-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GmzBYGniY5h6Bv/WzaescTkHZLEZNEVSFYHga87pUjL2+PIAPydZIZE04KZNOYZL ap/lpeYy34wMKWlM51pRQQ== 0000891618-98-005149.txt : 19981126 0000891618-98-005149.hdr.sgml : 19981126 ACCESSION NUMBER: 0000891618-98-005149 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLESOFT INC CENTRAL INDEX KEY: 0000875570 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 680137069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-09652 FILM NUMBER: 98760147 BUSINESS ADDRESS: STREET 1: 4305 HACIENDA DR POST OFFICE BOX 8015 CITY: PLEASANTON STATE: CA ZIP: 945833-861 BUSINESS PHONE: 5102253000 MAIL ADDRESS: STREET 1: 4440 ROSEWOOD DRIVE CITY: PLEASANTON STATE: CA ZIP: 94588-3031 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 1 As filed with the Securities and Exchange Commission on November 25, 1998 Registration No. 333-67363/333-09652 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- MOMENTUM BUSINESS APPLICATIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------------- DELAWARE 7372 94-3313175 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
1301 HARBOR BAY BOULEVARD ALAMEDA, CALIFORNIA 94502-6576 (510) 769-5122 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------------- ANEEL BHUSRI PRESIDENT 1301 HARBOR BAY BOULEVARD ALAMEDA, CALIFORNIA 94502-6576 (510) 769-5122 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- PEOPLESOFT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------------- DELAWARE 7372 68-0137069 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
4460 HACIENDA DRIVE PLEASANTON, CALIFORNIA 94588 (925) 694-3000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------------- DAVID A. DUFFIELD PRESIDENT AND CHIEF EXECUTIVE OFFICER PEOPLESOFT, INC. 4460 HACIENDA DRIVE PLEASANTON, CALIFORNIA 94588 (925) 694-3000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------------- 2 Copies to: HENRY P. MASSEY, JR., ESQ. ALFRED J. CASTINO STEVEN L. BERSON, ESQ. ROBERT D. FINNELL, ESQ. PETER S. HEINECKE, ESQ. PEOPLESOFT, INC. MICHAEL S. RUSSELL, ESQ. 4460 HACIENDA DRIVE WILSON SONSINI GOODRICH & ROSATI PLEASANTON, CALIFORNIA 94588 PROFESSIONAL CORPORATION (925) 694-3000 650 PAGE MILL ROAD PALO ALTO, CA 94304-1050 (650) 493-9300
---------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] * If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] * With respect to the Form S-3.
CALCULATION OF REGISTRATION FEE ========================================================================================================================== TITLE OF EACH CLASS PROPOSED MAXIMUM OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF REGISTERED REGISTERED PRICE (2) REGISTRATION FEE - ----------------------------------------------- ------------------- --------------------- -------------------- Momentum Class A Common Stock, par value $0.001 per share .............................. 4,750,000 shares(1) $300,000,000.00 $83,400.00(5) - ----------------------------------------------- ------------------- --------------------- -------------------- PeopleSoft Common Stock, par value $0.01 per share(3) ...................................... 4,000,000 shares(4) n/a n/a ==========================================================================================================================
(1) Based on an estimate of the maximum number of shares of Momentum Class A Common Stock issuable in connection with the distribution described herein. (2) Estimated solely for the purpose of calculating the registration statement fee pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the adjusted book value of the Momentum Class A Common Stock after giving effect to the distribution described herein. No consideration will be paid by the recipients of the Momentum Class A Common Stock. (3) The Momentum Class A Common Stock may be converted into such shares of PeopleSoft Common Stock if PeopleSoft exercises the Purchase Option (as defined herein) with respect to the Momentum Class A Common Stock. Pursuant to Rule 457(i) under the Securities Act of 1933, as amended, no separate fee is required with respect to these shares of PeopleSoft Common Stock. (4) Estimated number of shares that may be issuable by PeopleSoft in payment of the exercise price of the Purchase Option based upon a price of $23.19 per share of PeopleSoft Common Stock, the average of the high and low prices per share of PeopleSoft Common Stock as reported on the Nasdaq National Market on November 9, 1998. An additional indeterminable number of shares are also being registered to cover any adjustments that may be required as a result of (i) fluctuations in the per share price of PeopleSoft Common Stock and the corresponding number of shares of PeopleSoft Common Stock required to be issued in payment of the exercise price of the Purchase Option (ii) final determination of the Purchase Option Exercise Price and (iii) stock splits or similar events. (5) Previously paid. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 3 [PeopleSoft Letterhead] December ___ , 1998 Dear Stockholder: I am pleased to send you the attached prospectus concerning Momentum Business Applications, Inc. ("Momentum") and notify you of the special distribution of shares of Momentum Class A Common Stock (the "Distribution") to the holders of Common Stock of PeopleSoft, Inc. ("PeopleSoft"). Each holder of PeopleSoft Common Stock at the close of business on December __, 1998 (the record date for the Distribution) will receive one share of Momentum Class A Common Stock for each 50 shares of PeopleSoft Common Stock then held. The Distribution is expected to occur on or about December ___, 1998. The shares of Momentum Class A Common Stock will be held in "book-entry" form, although stock certificates are available upon request. Boston EquiServe, L.P., is acting as distribution agent and will be responsible for making book-entry credits to holders of record on the record date and for mailing stock certificates to Momentum stockholders upon request. The Momentum Class A Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "MMTM." PeopleSoft formed Momentum to select and develop certain software application products, and to commercialize such products, most likely through licensing to PeopleSoft. In exchange for all of the shares of Momentum Common Stock outstanding prior to the Distribution, PeopleSoft will contribute $300 million to Momentum to be used for the development of these software application products. PeopleSoft, as the sole holder of the Momentum Class B Common Stock following the Distribution, will have the option to repurchase all, but not less than all, of the outstanding shares of Momentum Class A Common Stock under specified conditions. In addition, in exchange for technology licenses granted by PeopleSoft to Momentum and a commitment by PeopleSoft to make specified payments on sales of certain products, PeopleSoft will have an exclusive option to license any products and technology developed by Momentum. Momentum's software application development activities will take place under a development and license agreement with PeopleSoft. It is anticipated that substantially all of Momentum's funds will be directed toward developing the following software application products: (i) electronic business ("e-business") applications; (ii) analytic applications; and (iii) software applications designed for specific industry segments. The goal of providing e-business applications, analytic applications and industry-specific software applications for a number of different industries involves an ambitious product development effort that requires market specific domain expertise significantly different from PeopleSoft's existing skill base. PeopleSoft believes that it should form Momentum to pursue this opportunity because of time to market considerations and the unique skills and technologies needed to develop these new software application products. By creating Momentum and distributing the Momentum Class A Common Stock to PeopleSoft stockholders, PeopleSoft will separate the risks associated with developing these new software application products from the risks associated with PeopleSoft's traditional cross-industry enterprise resource planning applications. Thus, the transaction will provide an opportunity for PeopleSoft's stockholders to increase or decrease their level of participation in this new business by varying their level of investment in Momentum following the Distribution. 4 We are very enthusiastic about this opportunity for Momentum to develop new software application products for commercialization by PeopleSoft. The attached prospectus contains important information about the Distribution and about the proposed business of Momentum. I encourage you to read it carefully. Holders of PeopleSoft Common Stock on the record date for the Distribution are not required to take any action to participate in the Distribution. However, the distribution will be taxable to you as a dividend. Please read the information set forth under the caption "Certain Federal Income Tax Considerations" in the attached prospectus and consult your tax advisor with respect to the income tax consequences of the Distribution to you. Sincerely, David A. Duffield President and Chief Executive Officer 5 [RED HERRING LEGEND] The information in this prospectus is not complete and may be changed. Momentum and PeopleSoft may not sell or distribute these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 6 SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1998 PROSPECTUS 4,750,000 SHARES MOMENTUM BUSINESS APPLICATIONS, INC. CLASS A COMMON STOCK PeopleSoft, Inc. will distribute to the holders of record of PeopleSoft Common Stock as of the close of business on December__, 1998 approximately 4,750,000 shares of the Class A Common Stock of Momentum Business Applications, Inc. Each such holder of PeopleSoft Common Stock will receive one share of Momentum Class A Common Stock for every 50 shares of PeopleSoft Common Stock then held. This distribution will be taxable as a dividend to the recipients of the Momentum Class A Common Stock. Under Momentum's Certificate of Incorporation, PeopleSoft has the right to purchase all (but not less than all) of the Momentum Class A Common Stock. PeopleSoft may exercise this right at any time from the date the Momentum Class A Common Stock is distributed to its stockholders until the earlier of (i) December 31, 2002 (or later, if extended as provided in Momentum's Certificate of Incorporation) or (ii) the 60th day after which PeopleSoft receives notice that Momentum holds less than $2.5 million in cash and marketable securities. The exercise price for such right will be determined in accordance with a formula contained in Momentum's Certificate of Incorporation. PeopleSoft may pay the exercise price in cash, PeopleSoft Common Stock, or any combination of the two. This prospectus also covers 4,000,000 shares of PeopleSoft Common Stock, the estimated number of shares of PeopleSoft Common Stock that may be issuable by PeopleSoft in connection with such exercise. No public market currently exists for Momentum's securities. The Momentum Class A Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "MMTM." The PeopleSoft Common Stock is quoted on the Nasdaq National Market under the symbol "PSFT." On November 24, 1998, the closing price of PeopleSoft Common Stock was $21.50. ---------- THE SHARES OF MOMENTUM CLASS A COMMON STOCK DISTRIBUTED HEREUNDER AND THE RELATED SHARES OF PEOPLESOFT COMMON STOCK (IF THE PURCHASE OPTION IS EXERCISED) INVOLVE A HIGH DEGREE OF RISK. PLEASE READ CAREFULLY THE " MOMENTUM RISK FACTORS" SECTION BEGINNING ON PAGE 13 OF THIS PROSPECTUS AND THE "PEOPLESOFT RISK FACTORS" SECTION BEGINNING ON PAGE 22 OF THIS PROSPECTUS. ---------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is December ___, 1998. 7
TABLE OF CONTENTS Page ---- Prospectus Summary............................................................................ 3 Glossary......................................................................................11 Momentum Risk Factors ........................................................................13 PeopleSoft Risk Factors ......................................................................22 Distribution of Momentum Class A Common Stock.................................................35 Plan of Distribution of PeopleSoft Common Stock...............................................36 Momentum Capitalization.......................................................................37 Reasons for the Distribution and Effects on PeopleSoft........................................38 Business of Momentum..........................................................................40 Available Information.........................................................................44 Incorporation of Certain Documents by Reference...............................................45 Management of Momentum........................................................................46 Security Ownership of Momentum................................................................47 Selected Financial Data of Momentum...........................................................48 Management's Discussion and Analysis of Financial Condition and Results of Operations.........49 The Agreements and the Purchase Option........................................................51 Certain Federal Income Tax Considerations.....................................................57 Description of Momentum Capital Stock.........................................................60 Transfer Agent and Registrar..................................................................61 Experts.......................................................................................61 Legal Matters.................................................................................61 Index to Financial Statements.................................................................F-1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.................................A-1
---------- You should rely only on the information contained in this prospectus, the related registration statement and any documents incorporated by reference into the registration statement. Momentum and PeopleSoft have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Momentum and PeopleSoft are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Momentum and PeopleSoft's business, financial condition, results of operations and prospects may have changed since that date. -2- 8 PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. It is not complete and may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully, including the risk factors and financial statements. Certain words that are capitalized in this summary are defined in the Glossary following this summary. WHY THIS PROSPECTUS WAS SENT TO YOU This prospectus is being delivered by PeopleSoft, Inc., a Delaware corporation ("PeopleSoft"), to you because you were a holder of PeopleSoft Common Stock on December __, 1998. This entitles you to receive a distribution of one share of the Class A Common Stock of a new company, Momentum Business Applications, Inc., a Delaware corporation ("Momentum"), for each 50 shares of PeopleSoft Common Stock held by you on December __, 1998. Although no action is required on your part to cause this to happen and you do not have to pay cash or other consideration to receive these shares, the distribution of these shares to you will be taxable as a dividend, so please read carefully the information in this prospectus regarding the tax consequences of this transaction. This prospectus describes the business of Momentum, the relationship between PeopleSoft and Momentum, how this transaction benefits PeopleSoft and its stockholders and provides other information to assist you in evaluating the benefits and risks of holding or disposing of your shares of Momentum Class A Common Stock. The Momentum Class A Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "MMTM." BUSINESS OF MOMENTUM PeopleSoft is a leader in the development, marketing, licensing and support of enterprise client/server business administration software application solutions. PeopleSoft recently formed Momentum to develop and commercialize new software products and technology. Momentum plans to develop products and technology based on product plans developed in conjunction with PeopleSoft. Momentum currently expects that these products will include: 1. Electronic business ("e-business") applications that will be intuitive, user-focused solutions that enable people to conduct a broad range of business processes and commercial transactions over the Internet or a customer's intranet. These e-business applications will include a new extended-enterprise class of applications that integrate content from a customer's intranet, third party information and service providers and PeopleSoft's traditional cross-industry enterprise resource planning ("ERP") applications. 2. Analytic applications that will utilize information captured by enterprise on-line transaction processing ("OLTP") applications and other information sources to facilitate business decisions. 3. Software applications designed for specific industries -- such as utilities, professional services, financial services, retailing and health care -- that will provide information processing capabilities for business functions required in those industries. These industry-specific applications are expected to use PeopleSoft's rapid application development -3- 9 environment and architecture, known as PeopleTools(R), and complement PeopleSoft's existing cross-industry ERP applications in the areas of financial management, human resource management and supply chain management. Momentum anticipates that it will have limited staff and facilities. As a result, Momentum will engage PeopleSoft and/or other firms to perform substantially all of the research and development activities necessary to develop its products. These products will be owned by Momentum, which will then license, sell or grant distribution rights to these products to PeopleSoft and/or others. Momentum may also acquire or invest in complementary companies, products, or technologies or enter into joint ventures or strategic alliances with other companies as a part of its overall strategy to accelerate or enhance product development. In addition, PeopleSoft will perform a variety of administrative activities for Momentum under a separate services arrangement. RELATIONSHIP BETWEEN PEOPLESOFT AND MOMENTUM FORMATION AND FUNDING Prior to the distribution of the Momentum Class A Common Stock to the PeopleSoft stockholders (the "Distribution"), PeopleSoft will contribute $300 million in cash to Momentum to fund product development and operating expenses. This payment will reduce the total amount of cash, cash equivalents, and short-term and long-term investments on PeopleSoft's balance sheet by $300 million. Upon completion of the Distribution, Momentum will cease to be a wholly-owned subsidiary of PeopleSoft, and PeopleSoft's stockholders' equity will be reduced by $300 million. Momentum will have no assets other than the $300 million initially contributed by PeopleSoft and the contract rights described below. PeopleSoft does not currently intend to provide any additional funding to Momentum. However, PeopleSoft has a right of first refusal, but not an obligation, to provide additional funding to Momentum. STOCK OWNERSHIP AND CORPORATE GOVERNANCE Class A and Class B Common Stock. Momentum has two classes of Common Stock, Class A Common Stock (which is subject to PeopleSoft's Purchase Option described below) and Class B Common Stock. PeopleSoft owns all of the authorized shares of the Momentum Class B Common Stock. Under Momentum's Certificate of Incorporation, Momentum will be prohibited from taking or permitting any action that would alter PeopleSoft's rights under the Purchase Option. Momentum may not, without the consent of PeopleSoft as the sole holder of the Momentum Class B Common Stock, merge, liquidate, transfer or encumber any substantial assets, or amend its Certificate of Incorporation to change any of the following: o the PeopleSoft Purchase Option; o the authorized capitalization of Momentum; or o the portions of Momentum's Certificate of Incorporation governing the Board of Directors. Board of Directors. Momentum's Board of Directors will consist of four directors, one selected by the holders of the Momentum Class B Common Stock and three selected by the holders of the Momentum Class A Common Stock. The representative of the Momentum Class B Common Stock will serve a one-year term. The representatives of the Momentum Class A Common Stock will serve staggered -4- 10 three-year terms. Momentum currently has one director, Aneel Bhusri, an officer of PeopleSoft and the interim President of Momentum, who will be the representative of the Momentum Class B Common Stock. Momentum expects that prior to the Distribution, Mr. Bhusri will appoint an individual who is unaffiliated with PeopleSoft and has experience in the software industry to replace Mr. Bhusri as President of Momentum. The new President will be one of the three directors who represents the holders of the Momentum Class A Common Stock. The new President will propose two additional persons unaffiliated with PeopleSoft and with experience in the software industry, finance or accounting to fill the remaining vacancies on the Board of Directors. At each annual meeting of stockholders, the holders of the Momentum Class A Common Stock will select one director to serve a three-year term, and the holders of the Momentum Class B Common Stock will select one director to serve a one-year term. PURCHASE OPTION Under Momentum's Certificate of Incorporation, PeopleSoft has the right to purchase all (but not less than all) of the outstanding Momentum Class A Common Stock (the "Purchase Option") at any time prior to December 31, 2002. This deadline will be extended for successive six month periods if, as of any June 30 or December 31 date beginning with June 30, 2002, Momentum has not paid or accrued expenses for all but $15 million of the Available Funds as of such date. The Purchase Option will terminate on the 60th day after Momentum provides PeopleSoft with a statement that, as of the end of any calendar month, there are less than $2.5 million of the Available Funds remaining. If PeopleSoft exercises its Purchase Option, the exercise price (the "Purchase Option Exercise Price") will be the greatest of: 1. 15 times the sum of (i) the actual worldwide payments made by or due from PeopleSoft to Momentum with respect to all Licensed Products and Developed Technology for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period"); plus (ii) such payments as would have been made during the Base Period by, or due from, PeopleSoft to Momentum if PeopleSoft had not previously exercised its Product Payment Buy-Out Option with respect to any Momentum Product (for purposes of the calculations in (i) and (ii), payments will be annualized for any product that has not been a Licensed Product for all of each of the four calendar quarters in the Base Period); minus any amounts previously paid by PeopleSoft to exercise any Product Payment Buy-Out Option for such Momentum Product; 2. the fair market value of 720,000 shares of PeopleSoft Common Stock (adjusted in the event of a stock split) as of the date the Purchase Option is exercised; 3. $350,000,000 plus any additional funds contributed to Momentum by PeopleSoft, less the aggregate of all amounts paid or incurred by Momentum to develop Momentum Products or pursuant to the Services Agreement as of the date the Purchase Option is exercised; or 4. $90,000,000. -5- 11 In each case, the amount payable as the Purchase Option Exercise Price will be reduced to the extent, if any, that Momentum's liabilities at the time of exercise (other than liabilities under the Development Agreement, the Services Agreement and the Marketing Agreement) exceed Momentum's cash and cash equivalents, and short-term and long-term investments (excluding any Available Funds). PeopleSoft may pay the Purchase Option Exercise Price in cash, in PeopleSoft Common Stock or in any combination of the two. Any PeopleSoft Common Stock issued to holders of Momentum Class A Common Stock in connection with the exercise of the Purchase Option will be freely tradeable upon receipt. The per share purchase price of the Momentum Class A Common Stock will be reduced if Momentum issues additional Momentum Class A Common Stock after the date of this prospectus and prior to the date that PeopleSoft exercises the Purchase Option. CONTRACTUAL ARRANGEMENTS PeopleSoft and Momentum have entered into a series of agreements -- a Development and License Agreement (the "Development Agreement"), a Marketing and Distribution Agreement (the "Marketing Agreement") and a Services Agreement (the "Services Agreement") -- that set forth: o the permitted uses of the Available Funds; o Momentum's rights to use certain technology of PeopleSoft; o the development work and other services to be performed by PeopleSoft; and o PeopleSoft's rights with respect to the products to be developed by Momentum. The following summary sets forth the principal terms and conditions of the Development Agreement, the Marketing Agreement and the Services Agreement. Please refer to the actual agreements for a more complete description of the rights and obligations of the parties under these agreements. Development Agreement. Under the terms of the Development Agreement, PeopleSoft will propose to Momentum that Momentum develop certain software products and related technologies. If Momentum agrees to develop a product, then Momentum and PeopleSoft will agree on a timetable, budget and specifications for the product. PeopleSoft has granted Momentum a license to some of its technology, including its PeopleTools(R) technology, for the purpose of developing products under the Development Agreement. Products developed under the Development Agreement are referred to in this prospectus as "Momentum Products." Momentum may use the Available Funds only to develop or acquire Momentum Products and related technologies and for related administrative expenses. Momentum may develop or acquire third party software toolsets ("Developed Technology") for the purpose of developing Momentum Products. Momentum will grant PeopleSoft a license with respect to the Developed Technology in exchange for PeopleSoft's agreement to pay Momentum a 1% royalty on PeopleSoft's net revenues from sales of any products PeopleSoft develops using the Developed Technology for a period of 10 years. Momentum plans to undertake the research and development required by the Development Agreement by contracting with third parties because it will have limited staffing and facilities. Momentum currently expects that it will contract with PeopleSoft for various research and development and other services, but PeopleSoft is not obligated to provide Momentum with any such services. Momentum will -6- 12 pay PeopleSoft 110% of PeopleSoft's fully burdened costs relating to the research and development provided by PeopleSoft to Momentum. The Development Agreement automatically expires on the exercise or expiration of the Purchase Option. Marketing Agreement. Under the Marketing Agreement, Momentum has granted PeopleSoft certain distribution and licensing rights with respect to the Momentum Products. Prior to a Momentum Product becoming Generally Available, PeopleSoft has an exclusive license to market and distribute the Momentum Product. PeopleSoft will pay Momentum a 6% royalty on any such sales. PeopleSoft's exclusive license with respect to a Momentum Product expires upon the earlier of (i) the exercise or expiration of the License Option with respect to that Momentum Product or (ii) the expiration of the Purchase Option. PeopleSoft has agreed to use commercially reasonable efforts to promptly conduct marketing with respect to each Momentum Product prior to such product becoming Generally Available. In addition, PeopleSoft has an option (the "License Option") to obtain a perpetual, exclusive license to market, distribute, sublicense, support and enhance any Momentum Product. PeopleSoft may exercise this right at any time prior to the earlier of (i) 30 days after the Momentum Product becomes Generally Available or (ii) the expiration of the Purchase Option. Upon exercise of the License Option with respect to a Momentum Product, PeopleSoft will be responsible for any further development and support of that product. PeopleSoft will then pay Momentum a royalty on Net Revenues of the Momentum Product based on a formula contained in the Development Agreement for a period of 10 years. PeopleSoft may eliminate this continuing royalty obligation by paying Momentum a lump sum in accordance with a formula specified in the Development Agreement. If PeopleSoft does not exercise its License Option with respect to a particular Momentum Product, Momentum may commercialize the product itself or with the assistance of parties other than designated competitors of PeopleSoft. Services Agreement. Under the Services Agreement, PeopleSoft will provide Momentum, for a fee, certain services relating to administration, including accounting, finance, human resources and legal services. REASONS FOR THE DISTRIBUTION PeopleSoft and Momentum believe that an attractive business opportunity exists to develop e-business applications, analytic applications and industry-specific software applications. However, PeopleSoft is not in a position to capture this opportunity because PeopleSoft does not presently have the required expertise to develop such applications. PeopleSoft believes that the formation of Momentum will benefit PeopleSoft stockholders by: o separating this new business, with its own unique market opportunity and risk/reward profile, from PeopleSoft's traditional cross-industry ERP applications; o enabling PeopleSoft stockholders to increase or decrease their level of participation in this new business by varying their level of investment in Momentum (by selling or acquiring Momentum shares in the open market); and -7- 13 o allowing PeopleSoft's financial results to continue to reflect principally its traditional cross-industry ERP applications business and previously existing industry initiatives. THE DISTRIBUTION Each PeopleSoft stockholder will receive one share of Momentum Class A Common Stock for every 50 shares of PeopleSoft Common Stock held. As of October 31, 1998, PeopleSoft had 233,017,263 shares of Common Stock outstanding. Record Date, Distribution Date. The record date for the Distribution will be the close of business on December __, 1998. The Distribution is expected to take place on or about December __, 1998, subject to certain conditions. No Fractional Shares. No fractional shares of Momentum Class A Common Stock will be distributed. Fractional shares of Momentum Class A Common Stock will be aggregated and sold by Momentum's transfer agent and distribution agent for the Distribution, Boston EquiServe, L.P., to provide cash to holders in lieu of such fractional shares. Trading Market. The Momentum Class A Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "MMTM." All Shares Subject to Purchase Option. All shares of the Momentum Class A Common Stock will be subject to the Purchase Option. PeopleSoft will decide whether to exercise the Purchase Option based on the prevailing circumstances at the time consideration is given to its exercise. Such circumstances include the extent to which Momentum is successful in developing Momentum Products, the level of market acceptance such products initially achieve (as indicated by initial licensing activities under PeopleSoft's License Option), and whether the Momentum Products will fit PeopleSoft's business strategies at the time of such exercise evaluation. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS It is expected that the Distribution will be taxable to each PeopleSoft stockholder in the amount of the fair market value of the Momentum Class A Common Stock distributed to such PeopleSoft stockholder. In early 1999, each recipient of distributed Momentum Class A Common Stock will receive an IRS Form 1099-DIV reflecting the fair market value of the Momentum Class A Common Stock distributed. The recipient's initial basis (for income tax purposes) in the distributed Momentum Class A Common Stock will be the fair market value of such shares at the time of the Distribution. Upon the sale or other disposition of the Momentum Class A Common Stock, including the exercise by PeopleSoft of the Purchase Option, a holder of the Momentum Class A Common Stock will have a taxable gain or loss equal to the difference between the value of the consideration received from PeopleSoft in such exercise and such holder's basis in the Momentum Class A Common Stock, unless PeopleSoft were to exercise the Purchase Option solely for shares of PeopleSoft Common Stock and certain other conditions were satisfied, in which case receipt of the PeopleSoft Common Stock may be tax-free to the holder under current federal income tax laws. -8- 14 The Distribution, any subsequent sale of Momentum Class A Common Stock, and the exercise or expiration of the Purchase Option may have other federal income tax consequences to holders. See "Certain Federal Income Tax Considerations." Each PeopleSoft stockholder is urged to consult their own tax advisors with respect to the tax consequences of this transaction. RISK FACTORS Ownership of the Momentum Class A Common Stock involves a high degree of investment risk. The risk factors below should be considered carefully in evaluating the ownership of the Momentum Class A Common Stock. See "Risk Factors." o Momentum is a newly formed company. o Momentum and PeopleSoft may not be successful in selecting and developing any Momentum Products. o Momentum may not be able to access developers with the domain expertise necessary to develop the Momentum Products. o Momentum and PeopleSoft may not successfully commercialize any Momentum Products. o Momentum may not have sufficient funds to complete the development of any or all of the Momentum Products. o The Development Agreement, the Marketing Agreement and the Services Agreement between PeopleSoft and Momentum and PeopleSoft's rights as holder of the Momentum Class B Common Stock may restrain Momentum from taking certain actions, including actions with third parties, and may impair the ability of Momentum to raise additional capital. o PeopleSoft may not exercise the License Option for any Momentum Products or exercise the Purchase Option to acquire all of the outstanding Momentum Class A Common Stock. o There may be conflicts of interest between PeopleSoft and Momentum, including competition from PeopleSoft. o PeopleSoft can allocate its resources as it deems appropriate and is not obligated to accept any development projects proposed by Momentum. o The terms of the Development Agreement, the Marketing Agreement and the Services Agreement between PeopleSoft and Momentum were not negotiated at arm's length. o Because Momentum Products will be based on PeopleSoft's technology and designed to interface and be compatible with PeopleSoft's products, Momentum may not be able to design products that will be compatible with other technologies. -9- 15 o Momentum and PeopleSoft will face competition from others with greater resources, experience and market presence. o Momentum may pursue acquisitions of other businesses or technologies to enhance or accelerate its product development, which would involve various risks and uncertainties. o To avoid potential conflicts of interest, the largest stockholder in Momentum plans to reduce his percentage ownership in the Momentum Class A Common Stock shortly after the Distribution from approximately 21% of the outstanding shares to just below 5% of the outstanding shares through the sale or other disposition of approximately 16% of the outstanding shares, which could have an adverse effect on the trading price of the Momentum Class A Common Stock. o Momentum cannot license its products to a third party unless or until PeopleSoft determines not to exercise the License Option with respect to a given Momentum Product, or the License Option expires with respect to that Momentum Product. o Momentum and PeopleSoft may not be successful marketing and licensing the Momentum Products outside North America without significant localization efforts. o Momentum Products may infringe the patents, copyrights or other intellectual property rights of others. o The holders of the Momentum Class A Common Stock will not elect Momentum's initial Board of Directors. o Because of Momentum's staggered Board of Directors, the holders of Momentum Class A Common Stock will be able to elect only one director at each annual meeting. o There has not been a trading market for the Momentum Class A Common Stock prior to the Distribution and the trading market for, and the trading price of, the Momentum Class A Common Stock after the Distribution cannot be predicted. o Momentum has included certain anti-takeover provisions in its Certificate of Incorporation that could make it more difficult for a third party to gain control of Momentum, which could have an adverse effect on the trading price of the Momentum Class A Common Stock. o Momentum may be adversely affected if entities which provide services to it or to PeopleSoft are not Year 2000 compliant. INVESTOR CONTACT Momentum and PeopleSoft stockholders with questions about the Distribution should contact PeopleSoft's principal executive offices at 4460 Hacienda Drive, Pleasanton, California 94588; telephone (925) 694-1496. -10- 16 GLOSSARY Available Funds.............. The initial $300 million contribution by PeopleSoft to Momentum plus the interest earned on such funds less amounts spent to develop or acquire Momentum Products and related technology and for related administrative expenses. Developed Technology......... Software toolsets developed by Momentum or acquired by Momentum from parties other than PeopleSoft pursuant to the Development Agreement. Development Agreement........ The Development and License Agreement between PeopleSoft and Momentum dated December __, 1998 whereby certain research and development projects are requested by PeopleSoft, approved by Momentum and then undertaken by Momentum. Development Costs............ Costs incurred by Momentum to develop products under the Development Agreement. Distribution................. PeopleSoft's distributing, on a pro rata basis, the Momentum Class A Common Stock to the record holders of PeopleSoft Common Stock as of December __, 1998. e-business................... Electronic business. ERP applications............. Enterprise resource planning applications. Generally Available.......... A determination by PeopleSoft that a Momentum Product has successfully completed the pre-release testing model PeopleSoft uses with its own products and meets the specifications agreed to by PeopleSoft and Momentum pursuant to the Development Agreement. License Option............... PeopleSoft's option to obtain a perpetual, exclusive license to market, distribute, sublicense, support and enhance any Momentum Product. Licensed Product............. A Momentum Product licensed by PeopleSoft under the License Option.
-11- 17 Marketing Agreement ......... The Marketing and Distribution Agreement between Momentum and PeopleSoft dated December __, 1998 whereby PeopleSoft is granted certain rights with respect to the licensing and distribution of the Momentum Products. Momentum Products............ Products developed under the Development Agreement. Net Revenue.................. End user license fees received by PeopleSoft for licensing or sub-licensing the Momentum Products less the value of bundled services and development and enhancement expenses incurred by PeopleSoft on Licensed Products. OLTP......................... On-line transaction processing. PeopleSoft Technology........ PeopleSoft's PeopleTools(R) technology and any other software products or technologies which PeopleSoft agrees to contribute to Momentum pursuant to the Development Agreement. Product Payment Buy-Out Option....................... The right of PeopleSoft under the Marketing Agreement to eliminate its obligation to pay royalties on a Licensed Product by instead making a single lump sum payment. Product Payments............. Amounts payable by PeopleSoft to Momentum for Licensed Products. Purchase Option.............. The right of PeopleSoft to purchase all, but not less than all, of the outstanding Momentum Class A Common Stock at the Purchase Option Exercise Price. Purchase Option Exercise Price........................ Amount payable by PeopleSoft to acquire all of the outstanding shares of the Momentum Class A Common Stock upon exercise of the Purchase Option. Services Agreement........... The Services Agreement between Momentum and PeopleSoft dated December __, 1998 whereby PeopleSoft agrees to provide Momentum with certain administrative services including accounting, finance, human resources and legal services.
