii) the Company reducing the Optionee’s base salary
below his or her salary immediately before the Change of Control, or (iv) the
Company reducing the Optionee’s bonus opportunity below his or her bonus
opportunity immediately before the Change of Control.

 

Termination Period:

 

This Option may be exercised for 90 days after
termination of Optionee’s Continuous Status as an Employee or Consultant, or
such longer period as may be applicable upon death or disability of Optionee as
provided in the Plan, but in no event later than the Term/Expiration Date as
provided above.

 

II             AGREEMENT

 

1.             Grant of Option. 
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
“Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth
in the Notice of Grant, at the exercise price per share set forth in the Notice
of Grant (the “Exercise Price”), subject to the terms and conditions of the
Plan, which is incorporated herein by reference.  Subject to Section 14(b) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Option Agreement, the terms and conditions of the Plan shall
prevail.

 

2.             Exercise of Option.

 

(a)           Right to Exercise.  This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

 

(b)           Method of Exercise.  This Option is exercisable by delivery of an
exercise notice (in a form and manner satisfactory to the Company) which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised (the “Exercised Shares”), and such other
representations and agreements as may be required by the Company pursuant to
the provisions of the Plan.  The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares.  This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of
this Option unless such issuance and exercise complies with Applicable
Laws.  Assuming such compliance, for
income tax purposes the Exercised Shares shall be considered transferred to the
Optionee on the date the Option is exercised with respect to such Exercised
Shares.

 

2

 

3.             Method of Payment.  Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:

 

(a)     cash;

 

(b)     check;

 

(c)     consideration received by the Company under
a cashless exercise program implemented by the Company in connection with the
Plan; or

 

(d)     surrender of other Shares, which
(i) in the case of Shares acquired upon exercise of an option, have been
owned by the Optionee for more than six (6) months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to the aggregate Exercise Price of the Exercised Shares.

 

4.             Non-Transferability of Option.  This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee.  The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.

 

5.             Term of Option. 
This Option may be exercised only within the term set out in the Notice
of Grant, and may be exercised during such term only in accordance with the
Plan and the terms of this Option Agreement.

 

6.             Tax Consequences.  Some of the federal tax consequences relating to this Option, as
of the date of this Option, are set forth below.  THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.  THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

 

(a)           Exercising the Option.  The Optionee may incur regular federal
income tax liability upon exercise of an NSO. 
The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price.  If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

 

(b)           Disposition of Shares.  If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.

 

7.             Entire Agreement; Governing Law.  The Plan is incorporated herein by
reference.  The Plan and this Option
Agreement constitute the entire agreement of the

 

3

 

parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee’s interest except by means of a writing
signed by the Company and Optionee.  The
internal substantive laws, but not the choice of law rules, of California
govern this agreement.

 

8.             NO
GUARANTEE OF CONTINUED SERVICE. 
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER
AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE
OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

 

By your signature and the
signature of the Company’s representative below, you and the Company agree that
this Option is granted under and governed by the terms and conditions of the
Plan and this Option Agreement. 
Optionee has reviewed the Plan and this Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option Agreement and fully understands all provisions of the
Plan and Option Agreement.  Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement.  Optionee further
agrees to notify the Company upon any change in the residence address indicated
below.

 

	
  OPTIONEE

  	
   

  	
  PEREGRINE
  SYSTEMS, INC.

  
	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  Print Name of Optionee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Stephen P. Gardner

  	
   

  
	
  Signature of Optionee

  	
   

  	
  Stephen P. Gardner

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Residential Address

  	
   

  	
   

  

 

4Exhibit 10.5

 

PEREGRINE
SYSTEMS, INC.

 

1994
STOCK OPTION PLAN

 

(as
amended through July 8, 2002)(1)

 

1.                                       Purposes
of the Plan.  The purposes of this
Stock Option Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees, Directors and Consultants of the Company and its Subsidiaries and to
promote the success of the Company’s business. 
Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject
to the applicable provisions of Section 422 of the Code, as amended, and
the regulations promulgated thereunder.

 

2.                                       Definitions.  As used herein, the following definitions
shall apply:

 

(a)                                  “Administrator”
means the Board or any of its Committees appointed pursuant to Section 4
of the Plan.

