<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number: 0-20710
PEOPLESOFT, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0137069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4460 Hacienda Drive, Pleasanton, CA 94588
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code:
(925) 694-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT May 12, 1999
Common Stock, par value $.01 240,742,623
================================================================================
<PAGE> 2
PEOPLESOFT, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December
31, 1998 and March 31. 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and March 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and March 31, 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 29
ITEM 2 - Changes in Securities and Use of Proceeds 30
ITEM 3 - Defaults upon Senior Securities 30
ITEM 4 - Submission of Matters to a Vote of Security
Holders 30
ITEM 5 - Other Information 30
ITEM 6 - Exhibits and Reports on Form 8-K 30
SIGNATURES 31
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PEOPLESOFT, INC.
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 480,086 $ 211,404
Short term investments 206,242 210,094
Accounts receivable, net 385,413 387,920
Deferred income taxes 53,346 54,848
Other current assets 38,428 40,495
----------- -----------
Total current assets 1,163,515 904,761
Property and equipment, at cost 314,765 317,071
Less accumulated depreciation and amortization (128,509) (139,663)
----------- -----------
186,256 177,408
Investments 31,616 43,163
Deferred income taxes 7,814 7,814
Acquired intangible assets and capitalized
software, less accumulated amortization 37,393 35,873
Other assets 14,011 15,551
----------- -----------
$ 1,440,605 $ 1,184,570
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 110,475 $ 90,406
Accrued compensation and related expenses 109,284 113,433
Income taxes payable 22,587 46
Deferred revenue 426,141 440,830
----------- -----------
Total current liabilities 668,487 644,715
Long term deferred revenue 89,393 91,142
Other long term liabilities 18,433 16,785
Stockholders' equity:
Common stock 2,339 2,446
Additional paid-in capital 324,332 343,055
Cumulative translation adjustment (2,951) (4,025)
Dividend declared of Momentum Business
Applications shares 78,622 --
Retained earnings 261,950 90,452
----------- -----------
664,292 431,928
----------- -----------
$ 1,440,605 $ 1,184,570
=========== ===========
</TABLE>
See notes to condensed consolidated unaudited financial statements
3
<PAGE> 4
PEOPLESOFT, INC.
----------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenues:
License fees $ 136,934 $ 76,571
Services 140,740 228,258
Development and other services -- 552
--------- ---------
Total revenues 277,674 305,381
Costs and expenses:
Cost of license fees 11,196 11,934
Cost of services 86,704 125,214
Cost of development services -- 411
Sales and marketing 72,690 79,897
Product development 42,861 63,177
General and administrative 13,228 19,283
Restructuring charge -- 4,355
Contribution to Momentum Business Applications -- 176,409
--------- ---------
Total costs and expenses 226,679 480,680
--------- ---------
Operating income (loss) 50,995 (175,299)
Other income, interest expense and other 3,486 6,874
--------- ---------
Income (loss) before income taxes 54,481 (168,425)
Provision for income taxes 20,727 3,073
--------- ---------
Net income (loss) $ 33,754 $(171,498)
========= =========
Basic income (loss) per share $ 0.15 $ (0.73)
========= =========
Shares used in basic per share computation 225,402 236,537
========= =========
Diluted income(loss) per share $ 0.13 $ (0.73)
========= =========
Shares used in diluted per share computation 256,331 236,537
========= =========
</TABLE>
See notes to condensed consolidated unaudited financial statements
4
<PAGE> 5
PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 33,754 $(171,498)
Adjustments:
Depreciation and amortization 12,760 15,482
Provision for doubtful accounts 1,771 1,756
Provision for deferred income taxes 1,163 (1,502)
Changes in operating assets and liabilities:
Accounts receivable (65,244) (18,897)
Cash received from sales of accounts receivable 26,986 14,634
Other current assets and noncurrent assets (8,673) (4,617)
Accounts payable and accrued liabilities 13,895 (20,069)
Accrued compensation and related expenses 4,620 4,149
Deferred revenue 31,417 16,438
Income taxes payable (13,835) (22,541)
Long term liabilities -- (1,648)
Tax benefits from employee stock transactions 2,177 899
--------- ---------
Net cash provided by (used in) operating activities 40,791 (187,414)
INVESTING ACTIVITIES
Purchase of investments (66,185) (123,915)
Sale of investments 53,652 108,516
Purchase of property and equipment (12,875) (3,141)
Additions to capitalized software (736) (963)
--------- ---------
Net cash used in investing activities (26,144) (19,503)
FINANCING ACTIVITIES
Net proceeds from exercise of common stock options
and issuances under stock purchase plan 18,382 17,931
Distribution of Momentum Business
Applications shares to PeopleSoft shareholders -- (78,622)
--------- ---------
Net cash provided by (used in) financing activities 18,382 (60,691)
Effect of foreign exchange rate changes on cash (291) (1,074)
--------- ---------
Net increase (decrease) in cash and cash equivalents 32,738 (268,682)
Cash and cash equivalents at beginning of period 267,897 480,086
--------- ---------
Cash and cash equivalents at end of period $ 300,635 $ 211,404
========= =========
</TABLE>
See notes to condensed consolidated unaudited financial statements
5
<PAGE> 6
PEOPLESOFT, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at March 31, 1998 and 1999 and for the three 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 flows for the periods presented. 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 revenues and expenses during the reported
periods. Despite management's best effort to establish good faith estimates and
assumptions, and to manage the achievement of the same, actual results may
differ. Certain prior period amounts have been reclassified to conform to the
current period presentation.
Momentum Business Applications was consolidated with the Company's
results through March 15, 1999. The Consolidated Statement of Operations
includes Momentum Business Application's results through that date. The
Consolidated Balance Sheet as of March 31, 1999 excludes the accounts of
Momentum Business Applications.
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, 1998. 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 three month period ended March 31, 1999 are not necessarily indicative of
operating results or performance levels that can be expected for the full fiscal
year.
2. PER SHARE DATA
Basic income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded from
the computation for the three month period ended March 31, 1999 as their effect
is antidilutive. The following table sets forth the computation of basic and
diluted income per share (in thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Numerator:
Net income (loss) $ 33,754 $(171,498)
========================
Denominator:
Denominator for basic income per share -
weighted average shares 225,402 236,537
Employee stock options 27,026 --
Warrants 3,903 --
------------------------
Denominator for diluted income per share -
adjusted weighted average shares and
assumed exercises 256,331 236,537
========================
Basic income (loss) per share $ 0.15 $ (0.73)
========================
Diluted income (loss) per share $ 0.13 $ (0.73)
========================
</TABLE>
6
<PAGE> 7
3. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of billed receivables arising from
recognized and deferred revenues, and unbilled receivables, which include
accrued license fees for payments not yet due and accrued services. The Company
does not require collateral for its receivables. Reserves are maintained for
potential losses. For the three month periods ended March 31, 1998 and 1999
actual loss experience has been within management's estimates. Future credit
losses may differ from the Company's estimates and could have a material impact
on the Company's future results of operations. The principal components of
accounts receivable at December 31, 1998 and March 31, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Billed receivables $ 306,995 $ 322,778
Unbilled receivables 118,419 106,899
--------- ---------
425,414 429,677
Allowance for doubtful accounts (40,001) (41,757)
--------- ---------
$ 385,413 $ 387,920
========= =========
</TABLE>
4. DEFERRED REVENUE
Deferred revenue is comprised of deferrals for license fees,
maintenance, training and other services. Long term deferred revenue represents
amounts received for maintenance and support services to be provided beginning
in periods on or after April 1, 2000. The principal components of deferred
revenue at December 31, 1998 and March 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ --------
<S> <C> <C>
License fees $ 67,765 $ 65,722
Maintenance 310,049 341,500
Training 76,696 71,456
Other services 61,024 53,294
-------- --------
515,534 531,972
Less: Long term deferred revenue 89,393 91,142
-------- --------
$426,141 $440,830
======== ========
</TABLE>
5. TRANSFER OF FINANCIAL ASSETS
The Company transfers the accounts receivable under certain software
license and service agreements with customers to financing institutions, on a
non-recourse basis. The Company records such transfers as sales of the related
accounts receivable when it is considered to have surrendered control of such
receivables under the provisions of Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Company does not maintain any servicing
obligations under these arrangements.
6. 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 assets and liabilities located outside the United States are included as a
component of stockholders' equity. Foreign currency transaction gains and losses
are included in Other income, interest expense and other on the Condensed
Consolidated Statements of Operations. Through the first quarter of 1999, such
gains and losses have not been significant.
The Company has a hedging program designed to mitigate the potential for
future adverse impact on intercompany balances due to changes in foreign
exchange rates. The program uses forward foreign exchange contracts as the
vehicle for hedging these intercompany balances. In general, these forward
foreign exchange contracts have terms of three months or less. The Company
currently settles all of its hedge contracts on the last day of the second month
of each quarter and concurrently opens new contracts to cover the upcoming
quarter. Gains and losses on the settled contracts are recognized as other
income or expense in the current period, consistent with the period in which the
gain or loss of the underlying transaction is recognized. The Company recorded
net losses from these settled contracts and underlying foreign currency
exposures of approximately $0.9 million and $0.4 million for the three month
periods ended March 31, 1998 and 1999, respectively. At December 31, 1998 and
March 31, 1999, hedge positions totaled $11.0 million and $23.2 million,
respectively. At March 31, 1999, the Company had forward foreign exchange
contracts denominated in Euros, Singapore dollars and New Zealand dollars. Each
of these contracts had a maturity date in June 1999 and had book values that
approximated market
7
<PAGE> 8
values. The foreign exchange hedging program is managed in accordance with a
corporate policy approved by the Company's Board of Directors.
In addition to hedging existing transaction exposures, the Company's
foreign exchange management policy allows for the hedging of anticipated
transactions, and exposures resulting from the translation of foreign subsidiary
financial results into U.S. dollars. Such hedges can only be undertaken to the
extent that the exposures are highly certain, reasonably estimable, and
significant in amount. No such hedges have occurred through March 31, 1999.
These hedges will only be undertaken should the Company deem them necessary to
protect the U.S. dollar value of the underlying exposure. The Company expects
that hedges of such anticipated transactions and translation exposures will be
done in the future using forward and option contracts.
7. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131") on January 1, 1998. SFAS 131 establishes standards for the way in which
public companies disclose certain information about operating segments in the
Company's financial reports.
Based on the criteria of SFAS 131, the Company identified its operating
committee as the chief operating decision-makers. The Company's operating
committee evaluated revenue performance based on three segments: domestic,
international and middle market. The middle market segment does not meet
materiality requirements of the statement and thus is not required to be
separately disclosed. Data for the two remaining segments is presented below.
Within the operating committee, employee headcount and operating costs are
managed by functional areas, rather than by revenue segments, and are only
reviewed by the operating committee on a company-wide basis. In addition, the
Company does not account for or report to the operating committee its assets or
capital expenditures by any segment other than the geographic segments, as
disclosed below.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Revenues from unaffiliated customers
Domestic operations ..................... $ 236,502 $ 251,260
International operations ................ 41,172 54,121
----------- -----------
Consolidated ............................ $ 277,674 $ 305,381
=========== ===========
Operating income (loss)
Domestic operations ..................... $ 46,922 $ (182,340)
International operations ................ 4,073 7,041
----------- -----------
Consolidated ............................ $ 50,995 $ (175,299)
=========== ===========
Identifiable assets
Domestic operations ..................... $ 858,722 $ 1,016,472
International operations ................ 132,058 168,098
----------- -----------
Consolidated ............................ $ 990,780 $ 1,184,570
=========== ===========
</TABLE>
8. SUBSEQUENT EVENTS
The acquisition of TriMark Systems, Inc. ("TriMark") was completed in
early May 1999 with the Company acquiring all of TriMark's outstanding equity
interests for approximately $26 million in common stock. The transaction will be
recorded in the Company's second quarter and will be accounted for under the
purchase method of accounting. Under the purchase method of accounting, the
purchase price is allocated to the net assets acquired, including in-process
research and development, based on their fair values. The valuation to determine
the fair value of the net assets acquired has not been completed. Accordingly,
the Company cannot estimate the amount of the in-process research and
development but believes it could be a significant portion of the purchase
price.
8
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Forward-looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.
STATEMENT OF FUTURE DIRECTION: THIS DOCUMENT CONTAINS STATEMENTS OF FUTURE
DIRECTION CONCERNING POSSIBLE FUNCTIONALITY FOR THE COMPANY'S SOFTWARE PRODUCTS
AND TECHNOLOGY. ALL FUNCTIONALITY AND SOFTWARE PRODUCTS WILL BE AVAILABLE FOR
LICENSE AND SHIPMENT FROM THE COMPANY ONLY IF AND WHEN GENERALLY COMMERCIALLY
AVAILABLE. THE COMPANY DISCLAIMS ANY EXPRESS OR IMPLIED COMMITMENT TO DELIVER
FUNCTIONALITY OR SOFTWARE UNLESS OR UNTIL ACTUAL SHIPMENT OF THE FUNCTIONALITY
OR SOFTWARE OCCURS. THE STATEMENTS OF POSSIBLE FUTURE DIRECTION ARE FOR
INFORMATIONAL PURPOSES ONLY AND THE COMPANY MAKES NO EXPRESS OR IMPLIED
COMMITMENTS OR REPRESENTATIONS CONCERNING THE TIMING AND CONTENT OF ANY FUTURE
FUNCTIONALITY OR RELEASES.