-12- 18 MOMENTUM RISK FACTORS You should carefully consider the risks described below when evaluating your ownership of the Momentum Class A Common Stock. The risks and uncertainties described below are not the only ones Momentum faces. Additional risks and uncertainties Momentum is presently not aware of or that it currently considers immaterial may also impair Momentum's business operations. If any of the following risks actually occurs, Momentum's business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the Momentum Class A Common Stock could decline significantly. This prospectus also contains forward-looking statements. These statements include words such as "may," "will," "expect," "believe," "intend," "anticipate," "estimate" or similar words. These statements are based on Momentum's current beliefs, expectations and assumptions. Momentum's actual results could differ materially from those anticipated in these forward-looking statements due to certain factors, including the risks described below and elsewhere in this prospectus. Momentum undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. RISKS ASSOCIATED WITH FORMING A NEW COMPANY Momentum is a newly formed company. It faces all of the risks associated with establishing a new business enterprise in the software industry. Momentum will incur substantial losses for several years as it develops its products. Momentum will be able to recover such losses only if its development efforts are successful. RISKS ASSOCIATED WITH PRODUCT SELECTION AND DEVELOPMENT Momentum has entered into the Development Agreement with PeopleSoft that requires Momentum to use all the Available Funds in connection with the research and development of products that PeopleSoft proposes and Momentum approves. These products may not be the appropriate products for development. To date, PeopleSoft has relied upon third parties to develop industry-specific software and has obtained these products through licensing arrangements or acquisitions. PeopleSoft, therefore, does not have substantial experience in developing industry-specific products. In addition, neither PeopleSoft nor Momentum have significant familiarity with the evolving markets of e-business and analytic application products. Such inexperience and unfamiliarity may cause PeopleSoft and Momentum to choose inappropriate products for development. Even if PeopleSoft and Momentum choose appropriate products for development, Momentum may not be able to successfully develop such products. Developing any of these products involves a number of risks and uncertainties, including: o it may be difficult to assemble a workforce with sufficient domain expertise; o evolving customer demands for product functionality may require greater resources than originally anticipated; -13- 19 o Momentum may need to develop new technologies to address increased product functionality requirements; o development efforts may be complex and such complexities may create a risk that these products will not be technologically feasible; and o any products developed may rapidly become obsolete or require substantial resources to stay current. Any one or all of these factors may prevent Momentum from successfully developing any of these software application products. PeopleSoft has granted Momentum a license to use PeopleSoft Technology to develop products under the Development Agreement. However, some or all of the products Momentum may attempt to develop under the Development Agreement may require new technologies, or enhancements or modifications to existing PeopleSoft Technology. Momentum may not be able to acquire or develop the technology necessary to successfully develop its products. RISKS ASSOCIATED WITH MARKETING MOMENTUM PRODUCTS PeopleSoft or Momentum may not be able to successfully market any products developed by Momentum. PeopleSoft may need to develop or expand its marketing capabilities in order to commercially exploit any products it chooses to license from Momentum, and PeopleSoft may be unable or unwilling to undertake such a development or expansion of its marketing capabilities. If PeopleSoft does not choose to license a product developed under the Development Agreement, Momentum will have to identify other ways of commercially exploiting that product as Momentum currently has no marketing capabilities. If Momentum decides to market a product itself or through a third party, PeopleSoft may not approve Momentum's use of Available Funds for marketing the product. Additionally, Momentum may not have sufficient resources to fund any such marketing effort. Even if acceptable marketing resources are available, the products developed by Momentum may be unsuccessful in the market. RISKS ASSOCIATED WITH FINANCING MOMENTUM Prior to the Distribution, PeopleSoft will contribute $300 million in cash to Momentum. PeopleSoft does not currently intend to contribute additional funds to Momentum, although it may do so in the future. Under the Development Agreement, Momentum must use all the Available Funds in connection with the research and development of Momentum Products and for related administrative expenses. Momentum may not have sufficient funds to complete the development of any such products. Although Momentum is not prohibited from raising additional capital by any of the arrangements between Momentum and PeopleSoft, PeopleSoft's Purchase Option and its rights as the sole holder of the Momentum Class B Common Stock may make it difficult for Momentum to raise additional capital. For example, PeopleSoft's Purchase Option (and its ability to control certain matters as the sole holder of the Momentum Class B Common Stock) may make it more difficult for a third party to acquire Momentum even if a change of control could benefit Momentum's stockholders by providing them with a premium over the then current market price of their shares. As a result, the market value and liquidity of the Momentum Class A Common Stock may be adversely affected. -14- 20 If the Purchase Option expires unexercised, Momentum may have very little cash, few assets and an undeterminable number of products under research and development. Momentum may also have very little internal expertise in product development or marketing. Under these circumstances, third parties might be reluctant to lend money to or to invest in Momentum. NO ASSURANCE OF EXERCISE OF PEOPLESOFT'S LICENSE OPTION OR PURCHASE OPTION PeopleSoft is not obligated to exercise its License Option with respect to any Momentum Product. If PeopleSoft elects not to exercise its License Option with respect to a product, Momentum may be required to find alternative ways to commercialize the product. Momentum may not be able to establish alternative channels to commercialize its products. In addition, the Marketing Agreement prevents Momentum from commercializing any products containing PeopleSoft Technology through designated competitors of PeopleSoft. PeopleSoft has sole discretion as to when, if ever, it exercises the Purchase Option, and may choose to do so at a time when the purchase price is as low as possible. If PeopleSoft does not exercise the Purchase Option, the Development Agreement will expire and Momentum may need to seek alternative research and development facilities, either independently or with a third party. Momentum may not be able to obtain access to adequate research and development facilities on a timely basis, on acceptable terms, or at all. POTENTIAL CONFLICTS OF INTEREST WITH PEOPLESOFT DEPENDENCE ON PEOPLESOFT FOR PERSONNEL AND FACILITIES. Momentum expects that it will engage PeopleSoft to perform substantially all of the research and development required under the Development Agreement. Momentum believes that PeopleSoft's current and planned personnel and facilities will be adequate for PeopleSoft to perform such work. However, PeopleSoft is not obligated to perform any research and development for Momentum. In the event PeopleSoft agrees to undertake any research and development projects for Momentum, PeopleSoft will be able to allocate its personnel and facilities among its own or Momentum's projects as it deems appropriate, subject only to its obligation to use diligent efforts under the Development Agreement. DEPENDENCE ON PEOPLESOFT TECHNOLOGY. Momentum expects that all of the products it develops will to some extent incorporate PeopleSoft Technology. PeopleSoft has licensed such technology to Momentum. However, if Momentum wants to engage a party other than PeopleSoft to conduct research and development on its behalf, Momentum must obtain PeopleSoft's consent before that party may use the PeopleSoft Technology. In addition, Momentum believes that enhanced functionality will need to be added to PeopleTools(R) in order for Momentum to develop certain of its products. If PeopleSoft chooses not to develop those enhancements itself, Momentum would either have to develop them internally or pay a third party to do so. Any enhancements to PeopleSoft Technology by Momentum or any third party will be owned by PeopleSoft. DEPENDENCE ON PEOPLESOFT FOR MARKETING AND DISTRIBUTION PRIOR TO GENERAL AVAILABILITY. Prior to the commercial release of a product, software companies typically allow selected users to use, test and comment upon the product. Such pre-release marketing and distribution is often a critical element in the development and refinement of a software product. Under the Development Agreement, PeopleSoft will control the marketing and distribution of all Momentum Products prior to such products becoming Generally Available. Though the Development Agreement requires that PeopleSoft use commercially -15- 21 reasonable efforts with respect to such marketing and distribution efforts, Momentum and PeopleSoft may disagree about the timing, breadth and intensity of such efforts. PEOPLESOFT'S CONTROL OVER DETERMINATION OF GENERAL AVAILABILITY. Under the Marketing Agreement, PeopleSoft is responsible for determining when a Momentum Product is Generally Available. Because PeopleSoft's right to exercise its License Option with respect to a Momentum Product expires 30 days after the product becomes Generally Available, PeopleSoft could delay its determination that the product is Generally Available. PEOPLESOFT'S CONTROL OVER LICENSED PRODUCTS. If PeopleSoft exercises its License Option with respect to a Momentum Product, PeopleSoft will receive a perpetual, worldwide, exclusive license to, among other things, market and distribute that product. The right to market and distribute the Momentum Product allows PeopleSoft to control the pricing of the product. PeopleSoft has no minimum royalty obligation or any express obligation with respect to its marketing and distribution effort. As a result, PeopleSoft may have substantial control over the Net Revenues it receives from licensing the Momentum Product, which may impact the Product Payments made by PeopleSoft to Momentum. RIGHTS AS HOLDER OF THE MOMENTUM CLASS B COMMON STOCK. PeopleSoft will own all of the authorized shares of the Momentum Class B Common Stock. Momentum's Certificate of Incorporation prohibits Momentum from taking or allowing any action inconsistent with, or that would in any way adversely affect, PeopleSoft's Purchase Option. Additionally, Momentum will need PeopleSoft's consent to merge, liquidate, transfer or encumber any substantial portion of its assets, or amend its Certificate of Incorporation to change any of the following: o PeopleSoft's Purchase Option; o the authorized capitalization of Momentum; or o the portions of Momentum's Certificate of Incorporation governing the Board of Directors. PeopleSoft's ability to control the matters listed above could adversely affect the trading price and liquidity of the Momentum Class A Common Stock. Also, PeopleSoft may be able to delay or prevent a change of control of Momentum, even if such a change of control would be beneficial to Momentum's stockholders. This could limit the price that certain investors might be willing to pay for the Momentum Class A Common Stock in the future. The special rights given to the holder of the Momentum Class B Common Stock will expire on the same date that the Purchase Option expires. THE PURCHASE OPTION EXERCISE PRICE. The price at which PeopleSoft can exercise the Purchase Option was determined by PeopleSoft alone and not through arm's-length negotiations. PeopleSoft considered the following factors in making its determination of the purchase price: o how the Momentum Class A Common Stock will be distributed; o Momentum's planned business; o the terms of the Development Agreement and the Marketing Agreement; o the advice of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"); and -16- 22 o other factors it deemed appropriate. Until the Purchase Option expires, the market value of the Momentum Class A Common Stock will be limited by the Purchase Option Exercise Price. PRODUCT COMPETITION. PeopleSoft may develop and/or market for its own benefit products that compete directly with products that Momentum develops. LEGAL REPRESENTATION. Wilson Sonsini Goodrich & Rosati, Professional Corporation, is legal counsel to both PeopleSoft and Momentum. MOMENTUM PRODUCTS BASED ON PEOPLESOFT TECHNOLOGY; NO ASSURANCE OF COMPATIBILITY WITH OTHER TECHNOLOGIES OR PRODUCTS Momentum expects that the Momentum Products will be designed and built to interface and be compatible with PeopleSoft's technology and products. As a result, Momentum's ability to market the Momentum Products is dependent on market acceptance of PeopleSoft's technologies, products and installed base of customers. If Momentum wishes to develop products based on technologies and/or for products other than PeopleSoft's, Momentum may need to incur substantial development costs to ensure compatibility with such other technologies and/or products. Momentum anticipates that PeopleSoft will not approve the use of Available Funds for this purpose. Even if Momentum is able to fund these development efforts, Momentum may be unable to develop products that are compatible with technologies other than PeopleSoft's technology. COMPETITION The market for business application software is intensely competitive. Momentum believes it will face substantial competition from the large, established providers of enterprise-wide application software as well as from numerous smaller, more specialized software companies. Other than PeopleSoft, SAP AG ("SAP"), Oracle Corporation, Baan Company N.V. ("Baan") and J.D. Edwards & Company are the major providers of enterprise-wide software. Momentum believes that each of these companies has either launched initiatives or has the technical, financial, and marketing capability to launch initiatives to develop products which directly compete with the products Momentum intends to develop. In addition, numerous well-established companies specialize in e-business products, analytic applications or particular industry-specific applications. Almost all of Momentum's competitors have substantially greater financial, technical and marketing resources than those of Momentum. Furthermore, although Momentum believes PeopleSoft does not intend to compete with it, PeopleSoft is free to do so. Momentum expects that any products developed by it will be commercialized by other parties, most likely through PeopleSoft. Although PeopleSoft has substantial market share in the enterprise-wide application software market, it does not have a significant presence in the markets for e-business or analytic application products or in any of the markets for which Momentum intends to develop industry-specific application products. As a result, PeopleSoft may not be able to compete successfully with the other large providers of enterprise-wide application software or with the established specialized software companies in these markets. Additionally, if Momentum commercializes its products through third parties, such third parties may not have the financial, technical and marketing resources to compete successfully with Momentum's competitors. -17- 23 RISKS ASSOCIATED WITH ACQUISITIONS As part of its overall strategy to enhance or accelerate its product development efforts, Momentum may acquire or invest in complementary companies, products or technologies or enter into joint ventures or strategic alliances with other companies. Risks commonly encountered in such transactions include the difficulty of assimilating the operations and personnel of the combined companies, the potential disruption of Momentum's ongoing business, the inability to retain key technical and managerial personnel, the inability of management to maximize the financial and strategic position of Momentum through the successful integration of the acquired business, decreases in reported earnings as a result of charges for in-process research and development and amortization of acquired intangible assets, dilution of existing equity holders, difficulty in maintaining controls, procedures and policies, and the impairment of relationships with employees and customers as a result of any integration of new personnel. There can be no assurances that Momentum would be successful in overcoming these risks or any other problems encountered in connection with such business combinations, investments or joint ventures, or that such transactions will not have an adverse effect on Momentum's business, financial condition and results of operations. Because of the rights of PeopleSoft set forth in Momentum's Certificate of Incorporation, Momentum cannot effectively make any acquisitions without the prior approval of PeopleSoft. POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF MOMENTUM CLASS A COMMON STOCK OF DISPOSITION OF SHARES BY PRINCIPAL STOCKHOLDER Immediately following the Distribution, David A. Duffield, the President and Chief Executive Officer of PeopleSoft, will beneficially own approximately 21% of the outstanding Momentum Class A Common Stock. Because of the potential for conflicts of interest to arise between PeopleSoft and Momentum as a result of Mr. Duffield's role as the President and Chief Executive Officer of PeopleSoft, on one hand, and as the principal stockholder of Momentum, on the other hand, Mr. Duffield has advised Momentum that he intends to gift, sell or otherwise dispose of approximately 16% of the outstanding shares of Momentum Class A Common Stock shortly after the Distribution is completed. The sale of such a large block of the Momentum Class A Common Stock by Mr. Duffield (or any of his donees or transferees) could have a material adverse effect on the trading price of the Momentum Class A Common Stock. Such sales could also make it more difficult for Momentum to sell equity securities or equity-linked securities in the future at a time and price that Momentum deems appropriate. LIMITATION ON LICENSES TO THIRD PARTIES Momentum has granted PeopleSoft an option to obtain a perpetual, exclusive license to market, distribute, sublicense, support and enhance any products that Momentum develops under the Development Agreement. PeopleSoft's option with respect to a particular product expires 30 days after that product becomes Generally Available. Until that time, Momentum may not license such products to any other party. As a result, Momentum may miss opportunities to license the products it develops to third parties for higher royalty rates than those PeopleSoft is obligated to pay. In addition, in the event that PeopleSoft declines to exercise its License Option, the delay in Momentum's ability to identify and enter into a licensing arrangement with a third party may adversely affect the terms Momentum is eventually able to obtain from that third party. -18- 24 LIMITED INTERNATIONAL CAPABILITY Products developed by Momentum may have difficulty achieving broad market penetration outside of North America. In order to commercialize software application products outside of North America, Momentum or its third party licensees may need to create localized versions of these products. Neither Momentum nor its third party licensees may have sufficient resources or funding to create, market and license localized versions of any of the products developed by Momentum. In addition to the uncertainties related to commercializing Momentum's products outside of North America, there are certain risks inherent in doing business internationally. These risks include: o compliance with regulatory requirements and changes in these requirements; o tariffs and other trade barriers; o unfavorable pricing and price competition; o currency fluctuations; o longer payment cycles in some countries; o difficulties in collecting international accounts receivable; o difficulties in enforcing contractual obligations and intellectual property rights; o potentially adverse tax consequences; o increased costs associated with maintaining international marketing efforts and offices; and o political instability. Any one or all of these factors may adversely affect the commercialization of Momentum's products outside of North America. POTENTIAL INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS; LIMITED PROTECTION OF MOMENTUM'S INTELLECTUAL PROPERTY RIGHTS The products Momentum intends to develop may incorporate certain technologies of PeopleSoft and other third parties. While Momentum intends to obtain from third parties permission to use their technologies, Momentum's activities could unintentionally infringe the patents, copyrights or other intellectual property rights of others. Consequently, third parties may assert infringement claims against Momentum with respect to its products. Any such assertion could require Momentum to enter into royalty arrangements or could result in costly litigation. Momentum intends to rely on a combination of copyright, trade secret, and patent laws and employee and third party non-disclosure agreements to protect its intellectual property rights, including the features and design aspects of its products. Such measures may not be sufficient to protect its rights, and -19- 25 Momentum's competitors may independently develop technologies that are substantially equivalent to or superior to Momentum's technology. Momentum may from time to time become involved in litigation regarding the scope and validity of its intellectual property rights. Any such litigation, whether or not successful, could result in substantial costs to Momentum and diversion of efforts by Momentum's management. SOME DIRECTORS TO SERVE AFTER THE DISTRIBUTION NOT IDENTIFIED; DIRECTORS NOT INITIALLY ELECTED BY STOCKHOLDERS Momentum currently has one director, Aneel Bhusri, an officer of PeopleSoft and the interim President of Momentum. Momentum expects that prior to the Distribution, Mr. Bhusri will appoint an individual who is unaffiliated with PeopleSoft and has experience in the software industry to replace Mr. Bhusri as the sole officer of Momentum. The new President will then propose two additional persons unaffiliated with PeopleSoft and with experience in the software industry, finance or accounting to fill the remaining two vacancies on the Board of Directors. Holders of Momentum Class A Common Stock will not have elected any of the initial members of Momentum's Board of Directors. Because the representatives of the Class A Common Stock serve staggered three-year terms, the holders of Momentum's Class A Common Stock will be able to vote on only one representative at each annual meeting of stockholders. NO PRIOR TRADING MARKET FOR MOMENTUM CLASS A COMMON STOCK; STOCK PRICE MAY BE VOLATILE Prior to the Distribution, there has been no public market for the Momentum Class A Common Stock. The Momentum Class A Common Stock has been approved for quotation on the Nasdaq National Market. Momentum does not know whether investor interest in Momentum will lead to the development of a trading market or, if a trading market develops, how active that trading market will be. A number of factors may affect the price and liquidity of the Momentum Class A Common Stock, including: o actual or anticipated fluctuations in Momentum's operating results; o changes in expectations as to Momentum's future financial performance or changes in securities analysts' financial estimates; o the operating and stock price performance of PeopleSoft; o the operating and stock price performance of other comparable companies; and o changes in investors' estimates of the likelihood, price and timing of the possible exercise by PeopleSoft of its Purchase Option. In addition, the Momentum Class A Common Stock may be followed by few, if any, market analysts and there may be few institutions acting as market makers for the Momentum Class A Common Stock. Either of these factors could adversely affect the liquidity and trading price of the Momentum Class A Common Stock. Also, the stock market in general has experienced extreme price and volume volatility that has especially affected the market prices of securities of many high technology companies. At times, this volatility has been unrelated to the operating performance of particular companies. These broad -20- 26 market and industry fluctuations may adversely affect the trading price of the Momentum Class A Common Stock, regardless of Momentum's actual operating performance. ANTI-TAKEOVER PROVISIONS Certain provisions of Momentum's Certificate of Incorporation and Bylaws could make it more difficult for a third party to gain control of Momentum, even if a change in control might be beneficial to Momentum's stockholders. This could adversely affect the market price of the Momentum Class A Common Stock. These provisions include: o the elimination of the right of stockholders to act by written consent; o the elimination of the right of stockholders to call special meetings of the stockholders; o the creation of a staggered Board of Directors; o the ability of the Board of Directors to designate and issue Preferred Stock without stockholder consent; and o the ability of PeopleSoft to purchase the Momentum Class A Common Stock pursuant to the Purchase Option. YEAR 2000 COMPLIANCE Momentum expects that substantially all of its research and development and administrative activities will be performed by PeopleSoft. Momentum believes that PeopleSoft's internal systems are Year 2000 compliant. To the extent that Momentum purchases its own internal systems or contracts with other parties for such services, it expects to be able to find systems and service providers which are Year 2000 compliant. However, Momentum and PeopleSoft will be relying on a variety of service providers, including telephone companies, utilities and network services providers whose Year 2000 compliance is difficult to ascertain. If any these providers were unable to provide their services to either PeopleSoft or Momentum, Momentum's business could be adversely affected. -21- 27 PEOPLESOFT RISK FACTORS You should also carefully consider the risks described below regarding PeopleSoft and the PeopleSoft Common Stock when evaluating your ownership of the Momentum Class A Common Stock. The risks and uncertainties described below are not the only ones PeopleSoft faces. Additional risks and uncertainties PeopleSoft is presently not aware of or that it currently considers immaterial may also impair PeopleSoft's business operations. If any of the following risks actually occurs, PeopleSoft's business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the PeopleSoft's Common Stock could decline significantly. This prospectus and the documents incorporated by reference herein also contain forward-looking statements. These statements include words such as "may," "will," "expect," "believe," "intend," "anticipate," "estimate" or similar words. These statements are based on PeopleSoft's current beliefs, expectations and assumptions. PeopleSoft's actual results could differ materially from those anticipated in these forward-looking statements due to certain factors, including the risks described below and elsewhere in this prospectus. PeopleSoft undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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: o a significant portion of PeopleSoft's license agreements are completed within the last few weeks of each quarter; o 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; o the size of license transactions can vary significantly; o 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; o customer evaluations and procurement 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 o the number, timing and significance of software product enhancements and new software product announcements by PeopleSoft and its competitors may affect purchase decisions; -22- 28 In addition, each customer's evaluation of their need to achieve Year 2000 compliance may affect their purchase decision. PeopleSoft believes that, to date, potential customers' evaluations of Year 2000 operability issues have, on balance, increased demand for PeopleSoft's applications. However, this demand may weaken as the Year 2000 approaches since potential customers may not have sufficient time remaining to implement system replacements prior to the Year 2000. Because this problem is 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: o whether the license agreement relates entirely to then currently undeliverable software products; o whether enterprise transactions include both software products that are then currently deliverable and software products that are still under development (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")); o whether the customer demands services that include significant modifications, customizations or complex interfaces; o whether the license agreement includes non-standard acceptance criteria that may preclude revenue recognition prior to customer acceptance; and o 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 recently 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 in PeopleSoft's prior quarter contracting activity may impact its 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 -23- 29 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. DEPENDENCE 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, its 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 Oracle Corporation ("Oracle") when PeopleSoft customers select an Oracle database to run in conjunction with PeopleSoft's financial package. However, Oracle competes with PeopleSoft in the financial data management 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. RISK ASSOCIATED WITH CREATION OF MOMENTUM PeopleSoft faces a number of risks in connection with the creation of Momentum and the distribution of the Momentum Class A Common Stock to PeopleSoft stockholders. These include: o PeopleSoft will have less control over important research and development projects. Though PeopleSoft and Momentum will agree on budgets, timetables and specifications for each project, Momentum will be responsible for overseeing the actual product development. o PeopleSoft will be contributing a substantially 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. o 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. o 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. POSSIBLE ADVERSE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS -24- 30 In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2, "Software Revenue Recognition", which addresses software revenue recognition matters and Statement of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2", Software Revenue Recognition" in October 1997 and March 1998, respectively, and an additional SOP is anticipated to be issued before the end of 1998. These standards supersede an earlier Statement of Position and apply to transactions entered into for fiscal years beginning after December 15, 1997. PeopleSoft believes that its current software revenue recognition policies and practices are materially consistent with these standards. However, the American Institute of Certified Public Accountants has not issued implementation guidelines for these guidelines and the accounting profession is discussing a wide range of potential interpretations. Once available, these implementation guidelines or additional SOPs 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. The implementation guidelines for these standards 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. In addition, PeopleSoft could become competitively disadvantaged relative to foreign-based competitors that are not currently subject to U.S. GAAP. 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 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 UNCERTAIN; SEASONALITY 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. COMPETITION The market for business application software has been intensely competitive for the past three years and is currently intensifying. PeopleSoft competes with a variety of software vendors including: (i) -25- 31 enterprise application software vendors; (ii) manufacturing application software vendors; (iii) enterprise resource optimization application software vendors; (iv) financial management systems and HRMS application software vendors; and (v) software tools vendors. Although PeopleSoft believes its success has been due in part to its early emphasis on the client/server architecture, virtually all of PeopleSoft's competitors now offer software products based on a client/server architecture. Consequently, PeopleSoft must differentiate itself through more subtle architectural and technological factors, including: (i) web enablement; (ii) enterprise software product breadth and individual product features; (iii) service reputation; (iv) product flexibility; (v) ease of implementation; (vi) international software product version availability and support; and (vii) price. Price competition has increased recently 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, 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 this market, the chief competitive factors include: (i) the breadth and completeness of the enterprise solution offered by each vendor; (ii) the extent of software product integration across the enterprise solution; and (iii) 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 each of these areas primarily due to their significant worldwide presence and longer operating and product development history. In addition, both SAP and Oracle have substantially greater financial, technical and marketing resources, and a larger installed base, than PeopleSoft. Furthermore, Oracle's RDBMS (relational database management system) underlies a significant portion 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, J.D. Edwards 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: o 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; o other companies that provide specialized planning and scheduling software for niche markets, including Chesapeake Systems, Waterloo Manufacturing Software, MAPICS, Inc., Marcam Solutions, Inc. and CAPS Logistics; o 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; o internal development efforts by potential customers' corporate information technology departments; and -26- 32 o companies offering standardized or customized products on mainframe and/or mid-range computer systems. PeopleSoft also competes with (i) providers of HRMS software products, including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower, Inc. and Ceridian, and (ii) 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. In recent quarters, PeopleSoft's competitors have increasingly priced their products aggressively. PeopleSoft may be unable to continue to compete successfully with its existing competitors or to compete successfully with new competitors. RISKS ASSOCIATED WITH ACQUISITIONS 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 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; 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; and the impairment of relationships with employees and customers as a result of any integration of new personnel. PeopleSoft may not be successful in overcoming these risks or any other problems encountered in connection with such transactions. RELIANCE ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS PeopleSoft's 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 -27- 33 marketplace, including software development tools, middleware and OLAP tools. If a software product other than PeopleTools becomes the clearly established and widely accepted industry standard, PeopleSoft: (i) may be compelled to abandon or modify PeopleTools in favor of such an established standard; (ii) may be forced to redesign its software products to operate with such third party's software development tools; or (iii) may 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. 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: o continue to globalize its software product lines; o expand existing and establish additional foreign operations; o hire additional personnel; o identify suitable locations for sales, marketing, customer service and development; and o 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. 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. In January 1998, PeopleSoft implemented 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 began hedges of anticipated transactions and translation exposures in the first quarter of 1998 using forward contracts. 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. RELIANCE 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. These third-party system integrators include: (i) RDBMS software vendors; (ii) hardware vendors which offer both hardware platforms and, in the case of IBM, proprietary RDBMS products on which PeopleSoft's software products run; -28- 34 (iii) technology consulting firms and systems integrators, some of which are active in the selection and implementation of large information systems for the information-intensive organizations that make up PeopleSoft's principal customer base; and (iv) benefits consulting firms that are active in the implementation of HRMS. 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 fewer implementation efforts than competitors' similar product offerings. COMPLEXITY OF SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT 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, 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 integrate additional 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. These enhancements 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. -29- 35 RELIANCE ON SINGLE CLIENT INTERFACE 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 browser (running on either a PC or network computer) to access client/server systems is emerging as an alternative to the traditional desktop access through Microsoft Windows based personal computers. This client access via the Internet 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 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. RELIANCE 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. For example, when it acquired PeopleSoft Manufacturing, Inc. in 1996, PeopleSoft incurred a one-time charge to earnings of $22.5 million for in-process research and development. POTENTIAL SECURITY BREACHES 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: (i) the capabilities of its own applications; (ii) the client operating system software; (iii) some of the security features contained in the RDBMS platforms on which the applications run; and (iv) certain third party security products. To date, PeopleSoft is not aware of any violations of its application -30- 36 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. LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; POTENTIAL INFRINGEMENT OF 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. PeopleSoft has title to five software patents. In July 1998, PeopleSoft received title to another software patent relating to Iterative Repair Optimization. This patent, in addition to an earlier issued patent obtained through the acquisition of Red Pepper Software, also has pending continuing applications. These 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: (i) the knowledge, ability and experience of PeopleSoft's employees; (ii) frequent software product enhancements; and (iii) the 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 with respect to its products. Any such assertion could require PeopleSoft to enter into royalty arrangements or could result in costly litigation. POTENTIAL 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 effect 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. -31- 37 RISKS ASSOCIATED WITH MANAGING GROWTH PeopleSoft has experienced an extended period of: (i) significant revenue growth; (ii) customer base growth; (iii) expansion of its software product lines and supported platforms; (iv) significant expansion in its number of employees; (v) increased pressure on the viability and scope of its operating and financial systems; and (vi) expansion in the geographic scope of its operations. This growth has resulted in new and increased responsibilities for management personnel and has placed a significant strain upon 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. DEPENDENCE 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 and marketing personnel. PeopleSoft continues to hire a significant number of 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. In the past, PeopleSoft has lost few employees, especially those in critical positions. PeopleSoft has several programs in place to retain key personnel, including granting of stock options that vest annually over four or five years. A 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. YEAR 2000 COMPLIANCE PeopleSoft's internal business information systems are comprised primarily of the same commercial application software products it generally offers for license to end user customers. These applications have been tested for Year 2000 compliance and are certified by the Information Technology Association of America ("ITAA") as Year 2000 compliant. Therefore, PeopleSoft does not expect any -32- 38 Year 2000 compliance issues to arise related to its primary internal business information systems. PeopleSoft is not aware of any material operational issues or costs associated with preparing internal systems for the Year 2000. 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 be required to incur unanticipated expenses to remedy any problems. 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, PeopleSoft expects to experience increasing difficulty in obtaining additional space within which to expand its operations. PeopleSoft's failure to either obtain space, or to obtain it on reasonably attractive commercial terms, may inhibit its ability to grow, or may otherwise adversely affect its operations and financial results. Additionally, PeopleSoft may commit to real estate projects in order to expand its 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 be subject to increased fixed costs that cannot be recovered from operations, resulting in material reductions to net income and cash flows. VOLATILITY OF STOCK PRICE 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: (i) revenue or results of operations in any quarter failing to meet the expectations (published or otherwise) of the investment community; (ii) announcements of technological innovations by PeopleSoft or its competitors; (iii) new products or the acquisition of significant customers by PeopleSoft or its competitors; (iv) developments with respect to patents, copyrights or other proprietary rights of PeopleSoft or its competitors; (v) changes in recommendations or financial estimates by securities analysts; (vi) conditions and trends in the software industry generally; (vii) adoption of new accounting standards affecting the software industry; (viii) 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, may have a material adverse effect on the trading price of PeopleSoft Common Stock. In the past, following periods of volatility in the trading price of a company's stock, securities class action litigation has often been instituted against the company. Such litigation could occur in the future with respect to PeopleSoft. Such litigation could result in substantial costs and would at a minimum divert management's attention and resources, which could have a material adverse effect on PeopleSoft's business, financial condition and results of operations. Any adverse determination in such litigation could also subject PeopleSoft to significant liabilities. -33- 39 POSSIBLE ADVERSE EFFECTS OF RECENT SECURITIES ISSUANCES If holders of warrants and/or options to purchase PeopleSoft Common Stock exercise any significant number of these securities and resell the underlying shares, the market price of PeopleSoft Common Stock could be materially adversely affected. At October 31, 1998, warrants to purchase 6,400,000 shares of PeopleSoft Common Stock were outstanding. As of October 31, 1998, these warrants had exercise prices below the current market price of PeopleSoft Common Stock. In addition, at October 31, 1998, there were outstanding exercisable options to purchase 44,835,002 shares of PeopleSoft Common Stock issued under employee stock plans. As of such date, options to purchase 31,659,883 shares of PeopleSoft Common Stock had exercise prices below the current market price of PeopleSoft Common Stock. In addition, PeopleSoft has offered all of its employee optionholders (other than David Duffield) the opportunity to change the exercise price of any option with an exercise price greater than $22.00 to the closing price of PeopleSoft's Common Stock on December 15, 1998. As of October 31, 1998, 13,175,119 options had an exercise price greater than $22.00. INVESTMENTS AND LIQUIDITY 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 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. -34- 40 DISTRIBUTION OF MOMENTUM CLASS A COMMON STOCK The Board of Directors of PeopleSoft has declared a dividend, payable to its stockholders, of one share of Momentum Class A Common Stock for every 50 shares of PeopleSoft Common Stock held on December __, the record date for the Distribution. As a result of the Distribution, all of the then outstanding Momentum Class A Common Stock will be distributed to PeopleSoft's stockholders. After the Distribution, PeopleSoft will hold all of the authorized shares of the Momentum Class B Common Stock. See "Description of Momentum Capital Stock." Subject to certain conditions set forth in the Distribution Agreement between Momentum and PeopleSoft (the "Distribution Agreement"), PeopleSoft will effect the Distribution (expected to be on or about December __, 1998) by delivering all of the Momentum Class A Common Stock to Boston EquiServe, L.P., the distribution agent for the Distribution. Commencing on or about December __, 1998, the distribution agent will begin mailing account statements reflecting ownership of Momentum Class A Common Stock to the Momentum stockholders. Momentum stockholders may request stock certificates from the distribution agent. No fractional shares will be issued as part of the Distribution. The distribution agent will aggregate undistributed fractional shares and sell such shares at the earliest practicable date at the then-prevailing market price. Each person who would be otherwise entitled to receive a fractional share will instead receive a cash payment equal to such person's proportionate share of the net proceeds of the sale of such aggregated shares. PeopleSoft's stockholders will not be required to pay any cash or other consideration for the Momentum Class A Common Stock received in the Distribution. However, the Distribution of the Momentum Class A Common Stock to PeopleSoft stockholders is a taxable transaction under federal income tax law. See "Certain Federal Income Tax Considerations." The general terms and conditions of the Distribution and the arrangements between PeopleSoft and Momentum are set forth in the Development Agreement, the Marketing Agreement, the Services Agreement and the Distribution Agreement. See "The Agreements and the Purchase Option." The Distribution Agreement conditions the Distribution on, among other things, the absence of material adverse changes in the business, financial condition or results of operations of PeopleSoft or Momentum. -35- 41 PLAN OF DISTRIBUTION OF PEOPLESOFT COMMON STOCK In the event PeopleSoft exercises its Purchase Option, PeopleSoft may pay the Purchase Option Exercise Price in cash, in PeopleSoft Common Stock or in any combination of the two. If PeopleSoft decides to pay any portion of the Purchase Option Exercise Price with shares of PeopleSoft Common Stock, PeopleSoft will deliver such shares of PeopleSoft Common Stock to its transfer agent. PeopleSoft will instruct the transfer agent to mail account statements reflecting ownership of the PeopleSoft Common Stock to the holders of the Momentum Class A Common Stock as of the date PeopleSoft exercises its Purchase Option. The payment will be reflected in book-entry form. However, Momentum stockholders may request stock certificates from the transfer agent. -36- 42 MOMENTUM CAPITALIZATION The following table sets forth the capitalization and certain other balance sheet data of Momentum as of November 10, 1998, as adjusted to give effect to the contribution by PeopleSoft of $300 million to Momentum and the issuance to PeopleSoft of the Momentum Class A Common Stock and Class B Common Stock prior to the Distribution. The data set forth below should be read in conjunction with the Financial Statements and related Notes included elsewhere in this prospectus.