 

(b)                                 “Applicable
Laws’’ means the requirements relating to the administration of stock
option plans under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common
Stock is listed or quoted and the applicable laws of any foreign country or
jurisdiction where Options are, or will be, granted under the Plan.

 

(c)                                  “Board”
means the Board of Directors of the Company.

 

(d)                                 “Change
of Control” means the occurrence of any of the following events:

 

(i)                                     Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company’s
then outstanding voting securities; or

 

(ii)                                  The
consummation of a Sale of the Company’s Assets; or

 

(iii)                               The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining out-standing or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting

 

(1)                    Options
granted prior to the amendment of the Plan in July, 2002 but on or after
April 17, 2001 shall be made pursuant to the terms of the Plan then in
effect and Options granted prior to April 17, 2001 shall be made pursuant
to the terms of the Plan then in effect.

1

 

power represented by the voting securities of the
Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation; or

 

(iv)                              A
change in the composition of the Board occurring within a two-year period, as a
result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors’’ shall
mean directors who either (A) are directors of the Company as of the
April 17,2001 or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those directors whose
election or nomination was not in connection with any transaction described in
subsections (i), (ii), or (iii) above, or in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.

 

(e)                                  “Code”
means the Internal Revenue Code of 1986, as amended.

 

(f)                                    “Committee”
means a Committee appointed by the Board of Directors in accordance with
Section 4 of the Plan.

 

(g)                                 “Common
Stock” means the Common Stock of the Company.

 

(h)                                 “Company”
means Peregrine Systems, Inc., a Delaware corporation.

 

(i)                                     “Consultant”
means any person, including an advisor, who is engaged by the Company or any Parent
or Subsidiary to render services and is compensated for such services.

 

(j)                                     “Continuous
Status as an Employee Or Consultant” means that the employment or
consulting relationship or directorship is not interrupted or terminated by the
Employee, Consultant or Director or the Company, or any Parent or
Subsidiary.  Continuous Status as an
Employee, Director, or Consultant shall not be considered interrupted in the
case of:  (i) any leave of absence
approved by the Company, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; provided, further, that on the ninety-first
(91st) day of any such leave (where reemployment is not guaranteed by contract
or statute) the Optionee’s Incentive Stock Option shall cease to be treated as
an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.

 

(k)                                  “Director”
shall mean a member of the Board.

 

(l)                                     “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code.

 

(m)                               “Employee”
means any person, including Officers and Directors, employed by the Company or
any Parent or Subsidiary of the Company. 
The payment of a director’s fee by the Company shall not be sufficient
to constitute “employment” by the Company.

 

2

 

(n)                                 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

(o)                                 “Fair
Market Value” means, as of any date, the value of Common Stock determined
as follows:

 

(i)                                     If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the National Market System or the
Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such exchange or system for the last market trading day
prior to the time of determination) as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;

 

(ii)                                  If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean
between the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable or;

 

(iii)                               In
the absence of an established market for the Common Stock, the Fair Market
Value thereof shall be determined in good faith by the Administrator.

 

(p)                                 “Incentive
Stock Option” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code.

 

(q)                                 “Nonstatutory
Stock Option” means an Option not intended to qualify as an Incentive Stock
Option.

 

(r)                                    “Notice
of Grant” means a written notice evidencing certain terms and conditions of
an individual Option grant.  The Notice
of Grant is part of the Option Agreement.

 

(s)                                  “Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

 

(t)                                    “Option”
means a stock option granted pursuant to the Plan.

 

(u)                                 “Option
Agreement” means a written agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant.  The Option Agreement is subject to the terms
and conditions of the Plan.

 

(v)                                 “Optioned
Stock” means the Common Stock subject to an Option.

 

(w)                               “Optionee”
means an Employee, Director, or Consultant who receives an Option.

 

3

 

(x)                                   “Parent”
means a “parent corporation”, whether now or hereafter existing, as defined in
Section 424(e) of the Code.

 

(y)                                 “Plan”
means this 1994 Stock Option Plan, as amended.

 

(z)                                   “Rule
16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3,
as in effect when discretion is being exercised with respect to the Plan.

