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As filed with the Securities and Exchange Commission on December 31, 1998
Registration No. 000-25185
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------
MOMENTUM BUSINESS APPLICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3313175
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1301 HARBOR BAY BOULEVARD
ALAMEDA, CALIFORNIA 94502-6576
(510) 769-5122
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
NONE N/A
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
- --------------------------------------------------------------------------------
(Title of class)
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MOMENTUM BUSINESS APPLICATIONS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN REGISTRATION STATEMENT OF INFORMATION
REQUIRED BY ITEMS ON FORM 10
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING LOCATION
<S> <C> <C>
1. Business....................................... SUMMARY; RISK FACTORS; REASONS
FOR THE DISTRIBUTION; BUSINESS;
SELECTED FINANCIAL DATA;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS; THE
AGREEMENTS AND THE PURCHASE
OPTION; FINANCIAL STATEMENTS
2. Financial Information.......................... SUMMARY; RISK FACTORS; REASONS
FOR THE DISTRIBUTION; BUSINESS;
SELECTED FINANCIAL DATA;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS; THE
AGREEMENTS AND THE PURCHASE
OPTION; FINANCIAL STATEMENTS
3. Properties..................................... SUMMARY; RISK FACTORS; BUSINESS
4. Security Ownership of Certain Beneficial SECURITY OWNERSHIP OF CERTAIN
Owners......................................... BENEFICIAL OWNERS AND MANAGEMENT
5. Directors and Executive Officers............... MANAGEMENT
6. Executive Compensation......................... NOT APPLICABLE
7. Certain Relationships and Related
Transactions................................... SUMMARY; RISK FACTORS; THE
DISTRIBUTION; REASONS FOR THE
DISTRIBUTION; BUSINESS;
MANAGEMENT; SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; THE AGREEMENTS AND
THE PURCHASE OPTION; DESCRIPTION
OF CAPITAL STOCK
8. Legal Proceedings.............................. NOT APPLICABLE
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING LOCATION
<S> <C> <C>
9. Market Price of and Dividends of the Registrant's
Common Equity and Related Stockholder
Matters........................................ SUMMARY; RISK FACTORS; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT;
DESCRIPTION OF CAPITAL STOCK; THE
AGREEMENTS AND THE PURCHASE
OPTION
10. Recent Sales of Unregistered Securities........ RECENT SALES OF UNREGISTERED
SECURITIES
11. Description of Registrant's Securities to be
Registered..................................... DESCRIPTION OF CAPITAL STOCK
12. Indemnification of Directors and Officers...... INDEMNIFICATION OF OFFICERS AND
DIRECTORS
13. Financial Statements and Supplementary
Data........................................... SUMMARY; RISK FACTORS; SELECTED
FINANCIAL DATA; BUSINESS;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS;
FINANCIAL STATEMENTS; THE
AGREEMENTS AND THE PURCHASE
OPTION
14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... NOT APPLICABLE
15. Financial Statements and Exhibits.............. FINANCIAL STATEMENTS; EXHIBITS
</TABLE>
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INFORMATION STATEMENT
RELATING TO THE SPIN-OFF OF
MOMENTUM BUSINESS APPLICATIONS, INC.
FROM PEOPLESOFT, INC.
We are sending you this information statement to describe the
distribution of shares of the Class A Common Stock of Momentum Business
Applications, Inc. to the stockholders of PeopleSoft, Inc. In this distribution,
you will receive one share of Momentum Class A Common Stock for each 50 shares
of PeopleSoft Common Stock owned by you at the close of business on December 31,
1998. Your shares of Momentum Class A Common Stock will be mailed to you on or
about January 15, 1999.
The distribution will be taxable to you as a dividend. Please read the
information set forth under the caption "Federal Income Tax Considerations"
herein and consult your tax advisor with respect to the income tax consequences
of the distribution to you.
No PeopleSoft stockholder action is necessary to make the distribution.
You do not need to surrender shares of PeopleSoft Common Stock to receive
Momentum Class A Common Stock in the distribution. The number of shares of
PeopleSoft Common Stock you own will not change as a result of the distribution.
Momentum has applied to have the Momentum Class A Common Stock included for
quotation on the Nasdaq National Market under the symbol "MMTM."
Momentum was formed by PeopleSoft to develop electronic business,
analytic and industry-specific software applications outside of PeopleSoft's
traditional cross-industry enterprise resource planning applications. The
purpose of the distribution is to separate the risks associated with the
development of these new applications from the risks associated with
PeopleSoft's traditional core business. In return for a $250 million
contribution to Momentum, the grant of certain technology licenses and a
commitment to make specified payments on sales of certain products developed by
Momentum, PeopleSoft will receive an exclusive option to license any products
and technology developed by Momentum and the right, subject to certain
conditions, to purchase all of the outstanding shares of Momentum Class A Common
Stock.
This document provides you with detailed information about Momentum and
the distribution. We are enthusiastic about this opportunity for Momentum to
develop new software application products for commercialization by PeopleSoft.
We encourage you to read this document carefully to learn more about Momentum,
the distribution and Momentum's future plans.
Sincerely,
David A. Duffield
President and Chief Executive Officer
PeopleSoft, Inc.
December 31, 1998
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Summary.................................................................................. 3
Risk Factors ............................................................................ 8
The Distribution......................................................................... 18
Capitalization........................................................................... 19
Reasons for the Distribution............................................................. 20
Business................................................................................. 22
Where You Can Find More Information...................................................... 27
Management............................................................................... 28
Security Ownership of Certain Beneficial Owners and Management........................... 29
Selected Financial Data.................................................................. 30
Management's Discussion and Analysis of Financial Condition and Results of Operations.... 31
The Agreements and the Purchase Option................................................... 34
Federal Income Tax Considerations........................................................ 41
Description of Capital Stock............................................................. 44
Indemnification of Directors and Officers................................................ 45
Recent Sales of Unregistered Securities.................................................. 45
Transfer Agent and Registrar............................................................. 46
Index to Financial Statements............................................................ F-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated............................ A-1
</TABLE>
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You should rely only on the information contained in this information
statement. Momentum has not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Momentum is not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this information statement
is accurate as of the date on the front cover of this information statement
only. Momentum's business, financial condition, results of operations and
prospects may have changed since that date.
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SUMMARY
This summary highlights selected information contained elsewhere in this
information statement. It is not complete and may not contain all of the
information that is important to you. To better understand the distribution and
Momentum, you should read the entire information statement carefully, including
the risk factors and financial statements.
WHY THIS INFORMATION STATEMENT WAS SENT TO YOU
This information statement is being delivered by PeopleSoft, Inc.
("PeopleSoft") to you because you were an owner of PeopleSoft Common Stock on
December 31, 1998. This entitles you to receive a distribution of one share of
the Class A Common Stock of a new company, Momentum Business Applications, Inc.
("Momentum"), for each 50 shares of PeopleSoft Common Stock owned by you on
December 31, 1998. Although no action is required on your part to cause this to
happen and you do not have to pay cash or other consideration to receive these
shares, the distribution of these shares to you will be taxable as a dividend,
so please read carefully the information in this information statement regarding
the tax consequences of this transaction.
This information statement describes the business of Momentum, the
relationship between PeopleSoft and Momentum, how this transaction benefits
PeopleSoft and its stockholders and provides other information to assist you in
evaluating the benefits and risks of holding or disposing of your shares of
Momentum Class A Common Stock. Momentum has applied to have the Momentum Class A
Common Stock included for quotation on the Nasdaq National Market under the
symbol "MMTM."
BUSINESS OF MOMENTUM
PeopleSoft is a leader in the development, marketing, licensing and
support of enterprise client/server business administration software application
solutions. PeopleSoft recently formed Momentum to develop and commercialize new
software products and technology.
Momentum plans to develop products and technology based on product plans
developed in conjunction with PeopleSoft. Momentum currently expects that these
products will include:
- electronic business applications that will be intuitive,
user-focused solutions that enable people to conduct a broad
range of business processes and commercial transactions over the
Internet or a customer's intranet;
- analytic applications that will utilize information captured by
enterprise on-line transaction processing applications and other
information sources to facilitate business decisions; and
- software applications designed for specific industries -- such as
utilities, professional services, financial services, retailing
and health care -- that will provide information processing
capabilities for business functions required in those industries.
Momentum anticipates that it will have limited staff and facilities. As
a result, Momentum will engage PeopleSoft and/or other firms to perform
substantially all of the research and development
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activities necessary to develop its products. To the extent Momentum engages
PeopleSoft to perform research and development efforts in areas PeopleSoft
currently does not have expertise, it is expected that PeopleSoft will hire
individuals possessing such knowledge to conduct the research and development of
Momentum's products. The products developed by Momentum will be owned by
Momentum, which will then license, sell or grant distribution rights to these
products to PeopleSoft and/or others. Momentum may also acquire or invest in
complementary companies, products, or technologies or enter into joint ventures
or strategic alliances with other companies as a part of its overall strategy to
accelerate or enhance product development. In addition, PeopleSoft will perform
a variety of administrative activities for Momentum under a separate services
arrangement. Please review the information set forth under the caption
"Business" for further details about Momentum's business.
RELATIONSHIP BETWEEN PEOPLESOFT AND MOMENTUM
FORMATION AND FUNDING
Prior to the distribution of the Momentum Class A Common Stock to the
PeopleSoft stockholders (the "Distribution"), PeopleSoft will contribute $250
million in cash to Momentum to fund product development and operating expenses.
This payment will reduce the total amount of cash, cash equivalents, and
short-term and long-term investments on PeopleSoft's balance sheet by $250
million. As a result of the Distribution, Momentum will cease to be a
wholly-owned subsidiary of PeopleSoft, and PeopleSoft's stockholders' equity
will be reduced by $250 million. Momentum will have no assets other than the
$250 million initially contributed by PeopleSoft and the contract rights
described below. PeopleSoft does not currently intend to provide any additional
funding to Momentum. However, PeopleSoft has a right of first refusal, but not
an obligation, to provide additional funding to Momentum.
STOCK OWNERSHIP AND CORPORATE GOVERNANCE
Class A and Class B Common Stock. Momentum has two classes of Common
Stock, Class A Common Stock and Class B Common Stock. All of the Momentum Class
A Common Stock is being distributed to the PeopleSoft stockholders pursuant to
this information statement. PeopleSoft owns all of the authorized shares of the
Momentum Class B Common Stock. The Momentum Class A Common Stock is subject to
the PeopleSoft Purchase Option described below. The Momentum Class B Common
Stock is not. Under Momentum's Certificate of Incorporation, Momentum may not,
without the consent of PeopleSoft as the sole holder of the Momentum Class B
Common Stock, merge, liquidate, transfer or encumber any substantial assets,
amend its Certificate of Incorporation to change the PeopleSoft Purchase Option
or take certain other actions that could be adverse to PeopleSoft's interests as
the sole holder of the Momentum Class B Common Stock.
Board of Directors. Momentum's Board of Directors will consist of four
directors, one selected by the holders of the Momentum Class B Common Stock and
three selected by the holders of the Momentum Class A Common Stock.
Please review the information set forth under the captions "The
Agreements and the Purchase Option -- Purchase Option" and "Description of
Capital Stock" for further details about Momentum's capital structure and
matters related to corporate governance.
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PURCHASE OPTION
PeopleSoft will have the right to purchase all (but not less than all)
of the outstanding Momentum Class A Common Stock (the "Purchase Option") at any
time prior to December 31, 2002, subject to extension under certain
circumstances. If PeopleSoft exercises its Purchase Option, the exercise price
will be equal to the highest amount based on four formulas, but in no event less
than $75 million. If PeopleSoft exercises the Purchase Option, PeopleSoft will
pay the Purchase Option Exercise Price in cash. The per share purchase price of
the Momentum Class A Common Stock will be reduced if Momentum issues additional
Momentum Class A Common Stock after the date of this information statement and
prior to the date that PeopleSoft exercises the Purchase Option.
If PeopleSoft does not exercise the Purchase Option, the Development
Agreement, the Marketing Agreement and the Services Agreement (as described
under the caption "-- Contractual Arrangements" below and under the caption "The
Agreements and the Purchase Option" elsewhere herein) will expire, and the
holders of Momentum Class A Common Stock will not receive anything from
PeopleSoft. In addition, the Momentum Class B Common Stock will automatically
convert into Momentum Class A Common Stock, and the holder or holders of the
Momentum Class B Common Stock (currently, PeopleSoft) will lose the special
rights and powers associated with the Momentum Class B Common Stock. See
"Description of Capital Stock".
Please review the information set forth under the caption "The
Agreements and the Purchase Option -- Purchase Option" for further details about
the Purchase Option.
CONTRACTUAL ARRANGEMENTS
PeopleSoft and Momentum have entered into a series of agreements -- a
Development and License Agreement (the "Development Agreement"), a Marketing and
Distribution Agreement (the "Marketing Agreement") and a Services Agreement (the
"Services Agreement") -- that set forth:
- the permitted uses of the Available Funds (as defined below);
- Momentum's rights to use certain technology of PeopleSoft;
- the development work and other services to be performed for
Momentum by PeopleSoft; and
- PeopleSoft's rights with respect to the products to be developed
by Momentum.
"Available Funds" means the initial $250 million contribution by
PeopleSoft to Momentum plus the interest earned on such funds less amounts spent
to develop or acquire Momentum Products and related technology and for related
administrative expenses. The terms and conditions of the Development Agreement,
the Marketing Agreement and the Services Agreement are described in detail under
the caption "The Agreements and the Purchase Option" herein.
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REASONS FOR THE DISTRIBUTION
PeopleSoft and Momentum believe that an attractive business opportunity
exists to develop e-business applications, analytic applications and industry
specific software applications. However, the development of these products
requires certain technologies and expertise different from those required for
the development of PeopleSoft's traditional on-line transaction processing
products and consequently entail a higher level of technology and business risk.
PeopleSoft believes the risk of hiring the individuals and acquiring or
developing the technology necessary to pursue product development in these areas
is too high for it to accept on its own. PeopleSoft believes the formation of
Momentum and the arrangements between PeopleSoft and Momentum will provide
PeopleSoft with an opportunity to pursue these business opportunities more
quickly than would otherwise be possible. PeopleSoft believes the formation of
Momentum will benefit PeopleSoft stockholders by:
- separating this new business, with its own unique market
opportunity and risk/reward profile, from PeopleSoft's
traditional cross-industry ERP applications;
- enabling PeopleSoft stockholders to increase or decrease their
level of participation in this new business by varying their
level of investment in Momentum (by selling or acquiring Momentum
shares in the open market); and
- allowing PeopleSoft's financial results to continue to reflect
principally its traditional cross-industry ERP applications
business and previously existing industry initiatives.
Please review the information set forth under the caption "Reasons for
the Distribution" for further details about the reasons for the Distribution.
THE DISTRIBUTION
Each PeopleSoft stockholder will receive one share of Momentum Class A
Common Stock for every 50 shares of PeopleSoft Common Stock held. As of December
28, 1998, PeopleSoft had 233,805,123 shares of Common Stock outstanding.
Record Date, Distribution Date. The record date for the Distribution
will be the close of business on December 31, 1998. On the record date,
PeopleSoft will transfer to a custodian all of the shares of Momentum Class A
Common Stock pursuant to an irrevocable custody arrangement. On or about January
15, 1998, the custodian will deliver the shares to Momentum's transfer agent
which will then mail them to the PeopleSoft stockholders of record as of the
record date.
No Fractional Shares. No fractional shares of Momentum Class A Common
Stock will be distributed. Fractional shares of Momentum Class A Common Stock
will be aggregated and sold by Momentum's transfer agent and distribution agent
for the Distribution, Boston EquiServe, L.P., to provide cash to holders in lieu
of such fractional shares.
Trading Market. Momentum has applied to have the Momentum Class A Common
Stock included for quotation on the Nasdaq National Market under the symbol
"MMTM."
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All Shares Subject to Purchase Option. All shares of the Momentum Class
A Common Stock will be subject to the Purchase Option. PeopleSoft will decide
whether to exercise the Purchase Option based on the prevailing circumstances at
the time consideration is given to its exercise. Such circumstances include the
extent to which Momentum is successful in developing Momentum Products, the
level of market acceptance such products initially achieve (as indicated by
initial licensing activities under PeopleSoft's License Option), and whether the
Momentum Products will fit PeopleSoft's business strategies at the time of such
exercise evaluation.
FEDERAL INCOME TAX CONSIDERATIONS
It is expected that the Distribution will be taxable to each PeopleSoft
stockholder in the amount of the fair market value of the Momentum Class A
Common Stock distributed to such PeopleSoft stockholder. In early 2000, each
recipient of distributed Momentum Class A Common Stock will receive an IRS Form
1099-DIV reflecting the fair market value of the Momentum Class A Common Stock
distributed. The recipient's initial basis (for income tax purposes) in the
distributed Momentum Class A Common Stock will be the fair market value of such
shares at the time of the Distribution. Upon the sale or other disposition of
the Momentum Class A Common Stock, including the exercise by PeopleSoft of the
Purchase Option, a holder of the Momentum Class A Common Stock will have a
taxable gain or loss equal to the difference between the value of the
consideration received from PeopleSoft in such exercise and such holder's basis
in the Momentum Class A Common Stock. The Distribution, any subsequent sale of
Momentum Class A Common Stock, and the exercise or expiration of the Purchase
Option may have other federal income tax consequences to holders. See "Federal
Income Tax Considerations." Each PeopleSoft stockholder is urged to consult his
or her own tax advisors with respect to the tax consequences of this
transaction.
INVESTOR CONTACT
Momentum and PeopleSoft stockholders with questions about the
Distribution should contact Kip Meintzer at PeopleSoft's principal executive
offices at 4460 Hacienda Drive, Pleasanton, California 94588; telephone (925)
694-7151.
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RISK FACTORS
You should carefully consider the risks described below when evaluating
your ownership of the Momentum Class A Common Stock. The risks and uncertainties
described below are not the only ones Momentum faces. Additional risks and
uncertainties Momentum is presently not aware of or that it currently considers
immaterial may also impair Momentum's business operations.
If any of the following risks actually occurs, Momentum's business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of the Momentum Class A Common Stock
could decline significantly.
This information statement also contains forward-looking statements.
These statements include words such as "may," "will," "expect," "believe,"
"intend," "anticipate," "estimate" or similar words. These statements are based
on Momentum's current beliefs, expectations and assumptions. Momentum's actual
results could differ materially from those anticipated in these forward-looking
statements due to certain factors, including the risks described below and
elsewhere in this information statement. Momentum undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
MOMENTUM IS A NEW COMPANY AND EXPECTS TO INCUR SUBSTANTIAL LOSSES
Momentum is a newly formed company. It faces all of the risks associated
with establishing a new business enterprise in the software industry. Momentum
will incur substantial losses for several years as it develops its products.
Momentum will be able to recover such losses only if its development efforts are
successful.
MOMENTUM MAY NOT SUCCESSFULLY SELECT OR DEVELOP PRODUCTS
Momentum has entered into the Development Agreement with PeopleSoft that
requires Momentum to use all the Available Funds in connection with the research
and development of products that PeopleSoft proposes and Momentum approves.
These products may not be the appropriate products for development. To date,
PeopleSoft has relied upon third parties to develop industry-specific software
and has obtained these products through licensing arrangements or acquisitions.
PeopleSoft, therefore, does not have substantial experience in developing
industry-specific products. In addition, neither PeopleSoft nor Momentum have
significant familiarity with the evolving markets of e-business and analytic
application products. Such inexperience and unfamiliarity may cause PeopleSoft
and Momentum to choose inappropriate products for development.
Even if PeopleSoft and Momentum choose appropriate products for
development, Momentum may not be able to successfully manage the development of
such products. Developing any of these products involves a number of risks and
uncertainties, including:
o it may be difficult for Momentum (and/or the parties with whom
Momentum contracts to perform development work) to assemble a
workforce with sufficient domain expertise;
o evolving customer demands for product functionality may require
greater resources than originally anticipated;
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o Momentum may need to develop new technologies to address
increased product functionality requirements;
o development efforts may be complex and such complexities may
create a risk that these products will not be technologically
feasible; and
o any products developed may rapidly become obsolete or require
substantial resources to stay current.
Any one or all of these factors may prevent Momentum from successfully
developing any of these software application products.
Despite testing by Momentum, primarily through third parties, software
programs as complex as those likely to be developed by Momentum are likely to
contain a number of undetected errors or "bugs" when they are first introduced.
This may result in reduced acceptance of these software products in the
marketplace. The effort and expense of developing, testing and maintaining
software product lines will increase with the increasing number of possible
combinations of: (i) vendor hardware platforms; (ii) operating systems and
updated versions; (iii) application software products and updated versions; and
(iv) RDBMS platforms and updated versions. Developing consistent software
product performance characteristics across all of these combinations could place
a significant strain on Momentum's development resources and software product
release schedules.