AS ADJUSTED AS OF NOVEMBER 10, 1998(1) -------------------- Cash ........................................................................... $300,000,000 ============ Stockholders' equity: Class A Common Stock, $0.001 par value; 10,000,000 shares authorized; 4,750,000 shares outstanding as adjusted .................................. $ 4,750 Class B Common Stock, $0.001 par value; 1,000 shares authorized; 1,000 shares outstanding as adjusted(2) .................................................. 1 Preferred Stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding ............................................................. -- Additional paid-in capital ..................................................... 299,995,249 ------------ Total stockholders' equity ............................................... $300,000,000 ============
- ------------ (1) See notes (a), (b) and (c) to Momentum's Pro Forma Balance Sheet on Page F-6 for a description of the pro forma adjustments reflected in the adjusted balances. (2) All shares of Class B Common Stock, as adjusted, are held by PeopleSoft. -37- 43 REASONS FOR THE DISTRIBUTION AND EFFECTS ON PEOPLESOFT PeopleSoft's management regularly discusses the current state of the software industry and where future demand will be focused. Based on these discussions, PeopleSoft believes that an attractive business opportunity exists to develop e-business applications, analytic applications, and industry-specific software applications. These market opportunities provide PeopleSoft with potential growth and profitability opportunities to complement its existing market presence in enterprise applications. However, the development of these products requires new and different technologies and core competencies, and consequently, entails a higher level of technology and business risk to PeopleSoft than that of its traditional OLTP products. The development of analytic applications and e-business products may require the use of technology unlike that utilized in PeopleSoft's current development activities. PeopleSoft believes the potential risk of hiring individuals and acquiring or developing technology to allow for adequate research and development in these areas is too high for it to accept on its own. PeopleSoft believes the formation of Momentum to develop products in these areas, and the arrangements between PeopleSoft and Momentum, will provide PeopleSoft with an opportunity to pursue, more quickly than would otherwise be possible, these new businesses. PeopleSoft believes that the arrangement with Momentum will benefit PeopleSoft stockholders by: o separating this new business, with its own unique market opportunity and risk/reward profile, from PeopleSoft's traditional cross-industry ERP applications; o enabling PeopleSoft stockholders to increase or decrease their level of participation in this new business by varying their level of investment in Momentum (by selling or acquiring Momentum shares in the open market); and o allowing PeopleSoft's financial results to continue to reflect principally its traditional cross-industry ERP applications business and previously existing industry initiatives. After reviewing PeopleSoft's goals and objectives and considering other possible methods of enhancing the growth of its product commercialization business, PeopleSoft's management and Board of Directors believe enhancing this business through the formation of Momentum and the Distribution will benefit the PeopleSoft stockholders. PeopleSoft's Board of Directors approved the formation of Momentum and the Distribution based on information provided by PeopleSoft's management and its financial advisor Merrill Lynch. See "Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated" attached as Exhibit A to this prospectus. PeopleSoft will pay Merrill Lynch a fee for its services in connection with the Distribution. The receipt of the fee is contingent upon the consummation of the Distribution. Merrill Lynch will also be reimbursed for expenses that it has incurred or will incur in rendering its services. PeopleSoft has agreed to indemnify Merrill Lynch against certain liabilities and expenses in connection with its services as financial advisors. Merrill Lynch has from time to time performed various investment banking and financial advisory services for PeopleSoft. Merrill Lynch, as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. PeopleSoft -38- 44 selected Merrill Lynch as its financial advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar to the Distribution. Although Merrill Lynch participated in certain of the discussions regarding the Distribution, the terms of the Distribution were determined by PeopleSoft's Board of Directors. -39- 45 BUSINESS OF MOMENTUM BACKGROUND PeopleSoft established Momentum to select and develop certain e-business products, analytic applications and industry-specific application products. Prior to the Distribution, PeopleSoft will contribute $300 million to Momentum so that Momentum will have financial resources to pursue the development of these products. In addition, PeopleSoft and Momentum have entered into a series of agreements relating to various matters including: o the permitted uses of the Available Funds; o Momentum's right to use PeopleSoft Technology; o development work and other services which may be performed by PeopleSoft; and o PeopleSoft's rights with respect to the products to be developed by Momentum. Under the Development Agreement, Momentum may use the Available Funds only to develop those products which PeopleSoft proposes and which Momentum accepts for development. PeopleSoft and Momentum will jointly agree on the work plans and cost estimates for such products. PeopleSoft has granted to Momentum the right to use PeopleSoft Technology to develop such products. Because Momentum is expected to have limited staff and facilities, Momentum anticipates engaging PeopleSoft to perform substantially all of the research and development activity related to such products. However, Momentum could engage third parties to perform such efforts, perform them itself or acquire other technologies or companies. Momentum currently has no plans to develop products other than those pursuant to the Development Agreement. Momentum expects that initially its only revenue will come from investment income derived from the Available Funds and that it will incur substantial losses as it expends funds pursuant to the Development Agreement. Momentum believes it eventually will derive revenue from the commercialization of the products it develops, most likely through PeopleSoft. However, Momentum has made no forecasts as to when, if at all, it will be profitable or when, if at all, meaningful revenues will be generated through this activity. PEOPLESOFT TECHNOLOGY OVERVIEW PeopleSoft developed PeopleTools(R), its rapid application development environment and architecture, specifically for developing client/server software application products. Software developers use PeopleTools(R) to, among other things, build and modify data tables, design and customize user interface windows and develop varying security level functionality. Since the introduction of PeopleTools(R) in 1988, PeopleSoft has invested and continues to invest considerable funds and resources in the ongoing enhancement and updating of this development environment. Using this proprietary development environment, PeopleSoft has developed a comprehensive suite of cross-industry administrative OLTP applications. This enterprise-wide suite of products includes applications in human resource management, financials, distribution, manufacturing, and supply chain optimization. -40- 46 PeopleSoft has granted Momentum a license to use PeopleTools(R) and certain other technology to develop products under the Development Agreement. Momentum believes that to develop industry-specific applications, PeopleSoft or Momentum may need to develop or acquire enhanced functionality for PeopleTools(R). In addition, Momentum may need to develop, acquire or license additional development technologies to develop its e-business and analytic applications. The Development Agreement allows Momentum to obtain, either through development, acquisition or licensing, the rights to development tools as deemed necessary to complete the products selected. THE MOMENTUM PRODUCTS Momentum Products are products recommended by PeopleSoft, and accepted by Momentum, for research and development under the Development Agreement. Momentum currently intends to develop the following types of Momentum Products: e-business Products. Momentum currently plans to build e-business applications that will be intuitive, user-focused solutions that enable people to conduct a broad range of business processes and commercial transactions over the Internet or a customer's intranet. These e-business applications will include a new extended-enterprise class of applications that integrate content from a customer's intranet, third party information and service providers and PeopleSoft's traditional cross-industry ERP applications. Momentum believes that e-business applications could effectively and efficiently meet the needs of people fulfilling different roles in their organizations. Analytic Application Products. PeopleSoft's OLTP products have traditionally focused on helping companies improve the efficiency of business processes. In contrast, analytic application products are focused on turning stored data (created primarily by OLTP applications) into business intelligence that can be used by companies to improve operating effectiveness. Momentum currently plans to develop analytic application products that will deliver data warehouse capabilities while allowing for integration and reconciliation to the general ledger, billing, and time and labor systems. These analytic application products are intended to enable rapid analysis and decision making while lowering the risk of inconsistent data within an organization. Industry-Specific Application Products. Momentum plans to develop a series of products to address the software application needs of certain industries. The initial target markets include utilities, professional services, financial services, retailing and healthcare. The Momentum Products will be designed to provide information processing capabilities for business functions critical to each specific industry. Such industry-specific application products typically support the core operating areas of a company. Under the License Option, PeopleSoft has the right to obtain a perpetual, exclusive license to market, distribute, sublicense, support and enhance any product developed by Momentum pursuant to the Development Agreement. This right expires 30 days after a product becomes Generally Available. The determination of whether a product is Generally Available will be made by PeopleSoft based upon the test procedures it uses for its own products. If PeopleSoft exercises its rights under the License Option for a product, it will pay Momentum a royalty on sales of that product in accordance with a formula contained in the License Option. PeopleSoft will also then be responsible for all upgrades, bug fixes and customer support related to the product. If PeopleSoft does not exercise its rights under the License Option, Momentum may commercialize the product itself or through arrangements with third parties that are not designated competitors of PeopleSoft. -41- 47 In the event Momentum successfully commercializes a product, any revenue it receives from such commercialization will not be considered Available Funds. Momentum will be free to use such revenue for any purpose, including additional product development. PeopleSoft will have no rights with respect to any products Momentum develops using funds other than Available Funds. DEVELOPMENT CYCLE Scope and Design: Based on input from sales personnel, customers, business partners and industry analysts, PeopleSoft will identify and prioritize product opportunities and present such opportunities to Momentum. For each product opportunity, high level business requirements are defined and documented. This initial product scope is reviewed and discussed with internal and external business process functional experts in an iterative review process that confirms a product's conceptual framework. Once the initial product scope is defined, the individual product features are identified and prioritized. In addition, new technologies that would be required to build and deploy the product are identified. For each product feature or new technology, a written summary of its business requirements is prepared and is reviewed with appropriate development personnel. Based on this review, product strategy and development personnel reach an initial agreement on the product's content and priorities for the initial release. Functional and technical designs are developed for each planned feature. Design reviews are held with teams comprised of product strategy, release testing, documentation, sample data and training personnel. During the design review process, this group ensures not only that the functional requirements are complete but also that the technical design meets the business needs. Develop and Port: In developing a new product, the development team will code and unit test every feature in the products to ensure that the product created complies with the functional and technical requirements. These tasks are conducted using a reference development platform, and the functionality is designed to provide global capabilities based on requirements from a proxy set of countries around the world. All development issues are identified and addressed. At the same time, system test requirements and procedures are developed. Test strategies, product test plans, feature test requirements and test procedures are completed. During the development and port phase, documentation and curriculum development personnel work closely with the developers to design documentation and training courses. Upon substantial completion of development, the developed product is ported to support multiple hardware, database and operating system platforms, and release platforms are certified. Test and Release: The product is delivered to a select group of Pre-General Availability customers for limited use. Pre-General Availability customers provide feedback on the features and functions as well as ease of use. Issues identified during this phase are generally resolved prior to the product being released as Generally Available. In addition, the combined product features are system tested on the primary development platform. These tests validate that the product and its features perform according to the specified business and functional requirements. All test failures are logged, reviewed and addressed. Release test requirements, plans and processes are developed and finalized. During this phase, the product is tested to validate it is operational on all supported platforms. The product is tested for (i) ease of use, (ii) ease of installation, (iii) ease of upgrade, (iv) volume and (v) performance. All incidents reported during release test are logged, reviewed and addressed. Once the product has met system and release test exit criteria, all sample data and documentation are finalized and incorporated into the master production product. Final validation and acceptance tests are performed. -42- 48 POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES Based on PeopleSoft's experience in developing other products, the Available Funds are expected to be expended pursuant to the Development Agreement over a period of approximately three to four years. These development efforts are currently estimated to require $48-$72 million for scope and design, $180-$210 million for develop and port and $36-$60 million for test and release, although these estimates may change over time as PeopleSoft and Momentum select and develop products. Because of the rapidly changing dynamics of the computer software industry, products currently forecasted to be undertaken by Momentum may be reprioritized as the market place develops. In addition, factors outside of Momentum's control, such as customer functionality demands, competitor product offerings, and hardware platforms, could alter the timing or amount of estimated expenditures. FACILITIES AND PERSONNEL Momentum is not expected to hire a significant number of employees or to acquire significant property or assets. However, in order to develop products under the Development Agreement, Momentum will have to make decisions on how to obtain adequate resources for its development efforts. Momentum currently expects that it will contract with PeopleSoft to provide engineering personnel and facilities to perform the development work. Momentum has the right to perform this work directly or seek other third party providers. Momentum is expected to use a substantial portion of the Available Funds to compensate PeopleSoft for the research and development of Momentum Products. In addition, Momentum has contracted with PeopleSoft to provide general administrative support services. COMPETITION The market for business application software is intensely competitive. Momentum believes it will face substantial competition from the large, established providers of enterprise-wide application software as well as from numerous smaller, more specialized software companies. Other than PeopleSoft, SAP, Oracle Corporation, Baan and J.D. Edwards & Company are the major providers of enterprise-wide software. Momentum believes that each of these companies has either launched initiatives or has the technical, financial, and marketing capability to launch initiatives to develop products which directly compete with the products Momentum intends to develop. In addition, numerous well-established companies specialize in e-business products, analytic applications or particular industry-specific applications. Almost all of Momentum's competitors have substantially greater financial, technical and marketing resources than those of Momentum. Furthermore, although Momentum believes PeopleSoft does not intend to compete with it, PeopleSoft is free to do so. Momentum expects that any products developed by it will be commercialized by other parties, most likely through PeopleSoft. Although PeopleSoft has substantial market share in the enterprise-wide application software market, it does not have a significant presence in the markets for e-business or analytic application products or in any of the markets for which Momentum intends to develop industry-specific application products. As a result, PeopleSoft may not be able to compete successfully with the other large providers of enterprise-wide application software or with the established specialized software companies in these markets. Additionally, if Momentum commercializes its products through third parties, such third parties may not have the financial, technical and marketing resources to compete successfully with Momentum's competitors. -43- 49 PATENTS; INTELLECTUAL PROPERTY The products Momentum intends to develop may incorporate certain technologies of PeopleSoft and other third parties. While Momentum intends to obtain from third parties permission to use their technologies, Momentum's activities could unintentionally infringe the patents, copyrights or other intellectual property rights of others. Consequently, third parties may assert infringement claims against Momentum with respect to its products. Any such assertion could require Momentum to enter into royalty arrangements or could result in costly litigation. Momentum intends to rely on a combination of copyright, trade secret, and patent laws and employee and third party non-disclosure agreements to protect its intellectual property rights, including the features and design aspects of its products. Such measures may not be sufficient to protect its rights, and Momentum's competitors may independently develop technologies that are substantially equivalent to or superior to Momentum's technology. Momentum may from time to time be involved in litigation regarding the scope and validity of its intellectual property rights. Any such litigation, whether or not successful, could result in substantial costs to Momentum and diversion of efforts by Momentum's management. AVAILABLE INFORMATION As a result of the Distribution, the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires Momentum to file annual, quarterly and other reports with the Securities and Exchange Commission. Momentum intends to provide annual reports containing audited financial statements to its stockholders in connection with its annual meetings of stockholders. PeopleSoft files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Momentum and PeopleSoft have filed with the Securities and Exchange Commission a Registration Statement, which includes certain exhibits (the "Registration Statement"), under the Securities Act of 1933, as amended, for the securities offered by this prospectus. This prospectus contains general information about the contents of contracts and other documents filed as exhibits to the Registration Statement. However, this prospectus does not contain all of the information set forth in the Registration Statement and the exhibits filed with the Registration Statement. You should read the Registration Statement and the exhibits for further information about Momentum, PeopleSoft and the Distribution. You may read and copy the Registration Statement and other materials that Momentum and PeopleSoft file with the Securities and Exchange Commission at the Public Reference Room of the Securities and Exchange Commission, 450 Fifth Street, Washington, D.C. 20549 and at the Securities and Exchange Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents, upon payment of a duplication fee, by writing to the Securities and Exchange Commission's Public Reference Section. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Rooms. The Securities and Exchange Commission filings of Momentum and PeopleSoft filings are also available to the public on the Securities and Exchange Commission Internet site (http://www.sec.gov). -44- 50 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Securities and Exchange Commission allows PeopleSoft to "incorporate by reference" the information PeopleSoft files with the Securities and Exchange Commission, which means that PeopleSoft can disclose important information to you by referring to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that PeopleSoft files later with the Securities and Exchange Commission will automatically update and supersede this information. PeopleSoft incorporates by reference the documents listed below and any future filings it makes with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the termination of this offering. 1. PeopleSoft's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (including those portions of PeopleSoft's Annual Report to Stockholders and definitive proxy statement for the Annual Meeting of Stockholders held on May 26, 1998 incorporated by reference therein). 2. PeopleSoft's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. 3. The description of PeopleSoft's Common Stock contained in PeopleSoft's Registration Statement on Form 8-A dated October 7, 1992, including any amendment or report filed for the purpose of updating the description. 4. The description of PeopleSoft's Preferred Share Rights Agreement contained in its Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 16, 1996, as amended on March 25, 1998, including any additional amendment or report filed for the purpose of updating the description. You may request a copy of the documents incorporated by reference, at no cost, by writing or telephoning Boston EquiServe, L.P., 289 S. San Antonio Road, Suite 100, Los Altos, California 94022; telephone: (650) 947-3800. -45- 51 MANAGEMENT OF MOMENTUM The following table sets forth information about Momentum's executive officer and director as of November 16, 1998:
NAME AGE POSITION - ---- --- -------- Aneel Bhusri..................... 32 President, Chief Financial Officer, Secretary and Director
Aneel Bhusri has been Momentum's President, Chief Financial Officer, Secretary and sole director since Momentum's formation in November 1998. Prior to the Distribution, Mr. Bhusri will appoint an individual who is unaffiliated with PeopleSoft and has experience in the software industry to replace Mr. Bhusri as the sole officer of Momentum. Mr. Bhusri joined PeopleSoft in August 1993 as Director of Strategic Planning. In April of 1995, he was appointed Vice President of Product Strategy. In November of 1995, Mr. Bhusri was appointed Senior Vice President of Product Strategy. In April 1997, he was appointed Senior Vice President of Product Strategy, Business Development and Marketing. Prior to joining PeopleSoft, Mr. Bhusri was an associate at Norwest Venture Capital from June 1992 to March 1993. From 1988 to 1991 he was a financial analyst in Morgan Stanley's Corporate Finance Department. Mr. Bhusri holds a B.Sc. in Electrical Engineering and a B.A. in Economics from Brown University, and an M.B.A. from Stanford University. -46- 52 SECURITY OWNERSHIP OF MOMENTUM Immediately prior to the Distribution, all of the outstanding shares of Momentum Class A Common Stock will be held by PeopleSoft. The following tables sets forth the projected beneficial ownership of Momentum Class A Common Stock following the Distribution by (i) the director and executive officer of Momentum and (ii) any stockholder that will beneficially own more than 5% of the outstanding shares of the Momentum Class A Common Stock.
MOMENTUM CLASS A COMMON STOCK PROJECTED TO BE BENEFICIALLY OWNED ------------------------------ PERCENT OF NAME NUMBER(1)(2) CLASS - ---- ------------------------------ Director and Executive Officer Aneel Bhusri.......................................................... 1,466 * Others David A. Duffield(3).................................................. 998,834 21% 4460 Hacienda Drive Pleasanton, CA 94588
- --------- * Less than 1% (1) Except as otherwise noted, reflects, in each case, the number of shares of PeopleSoft Common Stock beneficially owned as of October 31, 1998, divided by 50. In addition to shares held in the individual's sole name, this column includes shares held by the spouse and other members of the named person's immediate household who share that household with the named person, and shares held in family trusts. (2) In calculating the number of shares of Momentum Class A Common Stock projected to be owned by the individuals listed above, the calculation has been accomplished by treating each category of ownership, direct, book entry, street name and trust account separately and dividing each by 50, eliminating each set of fractional shares. (3) Mr. Duffield has informed Momentum that he plans to reduce his percentage ownership in the Momentum Class A Common Stock shortly after the Distribution from approximately 21% of the outstanding shares to below 5% of the outstanding share through the sale or other disposition of approximately 16% of the outstanding shares. -47- 53 SELECTED FINANCIAL DATA OF MOMENTUM BALANCE SHEET DATA:
AS OF NOVEMBER 10, 1998(1) ------------------- Cash.......................................................................... $ 1,000 Stockholders' equity.......................................................... $ 1,000
- --------- (1) Momentum was incorporated in November 1998. PeopleSoft contributed $1,000 in November 1998 in exchange for 1,000 shares of Momentum Common Stock. Momentum currently does not have any operations and will not have any operations prior to the Distribution. -48- 54 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Momentum was formed on November 9, 1998. PeopleSoft will contribute a total of $300 million in cash to Momentum prior to the Distribution. PeopleSoft's contribution (together with interest earned thereon) is expected to fund research and development activities for approximately three to four years. Momentum's funds are expected to be used primarily to fund activities to be conducted under the Development Agreement with PeopleSoft. Momentum expects to engage PeopleSoft or other third parties to perform the development activities on Momentum's behalf. Momentum is not expected to require significant facilities or capital equipment of its own during the term of the Development Agreement. There can be no assurances, particularly given the existence of the Development Agreement, the Marketing Agreement and the Services Agreement, that Momentum will be able to raise any additional capital. Such additional capital, if raised, would most likely reduce the per share proceeds available to holders of the Momentum Class A Common Stock if the Purchase Option were to be exercised by PeopleSoft. See "The Agreements and the Purchase Option -- Purchase Option." OPERATIONS Prior to the Distribution, Momentum will not have conducted any operations. After the Distribution, Momentum's operations will be conducted largely pursuant to the Development Agreement, the Marketing Agreement and the Services Agreement. See "The Agreements and the Purchase Option." In its early years, Momentum's revenues are expected to consist solely of investment income. In later years, Momentum may derive license revenues from commercialization of Momentum Products, most likely by PeopleSoft. However, Momentum is not expected to earn substantial revenues unless the Momentum Products are successfully commercialized. Momentum's expenses will be incurred primarily under the Development Agreement and the Services Agreement. If Momentum engages PeopleSoft to perform research and development work, PeopleSoft will charge Momentum 110% of its fully burdened cost of performing such activities. These fully burdened costs will include salary, benefits and overhead allocations. Momentum will also incur certain direct costs associated with developing Momentum Products. These costs could also include payments to other third parties for development, royalties, or costs associated with acquiring or investing in complementary companies, products or technology. Under the Services Agreement, PeopleSoft will provide Momentum certain administrative services including accounting, finance, human resources and legal services. Momentum will pay PeopleSoft a fee equal to the sum of: (i) one percent (1%) of PeopleSoft's fully burdened costs with respect to research and development conducted by PeopleSoft under the Development Agreement; plus (ii) one percent (1%) of any fees that Momentum pays to other third parties for the research and development of products pursuant to the Development Agreement. Momentum will also incur direct costs such as professional services, insurance, taxes and regulatory fees. As a result of its need to incur substantial development expenses prior to receiving significant revenue, Momentum anticipates that it will incur substantial losses which will likely be recurring. -49- 55 Momentum's future cash flow obligations will derive largely from the Development Agreement and the Services Agreement. Momentum is required to expend the Available Funds only to acquire or develop Momentum Products and related technologies and for related administrative expenses. The rate at which Available Funds are expended will derive from work plans and cost estimates approved by Momentum. YEAR 2000 DISCLOSURE Momentum expects that substantially all of its research and development and administrative activities will be performed by PeopleSoft. Momentum believes that PeopleSoft's internal systems are Year 2000 compliant. To the extent that Momentum purchases its own internal systems or contracts with other parties for such services, it expects to be able to find systems and service providers which are Year 2000 compliant. However, Momentum and PeopleSoft will be relying on a variety of service providers, including telephone companies, utilities and network services providers whose Year 2000 compliance is difficult to ascertain. If any these providers were unable to provide their services to either PeopleSoft or Momentum, Momentum's business could be adversely affected. -50- 56 THE AGREEMENTS AND THE PURCHASE OPTION DEVELOPMENT AND LICENSE AGREEMENT Momentum and PeopleSoft have entered into a Development and License Agreement (the "Development Agreement") for the selection and development of software application products including (i) e-business applications, (ii) analytic applications, and (iii) industry-specific software application products. Pursuant to the Development Agreement, the parties have agreed to the following terms: PeopleSoft has granted to Momentum a perpetual, worldwide, non-exclusive license to use PeopleSoft Technology solely for internal use purposes connected with the Development Agreement and solely in conjunction with Momentum's development, support, demonstration, testing (and all other similar related tasks) of the Momentum Products. PeopleSoft will propose to Momentum that it develop particular software products and related technologies. If Momentum agrees to develop such products, PeopleSoft and Momentum will agree upon timetables, budgets and specifications for each product. Products recommended by PeopleSoft and approved by Momentum for development are called "Momentum Products." Momentum has agreed to use diligent efforts to research and develop Momentum Products in accordance with agreed upon budgets and timetables. Momentum expects that it will undertake research and development by contracting with a third party, as it does not expect to have the staffing or facilities to do such research and development itself. Momentum currently expects that substantially all of the research and development relating to Momentum Products will be performed by PeopleSoft. However, PeopleSoft is not obligated to provide any such services to Momentum, and Momentum may choose to hire other third party providers. If Momentum chooses to engage PeopleSoft, it will pay PeopleSoft one hundred and ten percent (110%) of PeopleSoft's fully burdened costs relating to the research and development provided by PeopleSoft. PeopleSoft will recognize such reimbursement amounts as product development revenues. If a third party is hired to conduct research and development relating to Momentum Products, any agreement between Momentum and such third party must include appropriate provisions for the protection of PeopleSoft Technology and PeopleSoft's rights under the Development Agreement, the Marketing Agreement, and the Services Agreement and as a holder of the Momentum Class B Common Stock. Momentum may develop or acquire (through licensing or otherwise) third party software toolsets ("Developed Technology") for the purpose of developing Momentum Products. To the extent Momentum has the right, Momentum will grant PeopleSoft an irrevocable, worldwide, non-exclusive license to use, market, manufacture, reproduce, copy, sublicense, distribute (through PeopleSoft's then current worldwide channel distribution system), create derivative works, enhance and modify the Developed Technology. For a period of ten (10) years from the date the Developed Technology is acquired or first identified as part of the work plan related to the development of a Momentum Product, PeopleSoft will pay a royalty of one percent (1%) of net revenue on products (other than Momentum Products) developed by PeopleSoft using Developed Technology. In order to develop certain products using Developed Technology, PeopleSoft may need to acquire licenses or enter into other arrangements with third parties. For purposes of calculating royalties due to Momentum for the use of Developed -51- 57 Technology in these products, net revenue will be reduced by the amount of license fees or similar payments due to third parties from PeopleSoft with respect to such product. PeopleSoft will own all rights with respect to any enhancements made by Momentum to PeopleTools(R) or other software products contributed by PeopleSoft. PeopleSoft will not be obligated to make any royalty or other payments with respect to such technology or enhancements. Momentum will own the Developed Technology and the Momentum Products subject to PeopleSoft's license rights as described in the Development Agreement and the Marketing Agreement. Momentum may use the Available Funds only to develop or acquire Momentum Products and related technologies and for related administrative expenses. It is anticipated that Momentum will spend the Available Funds over a period of approximately three to four years. Prior to expenditure, Momentum will be required to invest the Available Funds in high quality marketable securities. Any such investment earnings shall become a part of the Available Funds. Momentum may not encumber, pledge or otherwise take any action with respect to Available Funds that could prevent the full expenditure of such funds under the Development Agreement. Under certain circumstances, PeopleSoft will have the right to require Momentum to make an affirmative pledge of the Available Funds to performance under the Development Agreement. Other than PeopleSoft's rights under the Purchase Option, there are no restrictions on Momentum's use of funds it generates or receives, that are not Available Funds, to conduct its business as it determines. The Development Agreement will automatically terminate upon the expiration of the Purchase Option; provided, however, PeopleSoft's obligation to pay royalties on Developed Technology will continue until the expiration of the respective royalty terms. Either party may terminate the Development Agreement if the other party breaches a material obligation thereunder and such breach continues uncured for thirty (30) days after written notice by the terminating party. In the event the Development Agreement or the Marketing Agreement is terminated by PeopleSoft in connection with Momentum's breach of a material obligation under the Development Agreement or the Marketing Agreement, PeopleSoft shall be entitled to receive, as liquidated damages, the Available Funds. If PeopleSoft reasonably believes that such liquidated damages are inadequate, then PeopleSoft will be entitled to specific performance of Momentum's obligations under the Development Agreement or the Marketing Agreement in connection with such breach. MARKETING AND DISTRIBUTION AGREEMENT Under the Marketing and Distribution Agreement (the "Marketing Agreement"), Momentum has granted PeopleSoft the exclusive license to market and distribute pre-General Availability versions of each Momentum Product (the "Pre-General Availability License") and an option to obtain a perpetual, worldwide, exclusive license to market, distribute, sublicense, support and enhance any post-General Availability versions of each Momentum Product (the "License Option"). Under the Pre-General Availability License, PeopleSoft has an exclusive license with respect to each Momentum Product to market and distribute the Momentum Product for the period from which Momentum accepts the relevant product proposal from PeopleSoft until the earlier of: (i) the exercise or expiration of PeopleSoft's License Option with respect to the Momentum Product; or (ii) the expiration -52- 58 of the Purchase Option. PeopleSoft shall pay Momentum royalties of six percent (6%) of Net Revenues from the license of each Momentum Product. PeopleSoft has agreed to use commercially reasonable efforts to promptly market each pre-General Availability Momentum Product to a limited group of customers in accordance with PeopleSoft's standard practices. Under the License Option, PeopleSoft may obtain a perpetual, worldwide, exclusive license (with the right to sublicense through multiple tiers) to market, distribute, support and enhance each Momentum Product. PeopleSoft may exercise the License Option with respect to any Momentum Product at any time from the date on which Momentum agrees to develop the product until the earlier of: (i) thirty (30) days after the product becomes Generally Available; or (ii) the expiration of the Purchase Option. A Momentum Product will be deemed to be Generally Available upon successful completion of the release testing model which PeopleSoft uses for its own products with the level of functionality originally agreed to by PeopleSoft and Momentum. Upon exercise of the License Option with respect to a Momentum Product (a "Licensed Product"), PeopleSoft will assume full responsibility for any product development, support, training, consulting, bug fixes, modifications and enhancements with respect to such Licensed Product. If PeopleSoft does not exercise the License Option with respect to a Momentum Product, PeopleSoft will retain the right and obligation to support any customers to whom it licensed such Momentum Product pursuant to its Pre-General Availability License. These rights and obligations will survive the termination of the Marketing Agreement. PeopleSoft will make Product Payments to Momentum with respect to each Licensed Product equal to the sum of (i) one percent (1%) of Net Revenues plus (ii) an additional one-tenth of one percent (0.1%) of Net Revenue for each one million dollars ($1,000,000) of Development Costs of the Licensed Product that were incurred by Momentum, up to a maximum royalty rate of six percent (6%) of Net Revenue. Net Revenues for a particular quarter are end user license fees received by PeopleSoft for licensing or sub-licensing each Licensed Product less the value of bundled services and development expenses incurred by PeopleSoft on such Licensed Product for that quarter. Net Revenues will include all user license fees paid with respect to each Licensed Product, regardless of whether PeopleSoft directly licenses such License Product, or indirectly licenses such Licensed Product through a reseller, distributor, or other third party. Subject to PeopleSoft's Product Payment Buy-Out Option described below, Product Payments will be payable by PeopleSoft to Momentum for ten (10) years after General Availability of the Licensed Product. PeopleSoft will retain all support services and maintenance fees with no royalty-sharing or payment obligation to Momentum. PeopleSoft's royalty obligations will survive the termination of the Marketing Agreement. PeopleSoft has the option to buy out Momentum's right to receive Product Payments for any Licensed Product. The Product Payment Buy-Out Option may be exercised for any Licensed Product at any time beginning twelve (12) months after the Licensed Product is declared Generally Available. The buy-out price will be fifteen (15) times the payment made by or due from PeopleSoft to Momentum with respect to licenses of such Licensed Product for the four (4) quarters immediately preceding the quarter in which the Product Payment Buy-Out Option is exercised (payment will be annualized for any such Licensed Product that has not been a Licensed Product for all of each of such four (4) quarters). If PeopleSoft does not exercise the License Option with respect to a Momentum Product, Momentum will be free to commercialize that Momentum Product itself or with the assistance of a third party. To the extent that any such Momentum Product contains PeopleSoft Technology, PeopleSoft has granted Momentum a license with respect to PeopleSoft Technology allowing Momentum to enhance, license, use and distribute the product provided that Momentum may not contract with certain entities that -53- 59 PeopleSoft reasonably believes and identifies as competitors of PeopleSoft. This license will survive the termination of the Marketing Agreement. During the term of the Marketing Agreement, PeopleSoft will provide quarterly reports to Momentum detailing payments due for such period with respect to the relevant Momentum Product or Licensed Product, as the case may be. Such reports will be due thirty (30) days after the end of each calendar quarter and will indicate the quantity and dollar amount of Net Revenues relating to each Momentum Product or Licensed Product, as the case may be, or other consideration in respect of Net Revenues, during the quarter covered by such report. No more than once in each calendar year upon at least five (5) business days notice and during regular business hours, at Momentum's expense, PeopleSoft is required to make available for inspection by Momentum such records of PeopleSoft as may be necessary to verify the accuracy of reports and payments made under the Marketing Agreement. PeopleSoft must provide similar reports and records with respect to all Developed Technology Products. The Marketing Agreement terminates upon the earlier to occur of: (i) the exercise of the Purchase Option by PeopleSoft; or (ii) the end of the thirtieth (30th) day after the expiration of the Purchase Option. The Marketing Agreement may be terminated by either party in the event that the other party (i) breaches any material obligation under the Marketing Agreement (which breach continues for a period of thirty (30) days after written notice to the defaulting party) or (ii) enters into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or similar arrangement for the benefit of its creditors. SERVICES AGREEMENT Pursuant to the Services Agreement, PeopleSoft will provide Momentum with certain services relating to administration, including accounting, finance, human resources and legal services. Momentum has agreed to pay PeopleSoft a fee equal to the sum of: (i) one percent (1%) of PeopleSoft's fully burdened costs with respect to research and development conducted by PeopleSoft under the Development Agreement; plus (ii) one percent (1%) of any fees that Momentum pays to other third parties for the research and development of products pursuant to the Development Agreement. The Services Agreement remains in force until December 31, 2002 and thereafter is automatically renewed for one-year terms. DISTRIBUTION AGREEMENT Under the Distribution Agreement, PeopleSoft will contribute $300 million in cash to Momentum in exchange for approximately 4,750,000 shares of Momentum Class A Common Stock and 1,000 shares of Momentum Class B Common Stock. PeopleSoft will then dividend such shares of Momentum Class A Common Stock to the PeopleSoft stockholders in connection with the Distribution. Under the Distribution Agreement, PeopleSoft has agreed to indemnify Momentum's officers and directors to the same extent such persons are entitled to indemnification under Momentum's Certificate of Incorporation if PeopleSoft exercises the Purchase Option. PURCHASE OPTION The Purchase Option is set forth in Momentum's Certificate of Incorporation. Pursuant to the Purchase Option, PeopleSoft has an exclusive, irrevocable option to purchase all, but not less than all, of the issued and outstanding Momentum Class A Common Stock. PeopleSoft may exercise the Purchase Option by written notice to Momentum at any time during the period beginning immediately after the -54- 60 Distribution until December 31, 2002; provided that such date will be extended for successive six month periods if, as of any June 30 or December 31 beginning with June 30, 2002, Momentum has not paid or accrued expenses for all but $15 million of the Available Funds as of such date. In any event, the Purchase Option will terminate on the sixtieth (60th) day after Momentum provides PeopleSoft with a statement that, as of the end of any calendar month, there are less than $2.5 million of Available Funds remaining. All certificates evidencing Momentum Class A Common Stock will bear a legend indicating that the Momentum Class A Common Stock is subject to the Purchase Option. If the Purchase Option is exercised, the exercise price (the "Purchase Option Exercise Price") will be the greatest of: (1) 15 times the sum of (i) the actual worldwide payments made by or due from PeopleSoft to Momentum with respect to all Licensed Products and Developed Technology for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period"); plus (ii) such payments as would have been made during the Base Period by, or due from, PeopleSoft to Momentum if PeopleSoft had not previously exercised its Product Payment Buy-Out Option with respect to any Momentum Product (for purposes of the calculations in (i) and (ii), payments will be annualized for any product that has not been a Licensed Product for all of each of the four calendar quarters in the Base Period); minus any amounts previously paid to exercise any Product Payment Buy-Out Option for such Momentum Product; (2) the fair market value of seven hundred twenty thousand (720,000) shares of PeopleSoft Common Stock, adjusted in the event of a stock split, as of the date PeopleSoft exercises its Purchase Option; (3) three hundred fifty million dollars ($350,000,000) plus any additional funds contributed to Momentum by PeopleSoft, less the aggregate of all amounts paid or incurred to develop the Momentum Products or pursuant to the Services Agreement as of the date the Purchase Option is exercised; or (4) ninety million dollars ($90,000,000). In each case, the amount payable as the Purchase Option Exercise Price will be reduced (but not to less than the total par value of the outstanding Momentum Class A Common Stock) to the extent, if any, that Momentum's liabilities at the time of exercise (other than liabilities under the Development Agreement, the Marketing Agreement and/or the Services Agreement) exceed Momentum's cash and cash equivalents, and short-term and long-term investments (excluding the amount of Available Funds remaining at such time). For this purpose, liabilities will include, in addition to liabilities required to be reflected on Momentum's financial statements under generally accepted accounting principles, certain contingent liabilities relating to guarantees and similar arrangements. PeopleSoft may pay the Purchase Option Exercise Price in cash, in PeopleSoft Common Stock or in any combination of the two. For the purpose of determining the Purchase Option Exercise Price, the fair -55- 61 market value of PeopleSoft Common Stock shall be deemed to be the average of the closing sales price of PeopleSoft Common Stock on the Nasdaq National Market for the twenty (20) trading days ending with the trading day that is two trading days prior to the date of determination. The per share purchase price of Momentum Class A Common Stock will be reduced if Momentum issues additional shares after the Distribution. The closing of the acquisition of the Momentum Class A Common Stock pursuant to exercise of the Purchase Option will take place on a date selected by PeopleSoft, but no later than sixty (60) days after the exercise of the Purchase Option unless, in the judgment of PeopleSoft, a later date is required to satisfy any applicable legal requirements or to obtain required consents. Between the time of exercise of the Purchase Option and the time of closing of the acquisition of the Momentum Class A Common Stock, Momentum may not, without PeopleSoft's consent, incur additional debt, dispose of assets, pay or declare any dividends or operate its business other than in the ordinary course. At PeopleSoft's election, Momentum may redeem on such closing date the Momentum Class A Common Stock for an aggregate redemption price equal to the final Purchase Option Exercise Price. Any such redemption would be in lieu of PeopleSoft paying the final Purchase Option Exercise price directly to holders of Momentum Class A Common Stock, and would be subject to PeopleSoft providing the final Purchase Option Exercise Price to Momentum to allow Momentum to pay the redemption price. In the event that prior to PeopleSoft's exercise of the Purchase Option, the number of outstanding shares of PeopleSoft Common Stock is increased by virtue of a stock split or a dividend payable in PeopleSoft Common Stock or the number of such shares is decreased by virtue of a combination or reclassification of such shares, then the number of shares of PeopleSoft Common Stock used to compute the Purchase Option Exercise Price (if the Purchase Option Exercise Price is the fair market value of 720,000 shares of PeopleSoft Common Stock) shall be increased or decreased, as the case may be, in proportion to such increase or decrease in the number of outstanding shares of PeopleSoft Common Stock. Under Momentum's Certificate of Incorporation, Momentum will be prohibited from taking or permitting any action inconsistent with, or which would in any way alter, PeopleSoft's rights under the Purchase Option. Momentum may not, without consent of PeopleSoft as the sole holder of the Momentum Class B Common Stock, merge, liquidate, sell any substantial assets, or amend its Certificate of Incorporation to (i) alter the Purchase Option, (ii) change Momentum's authorized capitalization, or (iii) alter the provisions governing the Board of Directors. To the extent Rule 13e-3 ("Rule 13e-3) under the Exchange Act dealing with going private transactions by certain issuers or their affiliates is applicable at the time of any exercise of the Purchase Option, PeopleSoft and Momentum will comply with their respective obligations under Rule 13e-3, subject to any available exemptions from such obligations. -56- 62 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion sets forth the opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation with respect to certain material federal income tax considerations under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the shares of Momentum Class A Common Stock, cash in lieu of fractional shares of Momentum Class A Common Stock, or both shares of Momentum Class A Common Stock and cash distributed to PeopleSoft's stockholders in the Distribution. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE ACQUISITION OF SHARES OF MOMENTUM CLASS A COMMON STOCK BY PURCHASE OR MEANS OTHER THAN THE DISTRIBUTION. In addition, this discussion is intended only to provide general information regarding PeopleSoft stockholders that are subject to United States federal income tax; it may not address all relevant federal income tax consequences to such persons or to other categories of PeopleSoft stockholders, e.g., foreign persons, dealers in securities, and stockholders that are exempt from federal income tax. This discussion is based upon the Code, Treasury Regulations (including proposed Treasury Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions all as in effect on the date hereof and all of which are subject to change or different interpretations by the Internal Revenue Service ("IRS") or the courts, any of which changes or interpretations may have retroactive effect. Wilson Sonsini Goodrich & Rosati, Professional Corporation, has disclaimed any undertaking to advise as to any change in the law that may affect its opinion, including changes that may be made under currently pending legislative proposals, and has expressed no opinion as to the laws of any jurisdictions other than the federal income tax laws of the United States of America. An opinion of counsel does not bind the IRS, which could take a contrary position, but represents only counsel's judgment as to the likely outcome if the issues involved were properly presented to a court of competent jurisdiction. This discussion assumes that the shares of Momentum Class A Common Stock will at all relevant times constitute capital assets of the stockholders. This discussion does not address state, local, or foreign tax considerations. PEOPLESOFT STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. TAXABILITY OF THE DISTRIBUTION TO HOLDERS OF PEOPLESOFT COMMON STOCK The fair market value of shares of Momentum Class A Common Stock, plus the cash intended to represent the fair market value of a fractional share of Momentum Class A Common Stock (together, the "Taxable Amount"), distributed to a holder of PeopleSoft Common Stock will constitute a dividend taxable as ordinary income to the extent that PeopleSoft has current or accumulated "earnings and profits" as of the end of the taxable year in which the Distribution occurs that are allocable to the Distribution for federal income tax purposes. Assuming that there will be a public market for the shares of Momentum Class A Common Stock at the time of the Distribution, the fair market value of a share of Momentum Class A Common Stock to a PeopleSoft stockholder for this purpose is expected to be the average of the high and low trading price on the date of the Distribution or if such date is not a trading day, on the first trading day following the Distribution. If the Taxable Amount exceeds the stockholder's allocable share of PeopleSoft's current and accumulated earnings and profits for federal income tax purposes determined as of the end of PeopleSoft's fiscal year ending December 31, 1998, the excess will generally be treated first as a tax-free return of capital to the extent of the stockholder's basis in the stockholder's PeopleSoft Common Stock, and after this basis is reduced to zero, as capital gain, which will be taxed in the manner discussed in the "Sale of Shares of Momentum Class A Common Stock" section below. PeopleSoft's management has advised that, based on the information currently available, PeopleSoft's accumulated earnings and profits at December 31, 1998 is expected to be such that the Taxable Amount will not exceed the PeopleSoft stockholder's allocable share of such earnings and profits. -57- 63 No later than February 1, 1999, PeopleSoft will issue to each holder of PeopleSoft Common Stock receiving shares of Momentum Class A Common Stock in the Distribution an IRS Form 1099-DIV reflecting the fair market value of the shares of Momentum Class A Common Stock (and any amount of cash received in lieu of fractional shares of Momentum Class A Common Stock) distributed to such holder, as well as any portion of the Taxable Amount exceeding such holder's allocable share of PeopleSoft's current and accumulated earnings and profits. To the extent that the Taxable Amount constitutes ordinary income, it will generally be subject to back up withholding with respect to PeopleSoft stockholders who, before the Distribution, have not provided their correct taxpayer identification numbers to PeopleSoft on an IRS Form W-9 or a substitute therefor. Although this discussion does not generally address tax consequences of the Distribution to foreign holders of PeopleSoft Common Stock, such holders should note that distribution of the Taxable Amount (to the extent of such foreign holder's allocable share of PeopleSoft's current and accumulated earnings and profits) will generally be subject to U.S. withholding tax at the rate of 30%. This rate may be reduced by income tax treaties to which the United States is a party. Nonresident alien individuals, foreign corporations and other foreign holders of PeopleSoft Common Stock are urged to consult their own tax advisors regarding the availability of such reductions and the procedures for claiming them. For corporate holders of PeopleSoft Common Stock, the Taxable Amount (to the extent treated as ordinary income) will be eligible for a "dividends-received" deduction, subject to limitations and exclusions provided by the Code, if the Purchase Option is "significantly out of the money" for at least 46 days during the 90-day period beginning 45 days before the PeopleSoft Common Stock becomes ex-dividend with respect to the Distribution. However, for corporate holders of PeopleSoft Common Stock, the Taxable Amount will be subject to the Code's extraordinary dividend rules, which could reduce a corporate holder's basis in its PeopleSoft Common Stock by the amount of the deduction, if the Taxable Amount equals at least 10% of the holder's basis. Moreover, to the extent that the untaxed distribution exceeds the corporate holder's basis, gain will be recognized. SALE OF SHARES OF MOMENTUM CLASS A COMMON STOCK Upon the sale of shares of Momentum Class A Common Stock, the PeopleSoft stockholder will have a capital gain or loss equal to the difference between the sale price and the stockholder's basis in the shares of Momentum Class A Common Stock sold. This gain or loss will be long-term capital gain or loss if the shares of Momentum Class A Common Stock have a holding period of more than one year on the sale date. The maximum stated federal income tax rate for long-term capital gain is 20% for noncorporate holders. In addition, the combination of the shares of Momentum Class A Common Stock and the Purchase Option may be deemed a "straddle," with the result that the holding period of shares of Momentum Class A Common Stock would not begin until such date as the Purchase Option is exercised or expires. There is presently no difference in federal income tax rates between ordinary income and capital gains of corporations. Limitations may apply to deduction of capital loss. A PeopleSoft stockholder's initial basis in shares of Momentum Class A Common Stock received in the Distribution will be the fair market value of those shares of Momentum Class A Common Stock at the time of the Distribution, which fair market value will be determined in the manner set forth in the "Taxability of the Distribution to Holders of PeopleSoft Common Stock" section above. -58- 64 EXERCISE OF PURCHASE OPTION If PeopleSoft exercises its Purchase Option for cash (or otherwise if the requirements for tax-free treatment described below are not satisfied), holders of shares of Momentum Class A Common Stock will have a capital gain or loss due to such exercise equal to the difference between (a) the cash (and any other deemed consideration) received and (b) the holder's basis in the shares of Momentum Class A Common Stock surrendered. Gain or loss due to the exercise of the Purchase Option will be long-term capital gain or loss if the shares of Momentum Class A Common Stock have been held for more than one year at the time of the closing of the exercise of the Purchase Option. However, the combination of the shares of Momentum Class A Common Stock and the Purchase Option may be deemed a "straddle," with the result that the holding period of shares of Momentum Class A Common Stock would not begin until such date as the Purchase Option is exercised and that capital gain or loss upon exercise of the Purchase Option would be short-term. Limitations may apply to deduction of capital loss. If PeopleSoft exercises its Purchase Option solely by delivering shares of PeopleSoft Common Stock in exchange for Momentum Class A Common Stock, no gain or loss will be taxable to the holders of Momentum Class A Common Stock upon the exchange if (a) exercise of the Purchase Option constitutes a "plan of reorganization" for purposes of Section 368(a)(1)(B) of the Code, (b) no consideration other than PeopleSoft Common Stock and cash paid in lieu of fractional shares (which cash generally will be taxable in the manner set forth in the preceding paragraph) is deemed to be paid by PeopleSoft upon exercise of the Purchase Option and (c) the other requirements of Section 368(a)(1)(B) of the Code are met at the time of such exchange. In such case, former holders of Momentum Class A Common Stock will receive a tax basis in the shares of PeopleSoft Common Stock received upon the exchange equal to their tax basis in the Momentum Class A Common Stock surrendered less the tax basis, if any, allocated to fractional share interests, and the holding period of such PeopleSoft Common Stock in the hands of such holders will include the holding period of their shares of Momentum Class A Common Stock surrendered. However, there can be no assurance that the requirements of Section 368(a)(1)(B) will be met. EXPIRATION OF PURCHASE OPTION If the Purchase Option expires unexercised, each holder of shares of Momentum Class A Common Stock on the date it expires may have short-term capital gain in the amount of the fair market value of the portion of the Purchase Option covering the holder's shares of Momentum Class A Common Stock on the date of the Distribution; any such gain would increase the holder's basis in the shares of Momentum Class A Common Stock. PeopleSoft believes that the fair market value of the Purchase Option is not readily ascertainable. Each holder of shares of Momentum Class A Common Stock should consult his or her own tax adviser as to what amount, if any, should be reported as gain if the Purchase Option expires unexercised. -59- 65 DESCRIPTION OF MOMENTUM CAPITAL STOCK At the time of the Distribution, Momentum's authorized capital stock will consist of (i) 10,000,000 shares of Momentum Class A Common Stock, (ii) 1,000 shares of Momentum Class B Common Stock (together with Momentum Class A Common Stock, the "Momentum Common Stock"), and (iii) 2,000,000 shares of undesignated Preferred Stock. Holders of Momentum Common Stock will be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. Available Funds may not be used to pay dividends. In the event of a liquidation, dissolution or winding up of Momentum, holders of Momentum Common Stock will be entitled to receive, pro rata, all remaining assets of Momentum available for distribution to stockholders. No preemptive rights, conversion rights or sinking fund provisions will be applicable to Momentum Class A Common Stock. Upon completion of this Distribution, all outstanding Momentum Class A Common Stock will be fully paid and nonassessable and will not be subject to any liability for further call. The Momentum Class A Common Stock will be subject to the Purchase Option and certificates representing such shares and book-entry account statements will bear a legend to that effect. See "The Agreements and the Purchase Option -- Purchase Option." No preemptive rights or sinking fund provisions will be applicable to the Momentum Class B Common Stock. Each share of the Momentum Class B Common Stock, all of which are held by PeopleSoft, will automatically convert into one share of Class A Momentum Stock upon such date as the Purchase Option expires. Until the expiration of the Purchase Option, PeopleSoft, as the sole holder of the Momentum Class B Common Stock, will be entitled to vote separately as a class with respect to any merger or liquidation of Momentum, the sale, lease, exchange, transfer or other disposition of any substantial asset of Momentum, and any amendments to the Certificate of Incorporation of Momentum that would alter the Purchase Option, Momentum's authorized capitalization, or the provisions of the Certificate of Incorporation governing Momentum's Board of Directors. Accordingly, PeopleSoft could preclude the holders of the Momentum Class A Common Stock from taking any of the foregoing actions during such period. Prior to exercise of the Purchase Option, the holders of the Momentum Class B Common Stock, voting as a separate class, will be entitled to elect one director, and the holders of the Momentum Class A Common Stock will be entitled to elect up to three directors. Upon exercise of the Purchase Option, PeopleSoft, as the sole holder of the Momentum Class B Common Stock, will have the right to elect all of the Momentum directors and to remove directors with or without cause. On all other matters, holders of the Momentum Class A Common Stock and Momentum Class B Common Stock will vote together as a single class. Holders of Momentum Common Stock will have one vote for each share of Momentum Common Stock held by them. Only the Momentum Board of Directors, the Chairman of the Board or the President may call special meetings of the Momentum stockholders. The approval of the holder of the Momentum Class B Common Stock is required to amend the provisions of Momentum's Certificate of Incorporation and bylaws governing the number and classification of the Board of Directors and certain related matters. The provisions of Momentum's Certificate of Incorporation granting special voting rights to the holder or holders of the Momentum Class B Common Stock and eliminating the right of Momentum stockholders to -60- 66 call special meetings of stockholders or act by written consent may inhibit a change in control of Momentum. Momentum has authorized 2,000,000 shares of Preferred Stock. Shares of Preferred Stock may be issued without stockholder approval. The Board of Directors is authorized to issue such shares in one or more series and to fix the designations, powers, preferences, rights, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series of the designation of such series without any vote or action by the stockholders. However, any Preferred Stock issued must be subject to the Purchase Option and the approval of the holders of a majority of the Momentum Class B Common Stock is required to create any series of Preferred Stock with powers, preferences or rights superior to or pari passu with the Momentum Class B Common Stock. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Momentum Class A Common Stock is Boston EquiServe, L.P., 289 S. San Antonio Road, Suite 100, Los Altos, California 94022; telephone: (650) 947- 3800. EXPERTS The balance sheet of Momentum Business Applications, Inc. at November 10, 1998, appearing in this prospectus and the Registration Statement has been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of PeopleSoft, Inc. appearing in PeopleSoft's Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The statements included in this prospectus under the caption "Certain Federal Income Tax Considerations" have been reviewed by, and the validity of the Momentum Class A Common Stock offered hereby will be passed upon by, Wilson Sonsini Goodrich & Rosati, Professional Corporation, of Palo Alto, California. Wilson Sonsini Goodrich & Rosati, Professional Corporation, is legal counsel to both Momentum and PeopleSoft. -61- 67 INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors.......................................... F-2 Momentum Business Applications, Inc. Balance Sheet and Notes to Balance Sheet.............. F-3 Momentum Business Applications, Inc. Pro Forma Balance Sheet and Notes to Pro Forma Balance Sheet (unaudited)................................................................... F-6 PeopleSoft, Inc. Pro Forma Balance Sheet (unaudited)....................................... F-7
F-1 68 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We have audited the accompanying balance sheet of Momentum Business Applications, Inc. as of November 10, 1998. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain a reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluation of the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Momentum Business Applications, Inc. as of November 10, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP San Jose, California November 11, 1998 F-2 69 MOMENTUM BUSINESS APPLICATIONS, INC. BALANCE SHEET NOVEMBER 10, 1998 ASSETS Cash ........................................................... $1,000 ====== STOCKHOLDERS' EQUITY (NOTE 3) Common Stock, $0.001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding ............ $ 1 Additional paid-in capital ..................................... 999 ------ Total stockholders' equity ............................. $1,000 ======
F-3 70 MOMENTUM BUSINESS APPLICATIONS, INC. NOTES TO BALANCE SHEET 1. Organization and Ownership Momentum Business Applications, Inc. (the "Company" or "Momentum") was incorporated on November 9, 1998, in the state of Delaware for the purposes of selecting and developing certain software applications and for commercializing such products, most likely through licensing to PeopleSoft, Inc. ("PeopleSoft"). The Company has not yet commenced significant operations, and its only activity to date has been the initial funding provided by PeopleSoft, which owns all of the Company's outstanding Common Stock. Accordingly, no statement of operations or statement of cash flows is presented. 2. Certain Transactions with PeopleSoft (unaudited) On November 10, 1998, the Board of Directors of Momentum authorized the Company to enter into certain agreements with PeopleSoft including a Development and License Agreement (the "Development Agreement"), a Services Agreement (the "Services Agreement") and a Marketing and Distribution Agreement (the "Marketing Agreement"). In addition, under the Company's Certificate of Incorporation, PeopleSoft will have an option, for a specified amount of time, to purchase all of the outstanding shares of the Momentum Class A Common Stock. Under the proposed terms of the Development Agreement, PeopleSoft will grant to Momentum, at no charge, a worldwide license to use its PeopleTools(R) rapid application development environment and architecture solely to develop products accepted for development under the Development Agreement. Under the proposed terms of the Development Agreement, Momentum will be required to spend all of the funds contributed by PeopleSoft for the development and acquisition of software products and related technologies under the Development Agreement and for related administrative expenses. Momentum is not expected to have staffing or facilities to perform under the Development Agreement on its own. Momentum is expected to spend most of these funds to pay PeopleSoft for the costs of these activities. PeopleSoft will charge Momentum 110% of PeopleSoft's fully-burdened costs of these services (salaries and benefits, plus overhead). Under the proposed terms of the Services Agreement, PeopleSoft will provide Momentum with administrative services, including accounting, finance, human resource and legal services at a fee equal to 1% of the development costs incurred under the Development Agreement. 3. Common Stock (unaudited) Prior to the Distribution contemplated by this prospectus, the Company intends to restate its Certificate of Incorporation to provide for two classes of common stock, Class A Common Stock and Class B Common Stock. The common stockholders of PeopleSoft will receive one share of Momentum Class A Common Stock for each 50 shares of PeopleSoft common stock held on the record date. The shares of F-4 71 Momentum Common Stock held by PeopleSoft on the record date will be converted into 1,000 shares of Momentum Class B Common Stock. 4. Preferred Stock (unaudited) Prior to the Distribution contemplated by this prospectus, the Company intends to restate its Certificate of Incorporation to provide for 2,000,000 shares of Preferred Stock. The Board of Directors is authorized to issue such shares in one or more series and to fix the rights, preference, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series of the designation of such series. F-5 72 MOMENTUM BUSINESS APPLICATIONS, INC. PRO FORMA BALANCE SHEET NOVEMBER 10, 1998 (UNAUDITED) The following pro forma balance sheet should be read in conjunction with the audited balance sheet and notes of Momentum Business Applications, Inc. as of November 10, 1998. The pro forma balance sheet is presented to show the financial position of Momentum following the receipt of the remainder of $300,000,000 in cash contributed by PeopleSoft, the conversion of 1,000 shares of Momentum's Common Stock owned by PeopleSoft into 1,000 shares of Momentum's Class B Common Stock, and the issuance to PeopleSoft of shares of Momentum Class A Common Stock prior to the Distribution.
ASSETS As Adjusted As Pro Forma of November 10, Unadjusted Adjustments 1998 ------------- ------------- ------------- Cash ...................................................... $ 1,000 $ 299,999,000(a) $ 300,000,000 ======= ============= ============= STOCKHOLDERS' EQUITY Common Stock, $0.001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding (none as adjusted) $ 1 $ (1)(b) $ -- Class A Common Stock, $0.001 par value, 10,000,000 shares authorized, 4,750,000 shares to be issued and outstanding as adjusted ............................. -- 4,750(c) 4,750 Class B Common Stock, $0.001 par value, 1,000 shares authorized, 1,000 shares to be issued and outstanding as adjusted ......................................... -- 1(b) 1 Preferred Stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding ........... -- -- -- Additional paid-in capital ................................ 999 (4,750)(c) 299,995,249 299,999,000(a) ------- ------------- ------------- Total stockholders' equity ........................... $ 1,000 $ 299,999,000 $ 300,000,000 ======= ============= =============
- -------- (a) To reflect the receipt of the remainder of the $300,000,000 contribution from PeopleSoft. (b) To reflect the conversion of 1,000 shares of Momentum's Common Stock held by PeopleSoft into 1,000 shares of Momentum Class B Common Stock. (c) To reflect the issuance of 4,750,000 shares of Momentum Class A Stock to the stockholders of PeopleSoft. F-6 73 PEOPLESOFT, INC. PRO FORMA BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) The following pro forma balance sheet should be read in conjunction with the unaudited balance sheet and notes of PeopleSoft as of September 30, 1998 which are incorporated by reference from PeopleSoft's quarterly report on Form 10-Q. The pro forma balance sheet is presented to show the financial position of PeopleSoft following the contribution of $300,000,000 to Momentum, the initial purchase by PeopleSoft of 1,000 shares of Momentum Common Stock, and the subsequent distribution of one share of Momentum Class A Common Stock for each 50 shares of PeopleSoft held.
