Peregrine CEO, CFO Resign Amid Accounting Investigation

Peregrine says its board of directors has authorized the company's audit committee to conduct an internal investigation into potential accounting inaccuracies, which were brought to the attention of the audit committee by KPMG, the company's independent auditor. Peregrine tapped KPMG last month for the audit of the company's recently completed fiscal year to replace Arthur Andersen, which is currently on trial for its role in Enron's collapse.

Peregrine officials say the scope and magnitude of the investigation have not been determined. The infrastructure management software company disclosed that "certain transactions involving revenue recognition irregularities for as much as $100 million have been called into question" and may have been recorded during periods in fiscal 2001 and 2002.These transactions were recorded initially as revenue from the company's indirect channels and may have been written off in later quarters. Peregrine officials say indirect sales account for 40 percent of the company's business.

The company says the investigation and related matters might impact financial results for periods in fiscal 2002 and prior and lead to restated financial results.The software company was forced to postpone its earnings announcement for the fourth quarter and full fiscal year, which was scheduled for May 2. Company officials say they are unsure when Peregrine will be able to file its annual report with the U.S. Securities and Exchange Commission. Peregrine says it has informed the staff of its audit committee's internal investigation and will keep the SEC informed of its progress.

The company has not indicated if or how the resignations of Gardner and Gless are related to the accounting investigation. Gardner joined Peregrine in 1997 and was named president and CEO less than a year later. Gless was also serving as Peregrine's executive vice president of finance and as a director on the board.

The board appointed Rick Nelson as acting CEO and director of the board from his position as Peregrine's executive vice president. Peregrine also named Fred Gerson as acting CFO, and Charles La Bella as executive vice president and senior counsel.

In addition, Peregrine named John Moores chairman. Moores has been a member of Peregrine's board since 1989 and previously served as chairman from March 1990 through July 2000 when Gardner assumed the role. The board also authorized the appointment of an executive committee--consisting of directors Rod Dammeyer, Moores and Charles Noell--to oversee and assist in this management transition.

The company seemed to be reeling from the sudden executive departures during a conference call Monday morning with the media and analysts. During the question and answer session of the call, several questions were asked concerning the company's financials, available cash and quarterly outlook. Moores and Nelson, however, didn't have the numbers handy and offered only vague answers. They also declined to give any details on the resignations of Gardner and Gless.

"As a team, we take full responsibility for fixing these problems and getting Peregrine back on track," Moores said. "We will make it through these difficult tasks."

Peregrine officials say the company will continue to focus on infrastructure management software, where the company has a strong presence. Last August, Peregrine made a bold move by acquiring rival Remedy Software in a $1.08 billion deal. Peregrine officials said the acquisition was the key to the company's future and would eventually put the software vendor in the same class as elite ISVs such as Siebel Systems and PeopleSoft. The U.S. Department of Justice and Federal Trade Commission approved the Remedy deal in July, and the merger reportedly went smoothly.

Monday's announcements sent Peregrine shares plummeting to close at more than 65 percent, to 89 cents.