Momentum believes it will benefit in the area of undetected errors in
choosing to utilize third parties for its development efforts. For example, by
contracting with PeopleSoft for its product development, Momentum gains access
to testing processes which have been developed and improved over numerous
product releases. Momentum does not believe all errors will be detected through
testing or other processes, and thus may incur costs to fix these errors after
products are released.
PeopleSoft has granted Momentum a license to use PeopleSoft Technology
to develop products under the Development Agreement. However, some or all of the
products Momentum may attempt to develop under the Development Agreement may
require new technologies, or enhancements or modifications to existing
PeopleSoft Technology. Momentum may not be able to acquire or develop the
technology necessary to successfully develop its products.
MOMENTUM AND PEOPLESOFT MAY NOT BE ABLE TO MARKET MOMENTUM'S PRODUCTS
PeopleSoft or Momentum may not be able to successfully market any
products developed by Momentum. PeopleSoft may need to develop or expand its
marketing capabilities in order to commercially exploit any products it chooses
to license from Momentum, and PeopleSoft may be unable or unwilling to undertake
such a development or expansion of its marketing capabilities. If PeopleSoft
does not choose to license a product developed under the Development Agreement,
Momentum will have to identify other ways of commercially exploiting that
product as Momentum currently has no marketing capabilities. If Momentum decides
to market a product itself or through a third party, PeopleSoft may not approve
Momentum's use of Available Funds for marketing the product. Additionally,
Momentum may not have sufficient resources to fund any such marketing effort.
Even if acceptable marketing resources are available, the products developed by
Momentum may be unsuccessful in the market.
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MOMENTUM WILL HAVE DIFFICULTY RAISING ADDITIONAL FUNDS
Prior to the Distribution, PeopleSoft will contribute $250 million in
cash to Momentum. PeopleSoft does not currently intend to contribute additional
funds to Momentum, although it may do so in the future. Under the Development
Agreement, Momentum must use all the Available Funds in connection with the
research and development of Momentum Products and for related administrative
expenses. Momentum may not have sufficient funds to complete the development of
any such products.
Although Momentum is not prohibited from raising additional capital by
any of the arrangements between Momentum and PeopleSoft, PeopleSoft's Purchase
Option and its rights as the sole holder of the Momentum Class B Common Stock
may make it difficult for Momentum to raise additional capital. For example,
PeopleSoft's Purchase Option (and its ability to control certain matters as the
sole holder of the Momentum Class B Common Stock) may make it more difficult for
a third party to acquire Momentum even if a change of control could benefit
Momentum's stockholders by providing them with a premium over the then current
market price of their shares. As a result, the market value and liquidity of the
Momentum Class A Common Stock may be adversely affected.
If the Purchase Option expires unexercised, Momentum may have very
little cash, few assets and an undeterminable number of products under research
and development. Momentum may also have very little internal expertise in
product development or marketing. Under these circumstances, third parties might
be reluctant to lend money to or to invest in Momentum.
PEOPLESOFT MAY NOT EXERCISE ITS LICENSE OPTION OR PURCHASE OPTION
PeopleSoft is not obligated to exercise its License Option with respect
to any Momentum Product. If PeopleSoft elects not to exercise its License Option
with respect to a product, Momentum may be required to find alternative ways to
commercialize the product. Momentum may not be able to establish alternative
channels to commercialize its products. In addition, the Marketing Agreement
prevents Momentum from commercializing any products containing PeopleSoft
Technology through designated competitors of PeopleSoft.
PeopleSoft has sole discretion as to when, if ever, it exercises the
Purchase Option, and may choose to do so at a time when the purchase price is as
low as possible. If PeopleSoft does not exercise the Purchase Option, the
Development Agreement, the Marketing Agreement and the Services Agreement will
expire, and the holders of the Momentum Class A Common Stock will not receive
anything from PeopleSoft. In addition, Momentum may need to seek alternative
research and development facilities, either independently or with a third party
and to find other providers of the services it received from PeopleSoft pursuant
to the Services Agreement and Marketing Agreement. Momentum may not be able to
obtain access to adequate research and development facilities or alternate
service providers on a timely basis, on acceptable terms, or at all.
POTENTIAL CONFLICTS OF INTEREST WITH PEOPLESOFT
DEPENDENCE ON PEOPLESOFT FOR PERSONNEL AND FACILITIES. Momentum expects
that it will engage PeopleSoft to perform substantially all of the research and
development required under the Development Agreement. Momentum believes that
PeopleSoft's current and planned personnel and facilities will be adequate for
PeopleSoft to perform such work. However, PeopleSoft is not obligated to perform
any
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research and development for Momentum. In the event PeopleSoft agrees to
undertake any research and development projects for Momentum, PeopleSoft will be
able to allocate its personnel and facilities among its own or Momentum's
projects as it deems appropriate, subject only to its obligation to use diligent
efforts under the Development Agreement.
DEPENDENCE ON PEOPLESOFT TECHNOLOGY. Momentum expects that all of the
products it develops will to some extent incorporate PeopleSoft Technology.
PeopleSoft has licensed such technology to Momentum. However, if Momentum wants
to engage a party other than PeopleSoft to conduct research and development on
its behalf, Momentum must obtain PeopleSoft's consent before that party may use
the PeopleSoft Technology. In addition, Momentum believes that enhanced
functionality will need to be added to PeopleTools(R) in order for Momentum to
develop certain of its products. If PeopleSoft chooses not to develop those
enhancements itself, Momentum would either have to develop them internally or
pay a third party to do so. Any enhancements to PeopleSoft Technology by
Momentum or any third party will be owned by PeopleSoft.
DEPENDENCE ON PEOPLESOFT FOR MARKETING AND DISTRIBUTION PRIOR TO GENERAL
AVAILABILITY. Prior to the commercial release of a product, software companies
typically allow selected users to use, test and comment upon the product. Such
pre-release marketing and distribution is often a critical element in the
development and refinement of a software product. Under the Development
Agreement, PeopleSoft will control the marketing and distribution of all
Momentum Products prior to such products becoming Generally Available. Though
the Development Agreement requires that PeopleSoft use commercially reasonable
efforts with respect to such marketing and distribution efforts, Momentum and
PeopleSoft may disagree about the timing, breadth and intensity of such efforts.
PEOPLESOFT'S CONTROL OVER DETERMINATION OF GENERAL AVAILABILITY. Under
the Marketing Agreement, PeopleSoft is responsible for determining when a
Momentum Product is Generally Available. Because PeopleSoft's right to exercise
its License Option with respect to a Momentum Product expires 30 days after the
product becomes Generally Available, PeopleSoft could delay its determination
that the product is Generally Available.
PEOPLESOFT'S CONTROL OVER LICENSED PRODUCTS. If PeopleSoft exercises its
License Option with respect to a Momentum Product, PeopleSoft will receive a
perpetual, worldwide, exclusive license to, among other things, market and
distribute that product. The right to market and distribute the Momentum Product
allows PeopleSoft to control the pricing of the product. PeopleSoft has no
minimum royalty obligation or any express obligation with respect to its
marketing and distribution effort. As a result, PeopleSoft may have substantial
control over the Net Revenues it receives from licensing the Momentum Product,
which may impact the Product Payments made by PeopleSoft to Momentum.
THE PURCHASE OPTION EXERCISE PRICE. The price at which PeopleSoft can
exercise the Purchase Option was determined by PeopleSoft alone and not through
arm's-length negotiations. PeopleSoft considered the following factors in making
its determination of the purchase price:
o how the Momentum Class A Common Stock will be distributed;
o Momentum's planned business;
o the terms of the Development Agreement and the Marketing
Agreement;
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o the advice of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") based on its experience in prior similar
transactions; and
o other factors it deemed appropriate.
Until the Purchase Option expires, the market value of the Momentum Class A
Common Stock will be limited by the Purchase Option Exercise Price.
PRODUCT COMPETITION. PeopleSoft may develop and/or market for its own
benefit products that compete directly with products that Momentum develops.
LEGAL REPRESENTATION. Wilson Sonsini Goodrich & Rosati, Professional
Corporation, has acted as legal counsel to both PeopleSoft and Momentum in
connection with the transactions described in this information statement.
PEOPLESOFT'S APPROVAL IS REQUIRED FOR CERTAIN MOMENTUM CORPORATE ACTIONS.
PeopleSoft will own all of the authorized shares of the Momentum Class B
Common Stock. As a result, Momentum will need to obtain PeopleSoft's consent to:
o merge, liquidate, transfer or encumber any substantial portion of
its assets;
o alter the terms of PeopleSoft's Purchase Option;
o change the authorized capitalization of Momentum; or
o amend the portions of Momentum's Certificate of Incorporation
governing the Board of Directors.
In addition, Momentum's Certificate of Incorporation prohibits Momentum from
taking or allowing any action inconsistent with, or that would in any way
adversely affect, PeopleSoft's Purchase Option.
PeopleSoft's ability to control the matters listed above could adversely
affect the trading price and liquidity of the Momentum Class A Common Stock.
Also, PeopleSoft may be able to delay or prevent a change of control of
Momentum, even if such a change of control would be beneficial to Momentum's
stockholders. This could limit the price that certain investors might be willing
to pay for the Momentum Class A Common Stock in the future. The special rights
given to the holder of the Momentum Class B Common Stock will expire on the same
date that the Purchase Option expires.
RELIANCE ON PEOPLESOFT FOR RESEARCH AND DEVELOPMENT
Momentum expects that substantially all of its research and development
will be performed by third party contractors, primarily PeopleSoft. Though
PeopleSoft is not obligated to provide research and development services to
Momentum, Momentum expects it will do so for so long as the Purchase Option is
in effect. However, Momentum believes that if the Purchase Option expires
without being exercised that it is unlikely that PeopleSoft will continue to
provide research and development services.
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<PAGE> 16
In such an instance, Momentum would have to either develop its own research and
development expertise or identify and contract with other third party
developers. Either option is likely to involve substantial expense and to delay
Momentum's product development efforts.
MOMENTUM PRODUCTS BASED ON PEOPLESOFT TECHNOLOGY; NO ASSURANCE OF COMPATIBILITY
WITH OTHER TECHNOLOGIES OR PRODUCTS
Momentum expects that the Momentum Products will be designed and built
to interface and be compatible with PeopleSoft's technology and products. As a
result, Momentum's ability to market the Momentum Products is dependent on
market acceptance of PeopleSoft's technologies, products and installed base of
customers. If Momentum wishes to develop products based on technologies and/or
for products other than PeopleSoft's, Momentum may need to incur substantial
development costs to ensure compatibility with such other technologies and/or
products. Momentum anticipates that PeopleSoft will not approve the use of
Available Funds for this purpose. Even if Momentum is able to fund these
development efforts, Momentum may be unable to develop products that are
compatible with technologies other than PeopleSoft's technology.
MOMENTUM FACES INTENSE COMPETITION
The market for business application software is intensely competitive.
Momentum believes it will face substantial competition from the large,
established providers of enterprise-wide application software as well as from
numerous smaller, more specialized software companies. Other than PeopleSoft,
SAP AG ("SAP"), Oracle Corporation ("Oracle"), Baan Company N.V. ("Baan") and
J.D. Edwards & Company ("J.D. Edwards") are the major providers of
enterprise-wide software. Momentum believes that each of these companies has
either launched initiatives or has the technical, financial, and marketing
capability to launch initiatives to develop products which directly compete with
the products Momentum intends to develop. In addition, numerous well-established
companies specialize in e-business products, analytic applications or particular
industry-specific applications. Almost all of Momentum's competitors have
substantially greater financial, technical and marketing resources than those of
Momentum. Furthermore, although Momentum believes PeopleSoft does not intend to
compete with it, PeopleSoft is free to do so.
Momentum expects that any products developed by it will be
commercialized by other parties, most likely through PeopleSoft. Although
PeopleSoft has substantial market share in the enterprise-wide application
software market, it does not have a significant presence in the markets for
e-business or analytic application products or in any of the markets for which
Momentum intends to develop industry-specific application products. As a result,
PeopleSoft may not be able to compete successfully with the other large
providers of enterprise-wide application software or with the established
specialized software companies in these markets. Additionally, if Momentum
commercializes its products through third parties, such third parties may not
have the financial, technical and marketing resources to compete successfully
with Momentum's competitors.
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<PAGE> 17
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy to enhance or accelerate its product
development efforts, Momentum may acquire or invest in complementary companies,
products or technologies or enter into joint ventures or strategic alliances
with other companies. Risks commonly encountered in such transactions include
the difficulty of assimilating the operations and personnel of the combined
companies, the potential disruption of Momentum's ongoing business, the
inability to retain key technical and managerial personnel, the inability of
management to maximize the financial and strategic position of Momentum through
the successful integration of the acquired business, decreases in reported
earnings as a result of charges for in-process research and development and
amortization of acquired intangible assets, dilution of existing equity holders,
difficulty in maintaining controls, procedures and policies, and the impairment
of relationships with employees and customers as a result of any integration of
new personnel. There can be no assurances that Momentum would be successful in
overcoming these risks or any other problems encountered in connection with such
business combinations, investments or joint ventures, or that such transactions
will not have an adverse effect on Momentum's business, financial condition and
results of operations. Because of the rights of PeopleSoft set forth in
Momentum's Certificate of Incorporation, Momentum cannot effectively make any
acquisitions without the prior approval of PeopleSoft.
DISPOSITION OF SHARES BY PRINCIPAL STOCKHOLDER MAY ADVERSELY EFFECT MARKET PRICE
OF MOMENTUM CLASS A COMMON STOCK
Immediately following the Distribution, David A. Duffield, the President
and Chief Executive Officer of PeopleSoft, will beneficially own approximately
21% of the outstanding Momentum Class A Common Stock. Because of the potential
for conflicts of interest to arise between PeopleSoft and Momentum as a result
of Mr. Duffield's role as the President and Chief Executive Officer of
PeopleSoft, on one hand, and as the principal stockholder of Momentum, on the
other hand, Mr. Duffield has advised Momentum that he intends to gift, sell or
otherwise dispose of approximately 16% of the outstanding shares of Momentum
Class A Common Stock shortly after the Distribution is completed. The sale of
such a large block of the Momentum Class A Common Stock by Mr. Duffield (or any
of his donees or transferees) could have a material adverse effect on the
trading price of the Momentum Class A Common Stock. Such sales could also make
it more difficult for Momentum to sell equity securities or equity-linked
securities in the future at a time and price that Momentum deems appropriate.
LIMITATION ON LICENSES TO THIRD PARTIES
Momentum has granted PeopleSoft an option to obtain a perpetual,
exclusive license to market, distribute, sublicense, support and enhance any
products that Momentum develops under the Development Agreement. PeopleSoft's
option with respect to a particular product expires 30 days after that product
becomes Generally Available. Until that time, Momentum may not license such
products to any other party. As a result, Momentum may miss opportunities to
license the products it develops to third parties for higher royalty rates than
those PeopleSoft is obligated to pay. In addition, in the event that PeopleSoft
declines to exercise its License Option, the delay in Momentum's ability to
identify and enter into a licensing arrangement with a third party may adversely
affect the terms Momentum is eventually able to obtain from that third party.
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<PAGE> 18
LIMITED INTERNATIONAL CAPABILITY
Products developed by Momentum may have difficulty achieving broad
market penetration outside of North America. In order to commercialize software
application products outside of North America, Momentum or its third party
licensees may need to create localized versions of these products. Neither
Momentum nor its third party licensees may have sufficient resources or funding
to create, market and license localized versions of any of the products
developed by Momentum.
In addition to the uncertainties related to commercializing Momentum's
products outside of North America, there are certain risks inherent in doing
business internationally. These risks include:
o compliance with regulatory requirements and changes in these
requirements;
o tariffs and other trade barriers;
o unfavorable pricing and price competition;
o currency fluctuations;
o longer payment cycles in some countries;
o difficulties in collecting international accounts receivable;
o difficulties in enforcing contractual obligations and
intellectual property rights;
o potentially adverse tax consequences;
o increased costs associated with maintaining international
marketing efforts and offices; and
o political instability.
Any one or all of these factors may adversely affect the commercialization of
Momentum's products outside of North America.
POTENTIAL INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS; LIMITED
PROTECTION OF MOMENTUM'S INTELLECTUAL PROPERTY RIGHTS
The products Momentum intends to develop may incorporate certain
technologies of PeopleSoft and other third parties. While Momentum intends to
obtain from third parties permission to use their technologies, Momentum's
activities could unintentionally infringe the patents, copyrights or other
intellectual property rights of others. Consequently, third parties may assert
infringement claims against Momentum with respect to its products. Any such
assertion could require Momentum to enter into royalty arrangements or could
result in costly litigation.
Momentum intends to rely on a combination of copyright, trade secret,
and patent laws and employee and third party non-disclosure agreements to
protect its intellectual property rights, including
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<PAGE> 19
the features and design aspects of its products. Such measures may not be
sufficient to protect its rights, and Momentum's competitors may independently
develop technologies that are substantially equivalent to or superior to
Momentum's technology. Momentum may from time to time become involved in
litigation regarding the scope and validity of its intellectual property rights.
Any such litigation, whether or not successful, could result in substantial
costs to Momentum and diversion of efforts by Momentum's management.
NO PRIOR TRADING MARKET FOR MOMENTUM CLASS A COMMON STOCK; STOCK PRICE MAY BE
VOLATILE
Prior to the Distribution, there has been no public market for the
Momentum Class A Common Stock. Momentum has applied to have the Momentum Class A
Common Stock included for quotation on the Nasdaq National Market. Based on the
trading patterns of other companies which became publicly traded in similar
transactions, Momentum believes the trading volume in Momentum Class A Common
Stock will be moderate as investors assess Momentum's progress in its
development projects. However, an active, sustained trading market may not
develop.
A number of factors may affect the price and liquidity of the Momentum
Class A Common Stock, including:
o actual or anticipated fluctuations in Momentum's operating
results;
o changes in expectations as to Momentum's future financial
performance or changes in securities analysts' financial
estimates;
o the operating and stock price performance of PeopleSoft;
o the operating and stock price performance of other comparable
companies; and
o changes in investors' estimates of the likelihood, price and
timing of the possible exercise by PeopleSoft of its Purchase
Option.
In addition, the Momentum Class A Common Stock may be followed by few,
if any, market analysts and there may be few institutions acting as market
makers for the Momentum Class A Common Stock. Either of these factors could
adversely affect the liquidity and trading price of the Momentum Class A Common
Stock. Also, the stock market in general has experienced extreme price and
volume volatility that has especially affected the market prices of securities
of many high technology companies. At times, this volatility has been unrelated
to the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of the Momentum
Class A Common Stock, regardless of Momentum's actual operating performance.
MOMENTUM IS SUBJECT TO ANTI-TAKEOVER PROVISIONS
Certain provisions of Momentum's Certificate of Incorporation and Bylaws
could make it more difficult for a third party (other than PeopleSoft) to gain
control of Momentum, even if a change in control might be beneficial to
Momentum's stockholders. This could adversely affect the market price of the
Momentum Class A Common Stock. These provisions include:
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<PAGE> 20
o the elimination of the right of stockholders to act by written
consent;
o the elimination of the right of stockholders to call special
meetings of the stockholders;
o the creation of a staggered Board of Directors;
o the ability of the Board of Directors to designate and issue
Preferred Stock without stockholder consent; and
o the ability of PeopleSoft to purchase the Momentum Class A Common
Stock pursuant to the Purchase Option.
As a result of its ownership of all the Momentum Class B Common Stock
and its rights pursuant to the Purchase Option, PeopleSoft's ability to acquire
Momentum is not materially limited by these provisions.
EFFECT OF YEAR 2000 IS UNCERTAIN
Momentum expects that substantially all of its research and development
and administrative activities will be performed by PeopleSoft. Momentum believes
that PeopleSoft's internal systems are Year 2000 compliant. To the extent that
Momentum purchases its own internal systems or contracts with other parties for
such services, it expects to be able to find systems and service providers which
are Year 2000 compliant. However, Momentum and PeopleSoft will be relying on a
variety of service providers, including telephone companies, utilities and
network services providers whose Year 2000 compliance is difficult to ascertain.
If any these providers were unable to provide their services to either
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<PAGE> 21
THE DISTRIBUTION
The Board of Directors of PeopleSoft has declared a dividend, payable to
its stockholders, of one share of Momentum Class A Common Stock for every 50
shares of PeopleSoft Common Stock held on December 31, 1998, the record date for
the Distribution. As a result of the Distribution, all of the then outstanding
Momentum Class A Common Stock will be distributed to PeopleSoft's stockholders.
After the Distribution, PeopleSoft will hold all of the authorized shares of the
Momentum Class B Common Stock. See "Description of Capital Stock."
