PEOPLESOFT INC, 10-K405, 2000-03-30

PEOPLESOFT INC
10-K405, 2000-03-30
PREPACKAGED SOFTWARE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-20710

PEOPLESOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 68-0137069
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

4460 HACIENDA DRIVE, PLEASANTON, CA 94588
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (925) 694-3000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing sale price of common
stock on March 14, 2000 as reported on the Nasdaq National Market, was
approximately $6.3 billion. Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of March 14, 2000 Registrant had 274,809,575 outstanding shares of
common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant's 2000 Annual Meeting of
Stockholders to be held May 30, 2000 are incorporated by reference in Part III
of this Form 10-K Report.

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References in this Report to the "Company" or "PeopleSoft" refer to
PeopleSoft, Inc., which was incorporated in Delaware in 1987 and its
subsidiaries. PeopleSoft, the PeopleSoft logo, PeopleTools, PS/nVision,
PeopleCode, PeopleBooks, Red Pepper, SCOPE, Vantive, the Vantive Logo, Vantive
Enterprise, Quickserver, Wayfarer and the Wayfarer logo are registered
trademarks and PSBN, PeopleTalk, and "We work in your world." are trademarks of
PeopleSoft, Inc. All other company and product names may be trademarks of their
respective owners.
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PART I

ITEM 1. BUSINESS

This Business section and other parts of this Form 10-K contain
forward-looking statements that involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Forward-looking
statements contained throughout this Annual Report include, but are not limited
to, those identified with a footnote (1) symbol.

GENERAL

PeopleSoft, Inc. ("PeopleSoft" or "the Company") designs, develops, markets
and supports a family of enterprise application software products for use
throughout large and medium sized organizations. These organizations include
corporations, higher education institutions, and federal, state, provincial and
local government agencies worldwide. PeopleSoft provides enterprise application
software for customer relationship management, human resource management,
financial accounting, distribution, supply chain management, along with a range
of industry-specific solutions. For more than 4,000 customers, PeopleSoft's
applications offer a high degree of flexibility, rapid implementation,
scalability across multiple databases and operating systems, and low cost of
ownership.

Incorporated in Delaware in 1987, PeopleSoft shipped its first software
product, a human resource management system, in December 1988. In 1992,
PeopleSoft introduced the first of a series of financial management and
accounting system software products, and, in 1994, it introduced the first of a
series of distribution and supply chain management products. Since that time,
PeopleSoft has introduced several additions to its existing product lines, plus
industry specific software products. These industry solutions include
manufacturing products, public sector financial management products, public
sector human resource management products, student administration products for
the higher education market, and human resource and financial management
products for the U.S. federal government market. In the first quarter of 1999,
PeopleSoft released its first analytical application products to support
management decision making.

On December 31, 1999, PeopleSoft merged with The Vantive Corporation
("Vantive"), a supplier of customer relationship management solutions, in a
business combination accounted for under the pooling of interests method of
accounting. At the time of the merger, Vantive was a worldwide leader in
customer relationship management solutions. Vantive's products enable companies
to sell, support and service customers through channels of interaction including
the Internet, call center, e-mail, or directly through sales and service
representatives. The Vantive Enterprise is an integrated software suite that
leverages the Internet to increase sales, marketing, call center, field service,
help desk and web service effectiveness.

PeopleSoft's software products are backed by PeopleSoft Advantage customer
service, a comprehensive consulting, education and technical support program.
PeopleSoft's consulting business offers a variety of services to its customers
including implementation assistance, project planning and strategy, upgrade
assistance, electronic commerce, workflow or on-line analytic processing
("OLAP") deployment, and minor software product enhancements. PeopleSoft's
education business offers comprehensive training for key groups affected by the
implementation of PeopleSoft's products and technology. PeopleSoft's technical
support program includes 24-hour telephone support, access to the PeopleSoft
Advantage Customer Care Center and certain software product upgrades for
supported customers.

PeopleSoft's strategy is to offer comprehensive solutions that enable
organizations to manage and enhance their relationships with customers,
suppliers and employees. These solutions are expected to include front office
applications for customer relationship management, eCommerce and employee
administration. In the third quarter of 1999, PeopleSoft shipped its first two
front office applications, PeopleSoft eProcurement and PeopleSoft eStore.
PeopleSoft eProcurement enables customers' employees to purchase goods and
services over the Internet while PeopleSoft eStore enables customers to conduct
business to business and business to consumer commerce over the Internet. Front
office applications can be integrated with
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PeopleSoft's enterprise application software. This integration facilitates the
seamless flow of information across multiple applications, such as purchasing,
accounts payable and general ledger in the case of PeopleSoft eProcurement, and
subjects a transaction to enterprise application functionality such as workflow
whereby a purchase by an employee may be automatically screened for
authorization and routed for approval based on pre-designated system settings.

In addition to front office applications, PeopleSoft is developing a suite
of analytical applications to support management decision making. Analytical
applications take transaction information from multiple sources including
PeopleSoft's enterprise application software and provide detailed analytic
information which may be used to broaden or deepen an organization's
relationships with its customers, suppliers and employees. The combination of
enterprise applications, front office applications, and analytical applications
can provide organizations with a complete 360 degree view of their customers,
suppliers and employees.

