<PAGE> 1
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PEOPLESOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 68-0137069
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4440 ROSEWOOD DRIVE
PLEASANTON, CALIFORNIA 94588
(510) 225-3000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
DAVID A. DUFFIELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEOPLESOFT, INC.
4440 ROSEWOOD DRIVE
PLEASANTON, CALIFORNIA 94588
(510) 225-3000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------
COPIES TO:
HENRY P. MASSEY, JR., ESQ. GREGORY M. GALLO, ESQ.
SUSAN J. SKAER, ESQ. SCOTT M. STANTON, ESQ.
PETER S. HEINECKE, ESQ. SHARON W. HAWKINS, ESQ.
WILSON SONSINI GOODRICH & ROSATI GRAY CARY WARE AND FREIDENRICH
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 400 HAMILTON AVENUE
PALO ALTO, CA 94304-1050 PALO ALTO, CA 94301
(415) 493-9300 (415) 328-6561
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
Effective Time of the Merger of Red Pepper Software Company ("Red Pepper") with
and into PeopleSoft, Inc. ("PeopleSoft"), as described herein.
-------------------
CALCULATION OF REGISTRATION FEE
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====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE(2) PRICE(2) FEE(3)
- --------------------------------------------------------------------------------------------------------------------
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Common Stock $0.01 par value...... 2,682,917 shares $78.25 $209,938,255 $72,393
====================================================================================================================
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(1) This Registration Statement relates to securities of PeopleSoft issuable to
the shareholders of Red Pepper in the proposed acquisition of Red Pepper by
PeopleSoft and represents the maximum number of shares of PeopleSoft's
Common Stock, $.01 par value (the "PeopleSoft Common Stock"), issuable to
the shareholders of Red Pepper upon consummation of the Merger.
(2) Estimated solely for the purpose of calculation of the registration fee
based on the average of the high and low prices of Registrant's Common
Stock on The Nasdaq National Market on September 24, 1996.
(3) In accordance with Section 6(b) under the Securities Act of 1933, as
amended (the "Securities Act"), the registration fee is set at the minimum
amount for filing of a registration statement as it is greater than the fee
payable pursuant to Rule 457(f) of the Securities Act.
-------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with the provisions of
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 2
PEOPLESOFT, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ---------------------------------------------------
(INFORMATION ABOUT THE TRANSACTION)
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Facing Page; Cross-Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Available Information; Inside Front and Outside Back
Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information................................. Summary; Risk Factors; Selected Historical and
Unaudited Pro Forma Financial Data of PeopleSoft;
Comparative Historical Per Share Data; Background of
and Reasons for the Merger; Terms of the Merger
4. Terms of the Transaction.............................. Summary; Introduction; Background of and Reasons for
the Merger; Terms of the Merger, Comparative Rights
of Red Pepper Shareholders and PeopleSoft
Stockholders
5. Pro Forma Financial Information....................... Comparative Historical and Unaudited Pro Forma
Combined Per Share Data; Unaudited Pro Forma
Combined Condensed Financial Statements
6. Material Contacts with the Company Being
Acquired.............................................. Background of and Reasons for the Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be Underwriters...... *
8. Interests of Named Experts and Counsel................ Experts; Legal Matters
9. Disclosure of Securities and Exchange Commission
Position on Indemnification for Securities Act
Liabilities........................................... *
(INFORMATION ABOUT THE REGISTRANT)
10. Information with Respect to S-3 Registrants........... *
11. Incorporation of Certain Information by Reference..... *
12. Information with Respect to S-2 or S-3 Registrants.... *
13. Incorporation of Certain Information by Reference..... *
14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants........................... Summary; Risk Factors; Background of and Reasons for
the Merger; PeopleSoft Business; Properties; Selected
Financial Data of PeopleSoft; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; PeopleSoft Financial Statements
(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with Respect to S-3 Companies............. *
16. Information with Respect to S-2 or S-3 Companies...... *
</TABLE>
<PAGE> 3
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ---------------------------------------------------
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17. Information with Respect to Companies Other
Than S-2 or S-3 Companies............................. Summary; Risk Factors; Background of and Reasons for
the Merger; Business of Red Pepper; Stock Owned by
Red Pepper Management and Principal Shareholders;
Selected Historical Financial Data of Red Pepper;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Red Pepper
Financial Statements
(VOTING AND MANAGEMENT INFORMATION)
18. Information If Proxies, Consents or
Authorizations Are to be Solicited.................... Summary; Introduction; Solicitation of Written Consent
of Red Pepper Shareholders; Background of and
Reasons for the Merger
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited
or in an Exchange Offer............................... *
</TABLE>
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* Not Applicable.
<PAGE> 4
RED PEPPER SOFTWARE COMPANY
1810 GATEWAY DRIVE
SUITE 150
SAN MATEO, CALIFORNIA 94404
October ___, 1996
Dear Shareholder:
You will find enclosed a written consent of the shareholders of Red
Pepper Software Company, a California corporation ("Red Pepper"). The written
consent ("Written Consent") requests your approval of (i) the Agreement and Plan
of Reorganization dated September 4, 1996 (the "Reorganization Agreement")
between Red Pepper and PeopleSoft, Inc., a Delaware corporation ("PeopleSoft"),
pursuant to which Red Pepper will be merged with and into PeopleSoft (the
"Merger"), (ii) the related Agreement of Merger to be filed with the Delaware
Secretary of State and the California Secretary of State in order to effect the
Merger, and (iii) the establishment of an escrow fund pursuant to which claims
for indemnification may be made by PeopleSoft following consummation of the
Merger (the "Escrow Fund").
The Merger will become effective as soon as practicable after all
necessary regulatory and shareholder approvals are obtained, and certain other
conditions are satisfied (the "Effective Date").
Upon the consummation of the Merger, holders of Red Pepper capital
stock, warrants and options to purchase Red Pepper Common Stock will receive in
aggregate 2,975,000 shares of PeopleSoft Common Stock, $.01 par value (the
"PeopleSoft Common Stock"). Unexercised options to acquire Red Pepper Common
Stock will be assumed by PeopleSoft, all as more fully described in the
accompanying Prospectus/Consent Solicitation Statement in the section entitled
"Terms of the Merger--Manner and Basis of Converting Shares." The consideration
payable by virtue of the Merger (the "Purchase Price") will consist of shares of
PeopleSoft Common Stock, with the actual number of shares to be determined upon
the closing of the Merger. The actual Purchase Price payable to holders of Red
Pepper capital stock is subject to adjustment as described in the accompanying
Prospectus/Consent Solicitation Statement in the section entitled "Terms of the
Merger--Manner and Basis of Converting Shares" and in Section 3 of the Merger
Agreement attached thereto.
PeopleSoft is registering the issuance of the shares of PeopleSoft
Common Stock in the Merger under the Securities Act of 1933, as amended. The
number of shares of PeopleSoft Common Stock issued to Red Pepper shareholders
will be determined according to the Exchange Ratio. The Merger is intended to be
a tax-free reorganization which will not result in recognition of any gain or
loss by Red Pepper, Red Pepper shareholders or PeopleSoft.
Your Board of Directors has carefully considered the terms and
conditions of the proposed Merger and has determined that the Merger is in the
best interests of Red Pepper and its shareholders. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY RECOMMENDED THAT THE SHAREHOLDERS OF RED PEPPER VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
In the material accompanying this letter you will find a Written
Consent and a Prospectus/Consent Solicitation Statement relating to the actions
to be taken by the Red Pepper shareholders pursuant to the Written Consent. The
Prospectus/Consent Solicitation Statement more fully describes the proposed
Merger and includes information about Red Pepper and PeopleSoft. I urge you to
read and consider these materials carefully. Please complete, sign, date and
return your Written Consent in the enclosed envelope.
The Merger is scheduled to be consummated on , 1996.
In order to assure that your shares are voted on this important matter, you are
requested to complete and sign your consent and return it in the enclosed
envelope on or before , 1996.
On behalf of your Board of Directors, thank you for your continued
support.
Sincerely,
RED PEPPER SOFTWARE COMPANY
/s/Monte Zweben
-------------------------------------
MONTE ZWEBEN
President and Chief Executive Officer
<PAGE> 5
DATED , 1996
PEOPLESOFT, INC.
RED PEPPER SOFTWARE COMPANY
PROSPECTUS/CONSENT SOLICITATION STATEMENT
-----------------------
This Prospectus/Consent Solicitation Statement is being furnished to
shareholders of Red Pepper Software Company, a California corporation ("Red
Pepper"), in connection with the proposed acquisition of Red Pepper by
PeopleSoft, Inc., a Delaware corporation ("PeopleSoft" or the "Company"), by
means of the merger of Red Pepper with and into PeopleSoft (the "Merger"),
pursuant to the terms set forth in the Agreement and Plan of Reorganization,
dated as of September 4, 1996 (the "Merger Agreement"), between PeopleSoft and
Red Pepper.
This Prospectus/Consent Solicitation Statement and the accompanying
form of written consent are first being mailed to shareholders of Red Pepper on
or about , 1996.
This Prospectus/Consent Solicitation Statement constitutes (a) the
Consent Solicitation of Red Pepper relating to the solicitation of written
consents from shareholders of Red Pepper, and (b) the Prospectus of PeopleSoft
constituting part of the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission relating to the shares of PeopleSoft Common
Stock issuable to Red Pepper shareholders in connection with the Merger. All
information herein with respect to Red Pepper has been furnished by Red Pepper,
and all information herein with respect to PeopleSoft has been furnished by
PeopleSoft.
-----------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY RED PEPPER SHAREHOLDERS
IN EVALUATING THE PROPOSALS TO BE VOTED ON BY
WRITTEN CONSENT AND THE ACQUISITION OF THE
SECURITIES OFFERED HEREBY.
-----------------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF PEOPLESOFT OFFERED HEREBY HAVE
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS/REGISTRATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The date of this Prospectus/Consent Solicitation Statement is October , 1996.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION.......................................................................... 1
SUMMARY ...................................................................................... 2
The Companies......................................................................... 2
Solicitation of Written Consents of Shareholders of Red Pepper........................ 2
The Merger............................................................................ 3
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA..................................... 6
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA COMBINED PER SHARE DATA......................... 8
RISK FACTORS................................................................................... 9
Risks Relating to the Merger.......................................................... 9
Risks Relating to the Combined Entity................................................. 10
Risks Relating to Red Pepper.......................................................... 16
SOLICITATION OF WRITTEN CONSENT OF RED PEPPER SHAREHOLDERS..................................... 17
General ............................................................................. 17
Matters to Be Approved by Written Consent............................................. 17
Record Date; Shares Entitled to Vote; Vote Required................................... 17
Written Consents; Written Consent Solicitation........................................ 18
BACKGROUND OF AND REASONS FOR THE MERGER....................................................... 19
PeopleSoft's Reasons for the Merger................................................... 19
Red Pepper's Reasons for the Merger................................................... 19
Background of the Merger.............................................................. 20
Affiliate Agreements.................................................................. 22
Certain Federal Income Tax Considerations............................................. 22
Accounting Treatment.................................................................. 23
TERMS OF THE MERGER............................................................................ 24
Effective Time........................................................................ 24
Manner and Basis of Converting Shares................................................. 24
Conduct of the Business of the Combined Companies Following the Merger................ 25
Conduct of Red Pepper's Business Prior to the Merger.................................. 25
No Solicitation....................................................................... 26
Indemnification by Red Pepper and Escrow of Purchase Price............................ 26
Conditions to the Merger.............................................................. 27
Termination or Amendment of Merger Agreement.......................................... 28
Non-Competition, Non-Solicitation and Non-Hire Agreements............................. 29
Affiliate Agreements.................................................................. 29
Rights of Dissenting Red Pepper Shareholders.......................................... 29
Governmental and Regulatory Approvals................................................. 30
INTERESTS OF CERTAIN PERSONS IN THE MERGER..................................................... 31
STOCK PRICE AND DIVIDEND INFORMATION........................................................... 32
PEOPLESOFT BUSINESS............................................................................ 33
General ............................................................................. 33
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<PAGE> 7
TABLE OF CONTENTS
(CONTINUED)
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PAGE
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Software Product Architecture......................................................... 33
Software Products..................................................................... 35
Services and Customer Support......................................................... 40
Sales and Marketing................................................................... 41
Competition........................................................................... 44
Software Product Development.......................................................... 45
Intellectual Property, Proprietary Rights, Licenses and Product Liability............. 46
Employees............................................................................. 46
Properties............................................................................ 47
SELECTED HISTORICAL FINANCIAL DATA OF PEOPLESOFT............................................... 48
PEOPLESOFT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................................ 49
MANAGEMENT..................................................................................... 55
Directors and Executive Officers...................................................... 55
EXECUTIVE COMPENSATION AND OTHER MATTERS....................................................... 57
Summary Compensation Table............................................................ 57
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values............. 57
Option Grants in Last Fiscal Year..................................................... 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................. 59
SECURITY OWNERSHIP OF PEOPLESOFT MANAGEMENT AND PRINCIPAL STOCKHOLDERS......................... 59
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.................................... 61
BUSINESS OF RED PEPPER......................................................................... 70
Introduction.......................................................................... 70
Background............................................................................ 70
Solution ............................................................................. 70
Software Products..................................................................... 71
Services and Customer Support......................................................... 71
Technology............................................................................ 72
Sales, Marketing and Distribution..................................................... 72
Research and Development and Intellectual Property Rights............................. 72
Employees............................................................................. 72
Facilities............................................................................ 72
SELECTED HISTORICAL FINANCIAL DATA OF RED PEPPER............................................... 73
RED PEPPER MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.......................................................................... 74
STOCK OWNED BY RED PEPPER MANAGEMENT AND PRINCIPAL SHAREHOLDERS................................ 79
</TABLE>
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<PAGE> 8
TABLE OF CONTENTS
(CONTINUED)
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DESCRIPTION OF PEOPLESOFT CAPITAL STOCK................................................................... 81
Common Stock..................................................................................... 81
Preferred Stock.................................................................................. 81
Preferred Stock Rights........................................................................... 81
Delaware Law and Certain Provisions of the Company's Certificate of Incorporation and Bylaws..... 84
Transfer Agent and Registrar..................................................................... 85
COMPARATIVE RIGHTS OF RED PEPPER SHAREHOLDERS AND PEOPLESOFT STOCKHOLDERS................................. 86
Size of the Board of Directors................................................................... 86
Power to Call Special Stockholders' Meetings..................................................... 86
Removal of Directors; Classified Board of Directors ............................................ 86
Filling Vacancies on the Board of Directors .................................................... 86
Directors' Committees............................................................................ 87
Dividends and Repurchases of Shares ............................................................. 87
Stockholder Voting ............................................................................. 87
Interested Director Transactions................................................................. 88
Stockholder Derivative Suits ................................................................... 88
Appraisal Rights ............................................................................... 88
"Blank Check" Preferred Stock and Common Stock Rights............................................ 88
EXPERTS ................................................................................................. 89
LEGAL MATTERS............................................................................................. 89
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................ F-1
</TABLE>
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<PAGE> 9
AVAILABLE INFORMATION
PeopleSoft is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648.
Copies of such material may be obtained by mail from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov. PeopleSoft's Common Stock is quoted on The Nasdaq
Stock Market and such reports, proxy statements and other information can also
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
PeopleSoft has filed with the SEC a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
PeopleSoft Common Stock to be issued pursuant to the Merger. This
Prospectus/Consent Solicitation Statement does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Such additional
information may be obtained from the SEC's principal office in Washington, D.C.
Statements contained in this Prospectus/Consent Solicitation Statement as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or to such other document, each such statement being qualified in all
respects by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PEOPLESOFT OR RED PEPPER. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SECURITIES OFFERED BY THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
--------------------------
References made in this Registration Statement on Form S-4 to
"PeopleSoft, the "Company" or the "Registrant" refer to PeopleSoft, Inc. and its
wholly owned subsidiaries. PeopleSoft, the PeopleSoft logo, PeopleTools,
PS/nVision, PeopleCode and PeopleTalk are trademarks of PeopleSoft, Inc., which
may be registered in some jurisdictions. Red Pepper, the Red Pepper logo and
ResponseAgent are trademarks of Red Pepper. All other trademarks used are owned
by their respective owners.
<PAGE> 10
SUMMARY
The following contains a brief summary of certain information contained
elsewhere in this Prospectus/Consent Solicitation Statement. This summary does
not contain a complete statement of all provisions of the proposals to be voted
on and is qualified in its entirety by the more detailed information appearing
elsewhere in this Prospectus/Consent Solicitation Statement and in the
information and documents annexed hereto.
THE COMPANIES
PeopleSoft, Inc. PeopleSoft, Inc. ("PeopleSoft" or the "Company")
designs, develops, markets, licenses, supports and services a family of
enterprise client/server application software products for use throughout large
and medium-sized organizations, worldwide. The Company's architecture is
designed specifically to take advantage of the Microsoft Windows family of
operating systems on the desktop, as well as a wide variety of popular
relational database management systems, operating systems and hardware platforms
choices on the server, making its software solutions among the most scalable and
portable in the application software industry. In addition to offering seamless
integration with a variety of third party workflow technologies, the Company's
products incorporate an array of leading edge technologies including electronic
commerce, graphical reporting and analysis tools, and distributed processing.
The products have been designed using PeopleTools, a suite of rapid application
development tools that are delivered to customers along with the application
products to facilitate modification and customization. The Company believes its
architecture is among the most flexible of enterprise client/server application
software products available today.
PeopleSoft employed over 1,950 employees worldwide as of August 31,
1996, with development, technical support, professional services or sales
facilities in the United States, Canada, the United Kingdom, France, Germany,
the Netherlands, Spain, Australia, Singapore, New Zealand, Brazil, Mexico and
Argentina. The Company licenses its software products primarily through a
worldwide direct sales force.
As used in this Prospectus/Consent Solicitation Statement, unless the
context indicates otherwise, the "Company" or "PeopleSoft" refers to PeopleSoft,
Inc., a Delaware corporation, and its subsidiaries and PeopleSoft Common Stock
refers to PeopleSoft's Common Stock, $.01 par value. The Company's principal
executive offices are located at 4440 Rosewood Drive, Pleasanton, California
94588 and its telephone number at that address is (510) 225-3000.
Red Pepper Software Company. Red Pepper Software Company ("Red Pepper")
designs, develops, markets, licenses, supports and services supply chain
management software based on advanced intelligent agent technology. Red Pepper's
ResponseAgent family of intelligent planning and scheduling solutions enables
manufacturers to respond to customer needs rapidly while minimizing supply chain
costs. ResponseAgent products enable real-time planning and scheduling across
global manufacturing enterprises and are designed to improve on-time delivery,
reduce inventory, maximize return-on-assets, minimize cycle-time and maximize
capacity utilization. Red Pepper markets its software and services primarily
through its direct sales organization, augmented by indirect sales channels
including systems consulting and integration firms and business application
software vendors. Red Pepper's customers include 3Com Corporation, Anchor Glass,
Hewlett-Packard, Sun Microsystems and Bausch & Lomb, among other leading
manufacturers in a variety of industries.
Red Pepper was incorporated in California in October 1992. Red Pepper's
executive offices are located at 1810 Gateway Drive, Suite 150, San Mateo,
California 94404, and its telephone number at that address is (415) 525-3300.
SOLICITATION OF WRITTEN CONSENTS OF SHAREHOLDERS OF RED PEPPER
Purpose. A Written Consent of Shareholders of Red Pepper (the "Written
Consent") will be mailed on or about _______________, 1996. The purpose of the
Written Consent is to consider and vote upon a proposal to approve and adopt the
Merger Agreement providing for the merger of Red Pepper with and into
PeopleSoft.
Record Date and Vote Required. Only Red Pepper shareholders of record
at the close of business on September 20, 1996 (the "Record Date") are entitled
to notice of, and to vote by Written Consent. Under the Merger Agreement, it is
a condition to consummation of the Merger that the Merger Agreement and Merger
be approved by the affirmative vote of holders of ninety-eight percent (98%) of
the outstanding shares of Red Pepper Common Stock, no par value (the "Red Pepper
Common Stock").
-2-
<PAGE> 11
As of the Record Date, there were outstanding an aggregate of
13,039,820 shares of Red Pepper Capital Stock held by 61 holders of record
assuming the conversion of all Red Pepper Preferred Stock into Common Stock.
THE MERGER
Terms of the Merger. At the Effective Time (as defined below), Red
Pepper will be merged with and into PeopleSoft. The Merger will become effective
as of the filing of an Agreement of Merger, to be entered into by Red Pepper and
PeopleSoft (the "Agreement of Merger"), with the Secretary of State of Delaware
provided that the Agreement of Merger and certain other documents are filed with
Secretary of the State of California (the "Effective Time"). Assuming all
conditions to the Merger are met or waived prior thereto, it is anticipated that
the Effective Time will occur on or about ____________, 1996 (the "Closing
Date").
The aggregate purchase price (the "Purchase Price") to be paid by
PeopleSoft (i) in exchange for the acquisition of all shares of Red Pepper
Common Stock outstanding as of the Effective Time and (ii) in consideration for
the assumption of all Red Pepper options outstanding will be determined as
described below. Each holder of Red Pepper Common Stock will receive that number
of shares of PeopleSoft Common Stock equal to the number of shares of Red Pepper
Common Stock held times the Common Exchange Ratio (as defined below). Pursuant
to written consents signed by the holders of the majority of the outstanding
Preferred Stock of Red Pepper and in accordance with the Articles of
Incorporation of Red Pepper, all outstanding Preferred Stock of Red Pepper will
be automatically converted into Common Stock immediately prior to the Effective
Time. Current holders of Red Pepper Preferred Stock will, therefore, receive
shares of PeopleSoft Common Stock on the basis of the number of shares of Red
Pepper Common Stock held as of the Effective Time. No fractional shares will be
issued; holders of Red Pepper Common Stock will receive cash payments based on
the Fair Market Value (as defined below) of PeopleSoft Common Stock in lieu of
any fractional shares to which they may be entitled. PeopleSoft will assume all
outstanding options to purchase Red Pepper Common Stock. Such options will
become exercisable to purchase that number of shares of PeopleSoft Common Stock
equal to the number of shares of Red Pepper Common Stock for which they were
exercisable multiplied by the Common Exchange Ratio and rounded down. The
exercise price of such options will be adjusted proportionately and any
restrictions or conditions will remain in effect, including repurchase rights
that are outstanding for shares acquired pursuant to unvested options which have
been exercised. Each share of PeopleSoft Common Stock issued in connection with
the Merger will be accompanied by a right to purchase one one-thousandth of a
share of Series A Participating Preferred Stock pursuant to the terms of a
Preferred Shares Rights Agreement dated February 15, 1995 between the Company
and The First National Bank of Boston. See "Description of PeopleSoft Capital
Stock -- Preferred Stock Rights."
The "Common Exchange Ratio" will equal the quotient of (i) the sum of
the number of shares of Red Pepper Common Stock outstanding plus the number of
shares of Red Pepper Common Stock subject to outstanding options less the number
of shares of Red Pepper Common Stock subject to Approved Options (as defined
below) divided by (ii) Two Million Nine Hundred Seventy-Five Thousand
(2,975,000). "Approved Options" are any options to purchase Red Pepper Common
Stock issued pursuant to Red Pepper's 1993 Stock Option Plan after August 22,
1996 with PeopleSoft's prior approval.
The "Fair Market Value" of PeopleSoft Common Stock will be equal to the
average closing price of a share of PeopleSoft Common Stock for the five
consecutive trading days ending on the trading day immediately prior to the
Effective Time, as reported on The Nasdaq National Market. See "Terms of the
Merger--Manner and Basis of Converting Shares."
Conditions to the Merger; Termination; Amendment. Consummation of the
Merger is subject to the satisfaction of various conditions. The Merger
Agreement may be terminated under certain circumstances, including (a) by mutual
written consent of PeopleSoft and Red Pepper, (b) by either PeopleSoft or Red
Pepper if the other party is in breach of any representation, warranty or
covenant contained in the Merger Agreement which has not been cured within
thirty (30) business days after delivery of a notice of a breach and such breach
would have a material adverse effect on the business, assets, financial
condition or results of operations of the breaching party; (c) by PeopleSoft if
there is any order, rule, statute or regulation prohibiting the consummation of
the Merger; (d) by PeopleSoft if there is any order, rule, statute or regulation
which would prohibit PeopleSoft's ownership or operation of any portion of Red
Pepper's business or which would compel the disposition of any portion of
PeopleSoft's or Red Pepper's business if such order, rule, statute or regulation
would have a material adverse effect on PeopleSoft's ability to realize the
anticipated benefits from the Merger; and (e) by either party if the Merger is
not consummated on or before March 2, 1997. The Merger Agreement may be amended
only with the consent of Red Pepper and PeopleSoft, at any time before or after
the approval of the Merger Agreement by the Red Pepper shareholders, provided
that after any such shareholder approval has been obtained no amendment of any
of the agreements executed in connection with the Merger may be made which by
law requires the further approval of the shareholders, without obtaining further
approval. It is not currently anticipated that any of the agreements executed in
connection with the Merger will be amended in any way. See "Terms of the
Merger--Conditions to the Merger" and "--Termination or Amendment of Merger
Agreement."
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<PAGE> 12
Indemnification by Red Pepper Shareholders and Escrow of PeopleSoft
Common Stock. In connection with the Merger, ten percent of the total number of
shares of PeopleSoft Common Stock issuable in the Merger (the "Escrow Shares")
and otherwise issuable to Red Pepper shareholders (the "Red Pepper
Shareholders") will be placed into an escrow account with a nationally
recognized banking institution to serve as security for any losses incurred by
PeopleSoft in the event of certain breaches by Red Pepper of representations or
warranties contained in the Merger Agreement. At the Closing, the Escrow Shares,
without any further act by any Red Pepper Shareholder, will be placed into such
escrow account. The Escrow Shares will be contributed on behalf of each Red
Pepper Shareholder in proportion to the number of shares of PeopleSoft Common
Stock such Red Pepper Shareholder would otherwise receive in the Merger. The
Escrow Shares will be held in escrow until on or about October __, 1997. See
"Terms of the Merger--Indemnification by Red Pepper and Escrow of Purchase
Price."
Stock Ownership Following the Merger. Based upon the discussion under
the section entitled "Summary--The Merger" and the number of shares of
PeopleSoft Common Stock issued and outstanding as of September 20, 1996, making
the assumptions set forth in "Terms of the Merger-- Manner and Basis of
Converting Shares" former holders of Red Pepper Common Stock would hold
approximately 5% of PeopleSoft's total issued and outstanding shares following
the Merger.
Resales of PeopleSoft Common Stock. The shares of PeopleSoft Common
Stock to be issued pursuant to the Merger Agreement have been registered under
the Securities Act, and therefore may be resold without restriction by persons
who are not deemed to be Affiliates (as such term is defined below) of Red
Pepper. See "Background of and Reasons for the Merger--Affiliate Agreements."
Listing of PeopleSoft Common Stock; Market Price Data. At the Effective
Time, the shares of PeopleSoft Common Stock to be issued pursuant to the Merger
Agreement will be approved for listing on The Nasdaq National Market under the
trading symbol "PSFT." The PeopleSoft Common Stock has been traded on The Nasdaq
National Market under the symbol "PSFT" since PeopleSoft's initial public
offering in November 1992. No established trading market exists for Red Pepper
Common Stock.
The closing sale price per share of PeopleSoft Common Stock as reported
on The Nasdaq National Market on September 4, 1996, the trading day and the date
of execution of the Merger Agreement by PeopleSoft, and on October __, 1996, the
latest practicable trading day before the printing of this Prospectus/Consent
Solicitation Statement, were $75.75 per share and $______, respectively. See
"Stock Price and Dividend Information."
Reasons for the Merger. PeopleSoft's Board of Directors voted
unanimously to approve the Merger because of a number of potential benefits that
will further the Company's strategic product and marketing initiatives
including: (i) secure ownership of Red Pepper's strategic, leading edge
technology which may offer PeopleSoft competitive advantages in its enterprise
solution strategy; (ii) gain significant domain expertise in supply chain and
additional depth in its manufacturing knowledge base;(iii) allow PeopleSoft to
further its best of breed application strategy and gain access to accounts it
previously may not have been able to penetrate; (iv) enhance Red Pepper's
marketing effort by PeopleSoft's financial backing and customer service
reputation, (v) confirm PeopleSoft's strong commitment to manufacturing and
enterprise solutions; and (vi) in the longer term, PeopleSoft may apply the Red
Pepper technology to other product areas possibly including health care, retail,
higher education and labor scheduling. See "Background of and Reasons for the
Merger--PeopleSoft's Reasons for the Merger."
The Board of Directors of Red Pepper unanimously approved the terms and
provisions of the Merger Agreement at its meeting held on September 1, 1996. The
Board of Directors of Red Pepper believes the terms of the Merger are fair for
the following reasons: (i) the Merger is expected to eliminate concerns of
current and potential Red Pepper customers and business partners regarding the
uncertain financial viability of Red Pepper; (ii) the Merger is expected to
create the potential to expand the market presence of Red Pepper's software
products in the United States through PeopleSoft's established global market
presence; (iii) the Merger is expected to generate potential economies of scale
with regards to worldwide customer support; (iv) the Merger is expected to
provide liquidity for Red Pepper's shareholders through their ownership of
PeopleSoft stock; and (v) the Merger is expected to realize savings in
marketing, general and administrative expenses by enabling Red Pepper to utilize
PeopleSoft's infrastructure and therefore invest more in research and
development than would otherwise be possible. See "Background of and Reasons for
the Merger--Red Pepper's Reasons for the Merger."
Recommendation of Red Pepper's Board of Directors. The Board of
Directors of Red Pepper has unanimously approved the Merger Agreement and
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. See "Background of and Reasons for the Merger."
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<PAGE> 13
Conduct of the Combined Companies Following the Merger. Assuming the
Merger is consummated, Red Pepper will be merged into PeopleSoft and cease to
exist as a separate corporation. All of the business, assets, liabilities and
obligations of Red Pepper will be assumed by PeopleSoft as the surviving
corporation. See "Terms of the Merger--Conduct of the Business of the Combined
Companies Following the Merger."
Exchange of Red Pepper Stock Certificates. At, or if practicable, at
least five days prior to, the Effective Time, PeopleSoft, acting through an
exchange agent (the "Exchange Agent"), will deliver to each Red Pepper
shareholder of record a letter of transmittal with instructions to be used by
such shareholder in surrendering certificates, which, prior to the Merger,
represented shares of Red Pepper Common Stock, or the right to acquire shares of
Red Pepper Common Stock, as the case may be. CERTIFICATES SHOULD NOT BE
SURRENDERED BY THE HOLDERS OF RED PEPPER COMMON STOCK UNTIL SUCH HOLDERS RECEIVE
THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. See "Terms of the
Merger--Manner and Basis of Converting Shares."
Non-Competition, Non-Solicitation and Non-Hire Agreements. Red Pepper's
President and Chief Executive Officer, Vice President of Finance and Operations,
Vice President of Sales and Vice President of Product Development have agreed to
enter into Non-Competition, Non-Solicitation and Non-Hire Agreements with
PeopleSoft (the "Non-Competition, Non-Solicitation and Non-Hire Agreements").
The Non-Competition, Non-Solicitation and Non-Hire Agreements will be between
these employees and PeopleSoft, and their effectiveness is contingent upon the
closing of the Merger. See "Terms of the Merger--Non-Competition,
Non-Solicitation and Non-Hire Agreements."
Affiliate Agreements. As a condition to the Merger, twelve shareholders
and option holders of Red Pepper, each of whom was identified by Red Pepper as
an affiliate (collectively, the "Affiliates"), entered into an agreement with
PeopleSoft restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of Red Pepper Common Stock held by
them prior to the Merger and the shares of PeopleSoft Common Stock received by
them in the Merger to help insure that the Merger will be treated as a pooling
of interests for accounting and financial reporting purposes. See "Terms of the
Merger--Conditions to the Merger" and "--Affiliate Agreements."
Certain Income Tax Considerations. The Merger is intended to qualify as
a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and accordingly neither PeopleSoft nor Red Pepper should
recognize a gain or loss as a result of the Merger and holders of Red Pepper
Common Stock should recognize no gain or loss on the exchange of their shares of
Red Pepper Common Stock for shares of PeopleSoft Common Stock in the Merger. The
ability of PeopleSoft, Red Pepper and the Red Pepper shareholders to treat the
Merger as a reorganization under Section 368(a) of the Code, and the
corresponding right of the Red Pepper shareholders to defer recognition of gain
realized on the receipt of PeopleSoft Common Stock in the Merger, are dependent
upon the satisfaction of the "continuity of interest" requirement. ALL RED
PEPPER SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS. See "Background of
and Reasons for the Merger--Certain Federal Income Tax Considerations."
Accounting Treatment. The Merger is intended to qualify as a pooling of
interests for financial reporting purposes in accordance with generally accepted
accounting principles. It is a condition to the closing of the Merger that the
Merger qualify as a pooling of interests for financial reporting purposes in
accordance with generally accepted accounting principles and the rules,
regulations and policies of the SEC. See "Background of and Reasons for the
Merger--Accounting Treatment."
Dissenters' Rights. Shareholders of Red Pepper who give proper written
demand for the appraisal of their shares prior to the effective date of the
Written Consent who do not vote in favor of the Merger and who comply with other
applicable requirements of California General Corporation Law will have a right
to receive payment in cash for the "fair value" of their shares of Red Pepper
Common Stock. See "Terms of the Merger--Rights of Dissenting Red Pepper
Shareholders."
-5-
<PAGE> 14
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
PeopleSoft's historical balance sheet data at June 30, 1996 and
historical statement of operations data for the six month periods ended June 30,
1995 and 1996 are derived from PeopleSoft's unaudited condensed consolidated
financial statements included elsewhere in this Prospectus/Consent Solicitation
Statement. PeopleSoft's historical balance sheet data at June 30, 1995 are
derived from PeopleSoft's unaudited condensed consolidated financial statements
which are not included in this Prospectus/Consent Solicitation Statement.
PeopleSoft's historical balance sheet data at December 31, 1994 and 1995 and
historical statement of operations data for each of the three years in the
period ended December 31, 1995 are derived from PeopleSoft's audited
consolidated financial statements included elsewhere in this Prospectus/Consent
Solicitation Statement. All consolidated financial statement information is
qualified by and should be read in conjunction with PeopleSoft's consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus/Consent Solicitation Statement. In the opinion of the management of
PeopleSoft, the above mentioned unaudited interim data of PeopleSoft has been
prepared on the same basis as the historical information derived from the
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for unaudited periods. Red Pepper's historical balance sheet data at June 30,
1996 and historical statement of operations data for the six months ended June
30, 1996 and 1995 are derived from Red Pepper's unaudited consolidated condensed
financial statements included herein. Red Pepper's historical balance sheet data
at June 30, 1995 are derived from Red Pepper's unaudited condensed financial
statements which are not included in this Prospectus/Consent Solicitation
Statement. Red Pepper's historical balance sheet data as of December 31, 1994
and 1995 and the statement of operations data for the years ended December 31,
1993, 1994, and 1995 are derived from Red Pepper's audited financial statements
included elsewhere in this Prospectus/Consent Solicitation Statement. Red
Pepper's historical balance sheet data as of December 31, 1993 are derived from
Red Pepper's audited financial statements which are not included in this
Prospectus/Consent Solicitation Statement. Red Pepper's financial information is
qualified by and should be read in conjunction with Red Pepper's financial
statements and notes thereto included elsewhere in the Prospectus/Consent
Solicitation Statement. In the opinion of the management of Red Pepper, the
above mentioned unaudited interim financial data of Red Pepper has been prepared
on the same basis as the historical information derived from the audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
unaudited interim periods. No cash dividends have been declared or paid in any
of the periods presented for either PeopleSoft or Red Pepper.
The unaudited selected pro forma combined financial data is derived
from the Unaudited Pro Forma Combined Condensed Financial Statements and notes
thereto included elsewhere in this Prospectus/Consent Solicitation Statement,
which gives effect to the Merger as a pooling of interests, and should be read
in conjunction with such Unaudited Pro Forma Combined Condensed Financial
Statements and notes thereto. The unaudited selected pro forma combined
statement of operations data combines PeopleSoft's consolidated results of
operation data for each of the three years in the period ended December 31, 1995
and for the six month periods ended June 30, 1995 and 1996 with Red Pepper's
consolidated results of operations data for the same periods, giving effect to
the Merger as if it had occurred at the beginning of each period presented. The
unaudited selected pro forma combined balance sheet data combines PeopleSoft's
consolidated balance sheet data as of June 30, 1996 with Red Pepper's
consolidated balance sheet data as of that date, giving effect to the Merger as
if it had occurred as of June 30, 1996. The selected pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated operating results or financial position that would have
occurred had the Merger been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results or
financial position. See "Unaudited Pro Forma Combined Condensed Financial
Statements."
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<PAGE> 15
PEOPLESOFT SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------
1993 1994 1995 1995 1996
------- -------- -------- --------- --------
Historical Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $58,191 $112,895 $227,568 $91,456 $180,914
Net income . . . . . . . . . . . . . . . $ 8,413 $ 14,545 $ 29,359 $10,743 $ 21,567
Net income per share . . . . . . . . . . $ 0.17 $ 0.28 $ 0.54 $ 0.20 $ 0.38
Shares used in per share computations. . 50,804 51,926 54,798 53,926 56,646
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
Historical Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . $ 61,881 $ 71,190 $ 87,445 $ 78,563 $106,209
Total assets . . . . . . . . . . . . . . $108,461 $172,271 $314,151 $207,531 $394,248
Long-term obligations . . . . . . . . . $ 989 $ 891 $ 1,305 $ 1,474 $ --
Total stockholders' equity . . . . . . . $ 72,084 $ 93,349 $156,701 $109,291 $191,122
</TABLE>
RED PEPPER SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------
1993 1994 1995 1995 1996
------ ------- ------- -------- ---------
Historical Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $ 30 $ 188 $ 4,571 $ 1,382 $ 4,088
Net loss . . . . . . . . . . . . . . . . $ (597) $ (1,464) $(2,792) $(1,579) $(1,045)
Net loss per share . . . . . . . . . . . $(0.30) $ (0.72) $ (1.37) $ (0.77) $ (0.44)
Shares used in per share computations . 2,017 2,040 2,040 2,040 2,353
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
---- ------ ------ ------ ------
Historical Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital (deficit) . . . . . . . $(97) $1,085 $2,581 $3,830 $1,934
Total assets . . . . . . . . . . . . . . $123 $1,716 $6,140 $5,909 $5,489
Long-term obligations . . . . . . . . . $ -- $ 67 $ 91 $ 85 $ 707
Total shareholders' equity (deficit) . . $(30) $1,231 $3,622 $4,585 $2,679
</TABLE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
Unaudited Selected Pro Forma Combined ------------------------------- -------------------------
Statement of Operations Data: 1993 1994 1995 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $58,221 $113,083 $232,139 $ 92,838 $185,002
Net income . . . . . . . . . . . . . . . $ 7,816 $ 13,081 $ 27,338 $ 9,600 $ 20,940
Net income per share . . . . . . . . . . $ 0.15 $ 0.25 $ 0.48 $ 0.17 $ 0.35
Shares used in per share computations . 51,413 53,221 57,031 56,117 59,132
<CAPTION>
Unaudited Selected Pro Forma Combined Balance AS OF JUNE 30,
Sheet Data: 1996
--------------
<S> <C>
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105,832
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,508
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 707
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,490
</TABLE>
- --------------
(1) See "Unaudited Pro Forma Combined Condensed Financial Statements."
-7-
<PAGE> 16
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA COMBINED PER SHARE DATA
The following table sets forth (1) historical net income per share and
historical book value per share data of PeopleSoft; (2) historical net loss per
share and historical book value per share data of Red Pepper; (3) unaudited pro
forma combined net income per share and unaudited pro forma combined book value
per share data of PeopleSoft after giving effect to the Merger on a pooling of
interests basis; and (4) unaudited equivalent pro forma combined net income per
share and unaudited equivalent pro forma combined book value per share data of
Red Pepper based on the exchange of 0.2056 of a share of PeopleSoft Common Stock
for each share of Red Pepper Common Stock. See "Terms of the Merger--Manner and
Basis of Converting Shares." The information in the table should be read in
conjunction with the audited consolidated financial statements and the unaudited
interim condensed consolidated financial statements of PeopleSoft and Red Pepper
and the notes thereto included elsewhere in this Prospectus/Consent Solicitation
Statement. The unaudited pro forma combined per share data is not necessarily
indicative of the net income per share or book value per share that would have
been achieved had the Merger been consummated as of the beginning of the periods
presented and should not be construed as representative of such amounts for any
future dates or periods.
<TABLE>
<CAPTION>
Historical PeopleSoft Red Pepper Equivalent
------------------------ Pro Forma Pro Forma Combined
PeopleSoft Red Pepper Combined (1)(2) (1)(2)
---------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
Net income (loss) per share:
Six months ended June 30,
1996 . . . . . . . . . . . . $0.38 $(0.44) $0.35 $0.07
For the year ended December 31,
1995 . . . . . . . . . . . . 0.54 (1.37) 0.48 0.10
1994 . . . . . . . . . . . . 0.28 (0.72) 0.25 0.05
1993 . . . . . . . . . . . . 0.17 (0.30) 0.15 0.03
Book value per share at (3):
June 30, 1996 . . . . . . . . . $3.79 $0.88 $3.61 $0.74
December 31, 1995 . . . . . . . 3.17 1.78 3.04 0.63
</TABLE>
- ------------------
(1) PeopleSoft and Red Pepper anticipate that the combined company will incur
merger-related expenses in the range of $3.0 million to $3.5 million. Such
expenses include investment advisory fees, legal and accounting expenses
and other transaction costs. These costs are preliminary, and therefore
subject to change, and will be charged to the operations of PeopleSoft in
the fiscal quarter in which the Merger is consummated, currently expected
to be the quarter ending December 31, 1996. The effects of these costs have
not been reflected in the historical or pro forma net income per share data
but are reflected (based on the top of the estimated range of expenses of
$3.5 million) in the pro forma book value per share data as of June 30,
1996 and December 31, 1995.
(2) The Red Pepper equivalent pro forma combined per share amounts are
calculated by multiplying the PeopleSoft pro forma combined per share
amounts by the Common Exchange Ratio of 0.2056 of a share of PeopleSoft
Common Stock for each share of Red Pepper Common Stock.
(3) Historical book value per share is computed by dividing stockholders'
equity by the number of shares of Common Stock outstanding at the end of
each period. PeopleSoft pro forma book value per share is computed by
dividing pro forma stockholders' equity, including the effect of pro forma
adjustments, by the pro forma number of shares of PeopleSoft Common Stock
which would have been outstanding had the Merger been consummated as of
each balance sheet date.
-8-
<PAGE> 17
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted on by Written Consent and the acquisition of the
securities offered hereby. For periods following the Merger, references to the
products, business, financial results or financial condition of PeopleSoft
should be considered to refer to PeopleSoft and its subsidiaries, including Red
Pepper, unless the context otherwise requires. This Prospectus/Content
Solicitation Statement contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, (the "Security Act") and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act").
Forward-looking statements are identified with a footnote #1. Actual results
could differ materially from those projected in such forward-looking statements
as a result of the risk factors set forth below and elsewhere in this
Prospectus/Consent Solicitation Statement.
RISKS RELATING TO THE MERGER
Integration of Operations; Retention of Key Red Pepper Personnel. The
integration of Red Pepper's operations following the Merger will require the
dedication of management resources which will temporarily detract from attention
to the day-to-day business of the combined company. The difficulties of
integration may be increased by the necessity of integrating personnel with
disparate business backgrounds and combining two different corporate cultures.
The retention of selected Red Pepper employees is critical to ensure continued
advancement, development and support of Red Pepper's technology as well as
on-going sales and marketing efforts. The Company has attempted to put a
retention program in place for key Red Pepper employees; however, no assurance
can be given that certain employees may not prefer working in a smaller company
environment or may not look for opportunities at a start-up company. The two
companies have different operating policies and practices which may cause
attrition of employees. There can be no assurance that the combined company will
be able to retain key technical, sales or marketing personnel after the Merger.
There also can be no assurance that the combined company's ability to increase
or maintain revenue will not be diminished by product transitions, loss of
personnel or other factors resulting from the Merger. In connection with the
Merger, PeopleSoft and Red Pepper expect to incur Merger related expenses,
currently estimated to be in the range of $3 million to $3.5 million, consisting
primarily of fees paid to investment bankers hired by PeopleSoft, and legal and
accounting fees and expenses, and other related charges. These expenses will be
charged to operations in the fiscal quarter in which the Merger is consummated,
currently expected to be the quarter ending December 31, 1996. This amount is a
preliminary estimate only and is therefore subject to change. In addition, there
can be no assurance that PeopleSoft will not incur additional charges associated
with the Merger in subsequent quarters.
Fixed Exchange Ratio. As a result of the Merger, each outstanding share
of Red Pepper Common Stock will be converted into the right to receive
approximately 0.2056 shares of PeopleSoft Common Stock. The actual exchange
ratio will depend upon the actual capitalization of Red Pepper at the Effective
Time. The Merger Agreement does not provide for adjustment of the Common
Exchange Ratio based on fluctuations in the price of PeopleSoft Common Stock.
Accordingly, the value of the consideration to be received by the shareholders
of Red Pepper upon the Merger will depend on the market price of PeopleSoft
Common Stock at the Effective Time. The closing price for PeopleSoft Common
Stock on The Nasdaq National Market on September 4, 1996, the last trading day
prior to public announcement of the Merger, was $75.75 and on October __, 1996,
the latest practicable trading day before the printing of this
Prospectus/Consent Solicitation Statement, was $____. There can be no assurance
that the market price of PeopleSoft Common Stock on and after the Effective Time
will not be lower than such prices. See "--Volatility of Stock Price" and "Stock
Price and Dividend Information."
Resellers and Customers. There can be no assurance that resellers and
other customers of PeopleSoft and Red Pepper will continue their current buying
patterns without regard to the Merger. Any significant delay or reduction in
orders for the Company's or Red Pepper's products could have a material adverse
effect on the combined company's business, financial condition and results of
operations. In particular, the Company and Red Pepper believe that certain
customers of Red Pepper may cancel or defer orders for Red Pepper's products as
a result of the announcement of the Merger. Any such cancellations or deferrals
could have a material adverse effect on the combined company's business,
financial condition and results of operations. These effects may occur with
respect to each company during the period prior to the consummation of the
Merger or following the Merger.
Reliance on Red Pepper Technology. The Company's manufacturing software
product line is currently in beta release and is scheduled to become available
for general release within the next four months. The Company's production
planning product is largely comprised of the Red Pepper's Production
ResponseAgent product and the Company's Distribution Resource Planning ("DRP")
product is largely based on Red Pepper's Enterprise ResponseAgent product. The
Company considers this technology to be a key differentiator within its target
markets. At present, PeopleSoft is the only application vendor which embeds
-9-
<PAGE> 18
Red Pepper technology within its manufacturing software product offering. In the
event the Merger does not take place, and Red Pepper remains independent, the
Company may lose its market differentiation as Red Pepper may choose to market
its technology to competitors for use with their respective manufacturing
applications. In addition, were Red Pepper to successfully expand its customer
base of application vendors, PeopleSoft may find that Red Pepper's technology
direction shifts in a way that diminishes the PeopleSoft advantage or creates
incompatibility with PeopleSoft's other manufacturing software products.
Short-term Dilution of Interest. A number of shares equal to
approximately 5% of PeopleSoft's outstanding Common Stock will be issued to the
shareholders and option holders of Red Pepper upon consummation of the Merger
and will cause a dilution of earnings per share which may negatively impact
PeopleSoft's stock price in the near term. The Company expects such dilution to
be temporary. However, there can be no assurance that the Company's stock price
will not continue to be negatively impacted, or that the pro forma financial
presentation will be indicative of actual results. See "Comparative Historical
and Unaudited Pro Forma Per Share Data."
Funding of Working Capital. PeopleSoft has provided Red Pepper with a
working capital loan of $5 million. In the event the Merger is not consummated,
PeopleSoft has the right, under certain conditions, to convert this loan into a
number of shares of Common Stock of Red Pepper equal to 5% of the then
outstanding stock of Red Pepper. There can be no assurance if the Merger is not
consummated that Red Pepper would be able to secure financing to repay the loan
or, if converted into Common Stock, that PeopleSoft's equity position would
maintain its current market value in the future.
RISKS RELATING TO THE COMBINED ENTITY
Fluctuations in Quarterly Operating Results. The Company's revenues and
operating results can vary substantially from quarter to quarter. License
revenues in any quarter are substantially dependent on the execution of license
agreements (contracting activity) governing the use of the Company's software
products booked and shipped in that quarter. Contracting activity is difficult
to forecast for a variety of reasons including: (i) a significant portion of the
Company's license agreements are completed within the last few weeks of each
quarter; (ii) the duration of the Company's sales cycle is relatively long and
increasingly variable because the Company has broadened its marketing emphasis
to encompass software product solutions for the customer's overall enterprise,
thereby increasing the financial value of individual transactions and the
complexity of the customer selection, negotiation and approval process; (iii)
the size of license transactions can vary significantly; (iv) system replacement
projects and new system evaluations may be postponed or canceled at any time due
to changes in a customer's project, company management, budgetary constraints or
strategic priorities; (v) customer evaluations and procurement processes vary
significantly from company to company, and a customer's internal approval and
expenditure authorization process can be arduous, even subsequent to actual
vendor selection; (vi) the number, timing and significance of software product
enhancements and new software product announcements by the Company and its
competitors; and (vii) changes in economic, political and market conditions can
adversely impact business opportunities without reasonable notice. In addition,
certain license agreements executed during a quarter may not meet the Company's
revenue recognition criteria. Consequently, a situation could occur in which the
Company meets or exceeds its forecast of aggregate contracting activity, but is
not able to meet its forecast for license revenues.
In addition to factors impacting contracting activity, license revenues
are difficult to forecast because: (i) the timing of new software product
availability to fulfill delivery obligations under both new and existing license
agreements is difficult to predict because of the increasing complexity of the
Company's software product solutions and underlying technology; (ii) changes in
the Company's sales incentive plans have had and may continue to have an adverse
impact on seasonal business patterns; and (iii) enterprise transactions often
involve both software products that are then currently deliverable, as well as
software products that are still under development. To the extent the Company
enters into a license agreement for the provision of both software product
categories, the license agreement and supporting schedules to the license
agreement must contain very precise contractual provisions and terminology under
generally accepted accounting principals to permit any revenue recognition under
the license agreement. In addition, changes in levels of consulting activity and
the related satisfaction of significant license agreement milestones, and
seasonality in training revenues which tend to lag license revenues by
approximately one quarter, have resulted in variability of service revenues from
quarter to quarter.
Operating Leverage. Consistent with many companies in the software
industry, the Company's business model is characterized by a very high degree of
operating leverage. The Company's expense levels are based, in significant part,
on the Company's expectations as to future revenues and are, therefore,
relatively fixed in the short term. If revenue levels fall below expectations,
net income is likely to be disproportionately adversely effected. There can be
no assurance that the Company will be able to increase or even maintain its
current level of profitability on a quarterly or annual basis in the future. Due
to the
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foregoing, it is likely that in one or more future quarters the Company's
operating results will be below the expectations of public securities market
analysts. In such event, the price of the Company's Common Stock would likely be
materially adversely effected.
Uneven Patterns of Quarterly Operating Results. Although the Company's
1996 operating budget is based on a material increase in total revenues over the
corresponding actual results for 1995, the Company does not believe that the
percentage increases in revenues achieved in prior periods should be anticipated
in future periods. The operating results of many software companies reflect
seasonal trends, and the Company has been, and expects to continue to be,
affected by such trends in the future. Seasonal patterns of revenue achievement
can be caused by a variety of factors, including sales incentives, customer
demand based on available capital budgets and release of new technologies.
Future Operating Results Uncertain. Segments of the software industry
have experienced significant economic downturns characterized by decreased
product demand, price erosion, technological shifts, work slowdowns and layoffs.
The Company's operations may, in the future, experience substantial fluctuations
from period to period as a consequence of such industry patterns, general
economic conditions affecting the timing of orders from customers and other
factors affecting capital spending. There can be no assurance that such factors
will not have a materially adverse effect on the Company's business, operating
results or financial condition. The Company's continued success is dependent on
its continued ability to introduce, develop and market new and enhanced versions
of its software products, although there can be no assurance that such ability
can be maintained. In addition, the Company continues to evaluate opportunities
to enhance and expand its technology and product offerings through potential
partnerships, licenses or acquisitions which may, in the short term, negatively
impact costs, expenses and earnings per share.
International Operations. The Company has utilized, and will continue
to utilize substantial resources and funding to build its international service
and support infrastructure. Operating costs in many countries, including some of
those in which the Company operates, are often higher than in the United States.
In order to increase international sales in 1996 and subsequent periods, the
Company must continue to expand existing, as well as establish additional,
foreign operations, hire additional personnel, identify suitable locations for
sales, marketing, customer service and development, and recruit international
distributors and resellers in selected territories. In the event international
expansion is not successful, it is likely to have a negative impact on the
Company's operating results. Effective July 1, 1996, the Company acquired the
net assets and operations of InfoSoft S.A. in Madrid, Spain and established
PeopleSoft Iberica, S.L. PeopleSoft Iberica, S.L. will provide direct sales and
support activities in the Mediterranean region. The acquisition will be
accounted for under the purchase method. The purchase price paid by the Company
for this entity was not significant and the Company does not believe this
acquisition will have a material impact on the Company's statement of position
or results of operations.
The Company's sales through its foreign operations are generally
denominated in each respective subsidiary's functional currency. Unexpected
changes in the exchange rates for these foreign currencies could result in
significant fluctuations in the foreign currency transaction and translation
gains and losses in future periods. In the future, the Company expects to have
an increased amount of non-U.S. dollar denominated license agreements and
intends to implement hedging programs designed to mitigate the potential adverse
impact of exchange rate fluctuations.
Competition. The market for business application software is intensely
competitive. The Company faces competition from a variety of software vendors
including enterprise application software vendors, manufacturing application
vendors, financial management system and human resource management system
("HRMS") application software vendors, and software tools vendors. Although
PeopleSoft believes its success has been due in part to its early emphasis on
the client/server architecture, virtually all of the Company's competitors now
offer software products based on a client/server architecture. Consequently,
competitive differentiators now include more subtle architectural and technology
factors, enterprise product breadth and individual product features, service
reputation, product flexibility, ease of implementation, international product
version availability and support, and price.
In the enterprise application software market, PeopleSoft faces
significant competition from SAP AG ("SAP"), Oracle Corporation ("Oracle") and
Baan Company N.V. ("Baan") and to a lesser degree, Dun & Bradstreet Software,
Computer Associates International, Inc. and other companies such as System
Software Associates who previously focused primarily on the AS/400 marketplace.
In this market, the chief competitive factors include the breadth and
completeness of the enterprise solution offered by each vendor, the extent of
product integration across the enterprise solution and the availability of
localized software products and technical support in key markets outside the
United States. Primarily due to their significant worldwide presence and longer
operating and product development history, both SAP and Oracle have certain
competitive advantages over PeopleSoft
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<PAGE> 20
in each of these areas. In addition, both SAP and Oracle have substantially
greater financial, technical and marketing resources, and a larger installed
base than PeopleSoft. Furthermore, Oracle's RDBMS is a supported platform
underlying a significant share of PeopleSoft's installed applications.
In the manufacturing software application market, which PeopleSoft will
be entering with its next release, PeopleSoft faces competition from several of
its and Red Pepper's existing competitors such as QAD, Ross Systems and J.D.
Edwards and a large number of niche competitors already in the manufacturing
market place including, but not limited to: Numetrix Software, i2 Technologies,
Chesapeake Systems, Berclain, Manugistics, Waterloo Manufacturing Software and
Caps Logistics.
PeopleSoft also faces competition from providers of HRMS software
products including Cyborg, Lawson Associates ("Lawson"), Integral Systems, Inc.
("Integral"), InPower, Inc. ("InPower") and Ceridian, and from providers of
financial management systems software products including Hyperion, Computron
Software, Inc., Lawson, and other smaller companies. In addition, since June
1992 ADP, Inc. ("ADP") and, since August 1995, Shared Medical Systems ("SMS")
have the right to sublicense selected PeopleSoft in competition with
PeopleSoft's marketing efforts in selected markets.
Recent trends in the software industry toward cooperative agreements
between competitors and the potential for consolidation of vendors within the
industry also poses a potential source of competition. Such actions could
potentially lead to increased price competition in the market, forcing the
Company to reduce prices which may result in reduced gross margins and loss of
market share by the Company which therefore, could materially adversely affect
the Company's business, operating results and financial condition. Therefore,
there can be no assurance that the Company will continue to compete successfully
with its existing competitors or will be able to compete successfully with new
competitors.
Reliance on Proprietary Software Development Tools. The Company's
software products include a suite of proprietary software development tools
known as "PeopleTools," which are fundamental to the effective use of the
Company's software products. While no industry standard exists for software
development tools, several companies are focused specifically on providing
software development tools and are attempting to establish their software
development tools as accepted industry standards. In the event that a software
product other than the Company's PeopleTools software product becomes the
clearly established and widely accepted industry standard, the Company may need
to abandon or modify PeopleTools in favor of such an established standard, may
be forced to redesign its software products to operate with such third party's
software development tools, or may be faced with the potential sales obstacle of
marketing a proprietary software product against other vendors' software
products incorporating a standardized software development toolset. Accordingly,
in any of these cases, the Company's results of operations could be materially
adversely affected. In addition, Red Pepper applications include a suite of
proprietary software development tools known as the "ResponseAgent Business
Modeler," which faces similar risks relative to its proprietary nature.
Reliance on Third Parties for Sales and Marketing. A key aspect of the
sales and marketing strategy for the combined company is to build and maintain
strong working relationships with businesses the Company believes play an
important role in the successful marketing of its software products. The
Company's customers and potential customers often rely on third party system
integrators to develop, deploy and manage client/server applications. These
include: (i) RDBMS software vendors; (ii) hardware vendors which offer both
hardware platforms and, in the case of IBM, proprietary RDBMS products on which
the Company's software products run; (iii) technology consulting firms and
systems integrators, some of which are active in the selection and
implementation of large information systems for the information-intensive
organizations that comprise the Company's principal customer base; and (iv)
benefits consulting firms that are active in the implementation of HRMS. The
Company believes that its marketing and sales efforts are enhanced by the
worldwide presence of these companies. However, there can be no assurance that
these companies, most of which have significantly greater financial and
marketing resources than PeopleSoft, will not start, or in some cases increase,
the marketing of business application software in competition with PeopleSoft,
or will not otherwise discontinue their relationships with or support of
PeopleSoft. If the Company or its partners are unable to recruit and adequately
train a sufficient number of consulting personnel to support the implementation
of the Company's software products, demand for these software products could
subsequently be materially adversely affected. In addition, PeopleSoft's
software application architecture, including PeopleTools, may facilitate reduced
implementation efforts for customers compared to the competitive alternatives.
Consequently, PeopleSoft's software products may be a less desirable
recommendation alternative for integrators who both provide selection advice and
generate consulting fees from customers by providing implementation services.
Due to the foregoing factors, it is reasonably possible that in a future quarter
or quarters the Company's operating results could fall short of the published
expectations of certain public market financial analysts.
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Complexity of Software Products and Product Development. PeopleSoft's
software products can be licensed for use with the following RDBMSs and run on
the following operating systems: Centura Software Corporation's ("Centura,"
formerly Gupta Corporation) SQLBase (OS/2 and NT), IBM's DB2 for MVS/ESA (MVS,
using connectivity products from Centura or Sybase, Inc. ("Sybase")), IBM's DB2
for AIX, Informix Corporation's INFORMIX-OnLine Dynamic Server (AIX, Dynix,
Solaris, MP RAS, Digital Unix, Unisys Unix, DG/UX, SINIX, IRIX and HP-UX),
Microsoft Corporation's ("Microsoft") SQL Server, (NT for HRMS products only),
Oracle's ORACLE (VMS, Open VMS, NT and over 10 versions of Unix) and Sybase's
System 11 (HP-UX, AIX and Solaris). In addition, the Company is in the process
of porting its software products to IBM's DB2 for OS/400, certain products to
Microsoft's SQL Server 6 (NT) and its PeopleTools to Apple Computer Inc.'s
("Apple") native Macintosh family of computers. No assurance can be given
concerning the successful development of PeopleSoft software products on these
additional platforms, the specific timing of the releases of any future modules,
the performance characteristics of PeopleSoft applications on these platforms or
their acceptance in the marketplace. In addition, there may be future or
existing RDBMS platforms which achieve popularity within the business
application marketplace and which PeopleSoft may desire to offer its
applications thereon. Such future or existing RDBMS products may or may not be
architecturally compatible with PeopleSoft's or Red Pepper's software product
design. No assurance can be given concerning the successful porting to new
platforms, the specific timing of completion of any such ports or their
acceptance in the marketplace.