On December 31, 1998, PeopleSoft will effect the Distribution by
delivering all of the Momentum Class A Common Stock to State Street Bank & Trust
Company of California, National Association, which will hold such shares as
custodian for the benefit of the PeopleSoft stockholders of record as of the
record date pursuant to an irrevocable custody arrangement. On or about January
15, 1998, State Street Bank & Trust Company of California, National Association,
will deliver the shares to Boston EquiServe L.P., Momentum's transfer agent,
which will then mail the shares to the PeopleSoft stockholders of record as of
the record date.
No fractional shares will be issued as part of the Distribution. The
distribution agent will aggregate undistributed fractional shares and sell such
shares at the earliest practicable date at the then-prevailing market price.
Each person who would be otherwise entitled to receive a fractional share will
instead receive a cash payment equal to such person's proportionate share of the
net proceeds of the sale of such aggregated shares.
PeopleSoft's stockholders will not be required to pay any cash or other
consideration for the Momentum Class A Common Stock received in the
Distribution. However, the Distribution of the Momentum Class A Common Stock to
PeopleSoft stockholders is a taxable transaction under federal income tax law.
See "Federal Income Tax Considerations."
The general terms and conditions of the Distribution and the
arrangements between PeopleSoft and Momentum are set forth in the Development
Agreement, the Marketing Agreement, the Services Agreement and the Distribution
Agreement. See "The Agreements and the Purchase Option." PeopleSoft will pay the
costs and expenses incurred in connection with the Distribution.
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<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization and certain other
balance sheet data of Momentum as of November 10, 1998, as adjusted to give
effect to the contribution by PeopleSoft of $250 million to Momentum and the
issuance to PeopleSoft of the Momentum Class A Common Stock and Class B Common
Stock prior to the Distribution. The data set forth below should be read in
conjunction with the Financial Statements and related Notes included elsewhere
in this information statement.
<TABLE>
<CAPTION>
AS ADJUSTED AS OF
NOVEMBER 10, 1998(1)
--------------------
<S> <C>
Cash ........................................................................ 250,000,000
============
Stockholders' equity:
Class A Common Stock, $0.001 par value; 10,000,000 shares authorized;
4,750,000 shares outstanding as adjusted ................................. $ 4,750
Class B Common Stock, $0.001 par value; 1,000 shares authorized; 1,000 shares
outstanding as adjusted(2) ............................................... 1
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding ............................. --
Additional paid-in capital .................................................. 249,995,249
------------
Total stockholders' equity ............................................ 250,000,000
============
</TABLE>
- ----------
(1) See notes (a), (b) and (c) to Momentum's Pro Forma Balance Sheet on Page
F-6 for a description of the pro forma adjustments reflected in the
adjusted balances.
(2) All shares of Class B Common Stock, as adjusted, are held by PeopleSoft.
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REASONS FOR THE DISTRIBUTION
PeopleSoft's management regularly discusses the current state of the
software industry and where future demand will be focused. Based on these
discussions, PeopleSoft believes that an attractive business opportunity exists
to develop e-business applications, analytic applications, and industry-specific
software applications. These market opportunities provide PeopleSoft with
potential growth and profitability opportunities to complement its existing
market presence in enterprise applications. However, the development of these
products requires new and different technologies and expertise, and
consequently, entails a higher level of technology and business risk to
PeopleSoft than that of its traditional on-line transaction processing products.
The development of analytic applications and e-business products may require the
use of technology unlike that utilized in PeopleSoft's current development
activities. PeopleSoft believes the potential risk of hiring individuals and
acquiring or developing technology to allow for adequate research and
development in these areas is too high for it to accept on its own.
PeopleSoft believes the formation of Momentum to develop products in
these areas, and the arrangements between PeopleSoft and Momentum, will provide
PeopleSoft with an opportunity to pursue, more quickly than would otherwise be
possible, these business opportunities. PeopleSoft believes that the arrangement
with Momentum will benefit PeopleSoft stockholders by:
- - separating this new business, with its own unique market opportunity and
risk/reward profile, from PeopleSoft's traditional cross-industry ERP
applications;
- - enabling PeopleSoft stockholders to increase or decrease their level of
participation in this new business by varying their level of investment
in Momentum (by selling or acquiring Momentum shares in the open
market); and
- - allowing PeopleSoft's financial results to continue to reflect
principally its traditional cross-industry ERP applications business and
previously existing industry initiatives.
After reviewing PeopleSoft's goals and objectives and considering other
possible methods of enhancing the growth of its product commercialization
business, PeopleSoft's management and Board of Directors believe enhancing this
business through the formation of Momentum and the Distribution will benefit the
PeopleSoft stockholders. PeopleSoft's Board of Directors approved the formation
of Momentum and the Distribution based on information provided by PeopleSoft's
management and its financial advisor Merrill Lynch which has in the past been an
advisor to companies effecting similar transactions.
In its capacity as financial advisor, representatives of Merrill Lynch
made a presentation to PeopleSoft management in February 1998 regarding
potential structures for the spin-off of a subsidiary of PeopleSoft. At meetings
in March 1998 and May 1998, representatives of Merrill Lynch made presentations
to the PeopleSoft Board of Directors regarding various potential transactions,
including the transaction described in this information statement. During the
period from July 1998 though October 1998, Merrill Lynch participated in various
meetings and conference calls with respect to the structuring of the transaction
described herein, and prepared a preliminary term sheet setting forth the
framework for the transaction described herein. During this period, Merrill
Lynch assisted PeopleSoft in assessing how the terms and conditions of
transactions completed by several public companies in the pharmaceutical
industry (namely, Allergan, Inc., ALZA Corporation and BioChem Pharma Inc.)
could be modified for a transaction involving a software company. Merrill Lynch
also reviewed PeopleSoft's proposed royalty rates for products developed by
Momentum based on a summary prepared by PeopleSoft of existing royalty rates
with other PeopleSoft vendors. Additionally, Merrill Lynch reviewed the formulas
for the Purchase Option Exercise Price relative to the precedent transactions in
the pharmaceutical industry and the proposed structure for Momentum. Merrill
Lynch also advised PeopleSoft regarding the distribution considerations
applicable to spin-off transactions, including guidance with respect to
communications with stockholders and the investment community.
In addition to its role as financial advisor to PeopleSoft with respect
to the formation and structuring of Momentum, Merrill Lynch was retained by
PeopleSoft to provide an opinion to the PeopleSoft Board of Directors regarding
the fairness, from a financial point of view only, of the Distribution of the
Momentum Class A Common Stock to the PeopleSoft stockholders. The work that
Merrill Lynch performed as a basis for this opinion is set forth in the
following three paragraphs, and the opinion is attached as Exhibit A to this
information statement. It is important to understand that the Merrill Lynch
opinion pertains only to the fairness, from a financial point of view, of the
Distribution of the Momentum Class A Common Stock. It does not cover, among
other things, the fairness of the business relationship between PeopleSoft and
Momentum (as embodied in the Distribution Agreement, the Marketing Agreement,
the Services Agreement and the Momentum Certificate of Incorporation); the
fairness of the terms pursuant to which PeopleSoft may acquire all of the
outstanding Momentum Class A Common Stock pursuant to the Purchase Option; or
the fairness of the royalty rates for the products developed by Momentum. These
arrangements were determined by PeopleSoft management after taking into
consideration numerous factors relating to the proposed business to be
undertaken by Momentum. See "Risk Factors -- Potential Conflicts of Interest
With PeopleSoft."
The Merrill Lynch fairness opinion provides that, based upon the
factors recited in such opinion and the actions described below, from a
financial point of view, the Distribution is fair to PeopleSoft stockholders. In
delivering its opinion, Merrill Lynch has undertaken, among other things, the
following actions: (i) a review of this information statement including the
following items as presented or referred to herein: (a) the terms and conditions
of the Distribution, (b) the Marketing Agreement, (c) the Development Agreement,
(d) the Services Agreement, (e) the Distribution Agreement and (f) the
Certificate of Incorporation of Momentum including the Purchase Option; (ii)
discussions with members of the senior management of PeopleSoft with respect to
the businesses and prospects of PeopleSoft and Momentum and the strategic
objectives of each; (iii) discussions concerning the Distribution with other
representatives and advisors of PeopleSoft, including its independent public
accountants; (iv) a review of the financial and other information concerning
PeopleSoft (with and without Momentum) that was publicly available or furnished
to Merrill Lynch by PeopleSoft, including information provided during
discussions with the senior management of PeopleSoft; (v) a review of the
historical trading prices and volume of the Common Stock of PeopleSoft; and (vi)
a review of such other financial studies and analyses as it deemed appropriate.
The opinion states that Merrill Lynch has assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available
(including the information contained in this information statement), and it has
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of PeopleSoft (with or without Momentum) or been furnished with any
such evaluation or appraisal. In addition, it has not assumed any obligation to
conduct, nor has it conducted, any physical inspection of the properties or
facilities of PeopleSoft. With respect to the financial forecast information
furnished to or discussed with it by PeopleSoft, it has assumed it has been
reasonably prepared and reflects the best currently available estimates and
judgment of PeopleSoft's management as to the expected future financial
performance of PeopleSoft and Momentum.
The opinion is based upon market, economic and other conditions,
including but not limited to, generally accepted accounting principles, as they
exist and can be evaluated on, and on the information made available to Merrill
Lynch as of the date of such opinion. Furthermore, the opinion does not consider
any future changes to such conditions that may occur following the date of such
opinion which may adversely affect PeopleSoft's ability to pursue its financial
and strategic objectives. The opinion states that trading in the PeopleSoft
Common Stock and the Momentum Class A Common Stock for a period following
completion of the Distribution may be characterized by a redistribution of the
shares of the PeopleSoft Common Stock and the Momentum Class A Common Stock
among existing PeopleSoft stockholders and other investors and, accordingly,
during such period, the PeopleSoft Common Stock and the Momentum Class A Common
Stock may trade at prices below those at which they would trade on a fully
distributed basis. In its opinion, Merrill Lynch does not express any opinion as
to the price at which the PeopleSoft Common Stock will actually trade after the
announcement date of the Distribution or the price at which the Momentum Class A
Common Stock will actually trade after the Distribution. In addition, the
opinion does not address the valuation or future performance of Momentum as an
independent public company following the Distribution, nor does it address the
adequacy of defensive measures included (i) in the Certificate of Incorporation
(as amended or restated) or the Bylaws of Momentum with respect to (a) the
rights of the holders of Momentum Class A Common Stock or (b) the rights of
PeopleSoft as holder of shares of the Momentum Class B Common Stock, or (ii) in
the agreements between PeopleSoft and Momentum entered into in connection with
the Distribution. In addition, the opinion does not address whether the funds
contributed by PeopleSoft to Momentum will be adequate to accomplish the
objective of successfully developing the intended software products. Merrill
Lynch consents to the use of their opinion in this information statement.
PeopleSoft will pay Merrill Lynch a fee of $2.5 million for its
services as financial advisor and for its services in rendering the fairness
opinion. The receipt of the fee is contingent upon the consummation of the
Distribution. Merrill Lynch will also be reimbursed for expenses that it has
incurred or will incur in rendering its services. PeopleSoft has agreed to
indemnify Merrill Lynch against certain liabilities and expenses in connection
with its services as financial advisor. Merrill Lynch has from time to time
performed various investment banking and financial advisory services for
PeopleSoft.
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Merrill Lynch, as part of its investment banking business, engages in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. PeopleSoft selected Merrill Lynch as its financial advisor because it
is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the Distribution.
Although Merrill Lynch participated in certain of the discussions
regarding the Distribution, the terms of the Distribution were determined by
PeopleSoft's Board of Directors.
PeopleSoft will account for the Distribution as follows. At the time of
the contribution of the Available Funds, PeopleSoft will record an investment in
Momentum of $250 million. At the time PeopleSoft transfers the Momentum Class A
Common Stock to the custodian, PeopleSoft will account for the fair market value
of the shares distributed as a dividend and will expense the difference between
the book value of its Momentum investment and the fair market value of the
shares of Momentum Class A Common Stock. The fair market value of the shares of
Momentum Class A Common Stock will be based on the average of the high and low
trading price on the date the Momentum Class A Common Stock is distributed to
PeopleSoft's stockholders or if such date is not a trading day, on the first
trading day thereafter. PeopleSoft will not consolidate Momentum's financial
statements subsequent to distributing the Momentum Class A Common Stock to its
stockholders.
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BUSINESS
BACKGROUND
PeopleSoft established Momentum to select and develop certain e-business
products, analytic applications and industry-specific application products.
Prior to the Distribution, PeopleSoft will contribute $250 million to Momentum
so that Momentum will have financial resources to pursue the development of
these products. In addition, PeopleSoft and Momentum have entered into a series
of agreements relating to various matters including:
- the permitted uses of the Available Funds;
- Momentum's right to use PeopleSoft Technology;
- development work and other services which may be performed by
PeopleSoft; and
- PeopleSoft's rights with respect to the products to be developed
by Momentum.
Under the Development Agreement, Momentum may use the Available Funds
only to develop those products which PeopleSoft proposes and which Momentum
accepts for development. PeopleSoft and Momentum will jointly agree on the work
plans and cost estimates for such products. PeopleSoft has granted to Momentum
the right to use PeopleSoft Technology to develop such products. Because
Momentum is expected to have limited staff and facilities, Momentum anticipates
engaging PeopleSoft to perform substantially all of the research and development
activity related to such products. However, Momentum could engage third parties
to perform such efforts, perform them itself or acquire other technologies or
companies. To the extent Momentum engages PeopleSoft to perform research and
development efforts in areas PeopleSoft currently does not have expertise, it is
expected that PeopleSoft will hire individuals possessing the required
knowledge. Momentum currently has no plans to develop products other than those
pursuant to the Development Agreement.
Momentum expects that initially its only revenue will come from
investment income derived from the Available Funds and that it will incur
substantial losses as it expends funds pursuant to the Development Agreement.
Momentum believes it eventually will derive revenue from the commercialization
of the products it develops, most likely through PeopleSoft. However, Momentum
has made no forecasts as to when, if at all, it will be profitable or when, if
at all, meaningful revenues will be generated through this activity.
PEOPLESOFT TECHNOLOGY OVERVIEW
PeopleSoft developed PeopleTools(R), its rapid application development
environment and architecture, specifically for developing enterprise resource
planning ("ERP") application products. ERP applications are applications that
collect, summarize and store transaction data for historical record keeping
purposes across many functional areas of a company. Software developers use
PeopleTools(R) to, among other things, build and modify data tables, design and
customize user interface windows and develop varying security level
functionality. Since the introduction of PeopleTools(R) in 1988, PeopleSoft has
invested and continues to invest considerable funds and resources in the ongoing
enhancement and updating of this development environment. Using this proprietary
development
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<PAGE> 26
environment, PeopleSoft has developed a comprehensive suite of cross-industry
administrative on-line transaction processing ("OLTP") applications. OLTP
applications are a subset of ERP applications focused on data specific to one
business function within a company. PeopleSoft's suite of OLTP products includes
applications in human resource management, financials, distribution,
manufacturing, and supply chain optimization.
PeopleSoft has granted Momentum a license to use PeopleTools(R) and
certain other technology to develop products under the Development Agreement.
Momentum believes that to develop industry-specific applications, PeopleSoft or
Momentum may need to develop or acquire enhanced functionality for
PeopleTools(R). In addition, Momentum may need to develop, acquire or license
additional development technologies to develop its e-business and analytic
applications. The Development Agreement allows Momentum to obtain, either
through development, acquisition or licensing, the rights to development tools
as deemed necessary to complete the products selected.
THE MOMENTUM PRODUCTS
"Momentum Products" are products recommended by PeopleSoft and accepted
by Momentum for research and development under the Development Agreement.
Momentum currently intends to develop the following types of Momentum Products:
e-business Products. Momentum currently plans to build e-business
applications that will be intuitive, user-focused solutions that enable people
to conduct a broad range of business processes and commercial transactions over
the Internet or a customer's intranet. These e-business applications will
include a new extended-enterprise class of applications that integrate content
from a customer's intranet, third party information and service providers and
PeopleSoft's traditional cross-industry ERP applications.
Analytic Application Products. PeopleSoft's OLTP products have
traditionally focused on helping companies improve the efficiency of business
processes. In contrast, analytic application products are focused on turning
stored data (created primarily by OLTP applications) into business intelligence
that can be used by companies to improve operating effectiveness. Momentum
currently plans to develop analytic application products that will deliver data
warehouse capabilities while allowing for integration and reconciliation to the
general ledger, billing, and time and labor systems. These analytic application
products are intended to enable rapid analysis and decision making while
lowering the risk of inconsistent data within an organization.
Industry-Specific Application Products. Momentum plans to develop a
series of products to address the software application needs of certain
industries. The initial target markets include utilities, professional services,
financial services, retailing and healthcare. The Momentum Products will be
designed to provide information processing capabilities for business functions
critical to each specific industry. Such industry-specific application products
typically support the core operating areas of a company.
Under the License Option, PeopleSoft has the right to obtain a
perpetual, exclusive license to market, distribute, sublicense, support and
enhance any product developed by Momentum pursuant to the Development Agreement.
This right expires 30 days after a product becomes Generally Available. The
determination of whether a product is Generally Available will be made by
PeopleSoft based upon the
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<PAGE> 27
test procedures it uses for its own products. If PeopleSoft exercises its rights
under the License Option for a product, it will pay Momentum a royalty on sales
of that product in accordance with a formula contained in the License Option.
PeopleSoft will also then be responsible for all upgrades, bug fixes and
customer support related to the product. If PeopleSoft does not exercise its
rights under the License Option, Momentum may commercialize the product itself
or through arrangements with third parties that are not designated competitors
of PeopleSoft.
In the event Momentum successfully commercializes a product, any revenue
it receives from such commercialization will not be considered Available Funds.
Momentum will be free to use such revenue for any purpose, including additional
product development. PeopleSoft will have no rights with respect to any products
Momentum develops using funds other than Available Funds.
DEVELOPMENT CYCLE
Scope and Design: Based on input from sales personnel, customers,
business partners and industry analysts, PeopleSoft will identify and prioritize
product opportunities and present such opportunities to Momentum. For each
product opportunity, high level business requirements will be defined and
documented. This initial product scope will be reviewed and discussed with
internal and external business process functional experts in an iterative review
process to confirm a product's conceptual framework. Once the initial product
scope is defined, the individual product features will be identified and
prioritized. In addition, new technologies that would be required to build and
deploy the product will be identified. For each product feature or new
technology, a written summary of its business requirements will be prepared and
reviewed with appropriate development personnel. Based on this review, product
strategy and development personnel will reach an initial agreement on the
product's content and priorities for the initial release. Functional and
technical designs will be developed for each planned feature. Design reviews
will be held with teams comprised of product strategy, release testing,
documentation, sample data and training personnel. During the design review
process, this group will ensure not only that the functional requirements are
complete but also that the technical design meets the business needs.
Develop and Port: In developing a new product, the development team will
code and unit test every feature in the products to ensure that the product
created complies with the functional and technical requirements. These tasks
will be conducted using a reference development platform, and the functionality
will be designed to provide global capabilities based on requirements from a
proxy set of countries around the world. All development issues will be
identified and addressed. At the same time, system test requirements and
procedures will be developed. Test strategies, product test plans, feature test
requirements and test procedures will be completed. During the development and
port phase, documentation and curriculum development personnel will work closely
with the developers to design documentation and training courses. Upon
substantial completion of development, the developed product will be ported to
support multiple hardware, database and operating system platforms, and release
platforms will be certified.
Test and Release: The product will be delivered to a select group of
Pre-General Availability customers for limited use. Pre-General Availability
customers will provide feedback on the features and functions as well as ease of
use. Issues identified during this phase generally will be resolved prior to the
product being released as Generally Available. In addition, the combined product
features will then be system tested on the primary development platform. These
tests will validate that the product and its
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<PAGE> 28
features perform according to the specified business and functional
requirements. All test failures will be logged, reviewed and addressed. Release
test requirements, plans and processes will then be developed and finalized.
During this phase, the product will be tested to validate that it is operational
on all supported platforms. The product will be tested for (i) ease of use, (ii)
ease of installation, (iii) ease of upgrade, (iv) volume and (v) performance.
All incidents reported during release test will be logged, reviewed and
addressed. Once the product has met system and release test exit criteria, all
sample data and documentation will be finalized and incorporated into the master
production product. Final validation and acceptance tests will then be
performed.
POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES
Momentum believes there are numerous possible products which could be
developed in each of the three areas described under the caption "Business--The
Momentum Products" above, but neither it nor PeopleSoft has made any decisions
on which specific products to develop. Following contribution of the Available
Funds, Momentum and PeopleSoft will agree on the initial prioritization of the
products to be developed, and allocate the Available Funds accordingly. The
Available Funds are expected to be expended under the Development Agreement over
a period of three to four years. This estimate is based on PeopleSoft's
experience in developing software products of comparable scope, the number of
projects that are deemed manageable at any given time and the availability of
engineers with the requisite expertise.