RESULTS OF OPERATIONS
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>
FOR THE THREE MONTHS ENDED MARCH 31,
- ---------------------------------------------------------------------------------
PERCENTAGE OF
TOTAL REVENUES
PERCENTAGE
DOLLAR CHANGE
1998 1999 YEAR OVER YEAR
- ---- ---- --------------
<S> <C> <C> <C>
Revenues:
49% 25% License fees (44)%
51 75 Services 62
N/A 0 Development services N/A
- ---- ---- ----
100 100 Total revenues 10
Costs and expenses:
4 4 Cost of license fees 7
31 41 Cost of services 44
N/A 0 Cost of development services N/A
26 26 Sales and marketing 10
16 21 Product development 47
5 6 General and administrative 46
N/A 1 Restructuring charge N/A
Contribution to Momentum Business
N/A 58 Applications N/A
- ---- ---- ----
82 157 Total costs and expenses 112
- ---- ---- ----
18 (57) Operating income (loss) (444)
1 2 Other income 97
- ---- ---- ----
19 (55) Income (loss) before income taxes (409)
7 1 Provision for income taxes (85)
- ---- ---- ----
12% (56)% Net income (loss) (608)%
==== ==== ====
</TABLE>
9
<PAGE> 10
A substantial portion of the Company's cost structure is employee-related.
The breakdown of employees by functional area is as follows:
<TABLE>
<CAPTION>
EMPLOYEE COUNT PERCENTAGE OF
TOTAL EMPLOYEES
PERCENTAGE
CHANGE
12/31/98 3/31/99 12/31/98 3/31/99 SINCE 12/31/98
- -------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
3,601 3,468 Services 51% 52% (4)%
1,509 1,189 Sales and marketing 22 18 (21)
1,332 1,475 Product development 19 22 11
590 558 General and administrative 8 8 (5)
- -------- -------- -------- -------- --------
7,032 6,690 Total 100% 100% (5)%
======== ======== ======== ======== ========
</TABLE>
REVENUES
The Company licenses software under non-cancelable license agreements
and provides services including training, installation, consulting and
maintenance, consisting of product support services and periodic updates.
License fee revenues are generally recognized when a non-cancelable license
agreement has been signed, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, and collection is considered probable. For customer license
agreements, which meet these recognition criteria, the portion of fees related
to software licenses will generally be recognized in the current period, while
the portion of the fees related to services is recognized as the services are
performed. When the Company enters into a license agreement with a customer
requiring significant customization of the software products, the Company
recognizes revenue related to the license agreement using contract accounting.
The Company allocates a portion of contractual license fees to post-contract
support activities covered under its contracts including first year maintenance,
installation assistance and limited training services. Revenues from maintenance
agreements are recognized ratably over the maintenance period, which in most
instances is one year.
Revenues from licensing fees decreased by 44% from $136.9 million in the
three month period ended March 31, 1998 to $76.6 million for the same period in
1999. The decrease in license fee revenues was attributable to an industry wide
slowdown in customer license sales, in part as a result of Year 2000 projects in
process at many organizations, as well as those other factors described in
Factors That May Affect Future Results. In the first quarter, the Company's
deferred license revenue decreased by $2.0 million.
The reported deferred license revenue amounts do not include items which
are both deferred and unbilled. The Company's practice is to net such deferred
items against the related receivables balances. As of December 31, 1998 and
March 31, 1999, $29.2 million and $49.0 million in unbilled receivables was
netted against deferred license revenue, respectively.
Revenues from services increased by 62% from $140.7 million in the three
month period ended March 31, 1998 to $228.3 million for the same period in 1999.
Service revenues as a percentage of total revenues were 51% and 75% for the
quarters ended March 31, 1998 and 1999, respectively. The increase in the
relative percentage of service revenues to total revenues in these periods was
attributable to three primary factors: increases in the installed base of
customers receiving ongoing maintenance, training and other support services
from approximately 2,380 customers as of March 31, 1998 to 3,000 as of March 31,
1999; $57.2 million increase in consulting revenue, as a result of expanded
demand for the Company's consulting services in enterprise implementation
projects; and a $60.4 million decrease in license revenue.
Per the terms of the development contract with Momentum Business
Applications, the Company performed development services on behalf on Momentum
Business Applications during the first quarter of 1999. The Company recognized
$.6 million for such services. Momentum Business Applications pays the Company
one hundred and ten percent (110%) of the Company's fully burdened costs
relating to the research and development provided by the Company. The Company
recognized this as revenue from development services.
Total revenues increased from $277.7 million in the three month period
ended March 31, 1998 to $305.4 million for the same period in 1999. Total
revenue growth quarter over quarter was 10%. For the quarters ended March 31,
1998 and 1999, the Company's international revenues were approximately 15% and
18% of total revenues, respectively. No single region had revenues that
represented more than 10% of total revenue. Revenues
10
<PAGE> 11
from international operations increased 31% from $41.2 million in the three
month period ended March 31, 1998 to $54.1 million in the same quarter in 1999.
The dollar increase in international revenues resulted from expanded
international operations and the introduction of Release 7.5, which incorporated
additional global features and functionality. The Company expects international
revenues to continue to grow in absolute dollar terms during 1999, and
accordingly, continues to invest in international infrastructure, global product
functionality and translated versions of financial and other products(1). In the
event international expansion and/or product globalization efforts are not
successful, the Company's business operating results and financial condition may
be adversely affected.
COSTS AND EXPENSES
Cost of license fees consists principally of royalties, technology
access fees for certain third party software products and amortization of
capitalized software development costs. Cost of license fees increased 7% from
$11.2 million in the three month period ended March 31, 1998 to $11.9 million
for the same period in 1999, representing 4% of total revenues in both quarters,
and 8% and 16% of license fee revenues in each quarter, respectively. Royalty
costs in the first quarter of 1998 included a one time $2.5 million buy out of
royalty fees related to providing certain technology embedded in Release 7.5 to
its existing customer installed base. Included in the March 31, 1999 cost of
license fees amount is $1.4 million in amortization of purchased software
acquired through the business combination with Intrepid Systems, Inc. in October
1998. The Company expects to amortize approximately $1.4 million per quarter
through the third quarter of 2003 for this software. However, in the event the
related forecasted revenues are not realized, the related capitalized amounts
may be expensed over a shorter period. Cost of license fees has grown as a
percentage of license revenues due to royalty agreements related to OLAP tools
embedded within the Company's products and royalties related to the Student
Administration and Treasury products. The Company's system solutions are based
on a combination of internally developed technology and application software
products, as well as bundled third party software products and technology. 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 seasonal fluctuations in revenues contrasted with
certain fixed expenses such as the amortization of capitalized software
development and purchase costs and fixed dollar royalty agreements. Royalties
associated with certain software products currently under development by joint
business arrangements and charges associated with software products and
technologies acquired 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 consists principally of expenses relating to
consulting, customer care center administrative support, account management
field support, training, and product support. These costs increased 44% from
$86.7 million in the three month period ended March 31, 1998 to $125.2 million
for the same period in 1999, representing 31% and 41% of total revenues in each
quarter, respectively; and 62% and 55% of service revenues in each of those
quarters, respectively. The increase in cost of services is due to significant
expansion of the Company's customer service resources, including consulting,
telephone support, training, and customer care center administrative support. In
particular, the Company has made a significant investment in its professional
consulting services organization which has grown substantially over the past two
years in response to customer demand. The decrease of cost of services as a
percentage of service revenues is due to cost containment and efficiency
initiatives. The Company anticipates cost of services will increase in dollar
amount, and may increase as a percentage of total revenues and service revenues,
in future periods.
Sales and marketing expenses increased by 10% from $72.7 million in the
three month period ended March 31, 1998 to $79.9 million for the same period in
1999, representing 26% of total revenues in each period. The increase in sales
and marketing expenses is largely attributable to the increase in the Company's
domestic and international direct sales force. Sales and marketing expenses may
increase as a percentage of total revenues in future periods as the Company
increases its direct sales and marketing expenditures to address certain
international and industry specific markets and as the Company establishes
dedicated sales personnel and initiatives for certain new product areas,
particularly eWorkplace Communities and Enterprise Performance Management(1).
Software product development expenses increased by 47% from $42.9
million in the three month period ended March 31, 1998 to $63.2 million for the
same period in 1999, representing 16% and 21% of total revenues in each quarter,
respectively. Software product development expenditure consists of costs related
to the Company's staff of software developers and outside consultants, and the
associated infrastructure costs required to support software product development
initiatives in the following areas: (i) expansion and enhancement of the
Company's core software product offerings in the areas of eWorkplace
Communities, Enterprise Performance Management, internet focused enhancements to
the eBackbone such as eCommerce capabilities and HTML client, HRMS,
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(1) Forward-Looking Statement
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Financial Management Systems, and Distribution/Materials Management Systems and
Supply Chain Management software; (ii) the enhancement of the Company's platform
development, certification, software product testing and overall release
management capabilities; (iii) the continued enhancement of the Company's
client/server architecture including its software development tools and the
integration of these tools with various third party purchased or licensed
technologies; (iv) the localization and translation of certain versions of the
Company's software products for specific foreign markets; and (v) the
development of certain industry market products and versions of its core
products suitable to the unique needs of customers within certain industries.
The Company intends to continue to invest significant resources in upcoming
releases, and anticipates software product development expenditures will
significantly increase in future periods due to continued incremental investment
in all of the above areas, and overall development expenditures may increase as
a percentage of revenues.
General and administrative expenses increased 46% from $13.2 million in
the three month period ended March 31, 1998 to $19.3 million for the same period
in 1999, representing 5% and 6% of total revenues in each quarter, respectively.
The increase in general and administrative expenses resulted primarily from the
22% increase in the staffing to support the Company's growth compared to the
March 31, 1998 quarter. Additionally, included in the first quarter of 1999
are legal expenses, facilities project costs, and additional bad debt write
offs.
During the first quarter of 1999, the Company redeployed approximately
100 employees to new product development, global product support, and other
strategic customer value added programs. Additionally, PeopleSoft eliminated
approximately 430 staff from other redundant and unnecessary positions primarily
in the administration, sales support, and marketing support areas. This action
will allow the Company to hire more staff in support of its eBusiness, analytic
applications and ERP development as well as customer support programs. The
reduction in staff represented approximately 6 percent of the Company's total
workforce with over 90 percent of the reductions in North America. The Company
incurred a one-time charge of $4.4 million for the separation arrangements.
During 1998, PeopleSoft formed a new company, Momentum Business
Applications, Inc., to select and develop certain software application products,
and to commercialize such products, most likely through licensing to the
Company. The Company contributed $250.0 million to Momentum Business
Applications and distributed all of the outstanding shares of Momentum Business
Applications Class A Common Stock to the Company's shareholders. At December 31,
1998, the Company recorded a dividend for the stock distribution based on the
fair value of Momentum Business Applications stock on the date of the
distribution. Momentum Business Applications was consolidated with the Company's
financial position, results of operations and cash flows as of December 31,
1998. During the first quarter of 1999, Momentum Business Applications no longer
met the requirements for consolidation. As a result, the Company incurred a
charge of $176.4 million, which represents the $250.0 million contribution less
the $78.6 million dividend recorded as of December 31, 1998, investment banker
fees of $2.9 million and other expenses related to the formation of Momentum
Business Applications, and expenses incurred by Momentum Business Applications
while consolidated with the Company.
Operating margins for the three month period ended March 31, 1999
decreased to 1.8% (excluding the impact of the charges related to Momentum
Business Applications and the reduction in force) compared to 18.4% for the same
period last year.
Other income, consisting primarily of interest, increased from $3.5
million in the three month period ended March 31, 1998 to $6.9 million for the
same quarter in 1999. The increase was due to higher average cash balances and
higher pre-tax return on investments based on a shift into higher yield taxable
securities. The Company expects other income to decrease in the future due to
the large cash contribution to Momentum Business Applications, which was
consolidated with the Company's results through March 15, 1999 but is excluded
from the Company's consolidated financial position after that date.
PROVISION FOR INCOME TAXES
The Company's income tax provision decreased from $20.7 million in the
three month period ended March 31, 1998 to $3.1 million for the same quarter in
1999. The effective tax rate was 38% and 38.5% for the three months ended March
31, 1998 and 1999 respectively, excluding the impact of non-recurring write offs
and adjustments related to Momentum Business Applications and the staff
reductions completed in the first quarter. The net deferred tax assets at March
31, 1999 were $62.7 million. The valuation of these net deferred tax assets is
based on historical tax positions and expectations about future taxable income.
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<PAGE> 13
EARNINGS PER SHARE
The Company's earnings (loss) per share amounts are calculated in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", which requires calculation of both a basic earnings per share and a
diluted earnings per share. The basic earnings per share excludes the dilutive
effect of common stock equivalents such as stock options and warrants, while the
diluted earnings per share includes such dilutive effects. Basic earnings (loss)
per share decreased from $0.15 in the three month period ended March 31, 1998 to
($ 0.73) for the same period in 1999. Diluted earnings (loss) per share was the
same as basic earnings (loss) per share for the first quarter of 1999 since all
stock options and warrants were antidilutive. Excluding the impact of the
charges related to Momentum Business Applications and the reduction in force,
diluted earnings per share would have been $0.03 for the first quarter of 1999
compared to $0.13 for same quarter in 1998. Earnings per share decreased as a
result of the decrease in net income from $33.8 million for the three month
period ended March 31, 1998 to $7.6 million for the same period of 1999
(excluding the impact of the charges related to Momentum Business Applications
and the reduction in force net of the related tax impact of these charges) and
the 3% decrease in the number of shares used in the diluted per share
computation from 256.3 million shares for the three month period ended March 31,
1998 to 248.8 million shares (including the effect of stock options and
warrants) for the same period in 1999. Shares outstanding during the remainder
of 1999 will be impacted by the following factors: (i) the ongoing issuance of
common stock associated with stock option exercises; (ii) the potential exercise
during the fourth quarter of 1999 of warrants for approximately 3.2 million
shares; (iii) any fluctuations in the Company's stock price, which could cause
changes in the number of common stock equivalents included in the diluted
earnings per share computation; and, (iv) the issuance of common stock to
complete the acquisitions of TriMark Technologies, Inc. and Distinction Software
(see BUSINESS COMBINATIONS below), and to affect other business combinations
should the Company enter into such transactions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $187.4 million during
the three month period ended March 31, 1999, compared to generating $40.8
million in the same period in 1998. Excluding the cash contribution to Momentum
Business Applications (net of the dividend), the cash used by operations for the
first quarter of 1999 would have been $11.0 million. From December 31, 1998 to
March 31, 1999, deferred revenues increased from $515.5 million to $532.0
million. The Company's expanded installed base of customers and emphasis on
selling prepaid maintenance and training contracts has resulted in an increase
in deferred revenues related to ongoing maintenance and other services.