During 1996, the Company announced its plans to integrate, over the
next several releases, several third party software products into its
PeopleTools and core applications products in order to enhance and expand
performance, reporting capabilities and self diagnostics. BEA Software's Tuxedo
product will be integrated into PeopleTools to allow applications to run on a
distributed basis using a multi-tiered client/server architecture. Cogno's
Powerplay product will be bundled to incorporate desktop OLAP capabilities and a
PeopleSoft run time version of SQA's Robot automated testing product will be
integrated to allow improved performance management and monitoring. Integration
of these products is complex and no assurance can be made that these efforts
will be successful or result in significant product enhancements which will
generate incremental revenue for PeopleSoft.
Software programs as complex as those offered by the Company and Red
Pepper are likely to contain a number of undetected errors or "bugs" when they
are first introduced or as new versions are thereafter released. Despite testing
by the combined company and by third-parties, errors or system performance
issues may arise with the possible result of reduced acceptance of the combined
company's software products in the marketplace. Due to the increasing number of
possible combinations of vendor hardware platforms, operating systems and
updated versions, PeopleSoft application modules, third party, and updated
versions, and RDBMS platforms and updated versions, the effort and expense of
developing, testing and maintaining these software product lines in an
increasing number of combinations will increase, and the ability to develop
consistent product performance characteristics across all of these combinations
could place a significant strain on the combined company's development resources
and deliverable schedules.
Reliance on Single Client Interface. At the present time, the Company
and Red Pepper support client (workstation) platforms exclusively utilizing
Microsoft's Windows family of software products, including Windows 3.1
(PeopleSoft only), Windows NT and Windows 95. If Microsoft were to fundamentally
change the architecture of its software product such that users of PeopleSoft's
or Red Pepper's software applications experienced significant performance
degradation or were rendered incompatible with future versions of Microsoft's
Windows Operating System, the combined company's results of operations could be
materially adversely effected. If a new user interface software product, such as
an Internet browser, were to gain broad acceptance in the marketplace, there can
be no assurance PeopleSoft's or Red Pepper's architecture would be compatible
with such an interface. In addition, as the combined company expands its
software product offerings into new vertical markets, the dependency on
Microsoft's Windows technology may adversely impact the combined company's
ability to successfully compete in those markets. For example, failure to
support Apple's Macintosh platform could adversely effect PeopleSoft's ability
to compete in the higher education market. No assurance can be given concerning
the combined company's successful development of and support for new client
platforms, the specific timing of their availability or their acceptance in the
marketplace.
Reliance on Joint Business Arrangements. PeopleSoft has entered into
two separate development arrangements ("Development Arrangements"), one for the
purpose of developing a line of manufacturing software applications and the
other for the purpose of developing a line of student administration software
applications. See Note 7 of the Notes to PeopleSoft's Consolidated Financial
Statements included elsewhere herein. Under these Development Arrangements,
PeopleSoft is the exclusive remarketer of the developed software products and
pays a royalty to the development entities based on license fees received from
end user licenses of these software products. While the intent of each
Development Arrangement is to develop business applications which are integrated
with PeopleSoft's software products, there can be no assurance that such
software
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<PAGE> 22
products will in fact be integrated or that an integrated enterprise solution
will be accepted by the market. In addition, should the Development Arrangements
require additional funds to complete development or enhance the software
products there can be no assurance that funds will be available on terms
acceptable to the existing or other potential third partY funding source(s).
Should PeopleSoft acquire title to the software products or technology from the
third party entity, such acquisition would be accounted for using the purchase
method which is likely to result in the creation of significant intangible
assets by virtue of the allocation of a substantial portion of the purchase
price to the acquired technology or other intangible assets or, in the case
where an acquisition occurred before the software product(s) or technology was
available for general release, significant expense incurred related to the
acquisition of inprocess technology. Such intangible assets would be amortized
in future periods as a cost of operations while in process technology expense
would be recorded to the Statement of Operations in the period such acquisition
was completed.
Application Security Architecture. The Company's application software
products incorporate extensive security features designed to protect certain
sensitive data managed by these applications from unauthorized retrieval or
modification. To date, the Company is not aware of any violations of its
application security architecture within its installed base. The Company has
developed a security architecture utilizing the capabilities of its own
applications, the client operating system software, some of the security
features contained in the RDBMS platforms on which the applications run, as well
as certain third party security products. Although these security features are
subject to constant review and enhancement, no assurances can be given
concerning the successful implementation of these security features and their
effectiveness within a particular customer's operating environment. Should a
breach of security or a suspected breach of security occur, the accompanying
publicity or any subsequent claims against the Company could have an adverse
impact on the demand for the Company's software products and/or cause a decline
in the market price of the Company's stock and/or adversely impact the Company's
financial results due to lost or delayed closing of software licensing
opportunities.
Intellectual Property and Proprietary Rights. The Company and Red
Pepper regard certain features of their internal operations, software and
documentation as proprietary, and rely on a combination of contract, patent,
copyright, trademark and trade secret laws and other measures to protect their
proprietary information. The Company received its first patent in 1995, its
second patent in the first quarter of 1996 and has one additional patent
application pending. Red Pepper has three patent applications pending, but there
can be no assurance that any issued patents will result from such applications
or that, if issued, such patents will provide any meaningful competitive
advantage. Existing copyright laws afford only limited protection. The Company
believes that, because of the rapid pace of technological change in the computer
software industry, trade secret and copyright protection are less significant
than factors such as the knowledge, ability and experience of the combined
company's employees, frequent product enhancements and the timeliness and
quality of support services. There can be no assurance that these protections
will be adequate or that PeopleSoft's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's or
Red Pepper's technology. Many customers of both PeopleSoft and Red Pepper are
beneficiaries of a source code escrow arrangement to enable the customer to
acquire a future limited right to use PeopleTools or Red Pepper's source code
solely for their internal provision of maintenance services. This possible
access to PeopleTools or Red Pepper's source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. In
addition, the laws of certain countries in which the Company's software products
are or may be licensed do not protect the Company's software products and
intellectual property rights to the same extent as the laws of the United
States.
The Company does not believe that its software products, third party
software products the Company offers under sublicense agreements, Company
trademarks or other Company proprietary rights infringe the property rights of
third parties. However, there can be no assurance that third parties will not
assert infringement claims against the combined company in the future with
respect to current or future software products or Red Pepper's software products
or that any such assertion may not require the combined company to enter into
royalty arrangements or result in costly litigation.
Product Liability. The Company's and Red Pepper's license agreements
with their customers contain provisions designed to limit their exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in such license agreements may not be valid as
a result of federal, state, local laws or ordinances or unfavorable judicial
decisions. Although neither the Company nor Red Pepper has experienced any
product liability claims to date, the license and support of its software for
use in mission critical applications create a potential adverse risk in the
event such a claim was successfully pursued against the Company. Damage or
injunctive relief resulting under such a successful claim could cause a
materially adverse impact on the Company's business, operating results and
financial condition. In addition, as
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<PAGE> 23
PeopleSoft begins to compete in the manufacturing software application market,
the mission critical nature of such software products may increase PeopleSoft's
exposure to product liability claims against the Company.
Growth in Operations. The Company has experienced an extended period of
significant revenue growth, growth in the Company's customer base, expansion of
its software product lines and supported platforms, a significant expansion in
the number of its employees, increased pressure on the viability and scope of
its operating and financial systems and expansion in the geographic scope of its
operations. This growth has resulted in new and increased responsibilities for
management personnel and has placed a significant strain upon the Company's
management, operating and financial controls and resources, including its
services and development organizations. To accommodate recent growth, compete
effectively and manage potential future growth, the Company must continue to
implement and improve the speed and quality of its information decision support
systems, management decisions, reporting systems, procedures and controls. There
can be no assurance that the Company's personnel, procedures, systems and
controls will be adequate to support the Company's future operations.
Key Personnel. PeopleSoft believes that its continued success will
depend in large part upon its ability to attract and retain highly-skilled
technical, managerial and marketing personnel. The loss of services of one or
more of the Company's key employees could have a materially adverse effect on
the Company's business, operating results and financial condition. The Company
continues to hire a significant number of additional sales, service and
technical personnel. Competition for the hiring of such personnel in the
software industry is intense, and the Company from time to time experiences
difficulty in locating candidates with appropriate qualifications, particularly
within various desired geographic locations. There can be no assurance that the
Company will be successful in attracting and retaining the personnel it requires
to develop, market and support new or existing software.
Expansion of Facilities. The Company has expanded and plans to continue
to significantly expand the number of employees at its corporate headquarters
location in Pleasanton, California. The Company acquired a building during 1995
to address office space needs; however, the space is partially occupied by
existing tenants and may not be available rapidly enough to meet the Company's
needs. Thus, alternative office space is required to address planned expansion.
The commercial real estate market in the Tri-Valley area is constrained by the
extremely low rate of new commercial real estate development over the past
several years which makes obtaining additional quality office space increasingly
difficult. The Company is in the process of attempting to locate and contract
for adequate space; however, sufficient office space may not become available to
meet the Company's near term needs. There can be no assurance that local
facilities will be obtained, that reasonable terms will be obtained or that
acceptable financing arrangements may be obtained. Any such failure to obtain
local facilities, under commercially reasonable terms, may result in lower
employee productivity, constrained hiring plans or increased facility charges
which could materially adversely impact the Company's business and operating
results.
Volatility of Stock Price. As is frequently the case with stock of high
technology companies, the market price of PeopleSoft's stock has been and may
continue to be quite volatile. Factors such as quarterly fluctuations in results
of operations, announcements of technological innovations or the introduction of
new products by PeopleSoft or its competitors, and macroeconomic conditions in
the computer hardware and software industries generally, may have a significant
impact on the market price of the stock of PeopleSoft. In addition, if revenue
or earnings in any quarter fail to meet expectations of the investment
community, there could be an immediate impact on PeopleSoft's stock price.
Furthermore, the stock market has from time to time experienced extreme price
and volume fluctuations which have particularly affected the market price for
many high technology companies which, on occasion, have been unrelated to the
operating performance of those companies. These broad market fluctuations may
materially adversely affect the market price of the stock of PeopleSoft. See
"Stock Price and Dividend Information."
Investments and Liquidity. The Company's short-term investments consist
primarily of high quality municipal bonds and tax-advantaged money market
instruments. Despite favorable credit ratings on these investments there can be
no assurance the issuing agencies will not default on their obligations which
may result in losses of principal and accrued interest by PeopleSoft. While
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, operating and investing activities may
use cash, and, consequently, such growth may require the Company to obtain
additional sources of financing. In addition, material acquisitions of
complementary businesses, products or technologies and capital expenditures may
require additional sources of financing.
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RISKS RELATING TO RED PEPPER
History of Operating Losses; No Assurance of Profitability. Red Pepper
was founded in October 1992 and is in the early stages of its operating history.
Red Pepper has incurred significant losses since inception, including losses of
$0.6 million, $1.5 million and $2.8 million for 1993, 1994 and 1995,
respectively. At June 30, 1996, Red Pepper had an accumulated deficit of
approximately $5.9 million. There can be no assurance that Red Pepper will ever
achieve profitability if it remains an independent entity, and there can be no
assurance that the combined company will ever be able to generate profits from
the acquired operations of Red Pepper in the event the Merger is consummated.
Product Concentration. All of Red Pepper's revenues to date have been
attributable to sales of its ResponseAgent software products and related
services, principally the Production ResponseAgent software product. Red Pepper
first released its initial software product, the Production ResponseAgent, in
March of 1995; the second release of the Production ResponseAgent and the
initial releases of the Enterprise ResponseAgent and the Sales ResponseAgent
were made in March of 1996. Accordingly, Red Pepper has only a limited number of
fully implemented, operational product installations at customer sites. There
can be no assurance that such products will not require modifications to satisfy
performance requirements of existing or potential customers or to fix previously
undetected errors. Red Pepper and the Company expect that the substantial
majority of future revenues, if any, generated by Red Pepper, whether as an
independent entity or in the event the Merger is consummated, would also be
derived from the ResponseAgent software products and related services. As a
result, factors adversely affecting the pricing of or demand for ResponseAgent
software products, such as competition or technological change, could have a
material adverse effect on future revenues which may be derived from Red
Pepper's operations. There can be no assurance that either Red Pepper or the
Company will be successful in marketing the ResponseAgent software products or
other software products. The market for supply chain management software is
still emerging, and there can be no assurance that it will continue to grow or
that, even if the market does grow, businesses will continue to adopt the
ResponseAgent software products. Red Pepper has expended, and the Company
intends to expend, considerable resources educating potential customers about
supply chain management in general and about the features and functions of the
ResponseAgent software products in particular. However, there can be no
assurance that such expenditures will enable the ResponseAgent software products
to achieve any additional degree of market acceptance. If the market for supply
chain management software or planning and scheduling software fails to develop
or develops more slowly than the Company and Red Pepper currently anticipate,
the business, financial condition or results of operations of Red Pepper or the
Company could be materially adversely affected.
Lengthy Sales Cycle. Red Pepper's sales cycle is typically 4 to 12
months and varies substantially from customer to customer. Red Pepper believes
the license of its software products is discretionary and represents a strategic
decision requiring a significant capital investment by its customers. As a
result, the license of Red Pepper's software products generally involves a
significant commitment of management attention and resources by prospective
customers and requires multiple approvals. Accordingly, licenses of the Red
Pepper products are subject to an extended customer approval process. Red
Pepper's business, operating results and financial condition have been
materially adversely affected in the past by customer delays, reductions and
cancellations of orders, and there can be no assurance that such events will not
occur in the future with respect to licenses of the ResponseAgent software
products.
Competition. Red Pepper's software products are targeted at the
emerging market for supply chain management software solutions. Red Pepper's
competitors are diverse and offer a variety of solutions directed at various
segments of the supply chain as well as the enterprise as a whole. Red Pepper's
current and potential competitors include (i) companies such as i2 Technologies,
Manugistics and Numetrix Software which have developed or are attempting to
develop advanced planning and scheduling software which complement or compete
with Materials Requirements Planning ("MRP") solutions, (ii) other companies
that provide specialized planning and scheduling software for niche markets,
including Chesapeake Systems, Berclain, Waterloo Manufacturing Software and Caps
Logistics, (iii) other business application software vendors that may broaden
their product offerings by internally developing, or by acquiring or partnering
with independent developers of, advanced planning and scheduling software, (iv)
internal development efforts by corporate information technology departments,
(v) companies offering standardized or customized products on mainframe and/or
mid-range computer systems, and (vi) Enterprise Resource Planning ("ERP")
vendors such as Baan, Oracle and SAP which currently offer sophisticated ERP
solutions that incorporate MRP modules. In particular, Red Pepper believes that
ERP vendors are focusing significant resources on increasing the functionality
of the MRP modules contained in the ERP software product and, accordingly, may
represent an increasingly important facet of the competition for Red Pepper's
product offering. There can be no assurance that Red Pepper will be able to
compete successfully with its existing or new competitors.
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<PAGE> 25
SOLICITATION OF WRITTEN CONSENT OF RED PEPPER SHAREHOLDERS
GENERAL
This Prospectus/Consent Solicitation Statement is being furnished to
holders of Red Pepper Common Stock (the "Red Pepper Common Stock") in connection
with the solicitation of written consents by the Red Pepper Board of Directors.
This Prospectus/Consent Solicitation Statement and the accompanying form of
written consent (the "Written Consent") is first being mailed to shareholders of
Red Pepper on or about _________, 1996.
This Prospectus/Consent Solicitation Statement is also furnished by
PeopleSoft to Red Pepper shareholders in connection with the issuance by
PeopleSoft of its Common Stock, $.01 par value (the "PeopleSoft Common Stock"),
in connection with the Merger described herein.
The information set forth herein concerning Red Pepper has been
furnished by Red Pepper. The information set forth herein concerning PeopleSoft
has been furnished by PeopleSoft.
This Prospectus/Consent Solicitation Statement contains certain
information set forth more fully in the Agreement and Plan of Reorganization,
dated as of September 4, 1996 (the "Merger Agreement"), between PeopleSoft and
Red Pepper (along with the exhibits thereto) attached hereto as Annex A and is
qualified in its entirety by reference to the Merger Agreement (including all
exhibits thereto) which is hereby incorporated herein by reference. The Merger
Agreement should be read carefully by each Red Pepper shareholder in formulating
a voting decision with respect to the proposed Merger and other transactions
contemplated by the Merger Agreement.
MATTERS TO BE APPROVED BY WRITTEN CONSENT
Shareholders of record of Red Pepper as of the close of business on
September 20, 1996, are being asked to sign and return the Written Consent
approving a proposal to approve and adopt the Merger Agreement and the Merger.
The Merger Agreement provides that, upon the terms and subject to the conditions
thereof, Red Pepper will merge with and into PeopleSoft, each share of Red
Pepper Common Stock issued and outstanding immediately prior to the Merger will
be converted into that number of shares of PeopleSoft Common Stock as described
below. See "Terms of the Merger--Manner and Basis of Converting Shares." No
fractional shares of PeopleSoft Common Stock will be issued in the Merger. In
lieu of any such fractional shares, each holder of Red Pepper Common Stock who
otherwise would be entitled to receive a fractional share of PeopleSoft Common
Stock pursuant to the Merger will be paid an amount in cash, without interest,
equal to the Fair Market Value of PeopleSoft Common multiplied by such fraction.
THE RED PEPPER BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
THE MERGER AND RECOMMENDS THAT RED PEPPER SHAREHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on September 20, 1996 has been fixed as the
record date for determining the holders of Red Pepper Common Stock who are
entitled to vote by Written Consent (the "Record Date"). As of the Record Date,
there were 13,039,820 shares of Red Pepper Common Stock outstanding, after
adjustment for conversion of the Preferred Stock, and entitled to vote. The
holders of record of shares of Red Pepper Common Stock on the Record Date are
entitled to one vote per share of Red Pepper Common Stock. Under the California
General Corporation Law, the affirmative vote of holders of shares representing
one-half of the outstanding voting power of the Red Pepper Common Stock are
required for approval and adoption of the Merger Agreement and the Merger. It is
a condition of the Merger that holders of at least 98% of the outstanding shares
of Red Pepper Common Stock vote in favor of the Merger. Seven affiliates of Red
Pepper, holding an aggregate of 8,251,208 shares of Red Pepper Capital Stock,
have agreed to vote in favor of the Merger Agreement and the Merger. See "Terms
of the Merger--Conditions to the Merger."
FAILURE TO RETURN THE WRITTEN CONSENT WILL HAVE THE PRACTICAL EFFECT OF
VOTING AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER
SINCE THEY REPRESENT ONE LESS VOTE FOR ADOPTION OF SUCH PROPOSAL.
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WRITTEN CONSENTS; WRITTEN CONSENT SOLICITATION
Red Pepper shareholders are requested to complete, sign, date and
return promptly the enclosed Written Consent in the postage-prepaid envelope
provided for the purpose of voting "FOR" approval and adoption of the Merger
Agreement and the Merger to ensure that their shares are voted.
Red Pepper will bear the cost of soliciting Written Consents from its
shareholders. In addition to solicitation by mail, directors, officers and
employees of Red Pepper may solicit Written Consents by telephone, telegram or
otherwise. Such directors, officers and employees of Red Pepper will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith.
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BACKGROUND OF AND REASONS FOR THE MERGER
PEOPLESOFT'S REASONS FOR THE MERGER
During the discussions leading to the Merger, PeopleSoft identified a
number of potential benefits of combining the two companies. The PeopleSoft
Board of Directors considered these benefits as well as the potentially negative
factors which may result from the Merger, such as the short-term dilutive impact
on PeopleSoft's stock price, PeopleSoft's ability to retain key Red Pepper
employees critical to the combined business' success and limitations on the
possibility of use of a competitor's definitive software product by PeopleSoft
as an alternate to Red Pepper. Earlier this year, PeopleSoft and Red Pepper
entered into a technology licensing and distribution agreement that superseded
an earlier memorandum of understanding that allowed PeopleSoft to embed Red
Pepper's real-time planning and optimization technology within the PeopleSoft
ERP solution. The Merger furthers this business relationship by building upon
the software product integration already established by the previous development
and marketing partner relationship. Other reasons for the Merger include, but
are not limited to, the following to allow PeopleSoft to:
- Gain significant domain expertise in supply chain and
additional depth in manufacturing knowledge base;
- Secure ownership of Red Pepper's strategic, leading edge
technology which may offer PeopleSoft competitive advantages
in its enterprise solution strategy;
- Further PeopleSoft's best of breed application strategy and
gain access to customer accounts it previously may not have
been able to penetrate;
- Enhance Red Pepper's marketing effort by PeopleSoft's
validation of the supply chain's criticality in the
manufacturing application market;
- Remove concerns about Red Pepper's financial viability;
- Confirm PeopleSoft's strong commitment to manufacturing and
enterprise solutions; and
- In the longer term, apply the Red Pepper technology to other
product areas which could possibly include healthcare,
retail, higher education and labor scheduling.
RED PEPPER'S REASONS FOR THE MERGER
The Board of Directors of Red Pepper unanimously approved the terms and
provisions of the Merger Agreement at its meeting held on September 1, 1996. The
Board of Directors of Red Pepper believes the terms of the Merger are fair and
that the following are additional reasons for the shareholders to vote "FOR"
approval and adoption of the Merger Agreement and the Merger.
o The Merger is expected to eliminate concerns of current and
potential Red Pepper customers and business partners regarding
the uncertain financial viability of Red Pepper.
o The Merger is expected to create the potential to expand the
market presence of Red Pepper's software products in the
United States and through PeopleSoft's established global
market presence.
o The Merger is expected to generate potential economies of
scale with regards to worldwide customer support.
o The Merger is expected to provide liquidity for Red Pepper's
shareholders through their ownership of PeopleSoft stock.
o The Merger is expected to realize savings in marketing,
general and administrative expenses by enabling Red Pepper to
utilize PeopleSoft's infrastructure and therefore invest more
in research and development than they would otherwise be able
to invest.
In the course of its deliberations on August 30, 1996 and September 1,
1996, the Red Pepper Board of Directors reviewed with Red Pepper's management a
number of additional factors relevant to the Merger. In particular, the Red
Pepper Board of Directors considered, among other things: (i) information
concerning and their knowledge of Red Pepper's and PeopleSoft's respective
businesses, prospects, historical financial performances and conditions,
operations, technologies, managements, competitive positions, products,
customers and future development plans; (ii) the historical market prices,
volatility and trading information with respect to the PeopleSoft Common Stock;
(iii) the consideration received by Red Pepper shareholders in the Merger and
the relationship between the market value of the shares of PeopleSoft Common
Stock to be issued in exchange for Red Pepper's common and preferred stock and
outstanding options and warrants and the market value of the Red Pepper stock;
(iv) the terms of the Merger Agreement; (v) an evaluation of the prospects of
Red Pepper on a stand-alone basis; (vi) the compatibility of the managements and
businesses of Red Pepper and PeopleSoft, as well as the fact that certain
members
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of Red Pepper's senior management would manage the operations relating to Red
Pepper's products and business for the combined company; (vii) reports from Red
Pepper's management on the results of their due diligence investigations of
PeopleSoft; and (viii) the fact that the Merger is expected to qualify as a
tax-free reorganization.
The Board of Directors of Red Pepper also considered a variety of
potentially negative factors in its deliberations concerning the Merger,
including, among other things: (i) the slower growth of PeopleSoft's revenues
compared to the potential growth in Red Pepper's revenues as a stand-alone
entity; (ii) the potential loss of revenues to the combined company as a result
of confusion in the marketplace and the possible exploitation of such confusion
by competitors of the combined company; (iii) the possibility of management
disruption associated with the Merger and the risk that, despite the efforts of
the combined company, the combined company may not be able to retain key
technical, sales, and management personnel of Red Pepper; (iv) the risk that the
combined company's ability to increase or maintain revenue might be diminished
by product transitions, loss of personnel or other factors resulting from the
Merger; (v) the risk that the benefits sought to be achieved by the Merger will
not be achieved; and (vi) other risks described above under "Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the Red Pepper Board of Directors, the Red Pepper Board of
Directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors considered. After taking into
consideration all of the factors set forth above, the Red Pepper Board of
Directors unanimously determined that the Merger was fair to, and in the best
interests of Red Pepper and its shareholders, and that Red Pepper should proceed
with the Merger.
BACKGROUND OF THE MERGER
The Company identified development of a manufacturing application suite
as a strategic priority during late 1993 and early 1994. Aneel Bhusri, Senior
Vice President of Product Strategy, was given responsibility to evaluate various
scenarios to determine the most effective way to successfully develop and ready
the product for selling. As part of this strategy, during a meeting in early
1994, representatives of PeopleSoft and Red Pepper met to discuss the
possibility of a merger. This discussion was inconclusive, and the concept of a
merger was negated during the meeting due to the inability of the parties to
agree on fundamental terms of such a proposed business transaction.
In June 1995, the companies entered into a legally binding Memorandum
of Understanding ("MOU") which granted to PeopleSoft certain rights to market,
sublicense, distribute and otherwise support a version of the Red Pepper
products which would be offered as part of PeopleSoft's overall manufacturing
solution. This MOU which was superseded by a definitive technology licensing and
distribution agreement signed in May 1996 which was entered into in the ordinary
course of business. This technology license and distribution agreement enables
PeopleSoft to license, package and market Red Pepper software as part of the
PeopleSoft Enterprise Resource Planning (ERP) product line.
In May 1996, PeopleSoft engaged the services of Deutsche Morgan
Grenfell Technology Group ("DMG") to advise and assist them in evaluating
several strategic acquisition alternatives. In order to obtain a more favorable
fee structure, the Company also engaged DMG to assist in evaluating the
potential for a Red Pepper acquisition with a tentative completion date of
fourth quarter 1996.
As PeopleSoft's proposed release date for its manufacturing software
products began to approach and competitive activity within the supply chain
application market began to increase, Mr. Bhusri met with Daniel T. Doles, Vice
President of Finance and Operations of Red Pepper on July 3, 1996 in San Mateo,
California to discuss their respective business and strategic directions and
potential business opportunities. Ethan Topper, Managing Director of DMG, was
also in attendance. Mr. Bhusri and Mr. Doles discussed the possibility of a
business combination between PeopleSoft and Red Pepper. Mr. Bhusri indicated
that he would like DMG to conduct a preliminary evaluation of the financial
aspects of a possible combination between PeopleSoft and Red Pepper. Mr. Doles
indicated that he needed to review the discussions with Monte Zweben, President
and Chief Executive Officer of Red Pepper, and the Red Pepper Board of Directors
before proceeding further.
During a July 10, 1996 telephone call, Mr. Doles indicated to Mr.
Bhusri that he had spoken with Mr. Zweben and the Red Pepper board of directors
and had received their approval to continue the discussions concerning a
possible merger of PeopleSoft and Red Pepper. It was understood by the parties
that the next step would involve PeopleSoft and its financial advisors providing
a preliminary valuation analysis to Red Pepper for their consideration.
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On July 31, 1996, Mr. Bhusri and Mr. Doles met in San Jose, California
to further discuss the merits of a potential strategic combination or merger. At
this informal meeting, Mr. Bhusri conveyed PeopleSoft's non-binding, initial
valuation proposal.
On August 8, 1996, Mr. Bhusri, Mr. Doles and representatives from DMG
met in Redwood City, California to discuss a proposed due diligence process to
further evolve negotiations and proposals for a merger.
During a telephone call on August 9, 1996, David A. Duffield, Chairman,
Chief Executive Officer and President of PeopleSoft and Mr. Zweben
confidentially discussed the potential benefits of a possible business
combination between PeopleSoft and Red Pepper as well as their respective
organizations' corporate strategies, technical strengths, personnel and software
products.
On August 14, 1996, Mr. Bhusri and Ronald E.F. Codd, Senior Vice
President of Finance and Administration and Chief Financial Officer of
PeopleSoft, selected certain other individuals within the Company to participate
on an acquisition and due diligence evaluation team, and simultaneously informed
these individuals of the potential for a merger. Mr. Bhusri, Mr. Codd, Mr.
Zweben, Mr. Doles and Jay Fulcher, Vice President of Sales of Red Pepper,
together with representatives from DMG, met in Redwood City to begin financial
and business due diligence to further evolve merger negotiations.
From August 14, 1996 through September 3, 1996, members of the
PeopleSoft acquisition team performed a variety of due diligence tasks,
including but not limited to: investigation, review and analysis of product
development programs, activities and status; the conduct of an exhaustive
customer survey covering product service and support issues; the analysis and
review of various legal, accounting and tax matters of Red Pepper; and the
investigation of the stand-alone market for Red Pepper's planning products,
including competitors, market size and other factors. In addition, during this
period PeopleSoft's management continued to attempt to identify any alternatives
to the acquisition which might prove to be more attractive from a combined
strategic/financial perspective. At the conclusion of these efforts,
PeopleSoft's management team was convinced that the acquisition of Red Pepper
represented the most attractive strategic and financial alternative available.
On August 18, 1996, Margaret L. Taylor, Senior Vice President of
Development and Customer Services of PeopleSoft, Mr. Bhusri, Mr. Zweben, Mr.
Doles, and representatives of DMG met in Redwood City to discuss the possible
financial terms of a merger, including share issuance metrics, the
organizational impact and associated personnel items in the event a merger
agreement could be finalized. No agreement was reached.
On August 20, 1996, Ms. Taylor, Mr. Bhusri, Mr. Zweben and Mr. Doles
met in Redwood City to further discuss the terms of a possible merger between
the two companies. No agreement was reached. On August 21, 1996, Mr. Bhusri, Mr.
Zweben, Mr. Doles and representatives from DMG met to further discuss the terms
of a possible merger between the two companies. On August 22, 1996, the parties
signed a preliminary, non-binding term sheet, subject to further negotiation of
other terms of a merger agreement and approval by their respective board of
directors.
At a regularly scheduled PeopleSoft Board of Directors' meeting on
August 23, 1996, with PeopleSoft's financial and legal advisors in attendance,
various members of PeopleSoft management reported on the status of the
continuing discussions with Red Pepper, the non-binding term sheet, and on the
potential benefits of a merger with Red Pepper. Representatives of DMG presented
their analysis and discussed the non-binding terms of the proposed merger.
PeopleSoft's Board of Directors unanimously authorized PeopleSoft management to
continue merger negotiations with Red Pepper based on the terms of the
non-binding term sheet.
From August 26 through September 2, various negotiations continued
between the parties to finalize a Merger agreement and ongoing comprehensive
financial, legal and business due diligence continued.
On September 3, 1996, PeopleSoft completed its due diligence
investigations and the parties reached agreement on the terms of a merger
agreement.
On September 4, 1996, at noon Pacific time, a telephonic special
meeting of the PeopleSoft board of directors was held with various members of
PeopleSoft management and PeopleSoft financial and legal advisors. The findings
of due diligence, updated status of negotiations and terms of the proposed
merger agreement were reviewed. DMG presented to the PeopleSoft Board of
Directors an analysis of the fairness of the merger transaction and indicated
that it was prepared to deliver a written
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opinion to the effect that the proposed merger was fair from a financial point
of view to PeopleSoft and its stockholders. After these presentations and
discussions, the PeopleSoft Board of Directors unanimously approved the Merger.
At close of market, upon PeopleSoft's request to and confirmation by Nasdaq,
PeopleSoft stock trading transactions were halted. Immediately thereafter, the
parties executed the Merger Agreement and related documents, and announced the
Merger by the issuance of a press release.
AFFILIATE AGREEMENTS
The PeopleSoft Common Stock to be issued pursuant to the Merger will be
freely transferable under the Securities Act, except for shares issued to any
person who is an Affiliate of Red Pepper within the meaning of Accounting
Releases 130 and 135, as amended, of the SEC. In order to help ensure that the
Merger will be treated as a "pooling of interests" for accounting and financial
reporting purposes, Affiliate Agreements to be executed by Affiliates of Red
Pepper and PeopleSoft provide that such Affiliate will not (i) sell, transfer or
otherwise dispose of any shares of PeopleSoft Common Stock, or (ii) in any way
reduce such Affiliate's interest in or risk relating to such shares of
PeopleSoft Common Stock, during the period from the thirty-day period prior to
the Closing Date until one day after such time as results of combined sales and
net income covering at least 30 days of combined operations of PeopleSoft and
Red Pepper have been published by PeopleSoft in the form of a quarterly earnings
report, an effective registration statement filed with the SEC, a report to the
SEC on Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which
includes such results of combined sales and net income.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Red Pepper Common Stock for
PeopleSoft Common Stock pursuant to the Merger that are generally applicable to
holders of Red Pepper Common Stock. This discussion is based on currently
existing provisions of the Code, existing and proposed Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to PeopleSoft, Red Pepper or Red Pepper's
shareholders as described herein.
Red Pepper shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Red Pepper shareholders in light of their particular circumstances,
such as shareholders who are dealers in securities, who are subject to the
alternative minimum tax provisions of the Code, who are foreign persons, who do
not hold their Red Pepper Common Stock as capital assets, who exercise
dissenter's rights or who acquired their shares in connection with stock option
or stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of Red Pepper
Common Stock are acquired or shares of PeopleSoft Common Stock are disposed of,
or the tax consequences of the assumption by PeopleSoft of the Red Pepper
options. Accordingly, RED PEPPER SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
The Merger is intended to constitute a reorganization. Provided that
the Merger does so qualify as a Reorganization, then, subject to the limitations
and qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Red Pepper Common
Stock solely upon their receipt of PeopleSoft Common Stock in exchange for Red
Pepper Common Stock in the Merger (except to the extent of cash received in lieu
of a fractional share of PeopleSoft Common Stock).
(b) The aggregate tax basis of the PeopleSoft Common Stock received by
Red Pepper shareholders in the Merger (reduced by any tax basis attributable to
fractional shares deemed to be disposed of) will be the same as the aggregate
tax basis of the Red Pepper Common Stock surrendered in exchange therefor.
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(c) The holding period of the PeopleSoft Common Stock received by each
Red Pepper shareholder in the Merger will include the period for which the Red
Pepper Common Stock surrendered in exchange therefor was considered to be held,
provided that the Red Pepper Common Stock so surrendered is held as a capital
asset at the time of the Merger.
(d) Cash payments received by holders of Red Pepper Common Stock in
lieu of a fractional share will be treated as if such fractional share of
PeopleSoft Common Stock had been issued in the Merger and then redeemed by
PeopleSoft. A Red Pepper shareholder receiving such cash will recognize gain or
loss, upon such payment, measured by the difference (if any) between the amount
of cash received and the basis in such fractional share.
(e) Neither PeopleSoft nor Red Pepper will recognize any gain solely as
a result of the Merger.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") in connection with the Merger. PeopleSoft
has received an opinion from Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, to the effect that the Merger will constitute a Reorganization and
Red Pepper has received an opinion from Gray Cary Ware & Freidenrich, A
Professional Corporation, to the effect that the Merger will constitute a
Reorganization (the "Tax Opinions"). Red Pepper shareholders should be aware
that the Tax Opinions do not bind the IRS and the IRS is therefore not precluded
from successfully asserting a contrary opinion. The Tax Opinions are subject to
certain assumptions and qualifications, including but not limited to the truth
and accuracy of certain representations made by PeopleSoft, Red Pepper and
certain shareholders of Red Pepper. Of particular importance are certain
representations relating to the so-called "continuity of interest" requirement.
To satisfy the continuity of interest requirement, Red Pepper
shareholders must not, pursuant to a plan or intent existing at or prior to the
Merger, dispose of or transfer so much of either (i) their Red Pepper Common
Stock in anticipation of the Merger or (ii) the PeopleSoft Common Stock to be
received in the Merger (collectively, "Planned Dispositions"), such that Red
Pepper shareholders, as a group, would no longer have a significant equity
interest in the Red Pepper business being conducted after the Merger. Red Pepper
shareholders will generally be regarded as having a significant equity interest
as long as the number of shares of PeopleSoft Common Stock received in the
Merger less the number of shares subject to Planned Dispositions (if any)
represents, in the aggregate, a substantial portion of the entire consideration
received by the Red Pepper shareholders in the Merger. No assurance can be made
that the "continuity of interest" requirement will be satisfied, and if such
requirement is not satisfied, the Merger would not be treated as a
Reorganization. The Tax Opinions rely in part on representations from
PeopleSoft, Red Pepper and certain shareholders of Red Pepper relating to the
"continuity of interest" requirements.
A successful IRS challenge to the Reorganization status of the Merger
(as a result of a failure to satisfy the "continuity of interest" requirement or
otherwise) would result in Red Pepper shareholders recognizing taxable gain or
loss with respect to each share of Red Pepper Common Stock surrendered equal to
the difference between the shareholder's basis in such share and the fair market
value, as of the Effective Time, of the PeopleSoft Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the
PeopleSoft Common Stock so received would equal its fair market value, and the
shareholder's holding period for such stock would begin the day after the
Merger.
ACCOUNTING TREATMENT
It is a condition to closing of the Merger that the Merger qualify as a
pooling of interests for financial reporting purposes in accordance with
generally accepted accounting principles and the rules, regulations and policies
of the SEC. Consummation of the Merger is conditioned upon receipt by PeopleSoft
and Red Pepper of a letter dated as of the Effective Date from Ernst & Young,
LLP, the independent auditors for both companies, regarding the appropriateness
of pooling of interests accounting for the Merger under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with the Merger
Agreement.
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TERMS OF THE MERGER
The following discussion summarizes the proposed Merger and related
transactions. The following is not, however, a complete statement of all
provisions of the Merger Agreement and related agreements. Detailed terms of and
conditions to the Merger and certain related transactions are contained in the
Merger Agreement, a conformed copy of which (with exhibits) is attached to this
Prospectus/Consent Solicitation Statement as Annex A. Statements made in this
Prospectus/Consent Solicitation Statement with respect to the terms of the
Merger and such related transactions are qualified in their respective
entireties by reference to the more detailed information set forth in the Merger
Agreement. The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth under "Risk Factors" and elsewhere in this Prospectus/Consent
Solicitation Statement.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective
upon the filing of the Agreement of Merger with the Secretary of State of the
State of Delaware in accordance with the General Corporation Law of Delaware and
the filing of the Agreement of Merger and certain other documents with the
Secretary of State of the State of California (the "Effective Time"). It is
anticipated that if the Merger Agreement is approved by written consent and all
other conditions of the Merger have been fulfilled or waived, the Effective Time
will occur on or about __________, 1996, or on a date as soon as practicable
thereafter.
At the Effective Time, Red Pepper will be merged with and into
PeopleSoft.
MANNER AND BASIS OF CONVERTING SHARES
The aggregate purchase price (the "Purchase Price") to be paid by
PeopleSoft (i) in exchange for the acquisition of all shares of Red Pepper
Common Stock outstanding as of the Effective Time (after conversion of all
outstanding shares of Preferred Stock into shares of Common Stock) and (ii) in
consideration for the assumption of all Red Pepper options outstanding will be
determined as described below. Each holder of Red Pepper Common Stock will
receive that number of shares of PeopleSoft Common Stock equal to the number of
shares of Red Pepper Common Stock held times the Common Exchange Ratio (as
defined below). Pursuant to written consents signed by the holders of the
majority of the outstanding Preferred Stock of Red Pepper and in accordance with
the Articles of Incorporation of Red Pepper, all outstanding Preferred Stock of
Red Pepper will be automatically converted into Common Stock immediately prior
to the Effective Time. Current holders of Red Pepper Preferred Stock will,
therefore, receive shares of PeopleSoft Common Stock on the basis of the number
of shares of Red Pepper Common Stock held as of the Effective Time. No
fractional shares will be issued; holders of Red Pepper Common Stock will
receive cash payments based on the Fair Market Value (as defined below) of
PeopleSoft Common Stock in lieu of any fractional shares to which they may be
entitled. Shares of Red Pepper Common Stock which are subject to a repurchase
option by Red Pepper prior to the Merger will be subject to a repurchase option
by PeopleSoft on the same terms, after the Merger. PeopleSoft will assume all
outstanding options and warrants to purchase Red Pepper Common Stock. Such
options and warrants will become exercisable to purchase that number of shares
of PeopleSoft Common Stock equal to the number of shares of Red Pepper Common
Stock for which they were exercisable multiplied by the Common Exchange Ratio
and rounded down. The exercise price of such options and warrants will be
adjusted proportionately and any restrictions or conditions will remain in
effect, including repurchase rights that are outstanding for shares acquired
pursuant to unvested options which have been exercised. Each share of
PeopleSoft Common Stock issued in connection with the Merger will be
accompanied by a right to purchase one one-thousandth of a share of Series A
Participating Preferred Stock pursuant to the terms of a Preferred Shares
Rights Agreement dated February 15, 1995 between the Company and The First
National Bank of Boston. See "Description of PeopleSoft Capital
Stock -- Preferred Stock Rights."
The "Common Exchange Ratio" will equal the quotient of (i) the sum of
the number of shares of Red Pepper Common Stock outstanding at the Effective
Time plus the number of shares of Red Pepper Common Stock subject to outstanding
options less the number of shares of Red Pepper Common Stock subject to Approved
Options (as defined below) divided by (ii) Two Million Nine Hundred Seventy-Five
Thousand (2,975,000). "Approved Options" are any options to purchase Red Pepper
Common Stock issued pursuant to Red Pepper's 1993 Stock Option Plan after August
22, 1996 with PeopleSoft's prior approval.
The "Fair Market Value" of PeopleSoft Common Stock will be equal to the
average closing price of a share of PeopleSoft Common Stock for the five
consecutive trading days ending on the trading day immediately prior to the
Effective Time, as reported on The Nasdaq National Market.
On September 4, 1996, the last trading day prior to the execution of
the Merger Agreement by PeopleSoft and Red Pepper, the closing sale price of a
share of PeopleSoft Common Stock as reported on The Nasdaq National Market was
$75.75.
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On October ___, 1996, the closing sale price of a share of PeopleSoft Common
Stock as reported on The Nasdaq National Market was $______. There can be no
assurance as to the actual price of PeopleSoft Common Stock prior to, at, or at
any time following, the Effective Time. Accordingly, there can be no assurance
as to the actual value of the shares of PeopleSoft Common Stock that a holder of
Red Pepper Common Stock will receive by virtue of the Merger.
As of September 20, 1996, 13,039,820 shares of Red Pepper Common Stock
were issued and outstanding and based upon that number, an aggregate of
2,681,069 shares of PeopleSoft Common Stock will be issued to Red Pepper
shareholders. Assuming further, 50,776,368 shares of PeopleSoft Common Stock
were issued and outstanding as of September 20, 1996, then, following the
Merger, former holders of Red Pepper Common Stock would hold approximately 5% of
PeopleSoft's total issued and outstanding shares.
At, or if practicable, at least five days prior to the Effective Time,
The First National Bank of Boston, as exchange agent for PeopleSoft (the
"Exchange Agent") will deliver to each Red Pepper shareholder of record a letter
of transmittal with instructions to be used by such individual in surrendering
certificates warrants or option agreements, as the case may be, which, prior to
the Merger, represented shares of Red Pepper Common Stock. CERTIFICATES SHOULD
NOT BE SURRENDERED BY THEIR HOLDERS UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
Upon the surrender of a certificate representing shares of Red Pepper
Common Stock to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such certificate (or agreement) will be entitled to
receive in exchange therefor the number of shares of PeopleSoft Common Stock to
which such holder of is entitled pursuant to the provisions of the Merger
Agreement. In the event of a transfer of ownership of shares of Red Pepper
Common Stock which is not registered on the transfer records of Red Pepper, the
appropriate number of shares of PeopleSoft Common Stock may be delivered to a
transferee if the certificate representing such shares of Red Pepper Common
Stock is presented to the Exchange Agent properly endorsed, together with the
related letter of transmittal, and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
Until a certificate representing shares of Red Pepper Common Stock has
been surrendered to the Exchange Agent, each such certificate will be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender the number of shares of PeopleSoft Common Stock to which the
holder thereof is entitled under the Merger Agreement.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Once the Merger is consummated, Red Pepper will cease to exist as a
separate corporation. All the property, rights, privileges, powers and
franchises of Red Pepper shall vest in PeopleSoft, and all debts, liabilities
and duties of Red Pepper shall become the debts, liabilities and duties of
PeopleSoft.
CONDUCT OF RED PEPPER'S BUSINESS PRIOR TO THE MERGER
Under the Merger Agreement, Red Pepper has agreed, during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement pursuant to its terms and the Effective
Time: (a) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted; (b) to pay its debts and
taxes when due; (c) to pay or perform other obligations when due; (d) to the
extent consistent with such business, to use all reasonable efforts consistent
with past practice and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and key
employees and (iii) preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it;
and (e) to promptly notify PeopleSoft of any materially negative event related
to Red Pepper or its business.
Under the Merger Agreement, Red Pepper has agreed, during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement pursuant to its terms and the Effective Time
not to: (a) enter into any commitment or transaction not in the ordinary course
of business; (b) transfer to any person or entity any rights to intellectual
property rights owned by Red Pepper (other than pursuant to end-user licenses in
the ordinary course of business); (c) enter into or amend any agreements
pursuant to which any other party is granted marketing, distribution or similar
rights of any type or scope or any third party royalty rights with respect to
any products of Red Pepper; (d) amend or otherwise modify (or agree to do so),
except in the ordinary course of business, or violate the terms of, any of the
agreements set forth or described
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<PAGE> 34
in the schedules attached to the Merger Agreement; (e) commence any litigation
or any dispute resolution process; (f) declare, set aside or pay any dividends
on or make any other distributions in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Red Pepper, or repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock other than
pursuant to the exercise of repurchase rights contained in stock option
agreements; (g) except for the issuance of shares of Red Pepper Capital Stock
(as defined in the Merger Agreement) upon exercise or conversion of presently
outstanding Red Pepper stock options, warrants or Red Pepper Preferred Stock,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities; (h)
cause or permit any amendments to its Articles of Incorporation or Bylaws; (i)
acquire or agree to acquire by merging or consolidating with, or by purchasing
any assets or equity securities of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets in an amount in
excess of $50,000 in the case of a single transaction or in excess of $100,000
in the aggregate in any 30-day period; (j) sell, lease, license or otherwise
dispose of any of its properties or assets, except in the ordinary course of
business; (k) incur any indebtedness for borrowed money other than from
PeopleSoft or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others; (l) grant any severance
or termination pay (i) to any director or officer or (ii) to any other employee
except payments made pursuant to standard written agreements outstanding on the
date hereof; (m) adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees, except as consistent with the ordinary
course of Red Pepper consistent with past practice;(n) revalue any of its
assets, including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; (o) pay, discharge or satisfy, in an amount in excess of $50,000 (in
any one case) or $100,000 (in the aggregate), any claim, liability or
obligation, other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in its financial
statements dated June 30, 1996 or that arose in the ordinary course of business
subsequent to June 30, 1996 or incurred in connection with the Merger; or (p)
make or change any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, enter into any closing agreement, settle
any claim or assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of taxes.
NO SOLICITATION
Until the earlier of the Effective Time or the date of the termination
of the Merger Agreement, Red Pepper has agreed that it will not (nor will Red
Pepper permit any of Red Pepper's officers, directors, agents, representatives
or affiliates to) directly or indirectly, take any of the following actions with
any party other than PeopleSoft and its designees: (a) solicit, conduct
discussions with or engage in negotiations with any person, relating to the
possible acquisition of Red Pepper or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets; (b) provide
information with respect to it to any person, other than PeopleSoft, relating to
the possible acquisition of Red Pepper (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets; (c) enter into an agreement with any person,
other than PeopleSoft, providing for the acquisition of Red Pepper (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets; or (d) make or
authorize any statement, recommendation or solicitation in support of any
possible acquisition of Red Pepper or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets by any person, other
than by PeopleSoft. In addition to the foregoing, Red Pepper has agreed that if
it receives prior to the Effective Time or the termination of the Merger
Agreement any offer or proposal relating to any of the above, it shall promptly
notify PeopleSoft thereof, including information as to the identity of the
offeror or the party making any such offer or proposal and the specific terms of
such offer or proposal, as the case may be, and such other information related
thereto as PeopleSoft may reasonably request.
INDEMNIFICATION BY RED PEPPER AND ESCROW OF PURCHASE PRICE
In connection with the Merger, a portion of the Purchase Price
otherwise payable to holders of Red Pepper Common Stock (the "Shareholders")
will be placed into escrow; in particular ten percent (10%) of the total number
of shares of PeopleSoft Common Stock issuable in the Merger (the "Escrow
Shares") otherwise issuable to the Shareholders will be placed into escrow. The
Escrow Shares, without any act of any Shareholder, will be placed into an escrow
account with a nationally recognized bank. The Escrow Shares shall be
contributed on behalf of each Shareholder in proportion to the aggregate
consideration such holder
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<PAGE> 35
would otherwise receive by virtue of the Merger. The Escrow Shares will be held
in escrow as security for any losses incurred by PeopleSoft in the event of
certain breaches by Red Pepper of representations or warranties contained in the
Merger Agreement.
BY APPROVING THE MERGER AGREEMENT, THE SHAREHOLDERS WILL BE DEEMED TO
HAVE CONSENTED TO THE APPOINTMENT OF DANIEL T. DOLES, CURRENTLY VICE PRESIDENT
OF FINANCE AND OPERATIONS OF RED PEPPER, TO ACT AS THE AGENT ON BEHALF OF THE
SHAREHOLDERS TO OBJECT TO SUCH DELIVERIES, TO AGREE TO, TO NEGOTIATE AND ENTER
INTO SETTLEMENTS AND COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO TAKE
CERTAIN OTHER ACTIONS ON BEHALF OF THE SHAREHOLDERS, ALL AS MORE FULLY DESCRIBED
IN ARTICLE 7 OF THE MERGER AGREEMENT.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of the following conditions: (a) the Merger Agreement and the Merger shall
have been approved and adopted by the shareholders of Red Pepper; (b) the SEC
shall have declared the S-4 Registration Statement effective and no stop order
with respect to the S-4 Registration Statement or the Consent Solicitation
Statement shall have been initiated or threatened; (c) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect; (d) PeopleSoft and
Red Pepper shall each have received substantially identical written opinions
from their respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; (e) each of
PeopleSoft and Red Pepper shall have received a letter from their independent
auditors, regarding the appropriateness of pooling-of-interests accounting for
the Merger under Accounting Principles Board Opinion No. 16; (f) the shares of
PeopleSoft Common Stock issuable to shareholders of Red Pepper pursuant to the
Merger Agreement and such other shares required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on The Nasdaq
Stock Market; and (g) each of the Affiliates of Red Pepper and PeopleSoft shall
have delivered an executed Affiliate Agreement which shall be in full force and
effect.
In addition, the obligations of Red Pepper to consummate the Merger and
the transactions contemplated by the Merger Agreement are subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions: (a) the representations and warranties of PeopleSoft contained in
the Merger Agreement shall be true and correct and as of the Effective Time,
except for changes contemplated by Merger Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which neither have had nor reasonably would be expected to have a
Material Adverse Effect (as defined in the Merger Agreement) on PeopleSoft; (b)
PeopleSoft shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time; (c) Red Pepper shall have
received a legal opinion from counsel to PeopleSoft, in substantially the form
attached as Exhibit D to the Merger Agreement; and (d) there shall not have
occurred any material adverse change in the business, assets (including
intangible assets), financial condition or results of operations of PeopleSoft
since June 30, 1996.
Until the earlier of the Effective Time or the date of termination of
the Merger Agreement, Red Pepper will not (nor will Red Pepper permit any of Red
Pepper's officers, directors, agents, representatives or affiliates to) directly
or indirectly, take any of the following actions with any party other than
PeopleSoft and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of Red Pepper
or any of its subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets; (b) provide information with respect to it to any person, other
than PeopleSoft, relating to the possible acquisition of Red Pepper (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets; (c) enter into an
agreement with any person, other than PeopleSoft, providing for the acquisition
of Red Pepper (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets; or (d) make or authorize any statement, recommendation or solicitation
in support of any possible acquisition of Red Pepper or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
any person, other than by PeopleSoft. In addition to the foregoing, if Red
Pepper receives prior to the Effective Time or the termination of the Merger
Agreement any offer or proposal relating to any of the above, Red Pepper shall
promptly notify PeopleSoft thereof, including information as to the identity
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<PAGE> 36
of the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as PeopleSoft may reasonably request.
The obligations of PeopleSoft to consummate the Merger and the
transactions contemplated by the Merger Agreement shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions: (a)
the representations and warranties of Red Pepper contained in the Merger
Agreement shall be true and correct on and as of the Effective Time, except for
changes contemplated by the Merger Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which neither have had nor reasonably would be expected to have a
Material Adverse Effect on Red Pepper or PeopleSoft; (b) Red Pepper shall have
performed or complied in all material respects with all agreements and covenants
required by the Merger Agreement to be performed or complied with by it on or
prior to the Effective Time; (c) PeopleSoft shall have been furnished with
evidence satisfactory to it that Red Pepper has obtained the consents, approvals
and waivers set forth in Schedule 6.3(c) to the Merger Agreement; (d) PeopleSoft
shall have received a legal opinion from legal counsel to Red Pepper, in
substantially the form attached as Exhibit E to the Merger Agreement; (e) there
shall not have occurred any material adverse change in the business, assets
(including intangible assets) financial condition or results of operations of
Red Pepper since June 30, 1996 excluding a failure by Red Pepper to enter into
the customer contracts included in Red Pepper's "pipeline projections" presented
to PeopleSoft on August 31, 1996, provided, that Red Pepper can reasonably
demonstrate to PeopleSoft that such failure resulted from the public
announcement of the Merger; (f) all shares of the Series A, Series A1, Series B
and Series C Preferred Stock of Red Pepper shall have converted into Red Pepper
Common Stock in accordance with Red Pepper's Articles of Incorporation; (g) each
person listed in the preamble to Exhibit F of the Merger Agreement shall have
executed and delivered to PeopleSoft a Non-Competition, Non-Solicitation and
Non-Hire Agreement in substantially the form of Exhibit F to the Merger
Agreement and all of the Non-Competition, Non-Solicitation and Non-Hire
Agreements shall be in full force and effect; and (h) holders of more than 2% of
the outstanding shares of Red Pepper Capital Stock shall not have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue of
the Merger.
At any time prior to the Effective Time, PeopleSoft or Red Pepper may
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained in the Merger
Agreement or in any document delivered pursuant thereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Merger Agreement. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger by
Red Pepper shareholders: (a) by mutual written consent of Red Pepper and
PeopleSoft; (b) by PeopleSoft or Red Pepper if: (i) the Effective Time has not
occurred by March 2, 1997; (ii) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that would
make consummation of the Merger illegal; (c) by PeopleSoft if there shall be any
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger, by any governmental entity, which
would: (i) prohibit PeopleSoft's or Red Pepper's ownership or operation of any
portion of the business of Red Pepper or (ii) compel PeopleSoft or Red Pepper to
dispose of or hold separate, as a result of the Merger, any portion of the
business or assets of Red Pepper or PeopleSoft; in either case, the
unavailability of which assets or business would have or would reasonably be
expected to have a material adverse effect on PeopleSoft's ability to realize
the benefits expected from the Merger; (d) by PeopleSoft if it is not in
material breach of its obligations under the Merger Agreement and there has been
a breach of any representation, warranty, covenant or agreement contained in the
Merger Agreement on the part of Red Pepper and as a result of such breach the
conditions Red Pepper would not be able to satisfy its obligations at closing as
described above would not then be satisfied; provided, however, that if such
breach is curable by Red Pepper within thirty (30) days through the exercise of
its reasonable best efforts, then for so long as Red Pepper continues to
exercise such reasonable best efforts PeopleSoft may not terminate the Merger
Agreement unless such breach is not cured or curable within thirty (30) days;
and (e) by Red Pepper if it is not in material breach of its obligations under
the Merger Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement on the part of
PeopleSoft and as a result of such breach PeopleSoft would not be able to
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<PAGE> 37
satisfy its obligations at closing as described above; provided, however, that
if such breach is curable by PeopleSoft within thirty (30) days through the
exercise of its reasonable best efforts, then for so long as PeopleSoft
continues to exercise such reasonable best efforts Red Pepper may not terminate
the Merger Agreement.
In the event of termination of the Merger Agreement as provided
therein, the Merger Agreement shall forthwith become void and there shall be no
liability or obligation on the part of PeopleSoft or Red Pepper, or their
respective officers, directors or shareholders under the Merger Agreement,
except to the extent that such termination results from the willful and
intentional breach by any party hereto of any of its representations, warranties
or covenants set forth in the Merger Agreement, in which case the non-breaching
party shall be entitled to receive from the breaching party all of its third
party expenses related to the Merger and any expenses incurred in connection
with any dispute arising from such willful breach. Notwithstanding the
foregoing, the provisions of the Merger Agreement relating to payment of expense
and the effect of termination shall remain in full force and effect and survive
any termination of the Merger Agreement.
Except as is otherwise required by applicable law after the
shareholders of Red Pepper approve the Merger Agreement, the Merger Agreement
may be amended by the parties at any time by execution of an instrument in
writing signed on behalf of each of the parties; provided, however, that
PeopleSoft may in its sole discretion amend the Merger Agreement to provide for
the formation of a newly formed subsidiary and to consummate the Merger through
the merger of that subsidiary into Red Pepper.
NON-COMPETITION, NON-SOLICITATION AND NON-HIRE AGREEMENTS
Red Pepper's President and Chief Executive Officer, Vice President of
Finance and Operations, Vice President of Sales and Vice President of Product
Development have entered into the Non-Competition, Non-Solicitation and NonHire
Agreements (the "Non-Competition, Non-Solicitation and Non-Hire Agreements")
with PeopleSoft which become effective as of the Effective Time. See "Interests
of Certain Persons in the Merger."
AFFILIATE AGREEMENTS
As a condition to the Merger, twelve shareholders and option holders of
Red Pepper, each of whom was identified by Red Pepper as an affiliate, entered
into an agreement with PeopleSoft restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of Red
Pepper Common Stock held by them prior to the Merger and the shares of
PeopleSoft Common Stock received by them in the Merger to help insure that the
Merger will be treated as a pooling of interests for accounting and financial
reporting purposes. See "Terms of the Merger--Conditions to the Merger."
RIGHTS OF DISSENTING RED PEPPER SHAREHOLDERS
The following is a brief summary of the rights of shareholders of Red
Pepper who dissent from the Merger. It is qualified in its entirety by reference
to the applicable statutory provisions of the California General Corporation Law
(the "CGCL") attached hereto as Annex B.
If holders of Red Pepper Common Stock exercise dissenters' rights in
connection with the Merger under Sections 1300-1312 of the CGCL ("Section
1300"), any shares of Red Pepper Common Stock as to which such dissenters'
rights are exercised (the "Dissenting Shares") will not be converted into the
right to receive shares of PeopleSoft Common Stock by virtue of the Merger but
instead will be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the laws
of the State of California. The following summary of the provisions of Section
1300 is not intended to be a complete statement of such provisions and is
qualified in its entirety by reference to the full text of Section 1300, a copy
of which is attached hereto as Annex B and is incorporated herein by reference.
It is a condition to the closing of the Merger that no more than 2% of the
shares of Red Pepper Capital Stock be Dissenting Shares.
If the Merger is approved by the required vote of Red Pepper's
shareholders, each holder of shares of Red Pepper Common Stock who does not vote
in favor of the Merger and who follows the procedures set forth in Section 1300
will be entitled to have shares of Red Pepper Common Stock purchased by Red
Pepper for cash at their fair market value. The fair market value of shares of
Red Pepper Common Stock will be determined as of the day before the first
announcement of the terms of the proposed Merger, excluding any appreciation or
depreciation in consequence of the proposed Merger and therefore valuing the
shares of Red Pepper Common Stock as if the Merger had not occurred.
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<PAGE> 38
Within ten days after approval of the Merger by Red Pepper's
shareholders, Red Pepper must mail a notice of such approval (the "Approval
Notice") to all shareholders who have not voted in favor of the Merger, together
with a statement of the price determined by Red Pepper to represent the fair
market value of the applicable Dissenting Shares, a brief description of the
procedures to be followed in order for the shareholder to pursue dissenters'
rights, and a copy of Sections 1300-1304 of the CGCL. The statement of price by
Red Pepper constitutes an offer by Red Pepper to purchase all Dissenting Shares
at the stated amount.
A shareholder of Red Pepper electing to exercise dissenters' rights
must, within thirty days after the date in which the Approval Notice is mailed
to such shareholder, mail or deliver the written demand to Red Pepper stating
that such holder is demanding purchase of his or her shares of Red Pepper Common
Stock, stating the number of shares which Red Pepper must purchase, what the
shareholder claims to be the fair market value of such shares and enclosing the
share certificates for endorsement by Red Pepper.
If Red Pepper and the shareholder agree that the shares are Dissenting
Shares and agree upon the price of the shares, Red Pepper must pay the
shareholder the agreed upon price plus interest thereon at the legal rate from
the date of the agreement on Dissenting Shares within thirty days from the later
of (i) the date of the agreement on Dissenting Shares, or (ii) the date all
contractual conditions to the Merger are satisfied.