PeopleSoft has previously developed several industry specific
application products but has very limited experience in the development of
e-business or analytic applications. Development of each industry specific
application is expected to require a team of ten fully dedicated individuals for
approximately 18 to 24 months to reach General Availability. Development of each
e-business application is expected to take approximately 18 to 36 months and may
require larger teams than required for industry specific applications.
Development of analytic applications is expected to take approximately 12 to 24
months utilizing a team of approximately ten individuals. Momentum expects that
in the first six months after the contribution of the Available Funds it will
commence development of approximately eight to ten projects, and will start an
additional set of projects in the subsequent six-month period. As the first set
of projects is completed, additional projects will commence. The time frame to
begin development efforts will be primarily dependent on identifying and
obtaining the proper technical personnel once the projects are selected for
development. Momentum estimates that it will initiate a maximum of 25 projects
in the first year and additional projects in subsequent years.
Momentum's total development efforts in all three business areas are
currently estimated to require an aggregate of $40-$60 million for scope and
design, $150-$175 million for develop and port and $30-$50 million for test and
release. These estimates may change over time as PeopleSoft and Momentum select
and develop products. Because of the rapidly changing dynamics of the computer
software industry, products currently forecasted to be undertaken by Momentum
may be reprioritized as the product areas develop. In addition, factors outside
of Momentum's control, such as customer functionality demands, competitor
product offerings, and hardware platforms, could alter the timing and amount of
estimated expenditures and the number of completed projects.
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<PAGE> 29
FACILITIES AND PERSONNEL
Momentum is not expected to hire a significant number of employees or to
acquire significant property or assets. However, in order to develop products
under the Development Agreement, Momentum will have to make decisions on how to
obtain adequate resources for its development efforts. Momentum currently
expects that it will contract with PeopleSoft to provide engineering personnel
and facilities to perform the development work. Momentum has the right to
perform this work directly or seek other third party providers. Momentum is
expected to use a substantial portion of the Available Funds to compensate
PeopleSoft for the research and development of Momentum Products. In addition,
pursuant to the Services Agreement, PeopleSoft will provide Momentum with
general administrative support services and office space for its corporate
headquarters. If PeopleSoft does not exercise the Purchase Option, Momentum
expects that the Services Agreement will not be renewed and that it will need to
find alternate suppliers of administrative services and office space.
COMPETITION
The market for business application software is intensely competitive.
Momentum believes it will face substantial competition from the large,
established providers of enterprise-wide application software as well as from
numerous smaller, more specialized software companies. Other than PeopleSoft,
SAP, Oracle, Baan and J.D. Edwards are the major providers of enterprise-wide
software. Momentum believes that each of these companies has either launched
initiatives or has the technical, financial, and marketing capability to launch
initiatives to develop products which directly compete with the products
Momentum intends to develop. In addition, numerous well-established companies
specialize in e-business products, analytic applications or particular
industry-specific applications. Almost all of Momentum's competitors have
substantially greater financial, technical and marketing resources than those of
Momentum. Furthermore, although Momentum believes PeopleSoft does not intend to
compete with it, PeopleSoft is free to do so.
Momentum expects that any products developed by it will be
commercialized by other parties, most likely through PeopleSoft. Although
PeopleSoft has substantial market share in the enterprise-wide application
software market, it does not have a significant presence in the markets for
e-business or analytic application products or in any of the markets for which
Momentum intends to develop industry-specific application products. As a result,
PeopleSoft may not be able to compete successfully with the other large
providers of enterprise-wide application software or with the established
specialized software companies in these markets. Additionally, if Momentum
commercializes its products through third parties, such third parties may not
have the financial, technical and marketing resources to compete successfully
with Momentum's competitors.
PATENTS; INTELLECTUAL PROPERTY
The products Momentum intends to develop may incorporate certain
technologies of PeopleSoft and other third parties. While Momentum intends to
obtain from third parties permission to use their technologies, Momentum's
activities could unintentionally infringe the patents, copyrights or other
intellectual property rights of others. Consequently, third parties may assert
infringement claims against Momentum with respect to its products. Any such
assertion could require Momentum to enter into royalty arrangements or could
result in costly litigation.
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<PAGE> 30
Momentum intends to rely on a combination of copyright, trade secret,
and patent laws and employee and third party non-disclosure agreements to
protect its intellectual property rights, including the features and design
aspects of its products. Such measures may not be sufficient to protect its
rights, and Momentum's competitors may independently develop technologies that
are substantially equivalent to or superior to Momentum's technology. Momentum
may from time to time be involved in litigation regarding the scope and validity
of its intellectual property rights. Any such litigation, whether or not
successful, could result in substantial costs to Momentum and diversion of
efforts by Momentum's management.
WHERE YOU CAN FIND MORE INFORMATION
As a result of the Distribution, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") requires Momentum to file annual, quarterly and
other reports with the Securities and Exchange Commission. Momentum intends to
provide annual reports containing audited financial statements to its
stockholders in connection with its annual meetings of stockholders.
Momentum filed with the Securities and Exchange Commission a
Registration Statement, which includes certain exhibits (the "Registration
Statement"), under the Exchange Act, for the securities issued pursuant to this
information statement. This information statement contains general information
about the contents of contracts and other documents filed as exhibits to the
Registration Statement. However, this information statement does not contain all
of the information set forth in the Registration Statement and the exhibits
filed with the Registration Statement. You should read the Registration
Statement and the exhibits for further information about Momentum and the
Distribution.
You may read and copy the Registration Statement and other materials
that Momentum files with the Securities and Exchange Commission at the Public
Reference Room of the Securities and Exchange Commission, 450 Fifth Street,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies
of these documents, upon payment of a duplication fee, by writing to the
Securities and Exchange Commission's Public Reference Section. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the Public Reference Rooms. The Securities and Exchange
Commission filings of Momentum are also available to the public on the
Securities and Exchange Commission Internet site (http://www.sec.gov).
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<PAGE> 31
MANAGEMENT
The following table sets forth information about Momentum's executive
officer and directors as of December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald E. F. Codd............ 42 President, Chief Executive Officer, Chief
Financial Officer, Secretary and Director
Aneel Bhusri................. 32 Director
</TABLE>
Ronald E. F. Codd has served as Momentum's President, Chief Executive
Officer, Chief Financial Officer, Secretary and director since December 1998.
Prior to becoming an officer and director of Momentum, Mr. Codd served in
various capacities with PeopleSoft. Mr. Codd joined PeopleSoft in September 1991
as Vice President of Finance and Chief Financial Officer. In November 1993, he
was appointed PeopleSoft's Senior Vice President of Finance and Administration
and Chief Financial Officer. He was appointed Secretary of PeopleSoft in March
1992. Prior to joining PeopleSoft, Mr. Codd was Corporate Controller of MIPS
Computer Systems, Inc., a microprocessor designer and computer manufacturer,
from March 1989 through September 1991. From March 1984 through March 1989, he
was Corporate Controller and Chief Accounting Officer for Wyse Technology, Inc.,
a computer and peripheral manufacturer. Mr. Codd is a Certified Public
Accountant, a Certified Managerial Accountant, and holds a Certified Production
and Inventory Management credential. He received a B.Sc. in Business
Administration from the University of California, Berkeley and an M.M. degree
from the J.L. Kellogg Graduate School of Management (Northwestern University).
Aneel Bhusri has served as a director of Momentum since its formation in
November 1998. Mr. Bhusri also served as Momentum's President, Chief Financial
Officer and Secretary from November 1998 until December 1998. Mr. Bhusri joined
PeopleSoft in August 1993 as Director of Strategic Planning. In April of 1995,
he was appointed Vice President of Product Strategy. In November of 1995, Mr.
Bhusri was appointed Senior Vice President of Product Strategy. In April 1997,
he was appointed Senior Vice President of Product Strategy, Business Development
and Marketing, a position he still holds. Prior to joining PeopleSoft, Mr.
Bhusri was an associate at Norwest Venture Capital from June 1992 to March 1993.
From 1988 to 1991 he was a financial analyst in Morgan Stanley's Corporate
Finance Department. Mr. Bhusri holds a B.Sc. in Electrical Engineering and a
B.A. in Economics from Brown University, and an M.B.A. from Stanford University.
Following the Distribution, Mr. Codd will serve as one of the three
directors representing the Momentum Class A Common Stock and Mr. Bhusri will
serve as the director representing the Momentum Class B Common Stock. Momentum
expects that Mr. Codd will propose two persons unaffiliated with PeopleSoft and
with experience in the software industry, finance or accounting to fill the
remaining two vacancies on the Board of Directors. Holders of Momentum Class A
Common Stock will not have elected any of the initial members of Momentum's
Board of Directors. Because the representatives of the Momentum Class A Common
Stock serve staggered three-year terms, the holders of Momentum Class A Common
Stock will be able to vote on only one representative at each annual meeting of
stockholders.
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<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Immediately prior to the Distribution, all of the outstanding shares of
Momentum Class A Common Stock will be held by PeopleSoft. The following tables
sets forth the projected beneficial ownership of Momentum Class A Common Stock
following the Distribution by (i) the directors and executive officer of
Momentum and (ii) any stockholder that will beneficially own more than 5% of the
outstanding shares of the Momentum Class A Common Stock.
<TABLE>
<CAPTION>
MOMENTUM CLASS A
COMMON STOCK PROJECTED TO
BE BENEFICIALLY OWNED
--------------------------
PERCENT
NAME NUMBER (1)(2) OF CLASS
- ---- ------------- ---------
<S> <C>
Directors and Executive Officer
Aneel Bhusri....................................... 1,066 *
Ronald E. F. Codd.................................. 1,060 *
Others
David A. Duffield (3).............................. 977,834 21%
c/o PeopleSoft, Inc.
4460 Hacienda Drive
Pleasanton, CA 94588
</TABLE>
- ----------
* Less than 1%
(1) Except as otherwise noted, reflects, in each case, the number of shares of
PeopleSoft Common Stock beneficially owned as of December 28, 1998, divided
by 50. In addition to shares held in the individual's sole name, this
column includes shares held by the spouse and other members of the named
person's immediate household who share that household with the named
person, and shares held in family trusts.
(2) In calculating the number of shares of Momentum Class A Common Stock
projected to be owned by the individuals listed above, the calculation has
been accomplished by treating each category of ownership, direct, book
entry, street name and trust account separately and dividing each by 50,
eliminating each set of fractional shares.
(3) Mr. Duffield has informed Momentum that he plans to reduce his percentage
ownership in the Momentum Class A Common Stock shortly after the
Distribution from approximately 21% of the outstanding shares to below 5%
of the outstanding shares through the sale or other disposition of
approximately 16% of the outstanding shares.
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<PAGE> 33
SELECTED FINANCIAL DATA
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF
NOVEMBER 10,
1998(1)
------------
<S> <C>
Cash ................................................................. $1,000
Stockholders' equity ................................................. $1,000
</TABLE>
(1) Momentum was incorporated in November 1998. PeopleSoft contributed
$1,000 in November 1998 in exchange for 1,000 shares of Momentum Common
Stock. Momentum currently does not have any operations and will not have
any operations prior to the Distribution.
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<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Momentum was formed on November 9, 1998. PeopleSoft will contribute a
total of $250 million in cash to Momentum prior to the Distribution.
PeopleSoft's contribution (together with interest earned thereon) is expected to
fund research and development activities for approximately three to four years.
Momentum's funds are expected to be used primarily to fund activities to be
conducted under the Development Agreement with PeopleSoft. Momentum expects to
engage PeopleSoft or other third parties to perform the development activities
on Momentum's behalf. Momentum is not expected to require significant facilities
or capital equipment of its own during the term of the Development Agreement.
Momentum's development activities are expected to focus on e-business
products, analytic application products, and industry specific applications.
PeopleSoft will propose various products to Momentum from which Momentum will
select certain products to develop. Momentum believes there are numerous
possible products which could be developed in each of the three areas and
expects that it and PeopleSoft will need to agree on the initial prioritization
of the products to be developed and allocate the Available Funds accordingly.
Based on PeopleSoft's experience in developing software products of comparable
scope, and the number of projects that are believed to be manageable at any
given time, and assuming availability of engineers with relevant expertise, the
Available Funds are expected to be expended in approximately three to four
years.
In addition to the Available Funds, Momentum may generate additional
funds through successfully licensing its products to PeopleSoft or other
parties. These funds would not be considered Available Funds and thus their use
by Momentum would not be restricted by PeopleSoft. Momentum may also obtain
additional financing through either debt or equity financing, as long as the
terms of such financings do not alter PeopleSoft's rights as a Class B Common
Stock holder. Funds raised through such financings would not be considered
Available Funds and thus their use by Momentum would not be restricted by
PeopleSoft.
There can be no assurances, particularly given the existence of the
Development Agreement, the Marketing Agreement and the Services Agreement, that
Momentum will be able to raise any additional capital. Such additional capital,
if raised, would most likely reduce the per share proceeds available to holders
of the Momentum Class A Common Stock if the Purchase Option were to be exercised
by PeopleSoft. See "The Agreements and the Purchase Option--Purchase Option."
OPERATIONS
Prior to the Distribution, Momentum will not have conducted any
operations. After the Distribution, Momentum's operations will be conducted
largely pursuant to the Development Agreement, the Marketing Agreement and the
Services Agreement. See "The Agreements and the Purchase Option."
In its early years, Momentum's revenues are expected to consist solely
of investment income. In later years, Momentum may derive license revenues from
commercialization of Momentum Products,
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<PAGE> 35
most likely by PeopleSoft. However, Momentum is not expected to earn substantial
revenues unless the Momentum Products are successfully commercialized.
Momentum's expenses will be incurred primarily under the Development
Agreement and the Services Agreement. If Momentum engages PeopleSoft to perform
research and development work, PeopleSoft will charge Momentum 110% of its
fully-burdened cost of performing such activities. Fully burdened costs include
salary, benefits and overhead allocations, but do not include certain other
costs, such as the human resources costs associated with recruiting development
personnel and pre-release testing costs. Based on its internal projections,
PeopleSoft believes that these other costs will be approximately 10% of the
fully-burdened costs. Momentum will also incur certain direct costs associated
with developing Momentum Products. These costs could also include payments to
other third parties for development, royalties, or costs associated with
acquiring or investing in complementary companies, products or technology.
Under the Services Agreement, PeopleSoft will provide Momentum certain
administrative services including accounting, finance, human resources and legal
services. Momentum will pay PeopleSoft a fee of $100,000 per quarter for such
services. This fee is based on PeopleSoft's internal projections of the
incremental costs it will incur to provide these services. Momentum will also
incur direct costs such as professional services, insurance, taxes and
regulatory fees.
As a result of its need to incur substantial development expenses prior
to receiving significant revenue, Momentum anticipates that it will incur
substantial losses which will likely be recurring.
Momentum's future cash flow obligations will derive largely from the
Development Agreement and the Services Agreement. Momentum is required to expend
the Available Funds only to acquire or develop Momentum Products and related
technologies and for related administrative expenses. The rate at which
Available Funds are expended will derive from work plans and cost estimates
approved by Momentum.
Momentum has been granted a non-exclusive license to use PeopleSoft
Technology solely for internal use purposes connected with the Development
Agreement and solely in conjunction with Momentum's development, support,
demonstration and testing of the Momentum Products. PeopleSoft typically grants
such licenses to third party development partners at no charge. Under the terms
of the Development Agreement, PeopleSoft will own all rights with respect to any
enhancements made by Momentum to the PeopleSoft Technology and will not be
obligated to make any royalty or other payments with respect to such technology
or enhancements. In addition, under the License Option, PeopleSoft has the
option to obtain a perpetual, worldwide, exclusive license to develop, market,
distribute, support and enhance Momentum Products. If PeopleSoft does not
exercise this option, Momentum will be free to commercialize that product
(either by itself or with the assistance of a third party). To the extent that
any such Momentum Product contains PeopleSoft Technology, Momentum will be able
to license, use and distribute the product in exchange for payment of royalties
to PeopleSoft; however, Momentum is restricted from contracting with certain
entities that PeopleSoft reasonably believes and identifies as competitors of
PeopleSoft. Based on the terms and limitations of the license to use PeopleSoft
Technology, Momentum believes that there is only insignificant value to this
license and thus has not recorded any value associated with its limited rights
to the PeopleSoft Technology.
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<PAGE> 36
YEAR 2000 DISCLOSURE
Momentum expects that substantially all of its research and development
and administrative activities will be performed by PeopleSoft. Momentum believes
that PeopleSoft's internal systems are Year 2000 compliant. To the extent that
Momentum purchases its own internal systems or contracts with other parties for
such services, it expects to be able to find systems and service providers which
are Year 2000 compliant. However, Momentum and PeopleSoft will be relying on a
variety of service providers, including telephone companies, utilities and
network services providers whose Year 2000 compliance is difficult to ascertain.
If any these providers were unable to provide their services to either
PeopleSoft or Momentum, Momentum's business could be adversely affected.
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<PAGE> 37
THE AGREEMENTS AND THE PURCHASE OPTION
Set forth below are summary descriptions of the Development Agreement,
the Marketing Agreement and the Services Agreement entered into between Momentum
and PeopleSoft. These summaries describe the material terms and conditions of
these agreements as well as the rights and obligations of Momentum and
PeopleSoft under the agreements. It is important that you take the time to
understand these agreements, because they have a direct influence on the
development of Momentum's business, Momentum's ability to finance its business,
the development of Momentum's products, the cost of product development, how
Momentum products may be marketed and other key factors relating to the
direction, independence and viability of Momentum. In addition, you are urged to
read the complete agreements which were included as exhibits to the Registration
Statement of which this information statement is a part. See "Where You Can Find
More Information."
DEVELOPMENT AND LICENSE AGREEMENT
Momentum and PeopleSoft have entered into a Development and License
Agreement (the "Development Agreement") for the selection and development of
software application products including (i) e-business applications, (ii)
analytic applications, and (iii) industry-specific software application
products.
Pursuant to the Development Agreement, the parties have agreed to the
following terms:
PeopleSoft has granted to Momentum a perpetual, worldwide, non-exclusive
license to use PeopleSoft Technology solely for internal use purposes connected
with the Development Agreement and solely in conjunction with Momentum's
development, support, demonstration, testing (and all other related tasks) of
the Momentum Products.
PeopleSoft will propose to Momentum that it develop particular software
products and related technologies. If Momentum agrees to develop such products,
PeopleSoft and Momentum will agree upon timetables, budgets and specifications
for each product. Products recommended by PeopleSoft and approved by Momentum
for development are called "Momentum Products."
Momentum has agreed to use diligent efforts to research and develop
Momentum Products in accordance with agreed upon budgets and timetables.
Momentum expects that it will undertake research and development by contracting
with a third party, as it does not expect to have the staffing or facilities to
do such research and development itself. Momentum currently expects that
substantially all of the research and development relating to Momentum Products
will be performed by PeopleSoft. However, PeopleSoft is not obligated to provide
any such services to Momentum, and Momentum may choose to hire other third party
providers. If Momentum chooses to engage PeopleSoft, it will pay PeopleSoft one
hundred and ten percent (110%) of PeopleSoft's fully burdened costs relating to
the research and development provided by PeopleSoft. PeopleSoft will recognize
such reimbursement amounts as product development revenues. If a third party is
hired to conduct research and development relating to Momentum Products, any
agreement between Momentum and such third party must include appropriate
provisions for the protection of PeopleSoft Technology and PeopleSoft's rights
under the Development Agreement, the Marketing Agreement, and the Services
Agreement and as a holder of the Momentum Class B Common Stock.
Momentum may develop or acquire (through licensing or otherwise) third
party software toolsets ("Developed Technology") for the purpose of developing
Momentum Products. To the extent
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<PAGE> 38
Momentum has the right, Momentum will grant PeopleSoft an irrevocable,
worldwide, non-exclusive license to use, market, manufacture, reproduce, copy,
sublicense, distribute (through PeopleSoft's then current worldwide channel
distribution system), create derivative works, enhance and modify the Developed
Technology. For a period of ten (10) years from the date the Developed
Technology is acquired or first identified as part of the work plan related to
the development of a Momentum Product, PeopleSoft will pay a royalty of one
percent (1%) of net revenue on products (other than Momentum Products) developed
by PeopleSoft using Developed Technology. In order to develop certain products
using Developed Technology, PeopleSoft may need to acquire licenses or enter
into other arrangements with third parties. For purposes of calculating
royalties due to Momentum for the use of Developed Technology in these products,
net revenue will be reduced by the amount of license fees or similar payments
due to third parties from PeopleSoft with respect to such product.
PeopleSoft will own all rights with respect to any enhancements made by
Momentum to PeopleTools(R) or other software products contributed by PeopleSoft.