Additionally, the accounts payable balance decreased from December 31, 1998 due
to the timing of the payments and lower royalties owed at March 31, 1999.
The Company calculates accounts receivable days sales outstanding
("DSO") as the ratio of the quarter-end accounts receivable to the sum of
quarterly revenues and the net change in quarter-end current 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, DSO was 98 days as of March 31, 1998,
88 days as of December 31, 1998 and 110 days as of March 31, 1999. The increase
in the DSO was primarily due to the decline in customer financing from $27.0
million and $76.2 million in the first and fourth quarters of 1998, respectively
to $14.6 million in the first quarter of 1999. Additionally the change in the
revenue mix towards services and more timely billing of upcoming maintenance
periods has resulted in higher accounts receivable and deferred maintenance.
Since billing terms of the Company's agreements typically are spread out over a
sequence of events (including contract execution through standard acceptance) or
dates that generally span four to nine months, and contracting activity is
concentrated at the end of each quarter, the Company anticipates that its DSO
will continue to be substantial in future periods.
During the first three months of 1998 and 1999, the Company's principal
use of cash for investing activities included net purchases of investments and
property and equipment, comprised of computer and network equipment, to
accommodate employee and facility expansions and to support the Company's
growing training capacity requirements. During 1998, the Company entered into
agreements to sell one of its Pleasanton, California office buildings and
related land, and lease back a substantial portion of the premises.
Additionally, the Company purchased two parcels of land for $50.0 million during
1998. These transactions were structured as a like-kind exchange for tax
purposes and, therefore do not impact immediate cash flow. The Company is
committed to lease facilities worth $110.0 million, which will be constructed on
one of the sites. The construction is expected to be completed in the first
quarter of 2000. The lease term is for five years with the option to purchase
the building for $110.0 million at the end of the lease term. The Company also
entered into a five year lease for a new facility in Pleasanton, California in
1998. The lessor funded $70.0 million for the construction of this facility,
which was completed in the fourth quarter of 1998. The Company has an option to
purchase the building at the end of the lease
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<PAGE> 14
term for $70.0 million. In the event the Company exercises either or both of the
options to purchase these buildings at the end of the terms of the respective
arrangements, the Company plans on utilizing cash flow from operations to fund
the purchase(s), however there can be no assurance that in the future the
Company will have sufficient cash flows from operations.
Financing activity for the first three months of 1998 and 1999 related
to the proceeds from the exercise of common stock options by employees and
issuance of stock under the employee stock purchase program. The Company
believes granting stock options is essential to its ability to attract and
retain key employees who are critical to the Company's success. The Company
anticipates that it will continue to grant a significant number of options each
year. The actual number of options granted each year is based on a variety of
factors including the Company's historical and anticipated employee count, the
level of hiring activity, competitive factors associated with the labor market,
and comparison of the Company's compensation philosophy and practice to other
similar technology companies. However, as of March 31, 1999, 14,296,550
exercisable options were outstanding of which 10,959,236 options had exercise
prices below the market value of the stock, therefore, if the stock price stays
the same or decreases in value, there can be no assurance that employee stock
activity will continue to generate substantial funds in the future.
Additionally, during the first three months of 1999, the distribution of
Momentum Business Applications shares was made to PeopleSoft shareholders.
As of March 31, 1999, the Company had $260.0 million in working capital,
including $211.4 million in cash and cash equivalents, and $210.1 million in
short term investments, consisting principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt and equity securities
of corporations, municipalities and the U.S. Government. The Company believes
that existing cash and short term investment balances, proceeds from sales of
stock under the employee purchase plan and stock option exercises, potential
proceeds from issuance of stock for warrants, and potential cash flow from
operations will be sufficient to meet its operating cash requirements, at least
through 1999(1).
BUSINESS COMBINATIONS
During June 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of TriMark Technologies, Inc.
("TriMark"), a leading provider of software solutions for the life insurance
industry. The Company and TriMark are taking initial steps toward the life
insurance industry's first single-source, integrated enterprise solution. The
Company issued approximately $26.0 million in common stock and options for all
of the outstanding equity interests of TriMark in a transaction that closed
during the second quarter of 1999. Prior to closing the transaction, the Company
and TriMark operated independently within a development, marketing, sales and
support relationship.
In December 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of Distinction Software, Inc.
("Distinction"), a supply chain management software company, by issuing between
$5.0 million and $10.0 million in common stock and options. The transaction is
expected to close in the second half of 1999. Prior to closing the transaction,
the Company and Distinction will operate independently within a development,
marketing, sales and support relationship.
YEAR 2000
The Company has established a Year 2000 Program Management Office
("PMO") to ensure that it has adequately addressed exposures related to the Year
2000 and is Year 2000 Ready. "Year 2000 Ready" means that the performance or
functionality of the Company's internal systems will not be significantly
affected by the dates prior to, during, and after the Year 2000, to include leap
year calculations and specific day-of-the-week calculations. Through an
extensive risk analysis the Company has identified critical processes that will
require Level One Year 2000 Readiness testing. Level One testing will involve
full Year 2000 system and end-to-end testing. In cases where Level One testing
is not feasible, Level Two Readiness testing at the vendor site will be
employed. Additionally, all hardware and software associated with the Company's
identified critical business processes will be subject to Level Three Readiness
certification which consists of verification from the vendor indicating that the
item is Year 2000 Ready. The building of the environment and testing is based on
a comprehensive methodology, a collaborative effort between the Company and
Compuware. Testing of critical processes began during the fourth quarter of
1998.
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(1) Forward-Looking Statement
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<PAGE> 15
Costs directly attributed to the Company's internal Year 2000
initiative, are currently estimated at approximately $4.0 million. The amount
spent to date is approximately $2.0 million. This estimate is comprised
primarily of hardware and software required to complete Year 2000 testing within
the enterprise and consulting fees. This cost estimate excludes internal
resource costs for individuals outside of the PMO, however, these costs are not
considered to be material.
The Company, which was established in 1987, is a relatively new company
that does not have the level of exposure to Year 2000 issues as many older
companies. There are no legacy mainframe applications within the organization.
The Company's commercial application software products generally offered for
license by the Company are also used to develop internal business information
systems within the enterprise. In addition, third party software, hardware, and
telecommunication products are also used for the development of the Company's
systems. As a matter of strategic direction, the Company attempts to utilize the
most recent release versions/models of in-house and third party products. With
respect to embedded systems consisting of facilities, utilities, and third-party
interfaces on which the enterprise is dependent but does not have direct
control, the Company is in the process of developing detailed contingency plans
for its core support centers. The Company currently anticipates that the
approach described above will enable it to achieve Year 2000 readiness with
respect to its critical internal processes and therefore, the Company does not
expect that Year 2000 issues will have a material adverse impact on the
Company's financial condition. However, because of the vast scope of potential
Year 2000 issues, the Company cannot be certain to what extent the Company may
be impacted.
Although the Company feels confident that its internal critical
processes will be Year 2000 Ready, the Company does recognize that it is
vulnerable, as are most organizations, to the inability of significant
suppliers, third-party external interface suppliers, and utility organizations
to achieve Year 2000 Readiness. In light of these possibilities, the Company is
in the process of developing detailed contingency plans for its core support
centers to ensure the continuity of its operations.
FINANCIAL RISK MANAGEMENT
Foreign Exchange
The Company's revenue originating outside the United States was 18% of
total revenues in the first three months of 1999 and 15% for the same period in
1998. International sales from each geographic region were less than 10% of
total revenues. International sales are made mostly from the Company's foreign
sales subsidiaries in the local countries and are typically denominated in the
local currency of each country. These subsidiaries also incur most of their
expenses in the local currency. Accordingly, all foreign subsidiaries use the
local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arise in
part from intercompany accounts in which cost of software, including certain
development costs, incurred in the United States is charged to the Company's
foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability.
The Company initiated a hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign exchange rates. The program uses forward foreign exchange contracts as
the vehicle for hedging these intercompany balances. In general, these forward
foreign exchange contracts have terms of three months or less. The Company
settles all of its hedges on the last day of the second month of each quarter
and concurrently opens new contracts to cover the upcoming quarter. Gains and
losses on the settled contracts are recognized as other income or expense in the
current period, consistent with the period in which the gain or loss of the
underlying transaction is recognized. The Company recorded net losses from these
settled contracts and underlying foreign currency exposures of approximately
$0.9 million and $0.4 million for the three
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<PAGE> 16
months ended March 31, 1998 and 1999, respectively. The foreign exchange hedging
program is managed in accordance with a corporate policy approved by the
Company's Board of Directors.
At March 31, 1998 and 1999, hedge positions totaled $11.6 million and
$23.2 million, respectively. All hedge positions are carried at fair value,
which approximates book value at March 31, 1998 and 1999, respectively.
For the three month periods ended March 31, 1998 and 1999, the Company's
revenues in the Asia/Pacific region, which includes Far East countries and
Australia and New Zealand, were less than 5% of total revenues. As of March 31,
1999, less than 5% of the Company's assets are in the Asia/Pacific region. To
date, the Company's operations in the region are generating losses and negative
cash flows. As the Asia/Pacific currencies devalue, the translated loss reported
on the consolidated financial statements decreases. In addition, such currency
devaluations cause the Company's U.S. dollar cash funding requirements of these
foreign subsidiaries to decrease.
Interest Rates
The Company invests its cash in a variety of financial instruments,
consisting principally of investments in interest-bearing demand deposit
accounts with financial institutions, tax-advantaged money market funds and
highly liquid debt and equity securities of corporations, municipalities, and
the U.S. Government. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances and are only
invested in short term time deposits of the local operating bank.
The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash
equivalent, short term, and long term investments are treated as
"available-for-sale" under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.
The Company's investments are made in accordance with an investment
policy approved by the Board of Directors. At March 31, 1999, the average
maturity of the Company's investment securities was approximately five months.
No investment securities had maturities exceeding two years. The following table
presents certain information about the Company's financial instruments at March
31, 1999 that are sensitive to changes in interest rates. These instruments are
not leveraged and are held for purposes other than trading. For
available-for-sale investment securities, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The Company believes its available-for-sale securities, comprised of highly
liquid debt securities of corporations, municipalities, and the U.S. Government,
are similar enough to aggregate. Because of the Company's effective tax rate,
the Company finds it advantageous to invest largely in tax-advantaged
securities. The average interest rates below reflect a weighted average rate for
both taxable investments and tax-exempt investments. Below is a tabular
presentation of the maturity profile of the available-for-sale investment
securities held by the Company at March 31, 1999:
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
WEIGHTED AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1 YEAR OR MORE THAN TOTAL FAIR VALUE
LESS 1 YEAR 3/31/99
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities $265.9 $ 43.2 $309.1 $309.3
Weighted average interest rate 3.6% 4.1%
</TABLE>
The Company is not an issuer of any corporate debt nor does it have any
bank borrowings outstanding.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations with a footnote (1) symbol. The Company may also make oral
forward-looking statements from time to time. Actual results may differ
materially from those projected in any such forward-looking statements due to a
number of factors, including those set forth below and elsewhere in this Form
10-Q.
The Company operates in a dynamic and rapidly changing environment
that involves numerous risks and uncertainties. The following section lists
some, but not all, of these risks and uncertainties that may have a material
adverse effect on the Company's business, financial condition or results of
operations. This section should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and Notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited Consolidated Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1998, contained in the Company's 1998 Annual Report to Stockholders (Form 10-K).
PEOPLESOFT COULD EXPERIENCE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
PeopleSoft's revenues and results of operations are difficult to predict
and may fluctuate substantially from quarter to quarter. License fee revenues in
any quarter depend substantially upon PeopleSoft's total contracting activity
and its ability to recognize revenue in that quarter in accordance with its
revenue recognition policies. PeopleSoft's contracting activity is difficult to
forecast for a variety of reasons, including the following:
- a significant portion of PeopleSoft's license agreements are
completed within the last few weeks of each quarter;
- PeopleSoft's sales cycle is relatively long and increasingly
variable since PeopleSoft has broadened its marketing emphasis
to include software product solutions for each customer's
overall business, thus increasing the financial value of
individual transactions and the complexity of the customer
selection, negotiation and approval process;
- the size of license transactions can vary significantly;
- customers may postpone or cancel system replacement or new
system evaluations due to changes in their strategic priorities,
project objectives, budgetary constraints or company management;
- customer evaluations and purchasing processes vary significantly
from company to company, and a customer's internal approval and
expenditure authorization process can be difficult, even after
selection of a vendor; and
- the number, timing and significance of software product
enhancements and new software product announcements by
PeopleSoft and its competitors may affect purchase decisions.
In addition, each customer's evaluation of its need to achieve Year 2000
compliance may affect the purchase decision. PeopleSoft believes that many
customers and potential customers are heavily engaged in testing and correcting
system Year 2000 problems, and therefore such customers may choose to defer
system investments during 1999, negatively impacting the Company's revenues. In
addition, prior year sales may have been increased due to customers' urgent need
to address Year 2000 issues. Such Year 2000 related demand should be eliminated
in 1999 due to the lead time required to implement new systems, negatively
impacting the Company's revenues. In addition, the Company's sales cycles may
lengthen in 1999 and future years due to lessened urgency of customers' system
investment decisions. Because Year 2000 related impacts on customer purchasing
decisions are unprecedented, PeopleSoft has a limited ability to forecast
accurately the impact of the Year 2000 issue on its quarter-to-quarter revenues.
In addition, changes in PeopleSoft's sales incentive plans have had and
may continue to have an unpredictable impact on seasonal business patterns.
Finally, changes in economic, political and market conditions may adversely
impact PeopleSoft's business opportunities at any time.