If Red Pepper denies that the shares are Dissenting Shares, or if Red
Pepper and the shareholder fail to agree upon the fair market value of shares of
Common Stock, then within six months after the date the Approval Notice was
mailed to shareholders, any shareholder who has made a valid written purchase
demand and who has not voted in favor of approval and adoption of the Merger may
file a complaint in California superior court requesting a determination as to
whether the shares are Dissenting Shares or as to the fair market value of such
holder's shares of Red Pepper Common Stock, or both.
GOVERNMENTAL AND REGULATORY APPROVALS
PeopleSoft and Red Pepper are aware of no governmental or regulatory
approvals required for consummation of the Merger, other than registration of
the shares of PeopleSoft Common Stock that are issuable in the Merger pursuant
to the Securities Act and compliance with applicable securities and "blue sky"
laws of various states.
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<PAGE> 39
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Red Pepper Board of Directors
with respect to the Merger, shareholders should be aware that certain directors
and officers of Red Pepper have interests in the Merger that may present them
with potential conflicts of interest. The Red Pepper Board of Directors was
aware of these potential conflicts and considered them along with the other
matters described in "Background and Reasons for the Merger--Red Pepper's
Reasons for the Merger."
Non-Competition, Non-Solicitation and Non-Hire Agreements. Pursuant to
the terms of the Merger Agreement, Red Pepper's President and Chief Executive
Officer, Vice President of Finance and Operations, Vice President of Sales and
Vice President of Product Development have agreed to enter into Non-Competition,
Non-Solicitation and Non-Hire Agreements with PeopleSoft. The Non-Competition,
Non-Solicitation and Non-Hire Agreements will be between these employees and
PeopleSoft, and their effectiveness is contingent upon the closing of the
Merger. Such Non-Competition, Non-Solicitation and Non-Hire Agreements shall
contain non-compete provisions applicable for the term of the arrangement. If a
person subject to such Non-Competition, Non-Solicitation and Non-Hire Agreements
is terminated from full-time employment with PeopleSoft following the Merger
within the term of such agreement following the Effective Time other than: (a)
as a result of such employee's voluntary termination which is not in connection
with (i) a reduction of or non-payment of such employee's salary, or a
significant reduction in employee benefits (ii) a significant diminution in such
employee's status, responsibilities or duties, (iii) such employee's
constructive termination, or (iv) employee's relocation to a facility more than
50 miles from Red Pepper's San Mateo headquarters; (b) as a result of death or
disability of such employee; or (c) for cause, then such employee shall be
entitled to receive payments equal to his base salary, net of all applicable
withholding and similar taxes for the remaining term of such agreement. In
addition, PeopleSoft has agreed that upon any such termination of employment
without cause, any unvested options or shares subject to outstanding repurchase
options will be accelerated and fully vested or released from such repurchase
option upon such termination. However, upon such a termination PeopleSoft may,
at its option, release such employee from his non-competition, non-solicitation
and non-hire obligations and in such case PeopleSoft shall not be required to
make any further payments to such employee nor shall the vesting of any options
held by such employee or the release of any shares subject to a repurchase
option be accelerated. Such options, along with the other options outstanding
under the Red Pepper's employee stock plans will be assumed by PeopleSoft in
connection with the Merger and pursuant to the Merger Agreement. See "Terms of
the Merger--Non-Competition, Non-Solicitation and Non-Hire Agreements."
As of September 4, 1996, Red Pepper executive officers and directors
and their affiliates owned an aggregate of 8,851,208 shares of Red Pepper Common
Stock and vested and unvested options to purchase an additional 444,000 shares
of Common Stock of Red Pepper. Based upon the closing price of PeopleSoft Common
Stock on September 4, 1996 of $75.75, and assuming the exercise of outstanding
options to purchase Red Pepper Common Stock, the aggregate dollar value of the
PeopleSoft Common Stock to be received by Red Pepper officers and directors and
their affiliates is approximately $144,765,000.
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<PAGE> 40
STOCK PRICE AND DIVIDEND INFORMATION
PeopleSoft Common Stock has been traded on The Nasdaq National Market
under the symbol "PSFT" since PeopleSoft's initial public offering in November
1992. Following the Merger, PeopleSoft Common Stock will continue to be traded
on The Nasdaq National Market under the symbol "PSFT." The following table sets
forth the range of high and low closing prices for the PeopleSoft Common Stock
as reported on The Nasdaq National Market for the periods indicated. The stock
prices have been adjusted to reflect 2-for-1 stock splits effected by PeopleSoft
in December 1994 and November 1995.
<TABLE>
<CAPTION>
HIGH LOW
---------------- ----------------
<S> <C> <C>
Fiscal 1996
Second quarter $72.50 $48.50
First quarter $58.50 $35.25
Fiscal 1995
Fourth quarter $47.00 $36.75
Third quarter $45.50 $26.38
Second quarter $29.25 $19.63
First quarter $24.38 $15.38
Fiscal 1994
Fourth quarter $19.75 $11.25
Third quarter $12.28 $ 7.44
Second quarter $ 9.32 $ 6.50
First quarter $10.35 $ 7.13
</TABLE>
On September 4, 1996, there were 779 holders of record of PeopleSoft
Common Stock. On September 4, 1996, the last trading day prior to the
announcement by PeopleSoft and Red Pepper that they had reached an agreement
concerning the proposed Merger, the closing sale price of PeopleSoft Common
Stock as reported on The Nasdaq National Market was $75.75 per share. On October
__, 1996, the closing sale price of a share of PeopleSoft Common Stock as
reported on The Nasdaq National Market was $______. There can be no assurance as
to the actual price of PeopleSoft Common Stock prior to, at, or at any time
following the Effective Time.
No established trading market exists for Red Pepper Common Stock. As of
September 4, 1996, there were 61 holders of record of Red Pepper Capital Stock
and 76 holders of options to purchase shares of Red Pepper Common Stock. Red
Pepper has never paid, and has no present intention to pay in the foreseeable
future, any cash dividends on the Red Pepper Common Stock.
PeopleSoft has never paid cash dividends on shares of PeopleSoft Common
Stock. Following the Merger, it is expected that the Board of Directors of
PeopleSoft will continue the policy of not paying cash dividends in order to
retain earnings for reinvestment in its business.
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PEOPLESOFT BUSINESS
This Business section and other parts of this Prospectus/ Consent
Solicitation Statement contain forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below, and
separately in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
GENERAL
PeopleSoft designs, develops, markets and supports a family of
enterprise client/server application software products for use throughout large
and medium sized organizations, worldwide. The Company designed its products
specifically for the client/server model of computing and believes that its
architecture is among the most flexible available for enterprise level
applications software. The products operate on a wide range of hardware
platforms, including IBM Mainframes, UNIX-based computers from Digital Equipment
Corporation ("Digital"), Hewlett Packard Corporation ("HP"), Sun Microsystems,
Inc. ("Sun"), Sequent Computer Systems, Inc. ("Sequent"), and others, and Intel
based micro computers operating in both Local and Wide Area Networks. The
Company's products utilize the Microsoft Windows family of operating systems on
the desktop, and a wide variety of popular relational database management
systems ("RDBMSs"), operating systems and hardware platforms choices on the
server, making its software solutions among the most flexible, scalable and
portable in the application software industry. The products have been developed
using PeopleTools, the Company's integrated rapid application development
toolset which is delivered to customers along with the application products to
facilitate end user modification and customization.
PeopleSoft was incorporated in Delaware in August 1987 and initially
shipped its first product suite, a Human Resource Management System ("HRMS") in
December 1988. In 1992, PeopleSoft introduced the first of a series of Financial
Management and Accounting System modules, and has since introduced additional
Human Resource and Financial Management modules, a suite of Distribution
Management products, a suite of Public Sector Financial Management products, and
has tailored certain of its products for the Federal government marketplace. In
addition, in April, 1996, the Company announced the availability of an early
release of its Manufacturing management application products, which were
developed by an affiliate. The Company's strategy is to offer comprehensive
enterprise application software solutions to a variety of industries with best
of breed products utilized in a wide variety of cross-industry solutions.
SOFTWARE PRODUCT ARCHITECTURE
PeopleSoft's software products are based on a scalable, multi-tiered,
client/server architecture. The Company believes that its architecture can
enhance system performance, reduce overall system costs and facilitate faster
and easier implementations of the initial system as well as subsequent upgrades.
In addition to the advantage of a pure client/server architecture, the
PeopleSoft solution offers a number of other important features. PeopleSoft
applications are designed for ease of use, are integrated with the Microsoft
Windows family of products and are compatible with personal productivity
applications such as word processors and spreadsheets. PeopleSoft software
products are also designed specifically for use with relational database
management systems, which offer power and functionality superior to that of the
non-relational database management systems often used with legacy software
applications. The Company's software products are also scalable, permitting
changes in network size and architecture with minimal disruption. Further,
PeopleSoft software products are portable across major RDBMS software and server
hardware platforms. The Company believes that the intuitive design of its
software products reduce end-user training requirements and allow end-users and
decision makers increased access to critical data not always readily available
to them with legacy systems.
CLIENT/SERVER ARCHITECTURE
Under the Company's multi-tiered client/server architecture, user
intensive functions such as presentation and interactive application logic, as
well as data intensive application processing logic and database management
functions, may be distributed or concentrated between single or multiple clients
and servers. For example, under a distributed function model of cooperative
processing, application logic related to on-line user interaction, and user
presentation, are resident on the client, and the underlying database management
functions are located on the server, thereby optimizing the utilization of
computing resources on the network. Certain other application logic, including
high volume data manipulation and other batch mode processes, are transferable,
and, based on user defined run-time specifications, can be run on either the
client, an application server or the
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database server. The design and flexibility of this architecture also
significantly enhances (i) the portability of the Company's software across a
broad range of hardware platforms, and (ii) the scalability of PeopleSoft's
applications which allows customers to maximize the value of their information
technology investments by downsizing, rightsizing or expanding their computing
environments with minimal disruption.
PEOPLETOOLS
Today's users are demanding system solutions that address specific
business needs, are quickly adaptable to changing information requirements, and
provide for ease of access to information. PeopleSoft addresses this need by
providing PeopleTools, a set of integrated development and reporting tools which
may be used (i) by business process analysts to rapidly design and prototype
custom modifications, (ii) by systems managers and support staff to improve the
efficiency of implementing, operating and upgrading PeopleSoft's applications,
and (iii) by application users to easily access, summarize and analyze
information. PeopleTools has been and continues to be used by the Company to
develop all of its application products. Features and functions which
PeopleTools provides include effective date capabilities, extensive security at
both a user and object level, and a tree editor for managing hierarchical
relationships among data elements. PeopleTools are used to build and modify data
tables, design and customize user interface windows, modify user pull-down
menus, define security privileges of individual users and operator access to
system objects, define and build workflow based processes, customize on-line
help text and facilitate data importation from other systems into PeopleSoft
applications. PeopleTools simplifies system customization and implementation and
reduces the time and cost of implementing the system. Upgrades to new releases
are simplified with a tool which provides an automated comparison of modified
systems to base level systems, and helps define how to install new releases. In
addition, PeopleTools provides customers with significant flexibility to modify
their system quickly and inexpensively, so that internal maintenance costs can
be significantly reduced.
PeopleSoft offers workflow functionality in its applications which can
move data across PeopleSoft applications and potentially between PeopleSoft
applications and E-mail based software applications such as Lotus Notes or
Microsoft CC-Mail, forms based software applications from Delrina and JetForm,
and interactive voice response ("IVR") products including TALX Corporation and
Edify, as well as various kiosk-based products.
RELATIONAL DATABASE MANAGEMENT SYSTEMS
By utilizing relational databases and designing the system from the
ground up, the Company was able to develop integrated software products with
fully normalized data structures. A fully integrated system provides convenient
access to shared data such as employee tables, tax rates and organization
charts, without requiring users to maintain this information redundantly.
Collecting and capturing information once ensures that all data is consistent,
readily available and easier to maintain. Through adherence to ANSI SQL
("Structured Query Language"), the industry standard data manipulation language
for RDBMSs, and other relational database standards, the Company's software
products are available in a range of environments. PeopleSoft's software
products can be licensed for use with the following RDBMSs and run on the
following operating systems: Centura Software Corporation's ("Centura" formerly
Gupta Corporation) SQLBase (OS/3 and NT), IBM's DB2 for MVS/ESA (MVS, using
connectivity products from Centura or Sybase, Inc. ("Sybase")), IBM's DB2 for
AIX, Informix Corporation's INFORMIX-OnLine Dynamic Server (ALX, Dynix, Solaris,
MP RAS, Digital Unix, Unisys Unix, DG/UX, SINIX, IRIX and HP-UX), Microsoft
Corporation's ("Microsoft") SQL Server, (NT for HRMS products only), Oracle
Corporation's ORACLE (VMS, Open VMS, NT and over 10 versions of Unix), and
Sybase's System 11 (HP-UX, AIX and Solaris). In addition, the Company is in the
process of porting its software products to IBM's DB2 for OS/400, and certain
products to Microsoft's SQL Server 6 (NT), and its PeopleTools to Apple
Computer, Inc.'s ("Apple") native Macintosh family of computers. No assurance
can be given concerning the successful development of PeopleSoft software
products on these additional platforms, the specific timing of the releases of
any future modules, the performance characteristics of PeopleSoft applications
on these platforms or their acceptance in the marketplace. If the customer
decides to switch to other PeopleSoft supported RDBMS or hardware platforms,
user disruption is usually minimized because only the "back-end" database
changes, while the "front-end" application remains the same.
Not all modules of the Company's software products are currently
available on all of the above platforms. The Company expects to continue
expanding platform availability to address general marketplace demand.
Generally, releases or new modules are initially introduced on Centura's SQLBase
and ORACLE with subsequent release for use with other supported RDBMS versions.
As a result of the complexities inherent in the DB2 environment and the
performance demanded by customers in the DB2 environment, the DB2 version
requires more lengthy development and testing periods to achieve market
acceptance. In
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addition, there may be future or existing RDBMS platforms which achieve
popularity within the business application marketplace and which PeopleSoft may
desire to offer its applications thereon. Such future or existing RDBMS products
may or may not be architecturally compatible with PeopleSoft's software product
design. No assurance can be given concerning the successful porting to new
platforms, the specific timing of completion of any such ports or their
acceptance in the marketplace.
GRAPHICAL USER INTERFACE
All PeopleSoft software products share a common graphical user
interface ("GUI") based on Microsoft's Windows family of products, which
provides a consistent "look and feel" to the Company's applications, including
similar pull down menus, error handling, system navigation and point-and-click
mouse-driven functionality. The intuitive nature of GUI-based systems increases
productivity and reduces user training requirements. The GUI's ease of use
encourages non-technical users to utilize the information system capabilities
more fully. In addition, the GUI allows users to integrate enterprise
applications and data with other Microsoft Windows-based desktop applications.
For example, customers can easily query the system and download data into either
a word processing document or a spreadsheet. By leveraging the public's
widespread familiarity with personal computers ("PC"), previously difficult to
access enterprise information is made readily available to the casual employee
user, resulting in potentially significant improvements in employee
productivity.
APPLICATION SECURITY ARCHITECTURE
The Company's application software products incorporate extensive
security features designed to protect certain sensitive data managed by these
applications from unauthorized retrieval or modification. To date, the Company
is not aware of any violations of its application security architecture within
its installed base. The Company has developed a security architecture utilizing
the capabilities of its own applications, the client operating system software,
some of the security features contained in the RDBMS platforms on which the
applications run, as well as certain third party security products.
SOFTWARE PRODUCTS
At June 30, 1996, PeopleSoft's software products included PeopleSoft
HRMS 5.1, PeopleSoft Financials 5.1, PeopleSoft Financials for Public Sector
5.1, and PeopleSoft Distribution 5.1 and the beta release of PeopleSoft
Manufacturing. The Company's software products are generally licensed to
end-user customers under non-exclusive, nontransferable, perpetual license
agreements. In most cases, the Company licenses its software products solely for
the customer's internal operations and only on designated computers. In certain
circumstances, the Company makes available enterprise-wide licenses. License
fees for the Company's software products are a function of the specific hardware
and RDBMS configuration, the particular combination of PeopleSoft modules chosen
and either the employee population or revenues of the entity using the software.
The following license fees include one copy of the software, system and user
documentation, one year of product maintenance, a one-year software product
warranty, installation support and software product training. As of June 30,
1996, list prices for license fees for a single copy of one module, for a
company with 1,000 or less employees, can range as follows:
<TABLE>
<CAPTION>
HRMS FINANCIALS DISTRIBUTION MANUFACTURING
<S> <C> <C> <C> <C>
Mainframe $71,000 - $1,863,000 $116,000 - $964,000 $154,000 - $868,000 $58,000 - $1,254,000
Other servers $29,000 - $1,502,000 $66,000 - $778,000 $88,000 - $700,000 $33,000 - $1,011,000
</TABLE>
The Company intends to enhance its software products through new
releases, including embedding global functionality into its core products,
updating current country-specific and non-English language versions of its HRMS
applications, and has under development the following new modules: Travel and
Entertainment Expenses and Treasury Management. Pension Administration, Time and
Labor and selected manufacturing modules are currently in beta release. Also
under development are additional PeopleSoft Manufacturing and PeopleSoft Student
Administration modules, both of which are under joint development arrangements,
as further described under "--Software Product Development" and in the Notes to
the Consolidated Financial Statements. Furthermore, development efforts have
been completed for a Federal government version of PeopleSoft Human Resources
and ongoing development is underway for a Federalized version for other HRMS
modules.
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PEOPLESOFT APPLICATION PRODUCTS -- HUMAN RESOURCE MANAGEMENT SYSTEM
Current PeopleSoft HRMS software modules which are generally available
include: Human Resource, Benefits Administration, FSA Administration, Payroll
and Payroll Interface. Additional modules are planned for release during 1996,
including Time and Labor and Pension Administration. No assurance can be given
concerning the successful development of enhancements or new modules, the
specific timing of completing new releases or new modules or the level of their
acceptance in the marketplace.
The Company's license revenues from the PeopleSoft HRMS products were
74%, 77%, 62% and 58% of total license revenue for the years ended December 31,
1993, 1994, 1995 and the six months ended June 30, 1996, respectively.
In March 1996, the Company released PeopleSoft HRMS 5.1, a family of
fully integrated human resource management system software products. These
software products include:
PEOPLESOFT HUMAN RESOURCES. The base human resources module provides
support for the human resource function, including personnel administration
(employee biographical information and record keeping), recruitment, position
management, training and development, health and safety, skills inventory,
career planning, affirmative action planning, COBRA administration and EEO
reporting. This module also contains capabilities to perform discrimination
testing, individual plan enrollment panels, and reference tables to define
benefit programs and plans. With this foundation as a building block, the
following modules can be added to expand the range of system capabilities.
PEOPLESOFT BENEFITS ADMINISTRATION. The benefits administration module
provides the capabilities required to support daily benefits administration
activities and is an important management tool for controlling costs as well as
complying with government regulations. This module supports both flexible and
non flexible benefits programs that require complex eligibility checking, open
enrollment processing, and other automatic enrollment processing capabilities.
This module also provides for user-defined benefit eligibility criteria,
enrollment rules and flexible credit calculations as well as voice-activated
open enrollment and event maintenance.
PEOPLESOFT FSA ADMINISTRATION. The flexible spending account
administration ("FSA") module provides a comprehensive flexible benefits
software solution for companies that offer "cafeteria" benefits plans. This
module includes capabilities for FSA claims tracking and processing, extensive
editing to ensure that funds are available and that duplicate claims are not
processed and support for check preparation for reimbursements.
PEOPLESOFT PAYROLL. The payroll module provides a full in-house payroll
administration and production facility. This module handles payroll
calculations, check printing, tax reporting and deduction and benefit
calculations, and has comprehensive audit trail and reporting capabilities.
PEOPLESOFT PAYROLL INTERFACE. This module provides an interface between
the PeopleSoft HRMS data and third party payroll systems for those companies
that use their own payroll system or a payroll service bureau. This module
provides a subset of the capabilities of PeopleSoft Payroll.
In addition to the above software modules, the Company has extended the
functionality of PeopleSoft HRMS through the integration of numerous third party
software products including a resume reader from Restrac, tax reporting and
filing from Federal Liaison Services ("FLS") and interactive voice processing of
benefit, time and personal payroll-related information from TALX Corporation.
PEOPLESOFT APPLICATION PRODUCTS -- FINANCIAL MANAGEMENT SYSTEMS
PeopleSoft Financials software products have a much shorter history of
availability since the initial introduction of the first financial management
system product, PeopleSoft General Ledger, in mid 1992. Other PeopleSoft
Financial modules which are generally available currently include: Receivables,
Payables, Asset Management, Projects, Billing and Budgets.
Treasury Management and Travel and Entertainment Expenses modules are
planned for beta release during 1996. No assurance can be given concerning the
successful development of enhancements or new modules, the specific timing of
completing new releases or new modules or the level of their acceptance in the
marketplace.
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In April 1996, the Company released PeopleSoft Financials 5.1, a family
of fully integrated financial system software products which includes certain
international and public sector functionality. For the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1996, the Company's
financial software products accounted for approximately 19%, 20%, 35% and 39% of
license revenue, respectively, and it is anticipated that the Company's
financial software products will account for an increasing percentage of license
revenue in 1996. PeopleSoft Financials includes the following modules:
PEOPLESOFT GENERAL LEDGER. The general ledger module provides financial
analysis, flexible management reporting, general ledger accounting and
consolidations that enables the user to collect and report financial information
based on the organization's unique requirements. Features include unlimited
charts of account (chartfields), customer defined ledgers, graphical "tree"
maintenance of chartfield elements, flexible calendars, dynamic budgeting,
automated journal entry, multi-currency capabilities, allocations and
intercompany journal entries
PEOPLESOFT RECEIVABLES. The receivables module manages payments owed to
the organization, and is designed to improve the organization's ability to
collect payments in a timely fashion. Features include automatic assessment of a
customer's payment habits and generation of dunning letters, value added tax
(VAT) processing, automatic tape lock box processing for electronic processing
of high-volume transactions and cash position projections.
PEOPLESOFT PAYABLES. The payables module provides payable and cash
management functions, which can yield cost savings by managing the cash payments
of an organization. Features include the support of multiple currencies,
flexible payment policies, VAT processing, automated three-way matching of
receiving invoice and purchase order data, recurring vendor contracts, express
checks, workflow approval for vouchers and cash requirements analysis and
planning.
PEOPLESOFT ASSET MANAGEMENT. The asset management module manages the
acquisition, maintenance, transfer, depreciation and retirement of fixed assets
and tax compliance. Features include asset tracking, maintenance and insurance
tracking, and flexible depreciation accounting for book and tax purposes.
PEOPLESOFT PROJECTS. The projects module integrates operational and
financial functions, allowing users to perform a variety of tasks, from managing
complex capital projects to calculating revenue for billable projects. This
product was developed with input from experts from a wide range of industries
including the utilities, aerospace, health care, education, mining and
engineering industries.
PEOPLESOFT BILLING. The billing module offers a flexible, modular
approach for managing billing and adjustments, processing sales taxes,
generating invoices, and creating account distributions. Organizations can
create an enterprise-wide billing information repository, streamline the billing
process, and customize billing requirements. The unique modular approach opens
PeopleSoft Billing, allowing the billing process to be driven by any number of
PeopleSoft and non-PeopleSoft billing sources.
PEOPLESOFT BUDGETS. The budgeting module integrates all aspects of the
budgeting process, combining spreadsheets, workflow processing and PeopleSoft
reporting and query tools into a centralized budgeting solution. Features
include automatic routing, flexible levels of budget detail, access to data from
other applications, access to historical data, flexible time spans, status
monitoring and reports tailored to user requirements.
PEOPLESOFT APPLICATION PRODUCTS -- DISTRIBUTION
In April 1996, the Company released PeopleSoft Distribution 5.1, a
family of fully integrated distribution system products. For external financial
reporting purposes, revenues related to PeopleSoft Distribution modules are
included with PeopleSoft Financials. PeopleSoft Distribution includes the
following modules:
PEOPLESOFT PURCHASING. The purchasing module: (i) automates
requisitioning, purchasing and receiving of raw materials, supplies, services,
products and assets; (ii) streamlines purchasing functions through on-line
requisitioning, automated sourcing, and application integration; and (iii)
enables buyers to manage sourcing, vendor selection and ongoing contracts more
efficiently and cost effectively.
PEOPLESOFT INVENTORY. The inventory module provides the ability to
efficiently store and issue stock in response to changing demands, accurately
track the movement of stock on a real-time basis, and automatically replenish
stock as needed. Users can set up inventory based on organizational structures,
manage costing and valuation, manage warehousing space and
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stock, schedule replenishment and distribution, maintain inventory time levels,
manage material put away, fulfill orders and report on inventory data.
PEOPLESOFT ORDER MANAGEMENT. The order management module handles the
complete range of order processing requirements. In addition to rapid on-line
order entry, this module offers alternative order entry methods, workflow, EDI,
electronic forms, multimedia attachments, on-line ATP, quotation processing,
alternate product lists, flexible pricing and commissions and contract
management.
PEOPLESOFT APPLICATION PRODUCTS - MANUFACTURING
The beta version of PeopleSoft Manufacturing was released in April
1996. Four new products were introduced: PeopleSoft Bills and Routing;
PeopleSoft Cost Management; PeopleSoft Production Planning; and PeopleSoft
Production Management. These modules are expected to be in general release later
in 1996. An additional module is planned for beta release in 1996, PeopleSoft
Engineering.
PEOPLESOFT BILLS AND ROUTINGS (BETA RELEASE). The beta release of
PeopleSoft Bills and Routings provides all the features and functionality
required to dynamically maintain complex bills of material ("BOMs"), resources,
work centers and routings. The general release focuses on developing the
interface with the beta version of PeopleSoft Engineering. It will process BOM
transfers between manufacturing and engineering and provide integration with
engineering change orders from PeopleSoft Engineering.
PEOPLESOFT COST MANAGEMENT (BETA RELEASE). PeopleSoft Cost Management
provides control and flexibility to manage costs throughout the supply chain.
This module focuses on inventory accounting for specific locations including
features that allow: definition of inventory accounts for storage and production
areas; the association of raw materials, work in process ("WIP"), and finished
goods accounts with storage locations; the ability to debit or credit storage
accounts as material moves throughout the enterprise; and reporting of storage
and WIP inventory values by account to assist the reconciliation of perpetual
inventory records to general ledger balances.
PEOPLESOFT PRODUCTION PLANNING (BETA RELEASE). The general release of
PeopleSoft Production Planning will offer an advanced planning and scheduling
system that enables simultaneous, real-time optimization of plant-wide
procurement and production. Functionality includes: automatic Purchase Orders
and Production Orders; automatic application of rescheduling messages for
production order which will remove the manual effort necessary to reschedule or
cancel orders from planners; enhanced integration with PeopleSoft Production
Management; net change for dataLink process, allowing for the overlay of new
changes in the transactional database on top of an existing production plan
which will reduce the time required to generate the transactional model;
aggregate work center capacity requirements, enabling the capture of capacity
information, by time or unit, at an aggregate level; and the scheduling of work
centers for a specific percentage of utilization. This module incorporates Red
Pepper's ResponseAgent technology.
PEOPLESOFT PRODUCTION MANAGEMENT (BETA RELEASE). PeopleSoft Production
Management synchronizes planning and execution throughout the enterprise. The
general release will continue expanding and enriching the product with serial
and lot number tracking. The general release will allow for assignment of serial
and lot numbers when recording completions for assemblies and subassemblies as
well as the tracking of components by serial and lot number in WIP. Other
functionality includes: subcontracting; automatic conversion of planned orders
to production; automatic conversion of configured orders to production;
production maintenance through PS/nVision; rework production; production
cancellations; production document, component, operation and dispatch lists; and
production replenishment.
PEOPLESOFT APPLICATION DEVELOPMENT AND PRODUCTIVITY TOOLS --
PEOPLETOOLS
The Company includes a restricted use license to PeopleTools with each
PeopleSoft application software product licensed. PeopleTools includes the
following application development tools:
Business process analysts use the following tools to rapidly design and
prototype custom modifications:
DATA DESIGNER. Data Designer is used to build new table definitions, to
add, drop or modify fields in existing tables and to facilitate field editing.
In addition, Data Designer includes PeopleCode, a programming language used for
custom field-
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level calculations, edits, defaults and processing routines which minimizes
complex coding inherent with standard computer languages.
PANEL DESIGNER. Panel Designer is used to build or modify GUI-based
query and data entry screens.
MENU DESIGNER. Menu Designer is used to build or modify application
windows and pull-down menus in a graphical user interface environment.
HELP DESIGNER. Help Designer is used to create or modify on-line help
text, including field and panel level help, corporate procedures and user
procedures.
PEOPLESOFT WORKFLOW. PeopleSoft Workflow is a suite of tools that
significantly extends the range of business tasks that can be automated.
Features included are: workflow designer; workflow processor; application
workflow; a workflow API; workflow administrator; worklists; and a message agent
including both application agents and database agents.
APPLICATION REVIEWER. Application Reviewer works as a debugger to help
systems analysts perform problem identification and resolution prior to placing
a modified system into production.
Information systems managers and support staff use the following tools
to improve the efficiency of implementing, operating and upgrading PeopleSoft's
applications:
APPLICATION DISTRIBUTOR. Application Distributor takes application
objects which are stored in relational databases and makes them available to
widely distributed clients. Storing application objects in the database
maintains consistency of tables, work records, views, fields and panels, and
facilitates the automated distribution of new or modified client versions of
software products without the use of other third party utilities.
APPLICATION PROCESSOR. Application Processor builds panels from stored
application objects. An image of the objects in memory is written to local
storage for reuse, but is automatically updated if changed on the server.
APPLICATION INSTALLER. Application Installer automates the application
installation process in various client/server network environments, facilitating
easier navigation through the many hardware, database, and connectivity
variables that affect PeopleSoft applications.
OPERATOR SECURITY. Operator Security controls the scope and level of
data accessibility provided to individuals and classes of users.
OBJECT SECURITY. Object Security allows read or modification access to
individual objects and groups of objects, including tables, panels, menus or
tree structures.
IMPORT MANAGER. Import Manager speeds the loading of data generated by
other systems into the RDBMS server for access by the Company's application
products.
APPLICATION UPGRADER. Application Upgrader facilitates customer
upgrades to successive versions of the application with retention of all the
function and feature modifications made by the customer.
DATA MOVER. Data Mover archives and retrieves archived data stored in
PeopleSoft application databases.
SQL SCRIPTER. SQL Scripter facilitates the execution of SQL statements
while logged on to a PeopleSoft database.
The following tools are used by application users to easily access,
analyze and report information:
PS/NVISION. PS/nVision integrates PeopleSoft Financials with Microsoft
Excel in the production of financial statements, responsibility reports and
other ad hoc financial reports and analyses.
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TREE MANAGER. Tree Manager builds hierarchical relationships between
different data elements within a given table, such as among departments or
accounts.
QUERY. Query builds SQL queries which extract and summarize information
from an application's database.
QUERY LINK. Query Link provides a PeopleSoft Query interface to Crystal
Reports Pro, a versatile report designer and formatter from Crystal Services.
Through Query Link, data can be quickly and easily formatted with a variety of
fonts, borders and other special effects or imported into a spreadsheet such as
Microsoft Excel for further analysis.
PROCESS SCHEDULER. Process Scheduler streamlines the execution of
routine tasks and controls time-based events from distributed clients by
running, on the client or server, batch processes or programs such as journal
creation, payroll processing, voucher posting and other reports without
requiring additional user interaction.
The Company also offers PeopleTools to PeopleSoft customers who are
interested in developing their own custom, internal client/server business
applications. License fees for PeopleTools are a function of the number of
licensed users, and such fees start at $45,000. The contractual terms of
PeopleTools licenses are similar to those for other PeopleSoft applications and
generally do not restrict the customer's internal use of PeopleTools.
SERVICES AND CUSTOMER SUPPORT
The Company believes that a high level of customer service is required
to be successful in the client/server arena because of the number of different
hardware and software vendors involved in an installation and the inherent
complexity of the architecture. The Company also believes that the opportunity
exists to differentiate itself from competitors on a service level due to the
demanding service requirements of this market. The Company's customer service
staff consisted of 735 employees as of June 30, 1996.
The Company's service and support for each customer is coordinated by
an account manager. In addition to managing the account relationship and
verifying timely installation, the account manager is also responsible for
coordinating the Company's ongoing training, consulting and support services
provided to that customer.
Service revenue primarily consists of software support (maintenance)
fees, customer training fees, consulting fees, and other miscellaneous fees.
Service revenue constituted 35%, 39%, 41% and 46% of the Company's revenues
during the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996, respectively. Changes in levels of consulting activity, the
related satisfaction of significant agreement milestones, and satisfaction of
the Company's revenue recognition criteria can cause fluctuations in the volume
of services revenue. In addition, seasonality impacts training and installation
revenue, both of which tend to follow license fees by approximately one quarter.
CUSTOMER EDUCATION AND TRAINING
The Company offers a comprehensive education and training program to
customers and third party consultants. Training classes are provided in training
facilities located in major metropolitan areas around the world. In addition,
the Company provides on-site training to customers for a fee plus travel
expenses. The Company's fees for training services are generally priced at $450
per training unit (representing one student day of training). The Company also
offers price reductions to customers and consultants who acquire training by
prepaying for a block of units. The Company's training curriculum is designed
for both system support staff and application users and includes a variety of
training classes covering functional use, system administration and PeopleTools.
SOFTWARE MAINTENANCE AND SUPPORT
The Company provides 24-hour hotline telephone support, staffed with a
group of experienced professionals and supported by a computerized call tracking
and problem reporting system. An automated Lotus Notes-based bulletin board
called PeopleSoft Forum provides subscribing customers with real time
information on incidents, bugs and resolutions and facilitates direct customer
communication with any individual in the Company, including senior management.
Access to the PeopleSoft Forum is available through the Internet or through
CompuServe. Initial product license fees include the first year of maintenance
support. Thereafter, ongoing maintenance contracts are offered to customers, and
are renewable on an annual basis. Annual
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maintenance fees are generally based on 17% of the then current list price of
the software products under license by a customer and also entitle the customer
to software product enhancements during the term of the maintenance agreement.
To date, most customers have renewed their maintenance contracts.
CONSULTING SERVICES
The Company offers a variety of consulting services to its customers
including system integration assistance and planning, strategic implementation
planning, upgrade implementation and minor software product customization. The
Company also frequently works closely with third party consulting and systems
integration firms such as Andersen Consulting and Price Waterhouse LLP who
provide the customer with a full range of reengineering, customization and
project management services. These third party consulting firms have also
licensed PeopleSoft applications to develop programs to support customers
implementing the Company's software products. To date consulting services, which
are generally provided on a per hour or per day charge basis, have been less
than 10% of total annual revenues. During the past year PeopleSoft significantly
expanded its consulting services group to meet growing customer demands for such
services. There can be no assurance that PeopleSoft will be successful in
further expanding its consulting services group, that revenues from consulting
services will in fact increase, or be profitable.
SALES AND MARKETING
The Company markets and licenses its software products in most major
world markets through a direct sales organization of 519 employees as of June
30, 1996. The sales organization is based in 14 field sales offices located in
major metropolitan areas throughout the United States with international sales
activities performed out of the Company's offices in Toronto, Vancouver, Ottawa,
and Montreal, Canada; Amsterdam, Netherlands; Paris, France; Reading, England,
Munich, Germany; Mexico City, Mexico; Sydney and Melbourne, Australia;
Wellington, New Zealand; Buenos Aires, Argentina, Sao Paulo, Brazil; and
Singapore. Most of the Company's sales of licenses for PeopleSoft software
products to date have been in the U.S. and Canada, and a significant portion of
international sales have been to overseas affiliates of a customer's U.S. based
enterprise. To augment its direct sales channel, the Company has: (i) authorized
ADP, Inc. ("ADP") to market a prior version of its PeopleSoft HRMS software
products; (ii) entered into a joint teaming agreement with Andersen Consulting
to address the PeopleSoft HRMS and PeopleSoft Financials requirements of state
and local government agencies; (iii) has entered into a systems integration
agreement with Shared Medical Systems Corporation ("SMS") and (iv) utilizes
third party distributors and system integrators in various countries where it
does not have a direct sales force. Further details concerning the ADP and SMS
agreements are set forth below.
In support of its sales force, the Company conducts comprehensive
marketing programs which include direct mail, public relations, advertising,
seminars, trade shows and ongoing customer communication programs. The sales
cycle begins with the generation of a sales lead, or often the receipt of a
request for proposal ("RFP") from a prospect, which is followed by qualification
of the lead, an analysis of the customer's needs, response to an RFP (if
solicited by the customer), one or more presentations to the customer, customer
internal sign-off activities and contract negotiation and finalization. While
the sales cycle from customer to customer varies substantially, the sales cycle
has historically required six to nine months.
Generally, customers are required to obtain separate licenses for the
underlying database management systems directly from the RDBMS vendors; however,
for certain versions of its applications, the Company includes an OS/2 or NT
version of Centura's SQLBase, or a version of Centura's SQLHost/DB2 product
which provides connectivity to IBM's DB2 RDBMS. Under an OEM Software License
Agreement with Centura, PeopleSoft has a worldwide, non-exclusive right through
December 31, 1997 to sublicense, manufacture, distribute and package certain
Centura software programs, including SQLBase, SQLGateway and SQLHost/DB2, for
use with and as an embedded component of PeopleSoft software products. In
exchange for these licenses, PeopleSoft agreed to pay Centura certain fixed
royalty amounts as well as additional per unit royalties. Centura also agreed to
provide technical support for these software products upon payment of specified
fees. The License Agreement terminates on the earlier of the utilization of
prepaid royalties or December 31, 1997 and thereafter may be renewed on an
annual basis. The Company also may sublicense runtime versions of ORACLE's or
Informix's RDBMSs and certain connectivity software products to its customers.
In addition, the Company incorporates MITI's SQR Reportwriter and Seagate's
Crystal Report Writer with all of its software In future releases, subject to
successful completion of integration efforts, BEA's Tuxedo, Cogno's Powerplay
and SQA's Robot will be incorporated as well. The Company has sublicensing
arrangements with Centura, Microsoft, Oracle, Informix, MITI, Seagate, BEA,
Cognos and SQA and accordingly, the Company must rely on the strength of such
companies' trademarks, trade secrets, contractual arrangements, copyrights and
patents for protection and
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continued usage of such intellectual property by the Company. Termination of the
relationship with any of these companies could adversely effect the Company's
software product offerings and ability to generate revenue from such software
application license sales.
A key aspect of the Company's sales and marketing strategy is to build
and maintain strong working relationships with businesses the Company believes
play an important role in the successful marketing of its software products. The
Company's customers and potential customers often rely on third party system
integrators to develop, deploy and manage client/server applications. These
include: (i) RDBMS software vendors (such as Centura, Informix, Microsoft,
Oracle and Sybase); (ii) hardware vendors (such as Digital, HP, IBM, Sequent and
Sun) which offer both hardware platforms and, in the case of IBM, proprietary
RDBMS products on which the Company's software products run; (iii) technology
consulting firms and systems integrators (such as Andersen Consulting, IBM's
ISSC and Price Waterhouse LLP) some of which are active in the selection and
implementation of large information systems for the information-intensive
organizations that comprise the Company's principal customer base; and (iv)
benefits consulting firms (such as Towers Perrin, Wyatt Co. and William M.
Mercer & Co.) that are active in the implementation of human resource management
systems. The Company believes that its marketing and sales efforts are enhanced
by the worldwide presence of these companies. PeopleSoft has conducted several
joint marketing and sales programs with these vendors, including seminars,
direct mail campaigns and trade show appearances. However, there can be no
assurance that these companies, most of which have significantly greater
financial and marketing resources than PeopleSoft, will not start, or in some
cases increase, the marketing of business application software in competition
with PeopleSoft, or will not otherwise discontinue their relationships with or
support of PeopleSoft. If the Company or its partners are unable to adequately
train a sufficient number of consulting personnel to support the implementation
of the Company's products, demand for these products could ultimately be
adversely effected. In addition, PeopleSoft's software application architecture,
including PeopleTools, may facilitate reduced implementation costs for customers
compared to the competitive alternatives from Oracle and SAP AG ("SAP"), based
in Germany. Consequently, PeopleSoft's software products may be a less desirable
recommendation alternative for integrators who both provide selection advice and
generate consulting fees from customers by providing implementation services.
Due to the foregoing factors, it is reasonably possible that in a future quarter
or quarters, the Company's operating results could not meet the published
expectations of certain public market financial analysts. In such an event, the
price of the Company's Common Stock would very likely be materially adversely
effected.
RELATIONSHIP WITH ADP
In order to broaden the overall distribution of its PeopleSoft HRMS
products and PeopleTools technology, in 1992 the Company signed a Software
License and Support Agreement with ADP. This agreement provides ADP with a
perpetual license to use internally, to modify and to sublicense to its clients
and prospects Release 3.0 of PeopleSoft HRMS and PeopleTools on the Centura
SQLBase (OS/2) and Oracle environments. This license also permits ADP to provide
service bureau functions to its clients and prospects using these software
products. The service bureau and sublicense rights are limited to: (i) ADP
clients and prospects which have a majority of their employees located in the
United States, Canada, Mexico, the United Kingdom, Belgium, the Netherlands and
Luxembourg (for such clients' and prospects' employees wherever located) and
(ii) ADP clients and prospects for such clients' and prospects' employees who
are located in such countries, even if such clients and prospects have a
majority of their employees outside of such countries. ADP does, however, have
the option to sublicense PeopleSoft HRMS for operation with several other RDBMS
platforms under certain circumstances. Under the agreement, the Company provides
ADP with certain training, consulting and support services and product
modifications. The Company also agreed that, prior to 1998, it would not act as
a service bureau or grant a license to use or modify PeopleSoft HRMS to parties
in the United States, Canada and Mexico that could be considered "remarketers"
of the PeopleSoft HRMS software product (excluding PeopleTools), such as
consulting and facility management firms and payroll service bureaus. On
September 21, 1995, the Company and ADP amended the agreement to permit their
properly licensed customers to have a broad right to implement and enter into
outsourcing arrangements with third parties.
Through June 30, 1996, the Company has received payments from ADP
totaling $4.1 million for license fees and the fulfillment of certain
customization and training obligations and $10.4 million in minimum royalties
for sublicenses granted by ADP. In addition, the Company will receive $0.5
million upon completion of certain customization obligations and $4.9 million in
minimum royalties for 1996 and will receive additional royalties until such time
as a cumulative sum of $22.8 million, including the $4.6 million for license
fees, software product customizing, and training services, have been paid to
PeopleSoft.
On December 28, 1995, the Company and ADP entered into a fourth
amendment to the agreement. Under the fourth amendment, ADP obtained license
rights to use and distribute PeopleSoft Workflow release 5 and the Company
agreed to provide
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ADP with defined product maintenance services for all updates, improvements,
additions, modifications and/or enhancements to such PeopleSoft Workflow
licensed only up to but not including release 6 of PeopleSoft Workflow. Under
the fourth amendment, ADP further agreed to: (i) irrevocably commit to the 1996
and 1997 annual minimum royalty payments; (ii) accelerate payment from an annual
basis to a quarterly basis with associated cost of money discounts; and (iii)
pay the Company a negotiated license fee for PeopleSoft Workflow. Consequently,
under this revised agreement, ADP will be required to make quarterly minimum
royalty payments to PeopleSoft of approximately $1.2 million during 1996 and
1997. ADP also agreed to provide the Company with a license to use a copy of
ADP's PC Payroll and PC Exchange in connection with the Company's efforts to
build an interface between certain modules of the Company's software and ADP's
Autopay II payroll system. After 1997, ADP will continue to have a perpetual
license to Release 3.0 of PeopleSoft HRMS, PeopleSoft Workflow Release 5 as set
forth above, as well as to PeopleTools, including any enhancements to
PeopleTools made by the Company through 1997.
Under the terms of the agreement, the Company also has agreed to
provide ADP with notice of each prospective customer that has less than 2,000
employees and not to enter into a license with that customer for a period of 60
days after the Company has provided that customer with the Company's and ADP's
respective marketing materials, in order to give ADP an opportunity to market to
that customer.
RELATIONSHIP WITH ANDERSEN CONSULTING
Under an exclusive five year teaming agreement executed in October
1993, PeopleSoft and Andersen Consulting are developing extensions to
PeopleSoft's software products and jointly marketing and delivering financial
and human resource client/server enterprise software solutions to state and
local government and public sector organizations in North America. Under the
terms of the agreement, PeopleSoft licenses its software application products
directly to the customer, refers consulting services exceeding certain amounts
to Andersen Consulting, and, will pay Andersen Consulting a royalty based on the
amount of the license fee. PeopleSoft's 1995 contracting activity included
approximately $14.3 million in contracts which were subject to this agreement
with $20.8 million in contracting activity for the six months ended June 30,
1996.
In May 1995, PeopleSoft and Andersen Consulting announced a new
strategic alliance under which Andersen Consulting will assist in designing and
developing a suite of manufacturing software applications, which will be
marketed and supported by PeopleSoft. As a part of this alliance, the Company
purchased the rights to Andersen Consulting's Expert Configurator software
product and an associated patent. This software product will be tightly
integrated with PeopleSoft Manufacturing to support highly configurable
manufacturing environments, such as make-to-order and assemble-to-order.
Also during 1995, Andersen Consulting contributed certain development
services and technologies to a limited partnership for the development of
software products, in return for 17.2% interest in the partnership, which under
certain conditions may be forfeited. PeopleSoft and Norwest Equity Partners IV,
L.P., are also partners in this venture. See "--Software Product Development"
and "Note 7 of Notes to Consolidated Financial Statements."
RELATIONSHIP WITH SMS
On August 25, 1995, PeopleSoft and SMS entered into a systems
integrator agreement whereby PeopleSoft appointed SMS as a distributor of
certain PeopleSoft HRMS and Financials software products. The term of the
agreement is ten years, with the possibility of annual renewals thereafter. SMS
has the right to market/sublicense such software products in the United States
and Puerto Rico to a defined base of SMS existing end users, and in conjunction
with the distribution of SMS' software products, to other entities in the health
care industry. Except in certain situations, SMS has exclusive distribution
rights to SMS' end users. SMS also obtained the right to use certain modules of
PeopleSoft HRMS and Financials software products and PeopleTools for general
development in support of SMS' internal operations.
SMS paid PeopleSoft a one-time distribution fee of $1.6 million, of
which $1.4 million is non-refundable and non-cancelable. SMS is also obligated
to pay PeopleSoft a royalty fee per license distributed based on the pertinent
status of the end user customer. SMS is also obligated to pay PeopleSoft certain
non-cancelable and non-refundable guaranteed minimum royalty amounts through
June 30, 2000. SMS has the right over a twenty-four month period to continue to
operate PeopleSoft technology in SMS' timeshare operations and in the event of
such continued planned operation, the guaranteed royalties are ratably
increased.
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PeopleSoft retains the right to distribute the PeopleSoft software
products directly in the United States and Puerto Rico by itself or through
other then-current channel partners. However, with respect to SMS' defined base
of end users, PeopleSoft agrees that PeopleSoft and its then-current channel
partners (with the specific exclusion of PeopleSoft HRMS software as to the
channel partners) shall only market the PeopleSoft software products to the
defined list of SMS end users as to which PeopleSoft has expended a substantial
selling effort and with SMS' prior written permission, which permission shall
not be unreasonably withheld, to other SMS end users upon direct solicitation by
such entities.
SMS shall not directly or indirectly market or distribute any software
products in the United States and Puerto Rico which compete with PeopleSoft
software products. PeopleSoft shall not enter into substantially similar
marketing and distribution agreements for the PeopleSoft software products in
the United States and Puerto Rico and in the healthcare industry with any SMS
competitor that markets and/or licenses applications that compete with SMS' core
applications. PeopleSoft may enter into substantially similar marketing and
distribution agreements for the PeopleSoft software products in the United
States and Puerto Rico with any entity whose primary source of revenue is
derived from outside the healthcare industry.
INTERNATIONAL OPERATIONS
During the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996, the Company's international revenues, principally
from customers in Canada, were approximately 9%, 12%, 16% and 16% of total
revenues, respectively. The Company operates in one industry segment, the
development and marketing of computer software products and related services,
and markets through branches and foreign subsidiaries located in Canada, United
Kingdom, the Netherlands, Germany, France, Mexico, Australia, Singapore, and
Argentina and the Company has established sales offices in Japan, New Zealand,
Spain and Brazil during 1996. In addition, the Company also markets through
distributors in the United States, Europe, Asia/Pacific, Africa and Latin
America.
COMPETITION
The market for business application software is intensely competitive.
The Company faces competition from a variety of software vendors including
enterprise application software vendors, financial management system and HRMS
application software vendors, and software tools vendors. Although PeopleSoft
believes its success has been due in part to its early emphasis on the
client/server architecture, virtually all of the Company's competitors now offer
software products based on a client/server architecture. Consequently,
competitive differentiators now include more subtle architectural and technology
factors, enterprise product breadth and individual product features, service
reputation, product flexibility, ease of implementation, international product
version availability and support, and price.
In the enterprise application software market, PeopleSoft faces
significant competition from SAP, Oracle and to a lesser degree, Baan, Dun &
Bradstreet Software, Computer Associates International, Inc., and other
companies such as System Software Associates who previously focused primarily on
the AS/400 marketplace. In this market, the chief competitive factors include
the breadth and completeness of the enterprise solution offered by each vendor,
the extent of product integration across the enterprise solution, and the
availability of localized software products and technical support in key markets
outside the United States. Primarily due to their significant worldwide presence
and longer operating and product development history, both SAP and Oracle have
certain competitive advantages over PeopleSoft in each of these areas. In
addition, both SAP and Oracle have substantially greater financial, technical
and marketing resources, and a larger installed base than PeopleSoft.
Furthermore, Oracle's RDBMS is a supported platform underlying a significant
share of PeopleSoft's installed applications.
PeopleSoft also faces competition from providers of HRMS software
products including Cyborg, Lawson, Integral, InPower, and Ceridian, and from
providers of financial management system software products including Hyperion,
Computron Software, Inc., Lawson, and other smaller companies. In addition,
since June 1992 ADP and, since August 1995, SMS have the right to sublicense
PeopleSoft selected products in competition with PeopleSoft's marketing efforts
in selected markets.
Recent trends in the software industry toward cooperative agreements
between competitors and the potential for consolidation of vendors within the
industry also poses a potential source of competition. Such actions could
potentially lead to increased price competition in the market, forcing the
Company to reduce prices, which may result in reduced gross margins and loss of
market share by the Company which therefore, could materially adversely affect
the Company's business, operating results and financial condition. Therefore,
there can be no assurance that the Company will continue to compete successfully
with its existing competitors or will be able to compete successfully with new
competitors.
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SOFTWARE PRODUCT DEVELOPMENT
Since inception, the Company has made substantial investments in
research and software product development. Through the end of 1994,
substantially all of the Company's software products have been developed by its
internal development staff. Beginning in 1995, the Company increased the
purchasing and licensing of third party software products. The Company believes
that timely development of new software products, enhancements to existing
software products and acquisition of rights to sell or incorporate complimentary
technologies and products into its software product offerings, is essential to
maintain its competitive position in the market. The applications software
market is characterized by rapid technological change, frequent introductions of
new products, changes in customer demands and rapidly evolving industry
standards. For example, in order to gain broad market acceptance, the Company
maintains product availability across a number of RDBMS platforms. The Company
believes that software product development is most effectively and expeditiously
accomplished by small teams comprised of relatively senior people who are
focused on certain software product areas. Accordingly, the Company's
development organization is comprised of several small, focused development
groups assigned to each of the modules within the primary software product
areas: PeopleSoft HRMS, PeopleSoft Financials, PeopleSoft Financials for the
Public Sector, PeopleSoft Human Resources for the Federal government, PeopleSoft
Distribution and PeopleTools. This development is typically undertaken in a
single RDBMS environment on a workstation-based LAN. In addition, the Company
utilizes a platforms group which is responsible for porting the Company's
software products to other RDBMS and hardware server environments. The Company's
documentation group develops the user and system administration manuals for each
software product. The Company utilizes a common technology and technical
approach in the development of all application products. Significant application
development is performed using PeopleTools.
The Company released PeopleSoft HRMS 5.1, PeopleSoft Financials 5.1 and
People Distribution 5.1 in March 1996, which each included significant
enhancements to the existing modules. The Company's current focus in application
development is to expand the functionality and breadth of the Company's software
product offerings by (i) enhancing workflow capabilities; (ii) developing new
modules and adding new functionality to existing modules including global
product requirements and translated versions of global product; (iii) supporting
joint development arrangements under which certain vertical market applications
may be developed (see Note 7 of the Notes to Consolidated Financial Statements);
and (iv) adding certain architectural extensions and on-line analytical
processing ("OLAP") capabilities. PeopleTools development activities have
emphasized the continued enhancement of functionality and utilities to support
the application development activities and the development of additional
functionality including expansion of the international functionality in
PeopleTools.
The Company's research and development staff consisted of 361 employees
as of June 30, 1996. The Company's total research and development expenses were
approximately $8.3 million, $14.5 million, $35.9 million and $28.9 million for
the years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1996, respectively. In addition, the Company capitalized software
development costs of $1.1 million, $2.1 million, $2.4 million and $1.0 million
for the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996, respectively. Capitalized software development costs are
amortized over the estimated useful life of the software product beginning with
general availability for a period not to exceed three years. Total software
development amortization (which is charged to cost of license fees) amounted to
$0.7 million in 1993, $2.0 million in 1994, $1.7 million in 1995 and $1.0
million in the six months ended June 30, 1996.
PeopleSoft has entered into two separate development arrangements
("Development Arrangements") one for the purpose of developing a line of
manufacturing software applications and the other for the purpose of developing
a line of student administration software applications (See Note 7 of the Notes
to Consolidated Financial Statements). Under the Development Arrangements,
PeopleSoft provides technology, development and administrative support,
financing is provided by outside investors, and the software product development
is performed by personnel employed or retained by the investors' company. Under
these agreements, PeopleSoft is the exclusive remarketer of the developed
software products, and pays a royalty to the third parties based on license fees
received from end user licenses of these software products. While the intent of
each Development Arrangement is to develop business applications which are
integrated with PeopleSoft's software products, there can be no assurance that
such software products will in fact be integrated or that an integrated
enterprise solution will be accepted by the market. In addition, should the
Development Arrangement require additional funds to complete development or
enhance the software product, there can be no assurance that funds will be
available on terms acceptable to the existing or other potential third partY
funding source(s). Should PeopleSoft acquire title to the software products or
technology from the third party entity, such acquisition would be accounted for
as a purchase which is likely to result in the creation of significant
intangible assets by virtue of the allocation of a substantial portion of the
purchase price to the acquired technology or other intangible assets or, in the
case where an acquisition occurred prior to the software product(s) or
technology was available for general release, significant expense
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incurred related to the acquisition of in-process technology. Such intangible
assets would be amortized in future periods as a cost of operations, while
in-process technology expense would be recorded in the Statement of Operations
in the period that the acquisition was consummated.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY
The Company regards certain features of its internal operations,
software and documentation as proprietary, and relies on a combination of
contract, patent, copyright, trademark and trade secret laws and other measures
to protect its proprietary information. The Company received its first patent in
1995 and has two additional patent applications pending. Existing copyright laws
afford only limited protection. The Company believes that, because of the rapid
pace of technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent product enhancements
and the timeliness and quality of support services. There can be no assurance
that these protections will be adequate or that PeopleSoft's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technology. In addition, the laws of certain countries
in which the Company's software products are or may be licensed do not protect
the Company's software products and intellectual property rights to the same
extent as the laws of the United States.
The Company provides its software products to end users under
non-exclusive licenses, which generally are nontransferable and have a perpetual
term. The Company generally licenses its software products solely for the
customer's internal operations and only at designated locations. In certain
circumstances, the Company makes available enterprise-wide licenses. The Company
generally makes source code available to licensed customers for certain of the
Company's application products. Customers have the option to utilize the
services of a source code escrow company for PeopleTools source code. The
provision of source code may increase the likelihood of misappropriation or
other misuse of the Company's intellectual property.
The Company is not aware that its software products, products the
Company offers under sublicense agreements described in the Sales and Marketing
section above, trademarks or other proprietary rights significantly infringe the
property rights of third parties. However, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future software products or that any such assertion
may not require the Company to enter into royalty arrangements or result in
costly litigation. As the number of software products in the industry increases
and the functionality of these software products further overlap, the Company
believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend. In past years, the Company has been a
defendant in two proprietary rights disputes, both of which were settled without
the Company incurring any future royalty obligations.
The Company's license agreements with its customers contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be valid as a result of future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to date,
the license and support of its software for use in mission critical applications
creates a potential adverse risk in the event such a claim was successfully
pursued against the Company. Damage or injunctive relief resulting under such a
successful claim could cause a materially adverse impact on the Company's
business, operating results and financial condition.
EMPLOYEES
As of June 30, 1996, the Company employed 1,803 people, including 519
in sales and marketing, 361 in product development, 735 in customer services,
and 188 in administration. None of the Company's employees in the United States
are represented by a labor union or is subject to a collective bargaining
agreement. Certain of the international employees are covered by the customary
employment contracts and agreements of the countries in which they are employed.
The Company believes that relations with its employees are good.
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PROPERTIES
As of June 30, 1996, the Company leased the majority of its facilities
and its principal locations are in or near the following cities:
<TABLE>
<CAPTION>
Approximate Lease
Location Square Feet Expiration Date Principal Activities
<S> <C> <C> <C> <C>
Pleasanton, CA 220,000 February 1998 Corporate HQ, Development and Technical Support
Amsterdam, Neth. 6,000 April 1999 Sales, Marketing and Customer Service
Atlanta, GA 39,000 June 2000 Sales, Marketing and Customer Service
Chicago, IL 37,000 December 2001 Sales, Marketing and Customer Service
Teaneck, NJ 32,000 January 1998 Sales, Marketing and Customer Service
Toronto, Canada 12,000 September 1999 Sales, Marketing, Customer Service and Development
Vancouver, Canada 8,000 February 1997 Sales, Marketing and Customer Service
Walnut Creek, CA 43,000 July 1996 Sales, Marketing, Customer Service and
Administration
Boston, MA 12,000 November 1999 Sales, Marketing and Customer Service
Reading, England 8,000 March 1998 Sales, Marketing, Customer Service, Administration
and Development
Bethesda, MD 22,000 August 2000 Sales, Marketing, Customer Service and Development
Irvine, CA 11,000 November 2000 Sales, Marketing and Customer Service
Dallas, TX 18,000 July 2000 Sales, Marketing and Customer Service
Sydney, Australia 20,000 September 2001 Sales, Marketing, Customer Service and Development
</TABLE>
The Company also leases smaller facilities (generally under execusuite
arrangements) for sales, marketing, customer service and, in certain locations
development activities, in or near Pittsburgh, Pennsylvania; Minneapolis,
Minnesota; Coral Gables, Florida; Indianapolis, Indiana; Columbus, Ohio;
Sacramento, California and outside of the United States in Ottawa; Montreal;
Paris; Munich; Mexico City; Buenos Aires; Sao Paulo; Melbourne; and Singapore.
In 1996, the Company anticipates expanding existing facilities, depending upon
the availability of suitable additional space. Recently, commercial building
vacancy rates have significantly dropped in many of the markets where the
Company has significant operations. As a consequence, the Company expects to
experience increasing difficulty in obtaining additional space within which to
expand its operations. Failure to either obtain space, or obtain it on
reasonably attractive commercial terms, may inhibit the Company's ability to
grow, or otherwise adversely effect the Company's operations and financial
results.
The Company acquired an office building in Pleasanton, California in a
cash transaction in December of 1995. The total cost was approximately $25
million, including all related transaction costs, for approximately 275,000
square feet of office space. As of June 30, 1996, approximately 34,000 square
feet was occupied by the Company and 215,000 square feet was occupied by
existing tenants. The property is located near PeopleSoft's headquarters and
will be used to consolidate staff currently located in Walnut Creek, California,
as well as to accommodate anticipated future growth.