Pro Forma Unadjusted Adjustments As Adjusted ----------- ----------- ----------- ASSETS (in thousands) ----------------------------------------------------- Current assets: Cash and cash equivalents $ 474,905 $ (1)(a) $ 174,905 (299,999)(b) Short term investments 150,974 150,974 Accounts receivable, net 351,612 351,612 Deferred income taxes 39,613 39,613 Other current assets 38,504 38,504 ----------- ----------- ----------- Total current assets 1,055,608 (300,000) 755,608 Property and equipment, at cost 282,633 282,633 Less accumulated depreciation and amortization (112,236) (112,236) ----------- ----------- 170,397 170,397 Investments 51,742 51,742 Investment in Momentum -- 1 (a) -- 299,999 (b) (300,000)(c) Deferred income taxes 7,371 7,371 Capitalized software, less accumulated amortization 8,878 8,878 Other assets 12,110 12,110 ----------- ----------- ----------- $ 1,306,106 $ (300,000) $ 1,006,106 =========== =========== ===========
- ---------- (a) To reflect the formation of Momentum and the initial purchase of 1,000 shares of Momentum Common Stock for $1,000. (b) To reflect the balance of the $300 million contributed to Momentum prior to the Distribution. (c) To reflect the Distribution of Momentum Class A Common Stock to PeopleSoft stockholders. F-7 74 PEOPLESOFT, INC. PRO FORMA BALANCE SHEET (CONTINUED) SEPTEMBER 30, 1998 (UNAUDITED)
Pro Forma Unadjusted Adjustments As Adjusted ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) Current liabilities: Accounts payable and accrued liabilities $ 80,894 $ 80,894 Accrued compensation and related expenses 102,584 102,584 Income taxes payable 28,781 28,781 Deferred revenue 397,648 397,648 ----------- ----------- Total current liabilities 609,907 609,907 Long term deferred revenue 58,537 58,537 Other long term liabilities 19,529 19,529 Stockholders' equity: Common stock 2,502 2,502 Additional paid-in capital 303,767 303,767 Accumulated foreign currency translation adjustment (2,611) (2,611) Retained earnings 314,475 $ (300,000)(c) 14,475 ----------- ----------- ----------- 618,133 (300,000) 318,133 ----------- ----------- ----------- $ 1,306,106 $ (300,000) $ 1,006,106 =========== =========== ===========
- ---------- (c) To reflect the Distribution of Momentum Class A Common Stock to PeopleSoft stockholders. F-8 75 EXHIBIT A OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED [Merrill Lynch Letterhead] December ___, 1998 Board of Directors PeopleSoft, Inc. 4460 Hacienda Drive Pleasanton, CA 94588 Gentlemen: You have advised us that PeopleSoft, Inc. ("PeopleSoft") intends to distribute (the "Distribution") to its stockholders shares of Class A Common Stock (the "Momentum Shares") of Momentum Business Applications, Inc. ("Momentum"). The Distribution is described in detail in the prospectus (the "Prospectus"), filed as part of a registration statement on Form S-1/S-3 (Reg. no. 333-67363 /333- 09652), which is to be sent to PeopleSoft stockholders in connection with the Distribution. You have asked us for our opinion as to whether or not, from a financial point of view, the Distribution is fair to the stockholders of PeopleSoft. Each capitalized term used but not defined herein shall have the meaning ascribed thereto in the Prospectus. In arriving at the opinion set forth below, we have, among other things: o reviewed the Prospectus including the following items as presented or referred to therein: (i) the terms and conditions of the Distribution, (ii) the Marketing Agreement, (iii) the Development Agreement, (iv) the Services Agreement, (v) the Distribution Agreement and (vi) the Certificate of Incorporation of Momentum including the Purchase Option; o conducted discussions with members of the senior management of PeopleSoft with respect to the businesses and prospects of PeopleSoft and Momentum and the strategic objectives of each; o conducted discussions concerning the Distribution with other representatives and advisors of PeopleSoft, including its independent public accountants; o reviewed the financial and other information concerning PeopleSoft (with and without Momentum) that was publicly available or furnished to us by PeopleSoft, including information provided during discussions with the senior management of PeopleSoft; o reviewed historical trading prices and volume of the Common Stock of PeopleSoft (the "PeopleSoft Common Stock"); and A-1 76 o reviewed such other financial studies and analyses and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. In preparing our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available (including the information contained in the Prospectus), and we have not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of PeopleSoft (with or without Momentum) or been furnished with any such evaluation or appraisal. In addition, we have not assumed any obligation to conduct, nor have we conducted, any physical inspection of the properties or facilities of PeopleSoft. With respect to the financial forecast information furnished to or discussed with us by PeopleSoft, we have assumed it has been reasonably prepared and reflects the best currently available estimates and judgment of PeopleSoft's management as to the expected future financial performance of PeopleSoft and Momentum. We have also assumed that: (i) the Distribution will occur as described in the Prospectus, and (ii) after the Distribution, Momentum will be accounted for as an entity independent of PeopleSoft. Our opinion is necessarily based upon market, economic and other conditions, including but not limited to generally accepted accounting principles, as they exist and can be evaluated on, and on the information made available to us as of, the date hereof. It is further understood that this Opinion does not consider any future changes to such conditions that may occur following the date of this Opinion which may adversely affect PeopleSoft's ability to pursue its financial and strategic objectives. We note that trading in the PeopleSoft Common Stock and the Momentum Shares for a period following completion of the Distribution may be characterized by a redistribution of the shares of the PeopleSoft Common Stock and the Momentum Shares among existing PeopleSoft stockholders and other investors and, accordingly, during such period, the PeopleSoft Common Stock and the Momentum Shares may trade at prices below those at which they would trade on a fully distributed basis. We are not expressing any opinion herein as to the price at which the PeopleSoft Common Stock will actually trade after the announcement date of the Distribution or the price at which the Momentum Shares will actually trade after the Distribution. In addition, this opinion does not address the valuation or future performance of Momentum as an independent public company following the Distribution, nor does it address the adequacy of defensive measures included (A) in the Certificate of Incorporation (as amended or restated) or the Bylaws of Momentum with respect to (i) the rights of the holders of Momentum Shares or (ii) the rights of PeopleSoft as holder of shares of the Class B Common Stock of Momentum, or (B) in the agreements between PeopleSoft and Momentum entered into in connection with the Distribution. We express no opinion as to whether the funds contributed by PeopleSoft to Momentum will be adequate to accomplish the objective of successfully developing the intended software products. We are acting as financial advisor to PeopleSoft in connection with the Distribution and will receive a fee for our services, which fee is contingent upon the consummation of the Distribution. In addition, PeopleSoft has agreed to indemnify us for certain liabilities arising out of our engagement. We may continue to provide financial advisory or financing services to PeopleSoft and may receive fees for the rendering of such services. In addition, in the ordinary course of our business, we may actively trade PeopleSoft common stock, and we may, in the future trade Momentum Shares for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. A-2 77 This opinion is for the use and benefit of the Board of Directors of PeopleSoft. On the basis of and subject to the foregoing, as of the date hereof, it is our opinion that, from a financial point of view, the Distribution is fair to the stockholders of PeopleSoft. Our conclusions are based on information available to us as of the date of this letter. Very truly yours, A-3 78 ================================================================================ Through and including , 1999 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. 4,750,000 SHARES MOMENTUM BUSINESS APPLICATIONS, INC. CLASS A COMMON STOCK ---------------------- PROSPECTUS ---------------------- DECEMBER __, 1998 ================================================================================ 79 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses incurred by Momentum Business Applications, Inc. ("Momentum") and PeopleSoft, Inc. ("PeopleSoft") in connection with the distribution of the securities being registered which will be paid by PeopleSoft. All amounts are estimated except the SEC Registration Fee and the Nasdaq National Market Application Fee. SEC Registration Fee....................................................... $ 83,400 Nasdaq National Market Application Fee..................................... $ Financial Advisory Fees and Expenses....................................... $ Blue Sky Qualification Fees and Expenses................................... $ Accounting Fees and Expenses............................................... $ Legal Fees and Expenses (including Blue Sky)............................... $ Transfer Agent and Registrar Fees.......................................... $ Printing and Engraving..................................................... $ Miscellaneous.............................................................. $ ------------------ Total...................................................................... $ ==================
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the Delaware General Corporation Law, both Momentum and PeopleSoft have included in their Certificates of Incorporation a provision to eliminate the personal liability of their directors for monetary damages for breach or alleged breach of their fiduciary duties as directors, subject to certain exceptions. In addition, the Bylaws of Momentum and PeopleSoft require the companies to (i) indemnify their officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary, and (ii) advance expenses to their officers and directors as incurred in connection with proceedings against them for which they may be indemnified. Momentum and PeopleSoft have entered into indemnification agreements with their officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require the companies, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. Momentum and PeopleSoft believe that its charter provisions and the indemnification agreements are necessary to attract and retain qualified persons as directors and officers. Momentum and PeopleSoft understand that the staff of the Securities and Exchange Commission is of the opinion that statutory, charter and contractual provisions as are described above have no effect on claims arising under the federal securities laws. II-1 80 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In November 1998, Momentum sold 1,000 shares of its Common Stock to PeopleSoft for an aggregate cash purchase price of $1,000 in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. In connection with the Distribution contemplated by this Registration Statement, the 1,000 shares of Momentum Common Stock held by PeopleSoft will be converted into 1,000 shares of Momentum Class B Common Stock in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER DESCRIPTION ------ ---------------------------------------------------------------- 3.1 Certificate of Incorporation of Momentum 3.2 Bylaws of Momentum 3.3 Form of Restated Certificate of Incorporation of Momentum (to be effective prior to the Distribution) 5.1 Opinion of Wilson Sonsini Goodrich & Rosati as to legality of Momentum Class A Common Stock 5.2 Opinion of Wilson Sonsini Goodrich & Rosati as to legality of PeopleSoft Common Stock 8.1* Opinion of Wilson Sonsini Goodrich & Rosati as to tax matters 10.1 Form of Development and License Agreement between PeopleSoft and Momentum 10.2 Form of Marketing and Distribution Agreement between PeopleSoft and Momentum 10.3 Form of Services Agreement between PeopleSoft and Momentum 10.4 Form of Distribution Agreement between PeopleSoft and Momentum 10.5 Form of Officers' and Directors' Indemnification Agreement 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1) 23.4* Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated 24.1+ Power of Attorney (Reference is made to page II-5)
- ----------- * To be filed by Amendment. + Previously filed. ITEM 17. UNDERTAKINGS The undersigned Registrants, PeopleSoft and Momentum, each hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions set forth in Item 14 above, or otherwise, the Registrant has been advised in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred, or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and the Registrant will be governed by the final adjudication of such issue. II-2 81 PeopleSoft hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 82 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Momentum Business Applications, Inc. has duly caused this Amendment No. 1 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton, State of California on November 24, 1998. MOMENTUM BUSINESS APPLICATIONS, INC. By: /s/ ANEEL BHUSRI ------------------------------- Aneel Bhusri, President Pursuant to the requirements of the Securities Act of 1933, this Amendment No.1 to a Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------ ----------------------------------- ----------------- /s/ ANEEL BHUSRI President, Chief Financial Officer, November 24, 1998 - ------------------------------ Secretary and Director (Principal Aneel Bhusri Executive, Financial and Accounting Officer)
II-4 83 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, PeopleSoft, Inc. has duly caused this Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton, State of California on November 24 1998. PEOPLESOFT, INC. By: /s/ David A. Duffield ---------------------------------------- David A. Duffield President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------- ----------------------------------------- ----------------- /s/ DAVID A. DUFFIELD Chairman of the Board, President and November 24, 1998 - ------------------------------- Chief Executive Officer (Principal David A. Duffield Executive Officer) /s/ RONALD E.F. CODD Senior Vice President of Finance and November 24, 1998 - ------------------------------- Chief Financial Officer (Principal Ronald E. F. Codd Financial Officer) /s/ ALFRED J. CASTINO* Senior Vice President of Finance and November 24, 1998 - ------------------------------- Administration, Chief Accounting Officer Alfred J. Castino and Corporate Controller (Principal Accounting Officer) - ------------------------------- Director November __, 1998 Dr. Edgar F. Codd /s/ ALBERT W. DUFFIELD* Director November 24, 1998 - ------------------------------- Albert W. Duffield /s/ A. GEORGE BATTLE* Director November 24, 1998 - ------------------------------- A. George "Skip" Battle
II-5 84 /s/ GEORGE J. STILL, JR.* Director November 24, 1998 - ------------------------------- George J. Still, Jr. /s/ CYRIL J. YANSOUNI* Director November 24, 1998 - ------------------------------- Cyril J. Yansouni *by: /s/ RONALD E.F. CODD ------------------------- Ronald E. F. Codd Attorney in Fact
II-6 85 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ---------------------------------------------------------------- 3.1 Certificate of Incorporation of Momentum 3.2 Bylaws of Momentum 3.3 Form of Restated Certificate of Incorporation of Momentum (to be effective prior to the Distribution) 5.1 Opinion of Wilson Sonsini Goodrich & Rosati as to legality of Momentum Class A Common Stock 5.2 Opinion of Wilson Sonsini Goodrich & Rosati as to legality of PeopleSoft Common Stock 8.1* Opinion of Wilson Sonsini Goodrich & Rosati as to tax matters 10.1 Form of Development and License Agreement between PeopleSoft and Momentum 10.2 Form of Marketing and Distribution Agreement between PeopleSoft and Momentum 10.3 Form of Services Agreement between PeopleSoft and Momentum 10.4 Form of Distribution Agreement between PeopleSoft and Momentum 10.5 Form of Officers' and Directors' Indemnification Agreement 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1) 23.4* Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated 24.1+ Power of Attorney (Reference is made to page II-5)
- ----------- * To be filed by Amendment. + Previously filed. EX-3.1 2 CERTIFICATE OF INCORPORATION OF MOMENTUM 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF MOMENTUM BUSINESS APPLICATIONS, INC. FIRST: Name. The name of the corporation is Momentum Business Applications, Inc. SECOND: Registered Office; Registered Agent. The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: Purpose. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: Authorized Capital Stock. The total number of shares of all classes of capital stock that the corporation shall have authority to issue is One Thousand shares of Common Stock with a par value of $0.001 per share. FIFTH: Sole Incorporator. The name and mailing address of the sole incorporator are as follows: Peter S. Heinecke Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 SIXTH: Corporate Existence. The corporation is to have perpetual existence. SEVENTH: Bylaws. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the corporation. EIGHTH: Limitation of Liability. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither the adoption or repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 2 I, the undersigned, being the sole incorporator hereinafter named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein are true, and accordingly have hereunto set my hand this 9th day of November, 1998. ----------------------------------------- Peter S. Heinecke, Sole Incorporator EX-3.2 3 BYLAWS OF MOMENTUM 1 EXHIBIT 3.2 BYLAWS OF MOMENTUM BUSINESS APPLICATIONS, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be fixed in the certificate of incorporation of the corporation. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the 4th Thursday of May in each year at 9:30 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected and any other proper business may be transacted. 2 2.3 SPECIAL MEETING Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of meeting, may be called only by the board of directors, the chairman of the board of directors or the president of the corporation. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote on the subject matter at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. -2- 3 2.7 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: -3- 4 (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.11 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS -4- 5 Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days prior to the meeting; provided, however, that in the event less than thirty (30) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the stockholder giving the notice: (i) the name and address, as they appear on the corporation's books, of such stockholder, (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder, and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination. At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination shall be disregarded. 2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before the meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive officers of the corporation not less than sixty (60) days prior to the meeting; provided, however, that in the event that less than thirty (30) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely -5- 6 must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business, (iii) the class and number of shares of the corporation, which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required by law to be provided by the stockholder in his capacity as proponent of a stockholder proposal. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER, CLASSIFICATION AND TERM OF OFFICE The authorized number of directors of the corporation shall be four (4), but may be increased or decreased from time to time either by a resolution duly adopted by the board of directors or as otherwise provided in this corporation's certificate of incorporation. Subject to this corporation's certificate of incorporation and commencing when authorized by the certificate of incorporation, the board of directors shall be divided into three classes: Class I, Class II and Class III, which shall be nearly as equal in size as possible. During any period when the board of directors is divided into classes, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that with respect to directors appointed in 1998, each director in Class I shall hold office until the annual meeting of stockholders in 1999, each director in Class II shall hold office until the annual meeting of stockholders in 2000 and each director in Class III shall hold office until the annual meeting of stockholders in 2001. During any period when the board of directors is not divided into classes, all -6- 7 directors shall be elected to one year terms; provided, however, that the term of any director in office at any time the board of directors ceases to be classified shall not be reduced. Notwithstanding the foregoing provisions of this Section 3.2, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. 3.3 ELECTION AND QUALIFICATION OF DIRECTORS Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. Such resignation shall be effective when given unless the director specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. During any period when the board of directors is divided into classes, in the event of any increase or decrease in the authorized number of directors, any newly-created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible. Whether or not the board of directors is classified, no decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Except as otherwise provided in the corporation's certificate of incorporation, newly-created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by the stockholders), even though less than a quorum, or by a sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected in accordance with the preceding two sentences shall hold office for the remainder of the full term of the class of directors in which the directorship was created or the vacancy occurred, and until such director's successor shall have been elected and qualified. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. -7- 8 Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board of directors, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.9 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors -8- 9 present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.13 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.14 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in -9- 10 such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.15 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so -10- 11 provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), and Section 3.12 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, one or more vice presidents, a secretary, and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board of directors, one or more assistant vice presidents, assistant secretaries, assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS -11- 12 The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENT -12- 13 In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 TREASURER The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. -13- 14 5.11 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.12 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.13 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -14- 15 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. 6.4 ADVANCEMENT OF EXPENSES Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1, or for which indemnification is permitted pursuant to Section 6.2, following the authorization thereof by the board of directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. -15- 16 Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing -16- 17 in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of, the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. -17- 18 The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS -18- 19 The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.10 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.11 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX -19- 20 AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI -20- 21 CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -21- EX-3.3 4 FORM OF RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.3 RESTATED CERTIFICATE OF INCORPORATION OF MOMENTUM BUSINESS APPLICATIONS, INC. (Originally incorporated under the same name on November 9, 1998) FIRST: Name. The name of this corporation is Momentum Business Applications, Inc. (the "corporation"). SECOND: Registered Office; Registered Agent. The address of the registered office of this corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of the registered agent of this corporation at such address is The Corporation Trust Company. THIRD: Purpose. The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: Authorized Capital Stock. (A) This corporation is authorized to issue three classes of shares, which shall be known as Class A Common Stock ("Class A Common Stock"), Class B Common Stock ("Class B Common Stock"), and Preferred Stock ("Preferred Stock"). The total number of shares of stock of all classes that this corporation is authorized to issue is 12,001,000. The total number of shares of Class A Common Stock which this corporation is authorized to issue is 10,000,000. The total number of shares of Class B Common Stock which this corporation is authorized to issue is 1,000. The total number of shares of Preferred Stock which this corporation is authorized to issue is 2,000,000. Each share of Class A Common Stock shall have a par value of $0.001, and each share of Class B Common Stock shall have a par value of $0.001 and each share of Preferred Stock shall have a par value of $0.001. Effective immediately upon the filing of this Restated Certificate of Incorporation, each share of Common Stock, par value $0.001 per share, of this corporation outstanding immediately prior to such filing shall be converted into and reclassified as one share of Class B Common Stock. (B) The powers, designations, preferences, and relative, participating, optional or other special rights granted to, and the qualifications, limitations and restrictions imposed upon, the Class A Common Stock and Class B Common Stock and the respective holders thereof are as follows: (1) Redemption. The shares of Class A Common Stock are redeemable and may be redeemed as provided in (but only as provided in) Article FIFTH, Section (F). 2 (2) Dividends. The holders of shares of Class A Common Stock and Class B Common Stock shall be entitled to receive per share and without preference such dividends as may be declared by the Board of Directors from time to time out of funds legally available therefor. No dividend may be declared on the Class A Common Stock unless the same per share dividend is declared on the Class B Common Stock, and no dividend may be declared on the Class B Common Stock unless the same per share dividend is declared on the Class A Common Stock. Dividends may not be declared, nor may shares of Class A Common Stock or Class B Common Stock be repurchased, or redeemed (other than pursuant to Section (F) of Article FIFTH), if, after payment of such dividend, or after effecting such repurchase or redemption, the amount of this corporation's cash, cash equivalents and short-term and long-term investments would be less than the amount of Available Funds remaining after expenditures pursuant to the Development Agreement, as of the date of such dividend, repurchase or redemption. (3) Liquidation. In the event of voluntary or involuntary liquidation of this corporation, the holders of the Class A Common Stock and Class B Common Stock of the corporation shall be entitled to receive, on a pro rata per share basis and without preference, all of the remaining assets of this corporation available for distribution to its stockholders. (4) Voting Rights. Except as otherwise required by law or provided herein, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class. Each holder of Class A Common Stock and Class B Common Stock shall have one vote for each share standing in his or her name on all matters submitted to a vote of holders of the common shares. At any meeting of the stockholders of this corporation, the determination of a quorum shall be based upon the presence of shares of Class A Common Stock and Class B Common Stock representing a majority of the voting power of all of the shares of Class A Common Stock and Class B Common Stock. This corporation shall not, without the affirmative vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock, voting separately and as a class, (a) alter or change the powers, designations, preferences and relative, participating, optional or other special rights granted to, or the qualifications, limitations and restrictions imposed upon, the Class A Common Stock or the Class B Common Stock, (b) alter or change this Article FOURTH or any of Articles FIFTH, SIXTH or SEVENTH of this Restated Certificate of Incorporation, or otherwise make any amendment to this Restated Certificate of Incorporation that would alter the rights of the holders of the Class B Common Stock, (c) authorize the creation or issuance of any additional class or series of stock, which would have powers, preferences or rights superior to or pari passu with the Class B Common Stock, (d) undertake the voluntary dissolution, liquidation or winding up of this corporation, (e) merge or consolidate this corporation with or into any other corporation or entity, (f) sell, lease, exchange, transfer or otherwise dispose of any substantial asset of this corporation (other than a grant of a license with respect to a product or technology) or (g) alter the bylaws of this corporation in a manner described in the last sentence of Article EIGHTH. Furthermore, from and after the Purchase Option Exercise Date, as defined in Article FIFTH, (i) the Board of Directors of this corporation shall cease to be classified and the holders of Class B Common -2- 3 Stock shall be entitled to remove directors with or without cause; (ii) the number of directors of this corporation shall be increased to a number equal to (a) two times the maximum number of directors then authorized pursuant to Article SEVENTH, Section (A) (counting for this purpose both directors in office and vacant directorships), plus (b) one; and (iii) the holders of the Class B Common Stock shall have the sole right to elect the directors of this corporation, including directors to fill the new directorships created pursuant to clause (ii). No new directorships created as a result of the increase in the size of the Board of Directors pursuant to the preceding sentence shall be filled other than by the holders of the Class B Common Stock. From and after the Purchase Option Exercise Date all directors shall be elected to one year terms; provided, however, that the term of any director then in office shall not be reduced. (5) Conversion. The Class B Common Stock shall automatically convert into fully paid and non-assessable shares of Class A Common Stock of this corporation at 12:01 a.m. California time on the day immediately following the expiration of the Purchase Option without exercise granted in Article FIFTH. The Class B Common Stock shall convert into Class A Common Stock at the rate of one share of Class A Common Stock for each share of Class B Common Stock. (C) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH (including Article FOURTH Section (B)(4)), to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series; (2) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (4) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such privileges, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) Whether or not the shares of that series shall be redeemable, and, if so, the -3- 4 terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable on case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, of any, of payment of shares of that series; and (8) Any other relative rights, preferences and limitations of that series. provided that any shares so authorized shall be subject to the Purchase Option. FIFTH: Purchase Option. (A) Definitions. For purposes of this Restated Certificate of Incorporation, the following terms shall have the following definitions: (1) PeopleSoft means PeopleSoft, Inc. and its successors or assigns of the Purchase Option. (2) PeopleSoft Common Stock means the Common Stock of PeopleSoft or, if such Common Stock is converted into or exchanged for another class or series of stock of PeopleSoft or any other corporation, such other class or series of stock. (3) Available Funds means, as of any date of determination, $300 million (contributed by PeopleSoft on or about December __, 1998), plus any investment income earned thereon, less the aggregate amount spent by this corporation under the Development Agreement. (4) Momentum Product means a product that has been recommended by PeopleSoft and accepted by the Board of Directors of this corporation for development as such under the Development Agreement. (5) Developed Technology means development tools (other than PeopleSoft's PeopleTools) which are developed or otherwise acquired by this corporation for the purpose of developing Momentum Products. (6) Developed Technology Royalties means the royalties PeopleSoft will pay to this corporation on any software product (other than a Momentum Product) licensed by PeopleSoft to end users that was developed by PeopleSoft using Developed Technology. -4- 5 (7) Development Agreement means the Development and License Agreement between PeopleSoft and this corporation, dated as of December ___, 1998, as such agreement may be amended or modified from time to time by amendments approved by PeopleSoft and the Board of Directors of this corporation. (8) Fair Market Value means, with reference to PeopleSoft Common Stock, (a) if PeopleSoft Common Stock is listed on the Nasdaq National Market System or any other securities exchange reporting closing sales prices (including without limitation the New York Stock Exchange), the average of the closing sales price of PeopleSoft Common Stock on such exchange (which shall be the Nasdaq National Market System or, if PeopleSoft Common Stock is not then traded on such exchange, on the principal exchange on which PeopleSoft Common Stock is then traded), for the twenty trading days ending with the trading day that is two trading days prior to the date of determination, (b) if PeopleSoft Common Stock is not listed on any securities exchange described in clause (a) but is quoted on Nasdaq or another quotation system providing bid prices, the average (over the twenty day period described in clause (a)) of the bid prices for each day in such period on Nasdaq (or, if PeopleSoft Common Stock is not then quoted on Nasdaq, the largest quotation system on which PeopleSoft Common Stock is then quoted), and (c) if PeopleSoft Common Stock is not listed on any exchange or quoted on any quotation system, the value thereof as determined in good faith by PeopleSoft's board of directors. (9) Final Purchase Option Exercise Price means the Purchase Exercise Price minus the amount by which this corporation's Liabilities existing at the Purchase Option Exercise Date (other than liabilities under the Development Agreement, Services Agreement and Marketing Agreement) exceed the aggregate of this corporation's then existing cash, cash equivalents and short-term and long-term investments (but excluding from such cash, cash equivalents and short-term and long-term investments the amount of Available Funds determined as of the Purchase Option Exercise Date which have not, as of such date, been paid by this corporation in accordance with the Development Agreement). (10) Liabilities means, with respect to this corporation, (a) all liabilities required to be reflected or reserved against in this corporation's financial statements under generally accepted accounting principles consistently applied ("GAAP"), (b) any guaranty of any indebtedness of another person and (c) any reimbursement or similar obligation with respect to any letter of credit issued for the account of this corporation or as to which this corporation is otherwise liable. Liabilities of the type described in (b) and (c) shall be valued at the full amount of the potential liability of the corporation thereon. (11) Licensed Product means a Momentum Product as to which the License Option (as defined in the Marketing Agreement) has been exercised by PeopleSoft. (12) Product Payments means payments made by PeopleSoft to this corporation under the Marketing Agreement with respect to Licensed Products. -5- 6 (13) Purchase Option Exercise Date means the date upon which PeopleSoft notifies this corporation in writing of its exercise of the Purchase Option as provided in Section (C) of this Article FIFTH. (14) Purchase Option Exercise Price means the greatest of the following: (a) (i) 15 times the sum of (i) actual worldwide Product Payments and Developed Technology Royalties made by or due from PeopleSoft to this corporation with respect to all Licensed Products and Developed Technology for the four calendar quarters immediately preceding the calendar quarter in which the Purchase Option is exercised (the "Base Period") plus (ii) such Product Payments as would have been made by or due from PeopleSoft to this corporation if PeopleSoft had not previously exercised its payment buy-out option (as described in the Marketing Agreement) with respect to any such Licensed Product for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (for the purpose of (i) and (ii), payment will be annualized for any product that was not a Licensed Product for all of each of the four quarters in the Base Period), minus any amounts previously paid to exercise any payment buy-out option for any Licensed Product pursuant to the Marketing Agreement. (b) the Fair Market Value of Seven Hundred Twenty Thousand (720,000) shares of PeopleSoft Common Stock (which number of shares shall be proportionately adjusted for any stock dividend, split-up, combination or reclassification of the PeopleSoft Common Stock) determined as of the Purchase Option Exercise Date; (c) $350 million plus any additional funds contributed to this corporation by PeopleSoft, less the total amount paid by or due from this corporation under the Development Agreement and the Services Agreement, as of the Purchase Option Exercise Date; and (d) $90 million. (15) Purchase Option Expiration Time means 11:59 p.m. California time on December 31, 2002; provided that such date will be extended for successive six month periods if, as of any June 30 or December 31 date beginning with June 30, 2002, this corporation has not paid or accrued expenses for all but $15 million of the Available Funds as of such date. Notwithstanding the foregoing sentence, the Purchase Option Expiration Time will in no event occur later than 11:59 p.m. California time on the 60th day after this corporation provides PeopleSoft with a statement that, as of the end of any calendar month, there are less than $2.5 million of Available Funds remaining after expenditures pursuant to the Development Agreement, accompanied by a report of this corporation's independent auditors stating that nothing has come to their attention indicating that there are $2.5 million or more of Available Funds remaining at that date. -6- 7 (16) Services Agreement means the Services Agreement between PeopleSoft and this corporation, dated as of December ___, 1998, as such agreement may be amended or modified from time by amendments approved by PeopleSoft and the Board of Directors of this corporation. (17) Status Statement means, as of any date, a balance sheet prepared by this corporation and delivered to PeopleSoft dated as of such date, together with (a) a statement and brief description of all other liabilities of this corporation constituting Total Liabilities as of such date not reflected on such balance sheet, (b) a statement of the amount of Available Funds remaining as of such date, and (c) a statement of the total amounts paid by and due from this corporation pursuant