PeopleSoft will not be obligated to make any royalty or other payments with
respect to such technology or enhancements. Momentum will own the Developed
Technology and the Momentum Products subject to PeopleSoft's license rights as
described in the Development Agreement and the Marketing Agreement.
Momentum may use the Available Funds only to develop or acquire Momentum
Products and related technologies and for related administrative expenses. It is
anticipated that Momentum will spend the Available Funds over a period of
approximately three to four years. Prior to expenditure, Momentum will be
required to invest the Available Funds in high quality marketable securities.
Any such investment earnings shall become a part of the Available Funds.
Momentum may not encumber, pledge or otherwise take any action with respect to
Available Funds that could prevent the full expenditure of such funds under the
Development Agreement. Under certain circumstances, PeopleSoft will have the
right to require Momentum to make an affirmative pledge of the Available Funds
to performance under the Development Agreement. Other than PeopleSoft's rights
under the Purchase Option, there are no restrictions on Momentum's use of funds
it generates or receives, that are not Available Funds, to conduct its business
as it determines.
The Development Agreement will automatically terminate upon the
expiration of the Purchase Option; provided, however, PeopleSoft's obligation to
pay royalties on Developed Technology will continue until the expiration of the
respective royalty terms. Either party may terminate the Development Agreement
if the other party breaches a material obligation thereunder and such breach
continues uncured for thirty (30) days after written notice by the terminating
party.
In the event the Development Agreement or the Marketing Agreement is
terminated by PeopleSoft in connection with Momentum's breach of a material
obligation under the Development Agreement or the Marketing Agreement,
PeopleSoft shall be entitled to receive, as liquidated damages, the Available
Funds. If PeopleSoft reasonably believes that such liquidated damages are
inadequate, then PeopleSoft will be entitled to specific performance of
Momentum's obligations under the Development Agreement or the Marketing
Agreement in connection with such breach.
MARKETING AND DISTRIBUTION AGREEMENT
Under the Marketing and Distribution Agreement (the "Marketing
Agreement"), Momentum has granted PeopleSoft the exclusive license to market and
distribute pre-General Availability versions of each Momentum Product (the
"Pre-General Availability License") and an option to obtain a perpetual,
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worldwide, exclusive license to market, distribute, sublicense, support and
enhance any post-General Availability versions of each Momentum Product (the
"License Option").
Under the Pre-General Availability License, PeopleSoft has an exclusive
license with respect to each Momentum Product to market and distribute the
Momentum Product for the period from which Momentum accepts the relevant product
proposal from PeopleSoft until the earlier of: (i) the exercise or expiration of
PeopleSoft's License Option with respect to the Momentum Product; or (ii) the
expiration of the Purchase Option. PeopleSoft shall pay Momentum royalties of
six percent (6%) of Net Revenues (as defined) from the license of each Momentum
Product. PeopleSoft has agreed to use commercially reasonable efforts to
promptly market each pre-General Availability Momentum Product to a limited
group of customers in accordance with PeopleSoft's standard practices.
Under the License Option, PeopleSoft may obtain a perpetual, worldwide,
exclusive license (with the right to sublicense through multiple tiers) to
market, distribute, support and enhance each Momentum Product. PeopleSoft may
exercise the License Option with respect to any Momentum Product at any time
from the date on which Momentum agrees to develop the product until the earlier
of: (i) thirty (30) days after the product becomes Generally Available; or (ii)
the expiration of the Purchase Option. A Momentum Product will be deemed to be
Generally Available upon successful completion of the release testing model
which PeopleSoft uses for its own products with the level of functionality
originally agreed to by PeopleSoft and Momentum. Upon exercise of the License
Option with respect to a Momentum Product (a "Licensed Product"), PeopleSoft
will assume full responsibility for any product development, support, training,
consulting, bug fixes, modifications and enhancements with respect to such
Licensed Product. If PeopleSoft does not exercise the License Option with
respect to a Momentum Product, PeopleSoft will retain the right and obligation
to support any customers to whom it licensed such Momentum Product pursuant to
its Pre-General Availability License. These rights and obligations will survive
the termination of the Marketing Agreement.
PeopleSoft will make Product Payments to Momentum with respect to each
Licensed Product equal to the sum of (i) one percent (1%) of Net Revenues plus
(ii) an additional one-tenth of one percent (0.1%) of Net Revenues for each one
million dollars ($1,000,000) of Development Costs (as defined) of the Licensed
Product that were incurred by Momentum, up to a maximum royalty rate of six
percent (6%) of Net Revenues. "Net Revenues" for a particular quarter are end
user license fees received by PeopleSoft for licensing or sub-licensing each
Licensed Product less the value of bundled services and development expenses
incurred by PeopleSoft on such Licensed Product for that quarter. Net Revenues
will include all user license fees paid with respect to each Licensed Product,
regardless of whether PeopleSoft directly licenses such Licensed Product, or
indirectly licenses such Licensed Product through a reseller, distributor, or
other third party. Subject to PeopleSoft's Product Payment Buy-Out Option
described below, Product Payments will be payable by PeopleSoft to Momentum for
ten (10) years after General Availability of the Licensed Product. PeopleSoft
will retain all support services and maintenance fees with no royalty-sharing or
payment obligation to Momentum. PeopleSoft's royalty obligations will survive
the termination of the Marketing Agreement.
PeopleSoft has the option to buy out Momentum's right to receive Product
Payments for any Licensed Product. The Product Payment Buy-Out Option may be
exercised for any Licensed Product at any time beginning twelve (12) months
after the Licensed Product is declared Generally Available. The buy-out price
will be fifteen (15) times the payment made by or due from PeopleSoft to
Momentum with respect to licenses of such Licensed Product for the four (4)
quarters immediately preceding the quarter in which the Product Payment Buy-Out
Option is exercised (payment will be annualized for any such Licensed Product
that has not been a Licensed Product for all of each of such four (4) quarters).
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If PeopleSoft does not exercise the License Option with respect to a
Momentum Product, Momentum will be free to commercialize that Momentum Product
itself or with the assistance of a third party. To the extent that any such
Momentum Product contains PeopleSoft Technology, PeopleSoft has granted Momentum
a license with respect to PeopleSoft Technology allowing Momentum to enhance,
license, use and distribute the product provided that Momentum may not contract
with certain entities that PeopleSoft reasonably believes and identifies as
competitors of PeopleSoft. This license will survive the termination of the
Marketing Agreement.
During the term of the Marketing Agreement, PeopleSoft will provide
quarterly reports to Momentum detailing payments due for such period with
respect to the relevant Momentum Product or Licensed Product, as the case may
be. Such reports will be due thirty (30) days after the end of each calendar
quarter and will indicate the quantity and dollar amount of Net Revenues
relating to each Momentum Product or Licensed Product, as the case may be, or
other consideration in respect of Net Revenues, during the quarter covered by
such report. No more than once in each calendar year upon at least five (5)
business days notice and during regular business hours, at Momentum's expense,
PeopleSoft is required to make available for inspection by Momentum such records
of PeopleSoft as may be necessary to verify the accuracy of reports and payments
made under the Marketing Agreement. PeopleSoft must provide similar reports and
records with respect to all Developed Technology Products.
The Marketing Agreement terminates upon the earlier to occur of: (i) the
exercise of the Purchase Option by PeopleSoft; or (ii) the end of the thirtieth
(30th) day after the expiration of the Purchase Option. The Marketing Agreement
may be terminated by either party in the event that the other party (i) breaches
any material obligation under the Marketing Agreement (which breach continues
for a period of thirty (30) days after written notice to the defaulting party)
or (ii) enters into any proceeding, voluntary or involuntary, in bankruptcy,
reorganization or similar arrangement for the benefit of its creditors.
SERVICES AGREEMENT
Pursuant to the Services Agreement, PeopleSoft will provide Momentum
with certain services relating to administration, including accounting, finance,
human resources and legal services. Momentum has agreed to pay PeopleSoft a fee
of $100,000 per quarter for such services. Momentum will also incur direct costs
such as professional services, insurance, taxes and regulatory fees. The
Services Agreement remains in force until December 31, 2002 and thereafter is
automatically renewed for one-year terms.
DISTRIBUTION AGREEMENT
Under the Distribution Agreement, PeopleSoft will contribute $250
million in cash to Momentum in exchange for approximately 4,750,000 shares of
Momentum Class A Common Stock. PeopleSoft will effect the Distribution by
delivering those shares to State Street Bank & Trust Company of California,
National Association, which will hold them as custodian for the benefit of the
PeopleSoft stockholders of record as of the record date. This custody
arrangement is irrevocable. On or about
January 15, 1999, State Street Bank & Trust Company of California, National
Association, will deliver the shares to Boston EquiServe L.P., Momentum's
transfer agent, which will begin mailing the shares to the PeopleSoft
stockholders of record as of the record date. PeopleSoft and Momentum have
agreed to indemnify State Street Bank & Trust Company of California, National
Association, for actions it takes in connection with acting as custodian. In
addition, in the event PeopleSoft exercises the Purchase Option,
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it has agreed to indemnify Momentum's officers and director to the same extent
as such persons are entitled to indemnification under Momentum's Certificate of
Incorporation.
PURCHASE OPTION
The Purchase Option is set forth in Momentum's Certificate of
Incorporation.
Pursuant to the Purchase Option, PeopleSoft has an exclusive,
irrevocable option to purchase all, but not less than all, of the issued and
outstanding Momentum Class A Common Stock. PeopleSoft may exercise the Purchase
Option by written notice to Momentum at any time during the period beginning
immediately after the Distribution until December 31, 2002; provided that such
date will be extended for successive six month periods if, as of any June 30 or
December 31 beginning with June 30, 2002, Momentum has not paid or accrued
expenses for all but $15 million of the Available Funds as of such date. In any
event, the Purchase Option will terminate on the sixtieth (60th) day after
Momentum provides PeopleSoft with a statement that, as of the end of any
calendar month, there are less than $2.5 million of Available Funds remaining.
All certificates evidencing Momentum Class A Common Stock will bear a legend
indicating that the Momentum Class A Common Stock is subject to the Purchase
Option.
Except in instances in which Momentum's liabilities exceed its assets
(as discussed below), if the Purchase Option is exercised, the exercise price
(the "Purchase Option Exercise Price") will be the greatest of:
(1) 15 times the sum of (i) the actual worldwide payments made by or
due from PeopleSoft to Momentum with respect to all Licensed
Products and Developed Technology for the four calendar quarters
immediately preceding the quarter in which the Purchase Option is
exercised (the "Base Period"); plus (ii) such payments as would
have been made during the Base Period by, or due from, PeopleSoft
to Momentum if PeopleSoft had not previously exercised its
Product Payment Buy-Out Option with respect to any Momentum
Product (for purposes of the calculations in (i) and (ii),
payments will be annualized for any product that has not been a
Licensed Product for all of each of the four calendar quarters in
the Base Period);
minus
any amounts previously paid to exercise any Product Payment
Buy-Out Option for such Momentum Product;
(2) the fair market value of six hundred thousand (600,000) shares of
PeopleSoft Common Stock, adjusted in the event of a stock split
or dividend, as of the date PeopleSoft exercises its Purchase
Option;
(3) three hundred million dollars ($300,000,000) plus any additional
funds contributed to Momentum by PeopleSoft, less the aggregate
of all amounts paid or incurred to develop the Momentum Products
or pursuant to the Services Agreement as of the date the Purchase
Option is exercised; or
(4) seventy-five million dollars ($75,000,000).
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In the event that Momentum's liabilities (other than liabilities under
the Development Agreement, the Marketing Agreement and/or the Services
Agreement) exceed its assets, the Purchase Option Exercise Price described above
will be reduced (but not to less than the total par value of the outstanding
Momentum Class A Common Stock) by the amount that Momentum's liabilities at the
time of exercise (other than liabilities under the Development Agreement, the
Marketing Agreement and/or the Services Agreement) exceed Momentum's cash and
cash equivalents, and short-term and long-term investments (excluding the amount
of the Available Funds remaining at such time). For this purpose, liabilities
will include, in addition to liabilities required to be reflected on Momentum's
financial statements under generally accepted accounting principles, (i) any
guaranty of any indebtedness and (ii) any reimbursement or similar obligation
with respect to any letter of credit issued for the account of Momentum or as to
which Momentum is otherwise liable.
If PeopleSoft exercises the Purchase Option, PeopleSoft will pay the
Purchase Option Exercise Price in cash. For the purpose of determining the
Purchase Option Exercise Price, the fair market value of PeopleSoft Common Stock
shall be deemed to be the average of the closing sales price of PeopleSoft
Common Stock on the Nasdaq National Market (or such other securities exchange on
which PeopleSoft is then listed) for the twenty (20) trading days ending with
the trading day that is two trading days prior to the date of determination. The
per share purchase price of Momentum Class A Common Stock will be reduced if
Momentum issues additional shares after the Distribution.
The purpose of having the Purchase Option Exercise Price be determined
by reference to one of four formulas is to both provide alternatives for the
most favorable return to the holders of the Momentum Class A Common Stock based
on the achievement of certain performance criteria by Momentum, on one hand, and
to establish a minimum return of $75 million, on the other hand. The first
formula is intended to provide a favorable return to the holders of the Momentum
Class A Common Stock in the event that Momentum develops highly successful,
royalty-paying products. The second formula would benefit the holders of the
Momentum Class A Common Stock in the event that the trading price of
PeopleSoft's Common Stock were to rise significantly during the period that the
Purchase Option is exercisable, due to the performance of Momentum or otherwise.
(Based on the closing price of PeopleSoft's Common Stock on December 28, 1998,
the market value of 600,000 shares of PeopleSoft Common Stock was $11,662,500.)
The third formula was designed to provide a favorable return to the holders of
the Momentum Class A Common Stock in the event that PeopleSoft elects to
exercise the Purchase Option prior to the time that Momentum successfully
commercializes its products. The fourth option represents a minimum return of
$75 million to the holders of the Momentum Class A Common Stock. These four
alternatives were selected based on PeopleSoft's analysis of the formulas used
in comparable transactions by other companies (all of which were in the
biotechnology industry), as adjusted to take into consideration the different
development cycles and other factors specific to the software products that
Momentum proposes to develop. The determination as to whether or not to exercise
the Purchase Option is entirely within the discretion of PeopleSoft and the
results of the foregoing formulas are not determinable unless and until
PeopleSoft elects to exercise the Purchase Option.
The closing of the acquisition of the Momentum Class A Common Stock
pursuant to exercise of the Purchase Option will take place on a date selected
by PeopleSoft, but no later than sixty (60) days after the exercise of the
Purchase Option unless, in the judgment of PeopleSoft, a later date is required
to satisfy any applicable legal requirements or to obtain required consents.
Between the time of exercise of the Purchase Option and the time of closing of
the acquisition of the Momentum Class A Common Stock, Momentum may not, without
PeopleSoft's consent, incur additional debt, dispose of assets, pay or declare
any dividends or operate its business other than in the ordinary course.
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At PeopleSoft's election, Momentum may redeem on such closing date the
Momentum Class A Common Stock for an aggregate redemption price equal to the
final Purchase Option Exercise Price. Any such redemption would be in lieu of
PeopleSoft paying the final Purchase Option Exercise price directly to holders
of Momentum Class A Common Stock, and would be subject to PeopleSoft providing
the final Purchase Option Exercise Price to Momentum to allow Momentum to pay
the redemption price.
In the event that prior to PeopleSoft's exercise of the Purchase Option,
the number of outstanding shares of PeopleSoft Common Stock is increased by
virtue of a stock split or a dividend payable in PeopleSoft Common Stock or the
number of such shares is decreased or changed by virtue of a combination or
reclassification of such shares, then the number of shares of PeopleSoft Common
Stock used to compute the Purchase Option Exercise Price (if the Purchase Option
Exercise Price is the fair market value of 600,000 shares of PeopleSoft Common
Stock) shall be increased or decreased, as the case may be, in proportion to
such increase or decrease in the number of outstanding shares of PeopleSoft
Common Stock.
Under Momentum's Certificate of Incorporation, Momentum will be
prohibited from taking or permitting any action inconsistent with, or which
would in any way alter, PeopleSoft's rights under the Purchase Option. Momentum
may not, without consent of PeopleSoft as the sole holder of the Momentum Class
B Common Stock, merge, liquidate, sell any substantial assets, or amend its
Certificate of Incorporation to (i) alter the Purchase Option, (ii) change
Momentum's authorized capitalization, or (iii) alter the provisions governing
the Board of Directors. To the extent Rule 13e-3 ("Rule 13e-3") under the
Exchange Act dealing with going private transactions by certain issuers or their
affiliates is applicable at the time of any exercise of the Purchase Option,
PeopleSoft and Momentum will comply with their respective obligations under Rule
13e-3, subject to any available exemptions from such obligations.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, with respect to certain material
federal income tax considerations under the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to the shares of Momentum Class A Common
Stock, cash in lieu of fractional shares of Momentum Class A Common Stock, or
both shares of Momentum Class A Common Stock and cash distributed to
PeopleSoft's stockholders in the Distribution. THIS DISCUSSION DOES NOT ADDRESS
THE TAX CONSEQUENCES OF THE ACQUISITION OF SHARES OF MOMENTUM CLASS A COMMON
STOCK BY PURCHASE OR MEANS OTHER THAN THE DISTRIBUTION. In addition, this
discussion is intended only to provide general information regarding PeopleSoft
stockholders that are subject to United States federal income tax; it may not
address all relevant federal income tax consequences to such persons or to other
categories of PeopleSoft stockholders, e.g., foreign persons, dealers in
securities, and stockholders that are exempt from federal income tax. This
discussion is based upon the Code, Treasury Regulations (including proposed
Treasury Regulations) promulgated thereunder, rulings, official pronouncements
and judicial decisions all as in effect on the date hereof and all of which are
subject to change or different interpretations by the Internal Revenue Service
("IRS") or the courts, any of which changes or interpretations may have
retroactive effect. Wilson Sonsini Goodrich & Rosati, Professional Corporation,
has disclaimed any undertaking to advise as to any change in the law that may
affect its opinion, including changes that may be made under currently pending
legislative proposals, and has expressed no opinion as to the laws of any
jurisdictions other than the federal income tax laws of the United States of
America. An opinion of counsel does not bind the IRS, which could take a
contrary position, but represents only counsel's judgment as to the likely
outcome if the issues involved were properly presented to a court of competent
jurisdiction. This discussion assumes that the shares of Momentum Class A Common
Stock will at all relevant times constitute capital assets of the stockholders.
This discussion does not address state, local, or foreign tax considerations.
PEOPLESOFT STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
TAXABILITY OF THE DISTRIBUTION TO HOLDERS OF PEOPLESOFT COMMON STOCK
The fair market value of shares of Momentum Class A Common Stock, plus
the cash intended to represent the fair market value of a fractional share of
Momentum Class A Common Stock (together, the "Taxable Amount"), distributed to a
holder of PeopleSoft Common Stock will constitute a dividend taxable as ordinary
income in the year of receipt by such holder to the extent that PeopleSoft has
current or accumulated "earnings and profits" as of the end of the taxable year
in which the Distribution is considered to have been made by PeopleSoft for
federal income tax purposes. Because it will have irrevocably transferred the
Momentum Class A Shares to a custodian for the benefit of its stockholders in
1998, PeopleSoft intends to treat the fiscal year ended December 31, 1998 as the
year in which the Distribution is deemed made by it even though such
stockholders will not receive their shares of Momentum Class A Common Stock
until 1999. Assuming that there will be a public market for the shares of
Momentum Class A Common Stock at the time of the Distribution, the fair market
value of a share of Momentum Class A Common Stock to a PeopleSoft stockholder
for this purpose is expected to be the average of the high and low trading price
on the date of the Distribution or if such date is not a trading day, on the
first trading day following the Distribution. If the Taxable Amount exceeds the
stockholder's allocable share of PeopleSoft's current and accumulated earnings
and profits for federal income tax purposes determined as of the end of
PeopleSoft's fiscal year ending December 31, 1998, the excess will generally be
treated first as a tax-free return of capital to the extent of the stockholder's
basis
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in the stockholder's PeopleSoft Common Stock, and after this basis is reduced to
zero, as capital gain, which will be taxed in the manner discussed in the "Sale
of Shares of Momentum Class A Common Stock" section below. PeopleSoft's
management has advised that, based on the information currently available,
PeopleSoft's accumulated earnings and profits at December 31, 1998 is expected
to be such that the Taxable Amount will not exceed the PeopleSoft stockholder's
allocable share of such earnings and profits.
No later than February 1, 2000, PeopleSoft will issue to each holder of
PeopleSoft Common Stock receiving shares of Momentum Class A Common Stock in the
Distribution an IRS Form 1099-DIV reflecting the fair market value of the shares
of Momentum Class A Common Stock (and any amount of cash received in lieu of
fractional shares of Momentum Class A Common Stock) distributed to such holder,
as well as any portion of the Taxable Amount exceeding such holder's allocable
share of PeopleSoft's current and accumulated earnings and profits.
