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| Best Practices |
The Chapter After 11
Suzanne McGee
05/03/2004
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On a warm summer day last year, Al Hirschfield answered the telephone in his
Jackson, Wyo., home to find Rob Horowitz on the other end. Horowitz, a veteran
money manager, wanted Hirschfield’s advice on how to deal with a troubled
company.
 Horowitz was one of a contingent of creditors who, in order to
recover their losses, were going to become shareholders in Peregrine Systems, a
San Diego-based software company about to emerge from 11 months of operating
under Chapter 11 bankruptcy protection. They needed a new board to steer the
company down the bumpy post-bankruptcy path. At 68, Hirschfield is a veteran
chief executive and director who has spent a major part of his career turning
around troubled companies, starting with Columbia Pictures in the 1970s. Before
long, he found himself agreeing to at least think about joining the board.
What Hirschfield would face at Peregrine was a company that was down to 600
employees—from 1,700 before the bankruptcy—and that had been forced to trade on
the pink sheets since Nasdaq delisted its stock in late August 2002 for failing
to comply with a number of exchange requirements, including submission of
audited financial results. The problems had begun when the Securities and
Exchange Commission and the Department of Justice alleged a case of accounting
fraud. Three former top executives admitted to overstating revenues by $509
million over a 33-month period, including inventing $225 million of software
sales that never took place. The company reported revenues of $441.2 million in
the fiscal year ended March 31, 2002, but had to restate its earnings for 2000,
2001 and 2002, which turned its profits into large losses. For 18 months before
the creditors took over two-thirds of the ownership (former shareholders
retained the balance), the business had done well; orders were flowing in,
and the company expected to turn an anticipated $8.2 million loss in 2004
into a $44 million profit by 2007. In order to realize that potential, Peregrine
needed the help of strong directors who would be able to complete the
restatement of financial results, negotiate a final legal settlement, rebuild
confidence among customers, and seek a re-listing for the stock.
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