to the Development Agreement through such date. (18) Marketing Agreement means the Marketing and Distribution Agreement between PeopleSoft and this corporation, dated as of December ___, 1998, as such agreement may be amended or modified from time to time by amendments approved by PeopleSoft and the Board of Directors of this corporation. (19) Total Liabilities means (a) all Liabilities, plus (b) any other debts, liabilities or obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including those debts, liabilities and obligations arising under any law, rule or regulation, or under any pending or threatened action, suit or proceeding, or any order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. (B) Grant of Option. PeopleSoft is hereby granted an exclusive irrevocable purchase option to purchase all issued and outstanding shares of Class A Common Stock (and any shares of Preferred Stock issued pursuant to Article FOURTH Section (D)) of this corporation for the Final Purchase Option Exercise Price (the "Purchase Option"). The Purchase Option, if exercised, must be exercised as to all, but not less than all, issued and outstanding shares of Class A Common Stock and may be exercised at any time at or prior to the Purchase Option Expiration Time. PeopleSoft shall elect, at the time of exercise of the Purchase Option, to pay all or any portion of the Final Purchase Option Exercise Price in cash, PeopleSoft Common Stock (valued at its Fair Market Value determined as of the Purchase Option Exercise Date), or any combination thereof. The Purchase Option, together with the other rights of PeopleSoft under this Article FIFTH and Article SIXTH, may, at PeopleSoft's option, be assigned or otherwise transferred to any person or entity, including this corporation. (C) Manner of Exercise. The Purchase Option shall be exercised, if at all, at or before the Purchase Option Expiration Time by written notice (the "Exercise Notice") from PeopleSoft to this corporation stating that the Purchase Option is being exercised and setting forth (1) the Purchase Option Exercise Price; (2) the portion, if any, of the Final Purchase Option Exercise Price to be paid in cash and the portion, if any, of the Final Purchase Option Exercise Price to be -7- 8 paid in PeopleSoft Common Stock, and if any portion of the Final Purchase Option Exercise Price is to be paid in PeopleSoft Common Stock, stating the Fair Market Value of such PeopleSoft Common Stock determined as of the Purchase Option Exercise Date; and (3) a closing date (the "Closing Date") on which all of the issued and outstanding shares of Class A Common Stock will be purchased. The Purchase Option shall be deemed to be exercised as of the date of mailing by first class mail of the Exercise Notice to this corporation at its principal offices. (D) Closing. (1) Closing Date; Cooperation. Except as set forth below, the Closing Date shall be the date specified as such in the Exercise Notice, which date specified shall be no later than 60 days after the Purchase Option Exercise Date. The Closing Date may be extended by PeopleSoft if, in the judgment of PeopleSoft, an extension of the Closing Date is necessary to obtain any governmental or third party consent to the purchase of the Class A Common Stock, to permit any necessary registration statement or similar filing to be declared effective, or to permit the expiration prior to the Closing Date of any statutory or regulatory waiting period. PeopleSoft may extend the Closing Date for the reasons set forth in the preceding sentence by delivering written notice of such extension to this corporation on or prior to the previously specified Closing Date. This corporation shall cooperate with PeopleSoft to effect the closing of the Purchase Option, including without limitation seeking any required third party or governmental consents, and filing any applications, notifications, registration statements or the like which may be necessary to effect the closing. (2) Certain Restrictions Following Purchase Option Exercise Date. From the Purchase Option Exercise Date until the Closing Date, this corporation will not take any of the following actions (or permit any such actions to be taken on its behalf) except with the prior written consent of PeopleSoft: (a) borrow money, or mortgage, remortgage, pledge, hypothecate or otherwise encumber any of its assets; (b) sell, lease, lend, exchange or otherwise dispose of any of its assets, other than sales of inventory in the ordinary course of business; (c) pay or declare any dividends or make any distributions on or in respect of any shares of its capital stock; (d) default in its obligations under any material contract, agreement, commitment or undertaking of any kind or enter into any material contract, agreement, purchase order or other commitment; or (e) enter into any other transaction or agreement or arrangement, or -8- 9 incur any liabilities, not in the ordinary course of this corporation's business. (3) Determination of Final Purchase Option Exercise Price. Not later than 15 business days following the Purchase Option Exercise Date, this corporation shall deliver a final Status Statement to PeopleSoft prepared as of the Purchase Option Exercise Date. Following receipt of such Status Statement and completion of any other investigation as PeopleSoft shall deem necessary or appropriate, and prior to the Closing Date, PeopleSoft shall determine the Final Purchase Option Exercise Price by making the adjustments to the Purchase Option Exercise Price contemplated by Section (A)(10) of this Article FIFTH and shall notify this corporation of such determination. (4) Payment of Final Purchase Option Exercise Price. On or before the Closing Date, PeopleSoft shall deposit the full amount of the Final Purchase Option Exercise Price with a bank or banks or similar entities designated by PeopleSoft (which may include PeopleSoft's transfer agent if shares of PeopleSoft Common Stock are being delivered) to pay, on PeopleSoft's behalf, the Final Purchase Option Exercise Price (the "Payment Agent"). Funds, if any, and PeopleSoft Common Stock, if any, deposited with the Payment Agent shall be delivered in trust for the benefit of the holders of Class A Common Stock, and PeopleSoft shall provide the Payment Agent with irrevocable instructions to pay, on or after the Closing Date, the Final Purchase Option Exercise Price for the shares of Class A Common Stock to the holders of record thereof determined as of the Closing Date. Payment for shares of Class A Common Stock shall be mailed to each holder at the address set forth in this corporation's records or at the address provided by each holder or, if no address is set forth in this corporation's records for a holder or provided by such holder, to such holder at the address of this corporation. As soon as is practicable upon PeopleSoft's request, this corporation shall provide, or shall cause its transfer agent to provide, to PeopleSoft or to the Payment Agent, free of charge, a complete list of the record holders of shares of Class A Common Stock, as of a specified date, including the number of shares of Class A Common Stock held of record and the address of each record holder as set forth in the records of this corporation's transfer agent. (E) Transfer of Title. Transfer of title to all of the issued and outstanding shares of Class A Common Stock shall be deemed to occur automatically on the Closing Date and thereafter this corporation shall be entitled to treat PeopleSoft as the sole holder of all of the issued and outstanding shares of its Class A Common Stock, notwithstanding the failure of any holder of Class A Common Stock to tender the certificates representing such shares to the Payment Agent, whether or not such tender is required or requested by the Payment Agent. This corporation shall instruct its transfer agent not to accept any shares of Class A Common Stock for transfer on and after the Closing Date. This corporation shall take all actions reasonably requested by PeopleSoft to assist in effectuating the transfer of shares of Class A Common Stock in accordance with this Article FIFTH. (F) Redemption of Class A Common Stock. At PeopleSoft's election (which election may be made at any time, provided it is made, by delivery of written notice thereof to this -9- 10 corporation, not less than five days prior to the Closing Date), this corporation shall, subject to applicable restrictions in the Delaware General Corporation Law, redeem on the Closing Date all issued and outstanding shares of Class A Common Stock for an aggregate redemption price equal to the Final Purchase Option Exercise Price. Such redemption shall be in lieu of PeopleSoft paying the Final Purchase Option Exercise Price directly to the stockholders of this corporation, and shall be subject to PeopleSoft providing the Final Purchase Option Exercise Price to this corporation to allow this corporation to pay the redemption price. SIXTH: Protective Provisions. (A) Legend. Certificates evidencing shares of Class A Common Stock and Preferred Stock issued by or on behalf of this corporation shall bear a legend in substantially the following form: "The shares of Momentum Business Applications, Inc. evidenced hereby are subject to an option in favor of PeopleSoft, Inc., as described in the Restated Certificate of Incorporation of Momentum Business Applications, Inc. to purchase such shares at a purchase price determined in accordance with Article FIFTH thereof exercisable by notice delivered to this corporation at or prior to the Purchase Option Expiration Time (as defined in the Restated Certificate of Incorporation of Momentum Business Applications, Inc.). Copies of the Restated Certificate of Incorporation of Momentum Business Applications, Inc. are available at the principal place of business of Momentum Business Applications, Inc. at 1301 Harbor Bay Boulevard, Alameda, California 94502, and will be furnished to any stockholder on request and without cost." (B) No Conflicting Action. This corporation shall not take, nor permit any other person or entity within its control to take, any action inconsistent with PeopleSoft's rights under Article FIFTH. This corporation shall not enter into any arrangement, agreement or understanding, whether oral or in writing, that is inconsistent with or limits or impairs the rights of PeopleSoft and the obligations of this corporation hereunder, including without limitation any arrangement, agreement or understanding that imposes any obligation upon this corporation, or deprives this corporation of any material rights, as a consequence of the exercise of the Purchase Option or the acquisition of the outstanding Class A Common Stock pursuant thereto. (C) Inspection and Visitation Rights; Status Statements. PeopleSoft shall have the right to inspect and copy, on reasonable notice and during regular business hours, the books and records of this corporation. PeopleSoft shall also have the right to request from time to time (but not more frequently than monthly) a Status Statement as of such date as PeopleSoft may request. Each Status Statement shall be sent within seven days of request by PeopleSoft. PeopleSoft shall also have the right to send a non-voting representative to attend all meetings of this corporation's Board of Directors and any committees thereof. Any representative, if designated in writing by PeopleSoft as such, shall receive notice of all meetings of this corporation's Board of Directors and each committee thereof, as well as copies of all documents and other materials provided to any directors of this corporation in connection with any such meeting not later than the time such -10- 11 materials are provided to other directors. Such representative shall also be provided with copies of all resolutions adopted or proposed to be adopted by unanimous written consent not later than the time such resolutions are provided to other directors. SEVENTH: Board of Directors. (A) The number of directors which shall constitute the whole Board of Directors of this corporation shall initially be four (4), but may be increased or decreased from time to time by a resolution duly adopted by the Board of Directors and shall be automatically increased as provided in Article FOURTH, Section (B)(4). (B) Nomination of candidates for election to the Board of Directors shall be made as provided in the bylaws of this corporation. Election of directors need not be by written ballot. (C) Subject to Article FOURTH, Section (B)(4), the Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1999; each initial director in Class II shall hold office until the annual meeting of stockholders in 2000; and each initial director in Class III shall hold office until the annual meeting of stockholders in 2001. Notwithstanding the foregoing provisions of this Article SEVENTH, each director shall serve, until his or her successor is duly elected and qualified or until his or her death, resignation, disqualification or removal. (D) In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (E) Except as otherwise provided in Article FOURTH, Section (B)(4), or as required by law, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by the stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. (F) The name and mailing address of each person who is to serve as a director until the annual meeting of the stockholders entitled to vote for the class of that director or until a successor is elected or appointed and qualified are as follows: -11- 12 NAME MAILING ADDRESS CLASS
EIGHTH: Bylaws. In furtherance and not in limitation of the powers conferred by statute, and subject to the next sentence, the Board of Directors and the stockholders of this corporation are each expressly authorized to adopt, amend or repeal the bylaws of this corporation subject to any particular provisions concerning amendments set forth in this Restated Certificate of Incorporation or the bylaws of this corporation. No amendment to the bylaws may be adopted by the stockholders without the approval of holders of a majority of the Class B Common Stock voting separately as a class if such amendment would affect the classification of the Board of Directors, or would otherwise regulate the conduct of the Board's affairs or the manner in which it may act. NINTH: Stockholder Meetings. (A) Special Meetings. Special meetings of the stockholders for any purpose or purposes whatsoever may be called at any time only by the Board of Directors, the Chairman of the Board or the President of this corporation. (B) No Action Without Meeting. At any time when this corporation has more than one stockholder of any class of capital stock, no action required to be taken or which may be taken at any annual or special meeting of the stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Notwithstanding the foregoing, the holder or holders of the Class B Common Stock may take any action permitted to be taken by such holders as a class by written consent without a meeting. TENTH: Limitation of Liability. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit, and to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or may hereafter be amended. If the Delaware General Corporation Law is amended after the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither the adoption or repeal of this Article, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the -12- 13 effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. IN WITNESS WHEREOF, the undersigned officer has executed this Restated Certificate of Incorporation on December ___, 1998, and does hereby certify that this Restated Certificate of Incorporation, which restates and integrates, and also further amends, the provisions of this corporation's Certificate of Incorporation, was duly adopted by the stockholders of this corporation in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware. Momentum Business Applications, Inc. By: ------------------------------------ President -13- EX-5.1 5 OPINION OF WSG&R RE: MOMENTUM CLASS A COMMON STOCK 1 EXHIBIT 5.1 November 25, 1998 Momentum Business Applications, Inc. 1302 Harbor Bay Boulevard Alameda, CA 94502 RE: REGISTRATION STATEMENT NO 333-67363 ON FORM S-1 Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 filed by you with the Securities and Exchange Commission on November 16, 1998 and Amendment No. 1 thereto to be filed on or about November 25, 1998 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 4,750,000 shares of Common Stock of Momentum Business Applications, Inc. (the "Shares"). As your counsel in connection with this transaction, we have examined the proceedings proposed to be taken in connection with said sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states, where required, the Shares when issued and sold in the manner referred to in the Registration Statement will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ Wilson Sonsini Goodrich & Rosati slb EX-5.2 6 OPINION OF WSG&R RE: PEOPLESOFT COMMON STOCK 1 EXHIBIT 5.2 November 25, 1998 PeopleSoft, Inc. 4460 Hacienda Drive Pleasanton, CA 94577 RE: REGISTRATION STATEMENT NO 333-09652 ON FORM S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 filed by you with the Securities and Exchange Commission on November 16, 1998 and Amendment No. 1 thereto to be filed on or about November 25, 1998 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 4,000,000 shares of Common Stock of PeopleSoft, Inc. (the "Shares"). As your counsel in connection with this transaction, we have examined the proceedings proposed to be taken in connection with said sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states, where required, the Shares when issued and sold in the manner referred to in the Registration Statement will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON, SONSINI, GOODRICH & ROSATI Professional Corporation /s/ Wilson Sonsini Goodrich & Rosati slb EX-10.1 7 FORM OF DEVELOPMENT AND LICENSE AGREEMENT 1 EXHIBIT 10.1 DEVELOPMENT AND LICENSE AGREEMENT This Development and License Agreement ("Agreement") is entered into as of __________, 1998 ("Effective Date") by and between PEOPLESOFT, INC. ("PEOPLESOFT"), a Delaware corporation with a place of business at 4460 Hacienda Drive, Pleasanton, California 94588 and MOMENTUM BUSINESS APPLICATIONS, INC. ("MOMENTUM"), a Delaware corporation with a principal place of business at 1301 Harbor Bay Blvd., Alameda, California 94502. PeopleSoft and Momentum shall be collectively referred to herein as the "Parties." Whereas, the Parties intend to work together to develop software application products which may be based on PeopleSoft's PeopleTools technology as set forth herein which shall be known as the Momentum Products; Whereas, the Parties also entered into the Marketing and Distribution Agreement ("Marketing Agreement") on the Effective Date for PeopleSoft's possible distribution of the proposed Momentum Products; Whereas, the Parties have also entered into an agreement for PeopleSoft services to Momentum ("Services Agreement") as of the Effective Date whereby PeopleSoft will provide Momentum various services as specified in the Services Agreement; Whereas, this Agreement, the Services Agreement and the Marketing Agreement are separate, yet interdependent agreements in the context of the PeopleSoft/Momentum business relationship; and Whereas, this Agreement sets forth the manner in which Momentum can use Available Funds. The Parties agree as follows: DEFINITIONS "Available Funds" means the three hundred million dollars ($300,000,000) in cash funding that PeopleSoft contributed to Momentum in furtherance of the formation of Momentum plus any accrued investment income, less any amounts expended under this Agreement and for related administrative expenses (including expenses under the Services Agreement). "Contributed Technology" means any PeopleSoft software products or other technology that PeopleSoft agrees to provide to Momentum during the work plan and cost estimate approval process. "Development Costs" means the fully burdened costs incurred by PeopleSoft (including costs incurred for third party contractors hired by PeopleSoft) in developing a Momentum Product. "Developed Technology" means development tools (other than PeopleTools) which are developed or otherwise acquired by Momentum for the purpose of developing Momentum Products. "Developed Technology Royalties" mean the royalties that PeopleSoft will pay to Momentum on any software product (other than a Momentum Product) licensed by PeopleSoft to end users that was developed by PeopleSoft using Developed Technology. "Documentation" means only technical publications relating to the use of the PeopleSoft Technology, such as reference, user, installation, systems administrator and technical guides, and training curriculum delivered by PeopleSoft to Momentum. "Momentum Products" means the software applications, including pre-release versions, and associated documentation that are proposed by PeopleSoft and accepted by Momentum for development under this Agreement. "Net License Fees" means the actual amount of license fees received by PeopleSoft for an end user's use of any product containing Developed Technology, net of sales, technology witholding or VAT taxes, imputed fees for Support Services (such as bundled maintenance), consulting, and any third party royalties less PeopleSoft's actual fully burdened development costs related to the Developed Technology. "PeopleSoft Technology" means PeopleTools, Documentation and all other Contributed Technology provided by PeopleSoft to Momentum and all corrections or updates thereto. PeopleSoft Technology includes all third-party software included in PeopleTools and any Contributed Technology that PeopleSoft has the right to provide and agrees to provide to Momentum. CONFIDENTIAL Page 1 of 11 2 Technology acquired by PeopleSoft after the date of this Agreement shall not be considered PeopleSoft Technology unless such technology is expressly included in PeopleTools or provided to Momentum as Contributed Technology. "PeopleTools" means all or any portion of the underlying technology in object or source code format, tools and documentation delivered by PeopleSoft to Momentum under this Agreement and any related extensions or future enhancements all of which serves as the foundation for all PeopleSoft software products. "Purchase Option" means PeopleSoft's option to acquire all (but not less than all) of the outstanding callable Class A common stock of Momentum as set forth in Momentum's Restated Certificate of Incorporation. "Support Services" means PeopleSoft's then current technical support and maintenance services for the PeopleSoft Technology. Support Services for general customers as of the Effective Date are as set forth in Exhibit B attached hereto. The Support Services initially provided by PeopleSoft to Momentum under this Agreement shall be substantially similar to those specified in Exhibit B and may be modified as required for purposes consistent with this Agreement. 1. LICENSE GRANTS 1.1 PeopleSoft grants Momentum a perpetual (subject to the section entitled "Default and Termination"), worldwide, non-exclusive, nontransferable license to use a reasonable number of copies of the PeopleSoft Technology solely for internal use purposes connected with this Agreement and solely in conjunction with Momentum's development, support, demonstration, testing (and any related tasks) of the Momentum Products; In addition, Momentum may, with PeopleSoft's consent, sublicense third parties to use the PeopleSoft Technology for the same purposes. 1.2 To the extent that it has, or in the future obtains, the right to do so, Momentum hereby grants PeopleSoft a perpetual, non-exclusive, irrevocable, unrestricted, worldwide right to use, market, manufacture, reproduce, copy, sublicense, distribute through PeopleSoft's then current worldwide channel distribution system (under the PeopleSoft name or otherwise pursuant to PeopleSoft's then current general licensing policies and methodologies), create derivative works, enhance and modify the Developed Technology. 1.3 PeopleSoft shall provide Momentum with one copy of PeopleSoft Technology, with rights to make additional copies as reasonably necessary for the uses set forth in section 1.1. PeopleSoft shall also provide Momentum with one printed set of Documentation and Momentum shall have the option to acquire additional sets of Documentation at PeopleSoft's then current rates 2. LICENSE EXCLUSIONS 2.1 Except as expressly authorized herein, Momentum shall not: a. copy or modify the PeopleSoft Technology other than as set forth in section 1.1; b. use PeopleSoft Technology to develop any software application products that compete with PeopleSoft Technology; c. cause or permit reverse compilation or reverse assembly of all or any portion of the PeopleSoft Technology; d. distribute, disclose, market, rent, lease or transfer to any third party any portion of the PeopleSoft Technology or the Documentation, or use the PeopleSoft Technology or Documentation in any service bureau arrangement or third party training other than to third party consultants under agreement and non-disclosure as mutually agreed upon between the Parties in writing; e. disclose the results of PeopleSoft Technology performance benchmarks to any third party without PeopleSoft's prior written notice; f. export PeopleSoft Technology in violation of U.S. Department of Commerce export administration regulations; and g. invoke support libraries other than through documented API calls. 2.2 No license, right, or interest in any PeopleSoft trademarks, trade name, or service mark is granted hereunder. 3. DEVELOPMENT OF MOMENTUM PRODUCTS CONFIDENTIAL Page 2 of 11 3 3.1 Defining development projects: PeopleSoft shall propose the development of certain Momentum Products to Momentum and shall submit work plans and cost estimates for such development initiatives using Exhibit A as a general outline. Momentum may approve all or any portion of a proposed work plan and cost estimate or may determine not to approve any proposed work plan and cost estimate. Notwithstanding the foregoing, Momentum shall not be obligated to fund development of Momentum Products in excess of amounts reflected in approved work plans and cost estimates. 3.2 (a) Situations wherein PeopleSoft develops: If Momentum and PeopleSoft agree that PeopleSoft will do research and development work with respect to a Momentum Product, Momentum will pay PeopleSoft 110% of PeopleSoft's Development Costs incurred with respect to such product. PeopleSoft shall not be required to undertake activities that would result in Development Costs exceeding those reflected in approved work plans and cost estimates. Except as agreed to by the Parties, PeopleSoft shall not be required to devote any specific amount of time or resources to research and development activities under this Agreement. (b) Situations wherein Third Parties develop: The Parties intend that they will discuss and agree upon the possible use of third parties to develop Momentum Products during the budget proposal and approval process. Any agreements between Momentum and third parties relating to Momentum Products or Developed Technology must include appropriate provisions for the protection of PeopleSoft Technology and PeopleSoft's rights under this Agreement, the Marketing Agreement, and the Services Agreement and as a holder of the Momentum Class B Common Stock. Subject to the foregoing, the amount and nature of work to be performed by third parties will be determined by Momentum. 3.3 Momentum hereby grants PeopleSoft a right of first refusal with respect to any future financing proposed to be conducted by Momentum. If at any time, Momentum intends to raise more than $100,000 of capital in a transaction or series of transactions, Momentum shall provide PeopleSoft with notice of the proposed transaction including a summary of terms of the proposed transaction. If PeopleSoft desires to provide Momentum with the financing on the terms proposed by Momentum, it may do so by giving Momentum notice within 15 days of its receipt of the notice of the proposed by Momentum. If PeopleSoft does not exercise its rights hereunder, Momentum shall have 60 days from the expiration of the foregoing 15 day period to complete the financing on the terms contained in the notice provided to PeopleSoft. If Momentum does not complete the financing within said 60 day period, PeopleSoft's rights hereunder shall be deemed to be revived. 3.4 Momentum shall use diligent efforts to research and develop Momentum Products in accordance with approved work plans and cost estimates agreed to by the Parties pursuant to this Agreement. As of the Effective Date, the Parties contemplate the development of the following Momentum Products: electronic business, analytic applications and industry-specific software applications. 3.5 The Parties intend to discuss and agree upon the use of Available Funds during the work plan and cost estimate approval process. Momentum may use the Available Funds only to develop or acquire Momentum Products and related technologies and for related administrative expenses. There are no restrictions on Momentum's use of its funds other than Available Funds to conduct its business as it determines. 3.6 Momentum will invest the Available Funds in high quality marketable securities. Momentum may not encumber, pledge or otherwise take any action with respect to the Available Funds that could prevent the full expenditure of such funds under this Agreement. If PeopleSoft reasonably believes Momentum has or intends to use the Available Fund for purposes other than those allowed by this Agreement, PeopleSoft will have the right to require Momentum to make an affirmative pledge of the Available Funds to performance under this Agreement. 3.7 PeopleSoft agrees to sublicense to Momentum any required third party software in which PeopleSoft has applicable distribution rights. Momentum shall be responsible for the payment of any technology access fees or royalties due third parties for the use of such third party software. 4. FEES AND PAYMENT TERMS/DEVELOPMENT COSTS CONFIDENTIAL Page 3 of 11 4 4.1 PeopleSoft Technology shall be provided by PeopleSoft to Momentum under this Agreement at no license fee or royalty obligation. 4.2 PeopleSoft shall pay Developed Technology Royalties to Momentum equal to one percent (1%) of Net License Fees on products (other than Momentum Products) sold or licensed by PeopleSoft that were developed by PeopleSoft using Developed Technology. PeopleSoft's obligation to pay Developed Technology Royalties to Momentum shall cease ten (10) years after the Developed Technology is acquired or first identified as part of a work plan related to the development of a Momentum Product. 4.3 Momentum shall reimburse PeopleSoft for its Development Costs under section 3.2(a) on a monthly basis. 5. SUPPORT SERVICES 5.1 During the period that this Agreement and the Marketing Agreement are in effect and provided that Momentum is current on all payment obligations under the Services Agreement, at no fee to Momentum, PeopleSoft shall provide Momentum with Support Services. 6. TITLE AND PROTECTION/NON-DISCLOSURE 6.1 PeopleSoft (or its third-party providers) retains title to all portions of the PeopleSoft Technology. Any modifications to the PeopleSoft Technology made by Momentum or any of its subcontractors (including PeopleSoft) to develop a Momentum Product in accordance with this Agreement shall be owned by PeopleSoft. PeopleSoft will not be obligated to make any royalty or other payments with respect to such PeopleSoft Technology or modifications. Title to the Momentum Products shall vest in Momentum, subject to PeopleSoft's underlying right, title and interest to PeopleSoft Technology. Title to the Developed Technology shall vest in Momentum, subject to PeopleSoft's license to use the Developed Technology as set forth in section 1.2 herein. Except as may be otherwise expressly set forth in this Agreement, title to any technology developed pursuant to this Agreement will vest in both PeopleSoft and Momentum and each will have full right to make, use, license and sublicense such technology without any obligation to the other. 6.2 Title to the physical media for the PeopleSoft Technology vests in Momentum upon delivery. The PeopleSoft Technology contains valuable proprietary information, and Momentum shall not disclose the PeopleSoft Technology to anyone other than those of its employees or consultants under nondisclosure obligations who have a need to know for purposes consistent with this Agreement. Momentum shall affix, to each full or partial copy of PeopleSoft Technology made by Momentum, all copyright and proprietary information notices as affixed to the original. 6.3 All information clearly marked "confidential" or which should be reasonably understood to be confidential by either party under this Agreement and provided to the other party shall be treated as confidential and shall not be disclosed, orally or in writing by the receiving party to any third party without the prior written consent of the disclosing party. 6.4 The obligations set forth in this section entitled "Title and Protection /Non-disclosure" shall survive termination of this Agreement. 7. LIMITED WARRANTY 7.1 PeopleSoft represents that the PeopleSoft Technology does not infringe any patent, copyright or other third party intellectual property rights when used in accordance with the published specifications. PeopleSoft represents that the PeopleSoft Technology and all subsequent major releases thereon will perform substantially in accordance with the corresponding documentation for a period of one (1) year from the date of installation. PeopleSoft does not represent that the PeopleSoft Technology is error-free. In the event the PeopleSoft Technology does not perform substantially in accordance with the published specifications, PeopleSoft's sole obligation is limited to repair or replacement of the defective PeopleSoft Technology in accordance with its then current Support Services terms and CONFIDENTIAL Page 4 of 11 5 conditions, provided Momentum notifies PeopleSoft of the deficiency within the one-year period and provided Momentum has installed all PeopleSoft Technology updates provided by PeopleSoft's Support Services. 7.2 PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 8. DISCLAIMER OF CONSEQUENTIAL DAMAGES/LIMITATION OF LIABILITY 8.1 PEOPLESOFT WILL NOT BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 8.2 EXCLUDING DAMAGES INCURRED UNDER THE ARTICLE ENTITLED "INDEMNIFICATION", PeopleSoft's liability for damages under this Agreement shall in no event exceed the then current standard list price for a license to peopletools by Momentum. the parties agree to the allocation OF LIABILITY RISK THAT is set forth in this Section. 9. INDEMNIFICATION 9.1 PeopleSoft shall indemnify and defend Momentum against any claims that the PeopleSoft Technology infringes any patent, copyright or trade secret; provided that PeopleSoft is given prompt notice of such claim and is given information, reasonable assistance, and authority to defend or settle the claim. In the defense or settlement of the claim, PeopleSoft may obtain for Momentum the right to continue using the PeopleSoft Technology or replace or modify PeopleSoft Technology so that it becomes noninfringing while giving substantially equivalent performance. PeopleSoft shall have no liability if the alleged infringement is based on: (i) a modification of PeopleSoft Technology by anyone other than PeopleSoft; or (ii) the use of PeopleSoft Technology other than in accordance with the Documentation. 9.2 Momentum shall indemnify and defend PeopleSoft against any claims that the components of the Momentum Products or Developed Technology, that are developed by Momentum in furtherance of this Agreement and the Marketing Agreement infringes any patent, copyright or trade secret; provided that Momentum is given prompt notice of such claim and is given information, reasonable assistance, and authority to defend or settle the claim. In the defense or settlement of the claim, Momentum may obtain for PeopleSoft the right to continue using and marketing the Momentum Products or Developed Technology or replace or modify the Momentum Products or Developed Technology so that it becomes noninfringing while giving substantially equivalent performance. Momentum shall have no liability if the alleged infringement is based on: (i) a modification of the Momentum Product or Developed Technology by anyone other than Momentum or its subcontractors, if any; or (ii) the use of the Momentum Product or Developed Technology other than in accordance with the documentation provided by Momentum. To the extent Momentum elects to provide PeopleSoft with modifications to the PeopleSoft Technology, in every case and simultaneous with the delivery of such PeopleSoft Technology modifications, Momentum shall provide written notice to PeopleSoft that such PeopleSoft Technology modifications are provided "as-is" and "without any indemnification for third party infringement claims." 9.3 The obligations set forth in this section entitled "Indemnification" shall survive the termination of this Agreement. 10. DEFAULT AND TERMINATION 10.1 Any of the following shall constitute an event of default: a. Momentum fails to perform any of its obligations under the sections entitled "License Exclusions" or "Title and Protection /Non-disclosure"; or b. Either party fails to perform any other material obligation under this Agreement and such failure remains uncured for more than thirty (30) days after receipt of written notice thereof. CONFIDENTIAL Page 5 of 11 6 10.2 If an event of default occurs, the nondefaulting party, in addition to any other rights available to it under law or equity, may terminate this Agreement and all licenses granted hereunder by written notice to the defaulting party. Remedies shall be cumulative and there shall be no obligation to exercise a particular remedy. In the event this Agreement is terminated by PeopleSoft in connection with Momentum's breach of a material obligation under this Agreement, PeopleSoft shall be entitled to receive, as liquidated damages, the Available Funds. If PeopleSoft reasonably believes that such liquidated damages are inadequate, then PeopleSoft will be entitled to specific performance of Momentum's obligations under this Agreement in connection with such breach. 10.3 This Agreement will automatically terminate upon the expiration of the Purchase Option; provided, however that PeopleSoft's obligation to pay Developed Technology Royalties will continue until the expiration of the respective royalty terms, even if the Purchase Option expires unexercised. 10.4 Within fifteen (15) days after termination of this Agreement, except for copies of PeopleSoft Technology for use solely in connection with an agreed upon transition plan, Momentum shall certify in writing to PeopleSoft that all copies of the PeopleSoft Technology in any form, including partial copies within modified versions, have been destroyed or returned to PeopleSoft. The Parties shall also meet, discuss in good faith and agree to a transition plan (which shall not exceed two (2) years) to enable Momentum to transition the Momentum Products and customers using Momentum Products from PeopleTools technology to a different technology. 11. NOTICES All notices shall be in writing and hand-delivered or sent by first class mail, overnight mail, courier, or transmitted by facsimile (if confirmed by such mailing), to the addresses indicated on the first page of this Agreement, or such other address as either party may indicate by at least ten (10) days prior written notice to the other party. Notices to PeopleSoft shall be addressed to the Legal Department. 12. ASSIGNMENT Momentum may not assign this Agreement (by operation of law or otherwise) or sublicense PeopleSoft Technology without the prior written consent of PeopleSoft or as set forth in the event of certain contingencies as expressed in the Marketing Agreement, and any prohibited assignment or sublicense shall be null and void. 13. GENERAL 13.1 This Agreement is made in and shall be governed by the laws of the State of California, excluding choice of law principles. Any actions brought to enforce any of the provisions of this Agreement shall be fully and finally resolved by binding arbitration conducted by a mutually acceptable independent third party. Except for actions for breach of PeopleSoft's proprietary rights in PeopleSoft Technology or Momentum's proprietary rights in the Momentum Products, no action regardless of form, arising out of this Licensing Agreement may be brought by either party more than one year after the cause of action has accrued. 13.2 The section headings herein are provided for convenience only and have no substantive effect on the construction of this Agreement. If any provision of this Agreement is held to be unenforceable, this Agreement shall be construed without such provision. 