Several factors may require PeopleSoft to defer recognition of license
fee revenue for a significant period of time after entering into a license
agreement, including:
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- whether the license agreement relates entirely to then currently
undeliverable software products;
- whether enterprise transactions include both software products
that are then currently deliverable and software products that
are still under development or other undeliverable elements (If
PeopleSoft enters into a license agreement to provide both
software product categories, then, in order to recognize revenue
on currently delivered products under the license agreement, it
must be able to establish separate values for all elements under
the license agreement, and the license agreement and supporting
schedules must contain precise contractual provisions consistent
with generally accepted accounting principles ("GAAP"));
- whether the customer demands services that include significant
modifications, customizations or complex interfaces;
- whether the license agreement includes non-standard acceptance
criteria that may preclude revenue recognition prior to customer
acceptance; and
- whether the license agreement includes fees with extended
payment terms or fees that depend upon acceptance of services or
other contingencies.
Because of the factors listed above and other specific requirements
under published GAAP standards for software revenue recognition, PeopleSoft must
have very precise terms in its license agreements in order to recognize revenue
when it initially delivers software. Although PeopleSoft has a standard form of
license agreement that meets the criteria under GAAP for current revenue
recognition on delivered elements, it must often negotiate and revise certain
terms and conditions in large enterprise transactions. Negotiation of mutually
acceptable terms and conditions can extend the sales cycle and, sometimes
PeopleSoft does not obtain terms and conditions that permit revenue recognition
at the time of delivery or even as work on the project is completed.
Variances or slowdowns in PeopleSoft's prior quarter contracting
activity may impact its current and future service revenues since service
revenues typically lag license fee revenues. PeopleSoft's ability to increase
service revenue (such as fees derived from consulting, training and maintenance
services) primarily depends on its ability to increase the number of its
licensing agreements. Additionally, PeopleSoft may not be able to recruit, hire
and train sufficient numbers of qualified consultants to perform these services.
PEOPLESOFT DEPENDS ON THIRD PARTY TECHNOLOGY
PeopleSoft licenses numerous critical third-party software products that
it incorporates into its own software products. The termination of any of
PeopleSoft's licenses to this third-party software could have a material adverse
effect on PeopleSoft's business, financial condition and results of operations.
These adverse effects include, for example, PeopleSoft's products becoming
inoperable or their performance being materially reduced. If any of the
third-party software vendors change their product offerings, PeopleSoft may need
to incur additional development costs to ensure continued performance of its
products. In addition, if the cost of licensing any of these third-party
software products materially increases, PeopleSoft's gross margin levels could
materially decrease.
PeopleSoft relies on existing partnerships with certain other software
vendors who are also competitors. For example, PeopleSoft partners with
Oraclewhen PeopleSoft customers select an Oracle database to run in conjunction
with PeopleSoft's financial package. However, Oracle competes with PeopleSoft in
the enterprise software area. If these partners/competitors change their
business practices in the future, PeopleSoft may be compelled to find
alternative vendors of complementary software, which may not be as popular or
provide the same functionality as the software provided by PeopleSoft's existing
partners/competitors.
THERE ARE RISKS ASSOCIATED WITH CREATION OF MOMENTUM BUSINESS APPLICATIONS
PeopleSoft faces a number of risks as of a result of the creation of
Momentum Business Applications and the distribution of the Momentum Business
Applications Class A Common Stock to PeopleSoft stockholders. These include:
- PeopleSoft has less control over important research and
development projects. PeopleSoft and Momentum must agree on
project selection, budgets, timetables and specifications for
each project
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and Momentum will be responsible for overseeing the actual
product development.
- PeopleSoft contributed a substantial portion of its cash
reserves to Momentum. As a result, PeopleSoft's credit rating
may be adversely affected and its ability to raise additional
funds may be impaired. In addition, the Company has increased
risk of having insufficient cash resources to address adverse
conditions that may impact its business results.
- PeopleSoft may lose the tax benefits associated with the
research and development expenditures on the projects pursued by
Momentum. Though PeopleSoft may be able to recapture these
benefits if it chooses to acquire Momentum, it will likely face
restrictions on the amount and timing of its utilization of
these tax benefits.
- If PeopleSoft chooses to acquire Momentum, it will likely be
required to record significant accounting charges relating to
acquisition of in-process research and development and
amortization of goodwill.
RECENT ACCOUNTING PRONOUNCEMENTS COULD ADVERSELY IMPACT PEOPLESOFT
The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition",
and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" in October 1997, March 1998, and December 1998,
respectively. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede an earlier Statement of Position and, in
part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on its reading and interpretation of SOPs 97-2
and 98-4, PeopleSoft believes that it is currently in compliance with these
standards. However, the American Institute of Certified Public Accountants has
only issued some implementation guidelines for these standards and the
accounting profession is discussing a wide range of potential interpretations.
Once available, these implementation guidelines could lead to unanticipated
changes in PeopleSoft's current revenue accounting practices that could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations.
PeopleSoft has not fully assessed its ability to comply with SOP 98-9
using current contracting and business practices. However, PeopleSoft believes
that SOP 98-9 may require significantly more revenue to be deferred for certain
types of transactions. Although this new standard is not effective until the
year 2000, PeopleSoft, in accordance with its historical practice of complying
with new revenue recognition standards as soon as issued, may choose to adopt
the standard in 1999, requiring either changes in revenue recognition practices
or changes in PeopleSoft's sales and contracting practices in order to comply.
Such changes may have a significant adverse impact on revenues and margins in
the quarter and year they are implemented.
The implementation guidelines for these standards, when issued, may also
require PeopleSoft to change significantly its business practices in order to
continue to recognize a substantial portion of its license fee revenue when it
delivers its software products. These changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect
PeopleSoft's business, financial condition and results of operations.
PEOPLESOFT MAY CHANGE PRICING PRACTICES
We may choose in 1999, or a future year, to make changes to our pricing
practices, including additional discounts to customers, reduction of
transactions that involve a perpetual use license to its software products,
changes in maintenance pricing, or other changes which may negatively impact
revenues in the quarter and year implemented, and for succeeding quarters and
years. Such changes may have a material adverse impact on revenues, income, and
financial condition.
THERE IS A HIGH DEGREE OF OPERATING LEVERAGE
Like many of its competitors, PeopleSoft's business model is
characterized by a very high degree of operating leverage. A substantial portion
of PeopleSoft's operating costs and expenses consist of employee and facility
related costs, which are relatively fixed over the short term. In addition,
PeopleSoft's expense levels and hiring plans are based substantially on
PeopleSoft's projections of future revenue. If PeopleSoft's actual revenues
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fall below expectations, its net income is likely to be disproportionately
adversely affected. PeopleSoft may be unable to increase or even maintain its
current level of profitability on a quarterly or annual basis in the future.
FUTURE OPERATING RESULTS ARE UNCERTAIN AND THE BUSINESS IS SEASONAL
Segments of the software industry have in the past, and are expected in
the future, to experience significant economic downturns characterized by
decreased product demand, price erosion, technological shifts, work slowdowns
and layoffs. PeopleSoft's operations may, in the future, fluctuate substantially
from period to period because of these industry patterns, general economic
conditions affecting the timing of orders from customers and other factors
affecting capital spending.
PeopleSoft has been, and expects to continue to be, affected by seasonal
trends in the software industry. PeopleSoft's revenues historically have
followed a pattern of being relatively weak in the first and second quarters and
relatively strong in the third and fourth quarters. This seasonality has been
caused by a variety of factors, including sales incentives, customer demand
based on available capital budgets and release of new technologies. However, we
can not assure you that results in the third and fourth quarters will be
stronger than, or even equal to, results in the first half of our fiscal year.
THERE IS INTENSE COMPETITION IN THE INDUSTRY
The market for business application software has been intensely
competitive for the past year and is currently intensifying. PeopleSoft competes
with a variety of software vendors. Although PeopleSoft believes its success has
been due in part to its early emphasis on the client/server architecture,
virtually all of PeopleSoft's competitors now offer software products based on a
client/server architecture. Consequently, PeopleSoft must differentiate itself
through different or more subtle architectural and technological factors,
including: internet focused application development; enterprise software product
breadth and individual product features; service reputation; product
flexibility; ease of implementation; international software product version
availability and support; and price. Price competition has significantly
increased over the past year and this trend may continue in the future.
In the enterprise application software market, PeopleSoft faces
significant competition from SAP and Oracle and, to a lesser degree, J.D.
Edwards, Dun & Bradstreet Software (now operating as two separate divisions of
Geac Computer Systems, Inc.), Computer Associates International, Inc. and other
companies such as System Software Associates who previously focused primarily on
the AS/400 marketplace. In addition, the Company faces increasing competition
from internet focused application vendors. In this market, the chief competitive
factors include:
- the breadth and completeness of the enterprise solution offered
by each vendor, and the competitive advantages the solution
offers to its customers;
- the extent of software product integration across the enterprise
solution; and
- the availability of localized software products and technical
support in key markets outside the United States.
Both SAP and Oracle have certain competitive advantages over PeopleSoft
in these areas primarily due to their significant worldwide presence and longer
operating and product development history. Both SAP and Oracle have
substantially greater financial, technical and marketing resources than
PeopleSoft. In addition, SAP has a larger installed base than PeopleSoft.
Furthermore, Oracle's RDBMS (relational database management system) underlies a
significant portion of PeopleSoft's installed applications.
PeopleSoft entered the manufacturing software application markets in
1996. In these markets, PeopleSoft's existing competitors include those listed
immediately above, and others such as Baan, QAD, Ross Systems and a large number
of niche competitors already in the manufacturing market.
In addition, since it acquired Red Pepper Software in the fourth quarter
of 1996, PeopleSoft has competed in the emerging enterprise resource
optimization software solutions market. PeopleSoft's current and potential
competitors in this market include:
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- companies such as i2 Technologies, Manugistics and Numetrix
Software, which have developed or are attempting to develop
advanced planning and scheduling software products that
complement or compete with MRP (material requirements planning)
solutions;
- other companies that provide specialized planning and scheduling
software for niche markets, including Chesapeake Systems,
Waterloo Manufacturing Software, MAPICS, Inc., and Marcam
Solutions, Inc.;
- other business application software vendors that may broaden
their product offerings by internally developing (such as SAP's
initiatives in this area), acquiring (such as Baan's
acquisitions of Berclain Group, Inc. and Antalys, Inc.) or
partnering with independent developers of advanced planning and
scheduling software;
- internal development efforts by potential customers' corporate
information technology departments; and
- companies offering standardized or customized products on
mainframe and/or mid-range computer systems.
PeopleSoft also competes with: providers of HRMS software products,
including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower,
Inc. and Ceridian: and providers of financial management systems software
products, including Computron Software, Inc., Flexiware International, Hyperion
Software, Lawson Associates and other smaller companies.
In addition, as the Year 2000 approaches, potential customers may
consider outsourcing options, including data center outsourcing and service
bureaus, as viable alternatives to purchasing PeopleSoft's software products.
This may result in increased competition from outsource services such as
Computer Science Corporation ("CSC"), Electronic Data Systems Corporation
("EDS"), IBM, ADP, Ceridian and other smaller companies. During the third
quarter of 1998, PeopleSoft signed agreements with IT service providers CIBER,
Inc., CSC, Corio, KPMG Peat Marwick, reSOURCE PARTNER, and USinternetworking to
provide industry-specific outsourcing solutions encompassing software
implementation and management services. Although PeopleSoft is pursuing an
outsourcing partner program that it believes will address the needs of the
marketplace, this program may not be successful.
Intense competition could lead to increased price competition in the
market, forcing PeopleSoft to reduce prices. As a result, PeopleSoft's gross
margins may decline and it may lose market share which, in turn, could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. During 1998 certain competitors became more aggressive
with their product pricing reductions, payment terms and/or issuance of
contractual implementation terms or guarantees. PeopleSoft may be unable to
continue to compete successfully with its existing competitors or to compete
successfully with new competitors.
THERE ARE RISKS ASSOCIATED WITH BUSINESS COMBINATIONS
As part of its overall strategy, PeopleSoft plans to continue to acquire
or invest in complementary companies, products, and technologies and to enter
into joint ventures and strategic alliances with other companies. Risks commonly
encountered in such transactions include:
- the difficulty of assimilating the operations and personnel of
the combined companies;
- the risk that PeopleSoft may not be able to integrate the
acquired technologies or products with its current products and
technologies;
- the potential disruption of PeopleSoft's ongoing business;
- the inability to retain key technical and managerial personnel;
- the inability of management to maximize the financial and
strategic position of PeopleSoft through the successful
integration of acquired businesses;
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- decreases in reported earnings as a result of charges for
in-process research and development and amortization of acquired
intangible assets;
- adverse impact on PeopleSoft's annual effective tax rate;
- dilution of existing equity holders;
- difficulty in maintaining controls, procedures, and policies;
potential adverse impact on the PeopleSoft's relationships with
partner companies or third party providers of technology or
products; and
- the impairment of relationships with employees and customers as
a result of any integration of new personnel.
In addition, PeopleSoft may not qualify for pooling of interests
accounting for acquisitions of companies, and thus may need to account for
acquistions of other companies using the purchase method, in addition to using
the purchase method for acquisitions of technologies or products. The purchase
method of accounting for acquisitions would require large write-offs of any in
process research and development costs related to companies acquired, as well as
ongoing amortization costs for goodwill and other intangible assets valued in
the acquisition of companies, products, or technologies. Such writeoffs and
ongoing amortization charges may have a material adverse impact on operating
margins and net income in the quarter of the acquisition and for several
subsequent years. PeopleSoft may not be successful in overcoming these risks or
any other problems encountered in connection with such transactions.