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SELECTED HISTORICAL FINANCIAL DATA OF PEOPLESOFT
PeopleSoft's historical balance sheet data at June 30, 1996 and
historical statement of operations data for the six month periods ended June 30,
1995 and 1996 are derived from PeopleSoft's unaudited condensed consolidated
financial statements included elsewhere in this Prospectus/Consent Solicitation
Statement. PeopleSoft's historical balance sheet data at December 31, 1994 and
1995 and historical statement of operations data for each of the three years in
the period ended December 31, 1995 are derived from PeopleSoft's audited
consolidated financial statements included elsewhere in this Prospectus/Consent
Solicitation Statement. PeopleSoft's historical balance sheet data as of
December 31, 1991, 1992 and 1993 and historical statement of operations data for
each of the two years in the period ended December 31, 1992 are derived from
PeopleSoft's audited consolidated financial statements not incorporated by
reference or included herein. All consolidated financial statement information
is qualified by and should be read in conjunction with PeopleSoft's consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus/Consent Solicitation Statement. In the opinion of the management of
PeopleSoft, the above mentioned unaudited interim data of PeopleSoft has been
prepared on the same basis as the historical information derived from the
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited periods. No cash dividends have been declared or paid in the
periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees.............. $12,776 $21,888 $37,656 $68,580 $134,623 $51,167 $ 97,949
Services.................. 4,361 9,677 20,535 44,315 92,945 40,289 82,965
------- ------- ------- ------- -------- ------- --------
Total revenues......... 17,137 31,565 58,191 112,895 227,568 91,456 180,914
Costs and expenses:
Cost of license fees...... 828 1,684 3,123 6,817 8,485 3,858 5,537
Cost of services.......... 2,823 5,942 12,270 26,539 54,597 22,124 46,699
Sales and marketing....... 4,793 7,895 17,785 35,400 68,063 28,094 56,330
Product development....... 2,891 5,321 8,305 14,482 35,903 14,437 28,895
General and
administrative.......... 2,736 2,596 4,199 7,962 15,635 6,756 10,556
------- ------- ------- ------- -------- ------- --------
Total costs and
expenses............. 14,071 23,438 45,682 91,200 182,683 75,269 148,017
------- ------- ------- ------- -------- ------- --------
Operating income............. 3,066 8,127 12,509 21,695 44,885 16,187 32,897
Other income (expense)....... (15) (45) 1,169 2,158 4,044 1,719 3,048
------- ------- ------- ------- -------- ------- --------
Income before income
taxes...................... 3,051 8,082 13,678 23,853 48,929 17,906 35,945
Provision for income
taxes..................... 1,148 3,240 5,265 9,308 19,570 7,163 14,378
------- ------- ------- ------- -------- ------- --------
Net income................... 1,903 4,842 8,413 14,545 29,359 10,743 21,567
Accretion of preferred
stock dividend............. (347) (477) -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income applicable to
common stockholders....... $ 1,556 $ 4,365 $ 8,413 $14,545 $ 29,359 $10,743 $ 21,567
======= ======= ======= ======= ======== ======= ========
Net income per common
share..................... $ 0.05 $ 0.12 $ 0.17 $ 0.28 $ 0.54 $ 0.20 $ 0.38
======= ======= ======= ======= ======== ======= ========
Shares used in per share
computation............... 31,304 36,048 50,804 51,926 54,798 53,926 56,646
BALANCE SHEET DATA:
Working capital.............. $ 6,037 $44,549 $ 61,881 $ 71,190 $ 87,445 $ 78,563 $106,209
Total assets................. $16,194 $64,313 $108,461 $172,271 $314,151 $207,531 $394,248
Long-term obligations........ $ 1,397 $ 933 $ 989 $ 891 $ 1,305 $ 1,474 $ --
Redeemable preferred stock... $ 5,281 $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity......... $ 1,335 $47,676 $ 72,084 $ 93,349 $156,701 $109,291 $191,122
</TABLE>
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<PAGE> 57
PEOPLESOFT MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This Prospectus/Consent Solicitation Statement contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Forward-looking statements are identified with a
footnote #1. Actual results could differ materially from those projected in such
forward-looking statements as a result of the risk factors set forth under the
section entitled "Risk Factors" and elsewhere in this Prospectus/Consent
Solicitation Statement. See "Selected Historical Financial Data of PeopleSoft."
The following table sets forth for the periods indicated the percentage
of total revenues represented by certain line items in the Company's statements
of operations:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
----------------------------------------------------------------------
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ---------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.................................. 65% 61% 59% 56% 54%
Services...................................... 35 39 41 44 46
---- ---- ---- ---- ----
Total revenues............................ 100% 100% 100% 100% 100%
Costs and expenses:
Cost of license fees.......................... 5 6 4 4 3
Cost of services.............................. 21 24 24 24 26
Sales and marketing........................... 31 31 30 31 31
Product development........................... 14 13 16 16 16
General and administrative.................... 7 7 6 7 6
---- ---- ---- ---- ----
Total costs and expenses.................. 78 81 80 82 82
---- ---- ---- ---- ----
Operating income................................... 22 19 20 18 18
Other income (expense)............................. 2 2 2 2 2
---- ---- ---- ---- ----
Income before income taxes......................... 24 21 22 20 20
Provision for income taxes......................... 9 8 9 8 8
---- ---- ---- ---- ----
Net income......................................... 15% 13% 13% 12% 12%
==== ==== ==== ==== ====
</TABLE>
REVENUES
The Company's revenues are derived from software license fees and fees
for services, consisting of maintenance, training, consulting and support
services. The Company recognizes revenue in accordance with the Statement of
Position on Software Revenue Recognition ("SOP 91-1"), issued by the American
Institute of Certified Public Accountants. In accordance with SOP 91-1, the
Company allocates the total value of each customer license agreement between
software license fees and services consisting of maintenance, training,
consulting and support services. The Company defers recognition of revenues
associated with payments which are not due within one year from the date of the
license agreement. For customer license agreements which have payments due
within one year, the portion allocated to software license fees generally will
be recognized in the current period, while the portion allocated to the services
is recognized as the services are performed. When the Company enters into a
contract with a customer requiring significant customization of the software
products, the Company recognizes revenue related to the contract using the
percentage-ofcompletion method of contract accounting.
Comparison of Years 1993, 1994 and 1995
The total dollar amount of end user license agreements signed for
software licenses fees ("contracting activity") and services increased from
$59.9 million in 1993 to $118.7 million in 1994 and to $212.2 million in 1995.
The aggregate value of end user license agreements related to PeopleSoft HRMS
signed during the years ended December 31, 1993, 1994 and 1995 was $48.2
million, $87.8 million and $130.2 million, respectively. The aggregate value of
end user contracting activity related
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<PAGE> 58
to PeopleSoft Financials during the years ended December 31, 1993, 1994 and 1995
was $11.7 million, $30.9 million and $82.0 million, respectively.
Revenues from licensing fees increased by 82% from $37.7 million in
1993 to $68.6 million in 1994 and increased by 96% to $134.6 million in 1995.
The increase in license fees was attributable to increased market acceptance of,
and breadth of, the Company's software product offerings and the increased
capacity created by the growth in sales, marketing and customer service
organizations. The Company released PeopleSoft Human Resources 5 and PeopleSoft
Financials 5 in September 1995. Beta releases in 1995 included PeopleSoft
Workflow, PeopleSoft Budget, and PeopleSoft Order Management.
Service revenues increased by 116% from $20.5 million in 1993 to $44.3
million in 1994 and increased by 110% to $92.9 million in 1995. The Company's
service revenues consist of revenues from maintenance, training, consulting and
support services which are provided for in the software licenses, such that
increases in contracting activity have resulted in increases in revenues from
services. Service revenues as a percentage of total revenue were 35% in 1993,
39% in 1994 and 41% in 1995. Service revenue as a percentage of total revenue
was higher in 1995 as compared to 1994 and 1993 due to increases in the
installed base of customers receiving ongoing maintenance, training and support
services and increases in PeopleSoft's professional services consulting staff
and related consulting revenues.
Total revenues increased from $58.2 million in 1993 to $112.9 million
in 1994 and to $227.6 million in 1995 representing increases of 94% and 102%,
respectively.
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1996
The aggregate value of customer license agreements related to HRMS
signed during the six months ended June 30, 1995 was $54.2 million and was $88.9
million in the same period in 1996. The aggregate value of customer license
agreements related to PeopleSoft Financials during the six months ended June 30,
1995 was $29.6 million and was $62.9 million in the same period in 1996.
Revenues from licensing fees for the first six months of 1996 increased
91% from $51.2 million in 1995 to $97.9 million for the same period in 1996. The
increase in license fee revenues was attributable to increased market acceptance
of, and breadth of, the Company's software product offerings and the increased
capacity created by the growth in the Company's sales, marketing and customer
service organizations. In addition, the Company recently made available a
general release version of its financial and HRMS products on the Sybase System
11 RDBMS platform. By completing delivery of these products to customers during
the second quarter of 1996, the Company recognized $4.3 million of license fee
revenues which had been deferred from license agreements signed during the past
several years.
In the first six months of 1996, service revenues increased 106%, from
$40.3 million in 1995 to $83.0 million for the same period in 1996. The
Company's customer license agreements provide for initial maintenance, training,
consulting and support services for specified periods or amounts such that
increases in customer licensing agreements have resulted in increases in
revenues from these services. Service revenues as a percentage of total revenues
were 44% and 46% of total revenues for the six months ended June 30, 1995 and
1996, respectively. The increase in the relative percentage of service revenues
to total revenues in the six month period ended June 30, 1996 was attributable
to two primary factors: increases in the installed base of customers receiving
ongoing maintenance, training and other support services and a significant
investment in the Company's professional services staff, which grew
substantially over 1995 periods as a result of demand in the market place for
PeopleSoft's assistance during enterprise implementation projects, and which
accordingly, generated services revenue.
In the first six months of 1996, total revenues increased 98%, from
$91.5 million in 1995 to $180.9 million for the same period in 1996.
International revenues were 13% and 16% of total revenues for the first six
months of 1995 and 1996, respectively.
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<PAGE> 59
COSTS AND EXPENSES
Comparison of Years 1993, 1994 and 1995
Cost of license fees, consisting principally of royalties paid to
certain software vendors and amortization of capitalized software costs,
increased from $3.1 million in 1993 to $6.8 million in 1994 and to $8.5 million
in 1995 representing 8%, 10% and 6% of license fee revenue in such years,
respectively. The decrease in cost of license fees as a percentage of license
fees in 1995 as compared to 1994 was attributable to continued decreases in
documentation expenses, the mix of royalty bearing software products, certain
fixed price royalty arrangements with vendors, a relatively modest increase in
capitalized software amortization and other reductions in royalty expenses in
1995. The increase in cost of license fees as a percentage of license fees in
1994 as compared to 1993 was attributable to increases in the amount of
capitalized software amortization and documentation expenses in 1994, which was
partially offset by a reduction in royalty expense. PeopleSoft's acquisition of
a multi-year right to distribute a report writer which is bundled with all
software products, changed the nature of the cost of the report writer from a
variable royalty expense in the first quarter of 1994 to a fixed amortization
charge thereafter. This reduced the royalty expense as a percentage of license
fees in 1994 compared to 1993. Capitalized software is amortized ratably over
periods not exceeding three years. Cost of license fees as a percentage of
license fees may fluctuate from period to period due principally to the mix of
sales of royalty bearing software products in each period and the seasonal
fluctuations in revenues contrasted with certain fixed expenses such as the
amortization of capitalized software. Royalties associated with certain software
products currently under development by affiliates may cause the cost of license
fees as a percentage of license fees to increase in future periods.
Cost of services consists principally of account management support,
training, product support and consulting. These costs increased from $12.3
million in 1993 to $26.5 million in 1994 and $54.6 million in 1995 representing
60%, 60% and 59% of services revenues in such years, respectively. The cost, as
a percentage of service revenues, remained constant from year to year. The
dollar increase is due to the significant expansion of the Company's customer
service resources across all categories, including consulting, telephone
support, and account management staff. The Company anticipates these
expenditures will increase in dollar amount, and may increase as a percentage of
total revenues, in future periods.
Sales and marketing expenses increased from $17.8 million in 1993 to
$35.4 million in 1994 to $68.1 million in 1995 representing 31%, 31% and 30% of
total revenues in such years, respectively. The increase in sales and marketing
expenses was attributable to the Company's expansion of its direct sales force,
related equipment and facility expenditures, investment in building an
international direct sales force and increased marketing expenses for the
Company's expanded software product line. The Company is in the process of
significantly increasing its direct sales and marketing expenditures to (i)
address certain international and vertical markets, (ii) establish an enterprise
sales force structure, and (iii) fund sales organization expansion for financial
and distribution products. Consequently, such expenses may increase as a
percentage of total revenues in future periods.
Software product development expenses increased from $8.3 million in
1993 to $14.5 million in 1994 to $35.9 million in 1995, representing 14%, 13%
and 16% of total revenues in such years, respectively. The Company capitalized
internal software development costs of $1.1 million, $2.1 million and $2.4
million in 1993, 1994 and 1995, respectively. The increase in software product
development expenditures was due to increased staffing and associated support
costs of software engineers and consultants required to expand and enhance the
Company's product line. In addition, the Company has incurred significant
expenditures to enhance its platform development and product testing
capabilities. Furthermore, the Company has additional financial modules,
including certain distribution modules, as well as additional human resources
modules under development, and anticipates software product development
expenditures in future periods will increase.
General and administrative expenses increased from $4.2 million in 1993
to $8.0 million in 1994 to $15.6 million in 1995, representing 7%, 7% and 6% of
total revenues in such years, respectively. The increase in general and
administrative expenses resulted primarily from increases in staffing to support
the Company's growth and increases in expenses associated with the operation of
foreign subsidiaries.
Other income, net, consisting of interest income, increased from $1.2
million in 1993 to $2.2 million in 1994 to $4.0 million in 1995. Interest income
resulted from interest earned on the Company's investments of excess cash. Such
cash balances resulted primarily from the initial public offering of shares of
Common Stock which raised approximately $35.3 million in November 1992, the
public offering of shares of Common Stock in May 1993 which raised approximately
$13.2 million, the private placement of warrants to purchase shares of Common
Stock in November 1995 which raised approximately $21.8 million
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<PAGE> 60
and from cash generated from continuing operations. The Company's sales through
its foreign operations are generally denominated in each country's functional
currency, and in 1993, 1994 and 1995 the Company experienced minor foreign
currency transaction losses resulting from fluctuations in foreign exchange
rates. These losses partially offset interest income in 1993, 1994 and 1995.
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1996
Costs of license fees increased from $3.9 million in the first six
months of 1995 to $5.6 million in the comparable period of 1996, comprising 4%
and 3% of total revenues and 8% and 6% of license fee revenues in those periods,
respectively. The Company's system solutions are based on a combination of
internally developed technology and application products, as well as bundled
third party products and technology. During 1996, the Company entered into three
additional third party marketing and sublicensing agreements which required
either initial payments and/or ongoing payments during the term of the
agreements. The absolute increase in cost of license fees in the 1996 periods
was partially attributable to costs associated with these agreements, as well as
royalties for the Company's Order Management module, which was developed by
PeopleSoft Manufacturing, L.P. under a joint business arrangement with
PeopleSoft (See Note 7 of the Notes to Consolidated Financial Statements in the
Company's Annual Report to Stockholders (Form 10-K) for the year ended December
31, 1995). The decline in cost of license fees as a percentage of license fee
revenue in the 1996 periods was attributable to a relative decrease in software
amortization charges, the mix of royalty bearing software products, reduction in
documentation costs due to the move to the compact disk version of PeopleSoft
documentation and other reductions in royalty expenses primarily associated with
certain fixed price aggregate royalty payment arrangements. Cost of license fees
as a percentage of license fee revenues may fluctuate from period to period due
principally to the mix of sales of royalty bearing software products in each
period and the seasonal fluctuations in revenues contrasted with certain fixed
expenses such as the amortization of capitalized software. Royalties associated
with certain software products currently under development by joint business
arrangement, and charges associated with software products and technologies
acquired during 1996 from various third party vendors, may cause the cost of
license fees as a percentage of license fee revenues to increase in future
periods.
Cost of services consist principally of account management support,
training, consulting and product support. Cost of services increased from $22.1
million in the first six months of 1995 to $46.7 million in the comparable
period of 1996, comprising 24% and 26% of total revenues, respectively, and 55%
and 56% of service revenues in the six month periods ending June 30, 1995 and
1996, respectively. These increases are due to the significant expansion of the
Company's customer service resources across all categories, including
consulting, telephone support, and account management staff. The Company
anticipates these expenditures will increase in dollar amount, and may increase
as a percentage of total revenues, in future periods.
In the first six months of 1996, sales and marketing expenses increased
100%, from $28.1 million in 1995 to $56.3 million in 1996, comprising 31% of
total revenues in each of the six month periods ending June 30, 1995 and 1996.
The increase in sales and marketing expenses was attributable to the Company's
expansion of its direct sales force, related equipment and facility
expenditures, investment in building an international direct sales force and
increased marketing expenses for the Company's expanded software product line.
The Company is in the process of significantly increasing its direct sales and
marketing expenditures to address certain international and vertical markets,
establish an enterprise sales force structure, and fund sales organization
expansion for financial, distribution and manufacturing products. Consequently,
such expenses may increase as a percentage of total revenues in future periods.
Software product development expenses increased from $14.4 million in
the first six months of 1995 to $28.9 million in the comparable 1996 period,
representing 16% of total revenues in each six month period. The Company
capitalized internal software development costs of $0.6 million and $1.0 million
in the six month periods ended June 30, 1995 and 1996, respectively. The
increase in software product development and engineering expenditures was due to
increased staffing and associated support costs of software engineers and
consultants required to expand, test and enhance the Company's product line. In
addition, the Company has incurred significant expenditures to enhance its
platform development, certification and product testing capabilities.
Furthermore, the Company has additional financial, distribution and human
resources modules under development and non-recurring expenditures associated
with the integration of purchased technology into PeopleSoft applications. The
Company anticipates software product development and integration expenditures in
future periods will increase in dollars, while remaining relatively flat as a
percentage of total revenues.(1)
- ---------------------------
(1) Forward-looking statement.
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<PAGE> 61
General and administrative expenses increased from $6.8 million in the
first six months of 1995 to $10.6 million in the comparable 1996 period,
representing 7% and 6% of total revenues in such periods, respectively. The
dollar increase in general and administrative expenses resulted primarily from
increases in staffing to support the Company's growth and increases in expenses
associated with the operation of foreign subsidiaries.
In the first six months of 1995, other income was $1.7 million compared
to $3.0 million in the same 1996 period. Interest income, totaling $1.8 million
in the first six months of 1995 and $2.4 million in the first six months of
1996, was earned on the Company's investments of excess cash.
PROVISION FOR INCOME TAXES
Comparison of Years 1993, 1994 and 1995
Income taxes increased from $5.3 million in 1993 to $9.3 million in
1994 and $19.6 million in 1995. The Company's effective tax rates for 1993, 1994
and 1995 were 38.5%, 39.0% and 40.0%, respectively. Effective January 1, 1993,
the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"). As permitted by Statement 109,
the Company has elected not to restate the consolidated financial statements of
any prior years. The effect of the change on net income for 1993 and cumulative
effect of the change were not material. The Company has concluded that no
valuation allowance is required based on its assessment that current levels of
taxable income will be sufficient to realize the tax benefit. The increase in
the Company's effective rate from 1994 to 1995 was primarily due to a decrease
in tax exempt interest income in relation to operating income and the expiration
of the federal research and development tax credit as of June 30, 1995. As
permitted by the Statement 109, the Company has recorded $14.2 million in net
deferred tax assets at December 31, 1995.
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1996
The Company's effective tax rate was 40% for each of the six month
periods ended June 30, 1995 and 1996. There has been no significant change in
the components of the effective tax rate. The provision for income taxes for the
six month period ended June 30, 1996 is based upon the Company's estimate of the
effective tax rate for fiscal 1996. As permitted by Statement 109, the Company
has recorded $18.2 million in net deferred tax assets at June 30, 1996. The
Company has concluded that no valuation allowance is required based on its
assessment that current levels of taxable income will be sufficient to realize
the tax benefit.(1)
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash flows
from operations and the sale of equity securities. In addition, under the
Company's unsecured bank line of credit, up to $30 million is available for
working capital advances. Within this amount, $15 million may be used for
issuances of letters of credit. This facility has been renewed for a one year
period ending July 1997. No borrowings were outstanding under this line at June
30, 1996.
The Company's operating activities provided cash of $69.8 million
during 1995, compared to $48.2 million in 1994. Operating cash flows have
increased primarily due to increases in income before non-cash items including
depreciation and amortization charges. From December 31, 1994 to December 31,
1995, accounts receivable increased from $51.1 million to $97.8 million and
deferred revenues increased from $52.2 million to $96.8 million. The increase in
accounts receivable and in deferred revenues resulted from the growth in
licensing activity and associated deferrals of revenues, primarily related to
services. The increase in accounts receivable in 1995 was more than offset by
increases in deferred revenues, accounts payable and accrued liabilities. The
Company's operating activities provided cash of $18.1 million during the six
month period ended June 30, 1995, compared to $43.4 million in the six month
period ended June 30, 1996. Operating cash flows have increased primarily due to
increases in income before non-cash items including depreciation and
amortization, and increases in deferred revenue, both of which were partially
offset by increases in accounts receivable. From December 31, 1995 to June 30,
1996, accounts receivable increased from $97.8 million to $131.3 million, and
deferred revenues increased from $96.8 million to $126.1 million, respectively.
The increase in accounts receivable and deferred revenues resulted from the
growth in customer licensing activity and associated deferrals of revenues
related to services.
- ----------
(1) Forward-looking Statement
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<PAGE> 62
The Company calculates accounts receivable days sales outstanding as
the ratio of quarter-end accounts receivable to the sum of quarterly revenues
and the net change in deferred revenues, multiplied by 90. The Company believes
this calculation is appropriate because license fees are typically billable
regardless of whether revenue has been recognized or deferred. Under this
method, accounts receivable days outstanding was 90 days as of December 31, 1994
as compared to 97 days as of December 31, 1995 and 106 days as of June 30, 1995
as compared to 91 days as of June 30, 1996. Since billing terms of the Company's
agreements typically encompass a sequence of events (including contract
execution through acceptance) spanning four to six months, and revenue
generation is concentrated at the end of each quarter, the Company anticipates
that its days sales outstanding will continue to be substantial in future
periods.
During 1994, 1995 and the six month period ending June 30, 1996, the
Company's principal uses of cash for investing activities was for short-term
investments, the purchase of property and equipment including in December 1995,
the purchase of an existing office building in Pleasanton, California,
additional purchases of computer and networking equipment to accommodate
employee growth, facility expansions and support of the Company's customer
training capacity requirements. Cash provided from financing activities in 1995
included the sale and issuance of warrants in November 1995 to purchase
2,000,000 shares of the Company's Common Stock for approximately $21.8 million.
As of June 30, 1996, the Company had $106.2 million in working capital,
including $121.6 million in cash and cash equivalents and $30.6 million in
short-term investments, consisting primarily of high quality municipal bonds and
tax-advantaged money market instruments. The Company believes that existing cash
and short-term investment balances, credit facilities, and potential cash flow
from operations will be sufficient to meet its operating cash requirements at
least through 1996.(1)
- --------
(1) Forward-looking statement.
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<PAGE> 63
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company as of September 1,
1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ---- --------------------------------------------------------------
<S> <C> <C>
David A. Duffield.................. 55 Chairman of the Board, Chief Executive Officer, and President
Albert W. Duffield................. 53 Senior Vice President of Worldwide Operations, and Director
Kenneth R. Morris.................. 46 Senior Vice President and Chief Technology Officer
Ronald E. F. Codd.................. 40 Senior Vice President of Finance and Administration, Chief
Financial Officer, and Secretary
Margaret L. Taylor................. 44 Senior Vice President of Development and Customer Services
Aneel Bhusri....................... 30 Senior Vice President of Product Strategy
A. George "Skip" Battle(1)(2)...... 52 Director
Edgar F. Codd...................... 72 Director
George J. Still, Jr.(1)(2)......... 37 Director
Cyril J. Yansouni(1)(2)............ 53 Director
</TABLE>
- --------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. David A. Duffield is a founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since the Company's
incorporation in August 1987. Prior to that time, he was a founder and Chairman
of the Board of Integral, a vendor of human resource and financial applications
software, from April 1972 through April 1987. During a portion of that time, Mr.
Duffield also served as Integral's Chief Executive Officer. Mr. Duffield is also
the co-founder of Information Associates (now a subsidiary of Systems and
Computer Technology), where he was employed between 1969 and 1972. From 1964 to
1969, Mr. Duffield worked at IBM, a computer systems manufacturer, as a
marketing representative and systems engineer. He holds a B.S. in Electrical
Engineering and an M.B.A. from Cornell University.
Mr. Albert W. Duffield joined the Company in June 1990 as Vice
President of Sales. Mr. Duffield was appointed Vice President of Operations in
September 1991, and was appointed Vice President of Sales and Marketing in
February 1993. In November 1993, he was appointed Senior Vice President of Sales
and Marketing, and, effective January 1994, he was appointed Senior Vice
President of Worldwide Operations. He was elected to the Board of Directors in
April 1991. Prior to joining the Company, Mr. Duffield served as Chief Operating
Officer of Data Design Associates, a division of Integral, from June 1989
through June 1990. Prior to the acquisition of Data Design Associates by
Integral in September 1989, he served as its Senior Vice President of Sales and
Marketing from October 1981 through June 1989. From 1970 to 1981, Mr. Duffield
worked at IBM in various sales, sales management and staff management positions.
He holds a B.Sc. in Hotel/Business Administration from Cornell University and an
M.B.A. from Rutgers University. Mr. David A. Duffield and Mr. Albert W. Duffield
are brothers.
Mr. Kenneth R. Morris is a founder of the Company and was appointed
Vice President of Product Development at the Company's incorporation in August
1987. In November 1993, he was appointed Senior Vice President of Product
Development, and, effective January 1994, he was appointed Senior Vice President
and Chief Technology Officer. From March 1982 to July 1987, Mr. Morris held
various product development and customer service positions with Integral. Prior
to March 1982, Mr. Morris held various positions, including as a Principal, with
American Management Systems, Inc., a supplier of application software. He holds
a B.B.A. from Southern Methodist University and an M.B.A. from Harvard
University.
Mr. Ronald E. F. Codd joined the Company in September 1991 as Vice
President of Finance and Administration and Chief Financial Officer. In November
1993, he was appointed Senior Vice President of Finance and Administration and
Chief Financial Officer. He was appointed Secretary of the Company in March
1992. Prior to joining the Company, 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
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<PAGE> 64
Administration from the University of California, Berkeley and an M.M. degree
from the J.L. Kellogg Graduate School of Management (Northwestern University).
Mr. Codd's father, Dr. Edgar F. Codd, is a director of the Company.
Ms. Margaret L. Taylor joined the Company in January 1989 as Vice
President of Customer Services, and was appointed Vice President of Customer
Services and International in February 1993. In November 1993, she was appointed
Senior Vice President of Customer Services, and, effective January 1994, she was
appointed Senior Vice President of Development and Customer Services. In the
third quarter of 1995, Ms. Taylor assumed responsibility for PeopleTools
development, in addition to her other responsibilities. From May 1986 to October
1988, she was Vice President of Trust and Investment Management at The Hibernia
Bank. From August 1978 to August 1985, she held various positions with the Bank
of California, N.A., most recently as Vice President and Director of Human
Resources. Ms. Taylor holds a B.A. in Psychology and Communications from Lone
Mountain College.
Mr. Aneel 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. 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 an M.B.A. from Stanford University and a B.S. in Electrical Engineering
with a B.A. in Economics from Brown University.
Mr. A. George "Skip" Battle became a director of the Company in
December 1995. Mr. Battle served from 1968 until his retirement in June 1995 in
various roles of increasing responsibility with Andersen Consulting. At the time
of his retirement, Mr. Battle was Managing Partner of Market Development. He was
also a member of Andersen Consulting's Executive Committee, Global Management
Council and Partner Income Committee. Prior to his position as Managing Partner
of Market Development, he served as Managing Partner of North American Planning
and Operations. Mr. Battle holds a B.A. in Economics with highest distinction
from Dartmouth College and an M.B.A. from the Stanford Business School where he
held McCarthy and University Fellowships. He is currently a Senior Fellow at the
Aspen Institute.
Dr. Edgar F. Codd became a director of the Company in June 1992. Dr.
Codd is presently an independent consultant. From 1985 to 1993, he was a
Principal at Codd and Date Consulting, and at Codd and Date, Inc., both of which
are relational database consulting firms. Dr. Codd received his M.A. in
Mathematics from Oxford University and his M.S. and Ph.D. in Communication
Sciences from the University of Michigan. Dr. Codd was employed by IBM where he
developed the theoretical foundation for relational database management. In
1994, he became a fellow of the Association for Computing Machinery (ACM).
Mr. George J. Still, Jr. became a director of the Company in April
1991. He has been a partner of Norwest Venture Capital, a venture capital
investment fund, since 1989. From July 1984 to October 1989, he was a general
partner with The Centennial Funds, a venture capital investment fund. Mr. Still
holds a B.Sc. in Business Administration from Pennsylvania State University and
an M.B.A. from Dartmouth College. Mr. Still is also on the board of directors of
Resumix, Inc. and the following private companies: Diva Communications, Masada,
Norwest Mobile Television, PeopleSoft Manufacturing, Secure Core Wireless
Networks, Telecom Partners, Telops Management, and 3DFX Interactive.
Mr. Cyril J. Yansouni became a director of the Company in October 1992.
Since March 1991, he has served as Chief Executive Officer and Chairman of
Read-Rite Corporation, a supplier of thin film magnetic recording heads. From
January 1989 to February 1991, he served in various senior management capacities
at Unisys, a manufacturer of computer systems, most recently as an Executive
Vice President. Mr. Yansouni was President of Convergent Technologies, a
manufacturer of computer systems, from October 1986 until its acquisition by
Unisys in December 1988. From January 1983 to October 1986, Mr. Yansouni served
in a variety of technical and management positions at Hewlett- Packard Company,
most recently as Vice President and General Manager of the PC Group. He holds an
M.S.E.E. from Stanford University and a B.Sc. in electrical and mechanical
engineering from the Catholic University of Louvain, Belgium. Mr. Yansouni is
also on the board of directors of Informix Corporation and Raychem Corporation.
-56-
<PAGE> 65
EXECUTIVE COMPENSATION AND OTHER MATTERS
The table below sets forth information for the three most recently
completed fiscal years concerning the compensation of the Chief Executive
Officer of PeopleSoft, and the four other most highly compensated executive
officers of PeopleSoft (the "Named Executive Officers") in the fiscal year ended
December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-----------------------------------------------------------------
NAME AND OTHER ANNUAL SEC. UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2) OPTIONS (#)
- -------------------------------- ------ ----------- ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
David A. Duffield 1995 $200,000 $126,800 $7,650 60,000
President and Chief 1994 205,000 88,424 360 140,000
Executive Officer 1993 180,000 70,056 -- --
Ronald E. F. Codd 1995 150,000 93,600 3,030 40,000
Senior Vice President of 1994 140,000 60,387 360 80,000
Finance & Administration 1993 130,000 50,596 -- --
Albert W. Duffield 1995 175,000 110,950 5,340 50,000
Senior Vice President of 1994 170,000 73,327 360 80,000
Worldwide Operations 1993 160,008 62,272 -- --
Kenneth R. Morris 1995 153,220 97,181 7,650 40,000
Senior Vice President and 1994 165,000 71,170 360 80,000
Chief Technology Officer 1993 160,008 62,272 -- --
Margaret L. Taylor 1995 175,000 110,950 5,340 50,000
Senior Vice President of 1994 167,500 72,249 360 100,000
Development and Customer 1993 145,008 56,434 -- --
Services
</TABLE>
- ---------------------------
(1) Payments of bonuses are made pursuant to the Company's Executive Bonus
Plan.
(2) Includes Company funded health benefit credits of $720 in 1995 and $360 in
1994, and, beginning in 1995, Company matching contributions to a
non-qualified deferred compensation plan.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, for each of the Named Executive
Officers, certain information concerning the exercise of stock options during
1995, including the year-end value of unexercised options:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Year-End (#) Year-End (1)($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized (1)($) Unexercisable Unexercisable
- ------------------------ ---------------------- ---------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
David A. Duffield -- -- 28,000/172,000 $974,750/$5,332,250
Ronald E.F. Codd 100,000 $2,301,125 80,000/216,000 3,408,000/7,977,000
Albert W. Duffield 34,500 875,021 341,500/434,000 14,415,721/17,154,252
Kenneth R. Morris 16,000 153,000 --/104,000 -- /3,253,000
Margaret L. Taylor 60,000 1,738,001 137,600/322,000 5,743,251/12,306,252
</TABLE>
- ---------------------------
(1) Calculated by determining the difference between the closing price of
the Company's Common Stock as reported on The Nasdaq National Market on
the date of exercise or at December 31, 1995 ($43.00), as applicable,
and the exercise price of such options.
-57-
<PAGE> 66
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during
the year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------
% of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Price Appreciation for
Underlying Employees Exercise Option Term (4)
Options in Fiscal Price Expiration ----------------------------------
Name Granted (1)(#) Year (2) ($/share)(3) Date 5%($) 10%($)
- --------------------- ------------------- ------------- ------------- ----------- ----------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
David A. Duffield 60,000 2.3% $19.113 02/10/05 $721,185 $1,827,624
Ronald E.F. Codd 40,000 1.5% 17.375 02/10/05 437,082 1,107,651
Albert W. Duffield 50,000 1.9% 17.375 02/10/05 546,352 1,384,564
Kenneth R. Morris 40,000 1.5% 17.375 02/10/05 437,082 1,107,651
Margaret L. Taylor 50,000 1.9% 17.375 02/10/05 546,352 1,384,564
</TABLE>
- ---------------------------
(1) These options vest in five equal annual installments commencing one year
from the date of grant.
(2) An aggregate of 2,666,600 options to purchase shares of the Company's
Common Stock were granted to employees in 1995.
(3) The exercise price and the tax withholding obligations related to exercise
may be paid by delivery of shares that are already owned or by offset of
the underlying shares, subject to certain conditions. All of the options
have an exercise price equal to 100% of the fair market value of the
Company's Common Stock on the date of grant, except that David A.
Duffield's options have an exercise price equal to 110% of the fair market
value of the Company's Common Stock on the date of grant.
(4) This column shows the hypothetical gains or "option spreads" of the options
granted based on assumed annual compound stock price appreciation rates of
5% and 10% over the full ten-year term of the option. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the SEC and do
not represent the Company's estimated or projected future prices of the
Company's Common Stock.
-58-
<PAGE> 67
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company licensed certain technology to a partnership
(the "Partnership") which was formed to develop a manufacturing product in
exchange for a 49.9% interest and exclusive distribution rights to products
developed by the Partnership. At the same time, funding for the Partnership was
provided by Norwest Equity Partners IV, L.P. ("Norwest") in exchange for the
remaining limited partnership interest. Mr. George J. Still, Jr., a director of
the Company, is also a general partner, without management responsibility, of
the Partnership and Norwest. During 1995, the Company and Norwest's partnership
interests were reduced to 41% each by the addition of another partner, Andersen
Consulting, which contributed certain development services and technologies to
the Partnership, and which, under certain conditions, may forfeit its interests
in the Partnership. The Company has no obligation to provide funds to the
partnership, and has an option to acquire a portion or all of the outstanding
partnership interests in 1997 or 1999 at pre-determined prices. Should the
Company not purchase at least 20% of the outstanding partnership interests in
1997, such distribution rights become non-exclusive. Pursuant to a services
agreement, the Company received $30,000 in 1994 and $120,000 in 1995 from the
Partnership for administrative services.
The Company and a limited liability company ("LLC") have entered into a
series of agreements in 1995, whereby the LLC will provide up to $6 million to
fund the development of a suite of student information system applications ("SIS
Software") and the Company will be the exclusive distributor of the SIS
Software. Substantially all of the LLC's funds were provided equally by David A.
Duffield, the Company's founder and principal stockholder, and the Student Loan
Marketing Association ("Sallie Mae"), an independent strategic business partner.
The Company has no obligation to provide funds to the LLC and does not have a
right to acquire any of the LLC's equity interests. The Company will pay the LLC
a royalty based on fees received from the licensing of the SIS Software until
the later of four years from the commercial release of the SIS Software or $12
million in cumulative royalties. The royalty rate was determined based on
negotiations between the Company and Sallie Mae. All ownership rights and
interests in the SIS Software will transfer to the Company when $12 million in
cumulative royalties have been paid to the LLC. During 1995, the LLC reimbursed
the Company $2.0 million for development funding advanced by the Company during
the year and the LLC's stockholders paid the Company $98,000 for interest on
such advances.
SECURITY OWNERSHIP OF PEOPLESOFT MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The table below sets forth as of August 31, 1996 certain information
with respect to the beneficial ownership of PeopleSoft's Common Stock by (i)
each person known by PeopleSoft to own beneficially more than five percent (5%)
of the outstanding shares of Common Stock; (ii) each director of PeopleSoft,
(iii) each Named Executive Officer, and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Shares Approximate
Beneficially Percent
Name of Person or Identity of Group Owned(1) Owned
- ----------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
David A. Duffield (2)
4440 Rosewood Drive
Pleasanton, CA 94588............................................... 15,278,450 30.1%
Ronald E.F. Codd (3)................................................... 151,847 *
Albert W. Duffield (3)................................................. 455,015 *
Kenneth R. Morris (4).................................................. 1,000,300 2.0
Margaret L. Taylor (3)................................................. 293,771 *
</TABLE>
-59-
<PAGE> 68
<TABLE>
<CAPTION>
Shares Approximate
Beneficially Percent
Name of Person or Identity of Group Owned(1) Owned
- ----------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
DIRECTORS
George J. Still, Jr. (3)............................................... 48,000 *
Edgar F. Codd (3)...................................................... 12,000 *
Cyril J. Yansouni (3).................................................. 16,000 *
A. George "Skip" Battle................................................ 400 *
All directors and executive officers as a group (5).................... 17,270,529 34.0
5% STOCKHOLDERS AT 6/30/96 (6)
Putnam Investments Inc.
One Post Office Square
Boston, MA 02109................................................... 4,451,000 8.8
Chancellor Capital Mgmt. Inc. (7)
1166 Avenue of the Americas
New York, NY 10036................................................. 3,704,000 7.3
Twentieth Century Investors, Inc. (8)
4500 Main Street
Kansas City, MO 64141.............................................. 2,750,000 5.4
</TABLE>
- ---------------------
* Less than 1%
(1) Applicable percentage of ownership is based on 50,757,065 shares of Common
Stock outstanding as of August 31, 1996 together with applicable options
for such stockholder. Beneficial ownership is determined in accordance with
the rules of the SEC, and includes voting and investment power with respect
to shares. Shares subject to options currently exercisable or exercisable
within 60 days after August 31, 1996 are deemed outstanding for computing
the percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) Includes 68,000 shares and 265,800 shares issuable upon the exercise of
stock options held by David A. Duffield and Mr. Duffield's wife,
respectively, that are exercisable within 60 days of August 31, 1996 and
11,844,745 shares held by trusts, foundations or accounts of which David A.
Duffield is trustee or director.
(3) Includes the following numbers of shares issuable upon exercise of stock
options that are exercisable on or within 60 days of August 31, 1996:
Albert W. Duffield: 378,000; Margaret L. Taylor: 163,600; Ronald E.F. Codd:
106,000, George J. Still, Jr.: 48,000, Edgar F. Codd: 12,000, and Cyril J.
Yansouni: 16,000.
(4) Includes 19,365 shares held by irrevocable trusts for certain family
members who receive the income from such trusts. Kenneth R. Morris is
trustee of each such trust.
(5) Includes 1,060,760 shares subject to stock options held by directors and
executive officers (9 persons) that are exercisable within 60 days of
August 31, 1996.
(6) Shares beneficially owned is determined solely from information reported on
a Schedule 13G filed with the SEC through June 30, 1996.
(7) Chancellor Capital Management, Inc. and Chancellor Trust Company, as
investment advisors for various fiduciary accounts, together have sole
voting power and sole dispositive power with respect to all of the shares
reported.
(8) Investors Research Corporation (IRC), as investment advisor for Twentieth
Century Investor, Inc., and Twentieth Century Companies, Inc., IRC's
parent, together have sole voting power and sole dispositive power with
respect to all of the shares reported.
-60-
<PAGE> 69
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The Unaudited Pro Forma Combined Condensed Financial Statements give
effect to the proposed Merger of PeopleSoft and Red Pepper on a pooling of
interests basis. Under this method of accounting, the historical book values of
the assets, liabilities and shareholders' equity of Red Pepper, as reported in
its balance sheet, will be carried over and combined with the consolidated
balance sheet of PeopleSoft. The Pro forma Combined Condensed Balance Sheet
assumes that the Merger took place on June 30, 1996 and combines PeopleSoft's
June 30, 1996 Unaudited Condensed Consolidated Balance Sheet with Red Pepper's
June 30, 1996 Unaudited Condensed Consolidated Balance Sheet. The Pro Forma
Combined Condensed Statements of Operations assume that the Merger took place as
of the beginning of the periods presented and combine PeopleSoft's Condensed
Consolidated Results of Operations for the six months ended June 30, 1996 and
1995 and for the years ended December 31, 1995, 1994 and 1993 with Red Pepper's
results of operations for the same periods. Certain reclassifications have been
made to the historical data to make classifications for similar items consistent
between the companies on a pro forma combined basis.
These Unaudited Pro Forma Combined Condensed Financial Statements
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto of PeopleSoft and Red Pepper included
elsewhere herein. See "Index to Consolidated Financial Statements."
-61-
<PAGE> 70
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of June 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $121,595 $ 3,049 $ -- $124,644
Short-term investments . . . . . . . . . . . . 30,638 -- -- 30,638
Accounts receivable, net . . . . . . . . . . . 131,317 908 -- 132,225
Other current assets . . . . . . . . . . . . . 7,542 80 -- 7,622
Deferred tax assets . . . . . . . . . . . . . . 18,243 -- 771 19,014
-------- ------- ------- --------
Total current assets . . . . . . . . . . . . 309,335 4,037 771 314,143
Property and equipment, at cost . . . . . . . . . . 106,156 1,960 -- 108,116
less accumulated depreciation and amortization (28,625) (558) -- (29,183)
-------- ------- ------- --------
77,531 1,402 -- 78,933
Other assets . . . . . . . . . . . . . . . . . . . -- 50 -- 50
Capitalized software, less accumulated amortization 7,382 -- -- 7,382
-------- ------- ------- --------
$394,248 $ 5,489 $ 771 $400,508
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued liabilities and
capital lease obligations . . . . . . . . . $ 31,037 $ 1,117 $ 3,500 $ 35,654
Accrued compensation and related expenses . . . 29,771 503 -- 30,274
Income taxes payable . . . . . . . . . . . . . 16,179 -- (418) 15,761
Deferred revenue . . . . . . . . . . . . . . . 126,139 483 -- 126,622
-------- ------- ------- --------
Total current liabilities . . . . . . . . . 203,126 2,103 3,082 208,311
Long-term obligations . . . . . . . . . . . . . . . -- 707 -- 707
Stockholders' equity:
Common stock and paid-in capital . . . . . . . 111,962 8,591 -- 120,553
Foreign currency translation adjustment . . . . (212) -- -- (212)
Retained earnings (deficit) . . . . . . . . . . 79,372 (5,912) (2,311) 71,149
-------- ------- ------- --------
191,122 2,679 (2,311) 191,490
-------- ------- ------- --------
$394,248 $ 5,489 $ 771 $400,508
======== ======= ======= ========
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
-62-
<PAGE> 71
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees . . . . . . . . . . . . . . . . . $ 97,949 $ 2,617 $ -- $100,566
Services . . . . . . . . . . . . . . . . . . . 82,965 1,471 -- 84,436
-------- ------- ----- --------
Total revenues . . . . . . . . . . . . . . . 180,914 4,088 -- 185,002
Costs and expenses
Cost of license fees . . . . . . . . . . . . . 5,537 10 -- 5,547
Cost of services . . . . . . . . . . . . . . . 46,699 1,215 -- 47,914
Sales and marketing . . . . . . . . . . . . . . 56,330 1,848 -- 58,178
Product development . . . . . . . . . . . . . . 28,895 1,766 -- 30,661
General and administrative . . . . . . . . . . 10,556 322 -- 10,878
-------- ------- ----- --------
Total costs and expenses . . . . . . . . . . 148,017 5,161 -- 153,178
-------- ------- ----- --------
Operating income (loss) . . . . . . . . . . . . . . 32,897 (1,073) -- 31,824
Other income, principally interest . . . . . . . . 3,048 28 -- 3,076
-------- ------- ----- --------
Income (loss) before taxes . . . . . . . . . 35,945 (1,045) -- 34,900
Provision for income taxes . . . . . . . . . . . . 14,378 -- (418) 13,960
-------- ------- ----- --------
Net income (loss) . . . . . . . . . . . . . . . . . $ 21,567 $(1,045) $ 418 $ 20,940
======== ======= ===== ========
Net income (loss) per share . . . . . . . . . . . . $ 0.38 $ (0.44) $ 0.35
======== ======= ========
Shares used in per share computation . . . . . . . 56,646 2,353 59,132
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
-63-
<PAGE> 72
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
License fees . . . . . . . . . . . . . . . . . $51,167 $ 736 $ -- $51,903
Services . . . . . . . . . . . . . . . . . . . 40,289 646 -- 40,935
------- ------- ----- -------
Total revenues . . . . . . . . . . . . . . . 91,456 1,382 -- 92,838
Costs and expenses
Cost of license fees . . . . . . . . . . . . . 3,858 5 -- 3,863
Cost of services . . . . . . . . . . . . . . . 22,124 1,018 -- 23,142
Sales and marketing . . . . . . . . . . . . . . 28,094 651 -- 28,745
Product development . . . . . . . . . . . . . . 14,437 1,095 -- 15,532
General and administrative . . . . . . . . . . 6,756 235 -- 6,991
------- ------- ----- -------
Total costs and expenses . . . . . . . . . . 75,269 3,004 -- 78,273
------- ------- ----- -------
Operating income (loss) . . . . . . . . . . . . . . 16,187 (1,622) -- 14,565
Other income, principally interest . . . . . . . . 1,719 43 -- 1,762
------- ------- ----- -------
Income (loss) before taxes . . . . . . . . . 17,906 (1,579) -- 16,327
Provision for income taxes . . . . . . . . . . . . 7,163 -- (436) 6,727
------- ------- ----- -------
Net income (loss) . . . . . . . . . . . . . . . . . $10,743 $(1,579) $ 436 $ 9,600
======= ======= ===== =======
Net income (loss) per share . . . . . . . . . . . . $ 0.20 $ (0.77) $ 0.17
======= ======= =======
Shares used in per share computation . . . . . . . 53,926 2,040 56,117
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
-64-
<PAGE> 73
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees . . . . . . . . . . . . . . . . . $134,623 $ 3,185 $ -- $137,808
Services . . . . . . . . . . . . . . . . . . . 92,945 1,386 -- 94,331
-------- ------- ----- --------
Total revenues . . . . . . . . . . . . . . . 227,568 4,571 -- 232,139
Costs and expenses
Cost of license fees . . . . . . . . . . . . . 8,485 18 -- 8,503
Cost of services . . . . . . . . . . . . . . . 54,597 2,192 -- 56,789
Sales and marketing . . . . . . . . . . . . . . 68,063 1,989 -- 70,052
Product development . . . . . . . . . . . . . . 35,903 2,722 -- 38,625
General and administrative . . . . . . . . . . 15,635 547 -- 16,182
-------- ------- ----- --------
Total costs and expenses . . . . . . . . . . 182,683 7,468 -- 190,151
-------- ------- ----- --------
Operating income (loss) . . . . . . . . . . . . . . 44,885 (2,897) -- 41,988
Other income, principally interest . . . . . . . . 4,044 105 -- 4,149
-------- ------- ----- --------
Income (loss) before taxes . . . . . . . . . 48,929 (2,792) -- 46,137
Provision for income taxes . . . . . . . . . . . . 19,570 -- (771) 18,799
-------- ------- ----- --------
Net income (loss) . . . . . . . . . . . . . . . . . $ 29,359 $(2,792) $ 771 $ 27,338
======== ======= ===== ========
Net income (loss) per share . . . . . . . . . . . . $ 0.54 $ (1.37) $ 0.48
======== ======= ========
Shares used in per share computation . . . . . . . 54,798 2,040 57,031
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
-65-
<PAGE> 74
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees . . . . . . . . . . . . . . . . . $ 68,580 $ -- $ -- $ 68,580
Services . . . . . . . . . . . . . . . . . . . 44,315 188 -- 44,503
-------- ------- ---------- --------
Total revenues . . . . . . . . . . . . . . . 112,895 188 -- 113,083
Costs and expenses
Cost of license fees . . . . . . . . . . . . . 6,817 -- -- 6,817
Cost of services . . . . . . . . . . . . . . . 26,539 201 -- 26,740
Sales and marketing . . . . . . . . . . . . . . 35,400 444 -- 35,844
Product development . . . . . . . . . . . . . . 14,482 836 -- 15,318
General and administrative . . . . . . . . . . 7,962 205 -- 8,167
-------- ------- ---------- --------
Total costs and expenses . . . . . . . . . . 91,200 1,686 -- 92,886
-------- ------- ---------- --------
Operating income (loss) . . . . . . . . . . . . . . 21,695 (1,498) -- 20,197
Other income, principally interest . . . . . . . . 2,158 34 -- 2,192
-------- ------- ---------- --------
Income (loss) before taxes . . . . . . . . . 23,853 (1,464) -- 22,389
Provision for income taxes . . . . . . . . . . . . 9,308 -- -- 9,308
-------- ------- ---------- --------
Net income (loss) . . . . . . . . . . . . . . . . . $ 14,545 $(1,464) $ -- $ 13,081
======== ======= ========== ========
Net income (loss) per share . . . . . . . . . . . . $ 0.28 $ (0.72) $ 0.25
======== ======= ========
Shares used in per share computation . . . . . . . 51,926 2,040 53,221
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE> 75
PEOPLESOFT AND RED PEPPER
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1993
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
PeopleSoft Red Pepper Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees . . . . . . . . . . . . . . . . . $37,656 $ -- $ -- $37,656
Services . . . . . . . . . . . . . . . . . . . 20,535 30 -- 20,565
------- ------ --------- -------
Total revenues . . . . . . . . . . . . . . . 58,191 30 -- 58,221
Costs and expenses
Cost of license fees . . . . . . . . . . . . . 3,123 -- -- 3,123
Cost of services . . . . . . . . . . . . . . . 12,270 -- -- 12,270
Sales and marketing . . . . . . . . . . . . . . 17,785 124 -- 17,909
Product development . . . . . . . . . . . . . . 8,305 383 -- 8,688
General and administrative . . . . . . . . . . 4,199 118 -- 4,317
------- ------ --------- -------
Total costs and expenses . . . . . . . . . . 45,682 625 -- 46,307
------- ------ --------- -------
Operating income (loss) . . . . . . . . . . . . . . 12,509 (595) -- 11,914
Other income, principally interest . . . . . . . . 1,169 (2) -- 1,167
------- ------ --------- -------
Income (loss) before taxes . . . . . . . . . 13,678 (597) -- 13,081
Provision for income taxes . . . . . . . . . . . . 5,265 -- -- 5,265
------- ------ -------- -------
Net income (loss) . . . . . . . . . . . . . . . . . $ 8,413 $ (597) $ -- $ 7,816
======= ====== ======== =======
Net income per share . . . . . . . . . . . . . . . $ 0.17 $(0.30) $ 0.15
======= ====== =======
Shares used in per share computation . . . . . . . 50,804 2,017 51,413
</TABLE>
See accompanying notes to the Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE> 76
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. THE PERIODS COMBINED
The PeopleSoft condensed statements of operations for the three years
ended December 31, 1995, 1994 and 1993, respectively, and the six months ended
June 30, 1996 and 1995 have been combined with the Red Pepper condensed
statements of operations for the same periods.
PeopleSoft's June 30, 1996 condensed consolidated balance sheet has
been combined with Red Pepper's June 30, 1996 condensed balance sheet.
2. PRO FORMA BASIS OF PRESENTATION
These Unaudited Pro Forma Combined Condensed Financial Statements are
based on estimates and assumptions. The pro forma adjustments made in connection
with the development of the pro forma information are preliminary and have been
made solely for purposes of developing such pro forma information as necessary
to comply with the disclosure requirements of the SEC. The Unaudited Pro Forma
Combined Condensed Financial Statements do not purport to be indicative of the
combined financial position or results of operations of future periods or
indicative of the results that actually would have been realized had the
entities been a single entity during these periods.
The Unaudited Pro Forma Combined Condensed Financial Statements reflect
the issuance of 2,624,995 shares of PeopleSoft Common Stock in exchange for an
aggregate of 12,767,487 shares of Red Pepper Common Stock and Preferred Stock
outstanding as of June 30, 1996 in connection with the Merger. Pursuant to the
written election of holders of a majority of the outstanding Red Pepper
Preferred Stock and in accordance with the Red Pepper Articles of Incorporation,
all outstanding Red Pepper Preferred Stock will be automatically converted into
Red Pepper Common Stock immediately prior to the Effective Time. The Common
Exchange Ratio will depend on the capitalization of Red Pepper at the Effective
Time. Assuming that all shares of Red Pepper Preferred Stock are converted to
shares of Red Pepper Common Stock prior to the Effective Time, and further
assuming that the capitalization of Red Pepper at the Effective Time is in all
other respects identical to the capitalization as of June 30, 1996, the Common
Exchange Ratio would be approximately 0.2056 of a share of PeopleSoft Common
Stock for each outstanding share of Red Pepper Common Stock.
The following table provides the pro forma share issuances in
connection with the Merger:
<TABLE>
<CAPTION>
<S> <C>
Red Pepper Common Stock outstanding at June 30, 1996
(assuming the conversion of all outstanding Red Pepper Preferred Stock) 12,767,487
Common Exchange Ratio 0.2056
----------
Number of shares of PeopleSoft Common Stock exchanged 2,624,995
Number of shares of PeopleSoft Common Stock outstanding at June 30, 1996 50,474,726
----------
Number of shares of PeopleSoft Common Stock outstanding after 53,099,721
completion of Merger ==========
</TABLE>
The actual number of shares of PeopleSoft Common Stock to be issued
will be determined at the Effective Time based on the number of shares of Red
Pepper Common Stock, stock options and warrants outstanding at such time.
The transactions between Red Pepper, PeopleSoft and/or their affiliates
were not material to the combined results in the periods presented herein.
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<PAGE> 77
3. PRO FORMA EARNINGS PER SHARE
The Pro Forma Combined Condensed Statements of Operations for
PeopleSoft have been prepared as if the Merger was completed at the beginning of
the periods presented. The pro forma combined net income per share is based on
the combined weighted average number of common and common equivalent shares,
using the treasury stock method, of PeopleSoft Common Stock and Red Pepper
Common Stock for each period and is also based on an assumed Common Exchange
Ratio of 0.2056 shares of PeopleSoft Common Stock for each share of Red Pepper
Common Stock. The actual number of shares of PeopleSoft Common Stock to be
issued will be determined at the Effective Time based on the number of shares of
Red Pepper Common Stock (assuming the conversion of all outstanding Red Pepper
Preferred Stock into Red Pepper Common Stock immediately prior to the Effective
Time), stock options and warrants outstanding at such time. In addition, based
on such Common Exchange Ratio at June 30, 1996, 239,626 shares of PeopleSoft
Common Stock will be reserved for issuance upon exercise of Red Pepper stock
options assumed by PeopleSoft in the Merger.
4. MERGER TRANSACTION COSTS
PeopleSoft and Red Pepper estimate they will incur transaction costs in
the range of $3.0 million to $3.5 million associated with the Merger, consisting
primarily of fees paid to investment bankers hired by PeopleSoft and legal and
accounting fees and expenses, and other related charges. This is a preliminary
estimate and is therefore subject to change. These nonrecurring costs will be
charged to operations in the fiscal quarter in which the Merger is consummated,
currently expected to be the quarter ended December 31, 1996.
The Pro Forma Combined Condensed Balance Sheet gives effect to such
expenses (based on the top of the range of $3.5 million) as if they had been
incurred as of June 30, 1996, but the effects of these costs have not been
reflected in the Pro Forma Combined Condensed Statements of Operations as they
are non-recurring charges.
5. CONFORMING ADJUSTMENTS
The Unaudited Pro Forma Combined Condensed Financial Statements do not
include adjustments to conform the accounting policies of Red Pepper to those
followed by PeopleSoft. The nature and extent of such adjustments, if any, will
be based upon further study and analysis and are not expected to be significant
in relationship to the consolidated financial statements of PeopleSoft.
6. PROVISIONS FOR INCOME TAXES
The pro forma adjustments reflect management's estimate of the portion
of the net operating losses, credits and other deferred tax assets that are
realizable to the combined companies considering limitations on the utilization
of the losses and credits in each respective period.
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<PAGE> 78
BUSINESS OF RED PEPPER
INTRODUCTION
Red Pepper Software Company ("Red Pepper") develops, markets, sells,
supports and services supply chain management software based on advanced
intelligent agent technology. Red Pepper's ResponseAgent family of intelligent
planning and scheduling solutions enables manufacturers to respond to customer
needs rapidly while minimizing supply chain costs. ResponseAgent products enable
real-time planning and scheduling across global manufacturing enterprises and
are designed to improve on-time delivery, reduce inventory, maximize
return-on-assets, minimize cycle-time and maximize capacity utilization. Red
Pepper markets its software and services primarily through its direct sales
organization, augmented by indirect sales channels including systems consulting
and integration firms and business application software vendors. Red Pepper's
customers include 3Com Corporation, Anchor Glass, Hewlett-Packard, Sun
Microsystems and Bausch & Lomb, among other leading manufacturers in a variety
of industries.
BACKGROUND
Increased global competition, compressed product lifecycles and mass
customization of products have forced manufacturing companies to increase
manufacturing efficiency and improve customer responsiveness to remain
competitive. To meet these challenges, manufacturers across a wide variety of
industries are reengineering their business processes, and many have determined
that improving the management of their supply chain, i.e. the mission-critical
process of moving raw materials and finished goods from initial material
procurement to end-customer fulfillment, is a critical element of this
reengineering. Businesses that effectively manage the complexities of the supply
chain can improve internal efficiency and gain a competitive advantage.
In order to increase manufacturing efficiency and improve customer
responsiveness, manufacturers must provide factory, sales and distribution
managers, as well as order-taking personnel, with access to information across
the enterprise. In recent years, several information technology developments
have created the necessary infrastructure for the deployment of new applications
that enable such enterprise-wide access to information. Global manufacturers are
increasingly seeking to leverage these technological developments to implement a
comprehensive enterprise data management solution for supply chain management.
Materials Requirements Planning ("MRP") systems were designed primarily for the
management of manufacturing processes and related procurement requirements.
However, most MRP systems were architected when large, high-speed memories and
high performance processors were unavailable. Enhancements to MRP systems in
recent years have increased their functionality and resulted in new systems
known as Manufacturing Resource Planning ("MRP II") and Distribution Resource
Planning ("DRP"). Further, the advent of Enterprise Resource Planning ("ERP")
software has permitted the enterprise-wide management of resources, and the
integration of sales forecasting, component procurement, inventory management,
manufacturing control, project management, distribution, transportation, finance
and other functions across an organization.
The availability of MRP II, DRP and ERP systems as well as improvements
in memory speed and capacity, software development technologies and optimization
algorithms, have greatly enhanced the access to information within manufacturing
companies. However, because these systems generally assume infinite
manufacturing capacity and resource availability, they do not adequately address
the manufacturers' need to react to changes in manufacturing capacity, raw
material availability, customer request and promise dates, and other variables.
Further, while these systems provide effective permanent data storage and
transaction management, they are not architected to provide real-time planning
and scheduling, or to optimize around multiple constraints. These limitations
are further compounded due to lengthy implementation cycles for these
transactional applications. In many cases, it can take several years to
implement these transactional systems which can result in systems becoming
out-of-date by the time the implementation is complete. The combination of these
factors has highlighted the need manufacturers have for advanced technology that
can adapt to changes while working with existing transactional systems in order
to optimize supply chain management without extremely long implementation
cycles.
SOLUTION
Red Pepper's advanced intelligent agent technology enables its
ResponseAgent family of products to provide manufacturers with real-time,
dynamic decision support that improves supply chain management and customer
responsiveness by managing unpredictability in manufacturing variables such as
capacity, customer demand and material availability. ResponseAgents are designed
with an open application programming interface and utilize object-oriented
software and exception-
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<PAGE> 79
based optimization technology to reduce implementation time and complement and
integrate with transactional systems, such as ERP, MRP II and DRP.
ResponseAgents can assemble extremely large datasets in memory from the
transactional databases managed by ERP, MRP II and DRP systems to allow users to
test and consider any number of alternative plans before altering the
transactional databases. ResponseAgents can work across global enterprises to
integrate factories and distribution centers in widely dispersed locations and
enable verifiable order promising based on real-time assessment and allocation
of supply chain-wide resources.
Red Pepper's Collaborative ResponseAgent Architecture further enables
enterprise-wide planning by allowing planners and schedulers to collaborate on
plans and schedules. If one planner is currently in Japan, another is in
Germany, and yet another is at corporate headquarters, they can easily
collaborate on a planning session. Users can access a ResponseAgent server over
ordinary phone lines and collaborate easily with those operating on the local
area network. If one user makes a change on screen, others can see and discuss
those changes in a conference call setting.