13.3 The failure by a party to exercise any right hereunder shall not operate as a waiver of such party's right to exercise such right or any other right in the future. Neither party shall be liable to the other for any failure to perform due to causes beyond its reasonable control. 13.4 No agency, partnership or employment is created by this Agreement. Momentum shall not use the name of PeopleSoft in any advertising, public relations or media release without the prior written consent of PeopleSoft. 13.5 This Agreement replaces and supersedes any prior verbal understandings, written communications, and constitutes the entire agreement between the Parties concerning this subject matter. This Agreement may be amended only by a written document executed by a duly authorized representative of each of the Parties. This Agreement may be executed in counterparts. CONFIDENTIAL Page 6 of 11 7 This Agreement is made as of the Effective Date. MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC. - ----------------------------------- ------------------------------------ Authorized Signature Authorized Signature - ----------------------------------- ------------------------------------ Printed Name and Title Printed Name and Title CONFIDENTIAL Page 7 of 11 8 EXHIBIT A OVERVIEW OF THE DEVELOPMENT EFFORT TO CREATE MOMENTUM PRODUCTS PHASE 1. PROJECT INITIATION/GENERAL ARCHITECTURE. (a) DURATION. The approximate duration of Phase 1 shall be the first several months commencing on the Effective Date. (b) OBJECTIVES DURING PHASE 1: (1) defining the project requirements as mutually agreed. (2) Establish and maintain the development environment. (3) Evaluate possible future beta sites. (4) Generally determine the requirements and costs of documentation. (5) Preparation of the project plans which are expected to include detailed deliverables, and development milestones. (6) Preparation of the test plans. (7) Determination of an appropriate database to be used as a starting point for the Momentum Product. PHASE 2. DETAILED DESIGN AND PROTOTYPING. (a) DURATION. The Parties anticipate that Phase 2 may overlap with Phase 1 and shall commence during the __________ month of the Project and end, depending on Momentum Product within __________ months of the commencement of the project. (b) OBJECTIVES DURING PHASE 2 (1) Create all databases. (2) Develop or create functional prototypes of all modules and listed functions. (3) Participate in ongoing beta sites review and feedback. (4) Refinement of project plans, including definition of detailed requirements for all functions. (5) Refinement of test plans. PHASE 3. DEVELOPMENT. (a) DURATION. The Parties anticipate that Phase 3 shall commence in the _________ month of the project and end upon General Availability of the Momentum Product. (b) OBJECTIVES DURING PHASE 3 (1) Complete, as set forth in the project plans, the interfaces between the PeopleSoft Technology and Momentum Products.. (2) Provide the publication expertise reasonably necessary to turn the Documentation and training guide drafts into final documents ready for delivery to customers. This effort contemplates limited textual editing, document formatting and other minor preparations which are typically expected prior to publication, and which will otherwise conform the Documentation to PeopleSoft's then current style guides. (3) Undertake final testing. CONFIDENTIAL Page 8 of 11 9 EXHIBIT B SOFTWARE SUPPORT SERVICES TERMS AND CONDITIONS Software Support Services Terms and Conditions ("SUPPORT SERVICES") are referenced in and incorporated into the Software License and Services Agreement ("Agreement") between PeopleSoft and Licensee. Capitalized terms have the same meaning as they do in the Agreement. 1. COVERAGE PeopleSoft provides Licensee with Support Services for the Software at the Site in exchange for payment of the applicable Support Services fees. Only designated Licensee employees may contact PeopleSoft for the provision of Support Services. Licensee may acquire Support Services for additional Licensee sites by paying PeopleSoft the applicable annual secondary site Support Services fee. 2. SOFTWARE MAINTENANCE PeopleSoft will periodically issue the following technical and functional improvements to Software: (1) Fixes to Errors; (2) Updates; and (3) Enhancements 3. PRIORITY LEVEL OF ERRORS PeopleSoft shall address Errors in accordance with the following protocols: Priority 1-Critical Level: PeopleSoft promptly: (1) designates PeopleSoft specialist(s) to correct Error; (2) provides expanded communication on correction status; and (3) escalates troubleshooting a Workaround or Fix. Priority 2-Urgent Level: PeopleSoft promptly: (1) designates PeopleSoft specialist(s) to correct Error; (2) provides ongoing communication on correction status; and (3) initiates troubleshooting a Workaround or Fix. Priority 3-Standard Level: PeopleSoft: (1) assigns PeopleSoft specialist(s) to commence correction of Error; and (2) exercises all commercially reasonable efforts to include the Fix for Error in the next Update. Priority 4-Base Level: PeopleSoft: (1) assigns Error to case management and tracking; and (2) may include the Fix for Error in the next Update. 4. TELEPHONE SUPPORT PeopleSoft provides telephone support concerning Software installation and use. Except for designated holidays, standard telephone support hours are Monday through Friday, 4:00 a.m. to 6:30 p.m., Pacific Time. Telephone Support is also available 24-hours-a-day, 7-days-a-week for in-production customers who need to resolve critical production problems outside of standard support hours. 5. ACCOUNT MANAGER PeopleSoft assigns an account manager to assist with the support relationship between PeopleSoft and Licensee. Licensee will reimburse PeopleSoft for the reasonable travel and living expenses of the account manager for on-site support activity. 6. PEOPLESOFT CUSTOMER CONNECTION a. PeopleSoft Customer Connection is an on-line, self-service system that features postings by PeopleSoft and customers regarding technical and non-technical topics of interest. Licensee may access PeopleSoft Customer Connection via Internet access at its own expense. b. Software Updates, Enhancements, and Fixes may be delivered to Licensee through PeopleSoft Customer Connection, or by mail from PeopleSoft on Licensee's written request. PeopleSoft information posted to Customer Connection is confidential and proprietary and shall only be used in connection with Licensee's use of the Software and informational communications with other PeopleSoft Customer Connection participants. PeopleSoft shall have the right to publish, modify and distribute any information or software provided by Licensee to Customer Connection in all languages. Licensee shall not use PeopleSoft Customer Connection for advertising or public relations purposes and shall only submit information to PeopleSoft Customer Connection that Licensee owns or has permission to use in such manner. c. To diminish exposure to software viruses, PeopleSoft tests and scans all information entered by PeopleSoft for software viruses prior to submitting it to PeopleSoft Customer Connection. Licensee shall also use a reliable virus detection system on any software or information posted to PeopleSoft Customer Connection, utilize back-up procedures, monitor access to PeopleSoft Customer Connection, promptly notify PeopleSoft of any virus detected within Licensee's systems associated with PeopleSoft Customer Connection and generally exercise a reasonable degree of caution when utilizing information from PeopleSoft Customer Connection. PeopleSoft does not warrant that PeopleSoft Customer Connection will operate without interruption or without errors. PeopleSoft reserves the right to modify or suspend PeopleSoft CONFIDENTIAL Page 9 of 11 10 Customer Connection service in connection with PeopleSoft's provision of Support Services. PeopleSoft assumes no responsibility for anything posted by anyone other than PeopleSoft, including, but not limited to, information about PeopleSoft software, modification code, or portions thereof. 7. FEES The initial period of Support Services for the Site is indicated in the Schedule and included in the Software license fee; thereafter, in the event Licensee elects to continue to receive Support Services, Licensee shall pay PeopleSoft the annual Support Services fee as set forth in the Schedule. Support Services are billed on an annual basis, payable in advance. Unless Licensee has provided proof of tax-exempt status, Licensee is responsible for all taxes associated with Support Services, excluding taxes based on PeopleSoft's income. Licensee's payment shall be due within thirty (30) days of receipt of the PeopleSoft invoice. Should Licensee elect not to renew Support Services and subsequently requests Support Services, PeopleSoft shall reinstate Support Services only after Licensee pays PeopleSoft the annual then-current fee plus all cumulative fees that would have been payable had Licensee not suspended Support Services. 8. TERM AND TERMINATION Unless otherwise expressly set forth in the Agreement, Support Services shall be provided for a period of one (1) year from the Schedule Effective Date, and shall be extended each additional year unless terminated by either party. Each one (1) year term shall commence on the anniversary of the Schedule Effective Date. Either party may terminate the Support Services provisions at the end of any support term by giving the other party written notice at least ninety (90) days prior to the end of the term. If Licensee fails to make payment pursuant to the section titled "Fees", or Licensee breaches the Support Services provisions and such breach has not been cured within thirty (30) days of receipt of written notice of breach, PeopleSoft may suspend or cancel Support Services. 9. EXCLUSIONS PeopleSoft shall have no obligation to support: a. Substantially altered, damaged or modified Software; b. Software that is not the then-current release, or a Previous Sequential Release; c. Errors caused by Licensee's negligence, hardware malfunction, or other causes beyond PeopleSoft's reasonable control; d. Software installed in a hardware or operating environment not supported by PeopleSoft; and e. Third party software not licensed through PeopleSoft. 10. GENERAL All Updates, Enhancements and Fixes provided to Licensee are subject to the terms and conditions of the Agreement. PeopleSoft may modify Support Services on an annual basis to reflect current market condition upon reasonable notice. 11. DEFINITIONS "ENHANCEMENT" means a technical or functional addition to the Software delivered with a new Software release to improve functionality and/or operations. "ERROR" means a Software malfunction that degrades the use of the Software. "FIX" means the repair or replacement of source, object or executable code Software versions to remedy an Error. "PREVIOUS SEQUENTIAL RELEASE" means a Software release for a particular operating environment that has been replaced by a subsequent Software release in the same operating environment. PeopleSoft will support a Previous Sequential Release for a period of eighteen (18) months after release of the subsequent release. Multiple Previous Sequential Releases may be supported at any given time. "PRIORITY 1" means an Error that renders the Software inoperative or causes the Software to fail catastrophically. "PRIORITY 2" means an Error that affects performance of the Software and prohibits Licensee's use of the Software. "PRIORITY 3" means an Error that affects performance of the Software, but does not prohibit Licensee's use of the Software. CONFIDENTIAL Page 10 of 11 11 "PRIORITY 4" means an Error that causes only a minor impact on the use of the Software. "UPDATE" means all published revisions to the Documentation and one (1) copy of the new Software release not designated by PeopleSoft as new products or functionality for which it charges separately. "WORKAROUND" means a change in the procedures followed or data supplied to avoid an Error without significantly impairing Software performance. CONFIDENTIAL Page 11 of 11 EX-10.2 8 FORM OF MARKETING AND DISTRIBUTION AGREEMENT 1 EXHIBIT 10.2 MARKETING AND DISTRIBUTION AGREEMENT This marketing and distribution agreement ("Marketing Agreement") is made as of December ___, 1998 ("Effective Date") by and between PeopleSoft, Inc. ("PEOPLESOFT"), a Delaware corporation having its principal place of business at 4460 Hacienda Drive, Pleasanton, California 94588 and Momentum Business Applications, Inc., ("MOMENTUM") a Delaware corporation having its principal place of business at 1301 Harbor Bay Boulevard, Alameda California 94502. Whereas the parties have entered into a development and license agreement (the "DEVELOPMENT AGREEMENT") pursuant to which PeopleSoft has licensed PeopleSoft Technology to Momentum for the development by Momentum of certain products, including electronic business applications, analytic applications and industry-specific applications; and Whereas, the parties desire to set forth the various marketing and support requirements for the marketing and distribution of the Momentum Products by PeopleSoft as set forth herein. The parties agree as follows: 1. DEFINITIONS "Development Costs" means the costs incurred by Momentum in developing any Momentum Product. "Developed Technology" shall have the meaning assigned to it in the Development Agreement. "Documentation" means only technical publications relating to the use of the PeopleSoft Technology, such as reference, user, installation, training curriculum, systems administrator and technical guides, delivered by PeopleSoft to Momentum. "End User" means any end customer using the Momentum Products. "Enhancement Costs" means the fully burdened costs (including any costs incurred for third party contractors hired by PeopleSoft) that PeopleSoft incurs enhancements, fixes, updates or improvements which improve the functionality and operations of a Licensed Product. "Excluded Parties" means those entities that, at the end of the License Option Term, PeopleSoft reasonably believes are competitors of PeopleSoft. PeopleSoft shall provide a list of Excluded Parties to Momentum at such time. "First-Line Support" means only the routing of Momentum Products technical support telephone inquiries to the Second-Line Support organization. First-Line Support includes responsibility for handling all PeopleTools technical support inquiries received from End Users. "Generally Available Product" means a Momentum Product, which has successfully completed PeopleSoft release testing (in accordance with PeopleSoft's then current PeopleSoft release model) with the level of functionality specified in such product's work plan and which becomes commercially available for production use. "License Option" means PeopleSoft's right to acquire an exclusive license for the commercialization of a Momentum Product pursuant to the section entitled "License Option" hereof. "License Option Term" means the period from which a work plan for a product is approved by Momentum pursuant to the Development Agreement until the end of the earlier of (i) the thirtieth (30th) day after such Momentum Product becomes a Generally Available Product or (ii) the expiration of the Purchase Option. "Licensed Product" means a Momentum Product for which PeopleSoft has exercised its License Option. "Momentum Products" shall have the meaning assigned to it in the Development Agreement. "Net Revenues" means the actual amount of license fees received by PeopleSoft, either from an End User or from a third party, for an End User's use of a Momentum Product or Licensed Product and any Upgrades and Updates CONFIDENTIAL Page 1 of 13 2 thereto, net of sales, technology withholding or VAT taxes, imputed fees for Support Services (such as bundled maintenance), consulting, Enhancement Costs (if applicable) and any third party PeopleSoft Technology royalties. "PeopleSoft Technology" shall have the meaning assigned to it in the Development Agreement. "PeopleTools" means all or any portion of the underlying technology in object or source code form, tools and documentation delivered by PeopleSoft to Momentum under the Development Agreement, and any related extensions or future enhancements, which serve as the foundation for all PeopleSoft software products. "Pre-Release License" means the license granted by Momentum to PeopleSoft in the section entitled Pre-Release Marketing and Distribution License/ Responsibilities. "Pre-Release Royalty" means the royalties payable by PeopleSoft as set forth in Exhibit A (section 2) for any Momentum Product commercialized by PeopleSoft prior to the exercise of the License Option. "Pre-Release Term" means the period from which a work plan for a product is approved by Momentum pursuant to the Development Agreement until the earlier of (1) PeopleSoft's exercise of the License Option, or (2) the end of the License Option Term. "Pricing Addendum" means the separately executed addendum to this Marketing Agreement which states the commercial terms of this Agreement. The Pricing Addendum is attached as Exhibit A and is hereby incorporated herein as part of this Marketing Agreement. "Product Payments" means the royalties payable by PeopleSoft as set forth in Exhibit A (section 3(a)) for any Licensed Product. "Purchase Option" means PeopleSoft's option to acquire all (but not less than all) of the outstanding Class A Common Stock of Momentum as set forth in Momentum's Restated Certificate of Incorporation. "Second-Line Support" means the general level of Support Services without First-Line Support obligations. "Support Services" means PeopleSoft's then current technical support and maintenance services for the PeopleSoft Technology. Support Services for general customers as of the Effective Date are as set forth in Exhibit B attached hereto. "Term" shall mean the exercise or expiration of the Purchase Option. "Upgrade" means the right to use the Momentum Products on a designated computer with increased processing power or an increase in the number of users to the next pricing increment and generally in each case a requirement for a payment of applicable Upgrade fees to PeopleSoft. "Updates" means one (1) copy of all published revisions and corrections to the printed documentation and one (1) copy of corrections and new releases of the Momentum Products. 2. PRE-RELEASE MARKETING AND DISTRIBUTION LICENSE/RESPONSIBILITIES 2.1 For the Pre-Release Term, Momentum grants to PeopleSoft the exclusive license to market and distribute pre-release versions of the Momentum Products to any End Users through its then current worldwide channel distribution system under the PeopleSoft name or otherwise pursuant to PeopleSoft's then current general licensing policies and methodologies. PeopleSoft shall use commercially reasonable efforts to promptly market and distribute such pre-release versions of Momentum Products to select customers in accordance with its standard practices. Any customers licensed by PeopleSoft during the Pre-Release Term must be reasonably acceptable to Momentum. 2.2 PeopleSoft shall have the right to use a reasonable number of copies of the Momentum Products, at no royalty to Momentum, for training, marketing, sales and support purposes. 2.3 PeopleSoft shall have complete responsibility, at its expense, for all marketing, pre-sales and sales activities associated with the Momentum Products. CONFIDENTIAL Page 2 of 13 3 2.4 PeopleSoft shall establish all then-current commercially reasonable local country suggested list prices for the Momentum Products and associated services. 3. ROYALTIES/PAYMENTS FOR PRE-RELEASE TERM 3.1 For each pre-release copy of Momentum Products licensed by PeopleSoft to an End User, PeopleSoft shall pay Momentum a royalty (the "Pre-Release Royalty") as set forth in the Pricing Addendum. PeopleSoft may license a reasonable number of royalty-free copies of the Momentum Products for End User evaluation purposes. 3.2 PeopleSoft shall pay to Momentum all royalties and fees due to Momentum under this Marketing Agreement within thirty (30) days of the end of the calendar quarter in which the Net Revenues are recorded by PeopleSoft. 4. SUPPORT SERVICES FOR PRE-RELEASE TERM 4.1 Momentum and PeopleSoft shall work together to provide joint post-sales support to End Users. 4.2 PeopleSoft shall provide all support for PeopleTools to End Users, commensurate with PeopleSoft's then current standard Support Services terms and conditions. A copy of the Support Services terms and conditions as of the Effective Date is included as Exhibit B. 4.3 PeopleSoft shall provide the End User with First-Line Support and Second-Line Support for the Momentum Products and shall retain all associated support revenues. PeopleSoft's responsibility to provide Updates and enhancements to End Users is limited only to the distribution of any releases, Updates and enhancements provided to PeopleSoft by Momentum, as well as the distribution to End Users of any new releases, Updates or enhancements of PeopleTools. 5. SUPPORT SERVICES FEES FOR PRE-RELEASE TERM 5.1 As of the Effective Date, PeopleSoft incorporates the first year of Support Services fees into the license fee. Currently, Support Services fees are listed at eighteen percent (18%) of the software license fee. 5.2 PeopleSoft shall retain all revenues from such Support Services as set forth in Exhibit A. 6. LICENSE OPTION 6.1 Momentum hereby grants to PeopleSoft a License Option to acquire a license to exclusively commercialize each Momentum Product . This License Option shall be exercisable on a worldwide basis at any time during the License Option Term. Upon exercise of the License Option, PeopleSoft shall obtain a perpetual, exclusive license (with the right to sublicense through multiple tiers of sublicense) to develop, make, have made, use, support, market, enhance and distribute the Licensed Product subject to the obligation to make Product Payments as set forth in Exhibit A (section 3 (a)) hereto. PeopleSoft shall also have the right to buyout the Product Payments as set forth in Exhibit A (Section 3 (b)). 6.2 Upon exercise of the License Option with respect to a Momentum Product, sections 2, 3, 4 and 5 above shall no longer apply with respect to such Momentum Product and PeopleSoft shall assume sole and full responsibility for any product development, support, training, consulting, bug fixes, modifications and enhancements with respect to the Licensed Product. 6.3 At the end of the License Option Term for a Momentum Product, if PeopleSoft has not exercised its License Option with respect to said Momentum Product, (1) PeopleSoft shall grant to Momentum a perpetual, nonexclusive license to market, distribute and sublicense the PeopleSoft Technology, only to the extent incorporated into such Momentum Product, to all third parties that are not then Excluded Parties, subject to the terms and conditions of PeopleSoft's then-standard end user license agreement. The royalty rate payable by Momentum to PeopleSoft for such distribution shall be substantially similar to PeopleSoft's then current royalty rates which PeopleSoft receives from third parties marketing PeopleSoft Technology; and (2) Momentum shall grant to PeopleSoft a perpetual, royalty-free, non-exclusive license to (a) license CONFIDENTIAL Page 3 of 13 4 the then most recent version of such Momentum Product, and any new releases, Updates or enhancements thereto, to any End Users granted licenses by PeopleSoft pursuant to the Pre-Release License, and (b) use a reasonable number of copies of Momentum Products and any new releases, Updates or enhancements thereto, for internal use, training and support purposes. 7. DISTRIBUTION LIMITATION Regardless of whether PeopleSoft exercises the License Option, PeopleSoft warrants that it will not, without the prior written consent, if required, of the U.S. Department of Commerce, export directly or indirectly Momentum Products to any prohibited country specified in then current U.S. Department of Commerce Export Administration Regulations. With regard to the license grant in section 6.3(2) above, Momentum warrants that it will not, without the prior written consent, if required, of the U.S. Department of Commerce, export directly or indirectly PeopleSoft Technology incorporated into Momentum Products to any prohibited country specified in then current U.S. Department of Commerce Export Administration Regulations. 8. LICENSE TO USE MOMENTUM TRADEMARKS AND TRADENAMES Regardless of whether PeopleSoft exercises the License Option, Momentum provides to PeopleSoft a royalty-free license to use Momentum's tradenames and trademarks which relate to the Momentum Products in connection with PeopleSoft's distribution of the Momentum Products or marketing materials associated with this Marketing Agreement, provided PeopleSoft clearly identifies Momentum's ownership of such names or marks. 9. TERM 9.1 This Marketing Agreement shall expire at the Term. 9.2 This Marketing Agreement shall automatically terminate in the event PeopleSoft acquires all ownership interest to Momentum. 10. RECORDS AND REPORTS/PAYMENTS 10.1 PeopleSoft shall keep full, true and accurate records and accounts in accordance with generally accepted accounting practices to show the amount of fees payable to Momentum. These records and accounts shall include for each copy of Momentum Products distributed: a. the name and address of the End User; b. the date of shipment and receipt of payments from End Users; c. the computation of the net licenses fee; and d. a copy of each signed end user license agreement. 10.2 PeopleSoft shall keep these records at PeopleSoft's principal place of business. Momentum shall have the right to conduct an audit of such records once per calendar year upon the giving of at least five (5) business days prior written notice to PeopleSoft to determine PeopleSoft's compliance with this Marketing Agreement. Momentum shall bear the expenses of the audit, however, in the event any such audit reveals that PeopleSoft has understated the amount of fees that PeopleSoft is obligated to pay Momentum under this Marketing Agreement by more than five percent (5%), PeopleSoft shall pay, in addition to any fees contractually due, all reasonable costs and fees associated with the audit. 10.3 Thirty (30) days after the end of each calendar quarter, PeopleSoft shall develop, implement and provide Momentum with a quarterly royalty report in accordance with its standard reporting practices that is structured as a summary report with availability to detailed backup information. The expectation is that key information concerning the Momentum Products module(s) licensed, customer name, ship date, quantity, standard list price, actual fee received, reductions for bundled services, Net License Fee and actual royalty rate will be provided in the quarterly report provided to Momentum. 10.4 All payments shall be made in U.S. dollars. CONFIDENTIAL Page 4 of 13 5 11. TITLE AND PROTECTION/NON DISCLOSURE 11.1 All right, title and interest to the Momentum Products shall vest in Momentum, subject to PeopleSoft's underlying right, title and interest in and to the PeopleSoft Technology. 11.2 PeopleSoft shall affix, to any media containing a copy of all or any portion of the Momentum Products and to each whole or partial copy of documentation, all copyright, proprietary information notices and restricted rights legends as were affixed to the original media or documents. All Momentum Products Distributed to the federal government shall contain the correct "Restricted Rights" legend as defined in DFAR 52.227-7013 (c) (1) (ii) or pertinent subsequent citation. 11.3 Title to the physical media for the Momentum Products vests in PeopleSoft upon delivery. The Momentum Products contains valuable proprietary information, and other than as set forth herein, PeopleSoft shall not disclose any such information to anyone other than those of its employees or consultants under nondisclosure obligations who have a need to know for purposes consistent with this Marketing Agreement. PeopleSoft shall affix, to each full or partial copy of Momentum Products made by PeopleSoft, all copyright and proprietary information notices as affixed to the original. 11.4 All information (1) clearly marked "confidential" by either party under this Marketing Agreement and provided to the other party, or (2) which should reasonably be understood to be confidential in nature by the receiving party, shall be treated as confidential and shall not be disclosed, orally or in writing by the receiving party to any third party without the prior written consent of the disclosing party. 12. LIMITED WARRANTY 12.1 Momentum represents that each of the Momentum Products does not infringe any patent, copyright or other third party intellectual property rights when used in accordance with the published specifications for such Momentum Product. Momentum represents that each of the Momentum Products and all subsequent major releases thereon will perform substantially in accordance with the corresponding documentation for such Momentum Product for a period of one (1) year from the date of installation. Momentum does not represent that any of the Momentum Products is error-free. In the event that any of the Momentum Products does not perform substantially in accordance with the published specifications for such Momentum Product, Momentum's sole obligation is limited to repair or replacement of such defective Momentum Product in accordance with its then current support services terms and conditions, provided PeopleSoft notifies Momentum of the deficiency within the one-year period and provided PeopleSoft has installed all Momentum Products updates provided by Momentum's support services. 12.2 MOMENTUM DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 12.3 PeopleSoft represents that the PeopleSoft Technology does not infringe any patent, copyright or other third party intellectual property rights when used in accordance with the published specifications. PeopleSoft represents that the PeopleSoft Technology and all subsequent major releases thereon will perform substantially in accordance with the corresponding documentation for a period of one (1) year from the date of installation at Momentum. PeopleSoft does not represent that the PeopleSoft Technology is error-free. In the event the PeopleSoft Technology does not perform substantially in accordance with the published specifications, PeopleSoft's sole obligation is limited to repair or replacement of the defective PeopleSoft Technology in accordance with its then current Support Services terms and conditions, provided Momentum notifies PeopleSoft of the deficiency within the one-year period and provided Momentum has installed all PeopleSoft Technology updates provided by PeopleSoft's Support Services. 12.4 PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 13. DISCLAIMER OF CONSEQUENTIAL DAMAGES/LIMITATION OF LIABILITY CONFIDENTIAL Page 5 of 13 6 13.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 13.2 EXCLUDING DAMAGES INCURRED UNDER THE ARTICLE ENTITLED "INDEMNIFICATION", EACH PARTY'S liability for damages under this MARKETING Agreement shall in no event exceed the AMOUNT OF ROYALTIES THAT PEOPLESOFT HAS PAID TO MOMENTUM IN THE PRECEDING TWELVE (12) MONTHS. the parties agree to the allocation OF LIABILITY RISK WHICH IS SET FORTH IN THIS SECTION. 14. INDEMNIFICATION 14.1 Momentum shall indemnify and defend PeopleSoft against any claims that the components of the Momentum Products (excluding PeopleSoft Technology) infringes any patent, copyright or trade secret; provided that Momentum is given prompt notice of such claim and is given information, reasonable assistance, and authority to defend or settle the claim. In the defense or settlement of the claim, Momentum may obtain for PeopleSoft the right to continue using and marketing the Momentum Products or replace or modify Momentum Products so that it becomes noninfringing while giving substantially equivalent performance. Momentum shall have no liability if the alleged infringement is based on: (i) a modification of Momentum Products by anyone other than Momentum or its subcontractors, if any; or (ii) the use of the Momentum Products other than in accordance with the documentation provided by Momentum. 14.2 PeopleSoft shall indemnify and defend Momentum against any claims that the PeopleSoft Technology infringes any patent, copyright or trade secret; provided that PeopleSoft is given prompt notice of such claim and is given information, reasonable assistance, and authority to defend or settle the claim. In the defense or settlement of the claim, PeopleSoft may obtain for Momentum the right to continue using the PeopleSoft Technology or replace or modify PeopleSoft Technology so that it becomes noninfringing while giving substantially equivalent performance. PeopleSoft shall have no liability if the alleged infringement is based on: (i) a modification of PeopleSoft Technology by anyone other than PeopleSoft; or (ii) the use of PeopleSoft Technology other than in accordance with the Documentation. 15. DEFAULT 15.1 It shall be an event of default if either party (1) fails to perform any of its material obligations (including any payment obligations) under this Marketing Agreement or otherwise materially breaches this Marketing Agreement and such material breach remains uncured for more than thirty (30) days after receipt of written notice specifying the material breach thereof, or (2) enters into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or similar arrangement for the benefit of its creditors. 15.2 If an event of default occurs, the nondefaulting party in addition to any other rights available to it under law or equity, may terminate this Marketing Agreement by written notice to the defaulting party. In the event this Marketing Agreement is terminated by PeopleSoft in connection with Momentum's breach of a material obligation under this Marketing Agreement, PeopleSoft shall be entitled to receive, as liquidated damages, the Available Funds. If PeopleSoft reasonably believes that such liquidated damages are inadequate, then PeopleSoft will be entitled to specific performance of Momentum's obligations under this Marketing Agreement in connection with such breach. Remedies shall be cumulative and there shall be no obligation to exercise a particular remedy. 16. TERMINATION 16.1 Any licenses granted pursuant to Sections 6.1, 6.3 and 8 and any sublicenses granted pursuant to Section 2.1 shall survive the termination of this Agreement. 16.2 Within thirty (30) days of termination, PeopleSoft shall pay Momentum all sums due under this Marketing Agreement. CONFIDENTIAL Page 6 of 13 7 16.3 Prior to termination, the parties shall meet, discuss and agree on a transition plan to address technical support plans for existing End Users and then-current commercially reasonable payments from Momentum to PeopleSoft for continuing PeopleTools Support Services from PeopleSoft directly to Momentum. 16.4 In addition to this section, the sections entitled "Distribution Limitation," "Royalties/Payments," "Records and Reports/Payments," "Title and Protection/Non-disclosure," "Limited Warranty," "Disclaimer of Consequential Damages/Limitation of Liability," and "Indemnification," shall survive termination of this Marketing Agreement. 17. NOTICES All notices shall be in writing and hand-delivered or sent by first class mail, overnight mail, courier, or transmitted by facsimile (if confirmed by such mailing), to the addresses indicated on the first page of this Agreement, or such other address as either party may indicate by at least ten (10) days prior written notice to the other party. Notices to PeopleSoft shall be addressed to the Office of the General Counsel, Corporate Legal Department. 18. GENERAL 18.1 This Marketing Agreement is made in and shall be governed by the laws of the State of California, excluding choice of law principles. Any actions brought to enforce any of the provisions of this Marketing Agreement shall be fully and finally resolved by binding arbitration under the rules of the American Arbitration Association conducted by a mutually acceptable independent third party in San Francisco, California. Except for actions for breach of PeopleSoft's proprietary rights in PeopleSoft Technology, or Momentum's proprietary rights in the Momentum Products or Developed Technology, no action regardless of form, arising out of this Marketing Agreement may be brought by either party more than one year after the cause of action has accrued. 18.2 The section headings herein are provided for convenience only and have no substantive effect on the construction of this Marketing Agreement. If any provision of this Marketing Agreement is held to be unenforceable, this Marketing Agreement shall be construed without such provision. 18.3 The failure by a party to exercise any right hereunder shall not operate as a waiver of such party's right to exercise such right or any other right in the future. Neither party shall be liable to the other for any failure to perform due to causes beyond its reasonably foreseeable control. 18.4 Neither party shall assign this Marketing Agreement, delegate any duty or assign any right hereunder without the prior written consent of the other (such consent not to be unreasonably withheld) and any such attempted assignment or delegation shall be void. 18.5 No agency, partnership or employment is created by this Marketing Agreement. Momentum shall not use the name of PeopleSoft in any advertising, public relations or media release without the prior written consent of PeopleSoft. CONFIDENTIAL Page 7 of 13 8 18.6 This Marketing Agreement replaces and supersedes any prior verbal understandings, written communications, and constitutes the entire agreement between the parties concerning the subject matter hereof. This Marketing Agreement may be amended only by a written document executed by a duly authorized representative of each of the parties. This Marketing Agreement may be executed in counterparts. IN WITNESS WHEREOF, the parties have executed this Marketing Agreement as of the Effective Date. MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC. - ----------------------------------- -------------------------------- Authorized Signature Authorized Signature - ----------------------------------- -------------------------------- Printed Name and Title Printed Name and Title CONFIDENTIAL Page 8 of 13 9 EXHIBIT A PRICING ADDENDUM TO MARKETING AND DISTRIBUTION AGREEMENT This pricing addendum ("Pricing Addendum") is part of the Marketing and Distribution Agreement ("Marketing Agreement") between PeopleSoft and Momentum. 1. DEFINITIONS Unless otherwise defined herein, capitalized terms used in this Pricing Addendum shall have the same meaning as those referenced in the Marketing Agreement. 2. PRE-RELEASE ROYALTY THE FOLLOWING SECTION SHALL APPLY ONLY TO MOMENTUM PRODUCTS COMMERCIALIZED BY PEOPLESOFT PRIOR TO ITS EXERCISE OF THE LICENSE OPTION. PeopleSoft shall establish competitive list prices for the Momentum Products in accordance with then-current market conditions. For each Momentum Product commercialized by PeopleSoft or its channel partners for use by End Users, prior to the exercise or the License Option with respect to such Momentum Product, PeopleSoft shall pay Momentum SIX PERCENT (6%) of Net Revenues. If PeopleSoft products and Momentum Products are licensed under the same license agreement as a packaged solution for use by an End User, the Net Revenues payable to Momentum will be appropriately pro-rated based on the associated weight of each component's respective list price. 3. PRODUCT PAYMENTS AND PRODUCT PAYMENTS BUYOUT OPTION THE FOLLOWING SECTION SHALL APPLY ONLY TO MOMENTUM PRODUCTS COMMERCIALIZED BY PEOPLESOFT SUBSEQUENT TO ITS EXERCISE OF THE LICENSE OPTION. (a) Product Payments. PeopleSoft will make Product Payments to Momentum with respect to each Licensed Product equal to the sum of (i) 1% of Net Revenues plus (ii) an additional 0.1% of such Net Revenues for each $1 million of Development Costs with respect to such Licensed Product; provided, however, that the royalty rate shall not exceed six percent (6%) of Net Revenues. Subject to PeopleSoft's product payment buy-out option described in section 3(b) below, Product Payments will be payable until 10 years after General Availability of the Licensed Product. The parties agree that if PeopleSoft chooses to have a third party distribute a Licensed Product, the parties will negotiate an appropriate increase in the royalty rate paid by PeopleSoft. (b) Product Payments Buyout Option PeopleSoft will have the right to buy-out Momentum's right to receive Product Payments for any Licensed Product. The buy-out option may be exercised for any Licensed Product at any time beginning twelve months after the Licensed Product is declared a Generally Available Product. The buy-out price will be 15 times the payment made by or due from PeopleSoft to Momentum with respect to sales of such Licensed Product for the four quarters immediately preceding the quarter in which the buy-out option is exercised or, in the event that such Licensed Product has not been a License Product for all of each of such four quarters, the buy-out price will be 15 times the annualized payment for such Licensed Product. 