PEOPLESOFT RELIES ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS
Our software products include a suite of proprietary software
development tools, known as PeopleTools, which are fundamental to the effective
use of PeopleSoft's software products. While no industry standard exists for
software development tools, several companies have focused on providing software
development tools and each of them is attempting to establish its software
development tools as the accepted industry standard. In addition, Microsoft is
attempting to establish several standards in the marketplace. If a software
product other than PeopleTools becomes the clearly established and widely
accepted industry standard, PeopleSoft may be compelled to abandon or modify
PeopleTools in favor of such an established standard; be forced to redesign its
software products to operate with such third party's software development tools;
or face the potential sales obstacle of marketing a proprietary software product
against other vendors' software products that incorporate a standardized
software development toolset. PeopleSoft may not be able to respond
appropriately or sufficiently rapidly to the emergence of an industry standard.
THERE ARE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
PeopleSoft has committed, and expects to continue to commit, substantial
resources and funding to build its international service and support
infrastructure. Operating costs in many countries, including many of those in
which PeopleSoft operates, are higher than in the United States. In order to
increase international sales in 1998 and subsequent periods, PeopleSoft must:
- continue to globalize its software product lines;
- expand existing and 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.
If PeopleSoft's international expansion and/or product globalization efforts are
not successful, its operating results will likely be negatively affected.
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Generally, PeopleSoft's foreign sales are denominated in its foreign
subsidiaries' currencies. If these foreign currency exchange rates change
unexpectedly, PeopleSoft's could have significant gains or losses. PeopleSoft
has a hedging program designed to mitigate the potential impact of exchange rate
fluctuations. Under this foreign exchange management policy, PeopleSoft may
hedge existing transaction exposures, anticipated transactions and exposure
resulting from the translation of foreign financial results into U.S. Dollars.
PeopleSoft can hedge anticipated transactions and translation exposures only if
they are highly certain, reasonably estimable and significant in amount.
PeopleSoft's inability to hedge potential significant exposures due to
uncertainty or inability to estimate reasonably its foreign exchange exposure
could materially adversely affect its operating results.
WE RELY ON THIRD PARTIES FOR SALES AND MARKETING
A key aspect of PeopleSoft's sales and marketing strategy is to build
and maintain strong working relationships with businesses that PeopleSoft
believes play an important role in the successful marketing of its software
products. PeopleSoft's customers and potential customers often rely on
third-party system integrators to develop, deploy and manage client/server
applications. PeopleSoft believes that its marketing and sales efforts are
enhanced by the worldwide presence of these companies. However, these companies,
most of which have significantly greater financial and marketing resources than
PeopleSoft, may start, or in some cases increase, the marketing of business
application software in competition with PeopleSoft, or may otherwise
discontinue their relationships with or support of PeopleSoft. If PeopleSoft or
its partners are unable to recruit and adequately train a sufficient number of
consulting personnel to support the implementation of PeopleSoft's software
products, demand for these software products could be materially adversely
affected. In addition, integrators who generate consulting fees from customers
by providing implementation services may be less likely to recommend
PeopleSoft's software application architecture, including PeopleTools, if these
products facilitate less implementation effort than competitors' similar product
offerings.
OUR SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT ARE COMPLEX
The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements.
PeopleSoft's future success will depend in part upon its ability to; (i)
continue to enhance and expand its core applications; (ii) continue to provide
enterprise solutions; (iii) enter new markets; and (iv) develop and introduce
new products that keep pace with technological developments, including
developments related to the internet, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. PeopleSoft may not be able
to enhance existing products or develop and introduce new products in a timely
manner.
PeopleSoft's software products can be licensed for use with a variety of
popular industry standard RDBMSs. There may be future or existing RDBMS
platforms that achieve popularity within the business application marketplace
and on which PeopleSoft may desire to offer its applications. These future or
existing RDBMS products may or may not be architecturally compatible with
PeopleSoft's software product design. PeopleSoft may not be able to develop
software products on additional platforms with the specifications and within the
time frame necessary for market success.
Beginning with Release 6, PeopleSoft integrated certain features of
BEA's Tuxedo product into its applications. Over the next several releases,
PeopleSoft will continue to integrate Tuxedo features to allow applications to
run on a distributed basis using a multi-tiered client/server architecture.
PeopleSoft also will bundle Cognos' Powerplay product and Arbor's Essbase
product to incorporate desktop OLAP capabilities, and will bundle products from
Informatica and Information Advantage into its Enterprise Performance Management
products. These third party products may be critical to the competitiveness of
PeopleSoft's software products in the future. Integration of these and other
products is complex and PeopleSoft's efforts may not be successful or may not
result in significant software product enhancements.
Despite testing by PeopleSoft and by third-parties, software programs as
complex as those offered by PeopleSoft are likely to contain a number of
undetected errors or "bugs" when they are first introduced or as new releases
are subsequently released. This may result in reduced acceptance of PeopleSoft's
software products in the marketplace. The effort and expense of developing,
testing and maintaining software product lines will increase with the increasing
number of possible combinations of: (i) vendor hardware platforms; (ii)
operating systems and updated versions; (iii) PeopleSoft application software
products and updated versions; and (iv) RDBMS platforms and updated versions.
Developing consistent software product performance characteristics across all of
these combinations could place a significant strain on PeopleSoft's development
resources and software product release schedules.
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PEOPLESOFT RELIES ON CLIENT INTERFACES
Currently, PeopleSoft supports client platforms using browsers certified
to run its Java-based Web client, or Microsoft's Windows family of software
products, including Windows 3.1 (PeopleSoft releases prior to Release 6 only),
Windows NT and Windows 95. If Microsoft fundamentally changes the architecture
of its software product so that users of PeopleSoft's software applications
experience significant performance degradation or become incompatible with
future versions of Microsoft's Windows Operating System, it could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. The use of a Web client as a primary user interface is
emerging as an alternative to the traditional desktop access through Microsoft
Windows based personal computers. This client access via the Internet or
intranet involves numerous risks inherent in using the Internet, including
security, availability and reliability. PeopleSoft may wish to offer its
applications on future or existing client platforms that achieve popularity
within the business application marketplace. These future or existing client
platforms may or may not be architecturally compatible with PeopleSoft's current
software product design. PeopleSoft may not be able to support new client
interfaces and achieve market acceptance of new client interfaces which it does
support.
PEOPLESOFT RELIES ON JOINT BUSINESS ARRANGEMENTS
PeopleSoft has in the past entered into, and may in the future enter
into, various development or joint business arrangements to develop new software
products or extensions to its existing software products. Under these
arrangements, PeopleSoft has in the past and expects in the future to be the
exclusive remarketer of the developed software products and pays a royalty to
the business partner based on end user license fees for the developed products.
Under these joint business arrangements, PeopleSoft may distribute or jointly
sell with its business partner an integrated software product. While PeopleSoft
intends to develop business applications that are integrated with its software
products, these software products may not in fact be integrated or the market
may not accept an integrated enterprise solution. Also, these arrangements may
require additional investments from third parties or business partners to
complete development or to enhance the software product. These investments may
not be available on terms mutually acceptable to PeopleSoft and its business
partner or the existing or other potential third-party funding source(s).
If PeopleSoft acquires title to the software products or technology from
its business partner, it may account for this acquisition using the purchase
method, which is likely to result in either or both of the following accounting
treatments: (i) a charge to earnings for in-process research and development
which PeopleSoft would record in its statement of income in the period it
completed the acquisition; or (ii) allocation of a substantial portion of the
purchase price to acquired technology or other intangible assets, creating
significant intangible assets. These intangible assets would be amortized in
future periods as a cost of operations. If either of these scenarios occur,
PeopleSoft's results of operations in one or more future periods could be
materially adversely affected.
POTENTIAL SECURITY BREACHES ARE POSSIBLE
PeopleSoft's application software products incorporate extensive
security features designed to prevent unauthorized retrieval or modification of
sensitive data. PeopleSoft has developed a security architecture using: 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; and certain third party security products. To date, PeopleSoft
is not aware of any violations of its application security architecture within
its installed base. Although these security features are subject to constant
review and enhancement, they may not be successfully implemented or may not be
effective within a particular customer's operating environment. If a breach of
security or a suspected breach of security occurs, the accompanying publicity or
any subsequent claims against PeopleSoft could adversely impact the demand for
PeopleSoft's software products and/or could cause a decline in the market price
of PeopleSoft's stock and/or could adversely impact PeopleSoft's financial
results due to lost or delayed closing of software licensing opportunities.
PEOPLESOFT HAS LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS AND MAY POTENTIALLY INFRINGE THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
PeopleSoft considers certain aspects of its internal operations,
software and documentation to be proprietary, and relies on a combination of
contract, patent, copyright, trademark and trade secret laws and other measures
to protect this information. Outstanding applications may not result in issued
patents and, even if issued, the patents may not provide any meaningful
competitive advantage. Existing copyright laws afford only limited protection.
PeopleSoft believes that the rapid pace of technological change in the computer
software industry has made patent, trade secret and copyright protection less
significant than factors such as:
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- knowledge, ability and experience of PeopleSoft's employees;
- frequent software product enhancements; and
- timeliness and quality of support services.
Patent, trade secret and copyright protections may be inadequate, and
PeopleSoft's competitors may independently develop technologies that are
substantially equivalent or superior to PeopleSoft's technology. Through an
escrow arrangement, PeopleSoft has granted many of its customers a future right
to use PeopleSoft's source code solely for internal maintenance services. This
possible access to PeopleSoft's source code may increase the likelihood of
misappropriation or other misuse of PeopleSoft's intellectual property. Finally,
the laws of some countries in which PeopleSoft's software products are or may be
licensed do not protect PeopleSoft's software products and intellectual property
rights to the same extent as the laws of the United States.
PeopleSoft does not believe that its software products, software
products acquired from previous acquisitions, third party software products
PeopleSoft offers under sublicense agreements, PeopleSoft trademarks or other
PeopleSoft proprietary rights infringe the property rights of any third parties.
However, third parties may assert infringement claims against PeopleSoft and its
products. These assertions could require PeopleSoft to enter into royalty
arrangements or could result in costly litigation.
PEOPLESOFT MAY EXPERIENCE PRODUCT LIABILITY CLAIMS
PeopleSoft's license agreements contain provisions designed to limit its
exposure to potential product liability claims. However, these provisions could
be invalidated by unfavorable judicial decisions or by federal, state or local
laws or ordinances. Although PeopleSoft has not experienced any product
liability claims to date, use of its software in mission critical applications
creates the risk that a third party may pursue a claim against PeopleSoft. If a
product liability claim against PeopleSoft were successful, the resulting
damages or injunctive relief could have a material adverse affect on
PeopleSoft's business, financial condition and results of operations. In
addition, as PeopleSoft begins to compete in the manufacturing software
application market, the mission critical nature of these products may increase
PeopleSoft's exposure to product liability claims.
THERE ARE RISKS ASSOCIATED WITH MANAGING GROWTH
PeopleSoft has experienced an extended period of growth in the following
areas: revenue; customer base; software product lines and supported platforms;
employees; and international operations. In addition, we have experienced
increased pressure on the viability and scope of our operating and financial
systems. This growth has resulted in new and increased responsibilities for
management personnel and has placed a significant strain upon PeopleSoft'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, PeopleSoft must continue to
implement and improve the speed and quality of its information decision support
systems, management decisions, reporting systems, procedures and controls.
PeopleSoft's personnel, procedures, systems and controls may not be adequate to
support its future operations.
PEOPLESOFT MAY BE DEPENDENT ON KEY PERSONNEL
PeopleSoft believes that its future prospects will depend in large part
upon its ability to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel. PeopleSoft continues to hire
additional sales, services and technical personnel. However, competition for
personnel in the software industry is intense, and, at times, PeopleSoft has had
difficulty locating candidates with appropriate qualifications within various
desired geographic locations, or with certain industry-specific domain
expertise. If PeopleSoft's competitors increase their use of non-compete
agreements, the pool of available technical personnel may further narrow in
certain jurisdictions, even if the non-compete agreements are ultimately
unenforceable. The failure to attract, train, retain and manage productive sales
and sales support personnel would have a material adverse effect on PeopleSoft's
business, financial condition and results of operations.
If PeopleSoft loses the services of one or more of its key employees,
its business, operating results, financial condition or business prospects could
be materially adversely affected. PeopleSoft has several programs in place to
retain key personnel, including granting of stock options that vest annually
over four or five years. A
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number of key employees have vested stock options with exercise prices lower
than PeopleSoft's current stock price. These potential gains provide these
employees the economic freedom to explore personal objectives both within and
outside PeopleSoft, which may result in the loss of one or more key employees
during the coming years.
It is widely recognized that the software industry in which PeopleSoft
competes is at or beyond a condition of full employment. PeopleSoft may not be
able to attract, train and retain the personnel it requires to develop, market,
sell and support new or existing software or to continue to grow. Also, to
penetrate successfully key vertical markets, PeopleSoft must attract, train and
retain personnel with industry-specific domain expertise.
Since the fourth quarter of 1998, PeopleSoft has experienced turnover of
several senior executives. PeopleSoft has hired or promoted qualified candidates
to fill these positions. However, since the employees are new to the positions,
it is possible that the newly hired or promoted employees will not easily
transition into these leadership roles or be able to successfully lead
PeopleSoft as it continues to grow.
CERTAIN THIRD PARTY PRODUCTS MAY NOT BE YEAR 2000 COMPLIANT
PeopleSoft's internal business information systems are comprised
primarily of the same commercial application software products it generally
offers for license to customers. These applications have been tested for Year
2000 compliance and are certified by the Information Technology Association of
America as Year 2000 compliant. Therefore, PeopleSoft does not expect any Year
2000 compliance issues to arise related to its primary internal business
information systems. Costs directly attributable to PeopleSoft's internal year
2000 initiative as currently estimated to at approximately $4.0 million. The
amount spent to date is approximately $2.0 million. This estimate is comprised
primarily of hardware and software required to complete Year 2000 testing within
the enterprise and consulting fees.
However, PeopleSoft uses other third party vendor network equipment,
telecommunication products, and software products that may or may not be Year
2000 compliant. PeopleSoft currently is taking steps to address the impact, if
any, of the Year 2000 issue surrounding these third party products. The failure
of any critical technology components to operate properly in the Year 2000 could
have a material adverse effect on PeopleSoft's business, financial condition and
results of operations, and PeopleSoft may incur unanticipated expenses to remedy
any problems.
