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Letter to Gary Greenfield, Peregrine CEO
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July 8, 2002
Gary Greenfield, CEO
Peregrine Systems, Inc.
Dear Gary:
As a follow-up to our recent conversations, I am
writing to formally express my desire to join the
Board of Directors of Peregrine Systems, Inc. As you
know, I have recently increased my ownership position
in Peregrine to approximately 13% of the outstanding
shares, including shares owned by the Sine Nomine
Foundation, a charitable foundation that my wife and I
have established. I believe that with my background
and experience I can make significant contributions to
the company's efforts to overcome its current
difficulties and maximize stockholder value.
I have outlined my background in our earlier
discussions, but will again state my qualifications
for the purposes of this letter. I was the founder of
Ovid Technologies, Inc and served as CEO of Ovid from
its inception in 1988 until 1999. Ovid is an
enterprise software company, focusing on information
retrieval. The company was taken public in 1994 by
Hambrecht and Quist at a price of $6.00 per share, and
was sold in 1998 for $25.00 per share. While Ovid's
software was very different from that of Peregrine,
there are many similarities between the two companies
in terms of sales process, product development,
revenue models, and customer attributes. The insight
into those areas and other aspects of the software
industry I gained during my years with Ovid will
enhance the contribution I would be able to make as a
Peregrine director.
It is readily apparent that Peregrine has established
a dominant market position for its core Peregrine
products and its Remedy product line. I have concluded
that this is attributable to superior technology,
sales, and execution. Obviously, Peregrine and Remedy
employ many talented and ambitious people capable of
establishing such an enviable market position. As I
am sure you know, many customers and system
integrators believe that Peregrine and Remedy have no
real competition in their respective markets, simply
due to the fact that the competition cannot match the
quality and depth of these two market leaders.
Despite this, there is clearly a crisis of confidence
in Peregrine among both the investment community and
consumers, and the current stock price is a reflection
of that crisis.
I believe that Peregrine has the wherewithal to meet
the challenges it faces and regain the confidence of
its customers, suppliers, stockholders and the
investment community at large. However, the
challenges presented are substantial and there are no
easy solutions. To get through this crisis and recover
its position as a sector leader, Peregrine must
expeditiously undertake a frank appraisal of its past
failings, strengths and weaknesses, and develop and
implement a program designed to make amends for past
failures and avoid recurrences, maximize strengths and
eliminate weaknesses. I have conceived a three-part
program incorporating actions aimed at accomplishing
these goals and quickly re-establishing Peregrine as a
fiscally sound, profitable and dynamic software
company, and intended to maximize the company's
intrinsic value. I will present the following
three-part plan to the Board of Directors for
consideration and will advocate its adoption:
1) Rebuild Peregrine's financial health and
credibility: Peregrine needs to expedite the process
of obtaining audited financials. With the recent
appointment of PWC, I assume this process is well
under way. In addition, Peregrine needs to provide
sufficient insight into the company's financial
situation and recovery plans to assure its customers,
partners, stockholders and employees, and the
investment community, of the company's short-term and
long-term viability. The company must continue the
process of aligning sales and expenses, and I will
strongly urge the Board to adopt an operating plan
that returns the company to a cash-flow positive
position by the end of the September quarter. By my
calculations, the recent reductions in workforce
should have positioned the company to do just that.
Implementing this plan and communicating it clearly
and unequivocally to the investment community should
be a priority.
2) Explore all strategic alternatives for the
Peregrine and Remedy business units: Peregrine and
Remedy were two thriving, competitive companies prior
to the acquisition last year. I believe that the best
way for the companies' partners, employees and
investors to realize the value of these companies is
to vigorously explore all of the strategic
alternatives available, including a possible Remedy
spin-off to shareholders, a business unit sale, or
other options. Peregrine and Remedy have unique
strengths and identities. It is clear however, that
the combination of the two Companies has not had a
positive impact on shareholder value. In the year
prior to its acquisition by Peregrine, Remedy's market
capitalization alone was approximately $500 million at
its lowest. Combined, the current market
capitalization of both companies is well under $150
million.
Remedy and Peregrine are in many ways very similar.
They both have excellent technology that has been
systematically enhanced over the last ten years. This
technology represents millions of development hours,
and is therefore very difficult to replicate. Both
companies have fiercely loyal customer bases.
Thousands of customers have made massive investments
in terms of time, money and their own reputations in
purchasing, installing, and training their users on
the Peregrine or Remedy software. Scores of partners,
including IBM and EDS, have thriving businesses built
around the Peregrine or Remedy software. Clearly, the
switching cost for all these parties is extremely
high, a fact confirmed by the hundreds of millions of
dollars the combined companies receive each year in
the form of maintenance revenue. Yet both companies
have experienced a downward trend in attracting new
customers, partially attributable to fears that one or
more core products will be discontinued because of the
overlap in the Peregrine and Remedy product lines.
Clearly, the market wants and can support both product
lines. I believe that there are several attractive
strategic alternatives that would unlock the
tremendous value inherent in these two product lines,
thereby maximizing stockholder value.
3) Refocus Peregrine on its core competencies: Aside
from exploring strategic alternatives for the Remedy
business unit, Peregrine should divest itself of
non-core products and businesses, and focus its
energies on extending and enhancing its high-end
market position through a laser focus on its
infrastructure management software, customers, and
partners. Peregrine's core infrastructure management
and service products account for the overwhelming
majority of the company's revenues. The
infrastructure management space is a vast market, and
there are tremendous opportunities available to
Peregrine for significant organic growth by leveraging
its software, market position, and large list of
committed partners. Peregrine has thrived in the past
because it presented itself as a compelling value
proposition. In the current economic climate, that
value proposition is more important than ever.
In summary, the superiority of the Peregrine and
Remedy solutions has led to their deployment in
thousands of leading companies around the world. All
of those companies have a vested interest in the
survival of the Peregrine and Remedy products, as do
the companies' partners. By vigorously pursuing the
program I have outlined in this letter, I believe that
Peregrine can overcome its difficulties and can
re-establish the investor and customer confidence
needed to be a thriving and profitable company. This
will provide tremendous benefits for customers,
business partners, employees, and shareholders.
I look forward to hearing from you.
Mark L. Nelson
cc: John Moores, Chairman, Peregrine Systems, Inc.
Brian M. Hand, Esq.
Peregrine statement about letter from Mark Nelson
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