 

(aa)                            “Sale
of the Company’s Assets’’ means the lease, sale or other disposition of
all, but not less than all, of the assets of the Company unless the Board
declares that a transaction involving the sale or other transfer of the
securities of a Subsidiary or the lease, sale or disposition of assets of the
Company or a Subsidiary constitutes a sale of substantially all of the
Company’s assets, which determination may be made by the Board in its sole and
absolute discretion and need not be determined for the purposes of all Options
or Optionees but may be determined on a case by case basis for each individual
Option or Optionee.  Further, whether a
transaction is a sale of substantially all of the assets of the Company need
not be determined with reference to the Delaware General Corporation Law or
cases decided thereunder.  By way of
example but not of limitation as to what constitutes a Sale of the Company’s
Assets, the sale by the Company of all of the securities of Peregrine-Remedy
Inc. or the lease, sale or disposition of the assets of Peregrine-Remedy Inc.
(including the sale or disposition of assets related to the business of
Peregrine-Remedy Inc. Corporation but held by the Company or another of the
Company’s subsidiaries) will not be a Sale of the Company’s Assets unless it is
so deemed by the Board.

 

(bb)                          “Service
Provider” means an Employee, Officer, Consultant or Director.”

 

(cc)                            “Share”
means a share of the Common Stock, as adjusted in accordance with
Section 11 below.

 

(dd)                          “Subsidiary”
means a “subsidiary corporation”, whether now or hereafter existing, as defined
in Section 424(f) of the Code.

 

3.                                       Stock
Subject to the Plan.  Subject to the
provisions of Section 11 of the Plan, the maximum aggregate number of
Shares which may be optioned and sold under the Plan is 24,592,000, plus an
annual increase, effective January 1 of each calendar year beginning
January 1, 1999 and ending January 1, 2003, equal to such number of
additional Shares of Common Stock as may then be required to fix the number of
Shares of Common Stock then available for new Option grants at an amount not
less than the lesser of (i) four percent (4%) of the Company’s then issued and
outstanding Common Stock or (ii) 16,000,000 Shares.  The Shares may be authorized, but unissued, or reacquired Common
Stock.

 

If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.

 

4

 

4.                                       Administration
of the Plan.

 

(a)                                  Procedure.

 

(i)                                     Multiple
Administrative Bodies.  The Plan may
be administered by different Committees with respect to different Optionees.

 

(ii)                                  Section 162(m).  To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
“performance-based compensation’’ within the meaning of Section 162(m) of
the Code, the Plan shall be administered by a Committee of two or more “outside
directors” within the meaning of Section 162(m) of the Code.

 

(iii)                               Rule
16b-3.  To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3. (iv) Other Administration.  Other than as provided above, the Plan shall
be administered by (A) the Board or (B) a Committee, which committee shall be
constituted to satisfy Applicable Laws.

 

(b)                                 Powers
of the Administrator.  Subject to
the provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, and subject to the approval of any
relevant authorities, including the approval, if required, of any stock
exchange upon which the Common Stock is listed, the Administrator shall have
the authority, in its discretion:

 

(i)                                     to
determine the Fair Market Value of the Common Stock, in accordance with
Section 2(m) of the Plan;

 

(ii)                                  to
select the Consultants, Directors, and Employees to whom Options may from time
to time be granted hereunder;

 

(iii)                               to
determine whether and to what extent Options are granted hereunder;

 

(iv)                              to
modify or amend each Option, including the discretionary authority to extend
the post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;

 

(v)                                 to
approve forms of agreement for use under the Plan;

 

(vi)                              to
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder. 
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option of the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator, in its sole discretion, shall determine;

 

5

 

(vii)                           to
determine whether and under what circumstances an Option may be settled in cash
under Section 9 instead of Common Stock;

 

(viii)                        Market
Value if the Fair Market Value of the Common Stock covered by such Option has
declined since the date the Option was granted; to reduce the exercise price of
any Option to the then current Fair

 

(ix)                                to
allow Optionees to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares to be issued upon exercise of an Option that
number of Shares having a Fair Market Value equal to the amount required to be
withheld.  The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined.  All
elections by an Optionee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable;

 

(x)                                   to
construe and interpret the terms of the Plan and awards granted pursuant to the
Plan; and

 

(xi)                                to
prescribe, amend, and rescind rules and regulations relating to the Plan,
including rules and regulations relating to subplans established for the
purpose of qualifying for preferred tax treatment under foreign tax laws.

 

(c)                                  Effect
Of Administrator’s Decision.  All
decisions, determinations, and interpretations of the Administrator shall be
final and binding on all Optionees and any other holders of any Options.