SOFTWARE PRODUCTS
ResponseAgents integrate with ERP, MRP II and DRP systems to enable
responsiveness to changing demand and resource availability. ERP systems provide
the transactional infrastructure upon which the ResponseAgents can
simultaneously optimize on many different business objectives. Customer orders,
bills of material, purchase orders, forecasts and other information are all
stored and maintained in ERP systems. The ResponseAgent DataBridge seamlessly
integrates with these ERP systems to ensure that ResponseAgents remain current.
The DataBridge enables ResponseAgents to integrate with virtually any ERP or MRP
system, whether client/server or legacy. The ResponseAgent client is a Microsoft
Windows 95 application that incorporates many familiar user interface standards
and can be used in conjunction with desktop productivity tools such as Microsoft
Word, Excel and e-mail.
ENTERPRISE RESPONSEAGENT. The Enterprise ResponseAgent ("ERA") models
and optimizes entire supply chains across the enterprise. ERA allows the
customer to build a representation of the enterprise supply chain, from key
suppliers and available materials through production and distribution capacity.
ERA plans and re-plans the optimized flow of product through the company's
supply chain while respecting multiple constraint types such as inventory
availability and targets, customer request and promise dates and multi-plant
capacity. ERA also enables multi-constraint DRP. Additionally, using the
Collaborative ResponseAgent Architecture, manufacturing planners can engage in
real-time global planning sessions involving participants in widely-dispersed
locations where a variety of "what-if" scenarios are considered.
SALES RESPONSEAGENT. The Sales ResponseAgent ("SRA") provides real-time
order promising across a supply chain and is designed to augment existing order
entry systems. The SRA is more powerful than other systems that provide only
"available-to-promise" analysis that simply searches for available inventory in
a local distribution center or factory. Instead, the SRA delivers a
"capable-to-promise" analysis by working from a supply chain-wide model and
performing a rapid search across the supply chain for available inventory. If no
finished goods are available by the client request date, the system will
continue to search through levels of the supply chain, including analyzing
production capacity and availability of raw materials. The SRA thus enables the
order-taking personnel to respond quickly to a customer request with a reliable
promise date that is optimized from data from across the enterprise.
PRODUCTION RESPONSEAGENT. The Production ResponseAgent ("PRA") provides
specific planning and detailed scheduling analysis for single-factory
production. The PRA simultaneously optimizes material, capacity, inventory
targets and customer request and promise dates to produce schedules based on
current levels. The PRA can sequence production to minimize changeover costs
between production runs. The PRA also has capable-to-promise functionality that
allows users to quickly and reliably determine whether they have the capacity
and other resources necessary to meet customer requests.
SERVICES AND CUSTOMER SUPPORT
Red Pepper believes that providing a high level of customer service and
technical support is necessary to achieve rapid product implementation which, in
turn, is essential to customer satisfaction. Red Pepper offers an education and
training program for its customers and its third-party implementation providers.
Classes are offered at in-house facilities at Red Pepper's offices and at
customer sites. These classes focus on supply chain management principles as
well as the implementation and use of the ResponseAgent products. Red Pepper
offers its customers on-site consulting services aimed at assisting in the
implementation of ResponseAgents and integration with the customers' existing
systems. Red Pepper receives hourly fees for these services.
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<PAGE> 80
These services are concentrated on making implementation cost-effective for
customers by enabling them to independently perform as many of the integration
tasks as possible. Red Pepper also provides ongoing product support services to
its customers.
TECHNOLOGY
The optimization algorithm embedded in the ResponseAgent products is
based on research undertaken for NASA to develop the ground processing
scheduling system for the Space Shuttle, but all of the ResponseAgents are
completely new applications that make extensive use of advanced software
technology. ResponseAgents are object-oriented applications developed using the
C++ programming language. Red Pepper further engineered its own Application
Builder tool to facilitate the fast development of new functionality and make
extensive use of object technology. The systems are client/server applications,
where the clients are Windows 95 or NT personal computers, and the servers are
UNIX or NT platforms of leading system providers. While the applications
themselves operate on the new "open" operating systems, they are easy to
integrate with legacy systems via TCP/IP networking using Red Pepper's
DataBridge technology. The DataBridge enables Red Pepper customers to map data
from transactional applications (MRP/ERP/DRP) into the ResponseAgent's
ODBC-compliant relational databases. From there, the ResponseAgent can optimize
the transactional information and provide updated plans and schedules to the
MRP/ERP/DRP applications.
SALES, MARKETING AND DISTRIBUTION
Red Pepper markets its software and services primarily through its
direct sales organization augmented by other sales channels, including business
application software vendors and systems consulting and integration firms. Red
Pepper's direct sales organization consists of regionally based sales
representatives and sales engineers. Red Pepper has joint marketing partnerships
established with major consulting firms such as Andersen Consulting and Price
Waterhouse LLP, as well as major system vendors. Red Pepper is also a certified
member of Oracle's Cooperative Applications Initiative, and of SAP's Logistics
Optimization Interface project.
RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY RIGHTS
Red Pepper has expended significant resources on product development
efforts directed at increasing product functionality, improving product
performance and expanding the capabilities of the products to interoperate with
third party software. Red Pepper relies on a combination of the protections
provided under applicable copyright, trademark and trade secret laws, as well as
confidentiality procedures and licensing arrangements to establish and protect
its rights in its software. In addition, Red Pepper has filed three patent
applications relating to technology embodied in the ResponseAgent products.
Despite Red Pepper's efforts, however, it may be possible for unauthorized third
parties to copy certain portions of Red Pepper's products or to reverse engineer
or obtain and use information that Red Pepper regards as proprietary. In
addition, the laws of certain countries do not protect Red Pepper's proprietary
rights to the same extent as do the laws of the United States. Red Pepper
licenses its software products to customers under license agreements which are
generally standard in form, although each license is individually negotiated and
may contain variations. The standard form agreement allows the customer to use
Red Pepper's products solely on the customer's computer equipment for the
customer's internal purposes, and the customer is generally prohibited from
sublicensing or transferring the ResponseAgent products. The agreements
generally provide that Red Pepper's warranty for its products is limited to
correction or replacement of the affected product, and in most cases Red
Pepper's warranty liability may not exceed the licensing fees from the customer.
The form agreement also includes a confidentiality clause protecting proprietary
information.
EMPLOYEES
As of August 31, 1996, Red Pepper employed 101 persons. Of the total,
33 were engaged in sales and marketing, 60 were in product development and
customer support and 8 were in finance and administration. None of Red Pepper's
employees is represented by a labor union with respect to his or her employment
by Red Pepper. Red Pepper has experienced no organized work stoppages and
believes its relationship with its employees is good.
FACILITIES
Red Pepper's principal offices are located in approximately 18,000
square feet of space in San Mateo, California. This facility is leased to Red
Pepper through November 1997.
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<PAGE> 81
SELECTED HISTORICAL FINANCIAL DATA OF RED PEPPER
Red Pepper's historical balance sheet data as of June 30, 1996 and
historical statement of operations data for the six months ended June 30, 1995
and 1996 are derived from Red Pepper's unaudited financial statements included
herein. Red Pepper's historical balance sheet data as of June 30, 1995 are
derived from Red Pepper's unaudited financial statements which are not included
herein. Red Pepper's historical balance sheet data as of December 31, 1994 and
1995 and the statement of operations data for each of the three years in the
period ended December 31, 1995 are derived from Red Pepper's audited financial
statements included elsewhere in the Prospectus/Consent Solicitation Statement.
Red Pepper's historical balance sheet data as of December 31, 1993 are derived
from Red Pepper's audited financial statements which are not included herein.
Red Pepper's financial information is qualified by and should be read in
conjunction with Red Pepper's financial statements and notes thereto included
elsewhere in the Prospectus/Consent Solicitation Statement. In the opinion of
the management of Red Pepper, the above mentioned unaudited interim financial
data of Red Pepper has been prepared on the same basis as the historical
information derived from the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for unaudited interim periods. The selected
financial data from October 1992 (formation of Red Pepper) through December 31,
1992 was not material. No cash dividends have been declared or paid in any of
the periods presented. Red Pepper's historical balance sheet data as of June 30,
1995 are derived from Red Pepper's unaudited condensed financial statements
which are not included herein.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(In thousands, except per share amounts) (unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License and royalty fees . . . . . . . $ -- $ -- $ 3,185 $ 736 $ 2,617
Services . . . . . . . . . . . . . . . 30 188 1,386 646 1,471
------- ------- ------- ------- -------
Total revenues . . . . . . . . . . . 30 188 4,571 1,382 4,088
Cost of revenues:
License and royalty fees . . . . . . . -- -- 18 5 10
Services . . . . . . . . . . . . . . . -- 201 2,192 1,018 1,215
------- ------- ------- ------- -------
Total cost of revenues . . . . . . . -- 201 2,210 1,023 1,225
------- ------- ------- ------- -------
Gross margin . . . . . . . . . . . . . . 30 (13) 2,361 359 2,863
Operating expenses:
Research and development . . . . . . . 383 836 2,722 1,095 1,766
Sales and marketing . . . . . . . . . . 124 444 1,989 651 1,848
General and administrative . . . . . . 118 205 547 235 322
------- ------- ------- ------- -------
Total operating expenses . . . . . . 625 1,485 5,258 1,981 3,936
------- ------- ------- ------- -------
Operating loss . . . . . . . . . . . . . (595) (1,498) (2,897) (1,622) (1,073)
Interest income . . . . . . . . . . . . . -- 39 130 55 68
Interest expense . . . . . . . . . . . . 2 5 25 12 40
------- ------- ------- ------- -------
Net loss . . . . . . . . . . . . . . . . $ (597) $(1,464) $(2,792) $(1,579) $(1,045)
======= ======= ======= ======= =======
Net loss per share . . . . . . . . . . . $ (0.30) $ (0.72) $ (1.37) $ (0.77) $ (0.44)
======= ======= ======= ======= =======
Shares used in per share calculation . . 2,017 2,040 2,040 2,040 2,353
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, June 30,
----------------------------------- --------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(In thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) . . . . . . . . $ (97) $1,085 $2,581 $3,830 $1,934
Total assets . . . . . . . . . . . . . . $ 123 $1,716 $6,140 $5,909 $5,489
Long-term obligations . . . . . . . . . . $ -- $ 67 $ 91 $ 85 $ 707
Total shareholders' equity (deficit) . . $ (30) $1,231 $3,622 $4,585 $2,679
</TABLE>
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<PAGE> 82
RED PEPPER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Red Pepper was founded in October 1992 to develop client/server
software applications for managing enterprise-wide supply-chain optimization.
Red Pepper was engaged principally in research and development from inception
through March 1995. Red Pepper began beta shipments of its first product
Production ResponseAgent ("PRA") in May 1994, and commercial shipments in March
1995. Red Pepper has not achieved operating profits for any period since
inception.
Red Pepper's revenues are derived primarily from license and royalty
fees and charges for services, including maintenance, consulting and training.
For all periods presented, Red Pepper has recognized revenue in accordance with
Statement of Position 91-1 entitled "Software Revenue Recognition," dated
December 12, 1991, issued by the American Institute of Certified Public
Accountants. License and royalty fee revenues consist of revenues from licenses
for Red Pepper's software products, product documentation and non-recoverable
advances against royalties related to a software distribution agreement. Red
Pepper recognizes license and royalty fee revenues only if there are no
remaining significant post-delivery obligations. If significant post-delivery
obligations exist or if a product is subject to customer acceptance, revenues
are deferred until no significant obligations remain or until acceptance has
occurred. Services revenues have consisted primarily of maintenance, consulting
and training revenues. Maintenance revenues are recognized ratably over the term
of the support period, which is typically twelve months. Consulting and training
revenues generally are recognized as the services are performed.
Red Pepper's products may be licensed individually or as a group. To
date, the majority of Red Pepper's revenues have been attributable to licenses
of the PRA and services related to such product because it was Red Pepper's only
product until the release in March 1996 of the Enterprise ResponseAgent ("ERA")
and Sales ResponseAgent ("SRA") products. License fee revenues for Red Pepper's
software products consist of (i) a one-time per server fee based on the specific
applications licensed and (ii) a one-time fee based upon the number of users
allowed to access those applications. Most of the Red Pepper's license fee
revenues to date have resulted from fees based on server licenses.
Red Pepper markets its products primarily through its direct sales
force. Red Pepper established sales and support operations in the United Kingdom
in February 1996 and in Singapore in July 1996. In the six months ended June 30,
1996 international revenues were approximately $94,000, representing 2% of total
revenues for that period. There were no international revenues prior to 1996.
Although Red Pepper has experienced significant growth in revenues
during the past two years, Red Pepper does not believe prior growth rates are
sustainable or indicative of future operating results. Red Pepper's limited
operating history makes prediction of future results difficult or impossible.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
REVENUES
Total Revenues. Red Pepper's revenues are derived primarily from fees
from licenses of and royalties for Red Pepper's software products and related
services. Red Pepper's revenues increased from $30,000 in 1993 to $188,000 in
1994, an increase of 527%, and to $4,571,000 in 1995, an increase of 2,331%. One
customer, Honeywell, accounted for 100% of revenues in the year ended December
31, 1993. Three customers, Sun Microsystems, Cisco Systems and Honeywell
Corporation accounted for 61%, 22% and 17%, respectively, of Red Pepper's
revenues in the year ended December 31, 1994. All of these customers are end
users of Red Pepper's products. Three customers, Texas Instruments, PeopleSoft
Manufacturing L.P. ("PeopleMan"), an affiliate and sublicensee of PeopleSoft,
and Sun Microsystems, accounted for 25%, 15% and 24%, respectively, of Red
Pepper's revenues in the year ended December 31, 1995. Texas Instruments and Sun
Microsystems are end users of Red Pepper's products. As exclusive distributor of
PeopleMan's software products, PeopleSoft is also a value added reseller of Red
Pepper's products. No other customers accounted for more than 10% of Red
Pepper's total revenues in the years ended December 31, 1993, 1994 and 1995.
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<PAGE> 83
License and Royalty Fees Revenues. License and royalty fees revenues
are primarily comprised of fees for licenses of Red Pepper's software products.
License and royalty fees revenues were $3,185,000 for the year ended December
31, 1995. Red Pepper had no license and royalty fees revenues prior to 1995. The
increase in revenue was attributable to the initial release of Red Pepper's
first product, PRA, in March of 1995.
Services Revenues. Services revenues are primarily comprised of fees
from maintenance, consulting and training services. Red Pepper had only $30,000
of services revenues in the year ended December 31, 1993, all of which arose
from customer funded research and development activities. Services revenues were
$188,000 and $1,386,000 for the years ended December 31, 1994 and 1995,
respectively, representing an increase of 637%. The increase in revenue was due
primarily to the increase in maintenance, consulting and training services
associated with the initial sales of Red Pepper's software products.
COST OF REVENUES
Cost of License and Royalty Fees Revenues. Red Pepper's cost of license
and royalty fees revenues consist primarily of sublicensing third party products
and manufacturing expenses related to product documentation. Costs related to
research, design and development of products are charged to product development
expense as incurred. Accordingly, cost of license and royalty fees revenues
includes no amortization of capitalized software development costs. Cost of
license and royalty fees revenues was $18,000 for the year ended December 31,
1995, representing 0.6% of license and royalty fee revenues and 0.4% of total
revenues for the year ended December 31, 1995. There was no cost of license and
royalty fees revenues for the periods prior to 1995.
Cost of Services Revenues. Red Pepper's cost of services revenues
consist primarily of employee related costs incurred in providing telephone
support, consulting services and training of customers and, to a lesser extent,
shipment of product upgrades. Cost of services were $201,000 and $2,192,000 for
the years ended December 31, 1994 and 1995, respectively, representing 107% and
158% of service revenues and 107% and 48% of total revenues for the related
periods. There were no cost of services revenues for the year ended December 31,
1993 because employee costs for that period relating to the services revenues
generated were accounted for as research and development expenses. The increase
in the dollar amount of cost of services during the year ended December 31, 1995
was due primarily to the increase in the number of customer support and training
personnel and related overhead costs necessary to support the installed customer
base. The increase in cost of services revenues as a percentage of services
revenues was due to the investment made in hiring consulting and training
personnel in order train a core staff of service professionals, develop
implementation and training methodologies and materials, and higher costs
related to the use of independent consultants. The decrease in service costs as
a percentage of total revenues was due primarily to the increase in license and
royalty fees revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses include expenses associated with the
development of new products, enhancements to existing products, documentation of
products and quality assurance activities, and consist primarily of employee
salaries, benefits, consulting expenses and cost of software development tools.
Costs related to research, design and development of products are charged to
research and development as incurred. Research and development expenses were
$383,000, $836,000 and $2,722,000, or 1,277%, 445% and 60% of total revenues for
the years ended December 31, 1993, 1994 and 1995, respectively. The increase in
dollar amount was primarily due to an increase in personnel and related overhead
costs. The decrease in research and development expenses as a percentage of
total revenues was due primarily to the increase in revenue.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of salaries and
commissions of sales and marketing employees, as well as sales related travel
expenses and promotional expenses. Sales and marketing expenses were $124,000,
$444,000 and $1,989,000 or 413%, 236% and 44% of total revenues for the years
ended December 31, 1993, 1994 and 1995, respectively. The increase in dollar
amount was primarily due to the expansion of Red Pepper's sales and marketing
organization and higher sales commissions associated with increased revenue. The
decrease in sales and marketing expenses as a percentage of total revenues was
due primarily to the increase in revenue.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries and
occupancy costs for administrative, executive and finance personnel. General and
administrative expenses were $118,000, $205,000 and $547,000, or 393%, 109% and
12% of total revenues for the years ended December 31, 1993, 1994 and 1995,
respectively. The increase in dollar amount was primarily due to an increase in
personnel and related overhead costs. The decrease in general and administrative
expenses as a percentage of total revenues was due primarily to the increase in
revenue.
INTEREST INCOME AND EXPENSE
Interest income was $0, $39,000 and $130,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. The increase in dollar amount
was primarily due to increased cash investment balances. Interest expense was
$2,000, $5,000 and $25,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The increase in dollar amount was primarily due to increased
equipment capital lease obligations.
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
REVENUES
Total Revenues. Red Pepper's total revenues increased 196% from
$1,382,000 to $4,088,000 for the six month periods ended June 30, 1995 and 1996
respectively. Five customers, 3COM, 3M, Anchor Glass Container, Coors Brewing
Company and Sun Microsystems, accounted for 12%, 14%, 18%, 18% and 36%,
respectively, of Red Pepper's revenues in the six month period ended June 30,
1995. Three customers, Texas Instruments, Bausch and Lomb and Sun Microsystems,
accounted for 18%, 20% and 18%, respectively, of Red Pepper's revenues in the
six month period ended June 30, 1996. All of these customers are end users of
Red Pepper's products. No other customers accounted for more than 10% of Red
Pepper's total revenues in the six month periods ended June 30, 1995 and 1996.
License and Royalty Fees Revenues. License and royalty fees revenues
were $736,000 and $2,617,000 for the six month periods ended June 30, 1995 and
1996 respectively, representing an increase of 256%. The increase in license and
royalty fees revenues was attributable to increased market acceptance of Red
Pepper's initial product, PRA, the release in March 1996 of version 2.0 of this
product and of two new products, ERA and SRA.
Services Revenues. Services revenues were $646,000 and $1,471,000 for
the six month periods ended June 30, 1995 and 1996 respectively, representing an
increase of 128%. The increase in services revenues was due primarily to the
increase in maintenance, consulting and training services associated with
increased sales of Red Pepper's software products.
COST OF REVENUES
Cost of License and Royalty Fees Revenues. Cost of license and royalty
fees revenues were $5,000 and $10,000 for the six month periods ended June 30,
1995 and 1996, respectively, representing 0.7% and 0.4% of license and royalty
fees revenues and 0.4% and 0.2% of total revenues for the related periods. The
decrease was attributable to decreased reliance on certain third party software
which requires sublicensing payments.
Cost of Services Revenues. Cost of services revenues was $1,018,000 and
$1,215,000 for the six month periods ended June 30, 1995 and 1996, respectively,
representing 158% and 83% of services revenues and 74% and 30% of total revenues
for the related periods. The increase in the dollar amount of cost of services
revenues during the six month period ended June 30, 1996 was due primarily to
the increase in the number of customer support and training personnel and
related overhead costs necessary to support a larger installed customer base.
The decrease in cost of services as a percentage of services revenues and total
revenues was due to increased revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $1,095,000 and $1,766,000, or
79% and 43% of total revenues for the six month periods ended June 30, 1995 and
1996, respectively. The increase in dollar amount was primarily due to an
increase in
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personnel and related overhead costs. The decrease in research and development
expenses as a percentage of total revenues was due primarily to the increase in
revenue.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $651,000 and $1,848,000, or 47% and
45% of total revenues for the six month periods ended June 30, 1995 and 1996,
respectively. The increase in dollar amount was primarily due to the expansion
of Red Pepper's sales and marketing organization and higher sales commissions
associated with increased revenue. The decrease in sales and marketing expenses
as a percentage of total revenues was due primarily to the increase in revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $235,000 and $322,000, or 17%
and 8% of total revenues for the six month periods ended June 30, 1995 and 1996,
respectively. The increase in dollar amount was primarily due to an increase in
personnel and related overhead costs. The decrease in general and administrative
expenses as a percentage of total revenues was due primarily to the increase in
revenue.
INTEREST INCOME AND EXPENSE
Interest income was $55,000 and $68,000 for the six month periods ended
June 30, 1995 and 1996, respectively. The increase in dollar amount was
primarily due to increased cash investment balances. Interest expense was
$12,000 and $40,000 for the six month periods ended June 30, 1995 and 1996,
respectively. The increase in dollar amount was primarily due to increased
equipment lease related debt.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Red Pepper has financed its operations and met its
capital expenditure requirements through a combination of private sales of
preferred and common stock, equipment lease financing, and borrowings under a
secured note. Red Pepper's principal investors are venture capital firms.
In 1992 Red Pepper raised $20,000 through the sale of common stock. In
1993, Red Pepper raised $560,000 through the sale of Series A and A1 preferred
stock. In 1994 Red Pepper raised $2,725,000 through the sale of Series B
preferred stock. In 1995, Red Pepper raised $5,083,000 through the sale of
Series C preferred stock. In the six months ended June 30, 1996, Red Pepper
raised approximately $102,000 from the proceeds related to the exercise of
employee stock options.
In January of 1996, Red Pepper entered into a $1,000,000 Loan and
Security Agreement to finance existing equipment and future equipment purchases.
The $1,000,000 commitment may be received over a maximum of six independent
fundings with each funding to be repaid over a 45 month period. The interest
rate of each loan will be equal to the U.S. Treasury note yield for a 45 month
treasury note on the funding date plus 2.57%. At June 30, 1996, Red Pepper had
received four fundings for a total of $954,154.
Cash and cash equivalents totaled $8,000, $1,484,000, $2,630,000,
$4,201,000 and $3,049,000 at December 31, 1993, 1994, 1995 and June 30, 1995 and
1996, respectively. Working capital was $(97,000), $1,085,000, $2,581,000,
$3,830,000 and $1,934,000 at December 31, 1993, 1994, 1995 and June 30, 1995 and
1996, respectively.
Red Pepper believes that the proceeds of the $5,000,000 loan from
PeopleSoft made pursuant to the Royalty Advance and Loan Agreement between Red
Pepper and PeopleSoft, together with its existing cash balances and funds
generated from operations, if any, will be sufficient to meet Red Pepper's cash
requirements for at least the next 12 months if the Merger is not consummated.
However, after that 12 month period or earlier if circumstances or plans change,
Red Pepper could be required to obtain additional equity or debt financing to
meet its working capital and fixed asset requirements as an independent entity.
If Red Pepper requires additional financing in the future after failure to
consummate the Merger, there can be no assurance that such financing would be
available to Red Pepper on commercially reasonable terms or at all.
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EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Red Pepper as of September 1, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Monte Zweben........................ 32 President, Chief Executive Officer and Chairman of the Board of Directors
Daniel T. Doles..................... 34 Vice President of Finance and Operations and Director
Mark Vershel........................ 38 Vice President of Product Development
Jay Fulcher......................... 34 Vice President of Sales
Albert Crawford..................... 48 Vice President of Client Services
Christopher Roon.................... 40 Vice President of Marketing and Business Development
Andrew Verhalen..................... 40 Director
Steven Merrill...................... 54 Director
Harvey Jones........................ 43 Director
</TABLE>
Mr. Zweben co-founded Red Pepper in 1992 and has served as President,
Chief Executive Officer and Chairman of the Board of Directors since October
1992. From September 1987 to December 1992, Mr. Zweben served as a Deputy Branch
Chief at NASA Ames Research Center. Mr. Zweben received his M.S. in Computer
Science from Stanford University and his B.S. in Computer Science and Industrial
Management from Carnegie-Mellon University.
Mr. Doles co-founded Red Pepper in 1992 and has served as a Director
and Vice President of Finance and Operations since October 1992 and January
1993, respectively. Prior to founding Red Pepper, Mr. Doles served as a manager
with Ernst & Young's National Manufacturing and High Technology Industry
services group from January 1987 to January 1993. Mr. Doles is a Certified
Public Accountant and earned his B.A. in Business Administration from San Jose
State University.
Mr. Vershel joined Red Pepper as Vice President of Product Development
in January 1995. Prior to joining Red Pepper, Mr. Vershel served as a consultant
for Institutional Venture Partners, a venture capital investment fund, from
August 1994 to January 1995. He served as Vice President and General Manager of
Borland's InterBase Business Unit from April 1991 to August 1994 and held a
variety of engineering management positions during a 10-year career with Intel
Corporation. Mr. Vershel received his B.S. in Computer Science and Engineering
and his M.S. in Computer Graphics from the Massachusetts Institute of
Technology.
Mr. Fulcher joined Red Pepper as Vice President of Sales in June 1996.
Prior to joining Red Pepper, Mr. Fulcher served as Director of Regional Sales at
SAP America, Inc. from August 1993 to June 1996. From October 1988 to August
1993, Mr. Fulcher served as Regional Manager at Dun & Bradstreet Software. Mr.
Fulcher earned his B.S. in management from San Jose State University.
Mr. Crawford joined Red Pepper as Vice President of Client Services in
May 1995. Prior to joining Red Pepper, Mr. Crawford served as a Partner in High
Technology Management Consulting Group at Ernst & Young and as the Director of
Sales and Marketing for Ernst & Young's High Technology practices from August
1978 to May 1995. Mr. Crawford received his B.S. in Systems Engineering from
UCLA and his M.B.A. from Stanford Graduate School of Business.
Mr. Roon joined Red Pepper as Vice President of Marketing and Business
Development in August 1995. Prior to joining Red Pepper, Mr. Roon served as Vice
President of Europe for Avalon Software from January 1994 to July 1995. He
served as Director of Manufacturing Marketing for Oracle Corporation from August
1989 to January 1994 and held a variety of marketing management positions during
a 4-year career with ASK Group. Mr. Roon received his M.B.A. in Operations from
Dartmouth College and his A.B. in Geology from Occidental College.
Mr. Verhalen was appointed to Red Pepper's Board of Directors in June
1994, Mr. Verhalen has been a General Partner of Matrix Partners III, L.P. and
Matrix Partners IV, L.P., venture capital investment funds, since April 1992.
Mr. Verhalen also serves as a director of several privately held companies. From
July 1986 to November 1991, Mr. Verhalen served as Vice President of 3Com
Corporation, a computer networking manufacturing company.
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Mr. Merrill was appointed to Red Pepper's Board of Directors in June
1994. Mr. Merrill has been a General Partner of Merrill, Pickard, Anderson &
Eyre, a venture capital investment fund, since 1980.
Mr. Jones was appointed to Red Pepper's Board of Directors in May 1995.
Mr. Jones is the Chairman of the Board of Directors of Synopsys, Inc., an EDA
software company, a capacity in which he has served since December 1987. Mr.
Jones served as President and Chief Executive Officer of Synopsys, Inc. from
December 1987 through December 1992. Mr. Jones also serves as a director of
Remedy and several privately owned companies.
STOCK OWNED BY RED PEPPER MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Red Pepper's Common Stock as of August 31, 1996, (i) by
each person who is known by Red Pepper to own beneficially more than 5% of its
outstanding Capital Stock, (ii) by each director and each executive officer of
Red Pepper and (iii) by all directors and executive officers of Red Pepper as a
group. Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares shown as
beneficially owned by such shareholder. Unless otherwise noted, the address for
the individuals listed below is: c/o Red Pepper Software Company, 1810 Gateway
Drive, Suite 150, San Mateo, CA 94404.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE MERGER
------------------------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
- ------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Matrix Partners III, L.P.(2) 3,056,104 23.5%
Andrew Verhalen
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Merrill, Pickard, Anderson & Eyre(3) 3,056,104 23.5
Steven Merrill
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Institutional Venture Partners(4) 1,732,501 13.3
Mary Jane Elmore
3000 Sand Hill Road
Bldg. 2, Suite 209
Menlo Park, CA 94025
Monte Zweben 1,000,000 7.7
Daniel T. Doles 1,000,000 7.7
Mark Vershel(5) 324,000 2.5
Al Crawford(5) 276,000 2.2
Jay Fulcher(6) 235,000 1.8
Chris Roon(6) 209,000 1.6
Harvey Jones(5) 139,000 1.1
All executive officers and directors as a group (9 persons)(7) 9,295,208 69.0
</TABLE>
- ---------------------------
(1) Based on 13,033,820 shares outstanding as of August 31, 1996, assuming
conversion of all Preferred Stock into Common Stock.
(2) Andrew Verhalen, a director of Red Pepper, is a general partner of Matrix
Partners with certain investment and voting power over such shares.
Although Mr. Verhalen may be deemed to be the beneficial owner of such
shares, he disclaims all such beneficial ownership except to the extent of
any pecuniary interest therein which he may have.
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(3) Includes 2,982,695 shares held by Merrill, Pickard, Andersen & Eyre V,
L.P. and 73,409 shares held by MPAE V Affiliates Fund, L.P. Steven
Merrill, a director of Red Pepper, is a general partner of Merrill,
Pickard, Anderson & Eyre with certain voting and investment power over
such shares. Although Mr. Merrill may be deemed to be the beneficial owner
of such shares, he disclaims all such beneficial ownership except to the
extent of any pecuniary interest therein which he may have.
(4) Includes 1,697,851 shares held by Institutional Venture Partners VI and
34,650 shares held by Institutional Venture Management VI. Mary Jane
Elmore is a general partner of Institutional Venture Partners with certain
voting and investment power over such shares. Although Ms. Elmore may be
deemed to be the beneficial owner of such shares, she disclaims all such
beneficial ownership except to the extent of any pecuniary interest
therein which she may have.
(5) Represents shares issued upon exercise of options which are subject to a
repurchase option of Red Pepper which lapses overtime.
(6) Includes shares subject to outstanding options that are currently
exercisable or exercisable within 60 days of August 31, 1996. Because all
options granted by Red Pepper are immediately exercisable whether or not
vested, all options held by parties named in the table have been treated
as currently exercisable. However, Red Pepper has a right to repurchase,
upon the optionee's termination of employment, any shares acquired by the
optionee through the exercise of any unvested options. This repurchase
right lapses over time.
(7) Includes 444,000 shares subject to options which are immediately
exercisable and subject to a repurchase option of Red Pepper which lapses
over time.
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DESCRIPTION OF PEOPLESOFT CAPITAL STOCK
The authorized capital stock of the Company consists of 160,000,000
shares of Common Stock, $.01 par value, and 2,000,000 shares of Preferred Stock,
$.01 par value.
COMMON STOCK
As of September 4, 1996, there were 50,757,065 shares of Common Stock
outstanding held of record by 779 stockholders. Holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders except that, upon giving of a notice required by law, stockholders
may cumulate votes in elections of directors.
Subject to the preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
As of September 30, 1996, 2,000,000 shares of Preferred Stock were
authorized and no shares were outstanding. The Board of Directors has the
authority to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any unissued shares of Preferred Stock and to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the stockholders. Although it presently has no
intention to do so, the Board of Directors, without stockholder approval, can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power of the holders of Common Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plans to issue any
of the Preferred Stock.
PREFERRED STOCK RIGHTS
On February 5, 1995, the Board of Directors of PeopleSoft declared a
dividend of one preferred share purchase right (a "Right" or "Rights"
collectively) for each outstanding share of Common Stock, $.01 par value (the
"Common Shares"), of the Company. The dividend was paid on February 27, 1995
(the "Record Date") to stockholders of record at the close of business on that
date. Rights have been issued in connection with all Common Shares issued since
that date and will be issued in connection with the shares of PeopleSoft Common
Stock to be issued in the Merger. The rights issued were registered pursuant to
Section 12(g) of the Exchange Act on a Registration Statement on Form 8-A as
filed with the SEC on February 17, 1995. The First National Bank of Boston (the
"Rights Agent") has been appointed to serve as rights agent. The Company and the
Rights Agent have entered into the Preferred Shares Rights Agreement dated as of
February 15, 1995 (the "Rights Agreement"), which entitles the registered holder
of a Right to purchase from the Company one one-thousandth of a share of Series
A Participating Preferred Stock ("Series A Preferred") at a price of $180.00
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in the Rights Agreement between the Company and the Rights
Agent.
Rights Evidenced by Common Share Certificates
The Rights will not be exercisable until the Distribution Date (defined
below). Certificates for the Rights ("Rights Certificates") will not be sent to
stockholders and the Rights will attach to and trade only together with the
Common Shares. Accordingly, Common Share certificates outstanding on the Record
Date will evidence the Rights related thereto, and Common Share certificates
issued after the Record Date will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate.
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Distribution Date
The Rights will separate from the Common Shares, Rights Certificates
will be issued and the Rights will become exercisable upon the earlier of: (i)
10 days (or such later date as may be determined by a majority of the Board of
Directors, excluding directors affiliated with the Acquiring Person, as defined
below (the "Continuing Directors")) following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding Common Shares, or (ii) 10 days (or such later date as may be
determined by a majority of the Continuing Directors) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person
or group of 20% or more of the outstanding Common Shares. The earlier of such
dates is referred to as the "Distribution Date."
Issuance of Rights Certificates; Expiration of Rights
As soon as practicable following the Distribution Date, separate Rights
Certificates will be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights from and after the Distribution Date. All Common
Shares issued prior to the Distribution Date will be issued with Rights. Common
Shares issued after the Distribution Date may be issued with Rights if such
shares are issued (i) upon the conversion of outstanding convertible debentures
or any other convertible securities issued after adoption of the Rights
Agreement or (ii) pursuant to the exercise of stock options or under employee
benefit plans or arrangements unless such issuance would result in (or create a
risk that) such options, plans or arrangements would not qualify for otherwise
available special tax treatment. Except as otherwise determined by the Board of
Directors, no other Common Shares issued after the Distribution Date will be
issued with Rights. The Rights will expire on the earliest of (i) February 15,
2005 (the "Final Expiration Date"), (ii) redemption or exchange of the Rights as
described below, or (iii) consummation of an acquisition of the Company
satisfying certain conditions by a person who acquired shares pursuant to a
Permitted Offer as described below.
Initial Exercise of the Rights
Following the Distribution Date, and until one of the further events
described below, holders of the Rights will be entitled to receive, upon
exercise and the payment of $180.00 per Right, one one-hundredth of a share of
the Series A Preferred. In the event that the Company does not have sufficient
Series A Preferred available for all Rights to be exercised, or the Board
decides that such action is necessary and not contrary to the interests of
Rights holders, the Company may instead substitute cash, assets or other
securities for the Series A Preferred for which the Rights would have been
exercisable under this provision or as described below.
Right to Buy Company Common Shares
Unless the Rights are earlier redeemed, in the event that an Acquiring
Person becomes the beneficial owner of 20% or more of the Company's Common
Shares then outstanding (other than pursuant to a Permitted Offer), then proper
provision will be made so that each holder of a Right which has not theretofore
been exercised (other than Rights beneficially owned by the Acquiring Person,
which will thereafter be void) will thereafter have the right to receive, upon
exercise, Common Shares (or, in certain circumstances as determined by the Board
of Directors, cash, other property or other securities) having a value equal to
two times the Purchase Price. Rights are not exercisable following the
occurrence of an event as described above until such time as the Rights are no
longer redeemable by the Company as set forth below.
Right to Buy Acquiring Company Stock
Similarly, unless the Rights are earlier redeemed, in the event that,
after the Shares Acquisition Date (as defined below), (i) the Company is
acquired in a merger or other business combination transaction, or (ii) 50% or
more of the Company's consolidated assets or earning power are sold (other than
in transactions in the ordinary course of business), proper provision must be
made so that each holder of a Right which has not theretofore been exercised
(other than Rights beneficially owned by the Acquiring Person, which will
thereafter be void) will thereafter have the right to receive, upon exercise,
shares of common stock of the acquiring company having a value equal to two
times the Purchase Price (unless the transaction satisfies certain conditions
and is consummated with a person who acquired shares pursuant to a Permitted
Offer, in which case the Rights will expire).
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Permitted Offer
A Permitted Offer means a tender offer for all outstanding Common
Shares that has been determined by a majority of the Continuing Directors to be
adequate and otherwise in the best interests of the Company and its
stockholders. Where the Board of Directors has determined that a tender offer
constitutes a Permitted Offer, the Rights will not become exercisable to
purchase Common Shares or shares of the acquiring company (as the case may be)
at the discounted price described above.
Exchange Provision
At any time after the acquisition by an Acquiring Person of 20% or more
of the Company's outstanding Common Shares and prior to the acquisition by such
Acquiring Person of 50% or more of the Company's outstanding Common Shares, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by the Acquiring Person), in whole or in part, at an exchange ratio of one
Common Share per Right.
Redemption
At any time on or prior to the close of business on the earlier of (i)
the 10th day following the acquisition by an Acquiring Person (the "Share
Acquisition Date") or such later date as may be determined by a majority of the
Continuing Directors and publicly announced by the Company, or (ii) the Final
Expiration Date of the Rights, the Company may redeem the Rights in whole, but
not in part, at a price of $.001 per Right.
Adjustments to Prevent Dilution
The Purchase Price payable, the number of Rights, and the number of
Series A Preferred or Common Shares or other securities or property issuable
upon exercise of the Rights are subject to adjustment from time to time in
connection with the dilutive issuances by the Company as set forth in the Rights
Agreement. With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
Cash Paid Instead of Issuing Fractional Shares
No fractional portion less than integral multiples of one Common Share
will be issued upon exercise of a Right and in lieu thereof, an adjustment in
cash will be made based on the market price of the Common Shares on the last
trading date prior to the date of exercise.
No Stockholders' Rights Prior to Exercise
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company (other than any rights resulting from
such holder's ownership of Common Shares), including, without limitation, the
right to vote or to receive dividends.
Amendment of Rights Agreement
The provisions of the Rights Agreement may be supplemented or amended
by the Board of Directors in any manner prior to the close of business on the
Distribution Date without the approval of Rights holders. After the Distribution
Date, the provisions of the Rights Agreement may be amended by the Board in
order to cure any ambiguity, defect or inconsistency, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
Rights and Preferences of the Series A Preferred
Series A Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Series A Preferred will be entitled to a minimum
preferential liquidation payment equal to the greater of (i) $100 times the
exercise price per share or (ii) 100 times the per share amount to be
distributed to the holders of the Common Shares.
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<PAGE> 92
Each share of Series A Preferred will have 100 votes, voting together with the
Common Shares. In the event of any merger, consolidation or other transaction in
which the Common Shares are changed or exchanged, each share of Series A
Preferred will be entitled to receive 100 times the amount received per Common
Share. These rights are protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
the shares of Series A Preferred, the value of the one one-hundredth interest in
a share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
Certain Anti-takeover Effects
The Rights approved by the Board are designed to protect and maximize
the value of the outstanding equity interests in the Company in the event of an
unsolicited attempt by an acquiror to take over the Company, in a manner or on
terms not approved by the Board of Directors. Takeover attempts frequently
include coercive tactics to deprive the Company's Board of Directors and its
stockholders of any real opportunity to determine the destiny of the Company.
The Rights have been declared by the Board in order to deter such tactics,
including a gradual accumulation of shares in the open market of a 20% or
greater position to be followed by a merger or a partial or two-tier tender
offer that does not treat all stockholders equally. These tactics unfairly
pressure stockholders, squeeze them out of their investment without giving them
any real choice and deprive them of the full value of their shares.
The Rights are not intended to prevent a takeover of the Company and
will not do so. The Rights may be redeemed by the Company at $.001 per Right
within twenty days (or such later date as may be determined by a majority of the
Board of Directors, excluding directors affiliated with an Acquiring Person)
after the accumulation of 20% or more of the Company's shares by a single
acquiror or group. Accordingly, the Rights should not interfere with any merger
or business combination approved by the Board of Directors.
Issuance of the Rights does not in any way weaken the financial
strength of the Company or interfere with its business plans. The issuance of
the Rights themselves has no dilutive effect, will not affect reported earnings
per share, should not be taxable to the Company or to its stockholders, and will
not change the way in which the Company's shares are presently traded. The
Company's Board of Directors believes that the Rights represent a sound and
reasonable means of addressing the complex issues of corporate policy created by
the current takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation could make more difficult the acquisition of the Company by means
of a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company believes that the benefits of increased protection
of the Company's potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date that
the person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock. The Company has waived the right to "elect out" of application of Section
203.
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<PAGE> 93
The Certificate of Incorporation of the Company provides for the Board
of Directors to be divided into two classes, with staggered two-year terms. As a
result, only one class of directors is elected at each annual meeting of
stockholders of the Company, with the other class continuing for the remainder
of its respective two-year term. The classification of the Board of Directors
make it more difficult for the Company's existing stockholders to replace the
Board of Directors as well as for another party to obtain control of the Company
by replacing the Board of Directors. Since the Board of Directors has the power
to retain and discharge officers of the Company, these provisions could also
make it more difficult for existing stockholders or another party to effect a
change in management.
The Company's Certificate of Incorporation provides that if at any time
the Company shall have a class of stock registered pursuant to the Exchange Act,
for so long as such class is so registered, stockholder action can be taken only
at an annual or special meeting of stockholders and may not be taken by written
consent. The Bylaws also provide that special meetings of stockholders can be
called only by the Chairman of the Board, the President or the Board of
Directors. Stockholders are not permitted to call a special meeting or to
require that the Board of Directors call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by the
Chairman of the Board, the President or the Board of Directors. The Bylaws set
forth an advance notice procedure with regard to the nomination, other than by
or at the direction of the Board of Directors, of candidates for election as
directors and with regard to business to be brought before an annual meeting of
stockholders of the Company.
The Company's Certificate of Incorporation and the Bylaws contain
provisions requiring the affirmative vote of the holders of at least two-thirds
of the voting stock of the Company to amend the foregoing provisions of the
Certificate of Incorporation and Bylaws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First
National Bank of Boston.
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<PAGE> 94
COMPARATIVE RIGHTS OF RED PEPPER SHAREHOLDERS AND PEOPLESOFT STOCKHOLDERS
If the Merger is consummated, holders of Red Pepper Common Stock will
become holders of PeopleSoft Common Stock and the rights of the former Red
Pepper shareholders will be governed by the Delaware General Corporation Law
("DGCL") and by the Certificate of Incorporation of PeopleSoft (the "PeopleSoft
Certificate of Incorporation") and the Bylaws of PeopleSoft (the "PeopleSoft
Bylaws"). The rights of PeopleSoft stockholders under the DGCL and the
PeopleSoft Certificate of Incorporation and Bylaws differ in certain limited
respects from the rights of Red Pepper shareholders under the California General
Corporation Law (the "CGCL") and the Articles of Incorporation of Red Pepper
(the "Red Pepper Articles") and the Bylaws of Red Pepper (the "Red Pepper
Bylaws"). Certain differences between the rights of PeopleSoft stockholders and
Red Pepper shareholders are summarized below. This summary is qualified in its
entirety by reference to the full text of such documents. For information as to
how such documents may be obtained, see "Available Information."
SIZE OF THE BOARD OF DIRECTORS
Under the CGCL, although changes in the number of directors must in
general be approved by a majority of the outstanding shares, the board of
directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if that stated range has been
approved by the shareholders. The DGCL permits the board of directors alone to
change the authorized number, or the range, of directors by amendment to the
bylaws, unless the directors are not authorized to amend the bylaws or the
number of directors is fixed in the certificate of incorporation, in which case
a change in the number of directors may be made only by amendment to the
certificate of incorporation following approval of such change by the
stockholders. The PeopleSoft Certificate of Incorporation provides, consistent
with the DGCL, that the size of the Board may be changed by amending the Bylaws
either with the approval of the Board acting alone or by PeopleSoft's
stockholders. While the Red Pepper Bylaws provide for a Board of Directors
consisting of between four and six members, the PeopleSoft Bylaws specify a five
member Board.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under the CGCL, a special meeting of shareholders may be called by the
board of directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than ten (10%) percent of the votes at such
meeting and such additional persons as are authorized by the articles of
incorporation or the bylaws. Under the DGCL, a special meeting of stockholders
may be called by the board of directors or by any other person authorized to do
so in the certificate of incorporation or the bylaws. The PeopleSoft Bylaws do
not grant stockholders the right to call a special meeting of stockholders. The
PeopleSoft Bylaws authorize only the Board of Directors, the Chairman of the
Board, or the President to call a special meeting of stockholders. Former Red
Pepper shareholders would thus not retain their right to call a special meeting.
REMOVAL OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
Under the CGCL, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
Under the DGCL, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
with the approval of a majority of the outstanding shares entitled to vote.
However, a director of a corporation with a classified board of directors may be
removed only for cause, unless the certificate of incorporation otherwise
provides. The PeopleSoft Certificate of Incorporation provides for a classified
board of directors and does not provide for the removal of a director without
cause. Consequently, members of the PeopleSoft Board of Directors can be removed
only for cause.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the CGCL, any vacancy on the board of directors other than one
created by removal of a director may be filled by the board. If the number of
directors is less than a quorum, a vacancy may be filled by the unanimous
written consent of the directors then in office, by the affirmative vote of a
majority of the directors at a meeting held pursuant to notice or waivers of
notice or by a sole remaining director. A vacancy created by removal of a
director may be filled by the board only if the board is so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's shareholders.
-86-
<PAGE> 95
Under the DGCL, vacancies and newly created directorships may be filled
by a majority of the directors then in office, even if less than a quorum,
unless otherwise provided in the certificate of incorporation or bylaws, and
unless the certificate of incorporation directs that a particular class is to
elect such director, in which case any other directors elected by such class, or
a sole remaining director, shall fill such vacancy. The PeopleSoft Bylaws are in
accord, and contain no provision for the allocation of directors between classes
of stock.
DIRECTORS' COMMITTEES
Under the PeopleSoft Bylaws, the Board of Directors may, by resolution
passed by a majority of the whole board, delegate certain limited powers
normally held only by the Board in its entirety to a committee comprised of one
or more members of the Board. Such committees may exercise any power normally
held by the entire Board, but may not adopt an agreement of merger or
consolidation under Section 251 or 252 of the DGCL, recommend to the
stockholders the sale, lease, or exchange of all or substantially all of the
corporation's property and assets, recommend to the stockholders a dissolution
of the corporation or a revocation of a dissolution, or amend the Bylaws.
Neither can such a committee amend the Certificate of Incorporation, except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the DGCL, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series.
The Red Pepper Bylaws contain no such provision for the delegation of
authority by the Board of Directors to a committee of members of the Board.
DIVIDENDS AND REPURCHASES OF SHARES
The CGCL dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under the DGCL.
Under the CGCL, a corporation may not make any distribution unless
either the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or,
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1-1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1-1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
The DGCL permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
STOCKHOLDER VOTING
Both the CGCL and the DGCL generally require that a majority of the
stockholders of acquiring and target corporations approve statutory mergers. The
DGCL does not require a stockholder vote of the surviving corporation in a
merger (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the merger agreement does not amend the existing
certificate of incorporation, (b) each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger, and (c) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. The CGCL contains a similar exception to its
voting requirements for reorganizations where shareholders or the corporation
itself, or both, immediately prior to the reorganization will own immediately
after the reorganization equity securities constituting more than five-sixths of
the voting power of the surviving or acquiring corporation or its parent entity.
-87-
<PAGE> 96
INTERESTED DIRECTOR TRANSACTIONS
Under both the CGCL and the DGCL, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under the CGCL and the DGCL. Under the CGCL and the DGCL, (a) either the
stockholders or the board of directors must approve any such contract or
transaction after full disclosure of the material facts, and in the case of
board approval the contract or transaction must also be "just and reasonable"
(in California) or "fair" (in Delaware) to the corporation, or (b) the contract
or transaction must have been just and reasonable or fair as to the corporation
at the time it was approved. In the latter case, the CGCL explicitly places the
burden of proof on the interested director. Under the CGCL, if shareholder
approval is sought, the interested director is not entitled to vote his shares
at a shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for purposes of establishing a quorum). Under the DGCL, if board
approval is sought, the contract or transaction must be approved by a majority
of the disinterested directors, even though less than a majority of a quorum.
STOCKHOLDER DERIVATIVE SUITS
The CGCL provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under the DGCL, a
stockholder may only bring a derivative action on behalf of the corporation if
the stockholder was a stockholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or her
by operation of law. The CGCL also provides that the corporation or the
defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding requirement.
APPRAISAL RIGHTS
Under both the CGCL and the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under the DGCL, such appraisal rights are not available (a) with
respect to the sale, lease or exchange of all or substantially all of the assets
of a corporation, (b) with respect to a merger or consolidation by a corporation
the shares of which are either listed on a national securities exchange or are
held of record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation which are
either listed on a national securities exchange or held of record by more than
2,000 holders, plus cash in lieu of fractional shares, or (c) to stockholders of
a corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met.
The limitations on the availability of appraisal rights under the CGCL
are different from those under the DGCL. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have appraisal rights unless the holders
of at least five (5%) percent of the class of outstanding shares claim the right
or unless the corporation or any law restricts the transfer of such shares.
Appraisal rights are unavailable, however, if the shareholders of a corporation
or the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five sixths of the voting power of the surviving or acquiring corporation
or its parent entity, and if the shares of the surviving corporation have the
same rights, preferences, privileges and restrictions as the shares of the
disappearing corporation that are surrendered in exchange.
"BLANK CHECK" PREFERRED STOCK AND COMMON STOCK RIGHTS
The PeopleSoft Certificate of Incorporation permits the Board of
Directors to determine the rights, preferences, privileges and restrictions of
authorized but unissued Preferred Stock, commonly referred to as "Blank Check"
Preferred Stock. The issuance of Preferred Stock with extraordinary rights may
be used to deter hostile takeover attempts. Although PeopleSoft's
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<PAGE> 97
Board of Directors has no present intention of issuing such Preferred Stock, it
could do so in the future without stockholder approval. The Red Pepper Articles
also permit its Board of Directors to issue "Blank Check" Preferred Stock.
EXPERTS
The consolidated financial statements of PeopleSoft, Inc. and the
financial statements of Red Pepper Software Company, as of December 31, 1994 and
1995 and for each of three years in the period ended December 31, 1995 appearing
in this Prospectus/Consent Solicitation Statement and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports appearing elsewhere herein, and are included in reliance upon such
reports given on the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the PeopleSoft Common Stock issuable pursuant to the
Merger and certain other legal matters relating to the Merger and the
transactions contemplated thereby will be passed upon for PeopleSoft by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Gray
Cary Ware and Freidenrich, A Professional Corporation, Palo Alto, California, is
acting as counsel for Red Pepper in connection with certain legal matters
relating to the Merger and the transactions contemplated thereby.
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<PAGE> 98
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLESOFT, INC.
<TABLE>
<CAPTION>
<S> <C>
ANNUAL AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors ................................................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 .................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 .... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and
1995......................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 .... F-6
Notes to Consolidated Financial Statements .................................................... F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited) .......................... F-15
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1995
and June 30, 1996 (unaudited) .............................................................. F-16
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and
June 30, 1996 (unaudited).................................................................... F-17
Notes to Condensed Consolidated Financial Statements (unaudited) .............................. F-18
RED PEPPER SOFTWARE COMPANY
ANNUAL AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors ................................................................ F-20
Balance Sheets as of December 31, 1994 and 1995 ............................................... F-21
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 ................. F-22
Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 ....... F-23
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 ................. F-24
Notes to the Financial Statements ............................................................. F-25
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited) .......................... F-31
Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 1995
and June 30, 1996 (unaudited)................................................................ F-32
Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995
and June 30, 1996 (unaudited)................................................................ F-33
Notes to Condensed Consolidated Financial Statements (unaudited) .............................. F-34
</TABLE>
F-1
<PAGE> 99
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PeopleSoft, Inc.
We have audited the accompanying consolidated balance sheets of
PeopleSoft, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PeopleSoft, Inc. at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
January 30, 1996
F-2
<PAGE> 100
PEOPLESOFT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,241 $ 88,052
Short-term investments 26,712 37,687
Accounts receivable, less allowance for doubtful
accounts of $1,905 in 1994 and $4,765 in 1995 51,084 97,773
Deferred income taxes 7,151 14,170
Other current assets 3,033 5,908
--------- ---------
Total current assets 149,221 243,590
Property and equipment, at cost:
Computer equipment 20,138 37,368
Furniture and fixtures 4,884 14,090
Leasehold improvements 3,199 5,150
Building -- 17,288
Land -- 7, 487
--------- ---------
28,221 81,383
Less accumulated depreciation and amortization (8,604) (18,164)
--------- ---------
19,617 63,219
Capitalized software, less accumulated amortization 3,433 7,342
--------- ---------
$ 172,271 $ 314,151
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,817 $ 11,707
Accrued liabilities 7,480 12,718
Accrued compensation and related expenses 8,412 24,290
Income taxes payable 5,146 10,600
Deferred revenue 52,176 96,830
--------- ---------
Total current liabilities 78,031 156,145
Long-term obligations 891 1,305
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.01 par value, 70,000,000 shares authorized;
shares issued and outstanding: 1994 - 47,910,708 and
1995 - 49,320,516 479 493
Additional paid-in capital 64,556 98,667
Accumulated foreign currency translation adjustment (132) (264)
Retained earnings 28,446 57,805
--------- ---------
Total stockholders' equity 93,349 156,701
--------- ---------
$ 172,271 $ 314,151
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 101
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1993 1994 1995
-------------------------------
<S> <C> <C> <C>
Revenues:
License fees $37,656 $68,580 $134,623
Services 20,535 44,315 92,945
------- ------- --------
Total revenues 58,191 112,895 227,568
Costs and expenses:
Cost of license fees 3,123 6,817 8,485
Cost of services 12,270 26,539 54,597
Sales and marketing 17,785 35,400 68,063
Product development 8,305 14,482 35,903
General and administrative 4,199 7,962 15,635
------- ------- --------
Total costs and expenses 45,682 91,200 182,683
------- ------- --------
Operating income
12,509 21,695 44,885
Other income, principally interest 1,169 2,158 4,044
------- ------- --------
Income before income taxes
13,678 23,853 48,929
Provision for income taxes 5,265 9,308 19,570
------- ------- --------
Net income $8,413 $14,545 $29,359
======= ======= ========
Net income per share $0.17 $0.28 $0.54
======= ======= ========
Shares used in per share computation 50,804 51,926 54,798
</TABLE>
See accompanying notes.
F-4
<PAGE> 102
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Accumulated
Foreign
Common Stock Additional Currency Total
--------------------- Paid-in Translation Retained Stockholders'
Shares Amount Capital Adjustment Earnings Equity
------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 41,432 $ 414 $ 41,774 $ -- $ 5,488 $ 47,676
Exercise of common stock options
and issuance under stock
purchase plan 1,098 11 949 -- -- 960
Exercise of warrants 2,190 22 (22) -- -- --
Public offering of common stock, net
of expenses of $998 1,752 18 13,208 -- -- 13,226
Tax benefits from employee stock
transactions -- -- 1,823 -- -- 1,823
Translation adjustment -- -- -- (14) -- (14)
Net income for the year -- -- -- -- 8,413 8,413
------ --------- --------- --------- --------- ---------
Balances at December 31, 1993 46,472 465 57,732 (14) 13,901 72,084
Exercise of common stock options
and issuance under stock
purchase plan 1,439 14 2,232 -- -- 2,246
Tax benefits from employee stock
transactions -- -- 4,592 -- -- 4,592
Translation adjustment -- -- -- (118) -- (118)
Net income for the year -- -- -- -- 14,545 14,545
------ --------- --------- --------- --------- ---------
Balances at December 31, 1994 47,911 479 64,556 (132) 28,446 93,349
Exercise of common stock options
and issuance under stock
purchase plan 1,410 14 5,085 -- -- 5,099
Issuance of warrants -- -- 21,793 -- -- 21,793
Tax benefits from employee stock
transactions -- -- 7,233 -- -- 7,233
Translation adjustment -- -- -- (132) -- (132)
Net income for the year -- -- -- -- 29,359 29,359
------ --------- --------- --------- --------- ---------
Balances at December 31, 1995 49,321 $ 493 $ 98,667 $ (264) $ 57,805 $ 156,701
====== ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 103
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
-------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $8,413 $14,545 $29,359
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 2,552 7,298 11,282
Provision for doubtful accounts, net of write-offs and
recoveries 830 953 2,860
Provision for deferred income taxes (1,986) (4,110) (7,019)
Increases in long-term obligations 125 670 414
Changes in operating assets and liabilities:
Accounts receivable (20,759) (15,472) (49,549)
Other current assets (503) (2,110) (2,875)
Accounts payable and accrued liabilities 1,384 7,290 12,128
Accrued compensation and related expenses 2,104 4,586 15,878
Deferred revenue 17,084 25,273 44,654
Income taxes payable (957) 4,726 5,454
Tax benefits of employee stock transactions 1,823 4,592 7,233
------ ------- -------
Net cash provided by operating activities 10,110 48,241 69,819
INVESTING ACTIVITIES
Purchase of available-for-sale investments (41,145) (47,394) (69,571)
Sale of available-for-sale investments 12,692 52,213 58,596
Purchase of property and equipment (5,804) (18,173) (53,162)
Additions to capitalized software, net (1,318) (3,545) (5,631)
------ ------- -------
Net cash used in investing activities (35,575) (16,899) (69,768)
FINANCING ACTIVITIES
Net proceeds from sale of common stock and exercise of common
stock options 14,186 2,246 5,099
Net proceeds from the issuance of warrants -- -- 21,793
------ ------- -------
Net cash provided by financing activities 14,186 2,246 26,892
Effect of foreign exchange rate changes on cash (14) (118) (132)
------ ------- -------
Net increase (decrease) in cash and cash equivalents (11,293) 33,470 26,811
Cash and cash equivalents at beginning of period 39,064 27,771 61,241
------ ------- -------
Cash and cash equivalents at end of period $27,771 $61,241 $88,052
====== ======= =======
Supplemental disclosures:
Cash paid for interest $13 $ -- $ --
====== ======= =======
Cash paid for income taxes $6,385 $4,100 $13,902
====== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 104
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
PeopleSoft, Inc. (the "Company"), founded in 1987, designs, develops,
markets and supports client/server-based business application software products,
including distribution, financial, and human resource management systems. The
Company also provides services such as maintenance, training, consulting and
support services. Customers consist primarily of large and medium sized
corporations, higher education institutions and federal, state and local
government agencies. The Company does not have a concentration of credit or
operating risk in any one industry or any one geographic region, except for the
United States.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results may differ from these estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are highly liquid investments with insignificant
interest rate risk and original maturities of three months or less and are
stated at amounts which approximate fair value, based on quoted market prices.
Cash equivalents consist principally of investments in interest-bearing demand
deposit accounts with financial institutions and highly liquid debt securities
of corporations, municipalities and the U.S. Government. The Company includes in
cash and cash equivalents all short term, highly liquid investments which mature
within three months of their acquisition date.
The Company accounts for its cash equivalents and short-term
investments under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. On
November 15, 1995, the Financial Accounting Standards Board staff issued a
Special Report, A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities. In accordance with provisions
in that Special Report, the Company chose to reclassify securities from
held-to-maturity to available-for-sale. Accordingly, at December 31, 1995 the
Company has classified all of its debt securities as available-for-sale. At the
date of reclassification, the unrealized gain (loss) of those securities was
immaterial.
The available for sale securities are recorded as follows at December
31, (in thousands):
1994 1995
-------- --------
Debt Securities
State and Local Municipalities $68,333 $47,199
US Government -- 12,831
Corporate -- 18,745
-------- --------
Total $68,333 $78,775
======= =======
Unrealized gain and losses at December 31, 1995 and 1994 and realized
gains and losses for the years then ended were not material. Accordingly, the
Company has not made a provision for such accounts in its consolidated balance
sheets. The cost of securities sold is based on the specific identification
method.