To the extent that the Taxable Amount constitutes ordinary income, it
will generally be subject to back-up withholding with respect to PeopleSoft
stockholders who, before the Distribution, have not provided their correct
taxpayer identification numbers to PeopleSoft on an IRS Form W-9 or a substitute
therefor. Although this discussion does not generally address tax consequences
of the Distribution to foreign holders of PeopleSoft Common Stock, such holders
should note that distribution of the Taxable Amount (to the extent of such
foreign holder's allocable share of PeopleSoft's current and accumulated
earnings and profits) will generally be subject to U.S. withholding tax at the
rate of 30%. This rate may be reduced by income tax treaties to which the United
States is a party. Nonresident alien individuals, foreign corporations and other
foreign holders of PeopleSoft Common Stock are urged to consult their own tax
advisors regarding the availability of such reductions and the procedures for
claiming them.
For corporate holders of PeopleSoft Common Stock, the Taxable Amount (to
the extent treated as ordinary income) will be eligible for a
"dividends-received" deduction, subject to limitations and exclusions provided
by the Code, if the Purchase Option is "significantly out of the money" for at
least 46 days during the 90-day period beginning 45 days before the PeopleSoft
Common Stock becomes ex-dividend with respect to the Distribution. However, for
corporate holders of PeopleSoft Common Stock, the Taxable Amount will be subject
to the Code's extraordinary dividend rules, which could reduce a corporate
holder's basis in its PeopleSoft Common Stock by the amount of the deduction, if
the Taxable Amount equals at least 10% of the holder's basis. Moreover, to the
extent that the untaxed distribution exceeds the corporate holder's basis, gain
will be recognized.
SALE OF SHARES OF MOMENTUM CLASS A COMMON STOCK
Upon the sale of shares of Momentum Class A Common Stock, the PeopleSoft
stockholder will have a capital gain or loss equal to the difference between the
sale price and the stockholder's basis in the shares of Momentum Class A Common
Stock sold. This gain or loss will be long-term capital gain or loss if the
shares of Momentum Class A Common Stock have a holding period of more than one
year on the sale date. The maximum stated federal income tax rate for long-term
capital gain is 20% for noncorporate holders. In addition, the combination of
the shares of Momentum Class A Common Stock and the Purchase Option may be
deemed a "straddle," with the result that the holding period of shares of
Momentum Class A Common Stock would not begin until such date as the Purchase
Option is exercised or expires. There is presently no difference in federal
income tax rates between ordinary income and capital gains of corporations.
Limitations may apply to deduction of capital loss.
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A PeopleSoft stockholder's initial basis in shares of Momentum Class A
Common Stock received in the Distribution will be the fair market value of those
shares of Momentum Class A Common Stock at the time of the Distribution, which
fair market value will be determined in the manner set forth under the caption
"Taxability of the Distribution to Holders of PeopleSoft Common Stock" above.
EXERCISE OF PURCHASE OPTION
If PeopleSoft exercises its Purchase Option, holders of shares of
Momentum Class A Common Stock will have a capital gain or loss due to such
exercise equal to the difference between (a) the cash (and any other deemed
consideration) received and (b) the holder's basis in the shares of Momentum
Class A Common Stock surrendered. Gain or loss due to the exercise of the
Purchase Option will be long-term capital gain or loss if the shares of Momentum
Class A Common Stock have been held for more than one year at the time of the
closing of the exercise of the Purchase Option. However, the combination of the
shares of Momentum Class A Common Stock and the Purchase Option may be deemed a
"straddle," with the result that the holding period of shares of Momentum Class
A Common Stock would not begin until such date as the Purchase Option is
exercised and that capital gain or loss upon exercise of the Purchase Option
would be short-term. Limitations may apply to deduction of capital loss.
EXPIRATION OF PURCHASE OPTION
If the Purchase Option expires unexercised, each holder of shares of
Momentum Class A Common Stock on the date it expires may have short-term capital
gain in the amount of the fair market value of the portion of the Purchase
Option covering the holder's shares of Momentum Class A Common Stock on the date
of the Distribution; any such gain would increase the holder's basis in the
shares of Momentum Class A Common Stock. PeopleSoft believes that the fair
market value of the Purchase Option is not readily ascertainable. Each holder of
shares of Momentum Class A Common Stock should consult his or her own tax
adviser as to what amount, if any, should be reported as gain if the Purchase
Option expires unexercised.
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DESCRIPTION OF CAPITAL STOCK
At the time of the Distribution, Momentum's authorized capital stock
will consist of (i) 10,000,000 shares of Momentum Class A Common Stock, (ii)
1,000 shares of Momentum Class B Common Stock (together with Momentum Class A
Common Stock, the "Momentum Common Stock"), and (iii) 2,000,000 shares of
undesignated Preferred Stock.
Holders of Momentum Common Stock will be entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. Available Funds may not be used to pay dividends. In the
event of a liquidation, dissolution or winding up of Momentum, holders of
Momentum Common Stock will be entitled to receive, pro rata, all remaining
assets of Momentum available for distribution to stockholders.
No preemptive rights, conversion rights or sinking fund provisions will
be applicable to Momentum Class A Common Stock. Upon completion of this
Distribution, all outstanding Momentum Class A Common Stock will be fully paid
and nonassessable. The Momentum Class A Common Stock will be subject to the
Purchase Option and certificates representing such shares and book-entry account
statements will bear a legend to that effect. See "The Agreements and the
Purchase Option--Purchase Option."
No preemptive rights or sinking fund provisions will be applicable to
the Momentum Class B Common Stock. Each share of the Momentum Class B Common
Stock, all of which are held by PeopleSoft, will automatically convert into one
share of Momentum Class A Common Stock upon such date as the Purchase Option
expires.
Until the expiration of the Purchase Option, PeopleSoft, as the sole
holder of the Momentum Class B Common Stock, will be entitled to vote separately
as a class with respect to any merger or liquidation of Momentum, the sale,
lease, exchange, transfer or other disposition of any substantial asset of
Momentum, and any amendments to the Certificate of Incorporation of Momentum
that would alter the Purchase Option, Momentum's authorized capitalization, or
the provisions of the Certificate of Incorporation governing Momentum's Board of
Directors. Accordingly, PeopleSoft could preclude the holders of the Momentum
Class A Common Stock from taking any of the foregoing actions during such
period. Prior to exercise of the Purchase Option, the holder or holders of the
Momentum Class B Common Stock, voting as a separate class, will be entitled to
elect one director, and the holder or holders of the Momentum Class A Common
Stock will be entitled to elect up to three directors. Upon exercise of the
Purchase Option, PeopleSoft, as the sole holder of the Momentum Class B Common
Stock, will have the right to elect all of the Momentum directors and to remove
directors with or without cause. On all other matters, holders of the Momentum
Class A Common Stock and Momentum Class B Common Stock will vote together as a
single class. Holders of Momentum Common Stock will have one vote for each share
of Momentum Common Stock held by them. Subject to compliance with securities
laws, the Momentum Class B Common Stock is freely transferable.
Only the Momentum Board of Directors, the Chairman of the Board or the
President may call special meetings of the Momentum stockholders. The approval
of the holder of the Momentum Class B Common Stock is required to amend the
provisions of Momentum's Certificate of Incorporation and bylaws governing the
number and classification of the Board of Directors and certain related matters.
The provisions of Momentum's Certificate of Incorporation granting special
voting rights to the holder
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or holders of the Momentum Class B Common Stock and eliminating the right of
Momentum stockholders to call special meetings of stockholders or act by written
consent may inhibit a change in control of Momentum.
Momentum has authorized 2,000,000 shares of Preferred Stock. Shares of
Preferred Stock may be issued without stockholder approval. The Board of
Directors is authorized to issue such shares in one or more series and to fix
the designations, powers, preferences, rights, qualifications, limitations and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series of the designation of such
series without any vote or action by the stockholders. However, any Preferred
Stock issued must be subject to the Purchase Option and the approval of the
holders of a majority of the Momentum Class B Common Stock is required to create
any series of Preferred Stock with powers, preferences or rights superior to or
pari passu with the Momentum Class B Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1998, Momentum sold 1,000 shares of its Common Stock to
PeopleSoft for an aggregate cash purchase price of $1,000 in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof. In connection with the Distribution made pursuant to this
information statement, the 1,000 shares of Momentum Common Stock held by
PeopleSoft will be converted into 1,000 shares of Momentum Class B Common Stock
in a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 3(a)(9) thereof.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, both Momentum and
PeopleSoft have included in their Certificates of Incorporation a provision to
eliminate the personal liability of their directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
certain exceptions. In addition, the Bylaws of Momentum and PeopleSoft require
the companies to (i) indemnify their officers and directors under certain
circumstances, including those circumstances in which indemnification would
otherwise be discretionary, and (ii) advance expenses to their officers and
directors as incurred in connection with proceedings against them for which they
may be indemnified. Momentum and PeopleSoft have entered into indemnification
agreements with their officers and directors containing provisions that are in
some respects broader than the specific indemnification provisions contained in
the Delaware General Corporation Law. The indemnification agreements may require
the companies, among other things, to indemnify such officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms. Momentum
and PeopleSoft believe that these charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
-45-
<PAGE> 49
Momentum and PeopleSoft understand that the staff of the Securities and
Exchange Commission is of the opinion that statutory, charter and contractual
provisions as are described above have no effect on claims arising under the
federal securities laws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Momentum Class A Common Stock
is Boston EquiServe, L.P., 150 Royall Street, Canton, MA 02021; telephone: (781)
575-3120.
-46-
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................... F-2
Momentum Business Applications, Inc. Balance Sheet and Notes to Balance Sheet.............. F-3
Momentum Business Applications, Inc. Pro Forma Balance Sheet and Notes to Pro Forma Balance
Sheet (unaudited)................................................................... F-6
</TABLE>
F-1
<PAGE> 51
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying balance sheet of Momentum Business
Applications, Inc. as of November 10, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
a reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluation of the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Momentum Business Applications,
Inc. as of November 10, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Jose, California
November 11, 1998
F-2
<PAGE> 52
MOMENTUM BUSINESS APPLICATIONS, INC.
BALANCE SHEET
NOVEMBER 10, 1998
ASSETS
<TABLE>
<S> <C>
Cash ............................................................. $1,000
======
STOCKHOLDERS' EQUITY (NOTE 3)
Common Stock, $0.001 par value, 1,000 shares
authorized, 1,000 shares issued and outstanding .............. $ 1
Additional paid-in capital ....................................... 999
------
Total stockholders' equity ............................... $1,000
======
</TABLE>
F-3
<PAGE> 53
MOMENTUM BUSINESS APPLICATIONS, INC.
NOTES TO BALANCE SHEET
1. Organization and Ownership
Momentum Business Applications, Inc. (the "Company" or "Momentum") was
incorporated on November 9, 1998, in the state of Delaware for the purposes of
selecting and developing certain software applications and for commercializing
such products, most likely through licensing to PeopleSoft, Inc.
("PeopleSoft").
The Company has not yet commenced significant operations, and its only
activity to date has been the initial funding provided by PeopleSoft, which owns
all of the Company's outstanding Common Stock. Accordingly, no statement of
operations or statement of cash flows is presented.
2. Certain Transactions with PeopleSoft (unaudited)
On November 10, 1998, the Board of Directors of Momentum authorized the
Company to enter into certain agreements with PeopleSoft including a Development
and License Agreement (the "Development Agreement"), a Services Agreement (the
"Services Agreement") and a Marketing and Distribution Agreement (the "Marketing
Agreement"). In addition, under the Company's Certificate of Incorporation,
PeopleSoft will have an option, for a specified amount of time, to purchase all
of the outstanding shares of the Momentum Class A Common Stock.
Under the proposed terms of the Development Agreement, PeopleSoft will
grant to Momentum, at no charge, a worldwide license to use its PeopleTools(R)
rapid application development environment and architecture solely to develop
products accepted for development under the Development Agreement.
Under the proposed terms of the Development Agreement, Momentum will be
required to spend all of the funds contributed by PeopleSoft for the development
and acquisition of software products and related technologies under the
Development Agreement and for related administrative expenses. Momentum is not
expected to have staffing or facilities to perform under the Development
Agreement on its own. Momentum is expected to spend most of these funds to pay
PeopleSoft for the costs of these activities. PeopleSoft will charge Momentum
110% of PeopleSoft's fully-burdened costs of these services (salaries and
benefits, plus overhead).
Under the proposed terms of the Services Agreement, PeopleSoft will
provide Momentum with administrative services, including accounting, finance,
human resource and legal services for a set fee of $100,000 per quarter.
3. Common Stock (unaudited)
Prior to the Distribution contemplated by this information statement,
the Company intends to restate its Certificate of Incorporation to provide for
two classes of common stock, Class A Common Stock and Class B Common Stock. The
common stockholders of PeopleSoft will receive one share of
F-4
<PAGE> 54
Momentum Class A Common Stock for each 50 shares of PeopleSoft common stock held
on the record date. The shares of Momentum Common Stock held by PeopleSoft on
the record date will be converted into 1,000 shares of Momentum Class B Common
Stock. The holders of the Momentum Class B Common Stock will be entitled to vote
separately as a class with respect to any merger or liquidation of Momentum, the
sale, lease, exchange, transfer or other disposition of any substantial asset of
Momentum, and any amendments to the Certificate of Incorporation of Momentum
that would alter the Purchase Option, Momentum's authorized capitalization, or
the provisions of the Certificate of Incorporation governing Momentum's Board of
Directors. Accordingly, PeopleSoft could preclude the holders of the Momentum
Class A Common Stock from taking any of the foregoing actions during such
period. Prior to exercise of the Purchase Option, the holders of the Momentum
Class B Common Stock, voting as a separate class, will be entitled to elect one
director, and the holder or holders of the Momentum Class A Common Stock will be
entitled to elect up to three directors. Upon exercise of the Purchase Option,
PeopleSoft, as the sole holder of the Momentum Class B Common Stock, will have
the right to elect all of the Momentum directors and to remove directors with or
without cause. On all other matters, holders of the Momentum Class A Common
Stock and Momentum Class B Common Stock will vote together as a single class.
Holders of Momentum Common Stock will have one vote for each share of Momentum
Common Stock held by them. Subject to compliance with securities laws, the
Momentum Class B Common Stock is freely transferable.
4. Preferred Stock (unaudited)
Prior to the Distribution contemplated by this information statement,
the Company intends to restate its Certificate of Incorporation to provide for
2,000,000 shares of Preferred Stock. The Board of Directors is authorized to
issue such shares in one or more series and to fix the rights, preference,
privileges, qualifications, limitations and restrictions thereof, including
dividend rights and rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series of the designation of such series.
F-5
<PAGE> 55
MOMENTUM BUSINESS APPLICATIONS, INC.
PRO FORMA BALANCE SHEET
NOVEMBER 10, 1998
(UNAUDITED)
The following pro forma balance sheet should be read in conjunction with
the audited balance sheet and notes of Momentum Business Applications, Inc. as
of November 10, 1998. The pro forma balance sheet is presented to show the
financial position of Momentum following the receipt of the remainder of
$250,000,000 in cash contributed by PeopleSoft, the conversion of 1,000 shares
of Momentum's Common Stock owned by PeopleSoft into 1,000 shares of Momentum's
Class B Common Stock, and the issuance to PeopleSoft of shares of Momentum Class
A Common Stock prior to the Distribution.
ASSETS
<TABLE>
<CAPTION>
As Adjusted As
Pro Forma of November 10,
Unadjusted Adjustments 1998
---------- ------------- ----------------
<S> <C> <C> <C>
Cash .............................................................. $1,000 $249,999,000 (a) $250,000,000
====== ============= ============
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value, 1,000 shares authorized,
1,000 shares issued and outstanding (none as adjusted) ....... $ 1 $ (1)(b) $ --
Class A Common Stock, $0.001 par value, 10,000,000
shares authorized, 4,750,000 shares to be issued and
outstanding as adjusted ..................................... -- 4,750 (c) 4,750
Class B Common Stock, $0.001 par value, 1,000 shares
authorized, 1,000 shares to be issued and outstanding
as adjusted ................................................. -- 1(b) 1
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding ................... -- -- --
Additional paid-in capital ........................................ 999 (4,750)(c) 249,995,249
249,999,000 (a)
------ ------------- ------------
Total stockholders' equity ................................... $1,000 $ 249,999,000 $250,000,000
====== ============= ============
</TABLE>
- ----------
(a) To reflect the receipt of the remainder of the $250,000,000 contribution
from PeopleSoft.
(b) To reflect the conversion of 1,000 shares of Momentum's Common Stock
held by PeopleSoft into 1,000 shares of Momentum Class B Common Stock.
(c) To reflect the issuance of 4,750,000 shares of Momentum Class A Stock to
PeopleSoft for distribution to its stockholders.
F-6
<PAGE> 56
EXHIBIT A
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
[Merrill Lynch Letterhead]
December 30, 1998
Board of Directors
PeopleSoft, Inc.
4460 Hacienda Drive
Pleasanton, CA 94588
Gentlemen:
You have advised us that PeopleSoft, Inc. ("PeopleSoft") intends to distribute
(the "Distribution") to its stockholders shares of Class A Common Stock (the
"Momentum Shares") of Momentum Business Applications, Inc. ("Momentum"). The
Distribution is described in detail in the information statement (the
"Information Statement"), filed as part of a registration statement on Form 10
(Reg. No. 000-25185), which is to be sent to PeopleSoft stockholders in
connection with the Distribution. You have asked us for our opinion as to
whether or not, from a financial point of view, the Distribution is fair to the
stockholders of PeopleSoft. Each capitalized term used but not defined herein
shall have the meaning ascribed thereto in the Information Statement.
In arriving at the opinion set forth below, we have, among other things:
- - reviewed the Information Statement including the following items as presented
or referred to therein: (i) the terms and conditions of the Distribution, (ii)
the Marketing Agreement, (iii) the Development Agreement, (iv) the Services
Agreement, (v) the Distribution Agreement and (vi) the Certificate of
Incorporation of Momentum including the Purchase Option;
- - conducted discussions with members of the senior management of PeopleSoft with
respect to the businesses and prospects of PeopleSoft and Momentum and the
strategic objectives of each;
- - conducted discussions concerning the Distribution with other representatives
and advisors of PeopleSoft, including its independent public accountants;
- - reviewed the financial and other information concerning PeopleSoft (with and
without Momentum) that was publicly available or furnished to us by PeopleSoft,
including information provided during discussions with the senior management of
PeopleSoft;
- - reviewed historical trading prices and volume of the Common Stock of
PeopleSoft (the "PeopleSoft Common Stock"); and
A-1
<PAGE> 57
- - reviewed such other financial studies and analyses and took into account such
other matters as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available (including the
information contained in the Information Statement), and we have not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
PeopleSoft (with or without Momentum) or been furnished with any such evaluation
or appraisal. In addition, we have not assumed any obligation to conduct, nor
have we conducted, any physical inspection of the properties or facilities of
PeopleSoft. With respect to the financial forecast information furnished to or
discussed with us by PeopleSoft, we have assumed it has been reasonably prepared
and reflects the best currently available estimates and judgment of PeopleSoft's
management as to the expected future financial performance of PeopleSoft and
Momentum.
We have also assumed that: (i) the Distribution will occur as described in the
Information Statement, and (ii) after the Distribution, Momentum will be
accounted for as an entity independent of PeopleSoft.
Our opinion is necessarily based upon market, economic and other conditions,
including but not limited to generally accepted accounting principles, as they
exist and can be evaluated on, and on the information made available to us as
of, the date hereof. It is further understood that this Opinion does not
consider any future changes to such conditions that may occur following the date
of this Opinion which may adversely affect PeopleSoft's ability to pursue its
financial and strategic objectives. We note that trading in the PeopleSoft
Common Stock and the Momentum Shares for a period following completion of the
Distribution may be characterized by a redistribution of the shares of the
PeopleSoft Common Stock and the Momentum Shares among existing PeopleSoft
stockholders and other investors and, accordingly, during such period, the
PeopleSoft Common Stock and the Momentum Shares may trade at prices below those
at which they would trade on a fully distributed basis. We are not expressing
any opinion herein as to the price at which the PeopleSoft Common Stock will
actually trade after the announcement date of the Distribution or the price at
which the Momentum Shares will actually trade after the Distribution. In
addition, this opinion does not address the valuation or future performance of
Momentum as an independent public company following the Distribution, nor does
it address the adequacy of defensive measures included (A) in the Certificate of
Incorporation (as amended or restated) or the Bylaws of Momentum with respect to
(i) the rights of the holders of Momentum Shares or (ii) the rights of
PeopleSoft as holder of shares of the Class B Common Stock of Momentum, or (B)
in the agreements between PeopleSoft and Momentum entered into in connection
with the Distribution. We express no opinion as to whether the funds contributed
by PeopleSoft to Momentum will be adequate to accomplish the objective of
successfully developing the intended software products.