 

5.                                       Eligibility.

 

(a)                                  Nonstatutory
Stock Options may be granted to Employees, Directors, and Consultants.  Incentive Stock Options may be granted only
to Employees.  An Employee, Director, or
Consultant who has been granted an Option may, if otherwise eligible, be
granted additional Options.

 

(b)                                 Each
Option shall be designated in the written option agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option. 
However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares underlying Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) in excess of
$100,000, such excess shall be treated as Nonstatutory Stock Options.

 

(c)                                  For
purposes of Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.

 

(d)                                 The
Plan shall not confer upon any Optionee any right with respect to continuation
of employment or consulting relationship with the Company or service as a
Director, nor shall it interfere in any way with his or her right or the
Company’s right to terminate his or her employment, service as a Director or
consulting relationship at any time, with or without cause.

 

6

 

(e)                                  Limitations.

 

(i)                                     No
Employee shall be granted, in any fiscal year of the Company, Options to
purchase more than 900,000 Shares.

 

(ii)                                  The
foregoing limitation shall be adjusted proportionately in connection with any
change in the Company’s capitalization as described in Section 11 (a).

 

(iii)                               If
an Option is canceled (other than in connection with a transaction described in
Section 1l), the canceled Option will be counted against the limit set
forth in Section 5(e)(i).  For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.

 

6.                                       Term
of Plan.  The Plan became effective
upon its adoption by the Board of Directors. 
It shall continue in effect for a term of ten (10) years from such date,
unless sooner terminated under Section 13 of the Plan.

 

7.                                       Term
of Option.  The term of each Option
shall be the term stated in the Option Agreement; provided, however, that in
the case of an Incentive Stock Option the term shall be no more than ten (10)
years from the date of grant thereof. 
However, in the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of grant thereof or such shorter term as may be provided in the Option
Agreement.

 

8.                                       Option
Exercise Price and Consideration.

 

(a)                                  The
per share exercise price for the Shares to be issued pursuant to exercise of an
Option shall be such price as is determined by the Board, but shall be subject
to the following:

 

(i)                                     In
the case of an Incentive Stock Option

 

(A)                              granted
to an Employee who, at the time of the grant of such Incentive Stock Option,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.

 

(B)                                granted
to any Employee other than an Employee described in the preceding paragraph,
the per Share exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.

 

(ii)                                  In
the case of a Nonstatutory Stock Option, the per Share exercise price shall be
determined by the Administrator. 
However, in the case of a Nonstatutory Stock Option intended to qualify
as “performance-based compensation” within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100% of the
Fair Market Value per Share on the date of grant.

 

7

 

(iii)                               Notwithstanding
the foregoing, Options may be granted with a per Share exercise price of less
than 100% of the Fair Market Value per Share on the date of grant pursuant to a
merger or other corporate transaction.

 

(b)                                 The
consideration to be paid for the Shares to be issued upon exercise of an
Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option have been owned by the Optionee for
more than six months on the date of surrender and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (5) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan; (6) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws, or (7)
any combination of the foregoing methods of payment.  In making its determination as to the type of consideration to
accept, the Board shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

 

9.                                       Exercise
of Option.

 

(a)                                  Procedure
For Exercise; Rights as a Shareholder. 
Any Option granted hereunder shall be exercisable at such times and
under such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan. 
All Options granted hereunder shall be exercisable at the rate of at
least 20% per year over five years from the date the Option is granted.  An Option may not be exercised for a
fraction of a Share.

 

An Option shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option by the person entitled
to exercise the Option and full payment for the Shares with respect to which
the Option is exercised has been received by the Company.  Full payment may, as authorized by the
Board, consist of any consideration and method of payment allowable under the
Plan.  Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be
issued) such Shares promptly upon exercise of the Option.  No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 11 of the Plan.

