updated 10/4/2004 4:56:18 PM ET 2004-10-04T20:56:18

PeopleSoft Inc.'s board fired Craig Conway as its chief executive after hearing him explain why he made a misleading statement about the business software maker's ability to close sales while fighting rival Oracle Corp.'s $7.7 billion takeover bid.

Kicking off a two-week trial over PeopleSoft's anti-takeover defenses, company director Steven Goldby testified Monday that concerns about Conway's "situational ethics" contributed to the surprise decision to fire him late last week.

Conway, who marshaled PeopleSoft's 16-month resistance to Oracle until his ouster, misled industry analysts in September 2003 when he told them the hostile takeover bid wasn't a sales deterrent, Goldby said.

Realizing the statement wasn't true, PeopleSoft omitted Conway's misleading remarks in a "corrected" transcript filed with the Securities and Exchange Commission.

"We knew that Conway had misspoken and what he had said was untrue," Goldby testified under questioning by Oracle attorney Michael Carroll.

The misstatement apparently didn't get Conway into hot water until late last month, when Oracle provided PeopleSoft's board with a deposition that revealed the reasons for his deceit.

"I was promoting, promoting, promoting," Conway said during the deposition. At another point in the deposition, Conway said he decided to downplay the sales threat posed by Oracle's bid because he was "hoping for a self-fulfilling prophecy."

Under questioning, Goldby acknowledged that Conway's explanation for the misleading statements troubled Peoplesoft's board, contributing to the decision to replace him with the company's chairman and founder, Dave Duffield.

Goldby also testified that other factors contributed to Conway's ouster, although he didn't elaborate in court Monday.

Conway, who is still on Peoplesoft's board despite his firing as CEO, is scheduled to take the witness stand Wednesday.

The case before the Delaware Chancery Court centers on the countermeasures that PeopleSoft has used to thwart Oracle's overtures.

Oracle wants Judge Leo Strine to invalidate a common anti-takeover defense known as a "poison pill," as well as an unusual sales program that has guaranteed PeopleSoft customers $2 billion in refunds if a new owner makes dramatic changes in the company's product support.

Even if PeopleSoft prevails in the trial, investors are betting that the Pleasanton, Calif.-based company eventually will be sold at a price above Oracle's current all-cash offer of $21 per share.

PeopleSoft's shares fell 63 cents to close at $22.20 Monday on the Nasdaq Stock Market, where Oracle's shares fell three cents to $11.87.

Oracle's chances of completing the takeover improved substantially last month when a federal judge ruled that an acquisition of PeopleSoft wouldn't harm customers who buy business applications software _ the computer coding that automates a wide range of administrative tasks. Conway and PeopleSoft's board had cited antitrust concerns as one of the primary reasons for spurning Oracle.

Many analysts believe PeopleSoft will need to find an alternative buyer, or "white knight," if the company hopes to evade Redwood Shores-based Oracle. Evidence introduced during the antitrust trial earlier this summer indicated both Microsoft Corp. and IBM Corp. mulled a possible investment in PeopleSoft to thwart Oracle.

Microsoft CEO Steve Ballmer was quoted in Monday's edition of The Financial Times, however, as saying the software giant isn't interested in acquiring PeopleSoft.

Conway, a former Oracle executive, was widely seen as an obstacle to completing a sale because of his openly antagonistic attitude toward his former employer and former boss, Oracle CEO Larry Ellison.

In his testimony Monday, Goldby said PeopleSoft's five independent directors continue to oppose the Oracle takeover attempt.

Goldby also said PeopleSoft's board felt more confident about jettisoning Conway after the company delivered a strong third quarter that exceeded analyst expectations.

PeopleSoft provided more details about the just-completed quarter outside of court.

The company said it will earn 13 cents or 14 cents per share on revenue ranging between $680 million and $695 million for the three months ending in September. The mean estimates among analysts surveyed by Thomson First Call had been earnings of 14 cents per share on revenue of $652 million.

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