THERE ARE RISKS ASSOCIATED WITH THE EUROPEAN MONETARY UNION ("EMU")
Our internal business information systems are primarily comprised of the
same commercial application software products generally offered for license by
the Company to end user customers. PeopleSoft's latest software release (Release
7.5) contains EMU functionality that allows for dual currency reporting and
information management. We are not aware of any material operational issues or
costs that were incurred in preparing internal systems in advance of the EMU.
However, since the Euro is not the sole legally required currency in any of the
member nations until the year 2002, it is possible that all issues related to
conversion to EMU have not surfaced yet, and may not have been adequately
addressed. In addition, we utilize third party vendor network equipment and
software products that may or may not yet be EMU compliant. Although PeopleSoft
continues to take steps to address the impact, if any, of EMU compliance for
such third party products, failure of any critical technology components to
operate properly under EMU may adversely affect business operations or require
us to incur unanticipated expenses to remedy any problems.
Our foreign exchange exposures to legacy sovereign currencies of the
participating countries in the EMU became foreign exchange exposures to the Euro
upon its introduction. Therefore, hedging transactions entered for exposures
after January 1, 1999, are denominated in Euros and hedges to legacy currencies
which were entered prior to December 31, 1998 were converted to Euros as
applicable. Although we are not aware of any material adverse financial risk
consequences of the change from legacy sovereign currencies to the Euro, since
complete conversion with the elimination of legacy currencies will not occur
until 2002, it is possible conversion may yet result in problems, which may have
an adverse impact on our business since we may be required to incur
unanticipated expenses to remedy these problems.
THERE ARE RISKS ASSOCIATED WITH FACILITY EXPANSION
PeopleSoft's continued growth has led to a significant increase in its
number of employees. Commercial building vacancy rates have dropped
significantly in many of the markets where PeopleSoft has significant
operations. As a consequence, we expect to experience increasing difficulty in
obtaining additional space to expand
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operations. The failure to either obtain space, or to obtain it on reasonably
attractive commercial terms, may inhibit our ability to grow, or may otherwise
adversely affect operations and financial results.
Additionally, PeopleSoft may commit to real estate projects in order to
expand operations to accommodate expected growth. These real estate projects
typically have a lead time of over one year from the commitment date to
occupancy. PeopleSoft's anticipated growth projections may not be realized, and
therefore, PeopleSoft may incur increased fixed costs that cannot be recovered
from operations, resulting in material reductions to net income and cash flows.
OUR STOCK PRICE IS VOLATILE AND THERE IS A RISK OF LITIGATION
The trading price of PeopleSoft common stock has in past and may in the
future be subject to wide fluctuations in response to factors such as the
following:
- revenue or results of operations in any quarter failing to meet
the expectations (published or otherwise) of the investment
community;
- announcements of technological innovations by PeopleSoft or our
competitors;
- new products or the acquisition of significant customers by
PeopleSoft or our competitors;
- developments with respect to patents, copyrights or other
proprietary rights of PeopleSoft or our competitors;
- changes in recommendations or financial estimates by securities
analysts;
- conditions and trends in the software industry generally;
- adoption of new accounting standards affecting the software
industry; and
- general market conditions and other factors.
Further, the stock market has experienced in recent months and may
continue in the future to experience extreme price and volume fluctuations that
particularly affect the market prices of equity securities of high technology
companies that often are not related to or are disproportionate to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political and market conditions have, and may continue to
have, a material adverse effect on the trading price of PeopleSoft common stock.
Fluctuations in the price of our common stock may expose PeopleSoft to the risk
of securities class action lawsuits. As a result of the significant declines in
the price of our common stock during the second half of fiscal 1998 and the
first quarter of fiscal 1999, several such lawsuits were filed against
PeopleSoft. Though PeopleSoft believes that these lawsuits are without merit,
defending against them could result in substantial costs and a diversion of
management's attention and resources. In addition, any settlement or adverse
determination of these lawsuits could subject PeopleSoft to significant
liabilities. We cannot assure you that there will not be additional lawsuits in
the future or that current or future lawsuits will not have a material adverse
effect on our business, financial condition and results of operations.
THERE COULD BE ADVERSE EFFECTS OF POTENTIAL SECURITIES ISSUANCES
If holders of warrants and/or options to purchase our common stock
exercise any significant number of these securities and resell the underlying
shares, the market price of our common stock could be materially adversely
affected. At May 10, 1999, warrants to purchase 3,200,000 shares of our common
stock were outstanding. As of May 10, 1999, these warrants had exercise prices
above the current market price of PeopleSoft common stock. In addition, at March
31, 1999, there were outstanding exercisable options to purchase 14,296,550
shares of PeopleSoft common stock issued under employee stock plans, of which
10,959,236 had exercise prices below the current market price of PeopleSoft
common stock.
PEOPLESOFT MAY NEED ADDITIONAL FINANCING
PeopleSoft's short-term and long-term investments in marketable
securities consist primarily of high quality municipal bonds, U.S. government
securities, corporate debt securities and tax-advantaged money market
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funds. Although these investments have favorable credit ratings, it is possible
that the issuers will default on their obligations, and PeopleSoft may lose
principal and accrued interest. In times of growth, PeopleSoft's operating and
investing activities may use more cash than they provide, thus requiring
PeopleSoft to obtain additional sources of financing. In addition, PeopleSoft
may need additional sources of financing for capital expenditures and material
acquisitions of complementary businesses, products or technologies. PeopleSoft
may be unable to obtain additional sources of financing on favorable terms, if
at all.
28
<PAGE> 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Securities Class Actions: Beginning on January 29, 1999, a series of class
actions have been filed alleging that the Company and various of its officers
and directors violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. As of this date, the Company is aware of
sixteen such actions, all filed in the United States District Court for the
Northern District of California, the first of which is entitled Gulio Suttovia
v. David Duffield et al., No. C 99-0472 MJJ. It is likely that all of the
subsequent actions will be consolidated with Suttovia. There are varying
combinations of defendants named in these actions, but the universe of
defendants named in one or more actions, all of whom are represented by Gibson,
Dunn & Crutcher LLP is: PeopleSoft, Inc., David A. Duffield, Ronald E.F. Codd,
Albert W. Duffield, Kenneth R. Morris, George J. Still, Jr., Margaret L. Taylor,
Aneel Bhusri, Cyril Yansouni and Momentum Business Applications.
The class periods alleged in the complaints vary slightly, but generally run
from early February 1997, when the Company's 1996 financial results were
released, until late January 1999, when its 1998 results were announced. The
allegations of the complaints focus on three general areas. First, the
complaints allege that the Company improperly accounted for the acquisition of
PeopleMan, L.P., which was acquired by the Company in 1996. The complaints
allege that, instead of writing off approximately $22 million of in-process
research and development ("IPR&D") in 1996 as a one-time charge, the Company
should have written off a lesser amount in 1996, capitalized the remainder and
amortized such amount over its useful life, which would have increased reported
earnings in 1996 but reduced reported operating earnings in later years. The
allegations in this regard appear to be based on the Company's announcement, on
January 28, 1999, that the Securities and Exchange Commission was reviewing the
Company's accounting treatment for this transaction (as well as for the
acquisition of Intrepid Systems. Inc. in 1998, which resulted in a $13.9 million
charge for IPR&D in the fourth quarter), and that the Company may be required to
restate its 1996 and 1997 financial statements with respect to the accounting
for IPR&D on the PeopleMan transaction (and take a lesser charge than expected
for the Intrepid acquisition in the fourth quarter of 1998). The Company has
subsequently been advised by the SEC that it will not require restatement of the
1996 or 1997 financial statements with respect to the PeopleMan transaction and
that it does not take exception to the accounting for IPR&D with respect to the
Intrepid transaction.
Second, certain of the complaints allege that the Company has improperly
accounted for (or intends improperly to account for) the spin-off of its
subsidiary, Momentum Business Applications, Inc. ("Momentum Business
Applications"). In late 1998, the Company transferred $250 million to Momentum
Business Applications pursuant to a contract under which Momentum Business
Applications is to conduct research and development. The Company has a right of
first refusal with respect to the products generated by such research and
development and has an option to purchase the outstanding shares of Momentum
Business Applications in the future. Momentum Business Applications has one
employee, the former CFO of the Company, and contracts with the Company to
provide personnel to conduct its operations and for administrative services. On
December 31, 1998, the Company, pursuant to a Registration Statement filed with
the SEC, distributed the shares of Momentum Business Applications to the holders
of the Company's shares which resulted in a dividend of approximately $79
million being segregated in the Company's equity accounts in December 1998. Upon
the election of independent directors of Momentum Business Applications, which
occurred in the first quarter of 1999, Momentum Business Applications no longer
meets the requirements for consolidation with the Company. This resulted in a
one-time charge of approximately $177 million by the Company in the first
quarter of 1999. The complaints allege that this structure is designed to
artificially inflate future operating earnings by allegedly converting what
would be ongoing research and development charges into a one-time write-off.
This structure was disclosed in detail in the above-referenced Registration
statement, and the SEC has not taken exception to the deconsolidation of the
financial statements upon the election of independent Momentum Business
Applications directors.
Third, the complaints allege that the Company misled the investing public as
to the Company's future prospects and failed to disclose facts that it knew
would result in decreased demand for its products and/or decreased operating
margins. The complaints allege further that various officers and directors
intended to profit thereby by artificially inflating the price of the Company's
stock so that they could sell significant amounts of their stock at inflated
prices. The allegations appear to have been triggered by the Company's 1999
forecast issued on January 28, 1999, which indicated lower growth than
experienced in prior years. The Company also announced that it was reducing its
workforce by approximately 6%. Due to uncertainties in the current business
environment, the Company no longer is forecasting financial results for 1999 or
subsequent fiscal years.
29
<PAGE> 30
The hearing for the appointment of plaintiff's lead counsel is scheduled for
May 4, 1999.
The Company believes these actions to be without merit and intends to
vigorously defend them. However depending on the amount and timing, an
unfavorable resolution of some or all these matters could materially affect the
Company's future financial position or results of operations or cash flows in a
particular period.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
10.1 Amended and Restated 1989 Stock Option Plan and forms of
option agreements thereunder
10.2 1992 Employee Stock Purchase Plan as amended to date, and
form of subscription agreement thereunder
27.1 Financial Data Schedule -March 31, 1999
(b) Reports on Form 8 - K
No reports on Form 8 - K were filed during the quarter ended March
31, 1999.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 1999
PEOPLESOFT, INC.
By: /s/ ALFRED J. CASTINO
--------------------------------------------
Alfred J. Castino
Senior Vice President of Finance and
Administration, and Chief Financial Officer
(Principal Financial and Accounting Officer)
31
<PAGE> 32
PEOPLESOFT, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT TITLE
--------- -------------
<S> <C>
10.1 Amended and Restated 1989 Stock Option Plan and form of
option agreements thereunder
10.2 1992 Employee Stock Purchase Plan as amended to date, and
form of subscription agreement thereunder
27.1 Financial Data Schedule - March 31, 1999
</TABLE>
32
<PAGE> 1
EXHIBIT 10.1
PEOPLESOFT, INC.
AMENDED AND RESTATED 1989 STOCK PLAN
(AS AMENDED ON MAY 26, 1998)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock plans under state corporate and securities laws and the
Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(dd) "Contingent Worker"describes any person during the period in
which the person renders services to, for or on behalf of the Company, Parent or
Subsidiary under one or more of the following categories or classifications:
a. Independent Contractor. An "independent contractor" is an
individual (a) whose services are engaged by the Company, Parent or Subsidiary
under a written or oral contract, between the individual and the Company, Parent
or Subsidiary, to perform specialized tasks, for or on behalf of the Company,
Parent or Subsidiary, which require substantial skill and independent judgement
and (b) whose compensation is not subject to the withholding of employment or
income taxes by the Company, Parent or Subsidiary under Sections 3121 or 3401 of
the Code (other than back-up withholding under Code Section 3406) but is subject
to reporting by the Company, Parent or Subsidiary, under Code Section 6041, on
IRS Form 1099-MISC or other form for the reporting of nonemployee compensation.
b. Leased Worker. A "leased worker" is an individual hired by
an employee leasing company and made available to the Company, Parent or
Subsidiary by the leasing company, under a written or oral contract between the
Company, Parent or Subsidiary and the leasing company, in an arrangement in
which the compensation paid to the individual is subject to the withholding of
<PAGE> 2
employment or income taxes by the leasing company under Sections 3121 or 3401 of
the Code. The term "leased worker" includes but is not limited to persons who
provide services to the Company, Parent or Subsidiary in a joint employment
relationship with the leasing company. Similarly, the term "leased worker"
includes but is not limited to a leased employee within the meaning of Section
414(n) of the Code.
c. Technical Contractor. A "technical contractor" is an
individual who is a skilled technical worker, such as an engineer or computer
specialist and who is hired by a technical services firm and made available to
the Company, Parent or Subsidiary by the technical services firm, in an
arrangement in which the compensation paid to the individual is subject to the
withholding of employment or income taxes by the technical services firm under
Sections 3121 or 3401 of the Code or is subject to reporting by the technical
services firm, under Code Section 6041, on IRS Form 1099-MISC or other form for
the reporting of nonemployee compensation. The term "technical contractor"
includes but is not limited to independent contractors and leased workers. The
term "technical services firm" includes but is not limited to a leasing company,
as described above, or a firm distinct from the Company, Parent or Subsidiary
under a master vendor program or outsourcing arrangement, as described below.
d. Master Vendor Worker. A "master vendor worker" is an
individual who renders services to the Company, Parent or Subsidiary under a
master vendor program. A master vendor program is an arrangement in which a
personnel agency or other human resources firm supplies the Company, Parent or
Subsidiary with some or all of the individuals who, at any time or from time to
time, constitute the temporary work force of the Company, Parent or Subsidiary,
either directly or through other temporary help services, with or without
consolidated billing or invoicing. The compensation paid to the master vendor
worker is subject to the withholding of employment or income taxes by the
personnel agency or human resources firm under Sections 3121 or 3401 of the Code
or is subject to reporting by the personnel agency or human resources firm,
under Code Section 6041, on IRS Form 1099-MISC or other form for the reporting
of nonemployee compensation. The term "master vendor worker" includes but is not
limited to independent contractors, leased workers and technical contractors.
e. Outsourcing Organization Worker. An "outsourcing
organization worker" is an individual who renders services to the Company,
Parent or Subsidiary under an outsourcing or managed services arrangement. An
outsourcing or managed services arrangement exists when a firm, distinct from
the Company, Parent or Subsidiary and with specialized expertise, contracts with
the Company, Parent or Subsidiary not only to provide personnel but also to
assume responsibility for functions not at the core of the business of the
Company, Parent or Subsidiary. Non-core functions include but are not
<PAGE> 3
limited to mail room, reception, food service, landscaping, and building
security or maintenance. The compensation paid to an outsourcing organization
worker is subject to the withholding of employment or income taxes by the
outsourcing organization or managed services firm under Sections 3121 or 3401 of
the Code or is subject to reporting by the outsourcing organization or managed
services firm, under Code Section 6041, on IRS Form 1099-MISC or other form for
the reporting of nonemployee compensation. The term "outsourcing organization
worker" includes but is not limited to independent contractors, leased workers,
technical contractors and master vendor workers.
f. Consistent with the terms of the Plan and relevant laws, the
Administrator shall have discretionary authority to determine which persons who
provide services to, for or on behalf of the Company, Parent or Subsidiary are
Contingent Workers excluded from the categories of Consultant and Employee under
the Plan.