 

Exercise of an
Option in any manner shall result in a decrease in the number of Shares which
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

 

(b)                                 Termination
of Continuous Status as an Employee, Director, or Consultant.  In the event that an Optionee’s Continuous
Status as an Employee, Director, or Consultant terminates (but not in the event
of a change of status from Employee to

 

8

 

Consultant (in which case an Employee’s Incentive
Stock Option shall automatically convert to a Nonstatutory Stock Option on the
ninety-first (91st) day following such change of status) or from Consultant to
Employee) other than upon the Optionee’s death or disability, the Optionee may
exercise his or her Option, within 90 days of the date of termination, and only
to the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant); provided, however, that (i) the
Administrator may in its discretion extend the period of exercisability of the
Option beyond a termination of an Optionee’s Continuous Status as an Employee,
Director, or Consultant until a date not later than the expiration of the term
of such Option as set forth in the Notice of Grant and (ii) the Administrator
may in its discretion extend the termination date for the purpose of vesting
accrual to a date beyond the actual termination date of employment (the “deemed
termination date”) (but in no event may the deemed termination date be later
than the expiration of the term of such Option as set forth in the Notice of
Grant).  In the event the Administrator
shall exercise such discretion to extend the term of an Option, such Option shall
be exercisable during such extended term to the extent it was exercisable at
the date of such termination or the deemed termination date, as
applicable.  Similarly, in the event the
Administrator shall exercise such discretion to extend the termination date of
an Optionee, such Option shall be exercisable during such term (or such
extended term if applicable) to the extent it would be exercisable at the
deemed termination date.  If at the date
of termination the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan.  If after
termination the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

 

(c)                                  Disability
of Optionee.  In the event of
termination of an Optionee’s Continuous Status as an Employee, Director, or
Consultant as a result of his or her Disability, Optionee may, but only within
six (6) months from the date of such termination (and in no event later than
the expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination.  To the
extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

 

(d)                                 Death
of Optionee.  In the event of the
death of an Optionee, the Option shall vest and become exercisable as to all of
the Shares subject thereto and may be exercised within such period of time as
is specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee’s estate or by a person who acquires the right to exercise the Option
by bequest or inheritance.   In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee’s termination.  The Option may be exercised by the executor
or administrator of the Optionee’s estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee’s will or the laws of
descent or distribution.  If the Option
is not so exercised with the specified time, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.

 

9

 

(e)                                  Buyout
Provisions.  The Administrator may
at any time offer to buy out for a payment in cash or Shares, an Option
previously granted, based on such terms and conditions as the Administrator
shall establish and communicate to the Optionee at the time that such offer is
made.

 

10.                                 Non-Transferability
of Options.  Unless determined
otherwise, by the Administrator, Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.  If the Administrator makes an Option transferable, such Option
;hall contain such additional terms and conditions as the Administrator deems
appropriate.

 

11.                                 Adjustments
Upon Changes in Capitalization or Merger.

 

(a)                                  Changes
in Capitalization.  Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
“effected without receipt of consideration.” 
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding, and conclusive.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.

 

(b)                                 Dissolution
or Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Board shall notify the
Optionee at least fifteen (15) days prior to such proposed action.   To the extent it has not been previously
exercised, the Option will terminate immediately prior to the consummation of
such proposed action.

 

(c)                                  Merger
or Asset Sale.  In the event of a
merger of the Company with or into another corporation, or upon the Sale of the
Company’s Assets, each outstanding Option shall be assumed or an equivalent
option substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation.  In the event
that the successor corporation refuses to assume or substitute for the Option,
the Optionee shall fully vest in and have the right to exercise the Option as
to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable.  If
an Option is not assumed or substituted (and already was exercisable or becomes
fully vested and exercisable in lieu of assumption or substitution), the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the
expiration of such

 

10

 

period.  For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or Sale of the Company’s Assets, the option or right
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or Sale of the Company’s
Assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or Sale of the Company’s Assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or of the Sale of
the Company’s Assets is not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or Sale of the Company’s Assets.

 

12.                                 Time
of Granting Options.  The date of
grant of an Option shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option, or such other date
as is determined by the Board.  Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.

 

13.                                 Amendment
and Termination of the Plan.

 

(a)                                  Amendment
and Termination.  The Board may at
any time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would impair the
rights of any Optionee under any grant theretofore made, without his or her
consent.  In addition, to the extent
necessary and desirable to comply with Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such
a degree as required.

 

(b)                                 Effect
of Amendment or Termination.  Any
such amendment or termination of the Plan shall not affect Options already
granted, and such Options shall remain in full force and effect as if this Plan
had not been amended or terminated, unless mutually agreed otherwise between
the Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company. 
Termination of the Plan shall not affect the Administrator’s ability to
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.

