Troubled Infrastructure Management software developer Peregrine Systems has filed for Chapter 11 bankruptcy protection. The company has boosted its chances of a successful reorganization by agreeing to sell Remedy business unit to BMC Software, Inc. for $350 million, and securing a commitment from BMC for up to $110 million of in debtor-in-possession (DIP) financing.
Citing the financial and legal issues raised by the company’s inability to file audited financial reports for the 2000, 2001, and 2002 fiscal years, among other reasons, Peregrine Systems, Inc. has announced that it has filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Excluded from the filing are all of Peregrine’s other subsidiaries, including those located outside of the United States, and Peregrine Solutions, a new wholly owned subsidiary established to enhance customer relationships.
Peregrine also announced that it has entered into an agreement whereby BMC Software, Inc. will acquire all of the assets and assume substantially all of the liabilities of its Remedy business unit for $350 million. To facilitate the transaction, Peregrine Remedy, Inc., has also filed a voluntary Chapter 11 petition. The sale agreement is subject to approval by the U.S. Bankruptcy Court for the District of Delaware, under Section 363 of the U.S. Bankruptcy Code.
Peregrine said that the company has received a commitment for up to $110 million in debtor-in-possession (DIP) financing from BMC Software. The DIP financing will replace the company’s existing senior credit facility. These funds will be used to enable the company to meet its commitments to its employees, to fund vendor obligations going forward, and to assure uninterrupted business operations. The proceeds from the sale of Remedy will be used to pay back the DIP financing and to settle past debts. The remaining proceeds from the sale will provide the company with funds to continue operating its business.
The company also announced that its board has directed outside counsel to file a lawsuit against Arthur Andersen, LLP, Arthur Andersen Germany and Arthur Andersen Worldwide S.C., Daniel Stulac, the audit partner on the account, and other defendants to be named later, seeking damages in excess of $250 million for each of the four causes of action in the complaint. The lawsuit alleges that the aforementioned defendants were negligent, engaged in fraud and breached their audit and accounting duties and responsibilities.
Gary Greenfield, Peregrine’s CEO, stated, These actions represent a significant milestone in our strategic initiatives to take control of our own destiny. We have already accomplished a great deal in our planned reorganization initiatives. We have successfully negotiated a forbearance agreement with our factor banks and divested non-core business units. Chapter 11 represents the next step in this process. It provides us with the time and the means to complete the resolution of our financial and legal issues, while we maintain normal business operations.
Today’s actions represent a new beginning that will allow a financially stable Peregrine to put the challenges of the past behind it, so that the company can take full advantage of its acknowledged leadership position in developing and marketing software to manage the business of technology infrastructure. We have the largest installed base in the IT Infrastructure Management space in the world, and we fully intend to leverage that leadership position going forward, Greenfield said.
Commenting on the sale of Remedy, Greenfield stated, In June we made the decision to operate Remedy as a separate business unit. The sale of Remedy to BMC provides security for the employees and customers of both Peregrine and Remedy into the future. Now, Peregrine customers know that their investment in our software is protected. And Remedy customers and employees will be in good hands with BMC Software. We intend to work closely with BMC to assure a smooth transition of all aspects of the Remedy business, and support those customers who use both Peregrine and Remedy products. We are confident that our customers and partners will be supportive of our efforts.
Uninterrupted Business Operations
Daily operations at Peregrine’s business units, Peregrine and Remedy, will continue as usual. Employees will continue to report to work and will be paid as always; suppliers will be paid in the ordinary course of business for goods and services provided following the filing.
Peregrine plans to seek and expects to receive the court’s immediate permission to continue to pay employee wages, salaries, incentive pay, and reimbursable expenses, as well as to continue all employee medical, workers’ compensation and similar benefits without any interruption.
Greenfield stated, Our number one priority is to continue to serve the Infrastructure Management software needs of our customers, and to demonstrate why these solutions remain worthy of the high regard and dominant leadership position that they have attained in the marketplace. Our consolidated service desk and asset management suites create operational efficiencies that reduce costs and maximize return, enabling better informed management decisions. Going forward we intend to build upon our products, expertise and the high-profile customer base to enhance our leadership position.
With up to $110 million in DIP financing and the protections provided under the Bankruptcy Code for post-petition purchases, we are confident our suppliers will continue to support us while we complete our restructuring, Greenfield added.
In an effort to make it easier for our customers to do business with the company, Peregrine also has formed a new subsidiary – Peregrine Solutions. It will be dedicated to assuring stability and continuity for ongoing customer relationships.
Peregrine Solutions provides customers with the opportunity to enter into new license and support agreements for Peregrine and Remedy products with a business that is not included in the Chapter 11 filing, Greenfield stated