PEREGRINE SYSTEMS INC
EXHIBIT 10.3
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>a2070707zex-10_3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
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                                                                    EXHIBIT 10.3


                             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:

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

             o    to provide additional incentive to Employees and Consultants,
                  and

             o    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

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


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                 (ii)   The consummation of the sale or disposition by the
Company of all or substantially all 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 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.


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             (n) "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 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.


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             (x) "SERVICE PROVIDER" means an Employee, Officer, Consultant or
Director.

             (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;


                                      -4-

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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.


                                      -5-

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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


                                      -6-

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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-

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             (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-

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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-

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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.


                                      -10-

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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


                                                                     Page 1 of 4

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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.


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         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


                                                                     Page 3 of 4

<Page>


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


                                                                     Page 4 of 4

</TEXT>
</DOCUMENT>