 

14.                                 Conditions
Upon Issuance of Shares.  Shares
shall not be issued pursuant to the exercise of an Option unless the exercise
of such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.

 

As a condition to the
exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell

 

11

 

or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.

 

15.                                 Reservation
of Shares.  The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.

 

The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company’s counsel to be necessary to the lawful issuance
and sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

 

16.                                 Agreements.  Options shall be evidenced by written
agreements in such form as the Board shall approve from time to time.

 

17.                                 Stockholder
Approval.  Continuance of the Plan
shall be subject to approval by the stockholders of the Company within twelve
(12) months before or after the date the Plan is adopted.  Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws.

 

12

 

PEREGRINE
SYSTEMS, INC.

 

1994
STOCK PLAN

 

STOCK
OPTION AGREEMENT

 

Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.

 

I.                                         NOTICE
OF STOCK OPTION GRANT

 

You have been granted an
option to purchase Common Stock of the company, subject to the terms and
conditions of the Plan and this Option Agreement, as follows:

 

Date of Grant:

 

Vesting Commencement
Date:

 

Exercise Price per Share:

 

Total Number of Shares
Granted:

 

Type of Option:

 

Term/Expiration Date:

 

Vesting Schedule:

 

25% of the total number
of Shares subject to the Option shall vest twelve months . after the Vesting
Commencement Date, and 6.25% of the total number of Shares subject to the
Option shall vest each quarter thereafter, provided that Shares actually will
vest on any such date only if the Optionee is a Service Provider on such date.

 

Notwithstanding the
preceding, all of the Shares subject to the Option shall vest on the date the
Optionee ceases to’ be a Service Provider if (and only ii) the cessation as a
Service Provider (1) occurs within 12 months after a Change of Control, and (2)
either was by action (a) of the Company for a reason other than Cause, or (b)
of the Employee for Good Reason.

 

For purposes of the
preceding paragraph, Cause means (i) any act of personal dishonesty taken in
connection with the Optionee’s responsibilities as a Service Provider that is
intended to result in his or her substantial personal enrichment, (ii) the
Optionee’s conviction or plea of no contest to a crime that will have a
detrimental effect on the Company’s reputation or business, (iii) willful
misconduct by the Optionee that is injurious to the Company, or (iv) the
Optionee’s continued violation of his or her obligations to the Company after
the Optionee has been delivered written notice of the violation and given a
reasonable opportunity to cure.  Good
Reason means, without the Optionee’s written consent (i) a material reduction
in the Optionee’s duties and/or status at the Company, (ii) the Optionee’s
principal work location being moved more than 30 miles, (iii) the Company

 

13

 

reducing the Optionee’s
base salary below his or her salary immediately before the Change of Control,
or (iv) the Company reducing the Optionee’s bonus opportunity below his or her
bonus opportunity immediately before the Change of Control.

 

Termination Period:

 

This Option may be
exercised for 90 days after termination of Optionee’s Continuous Status as an
Employee or Consultant, or such longer period as may be applicable upon death
or disability of Optionee as provided in the Plan, but in no event later than
the Term/Expiration Date as provided above.

 

II.                                     AGREEMENT

 

1.                                       Grant
of Option.  Peregrine Systems, Inc.,
a Delaware corporation (the “company”), hereby grants to the individual named
in the Notice of Stock Option Grant (the “Notice of Grant”), hereafter the
Optionee, an option (the .”Option”) to purchase the total number of shares of
Common Stock (the “Shares”) set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the “Exercise Price”) subject
to the terms, definitions, and provisions of the 1994 Stock Option Plan (the
“Plan”) adopted by the Company, which is incorporated herein by reference.  Unless otherwise defined herein, the terns
defined in the Plan shall have the same defined meanings in this Option.

 

If designated in the
Notice of Grant as an Incentive Stock Option (“ISO:), this Option is intended
to qualify as an Incentive Stock Option as defined in Section 422 of the
Code.  However, if this Option is
intended to be an Incentive Stock Option, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), it shall be treated as a
Nonstatutory Stock Option (“NSO”).

 

2.                                       Exercise
of Option.

 

(a)                                  Right
to Exercise.  This Option shall be
exercisable during its term in accordance with the Vesting Schedule set
out in the Notice of Grant and with the provisions of Section 9 of the
Plan.  This Option may not be exercised
for a fraction of a share.