We are acting as financial advisor to PeopleSoft in connection with the
Distribution and will receive a fee for our services, which fee is contingent
upon the consummation of the Distribution. In addition, PeopleSoft has agreed to
indemnify us for certain liabilities arising out of our engagement. We may
continue to provide financial advisory or financing services to PeopleSoft and
may receive fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade PeopleSoft common stock,
and we may, in the future trade Momentum Shares for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
A-2
<PAGE> 58
This opinion is for the use and benefit of the Board of Directors of PeopleSoft.
On the basis of and subject to the foregoing, as of the date hereof, it is our
opinion that, from a financial point of view, the Distribution is fair to the
stockholders of PeopleSoft. Our conclusions are based on information available
to us as of the date of this letter.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Matthew M. Pendo
----------------------------------
Managing Director
Investment Banking Group
A-3
<PAGE> 59
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1+ Certificate of Incorporation of Momentum
3.2+ Bylaws of Momentum
3.3 Form of Restated Certificate of Incorporation of Momentum (to be
effective prior to the Distribution)
10.1++ Form of Development and License Agreement between PeopleSoft and
Momentum
10.2++ Form of Marketing and Distribution Agreement between PeopleSoft and
Momentum
10.3+ Form of Services Agreement between PeopleSoft and Momentum
10.4 Form of Distribution Agreement between PeopleSoft and Momentum
10.5+ Form of Officers' and Directors' Indemnification Agreement
</TABLE>
- ------------
+ Incorporated by reference to Amendment No. 1 to the Registration
Statement on Form S-1 (Reg. No. 333-67363) filed with the Commission on
November 25, 1998.
++ Previously filed.
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, Momentum Business Applications, Inc. has duly caused this Amendment
No. 2 to this Registration Statement on Form 10 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Pleasanton, State of
California on December 31, 1998.
MOMENTUM BUSINESS APPLICATIONS, INC.
By: /s/ Ronald E.F. Codd
-------------------------------------------
Ronald E.F. Codd
President and Chief Executive Officer
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1+ Certificate of Incorporation of Momentum
3.2+ Bylaws of Momentum
3.3 Form of Restated Certificate of Incorporation of Momentum (to be
effective prior to the Distribution)
10.1++ Form of Development and License Agreement between PeopleSoft and
Momentum
10.2++ Form of Marketing and Distribution Agreement between PeopleSoft and
Momentum
10.3+ Form of Services Agreement between PeopleSoft and Momentum
10.4 Form of Distribution Agreement between PeopleSoft and Momentum
10.5+ Form of Officers' and Directors' Indemnification Agreement
</TABLE>
- ------------
+ Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-1 (Reg. No. 333-67363) filed November 25, 1998.
++ Previously filed.
<PAGE> 1
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
MOMENTUM BUSINESS APPLICATIONS, INC.
(Originally incorporated under the same name on November 9, 1998)
FIRST: Name. The name of this corporation is Momentum Business Applications,
Inc. (the "corporation").
SECOND: Registered Office; Registered Agent. The address of the registered
office of this corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle, zip code
19801. The name of the registered agent of this corporation at such address is
The Corporation Trust Company.
THIRD: Purpose. The purpose of this corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: Authorized Capital Stock.
(A) This corporation is authorized to issue three classes of shares, which
shall be known as Class A Common Stock ("Class A Common Stock"), Class B Common
Stock ("Class B Common Stock"), and Preferred Stock ("Preferred Stock"). The
total number of shares of stock of all classes that this corporation is
authorized to issue is 12,001,000. The total number of shares of Class A Common
Stock which this corporation is authorized to issue is 10,000,000. The total
number of shares of Class B Common Stock which this corporation is authorized to
issue is 1,000. The total number of shares of Preferred Stock which this
corporation is authorized to issue is 2,000,000. Each share of Class A Common
Stock shall have a par value of $0.001, and each share of Class B Common Stock
shall have a par value of $0.001 and each share of Preferred Stock shall have a
par value of $0.001. Effective immediately upon the filing of this Restated
Certificate of Incorporation, each share of Common Stock, par value $0.001 per
share, of this corporation outstanding immediately prior to such filing shall be
converted into and reclassified as one share of Class B Common Stock.
(B) The powers, designations, preferences, and relative, participating,
optional or other special rights granted to, and the qualifications, limitations
and restrictions imposed upon, the Class A Common Stock and Class B Common Stock
and the respective holders thereof are as follows:
(1) Redemption. The shares of Class A Common Stock are redeemable
and may be redeemed as provided in (but only as provided in) Article FIFTH,
Section (F).
<PAGE> 2
(2) Dividends. The holders of shares of Class A Common Stock and
Class B Common Stock shall be entitled to receive per share and without
preference such dividends as may be declared by the Board of Directors from time
to time out of funds legally available therefor. No dividend may be declared on
the Class A Common Stock unless the same per share dividend is declared on the
Class B Common Stock, and no dividend may be declared on the Class B Common
Stock unless the same per share dividend is declared on the Class A Common
Stock. Dividends may not be declared, nor may shares of Class A Common Stock or
Class B Common Stock be repurchased, or redeemed (other than pursuant to Section
(F) of Article FIFTH), if, after payment of such dividend, or after effecting
such repurchase or redemption, the amount of this corporation's cash, cash
equivalents and short-term and long-term investments would be less than the
amount of Available Funds remaining after expenditures pursuant to the
Development Agreement, as of the date of such dividend, repurchase or
redemption.
(3) Liquidation. In the event of voluntary or involuntary
liquidation of this corporation, the holders of the Class A Common Stock and
Class B Common Stock of the corporation shall be entitled to receive, on a pro
rata per share basis and without preference, all of the remaining assets of this
corporation available for distribution to its stockholders.
(4) Voting Rights. Except as otherwise required by law or provided
herein, the holders of Class A Common Stock and Class B Common Stock shall vote
together as a single class. Each holder of Class A Common Stock and Class B
Common Stock shall have one vote for each share standing in his or her name on
all matters submitted to a vote of holders of the common shares. At any meeting
of the stockholders of this corporation, the determination of a quorum shall be
based upon the presence of shares of Class A Common Stock and Class B Common
Stock representing a majority of the voting power of all of the shares of Class
A Common Stock and Class B Common Stock. This corporation shall not, without the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Class B Common Stock, voting separately and as a class, (a) alter or
change the powers, designations, preferences and relative, participating,
optional or other special rights granted to, or the qualifications, limitations
and restrictions imposed upon, the Class A Common Stock or the Class B Common
Stock, (b) alter or change this Article FOURTH or any of Articles FIFTH, SIXTH
or SEVENTH of this Restated Certificate of Incorporation, or otherwise make any
amendment to this Restated Certificate of Incorporation that would alter the
rights of the holders of the Class B Common Stock, (c) authorize the creation or
issuance of any additional class or series of stock, which would have powers,
preferences or rights superior to or pari passu with the Class B Common Stock,
(d) undertake the voluntary dissolution, liquidation or winding up of this
corporation, (e) merge or consolidate this corporation with or into any other
corporation or entity, (f) sell, lease, exchange, transfer or otherwise dispose
of any substantial asset of this corporation (other than a grant of a license
with respect to a product or technology) or (g) alter the bylaws of this
corporation in a manner described in the last sentence of Article EIGHTH.
Furthermore, from and after the Purchase Option Exercise Date, as defined in
Article FIFTH, (i) the Board of Directors of this corporation shall cease to be
classified and the holders of Class B Common
-2-
<PAGE> 3
Stock shall be entitled to remove directors with or without cause; (ii) the
number of directors of this corporation shall be increased to a number equal to
(a) two times the maximum number of directors then authorized pursuant to
Article SEVENTH, Section (A) (counting for this purpose both directors in office
and vacant directorships), plus (b) one; and (iii) the holders of the Class B
Common Stock shall have the sole right to elect the directors of this
corporation, including directors to fill the new directorships created pursuant
to clause (ii). No new directorships created as a result of the increase in the
size of the Board of Directors pursuant to the preceding sentence shall be
filled other than by the holders of the Class B Common Stock. From and after the
Purchase Option Exercise Date all directors shall be elected to one year terms;
provided, however, that the term of any director then in office shall not be
reduced.
(5) Conversion. The Class B Common Stock shall automatically convert
into fully paid and non-assessable shares of Class A Common Stock of this
corporation at 12:01 a.m. California time on the day immediately following the
expiration of the Purchase Option without exercise granted in Article FIFTH. The
Class B Common Stock shall convert into Class A Common Stock at the rate of one
share of Class A Common Stock for each share of Class B Common Stock.
(C) The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH (including Article
FOURTH Section (B)(4)), to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such privileges, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(5) Whether or not the shares of that series shall be redeemable,
and, if so, the
-3-
<PAGE> 4
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable on case
of redemption, which amount may vary under different conditions and at different
redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, of any, of payment of shares
of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
provided that any shares so authorized shall be subject to the
Purchase Option.
FIFTH: Purchase Option.
(A) Definitions. For purposes of this Restated Certificate of
Incorporation, the following terms shall have the following definitions:
(1) PeopleSoft means PeopleSoft, Inc. and its successors or assigns
of the Purchase Option.
(2) PeopleSoft Common Stock means the Common Stock of PeopleSoft or,
if such Common Stock is converted into or exchanged for another class or series
of stock of PeopleSoft or any other corporation, such other class or series of
stock.
(3) Available Funds means, as of any date of determination, $250
million (contributed by PeopleSoft on or about December 30, 1998), plus any
investment income earned thereon, less the aggregate amount spent by this
corporation under the Development Agreement or for related administrative
expenses.
(4) Momentum Product means a product that has been recommended by
PeopleSoft and accepted by the Board of Directors of this corporation for
development as such under the Development Agreement.
(5) Developed Technology means development tools (other than
PeopleSoft's PeopleTools) or other core technologies which are developed or
otherwise acquired by this corporation for the purpose of developing Momentum
Products.
(6) Developed Technology Royalties means the royalties PeopleSoft
will pay to this corporation pursuant to the Development Agreement on any
software product (other than a Momentum Product) licensed by PeopleSoft to end
users that was developed by PeopleSoft
-4-
<PAGE> 5
using all or part of the Developed Technology.
(7) Development Agreement means the Development and License
Agreement between PeopleSoft and this corporation, dated as of December 30,
1998, as such agreement may be amended or modified from time to time by
amendments approved by PeopleSoft and the Board of Directors of this
corporation.
(8) Fair Market Value means, with reference to PeopleSoft Common
Stock, (a) if PeopleSoft Common Stock is listed on the Nasdaq National Market
System or any other securities exchange reporting closing sales prices
(including without limitation the New York Stock Exchange), the average of the
closing sales price of PeopleSoft Common Stock on such exchange (which shall be
the Nasdaq National Market System or, if PeopleSoft Common Stock is not then
traded on such exchange, on the principal exchange on which PeopleSoft Common
Stock is then traded), for the twenty trading days ending with the trading day
that is two trading days prior to the date of determination, (b) if PeopleSoft
Common Stock is not listed on any securities exchange described in clause (a)
but is quoted on Nasdaq or another quotation system providing bid prices, the
average (over the twenty day period described in clause (a)) of the bid prices
for each day in such period on Nasdaq (or, if PeopleSoft Common Stock is not
then quoted on Nasdaq, the largest quotation system on which PeopleSoft Common
Stock is then quoted), and (c) if PeopleSoft Common Stock is not listed on any
exchange or quoted on any quotation system, the value thereof as determined in
good faith by PeopleSoft's board of directors.
(9) Final Purchase Option Exercise Price means the Purchase Option
Exercise Price minus the amount by which this corporation's Liabilities existing
at the Purchase Option Exercise Date (other than liabilities under the
Development Agreement, Services Agreement and Marketing Agreement) exceed the
aggregate of this corporation's then existing cash, cash equivalents and
short-term and long-term investments (but excluding from such cash, cash
equivalents and short-term and long-term investments the amount of Available
Funds determined as of the Purchase Option Exercise Date which have not, as of
such date, been paid by this corporation in accordance with the Development
Agreement).
(10) Liabilities means, with respect to this corporation, (a) all
liabilities required to be reflected or reserved against in this corporation's
financial statements under generally accepted accounting principles consistently
applied ("GAAP"), (b) any guaranty of any indebtedness of another person and (c)
any reimbursement or similar obligation with respect to any letter of credit
issued for the account of this corporation or as to which this corporation is
otherwise liable. Liabilities of the type described in (b) and (c) shall be
valued at the full amount of the potential liability of the corporation thereon.
(11) Licensed Product means a Momentum Product as to which the
License Option (as defined in the Marketing Agreement) has been exercised by
PeopleSoft.
(12) Product Payments means payments made by PeopleSoft to this
corporation
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<PAGE> 6
under the Marketing Agreement with respect to Licensed Products.
(13) Purchase Option Exercise Date means the date upon which
PeopleSoft notifies this corporation in writing of its exercise of the Purchase
Option as provided in Section (C) of this Article FIFTH.
(14) Purchase Option Exercise Price means the greatest of the
following:
(a) (i) 15 times the sum of (i) actual worldwide Product
Payments and Developed Technology Royalties made by or due from PeopleSoft to
this corporation with respect to all Licensed Products and Developed Technology
for the four calendar quarters immediately preceding the calendar quarter in
which the Purchase Option is exercised (the "Base Period") plus (ii) such
Product Payments as would have been made by or due from PeopleSoft to this
corporation if PeopleSoft had not previously exercised its payment buy-out
option (as described in the Marketing Agreement) with respect to any such
Licensed Product for the four calendar quarters immediately preceding the
quarter in which the Purchase Option is exercised (for the purpose of (i) and
(ii), payment will be annualized for any product that was not a Licensed Product
for all of each of the four quarters in the Base Period), minus any amounts
previously paid to exercise any payment buy-out option for any Licensed Product
pursuant to the Marketing Agreement.
(b) the Fair Market Value of Six Hundred Thousand (600,000)
shares of PeopleSoft Common Stock (which number of shares shall be
proportionately adjusted for any stock dividend, split-up, combination or
reclassification of the PeopleSoft Common Stock) determined as of the Purchase
Option Exercise Date;
(c) $300 million plus any additional funds contributed to this
corporation by PeopleSoft, less the aggregate of all amounts paid or incurred to
develop the Momentum Products or pursuant to the Services Agreement, as of the
Purchase Option Exercise Date; and
(d) $75 million.
(15) Purchase Option Expiration Time means 11:59 p.m. California
time on December 31, 2002; provided that such date will be extended for
successive six month periods if, as of any June 30 or December 31 date beginning
with June 30, 2002, this corporation has not paid or accrued expenses for all
but $15 million of the Available Funds as of such date. Notwithstanding the
foregoing sentence, the Purchase Option Expiration Time will in no event occur
later than 11:59 p.m. California time on the 60th day after this corporation
provides PeopleSoft with a statement that, as of the end of any calendar month,
there are less than $2.5 million of Available Funds remaining after expenditures
pursuant to the Development Agreement, accompanied by a report of this
corporation's independent auditors stating that nothing has come to their
attention indicating that there are $2.5 million or more of Available Funds
remaining at
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that date.
(16) Services Agreement means the Services Agreement between
PeopleSoft and this corporation, dated as of December 30, 1998, as such
agreement may be amended or modified from time by amendments approved by
PeopleSoft and the Board of Directors of this corporation.
(17) Status Statement means, as of any date, a balance sheet
prepared by this corporation and delivered to PeopleSoft dated as of such date,
together with (a) a statement and brief description of all other liabilities of
this corporation constituting Total Liabilities as of such date not reflected on
such balance sheet, (b) a statement of the amount of Available Funds remaining
as of such date, and (c) a statement of the total amounts paid by and due from
this corporation pursuant to the Development Agreement through such date.
(18) Marketing Agreement means the Marketing and Distribution
Agreement between PeopleSoft and this corporation, dated as of December 30,
1998, as such agreement may be amended or modified from time to time by
amendments approved by PeopleSoft and the Board of Directors of this
corporation.
(19) Total Liabilities means (a) all Liabilities, plus (b) any other
debts, liabilities or obligations, absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, including all costs and expenses relating thereto, and including those
debts, liabilities and obligations arising under any law, rule or regulation, or
under any pending or threatened action, suit or proceeding, or any order or
consent decree of any governmental entity or any award of any arbitrator of any
kind, and those arising under any contract, commitment or undertaking.
(B) Grant of Option. PeopleSoft is hereby granted an exclusive irrevocable
purchase option to purchase all issued and outstanding shares of Class A Common
Stock (and any shares of Preferred Stock issued pursuant to Article FOURTH
Section (D)) of this corporation for the Final Purchase Option Exercise Price
(the "Purchase Option"). The Purchase Option, if exercised, must be exercised as
to all, but not less than all, issued and outstanding shares of Class A Common
Stock and may be exercised at any time at or prior to the Purchase Option
Expiration Time. The Final Purchase Option Exercise Price must be paid in cash.
The Purchase Option, together with the other rights of PeopleSoft under this
Article FIFTH and Article SIXTH, may, at PeopleSoft's option, be assigned or
otherwise transferred to any person or entity, including this corporation.
(C) Manner of Exercise. The Purchase Option shall be exercised, if at all,
at or before the Purchase Option Expiration Time by written notice (the
"Exercise Notice") from PeopleSoft to this corporation stating that the Purchase
Option is being exercised and setting forth (1) the Purchase Option Exercise
Price and (2) a closing date (the "Closing Date") on which all of the issued and
outstanding shares of Class A Common Stock will be purchased. The Purchase
Option shall be deemed to be exercised as of the date of mailing by first class
mail of the Exercise Notice
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<PAGE> 8
to this corporation at its principal offices.
(D) Closing.
(1) Closing Date; Cooperation. Except as set forth below, the
Closing Date shall be the date specified as such in the Exercise Notice, which
date specified shall be no later than 60 days after the Purchase Option Exercise
Date. The Closing Date may be extended by PeopleSoft if, in the judgment of
PeopleSoft, an extension of the Closing Date is necessary to obtain any
governmental or third party consent to the purchase of the Class A Common Stock,
to permit any necessary registration statement or similar filing to be declared
effective, or to permit the expiration prior to the Closing Date of any
statutory or regulatory waiting period. PeopleSoft may extend the Closing Date
for the reasons set forth in the preceding sentence by delivering written notice
of such extension to this corporation on or prior to the previously specified
Closing Date. This corporation shall cooperate with PeopleSoft to effect the
closing of the Purchase Option, including without limitation seeking any
required third party or governmental consents, and filing any applications,
notifications, registration statements or the like which may be necessary to
effect the closing.
(2) Certain Restrictions Following Purchase Option Exercise Date.
From the Purchase Option Exercise Date until the Closing Date, this corporation
will not take any of the following actions (or permit any such actions to be
taken on its behalf) except with the prior written consent of PeopleSoft:
(a) borrow money, or mortgage, remortgage, pledge, hypothecate
or otherwise encumber any of its assets;
(b) sell, lease, lend, exchange or otherwise dispose of any of
its assets, other than sales of inventory in the ordinary course of business;
(c) pay or declare any dividends or make any distributions on
or in respect of any shares of its capital stock;
(d) default in its obligations under any material contract,
agreement, commitment or undertaking of any kind or enter into any material
contract, agreement, purchase order or other commitment; or
(e) enter into any other transaction or agreement or
arrangement, or incur any liabilities, not in the ordinary course of this
corporation's business.
(3) Determination of Final Purchase Option Exercise Price. Not later
than 15 business days following the Purchase Option Exercise Date, this
corporation shall deliver a final Status Statement to PeopleSoft prepared as of
the Purchase Option Exercise Date. Following receipt of such Status Statement
and completion of any other investigation as PeopleSoft shall
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<PAGE> 9
deem necessary or appropriate, and prior to the Closing Date, PeopleSoft shall
determine the Final Purchase Option Exercise Price by making the adjustments to
the Purchase Option Exercise Price contemplated by Section (A)(10) of this
Article FIFTH and shall notify this corporation of such determination.