(e) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means PeopleSoft, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include Directors who are not
compensated for their services or are paid only a director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of the employment or consulting
relationship by the Company or any Parent or Subsidiary. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of: (i)
sick leave; (ii) military leave; (iii) any other leave of absence approved by
the Board, provided that such leave is for a period of not more than ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (iv) in the case of transfers between locations of
the Company or between the Company, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE> 4
(l) "Employee" shall mean any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company. The term "Employee" does not include any
Contingent Worker even if such contingent workers are reclassified as common-law
employees of the Company, Parent or Subsidiary unless the Administrator selects
the Contingent Worker as a Consultant, within the meaning of Section 2(h)
herein, who shall participate in the Plan. Consistent with the terms of the Plan
and relevant laws, the Administrator shall have discretionary authority to
determine the identity of reclassified Contingent Workers who shall be treated
as Consultants under the Plan and the manner and extent to which such
reclassified Contingent Workers shall participate in the Plan.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such system or exchange or the exchange with the greatest
volume of trading in Common Stock for the last market trading day prior to the
time of determination) as reported in the Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Optioned Stock" means the Common Stock subject to an Option.
(t) "Optionee" means an Employee or Consultant who receives an
Option.
<PAGE> 5
(u) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this Amended and Restated 1989 Stock Plan.
(w) "Public Company" means the Company when the Company has a class
of equity securities registered under Section 12 of the Exchange Act.
(x) "Purchaser" means an Employee or Consultant who exercises a Stock
Purchase Right.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 10 below.
(z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to the Plan or the right to receive a bonus of Common Stock for past
services.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 104,600,000 Shares, plus an annual increase to be added on the
first day of each of the Company's fiscal years beginning in 1999 equal to the
lesser of (i) 20,000,000 shares or (ii) 5 % of the outstanding shares on the
last day of the immediately preceding fiscal year. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If (A) the Company is not a
Public Company, or (B) the Company is a Public Company and it is permitted by
Rule 16b-3 and by the Applicable Laws, the Plan may (but need not) be
administered by different administrative bodies
<PAGE> 6
with respect to Directors, non-Director Officers, and Employees who are neither
Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
Subject to Section 16(b). With respect to Option and Stock Purchase Rights
grants made to Employees or Consultants who are also Officers or Directors when
the Company has a class of equity securities registered under Section 12 of the
Exchange Act (in which case the Company shall be referred to herein as a "Public
Company"), the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with Rule 16b-3 as it applies to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted (I) in such a manner as to permit the Plan to comply with Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary plan
and (II) in such a manner as to satisfy the Applicable Laws.
(iii) Administration With Respect to Other Persons. With respect
to Option and Stock Purchase Rights grants made to Employees or Consultants who
are neither Directors nor Officers of the Company and Option grants made when
the Company is not a Public Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. Once a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws, and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan; (ii) to select the Consultants and
Employees to whom Options and Stock Purchase Rights may from time to time be
granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation of any Option or
other award and/or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator shall determine, in its sole
discretion); and
<PAGE> 7
(vii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees, Purchasers and any other holders of any Options or Stock Purchase
Rights.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted to Employees and
Consultants, provided that Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if he is otherwise eligible, be granted additional Option(s)
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee or holder of a Stock
Purchase Right any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
(e) The following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 250,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iii) If an Option or Stock Purchase Right is cancelled (other
than in connection with a transaction described in Section 12), the cancelled
Option or Stock Purchase Right will be counted against the limit set forth in
Section 5(e)(i). For this purpose, if the exercise price of an Option or Stock
Purchase Right is reduced, the transaction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect until March 17, 2008 unless sooner terminated under Section
14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option or a Nonstatutory Stock
<PAGE> 8
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (7) delivery
of an irrevocable subscription agreement for the Shares which irrevocably
obligates the option holder to take and pay for the Shares not more than twelve
months after the date of delivery of the subscription agreement, (8) any
combination of the foregoing methods of payment, or (9) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. In making its determination as to the type of consideration to
accept, the Board shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
<PAGE> 9
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Administrator, consist of any consideration
and method of payment allowable under Section 8(b) of the Plan. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (as the case may be), such Optionee may, but only
within ninety (90) days (or such other period of time of not less than thirty
(30) days as is determined by the Board, with such determination in the case of
an Incentive Stock Option being made at the time of grant of the Option and not
exceeding ninety (90) days) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of Optionee's total and permanent disability.
Optionee may, but only within twelve (12) months from the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the extent
that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination,
<PAGE> 10
or if Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the Purchaser's
employment or consulting relationship with the Company for any reason (including
death or disability). The purchase price for Shares repurchased pursuant to the
stock purchase agreement shall be the original price paid by the Purchaser or
the Fair Market Value as of the date of bonus in the case of a stock bonus and
may be paid by cancellation of any indebtedness of the Purchaser to the Company.
The repurchase option shall lapse at such rate as the Administrator may
determine.
(c) Other Provisions. The stock purchase agreement shall contain such
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator in its sole discretion. In addition, the
provisions of stock purchase agreements need not be the same with respect to
each Purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the Purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Non-Transferability of Options and Stock Purchase Rights. An Option or
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee or Purchaser, only by the Optionee or Purchaser.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, as well as the price per share of Common
Stock covered by
<PAGE> 11
each such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. With respect to any Option granted prior to January 4,
1992, in the event that such successor corporation refuses to assume such Option
or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise such Option as to all of the Optioned Stock, including Shares as to
which such Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the Option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares).
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
or Purchaser under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not adversely affect Options or Stock Purchase
Rights already granted and such Options or Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser and the
<PAGE> 12
Board, which agreement must be in writing and signed by the Optionee or
Purchaser and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights,
the Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
19. Information to Optionees. The Company shall provide to each Optionee
and Purchaser, during the period for which such Optionee or Purchaser has one or
more Options or Stock Purchase Rights outstanding, copies of all annual reports
and other information which are provided to all stockholders of the Company. The
Company shall not be required to provide such information to key employees whose
duties in connection with the Company assure their access to equivalent
information.
<PAGE> 13
Prepared for:
SSN:
PeopleSoft, Inc.
Incentive Stock Option Agreement
Subject to the terms, definitions and provisions of the Amended and
Restated 1989 Stock Plan ("the Plan"), even if conflicting herewith,
PEOPLESOFT, INC. (the "Company"), hereby grants to ____________ (the
"Optionee"), the following option (the "Option") to purchase shares of
PeopleSoft's common stock:
Grant ID Grant Date Shares Granted Exercise Price Expiration Date
Subject to Optionee maintaining Continuous Status as an Employee as of such
dates, the Option shall vest and become exercisable as follows:
Vesting Date Shares Vested/Exercisable
In the event of termination of Optionee's Continuous Status as an
Employee, Optionee may exercise this Option only to the extent that Optionee
was vested at the date of termination. If termination resulted from the death
of the Optionee, the Optionee's estate or person who acquired the right to
exercise the option by bequest or inheritance will be entitled to exercise the
Option as if the termination had occurred one (1) year from the date of death.
To the extent that Optionee was not vested at the date of termination the
Option shall terminate. In addition, the Option shall terminate, even as to
vested shares, if the Optionee does not exercise the Option within ninety (90)
days from termination or within twelve (12) months in the event of the
Optionee's death or Disability. In no event may this Option be exercised after
the Term/Expiration date.
The Option may be exercised by properly completing a Lotus Notes exercise
form or its equivalent. The Lotus Notes form or its equivalent will be
irrevocable and deemed executed upon receipt by the Stock Plan Administrator of
a signed (electronically or otherwise) Lotus Notes form or its equivalent. The
exercise notice must be accompanied by payment of the appropriate exercise
price. Such payment may be made by i) cash or check, ii) a "cashless exercise"
(irrevocable instructions to a broker to deliver promptly to the Company the
amount of the sale or loan proceeds required to pay the exercise price), or
iii) surrender or other shares of Common Stock of the Company (which, if such
shares were acquired from PeopleSoft, have been held by the Optionee for more
than six months) and with a value equal to the exercise price. This Option may
not be exercised for a fraction of a share.
The Option is intended to qualify as an Incentive Stock Option as defined
in Section 422 of the Code. However, to the extent that it exceeds the
US$100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory
Option. Optionee understands that Optionee may suffer adverse tax consequences
as result of Optionee's exercise of the Option or disposition of the shares
acquired under the Option. OPTIONEE SHOULD READ THE PLAN AND PROSPECTUS AND
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
If Optionee sells or otherwise disposes of any of the Shares on or before the
later of i) two years after the Grant Date, or ii) one year after the Option is
exercised, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the
Optionee from the early disposition.
Optionee acknowledges and agrees that the vesting of shares pursuant to
the Option hereof is earned only by continuing employment at the will of the
Company. Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Company's Stock Option Plan shall confer upon Optionee
<PAGE> 14
any right with respect to continuation of employment by the Company,
nor shall interfere in any way with Optionee's right or the Company's right to
terminate Optionee's employment at anytime, with or without cause.
This Option may not be transferred in any manner otherwise than by will or
by laws of descent or distribution and may be exercised during the lifetime of
the Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs,
successors and assignees of the Option.
It is the Optionee's responsibility to read and understand the terms of the
Company's Stock Option Plan. The Plan and related Prospectus are available
on-line in Lotus Notes in the Media Library database (CLICK HERE TO ACCESS THE
ESOP PLAN AND ESOP PROSPECTUS IMMEDIATELY. CLICK HERE FOR ISO INFORMATION).
Optionee is familiar with the terms and provisions of the Plan, and hereby
accepts this option subject to all of the terms and provisions of the Plan.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Company's Board of Directors upon any questions
arising under the Plan or this Option.
The Plan and the Option Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof and may
only be changed by means of a writing signed by both parties. AGREED AND
EXECUTED AS FOLLOWS:
PeopleSoft, Inc.
A Delaware Corporation ----------------------------------------
By: Employee
/s/ RONALD E.F. CODD
- -------------------------------------
Ronald E.F. Codd
Senior Vice President and
Chief Financial Officer
THE OPTION SHALL TERMINATE IF THIS AGREEMENT IS NOT ACCEPTED WITHIN THIRTY (30)
DAYS AFTER THE DELIVERY DATE. SIGN PROMPTLY BUT NO LATER THAN ____.
<PAGE> 1
EXHIBIT 10.2
PEOPLESOFT, INC.
1992 EMPLOYEE STOCK PURCHASE PLAN
(As amended on May 26, 1998)
The following constitute the provisions of the 1992 Employee Stock Purchase
Plan of PeopleSoft, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly,
be construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock, $0.01 par value, of
the Company.
(d) "Company" shall mean PeopleSoft, a Delaware corporation.
(e) "Compensation" shall mean all regular straight time gross
earnings and sales commissions, including payments for overtime, shift premiums,
bonuses, and other cash compensation, but excluding all tax gross-up or expense
reimbursement amounts paid to participants.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
a participant pursuant to the Plan.
<PAGE> 2
(h) "Designated Subsidiaries" shall mean the subsidiaries which have
been designated by the Board, from time to time, in its sole discretion as
eligible to participate in the Plan. Effective as of January 1, 1998, the term
Designated Subsidiaries shall include PeopleSoft USA,Inc., a California
orporation.
(i) Effective as of January 1, 1997, "Employee" shall mean any
person, including an officer, who is customarily employed for at least twenty
(20) hours per week and more than five (5) months in a calendar year by the
Company or one of its Designated Subsidiaries. Pursuant to Treasury Regulations
Section 1.421-7(h), the determination of whether a person is an Employee shall
be made in accordance with the rules and principles contained in Code Section
3401 and the regulations thereunder regarding persons on the domestic or foreign
payroll of the Company and its Designated Subsidiaries. The term "Employee" does
not include any Contingent Worker. Consistent with the terms of the Plan and
relevant laws, the Plan Administrator shall have discretionary authority to
determine which service-providers shall be treated as Employees under the Plan
and to decide all other questions regarding the application, operation and
administration of the Plan.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Date" shall mean the last day of each Offering Period
of the Plan.