 

(b)                                 Method
of Exercise.  This Option shall be
exercisable by notice (in a form and manner satisfactory to the Company) which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements as to the holder’s investment intent with respect to such shares
of Common Stock as may be required by the Company pursuant to the provisions of
the Plan.  This Option shall be deemed
to be exercised upon receipt by the Company of such notice accompanied by the
Exercise Price.

 

No Shares will be issued
pursuant to the exercise of an Option unless such issuance and such exercise
shall comply with Applicable Laws. 
Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

 

14

 

3.                                       Method
Of Payment.  Payment of the Exercise
Price shall be by any of the following, or a combination thereof, at the
election of the Optionee:

 

(i)                                     cash;
or

 

(ii)                                  check;
or

 

(iii)                               surrender
of other shares of Common Stock of the Company which (A) in the case of Shares
acquired pursuant to the exercise of a Company option, have been owned by the
Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the
Exercise Price of the Shares as to which the Option is being exercised; or

 

(iv)                              consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan.

 

4.                                       Restrictions
on Exercise.  This Option may not be
exercised until such time as the Plan has been approved by the shareholders of
the Company, or if the issuance of such Shares upon such exercise or the method
of payment of consideration for such Shares would constitute a violation of
Applicable Laws.  As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.

 

5.                                       Non-Transferabilitv
of Option.  This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
him.  The terms of this Option shall be
binding upon the executors, administrators, heirs, successors, and assigns of
the Optionee.

 

6.                                       Term
of Option.  This Option may be
exercised only within the term set out in the Notice of Grant, and may be
exercised during such term only in accordance with the Plan and the terms of
this Option Agreement.

 

7.                                       Tax
Consequences.  Set forth below is a
brief summary as of the date of this Option of some of the federal and local
tax consequences of exercise of this Option and disposition of the Shares.  THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS GRE SUBJECT TO CHANGE. 
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.

 

(i)                                     Exercise
of ISO.  If this Option qualifies as
an ISO, there will be no regular federal income tax liability or local income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject the Optionee to the alternative minimum
tax in the year of exercise.

 

(ii)                                  Exercise
of Nonstatutory Stock Option.  There
may be a regular federal income tax liability and local income tax liability
upon the exercise of a Nonstatutory Stock Option.  The Optionee will be treated as having received compensation

 

15

 

income (taxable at ordinary income tax rates) equal to
the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price.  If
Optionee is an Employee, the Company will be required to withhold from
Optionee’s compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.

 

(iii)                               Disposition
of Shares.  In the case of an NSO,
if Shares are held for at least one year, any gain realized on disposition of
the Shares will be treated as long-term capital gain for federal and local
income tax purposes, In the case of an ISO, if Shares transferred pursuant to
the Option are held for at least one year after exercise and are disposed of at
least two years after the Date of Grant, any gain realized on disposition of
the Shares will also be treated as long-term capital gain for federal and local
income tax purposes.  If Shares
purchased under an ISO are disposed of within such one-year period or within
two years after the Date of Grant, any gain realized on such disposition will
be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the sale price
of the Shares.

 

(iv)                              Notice
of Disqualifying Disposition of ISO Shares.  If the Option granted to Optionee herein is an ISO, and if
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
the ISO on or before the later of (1) the date two years after the Date of
Grant, or (2) the date one year after the date of exercise, the Optionee shall
immediately notify the Company in writing of such disposition.  Optionee agrees that Optionee may be subject
to income tax withholding by the Company on the compensation income recognized
by the Optionee.

 

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).  OPTIONEE NOTICE, OR THE STOCK OPTION
AGREEMENT, NOR IN THE COMPANY’S FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN
THIS STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER
UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE’S
RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S EMPLOYMENT OR CONSULTANCY
AT ANY TIME, WITH OR WITHOUT CAUSE.

 

Optionee acknowledges
receipt of a copy of the Stock Option Agreement and Plan and represents that he
or she is familiar with the terns and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof.  Optionee has reviewed the Plan and this
Option in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option and filly understands all provisions of
the Option.  Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this

 

16

 

Option.  Optionee further agrees to notify the
Company upon any change in the residence address indicated below.

 

	
  OPTIONEE

  	
  PEREGRINE SYSTEMS, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print Name of Optionee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature of Optionee

  	
  Gary G. Greenfield

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Residential Address

  	
   

  

 

17

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