(4) Payment of Final Purchase Option Exercise Price. On or before
the Closing Date, PeopleSoft shall deposit the full amount of the Final Purchase
Option Exercise Price with a bank or banks or similar entities designated by
PeopleSoft (which may include PeopleSoft's transfer agent if shares of
PeopleSoft Common Stock are being delivered) to pay, on PeopleSoft's behalf, the
Final Purchase Option Exercise Price (the "Payment Agent"). Funds deposited with
the Payment Agent shall be delivered in trust for the benefit of the holders of
Class A Common Stock, and PeopleSoft shall provide the Payment Agent with
irrevocable instructions to pay, on or after the Closing Date, the Final
Purchase Option Exercise Price for the shares of Class A Common Stock to the
holders of record thereof determined as of the Closing Date. Payment for shares
of Class A Common Stock shall be mailed to each holder at the address set forth
in this corporation's records or at the address provided by each holder or, if
no address is set forth in this corporation's records for a holder or provided
by such holder, to such holder at the address of this corporation. As soon as is
practicable upon PeopleSoft's request, this corporation shall provide, or shall
cause its transfer agent to provide, to PeopleSoft or to the Payment Agent, free
of charge, a complete list of the record holders of shares of Class A Common
Stock, as of a specified date, including the number of shares of Class A Common
Stock held of record and the address of each record holder as set forth in the
records of this corporation's transfer agent.
(E) Transfer of Title. Transfer of title to all of the issued and
outstanding shares of Class A Common Stock shall be deemed to occur
automatically on the Closing Date and thereafter this corporation shall be
entitled to treat PeopleSoft as the sole holder of all of the issued and
outstanding shares of its Class A Common Stock, notwithstanding the failure of
any holder of Class A Common Stock to tender the certificates representing such
shares to the Payment Agent, whether or not such tender is required or requested
by the Payment Agent. This corporation shall instruct its transfer agent not to
accept any shares of Class A Common Stock for transfer on and after the Closing
Date. This corporation shall take all actions reasonably requested by PeopleSoft
to assist in effectuating the transfer of shares of Class A Common Stock in
accordance with this Article FIFTH.
(F) Redemption of Class A Common Stock. At PeopleSoft's election (which
election may be made at any time, provided it is made, by delivery of written
notice thereof to this corporation, not less than five days prior to the Closing
Date), this corporation shall, subject to applicable restrictions in the
Delaware General Corporation Law, redeem on the Closing Date all issued and
outstanding shares of Class A Common Stock for an aggregate redemption price
equal to the Final Purchase Option Exercise Price. Such redemption shall be in
lieu of PeopleSoft paying the Final Purchase Option Exercise Price directly to
the stockholders of this corporation, and shall be subject to PeopleSoft
providing the Final Purchase Option Exercise Price to this
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<PAGE> 10
corporation to allow this corporation to pay the redemption price.
SIXTH: Protective Provisions.
(A) Legend. Certificates evidencing shares of Class A Common Stock and
Preferred Stock issued by or on behalf of this corporation shall bear a legend
in substantially the following form:
"The shares of Momentum Business Applications, Inc. evidenced hereby are
subject to an option in favor of PeopleSoft, Inc., as described in the Restated
Certificate of Incorporation of Momentum Business Applications, Inc. to purchase
such shares at a purchase price determined in accordance with Article FIFTH
thereof exercisable by notice delivered to this corporation at or prior to the
Purchase Option Expiration Time (as defined in the Restated Certificate of
Incorporation of Momentum Business Applications, Inc.). Copies of the Restated
Certificate of Incorporation of Momentum Business Applications, Inc. are
available at the principal place of business of Momentum Business Applications,
Inc. at 1301 Harbor Bay Boulevard, Alameda, California 94502, and will be
furnished to any stockholder on request and without cost."
(B) No Conflicting Action. This corporation shall not take, nor permit any
other person or entity within its control to take, any action inconsistent with
PeopleSoft's rights under Article FIFTH. This corporation shall not enter into
any arrangement, agreement or understanding, whether oral or in writing, that is
inconsistent with or limits or impairs the rights of PeopleSoft and the
obligations of this corporation hereunder, including without limitation any
arrangement, agreement or understanding that imposes any obligation upon this
corporation, or deprives this corporation of any material rights, as a
consequence of the exercise of the Purchase Option or the acquisition of the
outstanding Class A Common Stock pursuant thereto.
(C) Inspection and Visitation Rights; Status Statements. PeopleSoft shall
have the right to inspect and copy, on reasonable notice and during regular
business hours, the books and records of this corporation. PeopleSoft shall also
have the right to request from time to time (but not more frequently than
monthly) a Status Statement as of such date as PeopleSoft may request. Each
Status Statement shall be sent within seven days of request by PeopleSoft.
PeopleSoft shall also have the right to send a non-voting representative to
attend all meetings of this corporation's Board of Directors and any committees
thereof. Any representative, if designated in writing by PeopleSoft as such,
shall receive notice of all meetings of this corporation's Board of Directors
and each committee thereof, as well as copies of all documents and other
materials provided to any directors of this corporation in connection with any
such meeting not later than the time such materials are provided to other
directors. Such representative shall also be provided with copies of all
resolutions adopted or proposed to be adopted by unanimous written consent not
later than the time such resolutions are provided to other directors.
SEVENTH: Board of Directors.
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<PAGE> 11
(A) The number of directors which shall constitute the whole Board of
Directors of this corporation shall initially be four (4), but may be increased
or decreased from time to time by a resolution duly adopted by the Board of
Directors and shall be automatically increased as provided in Article FOURTH,
Section (B)(4). Subject to Article FOURTH, Section (B)(4), the Class A Common
Stock shall be entitled to elect three (3) directors and the Class B Common
Stock shall be entitled to elect one (1) director.
(B) Nomination of candidates for election to the Board of Directors shall
be made as provided in the bylaws of this corporation. Election of directors
need not be by written ballot.
(C) Subject to Article FOURTH, Section (B)(4), the Board of Directors
shall be and is divided into three classes: Class I, Class II and Class III.
Each director shall serve for a term ending on the date of the third annual
meeting of stockholders following the annual meeting at which the director was
elected; provided, however, that each initial director in Class I shall hold
office until the annual meeting of stockholders in 1999; each initial director
in Class II shall hold office until the annual meeting of stockholders in 2000;
and each initial director in Class III shall hold office until the annual
meeting of stockholders in 2001. Notwithstanding the foregoing provisions of
this Article SEVENTH, each director shall serve, until his or her successor is
duly elected and qualified or until his or her death, resignation,
disqualification or removal.
(D) In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
(E) Except as otherwise provided in Article FOURTH, Section (B)(4), or as
required by law, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining directors then in office
(and not by the stockholders), even though less than a quorum of the Board of
Directors; provided that a representative of the Class B Common Stock may be
replaced only by action of the Class B Common Stock. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified.
(F) The name and mailing address of each person who is to serve as a
director until the annual meeting of the stockholders entitled to vote for the
class of that director or until a successor is elected or appointed and
qualified are as follows:
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<PAGE> 12
<TABLE>
<CAPTION>
NAME MAILING ADDRESS CLASS
<S> <C> <C>
Ronald E.F. Codd Momentum Business Applications I (Class A Representative)
1301 Harbor Blvd
Alameda, CA 94502
Aneel Bhusri PeopleSoft, Inc. III (Class B Representative)
4460 Hacienda Drive
Pleasanton, CA 94588
</TABLE>
EIGHTH: Bylaws. In furtherance and not in limitation of the powers conferred by
statute, and subject to the next sentence, the Board of Directors and the
stockholders of this corporation are each expressly authorized to adopt, amend
or repeal the bylaws of this corporation subject to any particular provisions
concerning amendments set forth in this Restated Certificate of Incorporation or
the bylaws of this corporation. No amendment to the bylaws may be adopted by the
stockholders without the approval of holders of a majority of the Class B Common
Stock voting separately as a class if such amendment would affect the
classification of the Board of Directors, or would otherwise regulate the
conduct of the Board's affairs or the manner in which it may act.
NINTH: Stockholder Meetings.
(A) Special Meetings. Special meetings of the stockholders for any purpose
or purposes whatsoever may be called at any time only by the Board of Directors,
the Chairman of the Board or the President of this corporation.
(B) No Action Without Meeting. At any time when this corporation has more
than one stockholder of any class of capital stock, no action required to be
taken or which may be taken at any annual or special meeting of the stockholders
may be taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
Notwithstanding the foregoing, the holder or holders of the Class B Common Stock
may take any action permitted to be taken by such holders as a class by written
consent without a meeting.
TENTH: Limitation of Liability. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit, and to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware General
Corporation Law as the same exists or may hereafter be amended. If the Delaware
General Corporation Law is amended after the filing of this Restated Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so
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amended.
Neither the adoption or repeal of this Article, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
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IN WITNESS WHEREOF, the undersigned officer has executed this Restated
Certificate of Incorporation on December 30, 1998, and does hereby certify that
this Restated Certificate of Incorporation, which restates and integrates, and
also further amends, the provisions of this corporation's Certificate of
Incorporation, was duly adopted by the stockholders of this corporation in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
Momentum Business Applications, Inc.
By:
-------------------------------------
Ronald E.F. Codd
President
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EXHIBIT 10.4
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made as of the 30th day
of December 1998 between PeopleSoft, Inc., a Delaware corporation
("PeopleSoft"), and Momentum Business Applications, Inc. a Delaware corporation
("Momentum").
B A C K G R O U N D
A. PeopleSoft is the holder of all of the issued and outstanding shares of
capital stock of Momentum. PeopleSoft intends to contribute $250 million to
Momentum, to license certain technology to Momentum, and to make other
arrangements in order to establish Momentum as a separate enterprise for the
purpose of developing certain software products and commercializing such
products, most likely through licensing to PeopleSoft.
B. PeopleSoft intends to distribute all of the Momentum Shares (as defined
below) to the holders of its Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
1.2 "Agent" shall mean Boston EquiServe, L.P., as distribution
agent, appointed by PeopleSoft to distribute certificates representing the
Momentum Shares pursuant to the Distribution.
1.3 "PeopleSoft/Momentum Agreements" shall mean this Agreement, the
Development Agreement, the Marketing Agreement, the Services Agreement and the
Purchase Option.
1.4 "PeopleSoft Common Stock" shall mean the Common Stock, par value
$0.01 per share, of PeopleSoft.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Momentum Shares" shall mean the Class A Common Stock, par value
$0.001 per share, of Momentum.
<PAGE> 2
1.7 "Development Agreement" shall mean the Development and License
Agreement dated as of the date hereof between PeopleSoft and Momentum.
1.8 "Distribution" shall mean the distribution of Momentum Shares to
holders of record on December 31, 1998 of PeopleSoft Common Stock immediately
following completion of the transactions contemplated in Sections 2 and 3
hereof.
1.9 "Distribution Date" shall mean the proposed date of mailing
certificates representing the Momentum Shares to the PeopleSoft Stockholders
January 15, 1998.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.11 "Information Statement" shall mean the Information Statement to
be distributed to the holders of PeopleSoft Common Stock in connection with the
Distribution relating to the Momentum Registration Statement.
1.12 "Marketing Agreement" shall mean the Marketing and Distribution
Agreement dated as of the date hereof between PeopleSoft and Momentum.
1.13 "Momentum Registration Statement" shall mean the registration
statement on Form 10 registering the issuance of Momentum Shares pursuant to the
Distribution.
1.14 "PeopleSoft Stockholders" shall mean the holders of record of
PeopleSoft's Common Stock on the Record Date.
1.15 "Purchase Option" shall mean that certain option contained in
Momentum's Restated Certificate of Incorporation pursuant to which PeopleSoft
has the right to purchase all, but not less than all, of the outstanding
Momentum Shares.
1.16 "Record Date" shall mean the close of business on December 31,
1998 or such other date as is determined by the PeopleSoft Board of Directors or
any committee thereof.
1.17 "Services Agreement" shall mean the Services Agreement dated as
of the date hereof between PeopleSoft and Momentum.
1.18 "Securities Act" shall mean the Securities Act of 1933, as
amended.
2. Preliminary Action.
2.1 Registration Statement and Information Statement. Momentum has
prepared and filed the Momentum Registration Statement with the Commission.
Subject to the conditions set forth herein, PeopleSoft and Momentum shall use
reasonable efforts to cause the Momentum registration statements to become
effective under the Exchange Act. Momentum has prepared, and shall cause to be
mailed, the Information Statement to the PeopleSoft Stockholders
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<PAGE> 3
2.2 Blue Sky. Momentum shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
Distribution to permit the Momentum Shares to be distributed as described in the
Information Statement.
2.3 Listing. Momentum has prepared and filed an application to
effect the listing of the Momentum Shares on the Nasdaq National Market.
Momentum shall use reasonable efforts to cause the Momentum Shares to be so
listed.
2.4 No Representations or Warranties; Consents. Each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
3. Issue and Sale of Momentum Shares.
3.1 Purchase of Momentum Class A Common Stock. On or about the
Record Date, in consideration of, among other things, a $250 million capital
contribution to Momentum by PeopleSoft, Momentum will issue to PeopleSoft that
number of Momentum Shares such that PeopleSoft may distribute to holders of
PeopleSoft Common Stock one Momentum Share for every 50 shares of PeopleSoft
Common Stock held on the Record Date.
4. The Distribution.
4.1 The Distribution. On or about the Record Date, and upon receipt
of the capital contribution described in Section 3 hereof, Momentum shall cause
to be issued to PeopleSoft a certificate or certificates representing a
sufficient number of Momentum Shares so that PeopleSoft may distribute one
Momentum Share for every 50 shares of PeopleSoft Common Stock held on the Record
Date. PeopleSoft shall cause the shares to be transferred to an Escrow Agent to
be held in the name of the Escrow Agent for the benefit of the PeopleSoft
Stockholders until shortly before the Distribution Date. Said Escrow Arrangement
shall provide that the Momentum Shares shall be released to the Agent upon
notification from PeopleSoft and Momentum that the conditions to the completion
of the Distribution set forth in Section 6 hereto have been met or waived.
4.2 Expenses of Distribution. All expenses related in any way to the
Distribution, including without limitation all legal, financial advisory and
accounting fees of PeopleSoft and Momentum, shall be borne by PeopleSoft.
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<PAGE> 4
5. Additional Assurances: Indemnification.
5.1 Mutual Assurances. PeopleSoft and Momentum agree to cooperate
with respect to the implementation of the PeopleSoft/Momentum Agreements and to
execute such further documents and instruments as may be necessary to confirm
the transactions contemplated thereby.
5.2 Indemnification. If PeopleSoft exercises the Purchase Option,
from and after such exercise, PeopleSoft shall indemnify, defend and hold
harmless Momentum's officers and directors to the same extent as provided in
Momentum's Restated Certificate of Incorporation.
5.3 Notice. Any person entitled to indemnification pursuant to
Section 5.2 shall give PeopleSoft prompt notice in writing, in the manner set
forth in Section 7.7 below, of any claim or demand made against such person for
which such person may be entitled to indemnification under Section 5.2.
6. Conditions to Completion of Distribution. Completion of the
Distribution shall be subject to the satisfaction or waiver by PeopleSoft of the
following conditions and the satisfaction or waiver by Momentum of the
conditions in Sections 6.8 and 6.9:
6.1 Board Approval. The PeopleSoft/Momentum Agreements (including
exhibits and schedules) shall have been approved by the Board of Directors of
PeopleSoft and Momentum and shall have been executed and delivered by
appropriate officers of PeopleSoft and Momentum, and the PeopleSoft Board of
Directors (or a committee thereof) shall have declared a dividend of the
Momentum Shares as of the Record Date to the holders of record of the PeopleSoft
Common Stock.
6.2 Securities Law Compliance. The transactions contemplated hereby
shall be in compliance with applicable federal and state securities laws, and
the Momentum Registration Statement and PeopleSoft Registration Statement shall
have been declared effective and no stop orders shall have been instituted with
respect thereto under the Exchange Act.
6.3 Restated Certificate of Incorporation. The Restated Certificate
of Incorporation of Momentum shall have been adopted by the Board of Directors,
approved by PeopleSoft as sole stockholder of Momentum, and filed with the
Delaware Secretary of State.
6.4 Listing Application Approved. The Momentum Shares shall be
approved for quotation on the Nasdaq National Market.
6.5 Fairness Opinion. PeopleSoft shall have received an opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to
PeopleSoft, in form and substance satisfactory to PeopleSoft, to the effect that
(i) from a financial point of view, the Distribution provides a reasonable
structure to pursue the financial objectives described in the Information
Statement of PeopleSoft and (ii) from a financial point of view, the
Distribution is fair to the stockholders of PeopleSoft.
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<PAGE> 5
6.6 Permits and Licenses. Momentum shall have received such permits
and licenses as may be necessary for the purpose of commencing operations
contemplated by the PeopleSoft/Momentum Agreements.
6.7 Consents. Each of PeopleSoft and Momentum shall have received
such consents, and shall have received executed copies of such agreements or
amendments of agreements, as it shall deem necessary in connection with the
completion of the transaction contemplated by this Agreement.
6.8 Other Instruments. All actions and other documents and
instruments deemed necessary or advisable in connection with the transactions
contemplated hereby shall have been taken or executed, as the case may be, in
form and substance satisfactory to PeopleSoft and Momentum.
6.9 Legal Proceedings. No legal proceedings affecting or arising out
of the transactions contemplated hereby or which could otherwise affect
PeopleSoft or Momentum in a materially adverse manner shall have been commenced
or threatened against PeopleSoft, Momentum or the directors or officers of
either PeopleSoft or Momentum.
7. Miscellaneous.
7.1 Waiver, Remedies and Amendment. Any waiver by either party
hereto of a breach of any provisions of this Agreement shall not be implied and
shall not be valid unless such waiver is recited in writing and signed by such
party. Failure of any party to require, in one or more instances, performance by
the other party in strict accordance with the terms and conditions of this
Agreement shall not be deemed a waiver or relinquishment of the future
performance of any such terms or conditions or of any other terms and conditions
of this Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended except in a writing
signed by both parties.
7.2 Assignment. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that PeopleSoft may assign
such rights and obligations hereunder to an Affiliate of PeopleSoft or to an
Affiliate of PeopleSoft or to any person or entity with which PeopleSoft is
merged or consolidated or which acquires all or substantially all of the assets
of PeopleSoft.
7.3 Arbitration.
(a) All disputes which may arise under, out of or in
connection with this Agreement shall be settled by arbitration conducted in the
city of San Francisco, state of California, in accordance with the then existing
rules of the American Arbitration Association, and judgment upon
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the award rendered by the Arbitrators may be entered in any court having
jurisdiction thereof. The parties hereby agree that service of any notices in
the course of such arbitration at their respective addresses as provided for in
Section 7.7 of this Agreement shall be valid and sufficient.
(b) In any arbitration pursuant to this Section 7.3, the award
shall be rendered by a majority of the members of a board of arbitration
consisting of three members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30 days after the
commencement of the arbitration proceeding, then one arbitrator shall be
appointed by PeopleSoft and one arbitrator shall be appointed by Momentum within
60 days after the commencement of the arbitration proceeding. The third
arbitrator shall be appointed by mutual agreement of such two arbitrators. In
the event of failure of the two arbitrators to agree within 75 days after
commencement of the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the American Arbitration
Association in accordance with its then existing rules. Notwithstanding the
foregoing, in the event that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such arbitrator and the
third arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules. For purposes of this Section 7.3, the
"commencement of the arbitration proceeding" shall be deemed to be the date upon
which a written demand for arbitration is received by the American Arbitration
Association from one of the parties.
7.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
7.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of California as applied to residents
of that state entering into contracts to be performed in that state.
7.6 Headings. The headings set forth at the beginning of the various
sections of this Agreement are for convenience and form no part of the Agreement
between the parties.
7.7 Notices. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid.
If to PeopleSoft: PeopleSoft, Inc.
4660 Hacienda Drive
Pleasanton, California 94588
Attention: General Counsel
If to Momentum: Momentum Business Applications, Inc.
1301 Harbor Bay Blvd.
Alameda, California 94502
Attention: President
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All notices shall be deemed to be effective five days after the date
of mailing. Either party may change the address at which notice is to be
received by written notice pursuant to this Section 7.7.
7.8 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken and
the remaining provisions shall remain in full force and effect.
7.9 Relationship of the Parties. For all purposes of this Agreement,
Momentum and PeopleSoft shall be deemed to be independent contractors and
anything in this Agreement to the contrary notwithstanding, nothing herein shall
be deemed to constitute Momentum and PeopleSoft as partners, joint venturers,
co-owners, an association or any entity separate and apart from each party
itself, nor shall this Agreement constitute any party hereto an employee or
agent, legal or otherwise, of the other party for any purposes whatsoever.
Neither party hereto is authorized to make any statements or
representations on behalf of the other party or in any way to obligate the other
party, except as expressly authorized in writing by the other party. Anything in
this Agreement to the contrary notwithstanding, no party hereto shall assume nor
shall be liable for any liabilities or obligations of the other party, whether
past, present or future.
7.10 Survival. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.7,
7.8 and this Section 7.10 shall survive the termination for any reason of this
Agreement. Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement. Neither party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PEOPLESOFT, INC.
By:
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Title:
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MOMENTUM BUSINESS APPLICATIONS, INC.
By:
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Title:
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