F-7
<PAGE> 105
At December 31, 1994 and 1995, $41.6 million and $41.1 million debt
securities were included in cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is comprised of billed receivables arising from
recognized and deferred revenues and unbilled receivables, which include accrued
license fees and accrued services. The Company does not require collateral for
its receivables. Reserves are maintained for potential credit losses. Actual
losses may differ from the Company's estimates which could have a material
impact on the Company's future results of operations. The principle components
of accounts receivable at December 31 were as follows (in thousands):
<TABLE>
1994 1995
--------- ---------
<S> <C> <C>
Billed Receivables $ 30,483 $ 49,372
Unbilled Receivables 22,506 53,166
--------- ---------
52,989 102,538
Allowance for doubtful accounts (1,905) (4,765)
--------- ---------
$ 51,084 $ 97,773
========= =========
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is computed using the straight-line
method over estimated useful lives of two to three years for computer equipment,
five to ten years for furniture and fixtures, the shorter of lease term or the
useful life of the asset for leasehold improvements and 30 years for buildings.
CAPITALIZED SOFTWARE
The Company capitalizes software purchased from third parties, if the
related product under development has reached technological feasibility or if
there are alternative future uses for the purchased software. In addition, the
Company capitalizes certain costs, consisting of salaries, related payroll taxes
and benefits, and an allocation of indirect costs incurred internally in
developing computer software products. Costs incurred prior to the establishment
of technological feasibility are charged to product development expense. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future revenues, estimated economic life and changes
in software and hardware technologies. Included in capitalized software is the
$4 million cost of software acquired from Andersen Consulting during 1995 to be
utilized in the PeopleSoft Manufacturing software products as well as the
PeopleTools and other related software products. If actual license sales of the
PeopleSoft Manufacturing and other PeopleSoft products utilizing the acquired
software are below management's estimate and the acquired software cannot be
resold at terms favorable to the Company, then a reduction to the carrying value
of the software will be required. Upon the general release of the product to
customers, capitalization ceases and such costs are amortized on a product by
product basis over periods not exceeding three years. All other research and
development expenditures are charged to research and development expense in the
period incurred.
Capitalized software costs and accumulated amortization at December 31,
1993, 1994 and 1995 and related software amortization expense (included in cost
of license fees) for the years then ended were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Capitalized software:
Internal development costs $ 2,427 $ 4,573 $ 7,016
Purchased from third parties 550 1,949 5,137
-------- -------- --------
2,977 6,522 12,153
Accumulated amortization (1,047) (3,089) (4,811)
-------- -------- --------
$ 1,930 $ 3,433 $ 7,342
======== ======== ========
Amortization expense $ 703 $ 2,042 $ 1,722
======== ======== ========
</TABLE>
F-8
<PAGE> 106
DEFERRED REVENUE
Deferred revenue is comprised of deferrals for license fees,
maintenance, training and other services. The principle components of deferred
revenue at December 31, 1994 and December 31, 1995 were as follows (in
thousands):
<TABLE>
1994 1995
--------- ---------
<S> <C> <C>
License Fees $ 11,513 $ 20,775
Maintenance 26,046 49,984
Training 10,250 17,264
Other services 4,367 8,807
--------- ---------
$ 52,176 $ 96,830
========= =========
</TABLE>
REVENUE RECOGNITION
The Company licenses software under noncancellable license agreements
and provides services including maintenance, training, consulting and support
services. License fee revenues are recognized when a noncancellable license
agreement has been signed, the product has been shipped and all significant
contractual obligations have been satisfied. The Company allocates a portion of
contractual license fees to post-contract support activities including both
maintenance and training. Revenues from maintenance agreements for maintaining,
supporting and providing periodic upgrades are recognized ratably over the
maintenance period, which in most instances is one year. Revenues for training
or consulting services are recognized as services are performed. Revenue and
profits under contracts requiring significant customization are recognized using
the percentage-of-completion method of contract accounting based on the ratio
that incurred costs bear to total estimated costs.
INCOME TAXES
The Company accounts for estimated income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement provides for a liability approach under which deferred
income taxes are provided based upon enacted tax laws and rates applicable to
the periods in which the taxes become payable.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the functional currency of each foreign
operation is the local currency. The effects of translation rate changes related
to net assets located outside the United States are included as a component of
stockholders' equity. Through 1995, foreign exchange gains and losses have not
been significant.
PER SHARE DATA
Net income per common share for all periods presented has been restated
to reflect the two-for-one stock split in November 1995 and is computed based on
weighted average number of common shares outstanding and the effect of dilutive
common stock equivalents, consisting of outstanding stock options and warrants
computed, using the treasury stock method.
NEWLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123) was issued and is
effective for the year ending December 31, 1996. The Company intends to continue
to account for employee stock options in accordance with APB Opinion No. 25 and
will make the proforma disclosures required by FAS 123 for the year ending
December 31, 1996.
F-9
<PAGE> 107
2. BANK CREDIT AGREEMENT
The Company has a credit agreement with a bank which provides a credit
line for working capital advances of up to $30,000,000. A sub-limit within this
line provides for issuance of letters of credit of up to $15,000,000 ($299,676
in outstanding letters of credit at December 31, 1995). Borrowings under the
credit line are limited to specified percentages of and are collateralized by
the Company's accounts receivable. Outstanding letters of credit are required to
be secured by cash deposits. Interest on borrowings under the credit line is set
at the bank's index rate (8.25% at December 31, 1995) plus 0.25%. Among other
provisions, the agreement requires the Company to maintain certain minimum
financial ratios. The credit agreement expires July 1996.
3. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities under operating leases which
require the Company to pay operating costs, including property taxes, insurance
and maintenance.
Future minimum operating lease payments for the years ending December
31, are due as follows (in thousands):
<TABLE>
<S> <C>
1996 $7,108
1997 7,255
1998 3,917
1999 3,166
2000 2,105
Thereafter 876
-------
$24,427
=======
</TABLE>
Rent expense amounted to approximately $2.1 million, $3.3 million and
$6.7 million in 1993, 1994 and 1995, respectively.
4. STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
Under the stockholder rights plan, established in 1995, every share of
common stock carries the right (a "Right"), under certain circumstances, to
purchase equity securities of the Company or an acquiror. Ten days after a
tender offer or acquisition of 20 percent or more of the Company's common stock,
each Right may be exercised for $90.00 to purchase one one-thousandth of one
share of the Company's Series A Participating Preferred Stock. Each one one-
thousandth of each share of Series A Participating Preferred Stock will
generally be afforded economic rights similar to one share of the Company's
common stock. In addition, each Right entitles the holder to purchase $180 worth
of common stock of the Company or, in certain circumstances, securities of the
acquiror for $90. Each Right expires in February 2005, and, during specified
periods, the Company may redeem or exchange each Right for $.0005 or one share
of common stock, respectively.
COMMON STOCK
In November 1995, the Company's common stock was split two for one. All
share and per share amounts have been restated to reflect the split. At December
31, 1995, 17,450,890 authorized but unissued shares of common stock were
reserved for issuance under the Company's stock plans and warrants.
STOCK PLANS
1989 STOCK PLAN
Pursuant to the 1989 Stock Plan, incentive and non-qualified stock
options to purchase shares of the Company's common stock may be granted, and
22,400,000 shares have been reserved for issuance under this Plan. The exercise
price of each incentive and non-qualified stock option shall not be less than
100% and 85%, respectively, of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested.
F-10
<PAGE> 108
Vesting is established by the Board of Directors and generally occurs at the
rate of 20% per year from the date of grant. Option activity is as follows for
the years ended December 31:
<TABLE>
<CAPTION>
Exercise Price Shares
----------------- --------
<S> <C> <C>
Balances at December 31, 1992 $0.0042 - 2.5000 5,898,600
Granted 6.0315 - 9.5625 822,400
Exercised 0.0208 - 6.5345 (888,808)
Canceled 0.0208 - 7.2500 (109,600)
----------------- --------
Balances at December 31, 1993 0.0042 - 9.5625 5,722,592
Granted 7.4688 - 18.8750 2,828,600
Exercised 0.0416 - 9.5625 (1,200,112)
Canceled 0.0084 - 8.5000 (233,280)
----------------- --------
Balances at December 31, 1994 0.0042 - 18.8750 7,117,800
Granted 16.1880 - 45.4370 2,666,600
Exercised 0.0208 - 18.8750 (1,152,510)
Canceled 0.7500 - 22.1250 (153,720)
----------------- --------
Balances at December 31, 1995 $0.0042 - 45.4370 8,478,170
================= =========
</TABLE>
At December 31, 1995, options to purchase 1,761,610 shares were
exercisable and options for 5,883,200 shares were available for grant. The
income tax benefits from employee stock transactions have been recorded as an
increase in additional paid-in capital.
1992 DIRECTORS' STOCK OPTION PLAN
Under the 1992 Directors' Stock Option Plan, directors who are not
officers or employees may receive nonstatutory options to purchase shares of
common stock. A total of 600,000 shares of common stock have been reserved for
issuance under this plan and, as of December 31, 1995, options to purchase
124,000 shares with exercise prices of $7.065 to $39.00 per share have been
granted, none of which are exercisable. Under this plan, 32,000; 48,000; and
44,000 options were issued in 1993, 1994 and 1995, respectively.
1992 EMPLOYEE STOCK PURCHASE PLAN
Under the 1992 Employee Stock Purchase Plan, eligible employees may
purchase common stock at a price equal to 85% of the lower of the fair market
value of the common stock at the beginning or end of each offering period.
Participation in the offering is limited to the lesser of 10% of an employee's
compensation or $21,250 per year, may be terminated at any time by the employee
and automatically ends upon termination of employment with the Company. A total
of 1,200,000 shares of common stock have been reserved for issuance under this
plan of which 710,480 shares have been issued through December 31, 1995. Under
this plan, 209,452; 243,136; and 257,892 shares were issued in 1993, 1994 and
1995, respectively. In January 1996, 108,845 shares were issued in connection
with the offering period ended December 31, 1995. Subsequent six month offering
periods will commence on each January 1 and July 1.
WARRANTS
In November 1995, the Company raised $21.8 million through the private
placement of warrants to purchase an aggregate of 2,000,000 shares of the
Company's common stock. Subsequent to the sale of the warrants, the Company
registered the warrants and is required to maintain an effective registration
statement for the underlying shares of common stock during the term of the
warrants. Upon notice of exercise, the Company, at its option, may settle such
exercise by either issuing the full amount of shares and receiving cash
proceeds, issuing a net amount of shares with no cash proceeds, or purchasing
the warrants for an amount equal to the difference between the common stock's
then fair market value of the common stock and the warrant exercise price. The
warrants are exercisable at any time at the following prices and expire in
October or November of the following years:
F-11
<PAGE> 109
<TABLE>
<CAPTION>
Year of Expiration Number of Shares Exercise Price
------------------ ---------------- --------------
<S> <C> <C>
1997 400,000 $55.00
1998 400,000 $55.00
1998 400,000 $67.50
1999 400,000 $67.50
1999 400,000 $77.50
</TABLE>
5. INCOME TAXES
The provision for income taxes consisted of the following components
for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 5,236 $ 10,986 $ 19,785
State 1,704 2,050 5,387
Foreign 311 382 1,417
-------- -------- --------
7,251 13,418 26,589
-------- -------- --------
Deferred:
Federal (1,584) (3,278) (5,596)
State (402) (832) (1,423)
-------- -------- --------
(1,986) (4,110) (7,019)
-------- -------- --------
Total provision for income tax $ 5,265 $ 9,308 $ 19,570
======== ======== ========
</TABLE>
The provision for income taxes differed from the amount computed by
applying the federal statutory income tax rate to the Company's income before
taxes as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Income tax provision at federal statutory rate $ 4,650 $ 8,349 $ 17,125
State income tax, net of federal 743 1,229 2,577
Income from tax advantaged investments (404) (622) (914)
Research and development tax credit (292) (510) (550)
Other, net 568 862 1,332
-------- -------- --------
Provision for Income Taxes $ 5,265 $ 9,308 $ 19,570
======== ======== ========
</TABLE>
Significant components of the Company's current deferred tax assets and
liabilities for federal and state income taxes are as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue, net $ 4,780 $ 8,426
Deferred rent 664 627
Accrued compensation 1,088 2,346
State taxes 578 674
Allowance for doubtful accounts 792 1,985
Self insured claims accruals 251 1,007
Other 313 1,013
-------- --------
Total deferred tax assets 8,466 16,078
-------- --------
Deferred tax liabilities:
Capitalized software development costs (1,133) (1,481)
Other (182) (427)
-------- --------
Total deferred tax liabilities (1,315) (1,908)
-------- --------
Total net deferred tax asset $ 7,151 $ 14,170
======== ========
</TABLE>
Management has concluded that no valuation allowance is required based
on its assessment that current and historical levels of taxable income are
sufficient to realize the tax benefit.
F-12
<PAGE> 110
6. RETIREMENT PLAN
The Company has a defined contribution savings plan (the Plan) that
qualifies under the provisions of Section 401(k) of the Internal Revenue Code
and covers all full-time employees. Under the terms of the Plan, member
employees may contribute varying amounts of their annual compensation (to a
maximum of $9,240). Beginning in 1994, the Company matched qualified employee
contributions based upon years of service, up to a maximum of 10% of the
employees compensation, subject to certain vesting provisions based on length of
employee service. Company contributions totaled $214,000 in 1994 and $494,000 in
1995.
7. JOINT BUSINESS ARRANGEMENTS
During 1994, the Company licensed certain technology to a partnership
(the "Partnership") in exchange for a 49.9% partnership interest and exclusive
distribution rights to products developed by the Partnership. Funding for the
Partnership was provided by Norwest Equity Partners IV, L.P. ("Norwest") in
exchange for the remaining limited partnership interests. A director of the
Company is also a general partner, without management responsibility, of the
Partnership and Norwest. During 1995, and which under certain conditions may be
forfeited, the partnership interest was reduced by 8.9% to 41% by the addition
of another partner, Andersen Consulting, who contributed certain development
services and technologies to the Partnership. The Company has no obligation to
provide funds to the Partnership, and has an option to acquire a portion or all
of the outstanding partnership interests in 1997 or 1999 at pre-determined
prices. Should the Company not purchase at least 20% of the outstanding
partnership interests in 1997, such distribution rights become non-exclusive.
Pursuant to a services agreement, the Company received $30,000 in 1994 and
$120,000 in 1995 from the Partnership for administrative services.
The Company and a limited liability company ("LLC") have entered into a
series of agreements in 1995, whereby the LLC will provide up to $6 million to
fund the development of a suite of student information system applications ("SIS
Software") and the Company will be the exclusive distributor of the SIS
Software. Substantially all of the LLC's funds were provided equally by the
Company's founder and principal stockholder and the Student Loan Marketing
Association ("Sallie Mae"), an independent strategic business partner. The
Company has no obligation to provide funds to the LLC and does not have a right
to acquire any of the LLC's equity interests. The Company will pay the LLC a
royalty based on fees received from the licensing of the SIS Software until the
later of four years from the commercial release of the SIS Software or $12
million in cumulative royalties. The royalty rate was determined based on
negotiations between the Company and Sallie Mae. All ownership rights and
interests in the SIS software will transfer to the Company when $12 million in
cumulative royalties have been paid to the LLC. During 1995, the LLC reimbursed
the Company $2.0 million for development funding advanced by the Company during
the year and the LLC's shareholders paid the Company $98,000 for interest on
such advances.
8. SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one industry segment, the development and
marketing of computer software and related services, and markets its products
and services through the Company's branches, subsidiaries and distributors in
Canada, Europe, Asia/Pacific and Latin America. Intercompany revenues are
generally based on a percentage of the subsidiaries' revenue from unaffiliated
customers. The following table presents a summary of operating information and
certain year end balance sheet information by geographic region (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
Domestic operations $ 52,986 $ 99,708 $ 191,512
International operations 5,205 13,187 36,056
--------- --------- ---------
Consolidated $ 58,191 $ 112,895 $ 227,568
========= ========= =========
Operating Profit
Domestic operations $ 12,693 $ 21,298 $ 42,434
International operations (184) 397 2,451
--------- --------- ---------
Consolidated $ 12,509 $ 21,695 $ 44,885
========= ========= =========
Identifiable Assets
Domestic operations $ 101,914 $ 155,317 $ 276,313
International operations 6,547 16,954 37,838
--------- --------- ---------
Consolidated $ 108,461 $ 172,271 $ 314,151
========= ========= =========
</TABLE>
F-13
<PAGE> 111
9. QUARTERLY INFORMATION (UNAUDITED)
Summarized quarterly consolidated financial information for 1995 and 1994
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Total revenues $40,126 $51,330 $60,093 $76,019
Operating income $7,003 $9,184 $11,277 $17,421
Net income $4,666 $6,077 $7,445 $11,171
Net income per share $0.09 $0.11 $0.13 $0.20
Shares used in per share computation 53,450 54,402 55,494 55,843
1994
Total revenues $20,099 $24,916 $29,606 $38,274
Operating income $3,221 $4,552 $5,236 $8,686
Net income $2,227 $3,048 $3,675 $5,595
Net income per share $0.04 $0.06 $0.07 $0.11
Shares used in per share computation 51,124 51,364 52,112 53,102
</TABLE>
F-14
<PAGE> 112
PEOPLESOFT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30,
1996
---------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 121,595
Short-term investments 30,638
Accounts receivable, net 131,317
Other current assets 7,542
Deferred tax assets 18,243
---------
Total current assets 309,335
Property and equipment, at cost 106,156
less accumulated depreciation and amortization (28,625)
---------
77,531
Capitalized software, less accumulated amortization 7,382
---------
$ 394,248
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 31,037
Accrued compensation and related expenses 29,771
Income taxes payable 16,179
Deferred revenue 126,139
---------
Total current liabilities 203,126
Stockholders' equity:
Common stock and paid-in capital 111,962
Foreign currency translation adjustment (212)
Retained earnings 79,372
---------
191,122
---------
$ 394,248
=========
</TABLE>
See notes to condensed consolidated financial statements.
F-15
<PAGE> 113
PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1996
--------------------------
<S> <C> <C>
Revenues:
License fees $ 51,167 $ 97,949
Services 40,289 82,965
-------- --------
Total revenues 91,456 180,914
Costs and expenses:
Cost of license fees 3,858 5,537
Cost of services 22,124 46,699
Sales and marketing 28,094 56,330
Product development 14,437 28,895
General and administrative 6,756 10,556
-------- --------
Total costs and expenses 75,269 148,017
-------- --------
Operating income 16,187 32,897
Other income, principally interest 1,719 3,048
-------- --------
Income before taxes 17,906 35,945
Provision for income taxes 7,163 14,378
-------- --------
Net income $ 10,743 $ 21,567
======== ========
Net income per share $ 0.20 $ 0.38
======== ========
Shares used in per share computation 53,926 56,646
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE> 114
PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,743 $ 21,567
Adjustments:
Depreciation and amortization 5,989 11,426
Provision for doubtful accounts 720 972
Provision for deferred tax assets 583 (4,073)
Changes in operating assets and liabilities:
Accounts receivable (18,218) (34,516)
Other current assets (2,793) (1,634)
Accounts payable and accrued liabilities 5,352 5,307
Accrued compensation and related expenses 2,400 5,481
Deferred revenue 12,650 29,309
Income taxes payable (1,667) 5,579
Tax benefits of employee stock transactions 2,292 4,011
--------- ---------
Net cash provided by operating activities 18,051 43,429
INVESTING ACTIVITIES
Purchase of short-term investments (19,566) (6,942)
Sale of short-term investments 24,395 13,991
Purchase of property and equipment (14,272) (24,773)
Additions to capitalized software, net (869) (1,005)
--------- ---------
Net cash used in investing activities (10,312) (18,729)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 2,743 8,791
--------- ---------
Net cash provided by financing activities 2,743 8,791
Effect of foreign exchange rate changes on cash 164 52
--------- ---------
Net increase in cash and cash equivalents 10,646 33,543
Cash and cash equivalents at beginning of period 61,241 88,052
--------- ---------
Cash and cash equivalents at end of period $ 71,887 $ 121,595
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-17
<PAGE> 115
PEOPLESOFT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at June 30, 1995 and 1996 and for the six month periods
then ended is unaudited, but includes all adjustments (consisting only of
normal, recurring adjustments) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flow for the periods presented. The preparation
of financial statements in conformity with generally accepted accounting
principals requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. While management makes its best effort to achieve its estimates and
assumptions, actual results may differ. Certain prior year financial statement
items in the Condensed Consolidated Balance Sheet have been reclassified to
conform to the current year's format.
The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's Annual Report to Stockholders (Form 10-K) for the year ended December
31, 1995. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations. Interim results of operations for
the six month period ended June 30, 1996 are not necessarily indicative of
operating results to be expected for the full fiscal year.
2. EARNINGS PER SHARE
Net income per share is computed on the basis of the weighted average
number of shares outstanding plus the common stock equivalents, consisting of
outstanding dilutive stock options and warrants (using the treasury stock
method). Fully diluted per share amounts are not presented, as the effect is not
material. In November 1995, the Company's Common Stock was split two-for-one.
All shares, common stock equivalents, and per share amounts applicable to prior
periods have been restated to reflect the stock split. The computation of the
weighted average number of shares outstanding for the six month period ended
June 30, 1995 and 1996 follows (in thousands):
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
------ ------
<TABLE>
<S> <C> <C>
Weighted average shares:
Common stock 48,428 49,908
Common stock equivalents 5,498 6,738
------ ------
53,926 56,646
====== ======
</TABLE>
F-18
<PAGE> 116
3. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of billed receivables arising from
recognized and deferred revenues, and unbilled receivables, which include
accrued license fees, accrued services, and deferred services. The principal
components of accounts receivable at June 30, 1996 were as follows (in
thousands):
<TABLE>
<S> <C>
JUNE 30,
1996
---------
Billed receivables $ 74,624
Unbilled receivables 62,430
---------
137,054
Allowance for doubtful accounts (5,737)
---------
$ 131,317
=========
</TABLE>
4. DEFERRED REVENUE
Deferred revenue is comprised of deferrals for license fees,
maintenance, training, and other services. The principal components of deferred
revenue at June 30, 1996 were as follows (in thousands):
JUNE 30,
1996
--------
<TABLE>
<S> <C>
License fees $ 24,735
Maintenance 67,776
Training 20,454
Other services 13,174
---------
$ 126,139
=========
</TABLE>
5. CAPITALIZED SOFTWARE
The Company capitalizes certain software acquired from third parties
and certain costs incurred internally in developing its software products. As
discussed in Note 1 of the Notes to the Consolidated Financial Statements in the
Company's Annual Report to Shareholders (Form 10-K) for the year ended December
31, 1995, if actual software license revenues of PeopleSoft Manufacturing and
other PeopleSoft software products utilizing acquired and internally developed
software are below management's estimates and cannot be licensed or resold at
terms favorable to the Company, then a reduction to the carrying value of such
software will be required. Certain acquired software rights have been
reclassified to other current assets, in accordance with their expiration dates.
Amortization charges related to capitalized software amounted to $1,342,000 and
$965,000 for the six months ended June 30, 1995 and 1996, respectively.
Capitalized software costs and accumulated amortization at June 30, 1996 were as
follows (in thousands):
<TABLE>
<S> <C>
JUNE 30,
1996
---------
Capitalized software
Internal development costs $ 8,021
Purchased from third parties 4,300
--------
12,321
Accumulated amortization (4,939)
--------
$ 7,382
========
</TABLE>
F-19
<PAGE> 117
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Red Pepper Software Company
We have audited the accompanying balance sheets of Red Pepper Software
Company as of December 31, 1994 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Red Pepper Software
Company at December 31, 1994 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
San Jose, California
February 26, 1996
ERNST & YOUNG LLP
F-20
<PAGE> 118
RED PEPPER SOFTWARE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,484 $ 2,630
Accounts receivable 19 2,378
------- -------
Total current assets 1,503 5,008
Furniture and equipment:
Furniture 3 133
Equipment 248 1,274
------- -------
251 1,407
53 311
Accumulated depreciation and amortization ------- -------
198 1,096
Other assets 15 36
------- -------
Total assets $ 1,716 $ 6,140
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 144 $ 328
Accrued payroll and related expenses 54 670
Deferred revenue 175 1,293
Current portion of capital lease obligations 45 136
------- -------
Total current liabilities 418 2,427
Capital lease obligations 67 91
Shareholders' equity:
Preferred stock:
Authorized shares: 10,500,000
Issued and outstanding shares: 6,202,903 at
December 31, 1994 and 9,737,404 at
December 31, 1995 3,285 8,368
Common stock, no par value:
Authorized shares: 20,000,000
Issued and outstanding shares: 2,040,000 at
December 31, 1994 and 1995 21 121
Accumulated deficit (2,075) (4,867)
------- -------
Total shareholders' equity 1,231 3,622
------- -------
Total liabilities and shareholders' equity $ 1,716 $ 6,140
======= =======
</TABLE>
See accompanying notes.
F-21
<PAGE> 119
RED PEPPER SOFTWARE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
License and royalty fees $ -- $ -- $ 3,185
Services 30 188 1,386
------- ------- -------
Total revenues 30 188 4,571
Cost of revenues:
License and royalty fees -- -- 18
Services -- 201 2,192
------- ------- -------
Total cost of revenues -- 201 2,210
------- ------- -------
Gross margin 30 (13) 2,361
Operating expenses:
Research and development 383 836 2,722
Sales and marketing 124 444 1,989
General and administrative 118 205 547
------- ------- -------
Total operating expenses 625 1,485 5,258
------- ------- -------
Operating loss (595) (1,498) (2,897)
Interest income -- 39 130
Interest expense 2 5 25
------- ------- -------
Net loss $ (597) $(1,464) $(2,792)
======= ======= =======
Net loss per share $ (0.30) $ (0.72) $ (1.37)
======= ======= =======
Shares used in per share
computation 2,017 2,040 2,040
</TABLE>
See accompanying notes.
F-22
<PAGE> 120
RED PEPPER SOFTWARE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 -- $ -- 2,000 $ 20 $ (14) $ 6
Proceeds from issuance of
shares of Series A preferred
stock at $0.25 per share 840 210 -- -- -- 210
Proceeds from issuance of
shares of common stock at
$0.025 per share -- -- 40 1 -- 1
Proceeds from issuance of
shares of Series A1
preferred stock at $0.50
per share 700 350 -- -- -- 350
Net loss -- -- -- -- (597) (597)
------ ------- ------ ------- ------- -------
Balance at December 31, 1993 1,540 560 2,040 21 (611) (30)
Net proceeds from issuance
of shares of Series B
preferred stock at
$0.5844 per share 4,663 2,725 -- -- -- 2,725
Net loss -- -- -- -- (1,464) (1,464)
------ ------- ------ ------- ------- -------
Balance at December 31, 1994 6,203 3,285 2,040 21 (2,075) 1,231
Net proceeds from issuance
of shares of Series C
preferred stock at $1.443
per share 3,534 5,083 -- -- -- 5,083
Compensation related to
stock options -- -- -- 100 -- 100
Net loss -- -- -- -- (2,792) (2,792)
------ ------- ------ ------- ------- -------
Balance at December 31, 1995 9,737 $ 8,368 2,040 $ 121 $(4,867) $ 3,622
====== ======= ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-23
<PAGE> 121
RED PEPPER SOFTWARE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------------
1993 1994 1995
------- ------- -------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (597) $(1,464) $(2,792)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 16 37 258
Compensation related to stock options -- -- 100
Changes in operating assets and liabilities:
Accounts receivable (28) 9 (2,359)
Other assets (19) 4 (21)
Accounts payable and accrued liabilities 29 102 184
Accrued payroll and related expenses 81 (27) 616
Deferred revenue 30 145 1,118
------- ------- -------
Net cash used in operating activities (488) (1,194) (2,896)
INVESTING ACTIVITIES
Payments for purchases of furniture and equipment (80) (47) (961)
------- ------- -------
Net cash used in investing activities (80) (47) (961)
FINANCING ACTIVITIES
Capital lease payments -- (8) (80)
Notes payable issued -- 100 --
Proceeds from the issuance of common stock 1 -- --
Net proceeds from issuance of preferred stock 560 2,625 5,083
------- ------- -------
Net cash provided by financing activities 561 2,717 5,003
Net increase (decrease) in cash and cash equivalents (7) 1,476 1,146
Cash and cash equivalents at beginning of period 15 8 1,484
------- ------- -------
Cash and cash equivalents at end of period $ 8 $ 1,484 $ 2,630
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 2 $ 6 $ 24
======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired under capital leases $ -- $ 121 $ 195
Conversion of note payable to preferred stock $ -- $ 100 $ --
</TABLE>
See accompanying notes.
F-24
<PAGE> 122
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Red Pepper Software Company (the Company) was incorporated under the
laws of the State of California on October 14, 1992 for the purpose of
developing, producing, and marketing industrial decision support software tools
for operations management. Principal operations commenced in January 1993.
Through December 31, 1994, the Company was active in product development, the
acquisition of equipment and facilities, and raising capital; accordingly, the
Company was in the development stage. The Company emerged from the development
stage during 1995.
CAPITAL RESOURCES
Historically, the Company has funded its operations and development
activities through the private sales of stock. Management believes that current
sources of financing will be sufficient to meet the Company's capital
requirements through December 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less and insignificant interest rate
risk to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost less accumulated
depreciation. Furniture and equipment are depreciated for financial reporting
purposes using the straight-line method over the estimated useful lives of three
to five years.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants' Statement of Position 91-1 on
Software Revenue Recognition. Revenue from product licensing and from royalty
arrangements are generally recognized after execution of the related agreement
and shipment of the product provided that no significant obligations remain on
the part of the Company and the resulting receivable is deemed collectible.
Service revenue includes training, consulting, and maintenance. Maintenance
revenue is recognized over the term of the contract. Other service revenues,
primarily consulting and training, are recognized at the time the service is
performed.
WARRANTY
The Company provides for the costs of warranty when specific problems
are identified. The Company has not experienced significant warranty claims to
date.
F-25
<PAGE> 123
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
CONCENTRATIONS
Credit Risk/Customer
The Company operates in one business segment, the development and
licensing of industrial decision support software tools for operations
management, which it sells primarily to Fortune 500 manufacturing companies. The
Company performs ongoing credit evaluations of its customers and generally
requires no collateral. A relatively small number of customers and resellers
account for a significant percentage of the Company's revenues. The Company
expects that licenses of its products to a limited number of customers and
resellers may continue to account for a high percentage of revenues for the
foreseeable future. One customer accounted for 100% of total revenues in 1993.
Three customers accounted for 61%, 22% and 17% of total revenues in 1994. Three
customers accounted for 25%, 24%, and 15% of total revenues during 1995.
Product
Substantially all of the Company's revenues have been attributable to
sales of Production ResponseAgent. This product is currently expected to account
for a significant part of the Company's revenues for the foreseeable future. As
a result, a decline in demand for, or failure to achieve broad market acceptance
of, Production ResponseAgent would affect operating results adversely.
SOFTWARE DEVELOPMENT COSTS
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed (FAS 86). Under the
standard, capitalization of software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. In the Company's case, capitalization commences upon the
completion of a working model and ends on product release. As of December 31,
1995, such costs were insignificant. No amounts were capitalized in 1993, 1994
or 1995.
INVESTMENTS IN DEBT SECURITIES
The Company accounts for investments in debt securities in accordance
with Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (FAS 115). The Company has classified
all marketable debt securities as available-for-sale. Available-for-sale
securities are carried at fair value with unrealized gains and losses, net of
tax, reported in a separate component of shareholders equity. Fair value has
been determined through quoted market prices.
The Company held approximately $996,000 and $1,800,000 in obligations
of the U.S. government as of December 31, 1994 and 1995, respectively, which
were classified as cash equivalents in the accompanying balance sheet. At
December 31, 1994 and 1995, fair value approximated cost, and there were no
gross unrealized gains or losses on these securities. There were no realized
gains or losses for the years ended December 31, 1993, 1994, and 1995.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock option plan in accordance with
provisions of the Accounting Principles Boards Opinion No. 25 Accounting For
Stock Issued to Employees (APB Opinion No. 25). In 1995, the Financial
Accounting Standards Board released the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (FAS 123). FAS 123
provides an alternative to APB Opinion No. 25 and is effective for the fiscal
years beginning after December 15, 1995. As allowed by FAS 123, the Company
plans to continue to account for its employee stock plans in accordance with the
provisions of APB Opinion No. 25 and to adopt the disclosure only alternative
described in FAS 123.
F-26
<PAGE> 124
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. COMMITMENTS
The Company leases its primary facility and certain equipment under
noncancelable operating leases expiring in 1997. Rental expense was $35,926,
$78,418 and $219,307 for the years ended December 31, 1993, 1994 and 1995,
respectively.
The Company also leases certain equipment under noncancelable lease
agreements that are accounted for as capital leases. Equipment under capital
lease arrangements and included in equipment aggregated approximately $120,580
and $315,135 at December 31, 1994 and 1995, respectively. Related accumulated
amortization was approximately $3,990 and $84,542 at December 31, 1994 and 1995,
respectively. Amortization expense related to assets under capital leases is
included in depreciation expense. In addition, the capital leases are secured by
the related equipment, and the Company is required to maintain liability and
property damage insurance.
Future minimum lease payments under noncancelable operating leases and
capital leases at December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OPERATING LEASES CAPITAL LEASES
1996 $253 $ 142
1997 174 78
1998 -- 37
---- ------
Total minimum payments $427 257
====
Less amount representing interest 30
------
227
Less current portion 136
------
$ 91
======
</TABLE>
3. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue up to 10,500,000 shares of preferred
stock. As of December 31, 1995, a total of 9,737,404 shares of preferred stock
are issued and outstanding. Preferred shareholders have the same voting rights
as common shareholders. In addition, the Series A, A1, B, and C shareholders
will vote as a single class. In the event of any voluntary or involuntary
liquidation of the Company, Series A, A1, B, and C shareholders are entitled to
a liquidation preference of $0.25, $0.50, $0.5844, and $1.443 per share,
respectively, plus accrued dividends, if any. As of December 31, 1995, the
aggregate liquidation preference of the Series A, A1, B, and C preferred stock
was $8,385,285. The holders of Series A, A1, B, and C preferred stock are
F-27
<PAGE> 125
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
entitled to noncumulative dividends of $0.0125, $0.025, $0.02922, and $.07215
per share, respectively, when and if declared by the Board of Directors. The
following is a summary of outstanding preferred stock at December 31, 1995:
<TABLE>
<CAPTION>
PREFERRED SHARES
------------------------------
AUTHORIZED OUTSTANDING
------------------------------
<S> <C> <C>
Series A 840,000 840,000
Series A1 750,000 700,000
Series B 5,000,000 4,662,903
Series C 3,534,501 3,534,501
Undesignated 375,499 --
---------- ---------
10,500,000 9,737,404
========== =========
</TABLE>
Each share of preferred stock is convertible at the option of the
holder into one share of common stock, subject to adjustments for future
dilution. The preferred stock automatically converts into common stock at the
then applicable conversion rate upon the earlier of (a) the public offering of
the Company's common stock at a price per share of not less than $4.33, subject
to adjustments for future dilution, with aggregate proceeds in excess of
$10,000,000 or (b) the date on which the Company obtains the consent of the
majority of Series A, A1, B, and C shareholders. The Company has fully reserved
shares of common stock for issuance upon the conversion of Series A, A1, B, and
C preferred stock.
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of common
stock. As of December 31, 1995, a total of 2,040,000 shares of common stock was
issued and outstanding. With respect to common stock sold to the founders, the
Company has the right at any time within sixty days after a shareholder's
termination to repurchase unvested shares of common stock at the price per share
paid by the shareholder. Shares of common stock sold to the founders vest over
four years. At December 31, 1995, there were 2,040,000 founders' shares
outstanding. A total of 416,668 of these shares was subject to repurchase by the
Company. The Company has reserved 12,387,404 shares of common stock for issuance
under its stock option plan, warrants, and upon the conversion of outstanding
convertible preferred stock. The remaining shares are reserved by the Company
for issuance to investors to raise operating capital.
WARRANTS
In connection with the Company's Series B financing, the Company issued
50,000 warrants to purchase the Company's common stock with an exercise price of
$1.00 per share. If not exercised, the warrants expire in February 1999.
STOCK OPTION PLAN
In February 1993, the Board of Directors approved a stock option plan
that authorized the grant of options to purchase up to 852,000 shares of the
Company's common stock. In July 1994, April 1995, and September 1995, the Board
of Directors amended the stock option plan to reserve an additional 648,000,
600,000, and 500,000 shares of the Company's common stock, respectively, for
issuance. The amendment to reserve the additional 500,000 shares, which is
subject to shareholder approval, brings the authorized shares under the plan to
2,600,000 shares of common stock. The plan is administered by the Board of
Directors and provides for incentive stock options or nonqualified stock options
to be issued to employees, directors, and consultants of the Company. Prices for
incentive stock options may not be less than the fair value of the common stock
at the date of grant. Prices for nonqualified stock options may not be less than
85% of the fair value of the common stock at the date of grant. Options vest
over a period not to exceed five years from the date of grant. Unexercised
options expire ten years after the date of grant.
F-28
<PAGE> 126
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
The following is a summary of additional information with respect to
the stock option plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------------
OPTIONS NUMBER
AVAILABLE OF PRICE AGGREGATE
FOR GRANT SHARES PER SHARE PRICE
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Options authorized on February 10,
1993 852,000 -- $ -- $ --
Options granted (227,000) 227,000 $0.025 - $0.05 7,975
---------- --------- --------
Balance at December 31, 1993 625,000 227,000 $0.025 - $0.05 7,975
Options authorized 648,000 -- $ -- --
Options granted (320,500) 320,500 $ 0.05 - $0.06 18,540
Options canceled 35,312 (35,312) $0.05 (1,766)
---------- --------- --------
Balance at December 31, 1994 987,812 512,188 $0.025 - $0.06 24,749
Options authorized 1,100,000 -- $ -- --
Options granted (1,703,000) 1,703,000 $ 0.06 - $0.15 205,590
Options canceled 47,688 (47,688) $0.025 - $0.15 (2,934)
---------- --------- --------
Balance at December 31, 1995 432,500 2,167,500 $227,405
========== ========= ========
</TABLE>
In June 1995, the Board of Directors approved amendments to the Company's
stock option plan which made all options immediately exercisable, but subject to
repurchase by the Company, if unvested. In connection with the change, the
Company recorded $100,000 in compensation expense representing the difference
between the estimated fair value of the Company's common stock at the time of
the change and the aggregate price of the affected options. A total of 1,901,179
options between $0.025 and $0.15 per share are unvested at December 31, 1995.
4. INCOME TAXES
For the years ended December 31, 1993, 1994 and 1995, the Company was
subject to immaterial minimum taxes, and as a result, no provisions for income
taxes were recorded.
As of December 31, 1995, the Company has federal net operating loss
carryforwards of approximately $4,400,000. The federal net operating loss
carryforwards will expire at various dates beginning in the years 1999 through
2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before
utilization.
As of December 31, 1995, deferred tax assets totaled approximately
$2,000,000. A valuation allowance has been recorded to fully offset the deferred
tax assets. The net valuation allowance increased by approximately $1,326,000
during the current year. The deferred tax assets relate primarily to federal net
operating loss carryforwards that differ from the accumulated deficit due to
temporary differences in the recognition of certain expense items for financial
and income tax purposes. These differences consist principally of certain
accrued expenses that are not currently deductible for income tax purposes and
capitalized research and development costs.
F-29
<PAGE> 127
RED PEPPER SOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. 401(k) PROFIT SHARING PLAN AND TRUST
During 1994, the Company adopted a 401(k) Profit Sharing Plan and Trust
that allows eligible employees to make contributions subject to certain
limitations. The Company may make discretionary contributions based on
profitability as determined by the Board of Directors. No amount was contributed
by the Company to the plan during the years ended December 31, 1994 and 1995.
6. SUBSEQUENT EVENTS
On January 16, 1996, the Company entered into a $1,000,000 Loan and
Security Agreement to finance existing equipment and future equipment purchases.
The $1,000,000 commitment will be received over a maximum of six independent
fundings. Each loan funded is secured by specific capitalized equipment
purchases. The interest rate of each loan will be equal to the U.S. Treasury
note yield for a forty-five month treasury note on the funding date plus 2.57%.
Each loan will be repayable in consecutive monthly installments over forty-five
months from the date of each funding. The commitment expires on November 30,
1996.
In conjunction with this agreement, the Company issued warrants
allowing the lenders to purchase a variable number of shares of preferred stock
for $60,000. The warrants expire on the later of i) ten years after the date of
grant or ii) five years after the closing of the Company's initial public
offering of its common stock.
F-30
<PAGE> 128
RED PEPPER SOFTWARE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1996
------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,049
Accounts receivable 908
Other current assets 80
------
Total current assets 4,037
Furniture and equipment, at cost 1,960
less accumulated depreciation and amortization (558)
------
1,402
Other assets 50
------
Total assets $5,489
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 773
Accrued payroll and related expenses 503
Deferred revenue 483
Current portion of capital lease obligations and
notes payable 344
------
Total current liabilities 2,103
Long-term obligations 707
Shareholders' equity:
Preferred stock 8,368
Common stock 223
Accumulated deficit (5,912)
------
Total shareholders' equity 2,679
------
Total liabilities and shareholders' equity $5,489
======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE> 129
RED PEPPER SOFTWARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1996
------ ------
<S> <C> <C> <C>
Revenues:
License and royalty fees $ 736 $ 2,617
Services 646 1,471
------ ------
Total revenues 1,382 4,088
Cost of revenues:
License and royalty fees 5 10
Services 1,018 1,215
------ ------
Total cost of revenues 1,023 1,225
------ ------
Gross margin 359 2,863
Operating expenses:
Research and development 1,095 1,766
Sales and marketing 651 1,848
General and administrative 235 322
------ ------
Total operating expenses 1,981 3,936
------ ------
Operating loss (1,622) (1,073)
Interest income 55 68
Interest expense 12 40
------ ------
Net loss $(1,579) $(1,045)
======= =======
Net loss per share $ (0.77) $ (0.44)
======= =======
Shares used in per share
computation 2,040 2,353
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE> 130
RED PEPPER SOFTWARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1995 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,579) $(1,045)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 69 247
Changes in operating assets and liabilities:
Accounts receivable (831) 1,470
Other assets (18) (94)
Accounts payable and accrued liabilities 440 445
Accrued payroll expenses 47 (167)
Deferred revenue 268 (810)
------- -------
Net cash provided by (used in) operating activities (1,604) 46
INVESTING ACTIVITIES
Payments for purchases of furniture and equipment (571) (521)
------- -------
Net cash used in investing activities (571) (521)
FINANCING ACTIVITIES
Capital lease payments (41) (78)
Net proceeds from equipment loan - 870
Net proceeds from issuance of common stock - 102
Net proceeds from issuance of preferred stock 4,933 -
------- -------
Net cash provided by financing activities 4,892 894
Net increase in cash and cash equivalents 2,717 419
Cash and cash equivalents at beginning of period 1,484 2,630
------- -------
Cash and cash equivalents at end of period $ 4,201 $ 3,049
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 12 $ 41
======= =======
Taxes paid $ - $ 2
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired under capital leases $ 126 $ 32
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE> 131
RED PEPPER SOFTWARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements as of June 30,
1996 and for the six month periods ended June 30, 1995 and June 30,
1996 were prepared by Red Pepper Software Company ("Red Pepper") in
accordance with generally accepted accounting principles. In the
opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
of normal, recurring adjustments) that Red Pepper considers necessary
for a fair presentation of such interim financial statements. While Red
Pepper believes that the disclosures presented are adequate to make the
information not misleading, these unaudited condensed consolidated
financial statements should be read in conjunction with the audited
financial statements and notes related thereto included elsewhere
herein.
The results of operations for the six month period ended June
30, 1996 are not necessarily indicative of the results for the entire
year. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
On February 14, 1996, Red Pepper established a subsidiary, Red
Pepper Software Ltd., in the United Kingdom. This subsidiary is
responsible for product marketing in the European region. The
functional currency of the subsidiary is the U.S. dollar. There were no
material foreign currency transaction gain or losses recognized for the
six month period ended June 30, 1996.
Net loss per share is computed using the weighted average
number of shares of common stock outstanding.
2. LOAN AND SECURITY AGREEMENT
On January 16, 1996, Red Pepper entered into a $1,000,000 Loan
and Security Agreement to finance existing equipment and future
equipment purchases. The $1,000,000 commitment may be drawn over a
maximum of 6 independent fundings. Each loan funded is secured by
specific capitalized equipment purchases. The interest rate of each
loan is equal to the US Treasury note yield on a 45 month Treasury Note
Maturity on the funding date plus 2.57%. Each loan is repayable in
consecutive monthly installments over 45 months from the date of each
funding. The commitment expires on November 30, 1996. The facility
contains a number of representations and events of default typical of a
Loan and Security Agreement. As of June 30, 1996, $45,846 of the
$1,000,000 commitment was available for future funding.
In conjunction with this agreement, Red Pepper issued warrants
allowing the lenders to purchase a variable number of shares of
Preferred Stock for $60,000. The warrants expire the later of i) 10
years after the Date of Grant or ii) 5 years after the closing of the
Company's initial public offering of its Common Stock.
3. SUBSEQUENT EVENTS
On September 4, 1996 PeopleSoft, Inc. ("PeopleSoft") and Red
Pepper signed a binding agreement to merge the two companies.
PeopleSoft will issue 2.975 million shares of common stock to acquire
all of the outstanding shares and stock options of Red Pepper in a
transaction to be accounted for as a pooling of interests. Red Pepper
will continue to operate as an independent business unit, focusing on
manufacturing and supply chain optimization solutions following the
merger. The transaction is subject to SEC approval and is expected to
close during the 4th quarter of 1996, subject to the satisfaction of
customary closing conditions.
F-34
<PAGE> 132
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
PEOPLESOFT, INC.
AND
RED PEPPER SOFTWARE COMPANY
DATED AS OF SEPTEMBER 4, 1996
A-1
<PAGE> 133
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
Exhibit A Form of Red Pepper Affiliate Agreement
Exhibit B Form of PeopleSoft Affiliate Agreement
Exhibit C Form of Voting Agreement
Exhibit D Form of Legal Opinion of Counsel to PeopleSoft
Exhibit E Form of Legal Opinion of Counsel to Red Pepper
Exhibit F Form of Non-competition, Non-solicitation and Non-Hire Agreement
</TABLE>
A-2
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I THE MERGER..................................................................................................1
1.1 The Merger..........................................................................................1
1.2 Effective Time......................................................................................1
1.3 Effect of the Merger................................................................................2
1.4 Maximum Shares to Be Issued; Effect on Capital Stock................................................2
1.5 Dissenting Shares...................................................................................5
1.6 Surrender of Certificates...........................................................................5
1.7 No Further Ownership Rights in Red Pepper Common Stock..............................................7
1.8 Lost, Stolen or Destroyed Certificates..............................................................7
1.9 Tax and Accounting Consequences.....................................................................7
1.10 Taking of Necessary Action; Further Action..........................................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................................8
2.1 Organization of Red Pepper..........................................................................8
2.2 Red Pepper Capital Structure........................................................................8
2.3 Subsidiaries........................................................................................9
2.4 Authority...........................................................................................9
2.5 Red Pepper Financial Statements....................................................................10
2.6 No Undisclosed Liabilities.........................................................................11
2.7 No Changes.........................................................................................11
2.8 Tax and Other Returns and Reports..................................................................13
2.9 Restrictions on Business Activities................................................................14
2.10 Title to Properties; Absence of Liens and Encumbrances.............................................14
2.11 Intellectual Property..............................................................................15
2.12 Agreements, Contracts and Commitments..............................................................16
2.13 Interested Party Transactions......................................................................17
2.14 Compliance with Laws...............................................................................18
2.15 Litigation.........................................................................................18
2.16 Insurance..........................................................................................18
2.17 Minute Books.......................................................................................18
2.18 NASA Agreement.....................................................................................18
2.19 Environmental Matters..............................................................................19
2.20 Brokers' and Finders' Fees; Third Party Expenses...................................................19
2.21 Employee Matters and Benefit Plans.................................................................19
2.22 Covenants..........................................................................................22
2.23 Representations Complete...........................................................................22
</TABLE>
A-3
<PAGE> 135
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..................................................................23
3.1 Organization, Standing and Power...................................................................23
3.2 Authority..........................................................................................23
3.3 Capital Structure..................................................................................23
3.4 SEC Documents; PeopleSoft Financial Statements.....................................................24
3.5 No Material Adverse Change.........................................................................24
3.6 Litigation.........................................................................................24
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................24
4.1 Conduct of Business of Red Pepper..................................................................24
4.2 No Solicitation....................................................................................27
4.3 Strategic Agreements...............................................................................27
4.4 Employee Hiring....................................................................................27
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................28
5.1 Registration Statement.............................................................................28
5.2 Access to Information..............................................................................28
5.3 Expenses...........................................................................................29
5.4 Public Disclosure..................................................................................29
5.5 Consents...........................................................................................29
5.6 FIRPTA Compliance..................................................................................29
5.7 Reasonable Efforts.................................................................................29
5.8 Notification of Certain Matters....................................................................30
5.9 Pooling Accounting.................................................................................30
5.10 Affiliate Agreements...............................................................................30
5.11 Additional Documents and Further Assurances........................................................31
5.12 Form S-8...........................................................................................31
5.13 NMS Listing........................................................................................31
5.14 Voting Agreements..................................................................................31
5.15 Blue Sky Laws......................................................................................31
5.16 Indemnification....................................................................................31
5.17 S-3 Registration Rights............................................................................31
</TABLE>
A-4
<PAGE> 136
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VI CONDITIONS TO THE MERGER..................................................................................34
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................34
6.2 Additional Conditions to Obligations of Red Pepper.................................................35
6.3 Additional Conditions to the Obligations of PeopleSoft.............................................35
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......................................................37
7.1 Survival of Representations and Warranties.........................................................37
7.2 Escrow Arrangements................................................................................37
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................43
8.1 Termination........................................................................................43
8.2 Effect of Termination..............................................................................45
8.3 Amendment..........................................................................................45
8.4 Extension; Waiver..................................................................................45
ARTICLE IX GENERAL PROVISIONS........................................................................................45
9.1 Notices............................................................................................45
9.2 Interpretation.....................................................................................47
9.3 Counterparts.......................................................................................47
9.4 Entire Agreement; Assignment.......................................................................47
9.5 Severability.......................................................................................47
9.6 Other Remedies.....................................................................................48
9.7 Governing Law......................................................................................48
9.8 Rules of Construction..............................................................................48
9.9 Specific Performance...............................................................................48
</TABLE>
A-5
<PAGE> 137
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of September 4, 1996 between PeopleSoft, Inc., a Delaware
corporation ("PeopleSoft"), and Red Pepper Software Company, a California
corporation ("Red Pepper").
RECITALS
A. The Boards of Directors of Red Pepper and PeopleSoft believe it is
in the best interests of each company and their respective shareholders that
PeopleSoft acquire Red Pepper through the statutory merger of Red Pepper with
and into PeopleSoft (the "Merger") and, in furtherance thereof, have approved
the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of Red Pepper ("Red Pepper Capital Stock") and all outstanding
options, warrants and other rights to acquire or receive shares of Red Pepper
Capital Stock shall be converted into the right to receive shares of Common
Stock of PeopleSoft ("PeopleSoft Common Stock").
C. A portion of the shares of PeopleSoft Common Stock otherwise
issuable by PeopleSoft in connection with the Merger shall be placed in escrow
by PeopleSoft, the release of which amount shall be contingent upon certain
events and conditions, all as set forth in Article VII hereof.
D. Red Pepper and PeopleSoft desire to make certain representations and
warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the California General Corporation Law ("California Law"), Red Pepper shall
be merged with and into PeopleSoft, the separate corporate existence of Red
Pepper shall cease and PeopleSoft shall continue as the surviving corporation.
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than
A-6
<PAGE> 138
five (5) business days, following satisfaction or waiver of the conditions set
forth in Article VI, at the offices of Wilson, Sonsini, Goodrich & Rosati, 650
Page Mill Road, Palo Alto, California, unless another place or time is agreed to
by PeopleSoft and Red Pepper. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date". On the Closing Date, the parties
hereto shall cause the Merger to be consummated by (i) filing a Certificate of
Merger (or like instrument) with the Secretary of State of the State of Delaware
(the "Certificate of Merger"), in accordance with the relevant provisions of
applicable law (the time of acceptance by the Secretary of State of Delaware of
such filing being referred to herein as the "Effective Time") and (ii) filing
with the Secretary of State of the State of California the certificates required
by Section 1108 of California Law. The parties currently intend that the Closing
Date will occur on or prior to November 30, 1996.
1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Red Pepper shall vest in PeopleSoft, all debts, liabilities and duties of Red
Pepper shall become the debts, liabilities and duties of PeopleSoft.
1.4 Maximum Shares to Be Issued; Effect on Capital Stock. The maximum
number of shares of PeopleSoft Common Stock to be issued (including PeopleSoft
Common Stock to be reserved for issuance upon exercise of any of Red Pepper's
options and warrants to be assumed by PeopleSoft) in exchange for the
acquisition by PeopleSoft of all outstanding Red Pepper Capital Stock and all
unexpired and unexercised options and warrants to acquire Red Pepper Capital
Stock shall be the Aggregate Share Number as defined in Section 1.4(f). No
adjustment shall be made in the number of shares of PeopleSoft Common Stock
issued in the Merger as a result of the exercise of options or warrants to
acquire Red Pepper Capital Stock after the date hereof. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of PeopleSoft, Red Pepper or the holder of
any shares of Red Pepper Capital Stock, the following shall occur:
(a) Conversion of Red Pepper Common Stock. Each share of Common
Stock of Red Pepper ("Red Pepper Common Stock") issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares (as
defined and to the extent provided in Section 1.5(a)) will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of PeopleSoft Common Stock equal to the Common Exchange Ratio
(as defined in paragraph 1.4(f) below), upon surrender of the certificate
representing such share of Red Pepper Common Stock in the manner provided in
Section 1.6, including, with respect to each whole share of PeopleSoft Common
Stock to be received, the right to receive one preferred share purchase right (a
"Right") under PeopleSoft's Preferred Shares Rights Agreement dated as of
February 15, 1995. Any shares of PeopleSoft Common Stock issued in exchange for
shares of Red Pepper Common Stock which are subject to a repurchase right in
favor of Red Pepper shall be subject to an identical repurchase right in favor
of PeopleSoft. Pepper Common Stock which are subject to a repurchase right in
favor of Red Pepper shall be subject to an identical repurchase right in favor
of PeopleSoft.
A-7
<PAGE> 139
(b) Stock Options. At the Effective Time, all options to purchase
Red Pepper Common Stock then outstanding under Red Pepper's 1993 Stock Option
Plan (the "Option Plan"), or otherwise, shall be assumed by PeopleSoft in
accordance with provisions described below.
(i) At the Effective Time, each outstanding option to
purchase shares of Red Pepper Common Stock (each a "Red Pepper Option") under
the Option Plan or otherwise, whether vested or unvested, shall be, in
connection with the Merger, assumed by PeopleSoft. Each Red Pepper Option so
assumed by PeopleSoft under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Plan and/or as
provided in the respective option agreements governing such Red Pepper Option
immediately prior to the Effective Time, except that (A) such Red Pepper Option
shall be exercisable for that number of whole shares of PeopleSoft Common Stock
equal to the product of the number of shares of Red Pepper Common Stock that
were issuable upon exercise of such Red Pepper Option immediately prior to the
Effective Time multiplied by the Common Exchange Ratio, rounded down to the
nearest whole number of shares of PeopleSoft Common Stock and (B) the per share
exercise price for the shares of PeopleSoft Common Stock issuable upon exercise
of such assumed Red Pepper Option shall be equal to the quotient determined by
dividing the exercise price per share of Red Pepper Common Stock at which such
Red Pepper Option was exercisable immediately prior to the Effective Time by the
Common Exchange Ratio, rounded up to the nearest whole cent.
(ii) It is the intention of the parties that Red Pepper
Options assumed by PeopleSoft qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent Red Pepper
Options qualified as incentive stock options immediately prior to the Effective
Time.
(iii) Promptly following the Effective Time, PeopleSoft
will issue to each holder of an outstanding Red Pepper Option a document
evidencing the foregoing assumption of such Red Pepper Option by PeopleSoft.
(c) Warrants. Each warrant to purchase shares of Red Pepper
Capital Stock outstanding at the Effective Time shall be, in connection with the
Merger, assumed by PeopleSoft. Each warrant so assumed by PeopleSoft under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the respective warrant agreements governing such warrant
immediately prior to the Effective Time, except that each such warrant shall,
following the Effective Time, be exercisable only for shares of PeopleSoft
Common Stock, in such number, and at such exercise price as is determined by
applying the Common Exchange Ratio in accordance with the terms of the
applicable warrant agreement.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
PeopleSoft Common Stock or Red Pepper Capital Stock), reorganization,
recapitalization or other like change with respect to PeopleSoft Common Stock or
Red Pepper Capital Stock occurring after the date hereof and prior to the
Effective Time.
A-8
<PAGE> 140
(e) Fractional Shares. No fraction of a share of PeopleSoft Common
Stock will be issued, but in lieu thereof, each holder of shares of Red Pepper
Capital Stock who would otherwise be entitled to a fraction of a share of
PeopleSoft Common Stock (after aggregating all fractional shares of PeopleSoft
Common Stock to be received by such holder) shall be entitled to receive from
PeopleSoft an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average closing price of a
share of PeopleSoft Common Stock for the five (5) consecutive trading days
ending on the trading day immediately prior to the Closing Date, as reported on
the Nasdaq National Market.
(f) Definitions.
(i) Aggregate Share Number. The "Aggregate Share Number"
shall mean the sum of (x) the Base Share Number, plus (y) the product of (A) the
Additional Option Amount multiplied by (B) the Common Exchange Ratio.
(ii) Additional Option Amount. The "Additional Option
Amount" shall mean (i) the aggregate number of shares of Red Pepper Common Stock
issuable upon the exercise of all options to acquire shares of Red Pepper Common
Stock granted pursuant to the Option Plan and in accordance with Section 4.1(g)
hereto after August 22, 1996.
(iii) Base Share Number. The "Base Share Number" shall
be a number of shares of PeopleSoft Common Stock equal to 2,975,000 shares (as
appropriately adjusted to reflect the effect of any stock split, stock dividend,
reorganization, recapitalization or the like with respect to the PeopleSoft
Common Stock occurring after the date hereof and prior to the Effective Time).
(iv) Common Exchange Ratio. The "Common Exchange Ratio"
shall mean the quotient obtained by dividing (x) the Base Share Number, by (y)
the sum of (A) the Outstanding Common Amount plus (B) the Outstanding Option
Amount less (C) the Additional Option Amount.
(v) Escrow Amount. The "Escrow Amount" shall be a number
of shares of PeopleSoft Common Stock calculated using the following formula:
0.10 *(Aggregate Share Number-(Outstanding Option Amount * Common Exchange
Ratio))
(vi) Exchange Ratio. The "Exchange Ratio" shall mean the
Common Exchange Ratio.
(vii) Outstanding Common Amount. The "Outstanding Common
Amount" shall mean the aggregate number of shares of Red Pepper Common Stock
outstanding immediately prior to the Effective Time (taking into account all
shares of Red Pepper Preferred Stock that shall be converted into Red Pepper
Common Stock as of such time).
A-9
<PAGE> 141
(viii) Outstanding Option Amount. The "Outstanding
Option Amount" shall mean the aggregate number of shares of Red Pepper Common
Stock issuable upon the exercise of all options and warrants to acquire shares
of Red Pepper Common Stock outstanding as of the Effective Time.
1.5 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Red Pepper Capital Stock held by a holder who has
demanded and perfected appraisal or dissenters' rights for such shares in
accordance with California Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive PeopleSoft
Common Stock pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Red Pepper Capital Stock who demands appraisal of such
shares under Delaware Law or California Law shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to appraisal, then, as of
the later of the Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive PeopleSoft Common Stock and fractional shares as provided in Section
1.4, without interest thereon, upon surrender of the certificate representing
such shares.
(c) Red Pepper shall give PeopleSoft (i) prompt notice of any
written demands for appraisal of any shares of Red Pepper Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Delaware Law or California Law and received by Red Pepper and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under Delaware Law and California Law. Red Pepper shall
not, except with the prior written consent of PeopleSoft, voluntarily make any
payment with respect to any demands for appraisal of capital stock of Red Pepper
or offer to settle or settle any such demands.
1.6 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, PeopleSoft shall
designate a bank or trust company reasonably acceptable to Red Pepper to act as
exchange agent (the "Exchange Agent") in the Merger.
