A PeopleSoft board member testified on Monday that former chief executive Craig Conway was fired in large part because of his 'reckless exaggeration' to Wall Street analysts when informing them last year that Oracle's offer to buy the company was no longer a disruptive influence.
Steven Goldby, who chairs PeopleSoft's governance committee, said that the board two weeks ago had reviewed Conway's deposition elaborating on his remarks. "I was...somewhat surprised by the discussion of situational ethics," Goldby told Delaware's Chancery Court, in the first day of a trial here in Wilmington, Delaware, that Oracle hopes will permit the acquisition to proceed.
Oracle launched its hostile takeover bid the for rival software maker in June 2003.
Oracle's lawyers played a five-minute videotape of the deposition, in which Conway acknowledged being less than honest during the conversation with analysts in September 2003. At the end of the video, after repeated questioning, Conway admitted that his remarks "weren't true".
PeopleSoft's board, in announcing Conway's firing last week, declined to give specifics as to why they terminated his employment, other than to note that it was a progressive loss of confidence in his leadership and that it had nothing to do with Oracle's takeover bid. Some sources have speculated that Conway's firing was allegedly for taking action repeatedly without proper notification to the board.
PeopleSoft had filed an amended transcript of the September 2003 remarks with the Securities and Exchange Commission shortly after the original document was filed.
Judge Leo Strine appeared surprised that PeopleSoft had made that move, saying it "strikes me as passing strange".
"Gerald Ford, I'm sure, wished he could revise what he said about Poland in 1976," the judge added.
Oracle's strategy appears to be to argue that Goldby and the other directors were not independent and did not give Oracle's acquisition offer adequate consideration. Goldby acknowledged that he had been approached to join the PeopleSoft board by Conway, who also asked paved the way for Goldby to join two other boards.
Goldby said that last week was not the first time that the board had considered firing Conway, saying "it really goes back further than that." But the board waited to terminate Conway until it had good news to deliver as well, he said. The company reported on Monday that third-quarter revenue would exceed Wall Street expectations.
When PeopleSoft announced Conway's departure last week, the board said it was not firing him "for cause", which allowed him to retain his multimillion severance package and accelerated vesting of stock options.
Goldby testified that the board had considered firing him for cause and that board representatives met last Thursday with the senior employment partner at law firm Gibson Dunn. But, he said, "we were advised" that the statements last autumn did not rise to a "material act of dishonesty".
In the deposition that was played in court, Conway seemed bitter about what he described as Oracle's attempt to sabotage PeopleSoft's analyst event. "Oracle found a way to upstage PeopleSoft. When we had something good to talk about, Oracle threw in a dirty trick," he said.
Oracle is seeking to remove PeopleSoft's shareholder rights plan, an anti-takeover measure commonly referred to as the poison pill, and one of the last remaining obstacles to Oracle's offer if the European Commission does not oppose the deal. In addition, Oracle is also asking the Chancery Court to prohibit PeopleSoft from continuing to offer its customer assurance programme, a programme that Oracle describes as a de facto poison pill but one that PeopleSoft views as necessary to continue to attract prospective customers.
Throughout its pre-trial brief, Oracle alleges various instances where Conway and the company's management team rejected Oracle's tender offer without proper board approval and launched various anti-takeover measures without appropriate board approval.
Oracle faces a challenge in removing the poison pill in Chancery Court, where proxy solicitors and attorneys who specialise in business note they do not recall any companies that have been successful in persuading the court to remove such a provision. A poison pill is designed to make a hostile takeover bid too expensive because it releases a flood of additional shares onto the market, making it impossible for an acquirer to purchase all the shares needed to gain a controlling stake in the company.
A poison pill, however, can be waived at any time a company's board determines it wants to enter "friendly" merger negotiations with a company. That change of heart in a hostile takeover attempt usually occurs when the buyer throws out an offer price the board "can't refuse", or if a dissident slate of directors, who are more favourable to the proposed merger, are later elected and replace the current board.
Oracle, in its pre-trial briefs, also alleges that PeopleSoft's management enacted the customer assurance program (CAP), without proper board approval or oversight.
PeopleSoft, in response to Oracle's takeover bid and as a means to reassure its current and prospective customers their multimillion dollar investments in their software would not be lost if Oracle succeeds in its attempt, added a clause to customers' contracts their money would be refunded several times over if several events occurred. One, Oracle acquires the company, and, two, the money they spent on their PeopleSoft licence would be refunded by two to five times the cost, if Oracle discontinues support for the PeopleSoft software two years after the customer signs a contract.
CNET News.com's Dawn Kawamoto contributed to this story.