4. SUPPORT SERVICES FEES CONFIDENTIAL Page 9 of 13 10 As of the Effective Date, the parties' expectation is that as PeopleSoft collects Support Services revenue from its End Users, (either on a stand-alone basis or as part of the license fee revenue) and PeopleSoft retains all such revenues. 5. PRECEDENCE AND AMENDMENT In the event of conflict, this Pricing Addendum shall take precedence over the Marketing Agreement. This Pricing Addendum and the Marketing Agreement and associated Exhibits are the entire agreement between the parties concerning the subject matter herein and may only be modified by a written amendment executed by the parties authorized signatories. This Pricing Addendum is effective as of the Effective Date. MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC. - ------------------------------------ -------------------------------- Authorized Signature Authorized Signature - ----------------------------------- -------------------------------- Printed Name and Title Printed Name and Title CONFIDENTIAL Page 10 of 13 11 EXHIBIT B SOFTWARE SUPPORT SERVICES TERMS AND CONDITIONS Software Support Services Terms and Conditions ("SUPPORT SERVICES") are referenced in and incorporated into the Software License and Services Agreement ("Agreement") between PeopleSoft and Licensee. Capitalized terms have the same meaning as they do in the Agreement. 1. COVERAGE PeopleSoft provides Licensee with Support Services for the Software at the Site in exchange for payment of the applicable Support Services fees. Only designated Licensee employees may contact PeopleSoft for the provision of Support Services. Licensee may acquire Support Services for additional Licensee sites by paying PeopleSoft the applicable annual secondary site Support Services fee. 2. SOFTWARE MAINTENANCE PeopleSoft will periodically issue the following technical and functional improvements to Software: (1) Fixes to Errors; (2) Updates; and (3) Enhancements 3. PRIORITY LEVEL OF ERRORS PeopleSoft shall address Errors in accordance with the following protocols: Priority 1-Critical Level: PeopleSoft promptly: (1) designates PeopleSoft specialist(s) to correct Error; (2) provides expanded communication on correction status; and (3) escalates troubleshooting a Workaround or Fix. Priority 2-Urgent Level: PeopleSoft promptly: (1) designates PeopleSoft specialist(s) to correct Error; (2) provides ongoing communication on correction status; and (3) initiates troubleshooting a Workaround or Fix. Priority 3-Standard Level: PeopleSoft: (1) assigns PeopleSoft specialist(s) to commence correction of Error; and (2) exercises all commercially reasonable efforts to include the Fix for Error in the next Update. Priority 4-Base Level: PeopleSoft: (1) assigns Error to case management and tracking; and (2) may include the Fix for Error in the next Update. 4. TELEPHONE SUPPORT PeopleSoft provides telephone support concerning Software installation and use. Except for designated holidays, standard telephone support hours are Monday through Friday, 4:00 a.m. to 6:30 p.m., Pacific Time. Telephone Support is also available 24-hours-a-day, 7-days-a-week for in-production customers who need to resolve critical production problems outside of standard support hours. 5. ACCOUNT MANAGER PeopleSoft assigns an account manager to assist with the support relationship between PeopleSoft and Licensee. Licensee will reimburse PeopleSoft for the reasonable travel and living expenses of the account manager for on-site support activity. 6. PEOPLESOFT CUSTOMER CONNECTION a. PeopleSoft Customer Connection is an on-line, self-service system that features postings by PeopleSoft and customers regarding technical and non-technical topics of interest. Licensee may access PeopleSoft Customer Connection via Internet access at its own expense. b. Software Updates, Enhancements, and Fixes may be delivered to Licensee through PeopleSoft Customer Connection, or by mail from PeopleSoft on Licensee's written request. PeopleSoft information posted to Customer Connection is confidential and proprietary and shall only be used in connection with Licensee's use of the Software and informational communications with other PeopleSoft Customer Connection participants. PeopleSoft shall have the right to publish, modify and distribute any information or software provided by Licensee to Customer Connection in all languages. Licensee shall not use PeopleSoft Customer Connection for advertising or public relations purposes and shall only submit information to PeopleSoft Customer Connection that Licensee owns or has permission to use in such manner. c. To diminish exposure to software viruses, PeopleSoft tests and scans all information entered by PeopleSoft for software viruses prior to submitting it to PeopleSoft Customer Connection. Licensee shall also use a reliable virus detection system on any software or information posted to PeopleSoft Customer Connection, utilize back-up procedures, monitor access to PeopleSoft Customer Connection, promptly notify PeopleSoft of any virus detected within Licensee's systems associated with PeopleSoft Customer Connection and generally exercise a reasonable degree of caution when utilizing information from PeopleSoft Customer Connection. PeopleSoft does not warrant that PeopleSoft Customer Connection will operate without interruption or without errors. CONFIDENTIAL Page 11 of 13 12 PeopleSoft reserves the right to modify or suspend PeopleSoft Customer Connection service in connection with PeopleSoft's provision of Support Services. PeopleSoft assumes no responsibility for anything posted by anyone other than PeopleSoft, including, but not limited to, information about PeopleSoft software, modification code, or portions thereof. 7. FEES The initial period of Support Services for the Site is indicated in the Schedule and included in the Software license fee; thereafter, in the event Licensee elects to continue to receive Support Services, Licensee shall pay PeopleSoft the annual Support Services fee as set forth in the Schedule. Support Services are billed on an annual basis, payable in advance. Unless Licensee has provided proof of tax-exempt status, Licensee is responsible for all taxes associated with Support Services, excluding taxes based on PeopleSoft's income. Licensee's payment shall be due within thirty (30) days of receipt of the PeopleSoft invoice. Should Licensee elect not to renew Support Services and subsequently requests Support Services, PeopleSoft shall reinstate Support Services only after Licensee pays PeopleSoft the annual then-current fee plus all cumulative fees that would have been payable had Licensee not suspended Support Services. 8. TERM AND TERMINATION Unless otherwise expressly set forth in the Agreement, Support Services shall be provided for a period of one (1) year from the Schedule Effective Date, and shall be extended each additional year unless terminated by either party. Each one (1) year term shall commence on the anniversary of the Schedule Effective Date. Either party may terminate the Support Services provisions at the end of any support term by giving the other party written notice at least ninety (90) days prior to the end of the term. If Licensee fails to make payment pursuant to the section titled "Fees", or Licensee breaches the Support Services provisions and such breach has not been cured within thirty (30) days of receipt of written notice of breach, PeopleSoft may suspend or cancel Support Services. 9. EXCLUSIONS PeopleSoft shall have no obligation to support: a. Substantially altered, damaged or modified Software; b. Software that is not the then-current release, or a Previous Sequential Release; c. Errors caused by Licensee's negligence, hardware malfunction, or other causes beyond PeopleSoft's reasonable control; d. Software installed in a hardware or operating environment not supported by PeopleSoft; and e. Third party software not licensed through PeopleSoft. 10. GENERAL All Updates, Enhancements and Fixes provided to Licensee are subject to the terms and conditions of the Agreement. PeopleSoft may modify Support Services on an annual basis to reflect current market condition upon reasonable notice. 11. DEFINITIONS "ENHANCEMENT" means a technical or functional addition to the Software delivered with a new Software release to improve functionality and/or operations. "ERROR" means a Software malfunction that degrades the use of the Software. "FIX" means the repair or replacement of source, object or executable code Software versions to remedy an Error. "PREVIOUS SEQUENTIAL RELEASE" means a Software release for a particular operating environment that has been replaced by a subsequent Software release in the same operating environment. PeopleSoft will support a Previous Sequential Release for a period of eighteen (18) months after release of the subsequent release. Multiple Previous Sequential Releases may be supported at any given time. "PRIORITY 1" means an Error that renders the Software inoperative or causes the Software to fail catastrophically. "PRIORITY 2" means an Error that affects performance of the Software and prohibits Licensee's use of the Software. CONFIDENTIAL Page 12 of 13 13 "PRIORITY 3" means an Error that affects performance of the Software, but does not prohibit Licensee's use of the Software. "PRIORITY 4" means an Error that causes only a minor impact on the use of the Software. "UPDATE" means all published revisions to the Documentation and one (1) copy of the new Software release not designated by PeopleSoft as new products or functionality for which it charges separately. "WORKAROUND" means a change in the procedures followed or data supplied to avoid an Error without significantly impairing Software performance. CONFIDENTIAL Page 13 of 13 EX-10.3 9 FORM OF SERVICES AGREEMENT 1 EXHIBIT 10.3 SERVICES AGREEMENT THIS SERVICES AGREEMENT ("Services Agreement") entered into as of _________________, 1998 ("Effective Date") by and between PEOPLESOFT, INC. ("PEOPLESOFT") a Delaware corporation with a place of business 4460 Hacienda Drive, Pleasanton, California 94588 and MOMENTUM BUSINESS APPLICATIONS, INC.("MOMENTUM"), a Delaware corporation with a principal place of business at 1301 Harbor Bay Blvd., Alameda, California 94502. (collectively referred to as the "Parties"). WHEREAS, Momentum desires to obtain certain employee benefits, facilities, network services and administrative services from PeopleSoft and PeopleSoft is willing to furnish or make such services available to Momentum; and WHEREAS, in order to formalize the relationship between Momentum and PeopleSoft, whereby PeopleSoft provides services of the type referred to above, Momentum and PeopleSoft desire to enter into this Services Agreement. NOW, THEREFORE, in consideration of the above and the mutual promises contained herein, the Parties agree as follows: 1. DEFINITIONS 1.1 "Administrative Services" shall mean general administrative services including corporate management, human resources, finance, treasury, MIS, and legal services. 1.2 "Facilities Services" shall mean general services relating to the provision of facilities including office space, utilities, telephone, postage and delivery expenses, leasehold improvements, and facility administration. 1.3 "Network Services" means general services relating data processing including computers, servers, third party software, hardware and software maintenance, computer supplies and network operations staff. 2. SERVICES. PeopleSoft will provide to Momentum those particular employee benefits, facilities services, network services and administrative services (the "Services"), as described in and in consideration of the respective charges set forth in the Section entitled "Charges". In the event PeopleSoft does not exercise its Purchase Option as set forth in Momentum's Articles of Incorporation , Momentum shall have the right thereafter to decline any or all of the Services and PeopleSoft shall no longer have an obligation to continue to provide the Services. PeopleSoft cannot unilaterally terminate its obligation to provide Services to Momentum. 3. TERM. This Services Agreement shall continue in force until 31 December 2002, and thereafter shall be renewed automatically for successive one-year terms during the term of the Development and License Agreement executed by the Parties on the Effective Date (the "Development Agreement") unless terminated sooner by mutual written consent of the Parties or pursuant to Section 2 above or upon sixty (60) days written notice from Momentum to PeopleSoft. 4. CHARGES. a. Direct Costs. Momentum shall be responsible for payment of all direct costs of its operations and the Services related thereto ("Direct Costs"). Direct Costs shall include, but not be limited to, costs associated with the following: (i) employee salaries and benefits, (ii) professional services, including costs associated with and to the extent consulting services are actually provided by a PeopleSoft employee (excluding management) to Momentum, (iii) office supplies, (iv) costs of acquisition of capital assets acquired by Momentum, (v) bad debts, (vi) insurance, (vii) taxes, and (viii) regulatory fees for Momentum. b. Employee Benefits. PeopleSoft shall use all reasonable efforts to provide Employee Benefits to Momentum employees that are substantially equivalent to those provided to PeopleSoft employees. In the event that full Confidential Page 1 of 3 2 and complete participation by Momentum employees in the PeopleSoft employee benefits program(s) is either not possible or not commercially feasible, PeopleSoft shall use all reasonable efforts to provide Employee Benefits to Momentum employees which are substantially equivalent to those provided to PeopleSoft employees pursuant to such PeopleSoft employee benefits program(s). For purposes of this Services Agreement, "Employee Benefits" shall consist solely of (i) an employee health care program which provides medical, dental, vision, and long term disability coverage and (ii) a non-employer-matching 401(k) plan or similar retirement plan. Momentum shall be responsible for payment of all direct costs of such Employee Benefits. In the event of joint participation of Momentum employees in any PeopleSoft benefit plans, Momentum shall be responsible for payment of its pro-rata share of any costs related thereto. c. Costs of Shared Services. In exchange for the provision of the Administrative Services, Facilities Services and Network Services, Momentum will pay PeopleSoft $______________ per quarter. 5. PERFORMANCE OF SERVICES. PeopleSoft shall perform the Services with substantially the same degree of care, skill and prudence customarily exercised with respect to its own employees; provided, however, that PeopleSoft shall have sole discretion in determining the precise scope and timing of the Services, and the manner of performance thereof. 6. LIMITATION OF LIABILITY. In furnishing Momentum with the Services as herein provided, PeopleSoft shall have the duty to act, and to cause its employees and agents to act, in a reasonably prudent manner, but neither PeopleSoft nor any of its officers, directors or agents shall be liable to Momentum or its creditors or shareholders for errors of judgment or for anything except willful misfeasance, bad faith or gross negligence in the performance of their duties or reckless disregard of their obligations and duties under the terms of this Services Agreement. Neither party will be responsible for general, special, indirect, incidental or consequential damages that the other party or any third party may incur or experience on account of entering into or relying on this Services Agreement. 7. ASSIGNMENT. Neither party shall assign or transfer any of its rights or obligations under this Services Agreement without the prior written consent of the other. 8. OTHER ACTIVITIES OF PEOPLESOFT. Momentum recognizes that PeopleSoft now renders and may continue to render management and other services to other companies that may or may not have policies and conduct activities similar to those of Momentum. PeopleSoft shall be free to render such advice and other services, and Momentum hereby consents thereto. PeopleSoft shall not be required to devote full time and attention to the performance of its duties under this Services Agreement, but shall devote only so much of its time and attention as it prudently deems reasonable or necessary for such purposes. 9. NOTICES. All notices, requests, demands and other communications provided for by this Services Agreement shall be in writing (including telecopier or similar writing) and shall be deemed to have been given at the time of hand-delivery or when mailed in any general or branch office of the United States Postal Service, enclosed in a registered or certified postpaid envelope, or sent by Federal Express or other similar overnight courier service, addressed to the address of the Parties stated first above or to such changed address as such party may have fixed by written notice. 10. GOVERNING LAW. This Services Agreement shall be governed by the laws of the State of California, excluding conflicts of law principles. 11. ARBITRATION. Any actions brought to enforce any of the provisions of this Services Agreement shall be fully and finally resolved by binding arbitration conducted by a mutually acceptable independent third party. 12. GENERAL. This Services Agreement constitutes the entire understanding between the Parties with respect to the subject matter hereof and supersedes all proposals, commitments, writings, negotiations and understandings, oral and written, and all other communications between the Parties relating to the subject matter of this Services Agreement. Confidential Page 2 of 3 3 This Services Agreement may not be amended or otherwise modified except in writing duly executed by both Parties. A waiver by any party of any breach or violation of this Services Agreement shall not be deemed or construed as a waiver of any subsequent breach or violation thereof. This Services Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. Should any part, term or condition hereof be declared illegal or unenforceable or in conflict with any other law, the validity of the remaining portions or provisions of this Services Agreement shall not be affected thereby, and the illegal or unenforceable portions of this Services Agreement shall be and hereby are redrafted to conform with applicable laws while leaving the remaining portions of this Services Agreement intact. No party shall be deemed to have breached this Services Agreement or be held liable for any failure or delay in the performance of all or any portion of its obligations under this Services Agreement if prevented from doing so by acts of God or the public enemy, fires, floods, storms, earthquakes, riots, strikes, lock-outs, wars and war-operations, restraints of government power or communication line failure or by reason of the judgment, ruling or order of any court or agency of competent jurisdiction or change of law or regulation subsequent to the execution of this Services Agreement. Subject to the provisions of Section 8 of this Services Agreement, this Services Agreement is solely for the benefit of the Parties and their respective successors and assigns. Nothing herein shall be deemed to provide any rights to any other entity or individual. Section headings are for convenience only and do not control or affect the meaning or interpretation of any terms or provisions of this Services Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Services Agreement as of the date first above written. MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC. - ----------------------------------- ------------------------------------ Authorized Signature Authorized signature - ----------------------------------- ------------------------------------ Printed name and signature Printed name and signature Confidential Page 3 of 3 EX-10.4 10 FORM OF DISTRIBUTION AGREEMENT 1 EXHIBIT 10.4 DISTRIBUTION AGREEMENT This Distribution Agreement (the "Agreement") is made as of the __ day of December 1998 between PeopleSoft, Inc., a Delaware corporation ("PeopleSoft"), and Momentum Business Applications, Inc. a Delaware corporation ("Momentum"). B A C K G R O U N D A. PeopleSoft is the holder of all of the issued and outstanding shares of capital stock of Momentum. PeopleSoft intends to contribute $300 million to Momentum, to license certain technology to Momentum, and to make other arrangements in order to establish Momentum as a separate enterprise for the purpose of developing certain software products and commercializing such products, most likely through licensing to PeopleSoft. B. PeopleSoft intends to distribute all of the Momentum Shares (as defined below) to the holders of its Common Stock. NOW, THEREFORE, the parties agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. 1.2 "Agent" shall mean Boston EquiServe, L.P., as distribution agent, appointed by PeopleSoft to distribute certificates representing the Momentum Shares pursuant to the Distribution. 1.3 "PeopleSoft/Momentum Agreements" shall mean this Agreement, the Development Agreement, the Marketing Agreement, the Services Agreement and the Purchase Option. 1.4 "PeopleSoft Common Stock" shall mean the Common Stock, par value $0.01 per share, of PeopleSoft. 1.5 "Commission" shall mean the Securities and Exchange Commission. 1.6 "Momentum Shares" shall mean the Class A Common Stock, par value $0.001 per share, of Momentum. 2 1.7 "Development Agreement" shall mean the Development and License Agreement dated as of the date hereof between PeopleSoft and Momentum. 1.8 "Distribution" shall mean the distribution of Momentum Shares to holders of record on December __, 1998 of PeopleSoft Common Stock immediately following completion of the transactions contemplated in Sections 2 and 3 hereof. 1.9 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about December __, 1998. 1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.11 "Form 8-A" shall mean the registration statement on Form 8-A to be filed by Momentum with the Commission to effect the registration of the Momentum Shares pursuant to the Exchange Act. 1.12 "Marketing Agreement" shall mean the Marketing and Distribution Agreement dated as of the date hereof between PeopleSoft and Momentum. 1.13 "Momentum Registration Statement" shall mean the registration statement on Form S-1 registering the issuance of Momentum Shares pursuant to the Distribution. 1.14 "PeopleSoft Registration Statement" shall mean the Registration Statement on Form S-3 registering shares of PeopleSoft Common Stock which may be issued upon exercise of the Purchase Option. 1.15 "Prospectus" shall mean the joint prospectus to be distributed to the holders of PeopleSoft Common Stock in connection with the Distribution relating to the PeopleSoft Registration Statement and the Momentum Registration Statement. 1.16 "Purchase Option" shall mean that certain option contained in Momentum's Restated Certificate of Incorporation pursuant to which PeopleSoft has the right to purchase all, but not less than all, of the outstanding Momentum Shares. 1.17 "Record Date" shall mean the close of business on December __, 1998 or such other date as is determined by the PeopleSoft Board of Directors or any committee thereof. 1.18 "Registration Statement" shall mean the registration statement on Form S-1 registering the issuance of Momentum Shares pursuant to the Distribution. 1.19 "Services Agreement" shall mean the Services Agreement dated as of the date hereof between PeopleSoft and Momentum. 1.20 "Securities Act" shall mean the Securities Act of 1933, as amended. -2- 3 2. Preliminary Action. 2.1 Registration Statement and Prospectus. Momentum has prepared and filed the Momentum Registration Statement with the Commission, and PeopleSoft has prepared and filed, the PeopleSoft Registration Statement with the Commission. Subject to the conditions set forth herein, PeopleSoft and Momentum shall use reasonable efforts to cause the both registration statements to become effective under the Securities Act. Momentum and PeopleSoft have prepared, and PeopleSoft shall cause to be mailed, the Prospectus to the record holders on the Record Date of PeopleSoft Common Stock and PeopleSoft. 2.2 Form 8-A. Momentum has prepared and filed with the Commission a Form 8-A which includes or incorporates by reference relevant portions of the Registration Statement. Subject to the conditions set forth herein, Momentum shall use reasonable efforts to cause the Form 8-A to become effective under the Exchange Act. 2.3 Blue Sky. Momentum shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the Distribution to permit the Momentum Shares to be distributed as described in the Prospectus. 2.4 Listing. Momentum has prepared and filed an application to effect the listing of the Momentum Shares on the Nasdaq National Market. Momentum shall use reasonable efforts to cause the Momentum Shares to be so listed. 2.5 No Representations or Warranties; Consents. Each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable laws. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state laws and all necessary consents, approvals, agreements, filings and applications. 3. Issue and Sale of Momentum Shares. 3.1 Purchase of Momentum Class A Common Stock. Prior to the Distribution Date, in consideration of, among other things, a $300 million capital contribution to Momentum by PeopleSoft, Momentum will issue to PeopleSoft that number of Momentum Shares such that PeopleSoft may distribute to holders of PeopleSoft Common Stock one Momentum Share for every 50 shares of PeopleSoft Common Stock held on the Record Date. PeopleSoft and Momentum acknowledge that all of the Momentum Shares held by PeopleSoft will be distributed by PeopleSoft to the holders of outstanding shares of PeopleSoft Common Stock. -3- 4 4. The Distribution. 4.1 The Distribution. Momentum shall take all steps required by PeopleSoft or the Agent to effect the Distribution. Prior to the Distribution, and upon receipt of the capital contribution described in Section 3 hereof, Momentum shall cause to be issued to PeopleSoft a certificate or certificates representing a sufficient number of Momentum Shares so that PeopleSoft may distribute one Momentum Share for every 50 shares of PeopleSoft Common Stock held on the Record Date. 4.2 Expenses of Distribution. All expenses related in any way to the Distribution, including without limitation all legal, financial advisory and accounting fees of PeopleSoft and Momentum, shall be borne by PeopleSoft. 5. Additional Assurances: Indemnification. 5.1 Mutual Assurances. PeopleSoft and Momentum agree to cooperate with respect to the implementation of the PeopleSoft/Momentum Agreements and to execute such further documents and instruments as may be necessary to confirm the transactions contemplated thereby. 5.2 Indemnification. If PeopleSoft exercises the Purchase Option, from and after such exercise, PeopleSoft shall indemnify, defend and hold harmless Momentum's officers and directors to the same extent as provided in Momentum's Restated Certificate of Incorporation. 5.3 Notice. Any person entitled to indemnification pursuant to Section 5.2 shall give PeopleSoft prompt notice in writing, in the manner set forth in Section 7.7 below, of any claim or demand made against such person for which such person may be entitled to indemnification under Section 5.2. 6. Conditions to Effectiveness of Distribution. The Distribution shall be subject to the satisfaction or waiver by PeopleSoft of the following conditions and the satisfaction or waiver by Momentum of the conditions in Sections 6.8 and 6.9: 6.1 Board Approval. The PeopleSoft/Momentum Agreements (including exhibits and schedules) shall have been approved by the Board of Directors of PeopleSoft and Momentum and shall have been executed and delivered by appropriate officers of PeopleSoft and Momentum, and the PeopleSoft Board of Directors (or a committee thereof) shall have declared a dividend of the Momentum Shares as of the Record Date to the holders of record of the PeopleSoft Common Stock. 6.2 Securities Law Compliance. The transactions contemplated hereby shall be in compliance with applicable federal and state securities laws, and the Momentum Registration Statement and PeopleSoft Registration Statement shall have been declared effective and no stop orders shall have been instituted with respect thereto under the Securities Act. -4- 5 6.3 Restated Certificate of Incorporation. The Restated Certificate of Incorporation of Momentum shall have been adopted by the Board of Directors, approved by PeopleSoft as sole stockholder of Momentum, and filed with the Delaware Secretary of State. 6.4 Form 8-A Effective. The Form 8-A shall have become effective under the Exchange Act. 6.5 Listing Application Approved. The Momentum Shares shall be approved for quotation on the Nasdaq National Market. 6.6 Fairness Opinion. PeopleSoft shall have received an opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to PeopleSoft, in form and substance satisfactory to PeopleSoft, to the effect that (i) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives described in the Prospectus of PeopleSoft and (ii) from a financial point of view, the Distribution is fair to the stockholders of PeopleSoft. 6.7 Permits and Licenses. Momentum shall have received such permits and licenses as may be necessary for the purpose of commencing operations contemplated by the PeopleSoft/Momentum Agreements. 6.8 Consents. Each of PeopleSoft and Momentum shall have received such consents, and shall have received executed copies of such agreements or amendments of agreements, as it shall deem necessary in connection with the completion of the transaction contemplated by this Agreement. 6.9 Other Instruments. All actions and other documents and instruments deemed necessary or advisable in connection with the transactions contemplated hereby shall have been taken or executed, as the case may be, in form and substance satisfactory to PeopleSoft and Momentum. 6.10 Legal Proceedings. No legal proceedings affecting or arising out of the transactions contemplated hereby or which could otherwise affect PeopleSoft or Momentum in a materially adverse manner shall have been commenced or threatened against PeopleSoft, Momentum or the directors or officers of either PeopleSoft or Momentum. 6.11 Material Changes. No material adverse change shall have occurred with respect to PeopleSoft or Momentum, the securities markets (either generally or with respect to PeopleSoft or Momentum) or general economic or financial conditions which shall, in the reasonable judgment of PeopleSoft, make the transactions contemplated by this Agreement inadvisable. 6.12 Other Conditions. Such other conditions as may be set by the PeopleSoft Board of Directors or any committee thereof in the resolutions authorizing the Distribution shall have been satisfied. -5- 6 7. Miscellaneous. 7.1 Waiver, Remedies and Amendment. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 7.2 Assignment. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that PeopleSoft may assign such rights and obligations hereunder to an Affiliate of PeopleSoft or to an Affiliate of PeopleSoft or to any person or entity with which PeopleSoft is merged or consolidated or which acquires all or substantially all of the assets of PeopleSoft. 7.3 Arbitration. (a) All disputes which may arise under, out of or in connection with this Agreement shall be settled by arbitration conducted in the city of San Francisco, state of California, in accordance with the then existing rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrators may be entered in any court having jurisdiction thereof. The parties hereby agree that service of any notices in the course of such arbitration at their respective addresses as provided for in Section 7.7 of this Agreement shall be valid and sufficient. (b) In any arbitration pursuant to this Section 7.3, the award shall be rendered by a majority of the members of a board of arbitration consisting of three members who shall be appointed by the parties jointly, or if the parties cannot agree as to three arbitrators within 30 days after the commencement of the arbitration proceeding, then one arbitrator shall be appointed by PeopleSoft and one arbitrator shall be appointed by Momentum within 60 days after the commencement of the arbitration proceeding. The third arbitrator shall be appointed by mutual agreement of such two arbitrators. In the event of failure of the two arbitrators to agree within 75 days after commencement of the arbitration proceeding upon the appointment of the third arbitrator, the third arbitrator shall be appointed by the American Arbitration Association in accordance with its then existing rules. Notwithstanding the foregoing, in the event that any party shall fail to appoint an arbitrator it is required to appoint within the specified time period, such arbitrator and the third arbitrator shall be appointed by the American Arbitration Association in accordance with its then existing rules. For purposes of this Section 7.3, the "commencement of the -6- 7 arbitration proceeding" shall be deemed to be the date upon which a written demand for arbitration is received by the American Arbitration Association from one of the parties. 7.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 7.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of California as applied to residents of that state entering into contracts to be performed in that state. 7.6 Headings. The headings set forth at the beginning of the various sections of this Agreement are for convenience and form no part of the Agreement between the parties. 7.7 Notices. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid. If to PeopleSoft: PeopleSoft, Inc. 4660 Hacienda Drive Pleasanton, California 94588 Attention: General Counsel If to Momentum: Momentum Business Applications, Inc. 1301 Harbor Bay Blvd. Alameda, California 94502 Attention: President All notices shall be deemed to be effective five days after the date of mailing. Either party may change the address at which notice is to be received by written notice pursuant to this Section 7.7. 7.8 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 7.9 Relationship of the Parties. For all purposes of this Agreement, Momentum and PeopleSoft shall be deemed to be independent contractors and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute Momentum and PeopleSoft as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. -7- 8 Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way to obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 7.10 Survival. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.7, 7.8 and this Section 7.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. -8- 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PEOPLESOFT, INC. By: ---------------------------------------------- Title: -------------------------------------------- MOMENTUM BUSINESS APPLICATIONS, INC. By: ---------------------------------------------- Title: -------------------------------------------- -9- EX-10.5 11 FORM OF OFFICERS' AND DIRECTORS' INDEMNITY AGRMT. 1 EXHIBIT 10.5 MOMENTUM BUSINESS APPLICATIONS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of _______________, 19__, by and between Momentum Business Applications, Inc, a Delaware corporation (the "Company"), and Name ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. Certain Definitions. (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 20% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding 2 or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to Momentum Business Applications, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Momentum Business Applications, Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim regarding any Indemnifiable Event and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (e) "Expense Advance" shall mean an advance payment of Expenses to Indemnitee pursuant to Section 3(a). (f) "Indemnifiable Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(c) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any 2 3 service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel. (j) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. Indemnification. (a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim by reason of (or arising in part out of) any Indemnifiable Event against Expenses, including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than five (5) business days after written demand by Indemnitee therefor is presented to the Company. (b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 2(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been 3 4 such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by the Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (c) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel, if desired by Indemnitee, shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (d) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 9 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than five (5) business days after written demand by Indemnitee therefor to the Company. 4 5 (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (not to be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such 5 6 defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be at the expense of the Company. 4. Additional Indemnification Rights; Nonexclusivity. (a) Scope. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws (as now or hereafter in effect) or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 9(a) hereof. (b) Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws (as now hereafter in effect), any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity. 5. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, Bylaw (as now or hereafter in effect) or otherwise) of the amounts otherwise indemnifiable hereunder. 6. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under 6 7 public policy to indemnify Indemnitee. 8. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 9. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for acts, omissions or transactions from which Indemnitee may not be indemnified under applicable law. (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous. (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 7 8 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action was made in bad faith or was frivolous. 14. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and 8 9 only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware. 18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 20. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. 9 10 IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. Momentum Business Applications, Inc. By: - ------------------------------------- Title: - ------------------------------------- Address: 1301 Harbor Bay Boulevard Alameda, California AGREED TO AND ACCEPTED INDEMNITEE: ---------------------------------------- (signature) Name ---------------------------------------- (name of Indemnitee) ---------------------------------------- ---------------------------------------- (address) 10 EX-23.1 12 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 11, 1998 with respect to the balance sheet of Momentum Business Applications, Inc. ("Momentum"), in the Amendment No. 1 to the Registration Statement (Form S-1 No. 333-67363) and related prospectus for the registration of 4,750,000 shares of Momentum Class A Common Stock. We also consent to the incorporation by reference therein of our report dated January 28, 1998, with respect to the consolidated financial statements of PeopleSoft, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, CA November 25, 1998 EX-23.2 13 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 11, 1998 with respect to the balance sheet of Momentum Business Applications, Inc. in the Amendment No. 1 to the Registration Statement (Form S-3 No. 333-09652) of PeopleSoft, Inc. ("PeopleSoft") and related prospectus for the registration of 4,000,000 shares of PeopleSoft Common Stock. We also consent to the incorporation by reference therein of our report dated January 28, 1998, with respect to the consolidated financial statements of PeopleSoft included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, CA November 25, 1998 -----END PRIVACY-ENHANCED MESSAGE-----