(b) PeopleSoft to Provide Common Stock. Promptly after the
Effective Time, PeopleSoft shall make available to the Exchange Agent for
exchange in accordance with this Article I, the aggregate number of shares of
PeopleSoft Common Stock issuable pursuant to Section 1.4 in exchange for
outstanding shares of Red Pepper Capital Stock; provided that, on behalf of the
holders of Red Pepper Capital Stock and pursuant to Section 7.2 of this
Agreement, PeopleSoft shall deposit into an escrow account a number of shares of
PeopleSoft Common Stock equal to the Escrow
A-10
<PAGE> 142
Amount out of the aggregate number of shares of PeopleSoft Common Stock
otherwise issuable pursuant to Section 1.4. The portion of the Escrow Amount
contributed on behalf of each holder of Red Pepper Capital Stock shall be in
proportion to the aggregate number of shares of PeopleSoft Common Stock which
such holder would otherwise be entitled to receive under Section 1.4 by virtue
of ownership of outstanding shares of Red Pepper Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time,
PeopleSoft shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Red Pepper Capital Stock whose shares were
converted into the right to receive shares of PeopleSoft Common Stock pursuant
to Section 1.4, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as PeopleSoft may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of PeopleSoft Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by PeopleSoft, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of PeopleSoft Common Stock (less the number of shares of PeopleSoft
Common Stock, if any, to be deposited in the Escrow Fund on such holder's behalf
pursuant to Article VII hereof), plus cash in lieu of fractional shares in
accordance with Section 1.4, to which such holder is entitled pursuant to
Section 1.4, and the Certificate so surrendered shall forthwith be canceled. As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of Article VII hereof, PeopleSoft shall cause to be
distributed to the Escrow Agent (as defined in Article VII) a certificate or
certificates representing that number of shares of PeopleSoft Common Stock equal
to the Escrow Amount which shall be registered in the name of the Escrow Agent.
Such shares shall be beneficially owned by the holders on whose behalf such
shares were deposited in the Escrow Fund and shall be available to compensate
PeopleSoft as provided in Article VII. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Red Pepper
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of PeopleSoft Common Stock into which
such shares of Red Pepper Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.4.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
PeopleSoft Common Stock with a record date after the Effective Time will be paid
to the holder of any unsurrendered Certificate with respect to the shares of
PeopleSoft Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of PeopleSoft Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record
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date after the Effective Time theretofore paid with respect to such whole shares
of PeopleSoft Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
PeopleSoft Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to PeopleSoft or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of PeopleSoft Common Stock in any name other than that of
the registered holder of the certificate surrendered, or established to the
satisfaction of PeopleSoft or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.6, none of the Exchange Agent, PeopleSoft or any party hereto shall be
liable to a holder of shares of or Red Pepper Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.7 No Further Ownership Rights in Red Pepper Common Stock. All shares
of PeopleSoft Common Stock issued upon the surrender for exchange of shares of
Red Pepper Capital Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Red Pepper Capital
Stock, and there shall be no further registration of transfers on the records of
PeopleSoft of shares of Red Pepper Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to PeopleSoft for any reason, they shall be canceled
and exchanged as provided in this Article I.
1.8 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Red Pepper Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of PeopleSoft Common Stock and cash for
fractional shares, if any, as may be required pursuant to Section 1.4; provided,
however, that PeopleSoft may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against PeopleSoft or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.9 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) qualify for accounting treatment as a pooling of interests.
1.10 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to
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vest PeopleSoft with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Red Pepper, the officers and
directors of PeopleSoft, are hereby fully authorized in the name of PeopleSoft,
Red Pepper or otherwise to take all such lawful action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Red Pepper hereby represents and warrants to PeopleSoft, subject to
such exceptions as are clearly disclosed in the disclosure letter supplied by
Red Pepper to PeopleSoft (the "Red Pepper Schedules") and dated as of the date
hereof, as follows:
2.1 Organization of Red Pepper. Red Pepper is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Red Pepper has the corporate power to own its properties and to
carry on its business as now being conducted. Red Pepper is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations (hereinafter referred to as a "Material Adverse Effect") of Red
Pepper. Red Pepper has delivered a true and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, to counsel for PeopleSoft.
2.2 Red Pepper Capital Structure.
(a) The authorized capital stock of Red Pepper consists of
20,000,000 shares of authorized Common Stock, of which 3,055,083 shares are
issued and outstanding, and 10,500,000 shares of authorized Preferred Stock. The
authorized Preferred Stock consists of 840,000 shares of authorized Series A
Preferred Stock, all of which are issued and outstanding, 750,000 shares of
authorized Series A1 Preferred Stock, of which 700,000 shares are issued and
outstanding, 5,000,000 shares of authorized Series B Preferred Stock, of which
4,662,903 shares are issued and outstanding, and 3,534,501 shares of authorized
Series C Preferred Stock, all of which are issued and outstanding. Red Pepper
Capital Stock is held of record by the persons, with the addresses of record and
in the amounts set forth on Schedule 2.2(a). All outstanding shares of Red
Pepper Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of Red Pepper or any agreement to which Red
Pepper is a party or by which it is bound.
(b) Red Pepper has reserved 3,385,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
1,655,917 shares are subject to outstanding, unexercised options and 714,000
shares remain available for future grant. Schedule 2.2(b) sets forth for each
outstanding Red Pepper Option the name of the holder of such option, the number
of shares of Common Stock subject to such option, the exercise price of such
option and the vesting schedule for such option, including the extent vested to
date, and whether the
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vesting of such options will be accelerated by the transactions contemplated by
this Agreement. All outstanding Red Pepper Options are immediately exercisable
in full. In addition, Schedule 2.2(b) sets forth for each outstanding warrant
the name of the holder of such warrant, the domicile address of such holder, the
number of shares and type of Red Pepper Capital Stock subject to such warrant,
the exercise price of such warrant and whether the terms of such warrant will be
altered by the transactions contemplated by this Agreement. Except for Red
Pepper Options and the warrants described in Schedule 2.2(b), there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which Red Pepper is a party or by which it is bound
obligating Red Pepper to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Red Pepper. Except for Red Pepper Options and the warrants described in
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which Red Pepper is a party or
by which it is bound obligating Red Pepper to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. The holders of Red Pepper Options
and any outstanding warrants have been or will be given, or shall have properly
waived, any required notice prior to the Merger and all such notice rights will
be terminated at or prior to the Effective Time.
2.3 Subsidiaries. Other than Red Pepper Software Singapore Pte Ltd.
("Red Pepper Singapore") and RP Software Limited ("Red Pepper UK," together with
Red Pepper Singapore, collectively, the "Subsidiaries"), Red Pepper does not
have and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity. Red Pepper
Singapore and Red Pepper UK are corporations duly organized, validly existing
and in good standing under the laws of Singapore and the United Kingdom,
respectively. The Subsidiaries have the corporate power to own their properties
and to carry on their businesses as now being conducted. The Subsidiaries are
duly qualified to do business and in good standing as foreign corporations in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Red Pepper. Red Pepper has delivered true and correct copies
of each of the Subsidiaries' charters and by-laws, each as amended to date, to
counsel for PeopleSoft. Red Pepper owns 100% of the issued and outstanding
capital stock of each of the Subsidiaries, free and clear of encumbrances. All
outstanding shares of the Subsidiaries' capital stock are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the charter or by-laws of such Subsidiaries or any
agreement to which Red Pepper or the Subsidiaries are a party or by which any of
them is bound. All references to Red Pepper herein shall, unless the context
otherwise requires, be deemed to include Red Pepper and the Subsidiaries.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by Red Pepper's shareholders, Red Pepper has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of Red Pepper's shareholders
to duly approve the Merger and this Agreement is that number of shares as would
constitute a majority of the outstanding shares of (a) the Common Stock and
Preferred Stock, voting together as a single class, and (b) the Preferred Stock
voting separately as a single class (in
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each case with each share of Preferred Stock being entitled to a number of votes
equal to the number of whole shares of Common Stock into which such share of
Preferred Stock could be converted on the record date for the vote). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Red Pepper, subject only to the approval of the
Merger by Red Pepper's shareholders. Red Pepper's Board of Directors has
unanimously approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by Red Pepper and, assuming due execution and delivery by
PeopleSoft, constitutes the valid and binding obligation of Red Pepper,
enforceable in accordance with its terms. Except as set forth on Schedule 2.4,
subject only to the approval of the Merger and this Agreement by Red Pepper's
shareholders, the execution and delivery of this Agreement by Red Pepper does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Articles of Incorporation or Bylaws of Red Pepper or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Red Pepper or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or foreign governmental authority, instrumentality, agency
or commission ("Governmental Entity") or any third party (so as not to trigger
any Conflict), is required by or with respect to Red Pepper in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) filing with the Secretary
of State of the State of California the certificates required by Section 1108 of
California Law; (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (iv) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 Red Pepper Financial Statements. Schedule 2.5 sets forth Red
Pepper's audited balance sheet as of December 31, 1995 and the related audited
statements of operations and cash flows for the year then ended (the "Audited
Financials") and Red Pepper's unaudited balance sheet as of June 30, 1996 (the
"Balance Sheet") and the related unaudited statements of operations and cash
flows for the six-month period then ended (together with the Balance Sheet, the
"Unaudited Financials") (collectively, the Audited Financials and the Unaudited
Financials are referred to as the "Red Pepper Financials"). Red Pepper
Financials are correct in all material respects and have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Red Pepper Financials present fairly the financial condition and
operating results of Red Pepper as of the dates and during the periods indicated
therein, subject, in the case of the Unaudited Financials, to normal year-end
adjustments, which will not be material in amount or significance. The Unaudited
Financials require no notes which do not appear in the Audited Financials.
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2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
Red Pepper does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not been
reflected in the Balance Sheet, or (ii) has not arisen in the ordinary course of
Red Pepper's business since June 30, 1996, consistent with past practices.
Except as disclosed in Schedule 2.1a, no customer of Red Pepper has a right of
refund or set off from Red Pepper which arises other than from the warranty
provision of Red Pepper's standard customer license agreement.
2.7 No Changes. Except as set forth in Schedule 2.7, since June 30,
1996, there has not been, occurred or arisen any:
(a) transaction by Red Pepper except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of Red Pepper;
(c) capital expenditure or commitment by Red Pepper of $50,000 in
any individual case or $150,000 in the aggregate.
(d) destruction of, damage to or loss of any assets, business or
customer of Red Pepper (whether or not covered by insurance) which resulted or
could reasonably be expected to result in losses to Red Pepper of more than
$20,000;
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Red Pepper;
(g) revaluation by Red Pepper of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Red Pepper, or any direct or
indirect redemption, purchase or other acquisition by Red Pepper of any of its
capital stock other than pursuant to the exercise of repurchase rights under
stock option agreements;
(i) increase in the salary or other compensation payable or to
become payable by Red Pepper to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by Red Pepper, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
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(j) sale, lease, license or other disposition of any of the assets
or properties of Red Pepper, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement
or license to which Red Pepper is a party or by which it is bound;
(l) loan by Red Pepper to any person or entity, incurring by Red
Pepper of any indebtedness, guaranteeing by Red Pepper of any indebtedness,
issuance or sale of any debt securities of Red Pepper or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) waiver or release of any right or claim of Red Pepper,
including any write-off or other compromise of any account receivable of Red
Pepper;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of Red Pepper or its affairs;
(o) notice of any claim of ownership by a third party of Red
Pepper's Intellectual Property (as defined in Section 2.11 below) or of
infringement by Red Pepper of any third party's Intellectual Property rights;
(p) issuance or sale by Red Pepper of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities other than the grant of stock options to employees
or consultants or pursuant to the exercise of employee stock options;
(q) change in pricing or royalties set or charged by Red Pepper to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to Red Pepper;
(r) event or condition of any character that has or reasonably
would be expected to have a Material Adverse Effect on Red Pepper;
(s) agreement to enter into a strategic alliance or grant of third
party royalty rights; or
(t) agreement by Red Pepper or any officer or employees thereof to
do any of the things described in the preceding clauses (a) through (s) (other
than negotiations with PeopleSoft and its representatives regarding the
transactions contemplated by this Agreement).
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2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) Red Pepper as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to Red Pepper or its operations and such
Returns will have been completed in accordance with applicable law.
(ii) Red Pepper as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
(iii) Red Pepper has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against Red Pepper, nor has Red Pepper executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of Red
Pepper is presently in progress, nor has Red Pepper been notified of any request
for such an audit or other examination.
(v) Red Pepper does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and Red Pepper has no knowledge of any
basis for the assertion of any such liability attributable to Red Pepper, its
assets or operations.
(vi) Red Pepper has provided to PeopleSoft copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Red Pepper's incorporation.
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(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("Liens") on the assets of Red Pepper relating to
or attributable to Taxes, other than Liens for Taxes not yet due and payable.
(viii) None of Red Pepper's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of Red
Pepper that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the Code.
(x) Red Pepper has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by Red Pepper.
(xi) Red Pepper is not a party to a tax sharing or
allocation agreement nor does Red Pepper owe any amount under any such
agreement.
(xii) Red Pepper is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which Red
Pepper is a party or otherwise binding upon Red Pepper which has or reasonably
would be expected to have the effect of prohibiting or impairing any business
practice of Red Pepper, any acquisition of property (tangible or intangible) by
Red Pepper or the conduct of business by Red Pepper. Without limiting the
foregoing, Red Pepper has not entered into any agreement under which Red Pepper
is restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Red Pepper owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property currently
leased by Red Pepper, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
(b) Red Pepper has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and
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mixed, used or held for use in its business, free and clear of any Liens (as
defined in Section 2.8(b)(vii)), except as reflected in Red Pepper Financials or
in Schedule 2.10(b).
2.11 Intellectual Property.
(a) Red Pepper owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material that are
used in the business of Red Pepper as currently conducted or as proposed to be
conducted by Red Pepper (the "Red Pepper Intellectual Property Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in Red Pepper
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Red Pepper Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses, side letters and other agreements to which Red Pepper
is a party and pursuant to which Red Pepper or any other person is authorized to
use any Red Pepper Intellectual Property Right (excluding object code end-user
licenses granted to end-users in the ordinary course of business that permit use
of software products without a right to modify, distribute or sublicense the
same ("End-User Licenses")) or trade secret of Red Pepper, and includes the
identity of all parties thereto. Except as set forth on Schedules 2.11(a) or
2.11(b), the execution and delivery of this Agreement by Red Pepper, and the
consummation of the transactions contemplated hereby, will neither cause Red
Pepper to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in Schedules 2.11(a) or 2.11(b), Red Pepper is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), Red Pepper Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated to
pay any compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or products in
respect of which Red Pepper Intellectual Property Rights are being used.
(c) No claims with respect to Red Pepper Intellectual Property
Rights have been asserted or are, to Red Pepper's knowledge, threatened by any
person, nor are there any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any of the products of
Red Pepper infringes on any copyright, patent, trade mark, service mark, trade
secret or other proprietary right, (ii) against the use by Red Pepper of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in Red
Pepper's business as currently conducted or as proposed to be conducted by Red
Pepper, or (iii) challenging the ownership by Red Pepper, validity or
effectiveness of any of Red
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Pepper Intellectual Property Rights. All registered trademarks, service marks
and copyrights held by Red Pepper are valid and subsisting. The business of Red
Pepper as currently conducted or as proposed to be conducted by Red Pepper has
not and does not infringe on any proprietary right of any third party. To Red
Pepper's knowledge, there is no unauthorized use, infringement or
misappropriation of any of Red Pepper Intellectual Property Rights by any third
party, including any employee or former employee of Red Pepper. No Red Pepper
Intellectual Property Right or product of Red Pepper or any of its subsidiaries
is subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the licensing thereof by Red Pepper. Each employee of
and consultant to Red Pepper has executed a proprietary information and
confidentiality agreement substantially in Red Pepper's standard forms.
(d) Red Pepper software products and associated documentation that
are part of the Red Pepper Intellectual Property Rights are production-level
versions of such software technology; any Red Pepper software products that are
works in process or beta-level software are identified and disclosed as such in
Schedule 2.11(d).
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), Red Pepper does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, sales
compensation plan, pension, profit sharing or retirement plans, or any other
employee benefit plans or arrangements or agreements to change any such plans
whether written or oral,
(iv) any employment or consulting agreement with an
employee or individual consultant, or any consulting or sales agreement under
which a firm or other organization provides services to Red Pepper,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $50,000,
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(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the
freedom of Red Pepper to engage in any line of business or to compete with any
person,
(x) any agreement relating to capital expenditures and
involving future payments in excess of $50,000,
(xi) any agreement relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of Red Pepper's business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase
of raw materials or services involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement,
(xvi) any agreement pursuant to which Red Pepper has
granted or may grant in the future, to any party a source-code license or option
or other right to use or acquire source-code, or
(xvii) any other agreement that involves $50,000 or more
or is not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 2.12(b), Red Pepper has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12(a)
or Schedule 2.11(b) (any such agreement, contract or commitment, a "Contract").
Each Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any default thereunder of which Red Pepper
has knowledge by any party obligated to Red Pepper pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, to Red Pepper's knowledge, no officer, director or affiliate (as defined
under Regulation C under the Securities Act of 1933, as amended) of Red Pepper
(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
economic interest), has or has had, directly or indirectly, (i) an economic
interest in any entity which furnished or sold, or furnishes or sells, services
or products that Red Pepper furnishes or sells, or
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proposes to furnish or sell, or (ii) an economic interest in any entity that
purchases from or sells or furnishes to, Red Pepper, any goods or services or
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.12(a) or Schedule 2.11(b); provided, that (x) ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
and no more than ten percent (10%) of the outstanding equity of any other entity
shall not be deemed an "economic interest in any entity" for purposes of this
Section 2.13 and (y) this provision shall only apply if the terms and conditions
applicable to the subject relationship are materially less favorable to Red
Pepper than the terms and conditions that could be obtained in an arm's-length
relationship.
2.14 Compliance with Laws. Red Pepper has complied in all respects
with, is not in violation of, and has not received any notices of violation with
respect to, any foreign, federal, state or local statute, law or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to Red Pepper's knowledge
threatened against Red Pepper, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
schedule 2.15, to Red Pepper's knowledge, there is no investigation pending or
threatened against Red Pepper, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any such pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. No governmental entity
has at any time challenged or questioned the legal right of Red Pepper to
manufacture, offer or sell any of its products in the present manner or style
thereof.
2.16 Insurance. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of Red Pepper, there is no claim by Red Pepper
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and Red Pepper is otherwise in compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance
coverage). Red Pepper has no knowledge of any threatened termination of, or
premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of Red Pepper made available to
counsel for PeopleSoft are the only minute books of Red Pepper and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and shareholders or actions by written consent since the time of incorporation
of Red Pepper.
2.18 NASA Agreement. As described in Section 2.7 of the Software
License Agreement between Red Pepper and the National Aeronautics and Space
Administration dated August 18, 1993 (the "NASA Agreement"), the SOFTWARE (as
defined in the NASA Agreement) is, as a result of Red Pepper's modifications, an
"original work of authorship" (as used in the NASA Agreement) of Red Pepper.
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2.19 Environmental Matters. Red Pepper (i) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its business
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval. There are no costs or liabilities (including any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) other than as disclosed in the Financial Statements.
2.20 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on Schedule 2.19, Red Pepper has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.19 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 sets forth Red Pepper's current reasonable estimate of all Third
Party Expenses (as defined in Section 5.3) expected to be incurred by Red Pepper
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby.
2.21 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (such definition shall only
apply to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with Red Pepper within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Red Pepper Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by Red Pepper or any Affiliate for the benefit of
any "Employee" (as defined below), and pursuant to which Red Pepper or any
Affiliate has or may have any liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or
retired employee, officer, or director of Red Pepper or any Affiliate;
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(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between Red Pepper or any Affiliate
and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Red Pepper
Employee Plan which is an "employee pension benefit plan", within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Red Pepper Employee Plan and each Employee Agreement, together with
a schedule of all liabilities, whether or not accrued, under each such Red
Pepper Employee Plan or Employee Agreement. Red Pepper does not have any stated
plan or commitment to establish any new Red Pepper Employee Plan or Employee
Agreement, to modify any Red Pepper Employee Plan or Employee Agreement (except
to the extent required by law or to conform any such Red Pepper Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to PeopleSoft in writing, or as required by this
Agreement), or to enter into any Red Pepper Employee Plan or Employee Agreement.
(c) Documents. Red Pepper has provided to PeopleSoft (i) correct
and complete copies of all documents embodying or relating to each Red Pepper
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Red Pepper Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Red Pepper Employee
Plan or related trust; (iv) if Red Pepper Employee Plan is funded, the most
recent annual and periodic accounting of Red Pepper Employee Plan assets; (v)
the most recent summary plan description together with the most recent summary
of material modifications, if any, required under ERISA with respect to each Red
Pepper Employee Plan; (vi) all IRS determination letters and rulings relating to
Red Pepper Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any Red
Pepper Employee Plan; (vii) all communications material to any Employee or
Employees relating to any Red Pepper Employee Plan and any proposed Red Pepper
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to Red
Pepper; and (viii) all registration statements and prospectuses prepared in
connection with each Red Pepper Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) Red Pepper has performed in all material respects all obligations
required to be performed by it under each Red Pepper Employee Plan and each Red
Pepper Employee Plan has been established and maintained
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in all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Red Pepper Employee Plan; (iii) there are no actions, suits or
claims pending, or, to the knowledge of Red Pepper, threatened or anticipated
(other than routine claims for benefits) against any Red Pepper Employee Plan or
against the assets of any Red Pepper Employee Plan; and (iv) each Red Pepper
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Red Pepper,
PeopleSoft or any of its Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (v) there are no inquiries or
proceedings pending or, to the knowledge of Red Pepper or any affiliates,
threatened by the IRS or DOL with respect to any Red Pepper Employee Plan; and
(vi) neither Red Pepper nor any Affiliate is subject to any penalty or tax with
respect to any Red Pepper Employee Plan under Section 402(i) of ERISA or Section
4975 through 4980 of the Code.
(e) Pension Plans. Red Pepper does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Red Pepper contributed to
or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.20(g), no Red Pepper Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and Red Pepper has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction.
(i) Except as provided in Section 1.6 of this Agreement
or as set forth on Schedule 2.20(h)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Red Pepper Employee Plan, Employee Agreement, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no
payment or benefit which will or may be made by Red Pepper or PeopleSoft or any
of their respective affiliates with
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respect to any Employee will be characterized as an "excess parachute payment",
within the meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. Red Pepper (i) is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears of
wages, commissions, bonuses or any other type of compensation or any taxes or
any penalty for failure to comply with any of the foregoing; (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice) and (v) is not liable for nor has been threatened with any claim
for discrimination or sexual harassment.
(j) Labor. No work stoppage or labor strike against Red Pepper is
pending or, to the best knowledge of Red Pepper, threatened. Except as set forth
in Schedule 2.20(j), Red Pepper is not involved in or, to the knowledge of Red
Pepper, threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to Red Pepper. Neither Red Pepper nor any of its
subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to Red Pepper. Except as set forth
in Schedule 2.20(j), Red Pepper is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by Red Pepper.
2.22 Covenants. At the Effective Time, Red Pepper will have complied
with all of its covenants contained in this Agreement, including those covenants
contained in Section 4 hereto.
2.23 Representations Complete. None of the representations or
warranties made by Red Pepper (as modified by Red Pepper Schedules), nor any
statement made in any Schedule or certificate furnished by Red Pepper pursuant
to this Agreement, or furnished in or in connection with documents mailed or
delivered to the shareholders of Red Pepper in connection with soliciting their
consent to this Agreement and the Merger, contains or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
PeopleSoft represents and warrants to Red Pepper as follows:
3.1 Organization, Standing and Power. PeopleSoft is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. PeopleSoft has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of PeopleSoft to consummate
the transactions contemplated hereby. PeopleSoft is not in violation of the
provisions of its Certificate of Incorporation or Bylaws.
3.2 Authority. PeopleSoft has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of PeopleSoft. This Agreement has
been duly executed and delivered by PeopleSoft and, assuming due execution and
delivery by Red Pepper, constitutes the valid and binding obligations of
PeopleSoft, enforceable in accordance with its terms. The execution and delivery
of this Agreement by PeopleSoft does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit under (i) any
provision of the Certificate of Incorporation or Bylaws of PeopleSoft or (ii)
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to PeopleSoft or its
properties or assets which could reasonably be expected to have a Material
Adverse Effect on PeopleSoft.
3.3 Capital Structure.
(a) The authorized stock of PeopleSoft consists of 160,000,000
shares of Common Stock, of which 50,474,726 shares were issued and outstanding
as of June 30, 1996, and 2,000,000 shares of Preferred Stock, none of which is
issued or outstanding. All such shares have been duly authorized, and all such
issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
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(b) The shares of PeopleSoft Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
non-assessable.
3.4 SEC Documents; PeopleSoft Financial Statements. PeopleSoft has
furnished or made available to Red Pepper true and complete copies of all
reports or registration statements filed by it with the U.S. Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934 (the
"Exchange Act") for all periods subsequent to January 1, 1995, all in the form
so filed (all of the foregoing being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed document
with the SEC. The financial statements of PeopleSoft, including the notes
thereto, included in the SEC Documents (the "PeopleSoft Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of
PeopleSoft at the dates thereof and of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There has been no change in PeopleSoft accounting policies
except as described in the notes to the PeopleSoft Financial Statements.
3.5 No Material Adverse Change. Since the date of the balance sheet
included in PeopleSoft's most recently filed report on Form 10-Q or Form 10-K,
PeopleSoft has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the financial condition,
liabilities, assets or business of PeopleSoft; (b) any amendment or change in
the Certificate of Incorporation or Bylaws of PeopleSoft; or (c) any damage to,
destruction or loss of any assets of PeopleSoft, (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of PeopleSoft.
3.6 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which PeopleSoft has received any
notice of assertion against PeopleSoft which in any manner challenges or seeks,
or reasonably could be expected, to prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Red Pepper. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, Red Pepper agrees (except to the extent that
PeopleSoft shall otherwise consent in writing) to
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carry on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay its debts and Taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. Red Pepper
shall promptly notify PeopleSoft of any materially negative event related to Red
Pepper or its business. Except as expressly contemplated by this Agreement or
disclosed in Schedule 4.1, Red Pepper shall not, without the prior written
consent of PeopleSoft:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to Red Pepper
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
or any third party royalty rights with respect to any products of Red Pepper;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in Red Pepper Schedules;
(e) Commence any litigation or any dispute resolution process;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of Red Pepper, or repurchase, redeem
or otherwise acquire, directly or indirectly, any shares of its capital stock
(or options, warrants or other rights exercisable therefor) other than pursuant
to the exercise of repurchase rights contained in stock option agreements;
(g) Except for the issuance of shares of Red Pepper Capital Stock
upon exercise or conversion of presently outstanding Red Pepper Options,
warrants or Red Pepper Preferred Stock, or the grant of stock options to new
employees with PeopleSoft's prior approval, issue, grant, deliver or sell or
authorize or propose the issuance, grant, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
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(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets in an amount in excess of $50,000 in the case of a single transaction or
in excess of $100,000 in the aggregate in any 30-day period;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money other than from
PeopleSoft or guarantee any such indebtedness or issue or sell any debt
securities of Red Pepper or guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(m) Subject to the provisions of Section 4.5 below, adopt or amend
any employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special remuneration
to any director or employee, or increase the salaries or wage rates of its
employees, except as consistent with the ordinary course of Red Pepper
consistent with past practice (provided that the price per share of any equity
participation in Red Pepper shall be agreed in advance by PeopleSoft);
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $50,000
(in any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in Red Pepper Financial
Statements (or the notes thereto) or that arose in the ordinary course of
business subsequent to June 30, 1996 or expenses consistent with the provisions
of this Agreement incurred in connection with any transaction contemplated
hereby;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
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(q) Enter into or modify any new or existing agreements for the
lease or purchase of real property; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action that
would prevent Red Pepper from performing or cause Red Pepper not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, Red Pepper will not (nor will Red Pepper permit any of Red Pepper's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than
PeopleSoft and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of Red Pepper
or any of its subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets, (b) provide information with respect to it to any person, other
than PeopleSoft, relating to the possible acquisition of Red Pepper (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets, (c) enter into an
agreement with any person, other than PeopleSoft, providing for the acquisition
of Red Pepper (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of Red Pepper or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
any person, other than by PeopleSoft. In addition to the foregoing, if Red
Pepper receives prior to the Effective Time or the termination of this Agreement
any offer or proposal relating to any of the above, Red Pepper shall promptly
notify PeopleSoft thereof, including information as to the identity of the
offeror or the party making any such offer or proposal and the specific terms of
such offer or proposal, as the case may be, and such other information related
thereto as PeopleSoft may reasonably request.
4.3 Strategic Agreements. Red Pepper agrees that it will not enter into
any strategic alliance, joint development or joint marketing agreement during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement and the Effective Time unless it has first
consulted with the Chief Financial Officer of PeopleSoft.
4.4 Employee Hiring. As soon as practicable after the date of this
Agreement, the Chief Executive Officers of PeopleSoft and Red Pepper (or their
representatives) will agree upon the guidelines within which Red Pepper will
proceed with recruitment, compensation and equity participation of new and
existing employees. The parties currently contemplate that all employees of Red
Pepper will be offered employment with PeopleSoft. All such employees of Red
Pepper will be required to execute PeopleSoft's standard forms of offer letters
and non-disclosure agreements prior to becoming employees of PeopleSoft.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Registration Statement; Red Pepper Shareholder Approval.
(i) PeopleSoft shall register the offer and sale of the
shares of PeopleSoft common stock to be issued as Merger Consideration pursuant
to a Registration Statement on Form S-4 (the "S-4") filed with the SEC and
including therein a proxy statement (the "Proxy Statement") to be sent to Red
Pepper's shareholders soliciting their consent to the Merger. Red Pepper shall
provide to PeopleSoft and its counsel for inclusion in the Proxy Statement of
the S-4, in form and substance reasonably satisfactory to PeopleSoft and its
counsel, such information concerning Red Pepper, its operations, capitalization,
technology, share ownership and other material as PeopleSoft or its counsel may
reasonably request. Each of PeopleSoft and Red Pepper shall use its reasonable
best efforts to respond to any comments of the SEC, to have the S-4 declared
effective under the 1933 Act as promptly as practicable after such filing and to
cause the Proxy Statement to be mailed to Red Pepper's shareholders at the
earliest practicable time. Each party will notify the other parties hereto
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or supplements to the S-4 or the
Proxy Statement or for additional information and will supply the other party
with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff, on the other hand,
with respect to the S-4 or the Proxy Statement. Whenever any event occurs which
should be set forth in an amendment or supplement to the Proxy Statement and the
S-4 Filing, PeopleSoft or Red Pepper, as the case may be, shall promptly inform
the other company of such occurrence and cooperate in filing with the SEC or its
staff.
(ii) As promptly as practicable after the execution of
this Agreement and at such time as PeopleSoft may request so as not to interfere
with the S-4 registration process, Red Pepper shall submit this Agreement and
the transactions contemplated hereby to its shareholders for approval and
adoption as provided by California Law and its Articles of Incorporation and
Bylaws. Red Pepper shall use its best efforts to solicit and obtain the consent
of its shareholders sufficient to approve the Merger and this Agreement and to
enable the Closing to occur as promptly as practicable. The materials submitted
to Red Pepper's shareholders shall be subject to review and approval by
PeopleSoft and include information regarding Red Pepper, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors of
Red Pepper in favor of the Merger and this Agreement provided, however, that
such recommendation need not be included, or may be withdrawn, to the extent
that the Board of Directors of Red Pepper deems it necessary to do so in the
exercise of its fiduciary obligations to the holders of Red Pepper's Capital
Stock after being so advised by counsel.
5.2 Access to Information. Subject to any applicable contractual
confidentiality obligations (which Red Pepper shall use its best efforts to
cause to be waived) each party shall afford the other and its accountants,
counsel and other representatives, reasonable access during normal
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business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.3 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby ("Third Party Expenses"), shall be the
obligation of the respective party incurring such fees and expenses; provided,
however, that PeopleSoft and Red Pepper shall share equally all fees and
expenses, other than attorneys, accountants and financial advisors fees,
incurred in connection with the printing and filing of the S-4 (including
financial statements and exhibits) and any amendments or supplements thereto.
Red Pepper agrees that PeopleSoft may submit an Officer's Certificate for a Loss
(both as defined in Section 7) for the amount, if any, by which Red Pepper's
Third Party Expenses exceed $150,000 and that such a claim shall be paid by the
Escrow Agent without regard to and without affecting the $250,000 threshold for
payment of Losses set forth in Section 7.2(a).
5.4 Public Disclosure. Unless otherwise required by law (including,
without limitation, securities laws) or, as to PeopleSoft, by the rules and
regulations of the National Association of Securities Dealers, Inc., prior to
the Effective Time, PeopleSoft and Red Pepper shall consult with each other
before making any disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement or the transactions contemplated hereby, and no
public announcement or press release regarding the subject matter of this
Agreement or the transactions contemplated thereby shall be made by any party
hereto unless approved by PeopleSoft and Red Pepper prior to release, provided
that such approval shall not be unreasonably withheld.
5.5 Consents. Red Pepper shall obtain all consents, waivers and
approvals under any of the Contracts as may be required in connection with the
Merger (all of such consents, waivers and approvals are set forth in Red Pepper
Schedules) so as to preserve all material rights of, and benefits to Red Pepper
thereunder.
5.6 FIRPTA Compliance. On the Closing Date, Red Pepper shall deliver to
PeopleSoft a properly executed statement in a form reasonably acceptable to
PeopleSoft for purposes of satisfying PeopleSoft's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.7 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
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hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that PeopleSoft shall not be required to agree to any divestiture by
PeopleSoft or Red Pepper or any of PeopleSoft's subsidiaries or affiliates of
shares of capital stock or of any business, assets or property of PeopleSoft or
its subsidiaries or affiliates or Red Pepper or its affiliates, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
5.8 Notification of Certain Matters. Red Pepper shall give prompt
notice to PeopleSoft, and PeopleSoft shall give prompt notice to Red Pepper, of
(i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of Red
Pepper and PeopleSoft, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by their Agreement (including Red Pepper Schedules) and (ii) any
failure of Red Pepper or PeopleSoft, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.8 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.9 Pooling Accounting. PeopleSoft and Red Pepper shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of PeopleSoft and Red
Pepper shall use its reasonable efforts to cause its respective employees,
directors, shareholders and affiliates not to take any action that would
adversely affect the ability of PeopleSoft to account for the business
combination to be effected by the Merger as a pooling of interests. Neither
PeopleSoft nor Red Pepper shall take any action, including the acceleration of
vesting of any options, warrants, restricted stock or other rights to acquire
shares of the capital stock of Red Pepper, which reasonably would be expected to
(i) interfere with PeopleSoft's ability to account for the Merger as a pooling
of interests or (ii) jeopardize the tax-free nature of the reorganization
hereunder.
5.10 Affiliate Agreements. Schedule 5.10 sets forth those persons who,
in Red Pepper's reasonable judgment, are "affiliates" of Red Pepper within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
Securities Act ("Rule 145"). Red Pepper shall provide PeopleSoft such
information and documents as PeopleSoft shall reasonably request for purposes of
reviewing such list. Each of PeopleSoft and Red Pepper has delivered or shall
cause to be delivered to the other, concurrently with the execution of this
Agreement, from each of their respective Affiliates, an executed Affiliate
Agreement in the form attached hereto as Exhibit A or Exhibit B. PeopleSoft
shall be entitled to place appropriate legends on the certificates evidencing
any PeopleSoft Common Stock to be received by Affiliates of Red Pepper pursuant
to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for PeopleSoft Common Stock, consistent with
the terms of such Affiliate Agreements.
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5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.12 Form S-8. PeopleSoft shall file a registration statement on Form
S-8 for the shares of PeopleSoft Common Stock issuable with respect to assumed
Red Pepper Options no later than ten business days after the Closing Date.
5.13 NMS Listing. PeopleSoft shall authorize for listing on the Nasdaq
Stock Market the shares of PeopleSoft Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.14 Voting Agreements. Concurrently with the execution of this
Agreement, Red Pepper will cause the persons and entities listed on Schedule
5.14 to execute Voting Agreements in the form attached hereto as Exhibit C (the
"Voting Agreement"), agreeing, among other things, to vote in favor of the
Merger and against any competing proposals.
5.15 Blue Sky Laws. PeopleSoft shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the PeopleSoft Common Stock pursuant
hereto. Red Pepper shall use its best efforts to assist PeopleSoft as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of PeopleSoft Common Stock
pursuant hereto.
5.16 Indemnification. PeopleSoft shall indemnify the persons who are
currently officers and directors of Red Pepper substantially in accordance with
the Bylaws of Red Pepper as they are currently in effect for action or inaction
by such person prior to the Merger.
5.17 S-3 Registration Rights.
(i) In the event that PeopleSoft is unable to register
on the S-4 all of the shares of Red Pepper Common Stock to be issued pursuant to
this Agreement, then PeopleSoft shall use all reasonable efforts to cause any
such shares not registered on the S-4 (the "Registrable Securities") to be
registered under the Securities Act of 1933 (the "Securities Act") so as to
permit the resale thereof, and in connection therewith shall use all reasonable
efforts to prepare and file with the SEC within twenty (20) days following the
Closing and shall use all reasonable efforts to cause to become effective as
soon as practicable thereafter, a registration statement on Form S-3 or on such
other form as is then available under the Securities Act covering the
Registrable Securities; provided, however, that each holder of Registrable
Securities ("Holder") shall provide all such information and materials to
PeopleSoft and take all such action as may be required in order to permit
PeopleSoft to comply with all applicable requirements of the SEC and to obtain
any desired acceleration of the effective date of such registration statement.
Such provision of information and materials is a condition precedent to the
obligations of PeopleSoft pursuant to this Section. PeopleSoft shall not be
required
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to effect more than one (1) registration under this Section. The offering made
pursuant to such registration shall not be underwritten.
(ii) Notwithstanding Section 5.17(i), PeopleSoft shall
be entitled to postpone the declaration of effectiveness of the registration
statement prepared and filed pursuant to Section 5.17(i) for a reasonable period
of time, but not in excess of forty-five (45) calendar days after the applicable
deadline, if the Board of Directors of PeopleSoft, acting in good faith,
determines that there exists material nonpublic information about PeopleSoft
which the Board does not wish to disclose in a registration statement which
information would otherwise be required by the Securities Act to be disclosed in
the registration statement to be filed pursuant to Section 5.17(i) above.
(iii) Subject to the limitations of Section 5.17(i)
above, PeopleSoft shall (i) prepare and file with the SEC the registration
statement in accordance with Section 5.17(i) hereof with respect to the shares
of Registrable Securities and shall use all reasonable efforts to cause such
registration statement to become effective as promptly as practicable after
filing and to keep such registration statement effective until one (1) years
after the Effective Time; (ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary, and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
proposed to be registered in such registration statement until one (1) year
after the Effective Time; (iii) furnish to each Holder such number of copies of
any prospectus (including any preliminary prospectus and any amended or
supplemented prospectus) in conformity with the requirements of the Securities
Act, and such other documents, as each Holder may reasonably request in order to
effect the offering and sale of the shares of the Registrable Securities to be
offered and sold, but only while PeopleSoft shall be required under the
provisions hereof to cause the registration statement to remain current and (iv)
use its commercially reasonable efforts to register or qualify the shares of the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request (provided that PeopleSoft shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction where it has not
been qualified).
(iv) PeopleSoft shall notify each Holder, (A) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus or for additional information
relating to the registration statement, (C) of the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, (D) of the receipt by PeopleSoft of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; or (E) of the
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happening of any event which makes any statement made in the registration
statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement or prospectus
so that, in the case of the registration statement, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and that in the case of the prospectus, it will not contain any untrue statement
of a material fact or omit to state any material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. PeopleSoft may, upon the happening of any event (i) of the kind
described in clauses B, C, D, or E hereof or, that, in the judgment of
PeopleSoft's Board of Directors, renders it advisable to suspend use of the
prospectus for no more than forty-five (45) days in the aggregate in any 12
month period of time due to pending corporate developments, public filings with
the SEC or similar events, suspend use of the prospectus on written notice to
each Holder, in which case each Holder shall discontinue disposition of
Registrable Securities covered by the registration statement or prospectus until
copies of a supplemented or amended prospectus are distributed to the Holders or
until the Holders are advised in writing by the Company that the use of the
applicable prospectus may be resumed. PeopleSoft shall use its reasonable
efforts to ensure that the use of the prospectus may be resumed as soon as
practicable. PeopleSoft shall use every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the securities for sale in any jurisdiction, at
the earliest practicable moment. PeopleSoft shall, upon the occurrence of any
event contemplated by clause E or F above, prepare a supplement or
post-effective amendment to the registration statement or a supplement to the
related prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(v) Prior to the filing of a registration statement,
PeopleSoft and any Holder wishing to sell Registrable Securities pursuant to the
registration statement shall enter into an agreement containing customary
indemnification provisions with respect to misstatements or omissions of
material fact contained in the registration statement.
(vi) PeopleSoft shall pay all of the out-of-pocket
expenses incurred, other than underwriting discounts and commissions, in
connection with any registration of Registrable Securities pursuant to this
Section 5.17, including, without limitation, all SEC, NASD and blue sky
registration and filing fees, printing expenses, transfer agents' and
registrars' fees, and the reasonable fees and disbursements of PeopleSoft's
outside counsel and independent accountants.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the shareholders of Red Pepper by the requisite
vote under applicable law and Red Pepper's Articles of Incorporation.
(b) Registration Statement Effective. The SEC shall have declared
the S-4 Registration Statement effective. No stop order suspending the
effectiveness of the S-4 Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Proxy Statement, shall have been initiated or threatened in
writing by the SEC; and all requests for additional information on the part of
the SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Tax Opinions. PeopleSoft and Red Pepper shall each have
received substantially identical written opinions from their counsel, Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, and Gray Cary Ware &
Freidenrich, A Professional Corporation, respectively, in form and substance
reasonably satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties to
this Agreement agree to make and to use their best efforts to make their
shareholders make reasonable representations as requested by such counsel for
the purpose of rendering such opinions.
(e) Opinion of Accountants. Each of PeopleSoft and Red Pepper
shall have received a letter from Ernst & Young LLP, each of the firms'
independent auditors, reaffirming its oral concurrence given at the time of the
execution of this Agreement, with PeopleSoft management's and Red Pepper
management's conclusions as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
consummated in accordance with this Agreement.
(f) Nasdaq Listing. The shares of PeopleSoft Common Stock issuable
to shareholders of Red Pepper pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq Stock Market upon official notice of
issuance.
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(g) Affiliate Agreements. Each of the parties identified by Red
Pepper or PeopleSoft as being one of their respective Affiliates shall have
delivered an executed Affiliate Agreement which shall be in full force and
effect.
6.2 Additional Conditions to Obligations of Red Pepper. The obligations
of Red Pepper to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Red Pepper:
(a) Representations and Warranties. The representations and
warranties of PeopleSoft contained in this Agreement shall be true and correct
and as of the Closing, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such date), with
the same force and effect as if made on and as of the Effective Time, except, in
all such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which neither have had nor reasonably would be
expected to have a Material Adverse Effect on PeopleSoft; and Red Pepper shall
have received a certificate to such effect signed on behalf of PeopleSoft by a
duly authorized officer of PeopleSoft.
(b) Agreements and Covenants. PeopleSoft shall have performed or
complied (which performance or compliance shall be subject to PeopleSoft's
ability to cure as provided in Section 8.1(e) below) in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and Red Pepper shall have
received a certificate to such effect signed on behalf of PeopleSoft by a duly
authorized officer of PeopleSoft.
(c) Third Party Consents. Red Pepper shall have been furnished
with evidence satisfactory to it that PeopleSoft has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. Red Pepper shall have received a legal opinion
from Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to
PeopleSoft, in substantially the form attached hereto as Exhibit D.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of PeopleSoft since June 30, 1996.
For purposes of this condition, a reduction in the trading price of PeopleSoft's
Common Stock, whether occurring at any time or from time to time, as reported by
Nasdaq or any other automated quotation system or exchange shall not constitute
a material adverse change.
6.3 Additional Conditions to the Obligations of PeopleSoft. The
obligations of PeopleSoft to consummate the Merger and the transactions
contemplated by this Agreement shall be
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subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by PeopleSoft:
(a) Representations and Warranties. The representations and
warranties of Red Pepper contained in this Agreement shall be true and correct
on and as of the Effective Time, except for changes contemplated by this
Agreement (including Red Pepper Schedules) and except for those representations
and warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
neither have had nor reasonably would be expected to have a Material Adverse
Effect on Red Pepper or PeopleSoft; and PeopleSoft shall have received a
certificate to such effect signed on behalf of Red Pepper by a duly authorized
officer of Red Pepper;
(b) Agreements and Covenants. Red Pepper shall have performed or
complied (which performance or compliance shall be subject to Red Pepper's
ability to cure as provided in Section 8.1(d) below) in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and PeopleSoft shall have
received a certificate to such effect signed on behalf of Red Pepper by a duly
authorized officer of Red Pepper;
(c) Third Party Consents. PeopleSoft shall have been furnished
with evidence satisfactory to it that Red Pepper has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. PeopleSoft shall have received a legal opinion
from Gray Cary Ware & Freidenrich, A Profession Corporation, legal counsel to
Red Pepper, in substantially the form attached hereto as Exhibit E.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets)
financial condition or results of operations of Red Pepper since June 30, 1996.
For the purposes of this Section 6.3(e), a failure by Red Pepper to meet enter
into the customer contracts included in Pepper's "pipeline projections"
presented to PeopleSoft on August 31, 1996 shall not be considered a material
adverse change in the business, assets, financial condition or results of
operation of Red Pepper, provided, that Red Pepper can reasonably demonstrate to
PeopleSoft that such failure resulted from the public announcement of this
Merger.
(f) Conversion of Preferred Stock. All shares of the Series A,
Series A1, Series B and Series C Preferred Stock of Red Pepper shall have
converted into Red Pepper Common Stock in accordance with Red Pepper's Articles
of Incorporation.
(g) Noncompetition and Nonsolicitation Agreements. Each person
listed in the preamble to Exhibit F shall have executed and delivered to
PeopleSoft a Noncompetition
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Nonsolicitation Agreement in substantially the form of Exhibit F and all of the
Noncompetition and Nonsolicitation Agreements shall be in full force and effect.
(h) Dissenters' Rights. Holders of more than 2% of the outstanding
shares of Red Pepper Capital Stock shall not have exercised, nor shall they have
any continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(i) Intellectual Property. PeopleSoft shall have been provided
with an executed amendment to the Employee Agreement Regarding Confidentiality
and Inventions between Red Pepper Software Company and Michael J. Deale
providing that Exhibit A to such agreement is amended to read in its entirety
"none."
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of Red Pepper's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by Red Pepper Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the date
which is one year following the Closing Date (the "Expiration Date").
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time Red Pepper's shareholders
will be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by PeopleSoft after the
Effective Time) without any act of any such shareholder. As soon as practicable
after the Effective Time, the Escrow Amount, without any act of any Red Pepper
shareholder, will be deposited with State Street Bank and Trust Company of
California, N.A., (or other institution acceptable to PeopleSoft and the
Securityholder Agent (as defined in Section 7.2(g) below)) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth herein and at PeopleSoft's cost and
expense. The portion of the Escrow Amount contributed on behalf of each
shareholder of Red Pepper shall be in proportion to the aggregate PeopleSoft
Common Stock which such holder would otherwise be entitled under Section 1.6(a).
No portion of the Escrow Amount shall be contributed in respect of any Red
Pepper Options or warrants. The Escrow Fund shall be available to compensate
PeopleSoft and its affiliates for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense, net of any recoveries under
existing insurance policies, tax benefits received by PeopleSoft as a result of
such losses, indemnities from third parties, or in the case of third party
claims, of any amount actually recovered by PeopleSoft pursuant to counterclaims
made by PeopleSoft directly
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relating to the facts giving rise to such third party claims (hereinafter
individually a "Loss" and collectively "Losses") incurred by PeopleSoft, its
officers, directors, or affiliates directly or indirectly as a result of any
inaccuracy or breach of a representation or warranty of Red Pepper contained in
Article II herein (as modified by Red Pepper Schedules). Resort to the Escrow
Fund shall by PeopleSoft's sole and exclusive remedy for any Losses arising from
such inaccuracies or breaches after the Effective Time, except for claims
arising from fraud or intentional misrepresentations. PeopleSoft shall act in
good faith and a commercially reasonable manner to mitigate any Losses it may
suffer. PeopleSoft and Red Pepper each acknowledge that such Losses, if any,
would relate to unresolved contingencies existing at the Effective Time, which
if resolved at the Effective Time would have led to a reduction in the aggregate
Merger consideration. Nothing herein shall limit the liability of Red Pepper for
any breach of any representation, warranty or covenant if the Merger does not
close. Except as described in Section 5.3, PeopleSoft may not receive any shares
from the Escrow Fund unless and until Officer's Certificates (as defined in
paragraph (d) below) identifying Losses, the aggregate amount of which exceed
$250,000, have been delivered to the Escrow Agent as provided in paragraph (e);
in such case, PeopleSoft may recover from the Escrow Fund all of its Losses.
(b) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., California time, on the Expiration Date (the "Escrow Period"); provided
that the Escrow Period shall not terminate with respect to such amount (or some
portion thereof) remaining in the Escrow Fund that is necessary in the
reasonable judgment of PeopleSoft, subject to the objection of the
Securityholder Agent and the subsequent arbitration of the matter in the manner
provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims concerning
facts and circumstances existing prior to the termination of such Escrow Period
specified in any Officer's Certificate delivered to the Escrow Agent prior to
termination of such Escrow Period. As soon as all such claims have been resolved
and written notice of such resolution specified in an Officer's Certificate is
received by the Escrow Agent, the Escrow Agent shall deliver to the shareholders
of Red Pepper the remaining portion of the Escrow Fund and not required to
satisfy such claims. Deliveries of Escrow Amounts to the shareholders of Red
Pepper pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of
PeopleSoft and shall hold and dispose of the Escrow Fund only in accordance with
the terms hereof.
(ii) Any shares of PeopleSoft Common Stock or other
equity securities issued or distributed by PeopleSoft (including shares issued
upon a stock split) ("New Shares") in respect of PeopleSoft Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. New Shares issued in
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respect of shares of PeopleSoft Common Stock which have been released from the
Escrow Fund shall not be added to the Escrow Fund but shall be distributed to
the recordholders thereof. Cash dividends on PeopleSoft Common Stock shall not
be added to the Escrow Fund but shall be distributed to the recordholders
thereof.
(iii) Each shareholder shall have voting rights with
respect to the shares of PeopleSoft Common Stock contributed to the Escrow Fund
by such shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of PeopleSoft Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of PeopleSoft (an "Officer's Certificate"): (A) stating that PeopleSoft has paid
or properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(e) hereof,
deliver to PeopleSoft out of the Escrow Fund, as promptly as practicable, shares
of PeopleSoft Common Stock held in the Escrow Fund in an amount equal to such
Losses.
(ii) For the purposes of determining the number of
shares of PeopleSoft Common Stock to be delivered to PeopleSoft out of the
Escrow Fund pursuant to Section 7.2(d)(i) hereof, the shares of PeopleSoft
Common Stock shall be valued at the average of the closing prices of
PeopleSoft's Common Stock on the principal securities exchange on which
PeopleSoft's Common Stock is then traded, or if not so traded, the National
Market System of the National Association of Securities Dealers Automated
Quotation system, in either case as reported in The Wall Street Journal for the
five (5) consecutive trading days ending on the date that is two (2) trading
days prior to the Closing Date. PeopleSoft and the Securityholder Agent shall
certify such fair market value in a certificate signed by both PeopleSoft and
the Securityholder Agent, and shall deliver such certificate to the Escrow
Agent.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent as described in Section 9.1, a duplicate copy of
such certificate shall be delivered to the Securityholder Agent, and for a
period of thirty (30) days after such delivery the Escrow Agent shall make no
delivery to PeopleSoft of any Escrow Amounts pursuant to Section 7.2(d) hereof
unless the Escrow Agent shall have received written authorization from the
Securityholder Agent (as defined in Section 7.2(g)(ii) below) to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of PeopleSoft Common Stock from the Escrow Fund in
accordance with Section 7.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
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(f) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and PeopleSoft shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and PeopleSoft should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of PeopleSoft Common Stock from the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either PeopleSoft or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. PeopleSoft and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator,
each of which arbitrators shall be independent and have at least ten years
relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any claim in such Officer's Certificate shall
be binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 7.2(e) hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Alameda County, California under the rules then in
effect of the Judicial Arbitration and Mediation Services, Inc. For purposes of
this Section 7.2(f), in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, PeopleSoft shall
be deemed to be the Non-Prevailing Party in the event that the arbitrators award
PeopleSoft less than the sum of one-half (1/2) of the disputed amount plus any
amounts not in dispute; otherwise, the shareholders of Red Pepper as represented
by the Securityholder Agent shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
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(g) Securityholder Agent of the Stockholders; Power of Attorney.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any shareholder, Daniel T. Doles
shall be appointed as agent and attorney-in-fact (the "Securityholder Agent")
for each shareholder of Red Pepper (except such shareholders, if any, as shall
have perfected their appraisal or dissenters' rights under California Law), for
and on behalf of shareholders of Red Pepper, to give and receive notices and
communications, to authorize delivery to PeopleSoft of shares of PeopleSoft
Common Stock from the Escrow Fund in satisfaction of claims by PeopleSoft, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the shareholders
of Red Pepper from time to time upon not less than thirty (30) days prior
written notice to PeopleSoft and the Escrow Agent; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the shareholders of Red Pepper.
(ii) The Securityholder Agent shall not be liable for
any act done or omitted hereunder as Securityholder Agent while acting in good
faith. The shareholders of Red Pepper on whose behalf the Escrow Amount was
contributed to the Escrow Fund shall severally indemnify the Securityholder
Agent and hold the Securityholder Agent harmless against any loss, liability or
expense incurred without bad faith on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the shareholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such shareholders, and the Escrow Agent and PeopleSoft may rely
upon any such decision, act, consent or instruction of the Securityholder Agent
as being the decision, act, consent or instruction of each every such
shareholder of Red Pepper. The Escrow Agent and PeopleSoft are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event PeopleSoft becomes aware of a
third-party claim which PeopleSoft believes may result in a demand against the
Escrow Fund, PeopleSoft shall notify the Securityholder Agent of such claim, and
the Securityholder Agent, as representative for the shareholders of Red Pepper,
shall be entitled, at their expense, to participate in any defense of such
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claim. PeopleSoft shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement and
acknowledged that the claim is a valid claim against the Escrow Fund, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by PeopleSoft against
the Escrow Fund with respect to such settlement.
(j) Escrow Agent's Duties.
(i) PeopleSoft and Red Pepper acknowledge and agree that
the Escrow Agent (i) shall be obligated only for performance of such duties as
are specifically set forth in this Agreement; (ii) shall not be obligated to
take any legal or other action hereunder which might in its judgment involve any
expense or liability unless it shall have been furnished with acceptable
indemnification; (iii) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (iv) may
consult counsel satisfactory to it, including house counsel, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
(ii) Neither the Escrow Agent nor any of its directors,
officers or employees shall be liable to anyone for any action taken or omitted
to be taken by it or any of its directors, officers or employees hereunder
except in the case of gross negligence or willful misconduct, PeopleSoft and Red
Pepper, jointly and severally, covenant and agree to indemnify the Escrow Agent
and hold it harmless without limitation from and against any loss, liability or
expense of any nature incurred by the Escrow Agent arising out of or in
connection with this Agreement or with the administration of its duties
hereunder, including but not limited to legal fees and other costs and expenses
of defending or preparing to defend against any claim or liability in the
premises, unless such loss, liability or expense shall be caused by the Escrow
Agent's willful misconduct or gross negligence. In no event shall the Escrow
Agent be liable for indirect, punitive, special or consequential damages.
(iii) PeopleSoft and Red Pepper, jointly and severally,
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the payment of the Escrow Fund under this
Agreement, and to indemnify and hold the Escrow Agent harmless from and against
any taxes, additions for late payment, interest, penalties and other expenses,
that may be assessed against the Escrow Agent on any such payment or other
activities under this Agreement PeopleSoft and Red Pepper undertake to instruct
the Escrow Agent in writing with respect to the Escrow Agent's responsibility
for withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. PeopleSoft and Red Pepper, jointly and
severally agree to indemnify and hold
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the Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct same, and any liability for
failure to obtain proper certifications or to properly report to governmental
authorities, to which the Escrow Agent may be or become subject in connection
with or which arises out of this Agreement, including costs and expenses
(including reasonable legal fees), interest and penalties. Notwithstanding the
foregoing, no distributions will be made unless the Escrow Agent is supplied
with an original, signed W-9 form or its equivalent prior to distribution.
(iv) The Escrow Agent shall have no more or less
responsibility or liability on account of any action or omission or any
book-entry depository or subescrow agent employed by the Escrow Agent than any
such book-entry depository or subescrow agent has to the Escrow Agent, except to
the extent that such action or omission or any book-entry depository or
subescrow agent was caused by the Escrow Agent's own gross negligence or bad
faith.
(v) PeopleSoft and Red Pepper agree to pay or reimburse
the Escrow Agent for any legal fees incurred in connection with the preparation
of this Agreement and to pay the Escrow Agent's reasonable compensation for its
normal services hereunder in accordance with the attached fee schedule, which
may be subject to change on an annual basis. The Escrow Agent shall be entitled
to reimbursement on demand for all expenses incurred in connection with the
administration of the escrow created hereby which are in excess of its
compensation for normal services hereunder, including without limitation,
payment of any legal fees incurred by the Escrow Agent in connection with
resolution of any claim by any party hereunder.
(vi) The Escrow Agent may at any time resign as Escrow
Agent hereunder by giving thirty (30) days' prior written notice of resignation
to PeopleSoft and the Securityholder Agent. Prior to the effective date of the
resignation as specified in such notice, PeopleSoft, will issue to the Escrow
Agent a written instruction authorizing redelivery of the Escrow Fund to a bank
or trust company that it selects subject to the reasonable consent of the
Securityholder Agent. Such bank or trust company shall have capital, surplus and
undivided profits in excess of $50,000,000. If, however, PeopleSoft shall fail
to name such a successor agent within twenty (20) days after the notice of
resignation from the Escrow Agent, the Securityholder Agent shall be entitled to
name such successor Escrow Agent. If no successor Escrow Agent is named by
PeopleSoft or the Securityholder Agent, the Escrow Agent may apply to a court of
competent jurisdiction for appointment of a successor Escrow Agent. The
provisions of paragraphs 7.2(j)(i) and (ii) shall survive the termination of
this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
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(a) by mutual written consent of Red Pepper and PeopleSoft;
(b) by PeopleSoft or Red Pepper if: (i) the Effective Time has not
occurred by March 2, 1997 (provided that the right to terminate this Agreement
under this clause 8.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date); (ii)
there shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the Merger
illegal;
(c) by PeopleSoft if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i) prohibit
PeopleSoft's or Red Pepper's ownership or operation of any portion of the
business of Red Pepper or (ii) compel PeopleSoft or Red Pepper to dispose of or
hold separate, as a result of the Merger, any portion of the business or assets
of Red Pepper or PeopleSoft; in either case, the unavailability of which assets
or business would have a Material Adverse Effect on PeopleSoft or would
reasonably be expected to have a Material Adverse Effect on PeopleSoft's ability
to realize the benefits expected from the Merger.
(d) by PeopleSoft if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Red Pepper and as a result of such breach the conditions set forth
in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Red Pepper within thirty
(30) days through the exercise of its reasonable best efforts, then for so long
as Red Pepper continues to exercise such reasonable best efforts PeopleSoft may
not terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a breach
which by its nature cannot be cured);
(e) by Red Pepper if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of PeopleSoft and as a result of such breach the conditions set forth
in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by PeopleSoft within thirty
(30) days through the exercise of its reasonable best efforts, then for so long
as PeopleSoft continues to exercise such reasonable best efforts Red Pepper may
not terminate this Agreement under this Section 8.1(e) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a breach
which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action.
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8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of PeopleSoft or Red
Pepper, or their respective officers, directors or shareholders under this
Agreement, except to the extent that such termination results from the willful
and intentional breach by any party hereto of any of its representations,
warranties, or covenants set forth in this Agreement, in which case the
non-breaching party shall be entitled to receive from the breaching party all of
its Third Party Expenses and any expenses incurred in connection with any
dispute arising from such willful breach. Notwithstanding the foregoing, the
provisions of Section 5.3 and Article VIII of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
the shareholders of Red Pepper approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided, however, that
PeopleSoft may in its sole discretion amend this Agreement to provide for the
formation of a newly formed subsidiary and to consummate the merger contemplated
hereby through the merger of that subsidiary into Red Pepper.
8.4 Extension; Waiver. At any time prior to the Effective Time,
PeopleSoft, on the one hand, and Red Pepper, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (A) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (B) in the case of a
nationally-recognized overnight courier, on the next business day after the date
when sent and (C) in the case of mailing, on the third business day following
that on which the piece of mail containing such communication is posted:
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(a) if to PeopleSoft, to:
PeopleSoft, Inc.