(l) "Offering Date" shall mean the first business day of each
Offering Period of the Plan, except that in the case of an individual who
becomes an eligible Employee after the first business day of an Offering Period
but prior to the first business day of the last calendar quarter of such
Offering Period, the term "Offering Date" shall mean the first business day of
the calendar quarter coinciding with or next succeeding the day on which that
individual becomes an eligible Employee.
Options granted after the first business day of an Offering Period
will be subject to the same terms as the options granted on the first business
day of such Offering Period except that they will have a different grant date
(thus, potentially, a different exercise price) and, because they expire at the
same time as the options granted on the first business day of such Offering
Period, a shorter term.
(m) "Offering Period" shall mean a period of six (6) months.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
<PAGE> 3
(o) "Plan Administrator" means the Board or committee named by the
Board under Section 13 below.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) The term "Contingent Worker" describes any person during the
period in which the person (i) renders services to, for or on behalf of the
Company or a Designated Subsidiary under one or more of the following categories
or classifications and (ii) is not an employee pursuant to Code Section 3121(d)
or Revenue Ruling 87-41:
a. Independent Contractor. An "independent contractor" is an
individual (a) whose services are engaged by the Company or Designated
Subsidiary under a written or oral contract, between the individual and the
Company or Designated Subsidiary, to perform specialized tasks, for or on behalf
of the Company or Designated Subsidiary, which require substantial skill and
independent judgement and (b) whose compensation is not subject to the
withholding of employment or income taxes by the Company or Designated
Subsidiary under Sections 3121 or 3401 of the Code (other than back-up
withholding under Code Section 3406) but is subject to reporting by the Company
or Designated Subsidiary, under Code Section 6041, on IRS Form 1099-MISC or
other form for the reporting of nonemployee compensation.
b. Leased Worker. A "leased worker" is an individual hired by
an employee leasing company and made available to the Company or Designated
Subsidiary by the leasing company, under a written or oral contract between the
Company or Designated Subsidiary and the leasing company, in an arrangement in
which the compensation paid to the individual is subject to the
<PAGE> 4
withholding of employment or income taxes by the leasing company under Sections
3121 or 3401 of the Code. The term "leased worker" includes but is not limited
to a leased employee within the meaning of Section 414(n) of the Code.
c. Technical Contractor. A technical contractor" is an
individual who is a skilled technical worker, such as an engineer or computer
specialist and who is hired by a technical services firm and made available to
the Company or Designated Subsidiary by the technical services firm, in an
arrangement in which the compensation paid to the individual is subject to the
withholding of employment or income taxes by the technical services firm under
Sections 3121 or 3401 of the Code or is subject to reporting by the technical
services firm, under Code Section 6041, on IRS Form 1099-MISC or other form for
the reporting of nonemployee compensation. The term "technical contractor"
includes but is not limited to independent contractors and leased workers. The
term "technical services firm" includes but is not limited to a leasing company,
as described above, or another firm distinct from the Company or Designated
Subsidiary under a master vendor program or outsourcing arrangement, as
described below.
d. Master Vendor Worker. A "master vendor worker" is an
individual who renders services to the Company or Designated Subsidiary under a
master vendor program. A master vendor program is an arrangement in which a
personnel agency or other human resources firm supplies the Company or
Designated Subsidiary with some or all of the individuals who, at any time or
from time to time, constitute the temporary work force of the Company or
Designated Subsidiary, either directly or through other temporary help services,
with or without consolidated billing or invoicing. The compensation paid to the
<PAGE> 5
master vendor worker is subject to the withholding of employment or income taxes
by the personnel agency or human resources firm under Sections 3121 or 3401 of
the Code or is subject to reporting by the personnel agency or human resources
firm, under Code Section 6041, on IRS Form 1099-MISC or other form for the
reporting of nonemployee compensation. The term "master vendor worker" includes
but is not limited to independent contractors, leased workers and technical
contractors.
e. Outsourcing Organization Worker. An "outsourcing
organization worker" is an individual who renders services to the Company or
Designated Subsidiary under an outsourcing or managed services arrangement. An
outsourcing or managed services arrangement exists when a firm, distinct from
the Company or Designated Subsidiary and with specialized expertise, contracts
with the Company or Designated Subsidiary not only to provide personnel but also
to assume responsibility for functions not at the core of the business of the
Company or Designated Subsidiary. Non-core functions include but are not limited
to mail room, reception, food service, landscaping, and building security or
maintenance. The compensation paid to an outsourcing organization worker is
subject to the withholding of employment or income taxes by the outsourcing
organization or managed services firm under Sections 3121 or 3401 of the Code or
is subject to reporting by the outsourcing organization or managed services
firm,under Code Section 6041, on IRS Form 1099-MISC or other form for the
reporting of nonemployee compensation. The term "outsourcing organization
worker" includes but is not limited to independent contractors, leased workers,
technical contractors and master vendor workers.
f. Consistent with the terms of the Plan and relevant laws, the
Plan Administrator shall have discretionary authority to
<PAGE> 6
determine which persons who provide services to, for or on behalf of the Company
or Designated Subsidiary are Contingent Workers excluded from the category of
Employee under the Plan.
3. Eligibility.
(a) Any person who has been continuously employed as an Employee for
one (1) month as of the Offering Date of a given Offering Period shall be
eligible to participate in such Offering Period under the Plan, provided that
such person was not eligible to participate in such Offering Period as of any
prior Offering Date, and further, subject to the requirements of Section 5(a)
and the limitations imposed by Section 423(b) of the Code. With respect to the
initial Offering Period only, any person who was employed as an Employee as of
November 1, 1992 shall be eligible to participate in such initial Offering
Period under the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of
Offering Periods, with new Offering Periods commencing on or about January 1 and
July 1 of each year (or at such other time or times as may be determined by the
Board of Directors). The first Offering Period shall commence on January 1, 1993
or on such other date the Board shall determine. The Plan shall continue until
terminated in accordance with Section 19 hereof. The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without stockholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by
<PAGE> 7
the Company and filing it with the Company's Office of Human Resources prior to
the applicable Offering Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
offering. The subscription agreement shall set forth the percentage of the
participant's Compensation (which shall be not less than 1% and not more than
10%) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the
Exercise Date of the offering to which the subscription agreement is applicable,
unless sooner terminated by the participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than ten percent (10%) of such participant's Compensation on
each such payday; provided that the aggregate of such payroll deductions during
the Offering Period shall not exceed ten percent (10%) of the participant's
aggregate Compensation during said Offering Period. All payroll deductions made
by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, on one occasion only during the Offering
Period, may increase or decrease the rate of his or her Contributions during the
Offering Period by completing and filing with the Company a new subscription
agreement. The change in rate shall be effective as of the beginning of the
calendar quarter following the date of filing of the new subscription agreement.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's Subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be
<PAGE> 8
granted an option to purchase on the Exercise Date a number of shares of the
Company's Common Stock determined by dividing such Employee's Contributions
accumulated prior to such Exercise Date and retained in the participant's
account as of the Exercise Date by the lower of (i) eighty-five percent (85%) of
the fair market value of a share of the Company's Common Stock on the Offering
Date, or (ii) eighty-five percent (85%) of the fair market value of a share of
the Company's Common Stock on the Exercise Date; provided however, that the
maximum number of shares an Employee may purchase during each Offering Period
shall be determined at the Offering Date by dividing $12,500 by the fair market
value of a share of the Company's Common Stock on the Offering Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12. The fair market value of a share of the Company's
Common Stock shall be determined as provided in Section 7(b).
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System or, if such price is not reported, the mean of
the bid and asked prices per share of the Common Stock as reported by NASDAQ or,
in the event the Common Stock is listed on a stock exchange, the fair market
value per share shall be the closing price on such exchange on such date (or, in
the event that the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported in The Wall Street Journal. For the initial
Offering Period only, the fair market value per share on the Offering Date shall
be the initial offering price of the Company's shares of Common Stock to the
public as indicated in the Company's final prospectus in connection with such
offering and as such price is negotiated between the Company and the managing
underwriters.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
maximum number of full shares subject to option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in such participant's account for the subsequent
offering period, subject to earlier withdrawal by such participant subject to
Section 10 hereof. Any other monies left over in such participant's account
after the
<PAGE> 9
Exercise Date shall be returned to such participant. The shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Exercise Date. During his or her lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
the Exercise Date of the Offering Period by giving written notice to the
Company. All of the participant's Contributions credited to his or her account
will be paid to him or her promptly after receipt of his or her notice of
withdrawal and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be made
during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Exercise Date of the Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
12. Stock.
(a) Subject to Section 18, the maximum aggregate number of Shares
which may be optioned and sold under the Plan is 6,700,000
<PAGE> 10
Shares, plus an annual increase to be added on the first day of each of the
Company's fiscal years beginning in 1999 equal to the lesser of (i) 5,000,0000
shares or (ii)(x) 1.5% of the outstanding shares on the last day of the
immediately preceding fiscal year less (y) the number of shares available for
future issuance under the Purchase Plan on the last day of the immediately
preceding fiscal year. The Shares may be authorized, but unissued, or reacquired
Common Stock. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
<PAGE> 11
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that
<PAGE> 12
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Exercise
Date, that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option will be exercised automatically on the
New Exercise Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the
<PAGE> 13
event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time terminate
or amend the Plan. Except as provided in Section 18, no such termination may
affect options previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being
<PAGE> 14
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of
law.
22. Term of Plan; Effective Date. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the stockholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
<PAGE> 15
New Election ____
Change of Election ____
PEOPLESOFT, INC. EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT
1. I, _________________, hereby elect to participate in the PeopleSoft, Inc.
Employee Stock Purchase Plan (the "Plan") for the Offering Period
_________________, 199_ to _________________, 199_ and for all subsequent
Offering Periods under the Plan, and subscribe to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Plan.
2. I elect to have Contributions in the amount of __% of my Compensation, as
those terms are defined in the Plan, applied to this purchase. I understand
that this amount must not be less than 1% and not more than 10% of my
Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the Offering
Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the plan and that I may not make any additional payments into
such account. I understand that all payments made by me shall be accumulated
for the purchase of shares of Common stock at the applicable purchase price
determined in accordance with the Plan. I further understand that, except as
otherwise set forth in the Plan, shares will be purchased for me
automatically on the Exercise Date of the Offering Period unless I otherwise
withdraw from the Plan by giving written notice to the Company for such
purpose.
4. I understand that I may discontinue at any time prior to the Exercise Date
my participation in the Plan as provided in Section 10 of the Plan. I also
understand that on one occasion only during the Offering Period I may
increase or decrease the rate of my Contributions during the Offering Period
by completing and filing with the Company a new Subscription Agreement. The
change in rate shall be effective as of the beginning of the calendar
quarter following the date of filing of the new Subscription Agreement.
5. I have received a copy of the Company's most recent description of the Plan
and a copy of the complete "PeopleSoft, Inc. Employee Stock Purchase Plan."
I understand that my participation in the Plan is in all respects subject to
the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s) of
(name of employee or employee and spouse only): ____________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the
Plan: NAME: (Please print) ___________________________ (First)(Middle)(Last)
(Relationship)_____________________________________________________________
(Address)__________________________________________________________________
8. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the date
of the end of the Offering Period, I will be treated for federal income tax
purposes as having received ordinary compensation income at the time of such
disposition in an amount equal to the excess of the fair market value of the
shares at the time such shares were transferred to me over the price which I
paid for the shares, regardless of whether I disposed of the shares at a
price less than their fair market value at transfer. The remainder of the
gain of loss, if any, recognized on such disposition will be treated as
capital gain or loss. I hereby agree to notify the Company in writing within
30 days after the date of any such disposition, and I will make adequate
provision for federal, state or other tax withholding obligations, if any,
which arise upon the disposition of the Common Stock. The Company may, but
will not be obligated to, withhold from my compensation the amount necessary
to meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or benefits
attributable to the sale or early disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year and 1
year holding periods, I understand that I will be treated for federal income
tax purposes as having received compensation income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid
for the shares under the option, or (2) 15% of the fair market value of the
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss. I
understand that this tax summary is only a summary and is subject to change.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon (i) my eligibility to
participate in the Plan and (ii) the completion by the Company of its
initial offering of shares of its Common stock to the public.
SIGNATURE:_____________
SOCIAL SECURITY #: ______________
<PAGE> 16
DATE:_____________________
SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse):
____________________________(Signature).
____________________________(Print name)
PEOPLESOFT, INC. EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL
I, ____________________, hereby elect to withdraw my participation in the
PeopleSoft, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan") for
the Offering Period __________________. This withdrawal covers all Contributions
credited to my account and is effective on the date designated below. I
understand that all Contributions credited to my account will be paid to me
within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period. I understand that my withdrawal from this
Offering will not affect my eligibility to participate in a succeeding offering
period or in any similar plan that may hereafter be adopted by the Company. I
understand and agree, however, that I will be eligible to participate in
succeeding offering periods only by delivering to the Company a new Subscription
Agreement. I understand that if I am an officer or director of the Company and
other person subject to Section 16 of the Securities and Exchange Act of 1934,
under rules promulgated by the U.S. Securities and Exchange Commission I may not
reenroll in a Stock Purchase Plan for a period of six (6) months after
withdrawal.
Dated:
------------------------------------------
Signature of Employee
---------------------------
Social Security Number
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN THIS FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 211,404
<SECURITIES> 253,257
<RECEIVABLES> 429,677
<ALLOWANCES> 41,757
<INVENTORY> 0
<CURRENT-ASSETS> 904,761
<PP&E> 317,071
<DEPRECIATION> 139,663
<TOTAL-ASSETS> 1,184,570
<CURRENT-LIABILITIES> 644,715
<BONDS> 0
0
0
<COMMON> 2,446
<OTHER-SE> 429,482
<TOTAL-LIABILITY-AND-EQUITY> 1,184,570
<SALES> 0
<TOTAL-REVENUES> 305,381
<CGS> 0
<TOTAL-COSTS> 480,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,756
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (168,425)
<INCOME-TAX> 3,073
<INCOME-CONTINUING> (171,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,498)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> 0
</TABLE>