4440 Rosewood Drive
Pleasanton, CA 94588-3031
Attn: Ronald E.F. Codd
Telephone No.: (510) 225-3000
Facsimile No.: (510) 225-3100
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Henry P. Massey Jr., Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to Red Pepper, to:
Red Pepper Software Company
1810 Gateway Drive
Suite 150
San Mateo, CA 94404
Telephone No.: (415)525-3300
Facsimile No.: (415) 341-8064
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attn: Gregory M. Gallo, Esq.
Telephone No.: (415) 328-6561
Facsimile No.: (415) 327-3699
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(c) if to the Securityholder Agent:
Daniel T. Doles
20309 Saratoga Vista Court
Saratoga, CA 95070
Telephone No.: (408) 867-6292
(d) if to the Escrow Agent:
State Street Bank and Trust Company of California,
N.A.
725 S. Figueroa Street
Suite 3100
Los Angeles, CA 90017
Attention: Joni Frederick
Corporate Trust Department
9.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that PeopleSoft may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
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9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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IN WITNESS WHEREOF, PeopleSoft, Red Pepper, the Securityholder Agent
(as to Article VII only) and the Escrow Agent (as to Article VII only) have
caused this Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
PEOPLESOFT, INC. RED PEPPER SOFTWARE COMPANY
By /s/ David A. Duffield By /s/ Monte Zweben
-------------------------------- ---------------------------------
David A. Duffield Monte Zweben
President and Chief Executive Officer President and Chief Executive
Officer
SECURITYHOLDER AGENT:
/s/ Daniel T. Doles
- ----------------------------------
Daniel T. Doles
ESCROW AGENT -
State Street Bank and Trust Company of California, N.A.
By /s/ Joni Frederick
--------------------------------
Title: Assistant Vice President
***REORGANIZATION AGREEMENT***
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INDEX OF SCHEDULES*
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
<S> <C>
2.1(a) Customers with Refund and Set off Rights
2.2(a) Stockholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.5 Red Pepper Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.11(d) Beta Software
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.19 Brokers'/Finders' Fees; Expenses of Transaction
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.20(h)(ii) Excess Parachute Payments
2.20(j) Labor
4.1 Conduct of the Business
5.10 Red Pepper Affiliate List
5.14 Parties Executing Voting Agreement
6.2(c) Third Party Consents Required of PeopleSoft
6.3(c) Third Party Consents Required of Red Pepper
</TABLE>
- ------
* The Company has omitted the above listed schedules but agrees to furnish
supplementally a copy of any of the above omitted schedules to the Commission
upon request.
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EXHIBIT A
RED PEPPER SOFTWARE COMPANY
AFFILIATE AGREEMENT
RED PEPPER SOFTWARE COMPANY AFFILIATE AGREEMENT ("Agreement") dated as
of September___, 1996, between PeopleSoft, Inc., a Delaware corporation
("PeopleSoft") and the undersigned affiliate ("Affiliate") of RED PEPPER
SOFTWARE COMPANY, a California corporation ("Pepper").
WHEREAS, PeopleSoft and Pepper propose to enter into an Agreement and
Plan of Reorganization ("Merger Agreement") pursuant to which Pepper will merge
into PeopleSoft ("Merger") (capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement);
WHEREAS, pursuant to the Merger, at the Effective Time outstanding
shares of Pepper Capital Stock, including any shares owned by Affiliate, will be
converted into the right to receive shares of Common Stock of PeopleSoft;
WHEREAS, it will be a condition to effectiveness of the Merger that (i)
the attorneys for each of Pepper and PeopleSoft will have delivered written
opinions that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986 as amended (the "Code"), and
(ii) the independent accounting firms that audit the annual financial statements
of Pepper and PeopleSoft will have delivered their written concurrences to the
effect that the Merger will be accounted for as a pooling of interests;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to PeopleSoft to enter into the Merger Agreement;
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be
an "affiliate" of Pepper, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") and
(ii) in the Commission's Accounting Series Releases 130 and 135, as amended,
although nothing contained herein shall be construed as an admission by
Affiliate that Affiliate is in fact an affiliate of Pepper.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree
as follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by PeopleSoft, Pepper, and their respective Affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger
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Agreement and has discussed the requirements of this Agreement with his
professional advisors, who are qualified to advise him with regard to such
matters.
2. Compliance with Rule 145 and the Act.
(a) Affiliate has been advised that (i) the issuance of shares
of PeopleSoft Common Stock in connection with the Merger is expected to be
effected pursuant to a Registration Statement on Form S-4 under the Securities
Act of 1933 as amended (the "Act") and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated thereunder and resale of
such shares will not be subject to any restrictions other than as set forth in
Rule 145 of the Act unless otherwise transferred pursuant to an effective
registration statement under the Act or an appropriate exemption from
registration, (ii) Affiliate may be deemed to be an affiliate of Pepper, (iii)
no sale, transfer or other disposition by Affiliate of any PeopleSoft Common
Stock received by Affiliate will be registered under the Act. Affiliate
accordingly agrees not to sell, transfer or otherwise dispose of any PeopleSoft
Common Stock issued to Affiliate in the Merger unless (i) such sale, transfer or
other disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the Act, or (ii) Affiliate delivers to PeopleSoft a written
opinion of counsel, reasonably acceptable to PeopleSoft in form and substance,
that such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
(b) PeopleSoft will give stop transfer instructions to its
transfer agent with respect to any PeopleSoft Common Stock received by Affiliate
pursuant to the Merger and there will be placed on the certificates representing
such Common Stock, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 applies and may only be
transferred in conformity with Rule 145(d) or in accordance
with a written opinion of counsel, reasonably acceptable to
the issuer in form and substance, that such transfer is exempt
from registration under the Securities Act of 1933."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and PeopleSoft shall so instruct its transfer
agent, if Affiliate delivers to PeopleSoft (i) satisfactory written evidence
that the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate will be issued in the name of the transferee), or (ii) an
opinion of counsel, in form and substance reasonably satisfactory to PeopleSoft,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.
3. Covenants Related to Pooling of Interests. During the period
beginning from the date hereof and ending on the second complete day after the
day that PeopleSoft publicly announces financial results covering at least 30
days of combined operations of PeopleSoft and Pepper, Affiliate will not sell,
exchange, transfer, pledge, distribute, or otherwise dispose of or grant any
option, establish any "short" or put-equivalent position with respect to or
enter into any similar transaction (through derivatives or otherwise) intended
or having the effect, directly or indirectly, to reduce its risk relative to any
securities,
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or shares of PeopleSoft Common Stock received by Affiliate in connection with
the Merger. PeopleSoft may, at its discretion, cause a restrictive legend to the
foregoing effect to be placed on PeopleSoft Common Stock certificates issued to
Affiliate in the Merger and place a stock transfer notice consistent with the
foregoing with its transfer agent with respect to the certificates.
Notwithstanding the foregoing, Affiliate will not be prohibited by the foregoing
from selling or disposing of shares so long as such sale or disposition is in
accordance with the "de minimis" test set forth in SEC Staff Accounting Bulletin
No. 76 and so long as Affiliate has obtained PeopleSoft's prior written approval
of such sale or disposition.
4. Representations, Warranties and Covenants Related to Tax Effects of
the Merger.
(a) Affiliate is the beneficial owner of _______ shares of the
Pepper Capital Stock (including shares issuable upon exercise of stock options)
and did not acquire any of the Pepper Capital Stock in contemplation of the
Merger;
(b) Affiliate has not engaged in a Sale (as defined below) of
any shares of Pepper Capital Stock in contemplation of the Merger;
(c) Affiliate has no plan or intention (a "Plan") to engage in
a sale, exchange, transfer, redemption or reduction in any way of the
undersigned's risk of ownership by short sale or otherwise, or other
disposition, directly or indirectly (such actions being collectively referred to
herein as a "Sale") of more than 50% of the shares of PeopleSoft Common Stock to
be received by Affiliate in the Merger;
(d) If the undersigned is a partnership, then the term "Sale"
as used in paragraph (c) above shall be deemed not to include any distribution
to the undersigned's partners, provided that if any recipient of any such
distribution will receive shares of PeopleSoft Common Stock having a fair market
value of 1% or more of the fair market value of all the shares of Pepper Capital
Stock presently outstanding, the undersigned is not aware of any Plan on the
part of such recipient to engage in a Sale of more than 50% of the shares of
PeopleSoft Common Stock to be received by such recipient in such distribution;
(e) The undersigned is not aware of, or participating in, any
Plan on the part of the shareholders of Pepper to engage in a Sale or Sales of
the PeopleSoft Common Stock to be received in the Merger such that the aggregate
fair market value, as of the Effective Date of the Merger, of the shares subject
to such Sales would exceed 50% of the aggregate fair market value of all shares
of outstanding Pepper Capital Stock immediately prior to the Merger;
(f) Affiliate understands that Pepper, PeopleSoft and their
respective Affiliates, as well as legal counsel to Pepper and PeopleSoft (in
connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Code) will be
relying on the truth and accuracy of the representations contained herein.
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5. Miscellaneous.
(a) For the convenience of the parties hereto, this Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to
the benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
California.
(d) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the
Agreement shall be entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any
right hereunder waived or any obligation excused, except by a written agreement
signed by both parties.
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Executed as of the date shown on the first page of this Agreement.
PEOPLESOFT, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
AFFILIATE
By:
-------------------------------
Name of Affiliate:
-----------------
Name of Signatory (if
different from name of
Affiliate):
-----------------
Title of Signatory
(if applicable):
-----------------
***PEPPER COMPANY AFFILIATE AGREEMENT***
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<PAGE> 192
EXHIBIT B
PEOPLESOFT, INC.
AFFILIATE AGREEMENT
PEOPLESOFT, INC. AFFILIATE AGREEMENT ("Agreement") dated as of
September ___, 1996, between PeopleSoft, Inc., a Delaware corporation
("PeopleSoft") and the undersigned Affiliate ("Affiliate") of PeopleSoft.
WHEREAS, PeopleSoft and Red Pepper Software Company, a California
corporation ("Red Pepper Software") propose to enter into an Agreement and Plan
of Reorganization ("Merger Agreement") pursuant to which Red Pepper Software
will merge into PeopleSoft ("Merger");
WHEREAS, it will be a condition to effectiveness of the Merger that the
independent accounting firms that audit the annual financial statements of
PeopleSoft and Red Pepper Software will have delivered their written
concurrences to the effect that the Merger will be accounted for as a pooling of
interests;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to PeopleSoft to enter into the Merger Agreement;
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be
an "Affiliate" of PeopleSoft, as the term "Affiliate" is used in Accounting
Series Releases 130 and 135, as amended, although nothing contained herein shall
be construed as an admission by Affiliate that Affiliate is in fact an Affiliate
of PeopleSoft.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree
as follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by PeopleSoft, Red Pepper Software, and their respective
Affiliates, counsel and accounting firms, and that substantial losses and
damages may be incurred by these persons if Affiliate's representations,
warranties or covenants are breached. Affiliate has carefully read this
Agreement and the Merger Agreement and has discussed the requirements of this
Agreement with his professional advisors, who are qualified to advise him with
regard to such matters.
2. Covenants Related to Pooling of Interests. During the period
beginning from the date hereof and ending on the second complete day after the
day that PeopleSoft publicly announces financial results covering at least 30
days of combined operations of PeopleSoft and Red Pepper Software, Affiliate
will not sell, exchange, transfer, pledge, distribute, make any gift or
otherwise dispose of or grant any option, establish any "short" or
put-equivalent position with respect to or enter into any similar transaction
(through derivatives or otherwise) intended or having the effect, directly or
indirectly, to reduce his risk relative to any shares of PeopleSoft Common
Stock. PeopleSoft may, at its discretion, place a stock transfer notice
consistent with the foregoing with its transfer agent with respect to
Affiliate's shares. Notwithstanding the foregoing, Affiliate will not be
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prohibited by the foregoing from selling or disposing of shares so long as such
sale or disposition is in accordance with the "de minimis" test set forth in SEC
Staff Accounting Bulletin No. 76.
3. Beneficial Ownership of Stock. Except for the PeopleSoft Common
Stock and options to purchase PeopleSoft Common Stock set forth in Appendix A
hereto, Affiliate does not beneficially own any shares of PeopleSoft Common
Stock or any other equity securities of PeopleSoft or any options, warrants or
other rights to acquire any equity securities of PeopleSoft.
4. Miscellaneous.
(a) For the convenience of the parties hereto, this Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to
the benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
California.
(d) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the
Agreement shall be entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any
right hereunder waived or any obligation excused, except by a written agreement
signed by both parties.
Executed as of the date shown on the first page of this Agreement.
PEOPLESOFT, INC. AFFILIATE
By: By:
------------------------------ ------------------------------------
Name: Print Name of Affiliate:
----------------------------- ----------------
Title: Title (if applicable):
---------------------------- ----------------
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**PEOPLESOFT, INC. AFFILIATE AGREEMENT**
APPENDIX A
Affiliate:
-------------------------------------------------------
Total Number of shares of PeopleSoft, Inc. Common Stock owned on the date
hereof:_____________
Total Number of options to purchase PeopleSoft, Inc. Common Stock owned on the
date hereof (including the dates of grant, vesting, exercise prices and
expiration dates):
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
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<PAGE> 195
EXHIBIT C
RED PEPPER SOFTWARE COMPANY
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of
September 4, 1996, between PeopleSoft, Inc., a Delaware corporation
("PeopleSoft"), and the undersigned shareholder ("Shareholder") of Red Pepper
Software Company, a California corporation ("Red Pepper Software").
RECITALS
A. Concurrently with the execution of this Agreement, PeopleSoft and
Red Pepper Software have entered into an Agreement and Plan of Reorganization
(the "Merger Agreement") which provides for the merger (the "Merger") of Red
Pepper Software with and into PeopleSoft. Pursuant to the Merger, shares of
capital stock of the Red Pepper Software will be converted into Common Stock of
PeopleSoft on the basis described in the Merger Agreement.
B. The Shareholder is the record holder and beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding Common Stock of the
Red Pepper Software as is indicated on the final page of this Agreement (the
"Shares").
C. PeopleSoft desires the Shareholder to agree, and the Shareholder is
willing to agree, not to transfer or otherwise dispose of any of the Shares, or
any other shares of capital stock of the Red Pepper Software acquired hereafter
and prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), and to vote the Shares and any other such shares of
capital stock of the Red Pepper Software so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Shareholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares or any
New Shares as defined in Section 1.2 below, or to make any offer or agreement
relating thereto, at any time prior to the Expiration Date. As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement and (ii) such date and time as the Merger Agreement
shall be terminated pursuant to Article VIII thereof.
1.2 Additional Purchases. Shareholder agrees that any shares
of capital stock of the Red Pepper Software that Shareholder purchases or with
respect to which Shareholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date ("New Shares")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the Shareholders of
the Red Pepper Software called with respect to any of the following, and at
every adjournment thereof, and on every action or approval by written consent of
the Shareholders of the Red Pepper Software with respect to any of the
following, Shareholder shall vote the Shares and any New Shares: (i) in favor of
approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger; and (ii) against approval of
any proposal made in opposition to or competition with consummation of the
Merger and against any merger, consolidation, sale of assets, reorganization or
recapitalization, with any party other than with PeopleSoft and its affiliates
and against any liquida-
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tion or winding up of the Red Pepper Software (each of the foregoing is
hereinafter referred to as an "Opposing Proposal"). Shareholder agrees not to
take any actions contrary to Shareholder's obligations under this Agreement.
3. Irrevocable Proxy. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to PeopleSoft a proxy in the form
attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable, with the
total number of shares of capital stock of the Red Pepper Software beneficially
owned (as such term is defined in Rule 13d-3 under the Exchange Act) by
Shareholder set forth therein.
4. Consent to Conversion. Shareholder hereby consents to the conversion
of all outstanding Preferred Stock of Red Pepper Software into Common Stock
contingent upon but effective immediately prior to the Effective Time of the
Merger.
5. Representations, Warranties and Covenants of the Shareholder.
Shareholder hereby represents, warrants and covenants to PeopleSoft as follows:
5.1 Ownership of Shares. Shareholder (i) is the beneficial
owner of the Shares, which at the date hereof and at all times up until the
Expiration Date will be free and clear of any liens, claims, options, charges or
other encumbrances; (ii) does not beneficially own any shares of capital stock
of the Red Pepper Software other than the Shares (excluding shares as to which
Shareholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement and the Proxy.
5.2 No Proxy Solicitations. Shareholder will not, and will not
permit any entity under Shareholder's control to: (i) solicit proxies or become
a "participant" in a "solicitation" (as such terms are defined in Regulation 14A
under the Exchange Act) with respect to an Opposing Proposal or otherwise
encourage or assist any party in taking or planning any action that would
compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the Merger
Agreement; (ii) initiate a Shareholders' vote or action by consent of the Red
Pepper Software Shareholders with respect to an Opposing Proposal; or (iii)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of the Red Pepper Software
with respect to an Opposing Proposal.
6. Additional Documents. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of PeopleSoft or Shareholder, as the case may be, to carry
out the intent of this Agreement.
7. Consent and Waiver. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have.
8. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
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9.2 Binding Effect and Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, either this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties
hereto acknowledge that PeopleSoft will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreement of Shareholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to PeopleSoft upon any such
violation, PeopleSoft shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to PeopleSoft at law or in equity.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
If to PeopleSoft: Hacienda Business Park
4301 Hacienda Drive, Suite 420
Pleasanton, CA 94588-3031
Attn: General Counsel
With a copy to: Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Henry P. Massey, Jr., Esq.
If to the Shareholder: To the address for notice set forth on the
last page hereof.
With a copy to: Gray, Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attn: Gregory Gallo, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
9.6 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of California.
9.7 Entire Agreement. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
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9.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction of interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
PEOPLESOFT, INC.
By:
--------------------------------
Title:
--------------------------------
Shareholder:
By:
--------------------------------
Shareholder's Address for Notice:
--------------------------------
--------------------------------
--------------------------------
Shares beneficially owned:
shares of Common Stock
------------------
shares of Series A Preferred Stock
------------------
shares of Series A1 Preferred Stock
------------------
shares of Series B Preferred Stock
------------------
shares of Series C Preferred Stock
------------------
***VOTING AGREEMENT***
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned Shareholder of Red Pepper Software Company, a
California corporation ("Red Pepper Software"), hereby irrevocably appoints the
directors on the Board of Directors of PeopleSoft, Inc., a Delaware corporation
("PeopleSoft"), and each of them, as the sole and exclusive attorneys and
proxies of the undersigned, with full power of substitution and resubstitution,
to the full extent of the undersigned's rights with respect to the shares of
capital stock of the Red Pepper Software beneficially owned by the undersigned,
which shares are listed on the final page of this Proxy (the "Shares"), and any
and all other shares or securities issued or issuable in respect thereof on or
after the date hereof, until such time as that certain Agreement of Merger and
Plan of Reorganization dated as of September 4, 1996 (the "Merger Agreement"),
among PeopleSoft and Red Pepper Software, shall be terminated in accordance with
its terms or the Merger (as defined in the Merger Agreement) is effective. Upon
the execution hereof, all prior proxies given by the undersigned with respect to
the Shares and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof are hereby revoked and no subsequent
proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of September __, 1996 between PeopleSoft and the undersigned
Shareholder (the "Voting Agreement"), and is granted in consideration of
PeopleSoft entering into the Merger Agreement. The attorneys and proxies named
above will be empowered at any time prior to termination of the Merger Agreement
to exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of the
undersigned at every annual, special or adjourned meeting of Red Pepper Software
Shareholders, and in every written consent in lieu of such a meeting, or
otherwise, in favor of approval of the Merger and the Merger Agreement and any
matter that could reasonably be expected to facilitate the Merger, and against
any proposal made in opposition to or competition with the consummation of the
Merger and against any merger, consolidation, sale of assets, reorganization or
recapitalization of the Red Pepper Software with any party other than PeopleSoft
and its affiliates and against any liquidation or winding up of the Red Pepper
Software.
The attorneys and proxies named above may only exercise this proxy to
vote the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the Shareholders of
Red Pepper Software and in every written consent in lieu of such meeting, in
favor of approval of the Merger and the Merger Agreement and any matter that
could reasonably be expected to facilitate the Merger, and against any merger,
consolidation, sale of assets, reorganization or recapitalization of Red Pepper
Software with any party other than PeopleSoft and its affiliates, and against
any liquidation or winding up of the Red Pepper Software, and may not exercise
this proxy on any other matter. The undersigned Shareholder may vote the Shares
on all other matters.
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Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: September __, 1996
Signature of Shareholder:
---------------------------------
Print Name of Shareholder:
---------------------------------
Shares beneficially owned:
shares of Common Stock
----------------------
shares of Series A Preferred Stock
----------------------
shares of Series A1 Preferred Stock
----------------------
shares of Series B Preferred Stock
----------------------
shares of Series D Preferred Stock
----------------------
***PROXY***
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<PAGE> 201
EXHIBIT D
FORM OF LEGAL OPINION OF COUNSEL TO PETER
1. Peter is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Peter is duly qualified as a
foreign corporation and in good standing in the State of California. Peter has
all requisite power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
2. The shares of Peter Common Stock (the "Shares") to be issued and
delivered to the shareholders of Pepper in exchange for shares of Pepper Common
Stock, will, when issued in accordance with the terms of the Reorganization
Agreement, be validly issued, fully paid and nonassessable and free of liens,
encumbrances or preemptive or similar rights contained in the Certificate of
Incorporation or Bylaws of Peter; provided, however, that the Shares may be
subject to restrictions on transfer under state and/or federal securities laws.
The shares of Peter Common Stock issuable upon exercise of the Pepper Options to
be assumed by Peter in accordance with the Reorganization Agreement have been
duly reserved and authorized for issuance upon exercise of such options and,
when issued in accordance with the respective terms of such options, such shares
will be duly authorized and validly issued, fully paid and nonassessable.
Assuming the Pepper Options to be assumed by Peter in the Merger were valid and
binding obligations of Pepper prior to the assumption thereof and assuming the
consummation of the Merger will not cancel or invalidate such options in
accordance with their respective terms, such options will represent valid and
binding obligations of Peter when assumed by Peter in accordance with terms of
the Reorganization Agreement.
3. Peter has all requisite corporate power and authority to enter into
the Reorganization Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Reorganization Agreement, the performance by Peter of its obligations
thereunder and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action on the part
of Peter, and have been approved by the Board of Directors of Peter. No other
corporate proceeding on the part of Peter is necessary to authorize the
Reorganization Agreement by Peter or the performance of Peter's obligations
thereunder or the consummation of the transactions contemplated thereby. The
Reorganization Agreement has been duly executed and delivered by Peter and,
assuming due execution and delivery by Pepper, constitutes the legal, valid and
binding obligation of Peter, enforceable against Peter in accordance with its
terms.
4. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or threatened against Peter which challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by the Reorganization Agreement.
This opinion is solely for your benefit and is not to be made available
to or relied upon by any other person without our express prior written consent.
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EXHIBIT E
1. Each of Pepper, Pepper Singapore and Pepper UK is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, Singapore and the United Kingdom, respectively, and each is duly
qualified to do business as a foreign corporation and in good standing in each
state of the United States and such other jurisdictions in which the failure to
be so qualified would have a material adverse effect on Pepper and its
subsidiaries taken as a whole. Each of Pepper Singapore and Pepper UK is a
wholly-owned subsidiary of Pepper. Pepper, Pepper Singapore and Pepper UK each
have the requisite corporate power and authority to own or lease their property
and assets and to conduct their business as it is currently being conducted.
2. To our knowledge, immediately prior to the Effective Time of the
Merger: the authorized capital stock of Pepper consists of 20,000,000 shares of
authorized Common Stock, of which 3,055,083 shares are issued and outstanding,
and 10,500,000 shares of authorized Preferred Stock. The authorized Preferred
Stock consists of 840,000 shares of authorized Series A Preferred Stock, all of
which are issued and outstanding, 750,000 shares of authorized Series A1
Preferred Stock, of which 700,000 shares are issued and outstanding, 5,000,000
shares of authorized Series B Preferred Stock, of which 4,662,903 shares are
issued and outstanding, and 3,534,501 shares of authorized Series C Preferred
Stock, all of which are issued and outstanding. All outstanding shares of Pepper
Capital Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of Pepper or any agreement to which Pepper is a party or
by which it is bound. Pepper has reserved 3,400,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
_________ shares are subject to outstanding, unexercised options and ______
shares remain available for future grant. All outstanding Pepper Options are
immediately exercisable in full. In addition, Pepper has reserved _________
shares of Common Stock and ___________ shares of Series __ Preferred Stock
issuable upon outstanding warrants. To our knowledge and except for Pepper
Options and the warrants described above, there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
Pepper is a party or by which it is bound obligating Pepper to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of Pepper. Except for Pepper
Options and the warrants described above, there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
Pepper is a party or by which it is bound obligating Pepper to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement.
3. Pepper has all requisite corporate power and authority to enter into
the Reorganization Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Reorganization Agreement, the performance by Pepper of its obligations
thereunder and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action on the part
of Pepper and have
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been approved by the Board of Directors and stockholders of Pepper. No other
corporate proceeding on the part of Pepper is necessary to authorize the
execution and delivery of the Reorganization Agreement by Pepper or the
performance of Pepper's obligations thereunder or the consummation of the
transactions contemplated thereby. The Reorganization Agreement has been duly
and validly authorized, executed and delivered by Pepper and constitutes a valid
and binding agreement of Pepper enforceable against Pepper in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific performance.
4. The execution and delivery by Pepper of the Reorganization Agreement
does not, and the consummation of the transactions contemplated thereby do not:
(a) violate any provision of Pepper's Articles of Incorporation or Bylaws, (b)
violate (i) any governmental statute, rule or regulation applicable to Pepper or
(ii) any order, writ, judgment, injunction, decree, determination or award which
has been entered against Pepper and of which we are aware, the violation of
which would materially and adversely affect Pepper; or (c) constitute a material
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
a lien or encumbrance on any of the properties or assets of Pepper pursuant to,
any material agreement known to us to which Pepper is a party.
5. To our knowledge, all consents, approvals, authorizations or orders
of, and all filings, registrations and qualifications by Pepper with, any
regulatory authority or governmental body in the United States required for the
consummation by Pepper of the transactions contemplated by the Reorganization
Agreement have been made or obtained, except for the filing of the Certificate
of Merger and documents related thereto with the Secretaries of State of the
States of Delaware and California.
6. The Reorganization Agreement has been duly approved and adopted by
the affirmative vote of a number of outstanding shares of Pepper Capital Stock
that equals or exceeds the number of such shares required to approve the
Reorganization Agreement under the Delaware General Corporation Law, the
California Corporations Code and Pepper's Articles of Incorporation.
7. To our knowledge, other than as set forth in the Reorganization
Agreement and the Pepper Schedules delivered pursuant thereto, there is no
action, proceeding or investigation pending or overtly threatened against Pepper
before any court or administrative agency that questions the validity of the
Reorganization Agreement or that might result, either individually or in the
aggregate, in any material adverse change in the assets, financial condition, or
operations of Pepper.
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EXHIBIT F
NON-COMPETITION, NON-SOLICITATION AND NON-HIRE AGREEMENT
This Agreement is entered into by and between PeopleSoft, Inc.
("PeopleSoft"), and ________________ ("Employee") as of September 4, 1996.
RECITALS
A. Pursuant to that certain Agreement and Plan of Reorganization (the
"Merger Agreement") dated as of September 4, 1996 by and between PeopleSoft and
Red Pepper Software Company ("Pepper"), Pepper will merge with and into
PeopleSoft (the "Merger") and any shares of Pepper Capital Stock owned by
Employee will be exchanged for PeopleSoft Common Stock and any options to
acquire Pepper Capital Stock will be assumed by PeopleSoft and become options to
acquire PeopleSoft Common Stock;
B. Employee owns an equity interest in Pepper (whether through
outstanding capital stock or options to purchase capital stock), has served as
the President and Chief Executive Officer at Pepper and has gained substantial
knowledge and expertise in connection with Pepper's products, organization and
customers;
C. PeopleSoft and Employee acknowledge that it would be detrimental to
PeopleSoft if Employee would compete with PeopleSoft following the Merger;
D. PeopleSoft and Pepper are engaged in the development, manufacturing,
distributing and licensing of real-time planning and scheduling software based
on intelligent agent technology and services related thereto (the "Business");
E. It is a condition to the obligation of PeopleSoft to consummate the
Merger that certain key employees of Pepper, including Employee, enter into this
Agreement;
F. As inducement to PeopleSoft to consummate the Merger, and in
consideration of the amounts paid to securityholders of Pepper under the Merger
Agreement, Employee desires to agree with PeopleSoft as further provided herein;
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
Non-Competition, Non-Solicitation and Non-Hire
1.1 Non-Competition.
(a) The parties understand and agree that this Agreement is
entered into in connection with the Merger. The parties further understand and
agree that Employee is a key and significant member of Pepper, owns or has the
right to acquire a significant number of shares of Pepper and that the Merger is
contingent upon Employee entering into this Agreement, including this
non-competition provision. In
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addition, the parties understand that prior to the Merger, Pepper was engaged in
business in each of the fifty states of the United States and Singapore and the
United Kingdom. The parties further understand that PeopleSoft is currently
engaged in business in each of the fifty states of the United States and
Singapore and the United Kingdom and such regions shall hereafter be referred to
as the "Geographic Scope of the Business".) Employee further acknowledges that
PeopleSoft following the Merger will continue conducting such business in all
parts of the Geographic Scope of the Business. The parties expressly acknowledge
and agree that the non-competition provisions contained in this Agreement are
permissible and enforceable pursuant to the provisions of applicable law.
(b) During the period commencing on the closing date of the
Merger (the "Closing Date") and ending three years after the Closing Date,
without the prior written consent of the Chief Executive Officer of PeopleSoft,
Employee shall not either as an individual or as an employee, agent, consultant,
advisor, independent contractor, general partner, officer, director, shareholder
or investor of any person, firm, corporation, partnership or other entity:
(i) participate or engage in the design,
development, manufacture, production, marketing, sale or servicing of any
product, or the provision of any service, that directly or indirectly competes
with Pepper's or PeopleSoft's Products (for purposes hereof "Products" shall be
defined as the products owned or under development by PeopleSoft as of the
Closing Date and any products based upon the Pepper Intellectual Property Rights
(as that term is defined in the Merger Agreement) as of the Closing Date or
developed at any time from the Closing Date through the date when Employee
ceases to be employed by PeopleSoft);
(ii) permit the name of Employee to be used in
connection with a competitive Business.
Notwithstanding the foregoing, Employee may own, directly or
indirectly, solely as passive investment, up to 4.9% of any class of "publicly
traded securities" of any person or entity which owns a competitive Business,
and up to 10% of the outstanding securities that are not "publicly traded
securities" of any person or entity which owns a competitive Business. For the
purposes of this Section 1.1, the term "publicly traded securities" shall mean
securities that are traded on a national securities exchange or listed on the
Nasdaq National Market, and the term "passive investment" shall include an
investment through a mutual fund, limited partnership or other investment
vehicle which is engaged in the business of portfolio investments.
1.2 Non-Solicitation and Non-Hire. Employee agrees that during the
period commencing on the Closing Date and ending one year after the Closing
Date, without the prior written consent of the Chief Executive Officer of
PeopleSoft, Employee will not directly or indirectly hire, recruit or solicit
any person or entity who, as of the date of such recruitment or solicitation,
was an employee or consultant of PeopleSoft or was an employee of Pepper just
prior to the date of this Agreement, or otherwise encourage any such person or
entity to terminate or curtail its employment or consulting relationship with
PeopleSoft.
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1.3 Savings Clause. If any restriction set forth in Sections 1.1 or 1.2
above is held to be unreasonable or unenforceable, then Employee agrees, and
hereby submits, to the reduction and limitation of such prohibition to such area
or period as shall be deemed reasonable.
ARTICLE II
Non-Competition Payments
2.1 Non-Competition Payments.
(a) Voluntary Resignation, Death, Disability or Termination
for Cause. If Employee's employment terminates by reason of Employee's voluntary
resignation (and is not an Involuntary Termination (as defined below)), death,
Disability (as defined below) or if Employee is terminated for cause (as defined
below), then Employee shall not be entitled to receive severance or other
benefits except for those (if any) as may then be established under PeopleSoft's
then existing severance and benefits plans and policies at the time of such
termination; provided, however, in the event of a termination of employment
under this Section 2.1(a) due to Disability, the obligations set forth in
Section 1.1 and 1.2 of this Agreement would only apply if PeopleSoft makes the
payments waives the repurchase rights and accelerates the vesting or exercise of
any options under this Agreement as set forth in Section 2.1(b) of this
Agreement.
(b) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for "Cause", then
(i) all options to acquire PeopleSoft Common Stock held by Employee shall
immediately become exercisable and vested in full; (ii) PeopleSoft shall waive
any right of repurchase held by PeopleSoft on shares of Common Stock of Pepper
held by such Employee, and (iii) PeopleSoft shall continue to pay Employee his
Annual Salary (as defined below) for the remainder of the term of this
Non-Competition and Non-Solicitation Agreement; provided, however, that if
PeopleSoft releases Employee from his obligations set forth in Sections 1.1 and
1.2 of this Agreement then PeopleSoft shall not be required to make any
payments, accelerate the vesting or exercise of any options or waive any
repurchase rights under this Agreement as of the Termination Date (as defined
below).
2.2 Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Annual Salary. "Annual Salary" as used herein shall mean
the base annual salary for Employee in effect as of the Termination Date.
(b) Cause. "Cause" as used herein shall mean (i) habitual or
repeated failure to perform reasonably assigned duties after Employee has
received written demand for performance which includes reasonable detail
describing non-performance (provided that as long as Employee is performing such
duties at a level of performance at least comparable to the level of performance
by Employee as an employee prior to the Merger, Employee shall not be deemed to
have "failed to perform" for purposes
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of this clause); (ii) engagement in gross misconduct which is injurious to
PeopleSoft; (iii) commission of a felony (other than motor vehicle related
felonies) or an act of fraud against PeopleSoft; or (iv) Employee's breach of
confidentiality or proprietary information agreement between Employee and
PeopleSoft.
(c) Disability. "Disability" shall mean that Employee has been
unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such in ability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by PeopleSoft or its insurers and acceptable to Employee or
Employee's legal representative (such agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by PeopleSoft of its intention
to terminate Employee's employment. In the event that Employee resumes the
performance of substantially all of his duties hereunder before the termination
of his employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(d) Involuntary Termination. "Involuntary Termination" shall
mean (i) termination by PeopleSoft other than for "Cause" (as defined above);
(ii) without Employee's express written consent, the assignment to Employee of
any duties or the reduction of Employee's duties, either of which results in a
significant diminution in Employee's position or responsibilities with
PeopleSoft in effect immediately prior to such assignment, or the removal of
Employee from such position and responsibilities; (iii) a reduction by
PeopleSoft in the annual salary of Employee as in effect on the date hereof or
as the same may be increased from time to time, except for across-the-board
salary reductions similarly affecting all senior executives of PeopleSoft; (iv)
a failure by PeopleSoft, without Employee's consent, to pay Employee any portion
of Employee's current compensation or to pay to Employee any portion of an
installment of deferred compensation under any deferred compensation program of
PeopleSoft, within seven days of the date such compensation is due; (v) a
material reduction by PeopleSoft in the kind or level of employee benefits to
which Employee is entitled immediately prior to such reduction with the result
that Employee's overall benefits package is significantly reduced; or (vi) the
relocation of Employee to a facility or a location more than 50 miles from
Pepper's San Mateo, California location as of the Closing Date, without
Employee's express written consent.
(e) Termination Date. "Termination Date" shall mean (i) if
this Agreement is terminated by PeopleSoft for Disability, thirty (30) days
after notice of termination is given to Employee (provided that Employee shall
not have returned to the performance of Employee's duties on a full-time basis
during such thirty (30) day period), (ii) if Employee's employment is terminated
by PeopleSoft for any other reason, the date on which a notice of termination is
given, unless otherwise specified in such notice, or (iii) if the Agreement is
terminated by Employee, the date on which Employee delivers the notice of
termination to PeopleSoft.
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ARTICLE III
Miscellaneous
3.1 Successors, Assigns, Merger. This Agreement shall be binding upon
and shall inure to the benefit of PeopleSoft and its successors and assigns.
This Agreement shall be binding upon Employee and shall inure to his benefit and
to the benefit of his heirs, executors, administrators and legal
representatives, but shall not be assignable by Employee.
3.2 Entire Agreement. This Agreement constitutes the entire agreement
between PeopleSoft and Employee relating to his employment and the additional
matters herein provided for. This Agreement supersedes and replaces any prior
verbal or written agreements between the parties. This Agreement may be amended
or altered only in a writing signed by the Chief Executive Officer of PeopleSoft
and Employee.
3.3 Applicable Law; Severability. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California without
regard to conflicts of laws and principles. Each provision of this Agreement is
severable from the others, and if any provision hereof shall be to any extent
unenforceable it and the other provisions hereof shall continue to be
enforceable to the full extent allowable, as if such offending provision had not
been a part of this Agreement.
3.4 Proprietary Information Agreement. Employee shall execute
PeopleSoft's Proprietary Information and Inventions Assignment Agreement
concurrent with his execution of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above.
PEOPLESOFT, INC. EMPLOYEE
By: ____________________________ ___________________________________
Name: _____________________________
Its: ____________________________
*** NON-COMPETITION, NON-SOLICITATION AND NON-HIRE AGREEMENT***
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ANNEX B
CHAPTER 13
CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE; "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) of Section 1201, each shareholder of such corporation entitled
to vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split or share dividend which
becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (0) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision does not apply
to any shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to five
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination
of shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1301.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within ten (10) days alter the date of such approval
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without
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regard to the provisos in that paragraph), not later than the date of the
shareholders' meeting to vote upon the reorganization, or (2) in any other case
within thirty (30) days alter the date on which the notice of the approval by
the outstanding shares pursuant to subdivision (a) or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within thirty (30) days alter the date on which notice of the approval
by the outstanding shares or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
SECTION 1303. AGREED PRICE; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within thirty (30) days after
the amount thereof has been agreed or within thirty (30) days after any
statutory or contractual conditions to the reorganization are satisfied,
whichever is later, and in the case of certificated securities, subject to
surrender of the certificates therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six (6) months after the date on
which notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISER'S REPORT; PAYMENT; COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
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(b) If a majority of the appraisers appointed fail to make and file a
report within ten (10) days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorney's fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six (6) months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
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(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder s demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon ten (10)
days' prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by or under common control with, another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the shareholders of
any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933 (the "Act"). Article XIII of
the Registrant's currently effective Certificate of Incorporation and Article VI
of the Registrant's Bylaws provide for indemnification of its directors,
officers, employees and other agents. In addition, the Registrant has entered
into indemnification agreements with its officers and directors.
Commencing with the effectiveness of the Merger, the Registrant will
either cause Red Pepper to, or will itself directly indemnify the current
officers and directors of Red Pepper in accordance with Red Pepper's Bylaws in
effect immediately before the Merger to any action or inaction by such person
prior to the Merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
2.1 Agreement and Plan of Reorganization between PeopleSoft, Inc. and Red Pepper
Company dated as of September 4, 1996 (included as Annex A to the
Prospectus/Consent Solicitation Statement included as a part of this Registration
Statement).
3.2(1) Restated Certificate of Incorporation of Registrant, as amended to date.
3.3(1) Bylaws of Registrant, as amended to date.
5.1 Form of Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation.
8.1 Form of Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
as to tax matters.
8.2 Form of Opinion of Gray Cary Ware & Freidenrich as to tax matters.
10.1(1) Amended and Restated 1989 Stock Plan and forms of option agreements thereunder.
10.2(1) 1992 Employee Stock Purchase Plan as amended to date, and form of subscription
agreement thereunder.
10.3(1) 1992 Directors' Stock Option Plan and forms of option agreements thereunder.
10.5(8) Amendment and Restatement of PeopleSoft, Inc. 401(K) Plan, dated December 13,
1995, Amendment No. 1 dated December 30, 1994, and Amendment No. 2, dated
August 25, 1995.
10.6(1) Form of Indemnification Agreement entered into between the Registrant and each of
its directors and officers.
10.7(8) Loan Agreement between the Registrant and West America Bank, N.A. dated
October 31, 1995.
10.8(1) Office Lease for 1331 North California Boulevard dated July 23, 1990 between the
Registrant and 1333 North California Boulevard, a California limited partnership,
as amended by the First Amendment to Lease dated April 24, 1991 and the Second
Amendment to Lease dated June 17, 1992 and related Lease Guarantees dated July 26,
1990 and June 14, 1991 between 1333 North California Boulevard and David A.
Duffield.
10.9(1) Lease dated July 24, 1992 between the Registrant and Glen Pointe Associates.
</TABLE>
II-1
<PAGE> 215
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C> <C>
10.10(1,6) Perpetual License Agreement dated July 1, 1991 between the Registrant and Norwest
Corporation.
10.11(1,6) Software License Agreement dated August 26, 1991 between the Registrant and
Goldman, Sachs & Co. and Addendum One thereto dated March 6, 1992, and related
Software Maintenance Agreement dated August 26, 1991.
10.12(1,6) Software License and Support Agreement dated June 23, 1992 between the Registrant
and ADP, Inc., as amended by Amendment No. 1 dated September 30, 1992.
10.14(1) Rights Agreement dated April 26, 1991 among the Registrant, Norwest Equity
Partners IV, L.P. and certain of the Registrant's officers.
10.15(1,2,6) OEM Software License Agreement between the Registrant and Gupta Technologies, Inc.
10.17(1,6) Perpetual License Agreement effective March 6, 1992 between the Registrant and the
Equitable Life Assurance Society of the United States and Addendum One thereto
effective March 6, 1992.
10.18(2) Lease dated June 23, 1993 between the Registrant and Westbrook Corporate Center.
10.19(2) Lease dated January 17, 1994 between the Registrant and R-H Associates Bldg. III
Corp.
10.20(2) Lease dated March 10, 1994 between the Registrant and Rosewood Associates.
10.21(3) Contract of Sale and Escrow Instructions between the Company and Rosewood Owner of
California (B) LLC, a California limited liability company, dated October 4, 1995.
10.22(4) Warrant Agreement between the Registrant and The First National Bank of Boston, as
Warrant Agent, dated October 30, 1995.
10.23(4) Warrant Purchase Agreement between the Registrant and Goldman, Sachs & Co. dated
October 30, 1995.
10.24(4) Registration Rights Agreement between the Registrant and Goldman, Sachs & Co.
dated October 30, 1995.
10.25(8) Amendment No. 2 dated September 28, 1994, Amendment No. 3 dated September 21, 1995
and Amendment No. 4 dated December 28, 1995 to the Software License and Support
Agreement dated June 23, 1992 between the Registrant and ADP, Inc.
10.26(7,8) Amended Software Development Agreement dated December 22, 1995 between the
Registrant and Solutions for Education Administrators, Inc.
10.27(7,8) Exclusive Marketing and Distribution Agreement dated December 22, 1995 between the
Registrant and SIS Development LLC ("SIS").
10.28(8) Amendment No. 1 dated September 19, 1994, Amendment No. 2 dated May 15, 1995 and
Amendment No. 3 dated June 19, 1995 to the Lease dated March 10, 1994 between the
Registrant and Rosewood Associates.
10.29(7,8) Systems Integrator Agreement dated August 25, 1995 between the Registrant and
Shared Medical Systems Corporation.
10.30(8) Software Development and End User License and Support Services Agreement dated
September 30, 1994 between the Registrant and PeopleMan, L.P.
10.31(8) Exclusive Marketing and Distribution Agreement dated September 30, 1994 between
the Registrant and PeopleMan, L.P.
11.18(8) Computation of per share earnings.
21.18(8) Subsidiaries.
</TABLE>
II-2
<PAGE> 216
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors for PeopleSoft, Inc.
23.2 Consent of Ernst & Young, LLP Independent Auditors for Red Pepper Software Company
23.3* Consent of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation (included
in Exhibits 5.1 and 8.1).
23.4* Consent of Gray Cary Ware & Freidenrich (included in Exhibit 8.2).
24.1 Power of Attorney (included on page II-5 of this Registration Statement).
27.1 Financial Data Schedule
99.1 Form of Consent of Shareholders of Red Pepper Software Company.
</TABLE>
---------------------------
1 Incorporated by reference to the exhibit having the same number
filed with the Registrant's Registration Statement on Form S-1
(No. 33-53000) filed October 7, 1992, Amendment No. 1 thereto
filed October 26, 1992, Amendment No. 2 thereto filed November 10,
1992 and Amendment No. 3 thereto filed November 18, 1992, which
Registration Statement became effective November 18, 1992 and the
Registrant's Registration Statement on Form S-1 (No. 33-62356)
filed on May 7, 1993, which Registration Statement became
effective May 24, 1993.
2 Incorporated by reference to the exhibit having the same filed
number with the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
3 Incorporated by reference to Exhibit 2.1 filed with the Company's
Form 8-K filed with the Securities and Exchange Commission on
December 15, 1995.
4 Exhibits 10.22, 10.23, and 10.24 are incorporated by reference to
Exhibits 10.1, 10.2, and 10.3, respectively, filed with the
Company's Registration Statement on Form S-3 (No. 33-80755) filed
with the Securities and Exchange Commission on December 22, 1995.
5 This agreement is a compensatory plan or arrangement.
6 Confidential treatment previously granted.
7 Confidential treatment has been requested in connection with the
filing of Registrant's Annual Report on Form 10-K.
8 Incorporated by reference to exhibit having the same number filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULE
All schedules have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or the notes thereto.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the undersigned Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) The Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as the indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised
II-3
<PAGE> 217
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(4) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Pleasanton, State of California, on the 26th day of September, 1996.
PEOPLESOFT, INC.
By: /s/ David A. Duffield
----------------------------------------
David A. Duffield
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, David A.
Duffield, Ronald E.F. Codd and Robert D. Finnell, and each of them acting
individually, as his attorney-in-fact, each with full power of substitution, for
him in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David A. Duffield Chairman of the Board of Directors, September 26, 1996
- ----------------------------- President and Chief Executive Officer
David A. Duffield (Principal Executive Officer)
/s/ Ronald E.F. Codd Senior Vice President of Finance and September 26, 1996
- ----------------------------- Administration, Chief Financial Officer
Ronald E.F. Codd and Secretary (Principal Financial
Officer)
/s/ A. George "Skip" Battle Director September 26, 1996
- -----------------------------
A. George "Skip" Battle
/s/ Edgar F. Codd Director September 26, 1996
- -----------------------------
Edgar F. Codd
/s/ Albert Duffield Director September 26, 1996
- -----------------------------
Albert Duffield
/s/ George J. Still, Jr. Director September 26, 1996
- -----------------------------
George J. Still, Jr.
/s/ Cyril J. Yansouni Director September 26, 1996
- -----------------------------
Cyril J. Yansouni
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
FORM OF LEGAL OPINION TO BE GIVEN
BY WILSON, SONSINI, GOODRICH & ROSATI
PROFESSIONAL CORPORATION
_________________________ , 1996
PeopleSoft, Inc.
4440 Rosewood Drive
Pleasanton, California 94588
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4, Commission
File Number 33- ____, filed by you with the Securities and Exchange Commission
(the "Commission") on _____ , 1996 (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of 2,682,917
shares of your Common Stock (the "Shares"). As your counsel in connection with
the transaction, we have examined the proceedings taken and are familiar with
the proceedings proposed to be taken by you in connection with the sale and
issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/WILSON SONSINI GOODRICH & ROSATI
---------------------------------
<PAGE> 1
EXHIBIT 8.1
Form of Tax Opinion
September __, 1996
PeopleSoft, Inc.
Hacienda Business Park
4301 Hacienda Drive, Suite 240
Pleasanton, California 94588
Ladies and Gentlemen:
We have acted as counsel for PeopleSoft, Inc., a Delaware corporation
("PeopleSoft") in connection with the preparation and execution of the Agreement
and Plan of Reorganization (the "Merger Agreement") dated as of September 4,
1996, among PeopleSoft, and Red Pepper Software Company, a California
corporation ("Red Pepper"). This opinion is being delivered to you in connection
with the filing of a registration statement on Form S-4 of a Prospectus /
Consent Statement and pursuant to Section 6.1(d) of the Merger Agreement.
Pursuant to the Merger Agreement, Red Pepper will merge with and into PeopleSoft
(the "Merger"), and PeopleSoft will be the surviving corporation. Unless
otherwise defined, capitalized terms referred to herein have the meanings set
forth in the Merger Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the S-4 and Proxy Statement, the Merger Agreement (including
Schedules and Exhibits), an opinion of counsel received by Red Pepper from Gray
Cary Ware & Freidenrich, Professional Corporation, substantially identical in
substance to this opinion (the "GCWF Tax Opinion"), and such other documents
pertaining to the Merger as we have deemed necessary or appropriate. We have
also reviewed and relied upon certificates of officers of PeopleSoft and Red
Pepper respectively (the "Officers' Certificates"), as well as continuity of
interest certificates executed and delivered by certain shareholders of Red
Pepper (the "Continuity of Interest Certificates") and/or affiliate agreements
executed and delivered by certain shareholders, officers and directors of Red
Pepper (the "Affiliate Agreements").
In connection with rendering this opinion, we have assumed or obtained
representations (without any independent investigation) that:
<PAGE> 2
PeopleSoft, Inc.
September __, 1996
Page 2
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. Any statement made in any of the documents referred to herein, "to
the best of the knowledge" of any person or party is correct without such
qualification;
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations;
4. The Merger will be reported by PeopleSoft and Red Pepper on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
5. The shareholders of Red Pepper do not, and will not on or before the
Effective Time, have an existing plan or intent to dispose of an amount of
PeopleSoft Common Stock to be received in the Merger (or to dispose of Red
Pepper Capital Stock in anticipation of the Merger) such that the shareholders
of Red Pepper will not receive and retain a meaningful continuing equity
ownership in PeopleSoft that is sufficient to satisfy the continuity of interest
requirement as specified in Treasury Regulations Section 1.368-1(b) and as
interpreted in certain Internal Revenue Service rulings and judicial decisions;
and
6. The GCWF Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates, the
Continuity of Interest Certificates, and the Affiliate Agreements are true and
correct as of the date hereof, at the effective date of the Information
Statement and at the Effective Time, then, for federal income tax purposes, the
Merger will qualify as a "reorganization" as defined in Section 368(a) of the
Code.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
Federal income tax laws.
<PAGE> 3
PeopleSoft, Inc.
September __, 1996
Page 3
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion has been delivered to you only for the purposes stated. It
may not be relied upon for any other purpose or by any other person or entity,
and may not be made available to any other person or entity without our prior
written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 8.2
Form of Tax Opinion
September ___, 1996
Red Pepper Software Company
1810 Gateway Drive, Suite 150
San Mateo, CA 94404
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of
a registration statement on Form S-4 of a Prospectus/Consent Solicitation, and
pursuant to Section 6.1(d) of the Agreement and Plan of Reorganization dated
September 4, 1996 (the "Merger Agreement") among PeopleSoft, Inc., a Delaware
corporation ("PeopleSoft") and Red Pepper Software Company, a California
corporation ("Red Pepper"). Pursuant to the Merger Agreement, Red Pepper will
merge with and into PeopleSoft (the "Merger"), and PeopleSoft will be the
surviving corporation.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Red Pepper in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have examined
and are relying upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Merger Agreement;
2. Representations and warranties made to us by Red Pepper;
3. Representations and warranties made to us by PeopleSoft;
4. Representations and warranties of certain shareholders of Red Pepper
in "Continuity of Interest Certificates" and of certain shareholders, officers
and directors of Red Pepper in "Affiliates Agreements";
<PAGE> 2
5. The registration statement on Form S-4 of a Prospectus/Consent
Solicitation of Red Pepper and PeopleSoft (the "Registration Statement");
6. An opinion of counsel, received by PeopleSoft from Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, substantially identical in
substance to this opinion (the "WSGR Tax Opinion"); and
7. Such other instruments and documents related to the formation,
organization and operation of Red Pepper and PeopleSoft or to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof.
2. The Merger will be consummated pursuant to the Merger Agreement and
will be effective under the applicable state law.
3. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters in
which a person or entity making a representation referred to above has
represented that such person or entity either is not a party to, does not have,
or is not aware of, any plan or intention, understanding or agreement, there is
in fact no such plan, intention, understanding or agreement.
4. The WSGR Tax Opinion has been delivered and not withdrawn.
5. The shareholders of Red Pepper do not, and will not on or before the
Effective Time, have an existing plan or intent to dispose of an amount of
PeopleSoft Common Stock to be received in the Merger (or to dispose of Red
Pepper Capital Stock in anticipation of the Merger) such that the shareholders
of Red Pepper will not receive and retain a meaningful continuing equity
ownership in PeopleSoft that is sufficient to satisfy the continuity of interest
requirement as specified in Treasury Regulations Section 1.368-1(b) and as
interpreted in certain Internal Revenue Service rulings and judicial decisions.
6. The Merger will be reported by PeopleSoft and Red Pepper on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will constitute
a "reorganization" as defined in Section 368(a) of the Code.
<PAGE> 3
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and the Internal Revenue Service is not precluded from successfully
asserting a contrary position. Furthermore, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
2. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code. No opinion is expressed as to
any other matter, including any other tax consequences of the Merger or any
other transaction (including any transaction undertaken in connection with the
Merger) under any foreign, federal, state, or local tax law.
3. No opinion is expressed as to any transaction other than the Merger
as described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
4. This opinion is intended solely for the benefit of you and your
shareholders; it may not be relied upon by any other person or entity, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent, however, to the use of this opinion as an exhibit to
the Registration Statement and further consent to the use of our name whenever
appearing in the Registration Statement, including the Prospectus/Consent
Solicitation constituting a part thereof, and any amendments thereto.
Very truly yours,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 30, 1996, with respect to the
consolidated financial statements of PeopleSoft, Inc. included in the
Registration Statement (Form S-4) and related Prospectus of PeopleSoft, Inc. and
the Consent Solicitation Statement of Red Pepper Software Company for the
registration of 2,682,917 shares of the common stock.
ERNST & YOUNG LLP
Walnut Creek, California
September 23, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 26, 1996, with respect to the financial
statements of Red Pepper Software Company included in the Registration Statement
(Form S-4) and related Prospectus of PeopleSoft, Inc. and Consent Solicitation
Statement of Red Pepper Software Company for the registration of 2,682,917
shares of the common stock.
ERNST & YOUNG LLP
San Jose, California
September 23, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF WILSON, SONSINI, GOODRICH & ROSATI
(INCLUDED IN EXHIBITS 5.1 AND 8.1)
<PAGE> 1
EXHIBIT 23.4
CONSENT OF GRAY, CARY, WARE & FREIDENRICH
(INCLUDED IN EXHIBIT 8.2)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 88,052
<SECURITIES> 37,687
<RECEIVABLES> 102,538
<ALLOWANCES> 4,765
<INVENTORY> 0
<CURRENT-ASSETS> 243,590
<PP&E> 81,383
<DEPRECIATION> 18,164
<TOTAL-ASSETS> 314,151
<CURRENT-LIABILITIES> 156,145
<BONDS> 0
0
0
<COMMON> 493
<OTHER-SE> 156,208
<TOTAL-LIABILITY-AND-EQUITY> 314,151
<SALES> 0
<TOTAL-REVENUES> 227,568
<CGS> 0
<TOTAL-COSTS> 63,082
<OTHER-EXPENSES> 119,601
<LOSS-PROVISION> 2,860
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 48,929
<INCOME-TAX> 19,570
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,359
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
<PAGE> 1
EXHIBIT 99.1
RED PEPPER SOFTWARE COMPANY
CONSENT OF SHAREHOLDERS TO AUTHORIZATION
AND APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
AND RELATED AGREEMENT OF MERGER
The undersigned shareholder of Red Pepper Software Company, a
California corporation ("Red Pepper"), with respect to all of the shares of
common stock, $.01 par value ("Red Pepper Common Stock"), and preferred stock,
$.01 par value ("Red Pepper Preferred Stock"), of Red Pepper of which the
undersigned was the record holder at the close of business on September 20, 1996
(the "Record Date"), hereby authorizes and approves, by consent in writing
without a meeting, pursuant to Section 603 of the California General Corporation
Law, as amended (the "CGCL"), the following:
(i) the Agreement and Plan of Reorganization dated September
4, 1996 (the "Reorganization Agreement") between Red Pepper and PeopleSoft,
Inc., a Delaware corporation ("PeopleSoft"), pursuant to which Red Pepper will
be merged with and into PeopleSoft (the "Merger"), the separate corporate
existence of Red Pepper shall cease and PeopleSoft shall continue as the
surviving corporation; and
(ii) the related Agreement of Merger to be filed with the
Delaware Secretary of State and the certificates required by Section 1108 of
California Law to be filed with the California Secretary of State in order to
effect the Merger; and
(iii) the establishment of an escrow fund pursuant to which
claims for indemnification may be made by PeopleSoft following consummation of
the Merger (the "Escrow Fund"),
all as more fully described in the accompanying Prospectus/Consent Solicitation
Statement dated ___________________, 1996. Approval of the foregoing matters
shall constitute approval of all of the matters related to the Merger described
herein and in such Prospectus/Consent Solicitation Statement.
In addition, the undersigned hereby:
(i) consents to the establishment of the Escrow Fund and
indemnification of PeopleSoft (as the surviving corporation in the Merger)
provided for in Article VII of the Reorganization Agreement (the
"Indemnification Provisions"); and
(ii) designates, constitutes and appoints Daniel T. Doles to
be the undersigned's agent and attorney-in-fact to act as the securityholders'
agent ("Securityholders' Agent") under the Indemnification Provisions, with all
the rights, powers, authority and duties of the Securityholders' Agent as
described therein; and
(iii) agrees that the Securityholders' Agent, their affiliates
or any successors thereto will not be liable to the undersigned for any actions
taken by them in their capacities as Securityholders' Agent in the absence of
gross negligence or willful misconduct; and
(iv) agrees that the Securityholders' Agent will be entitled
to use the undersigned's shares of common stock of PeopleSoft, $.01 par value
("PeopleSoft"), held in the Escrow Fund to satisfy the undersigned's obligation
to pay the undersigned's pro rata share of and indemnify the Securityholders'
Agent and hold the Securityholders' Agent harmless for the undersigned's pro
rata share against all losses, liabilities and expenses of the Securityholders'
Agent; and
(v) agrees to be bound by and approves the Indemnification
Provisions as if the undersigned were a party to the Reorganization Agreement
and further agrees that the Securityholders' Agent may separately rely upon and
enforce against the undersigned the provisions of this Consent and the
Indemnification Provisions.
<PAGE> 2
The undersigned acknowledges and agrees that the undersigned's maximum
liability for any matter pursuant to the Indemnification Provisions and
otherwise in connection with the Merger is limited to the undersigned's pro rata
share of any liability pursuant to the Indemnification Provisions, up to a
maximum of the value of (a) 10% of the shares of PeopleSoft Common Stock issued
to the undersigned in the Merger in exchange for shares of Red Pepper Common
Stock held by the undersigned on the effective date of the Merger (the
"Effective Date"), and (b) 10% of the shares of PeopleSoft Common Stock issued
to the undersigned upon each exercise during the period between the Effective
Date and one year after the Effective Date of any options held by the
undersigned and outstanding on the Effective Date which are assumed by
PeopleSoft, Inc. pursuant to the Merger.
By execution hereof, the undersigned acknowledges receipt of the
accompanying PeopleSoft, Inc. Prospectus/ Red Pepper Software Company Consent
Solicitation Statement dated ___________, 1996 and acknowledges and agrees that
as a result of signing this Consent the undersigned hereby waives and loses any
right to dissent from the proposed Merger and obtain payment for the
undersigned's shares of Red Pepper Common Stock or Red Pepper Preferred Stock
pursuant to Chapter 13 of the CGCL.
Effective upon the consummation of the Merger and as a result of the
execution of this Consent, the undersigned hereby waives any rights or claims
(known or unknown) the undersigned may have against Red Pepper, PeopleSoft or
any of their respective officers, directors, shareholders, affiliates,
successors, or assigns, as a result of the acquisition or ownership of shares of
Red Pepper Common Stock, Red Pepper Preferred Stock, or any options or warrants
to purchase Red Pepper Common Stock, except for such rights or claims as are
expressly set forth in the Reorganization Agreement.
This Consent is one of several consents, identical in form to this
Consent, that are being signed by the holders of record on the Record Date of
issued and outstanding shares of Red Pepper Common Stock and Red Pepper
Preferred Stock, all of which Consents taken together are intended to constitute
action by the shareholders of Red Pepper by consent in writing without a meeting
pursuant to Section 603 of the CGCL.
Signature of Shareholder:____________________________________
Print name of Shareholder:___________________________________
Shares beneficially owned:___________________________________
___________________________ shares of Common Stock
___________________________ shares of Series A Preferred Stock
___________________________ shares of Series A1 Preferred Stock
___________________________ shares of Series B Preferred Stock
___________________________ shares of Series C Preferred Stock
Date: _____________________________, 1996
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