SOFTWARE PRODUCT ARCHITECTURE

The December 1999 release of the PeopleSoft 8 Enterprise Performance
Management suite of analytical applications marks PeopleSoft's shift from a
client/server architecture to an Internet architecture. Other PeopleSoft 8
applications utilizing the PeopleSoft Internet Architecture are due to be
released during 2000.(1)

The Company believes that its software architecture provides the system
performance required for intensive record keeping and high volume on-line
transaction processing ("OLTP") business applications, and facilitates faster,
easier and less expensive implementations of the initial system as well as
subsequent upgrades. PeopleSoft applications are designed for ease of use and
are compatible with personal productivity applications such as word processors
and spreadsheets. PeopleSoft software products are designed specifically for use
with relational database management systems ("RDBMS"), which offer power and
functionality superior to flat files, hierarchical, or other non-relational
databases that are generally used with legacy software applications. The
Company's software products are also scaleable, permitting changes in network
size, server platforms and other architectural components with minimal
disruption. Further, PeopleSoft software products are portable across major
RDBMS software and server hardware platforms. The Company believes that the
intuitive design of its software products reduces end-user training requirements
and allows end-users and decision makers increased access to critical data not
always readily available to them with legacy systems.

Architecture

Prior to release 8, the Company's application software products supported
online transaction management in any of three different modes. In two-tier
transaction processing, the presentation logic and interactive application logic
are performed on a Windows client, while data intensive application logic and
data management functions are carried out on the database server. In three-tier
transaction processing, the presentation logic and selected interactive
application logic operate on a Windows client, while the balance of interactive
application logic and data intensive application logic operates on an
application server and data management functions are carried out on a database
server. The two-tier and three-tier options that use Windows on the desktop are
collectively referred to as the Windows Client. In "three-tier for the Web"
transaction processing, the presentation logic operates on a Java based client
in a browser ("Web client"), while interactive application logic and data
intensive application logic operates on an application server. With the
availability of Release 7 and three-tier transaction processing, the Company's
application software products now take advantage of messaging using remote
procedure calls, which facilitate real-time initiation of certain application
logic routines on an application server or database server machine. Customers
may implement Release 7 or 7.5 application software products using a single or
any combination of the above processing options in a single local area or wide
area network environment.

The Company's release 8 software products will rely on an application
server to process all application logic, as well as the generation of the
Hyper-text Markup Language ("HTML") that is used by the web browser to render
the user interface. Data management functions are still carried out by the
database server.

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(1) Forward-Looking Statement
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Additionally, integration with market leading lightweight directory access
protocol ("LDAP") is expected to provide common user definitions and security
between various PeopleSoft applications and other LDAP-compliant applications
(e.g. email). Further integration capabilities are provided through the use of
XML messaging over HTTP as well as open APIs accessible via COM, Java, and
C/C++.

PeopleTools

Today's users are demanding system solutions that address specific business
needs, facilitate the automation of workflow, are quickly adaptable to changing
information requirements and provide for ease of access to information.
PeopleSoft addresses these needs by providing PeopleTools, a set of integrated
development and reporting tools including: (i) Development tools for use by
business process or system analysts to rapidly design and deploy custom
modifications; (ii) Administration tools for use by systems managers and support
staff to improve the efficiency of implementing, operating and upgrading
PeopleSoft's applications; (iii) Reporting and Analysis tools for use by
application users to easily access, summarize and analyze information; (iv)
PeopleSoft Workflow for use by business process or system analysts and
application users to automate business processes in a paperless environment; and
(v) PeopleSoft enterprise application integration tools for use in communicating
between PeopleTools-built applications and externally-built applications.
PeopleTools continues to be used by the Company to develop most of its
application software products, and is a runtime environment. Powerful features
and functions which PeopleTools supports include effective date capabilities,
extensive security at both a user and object level, and a tree editor for
managing hierarchical relationships among data elements. PeopleTools is used to
build and modify data tables, design and customize user interface pages, modify
user pull-down menus, define security privileges of individual users and
operator access to system objects, define and build workflow based processes,
process online transactions, and facilitate data importation from other systems
into PeopleSoft applications. PeopleTools simplifies system customization and
implementation and can help reduce the time and cost of implementing the system.
Upgrades to new releases are simplified with a tool, which provides an automated
comparison of the customer's customized systems to base level systems, and helps
define how to install new releases. In addition, PeopleTools provides customers
with significant ongoing flexibility to modify their systems quickly and
inexpensively, so that internal maintenance costs can be reduced significantly.

Relational Database Management Systems

By utilizing relational databases and designing its products from the
ground up, the Company has been able to develop integrated software products
with fully normalized data structures. A fully integrated system provides
convenient access to shared data such as department tables, tax rates and
organization charts, without requiring users to maintain this information
redundantly. Collecting and capturing information once ensures that all data is
consistent, readily available and easier to maintain. Through adherence to ANSI
Structured Query Language ("SQL"), the industry standard data manipulation
language for RDBMSs, and other relational database standards, the Company's
software products are available in a range of environments. PeopleSoft's
software products can be licensed for use with the following RDBMSs: IBM's DB2
(MVS/ESA using DDCS connectivity products from IBM, and separately on AIX),
Informix Corporation's ("Informix") INFORMIX-OnLine Dynamic Server (NT and
multiple versions of Unix), Microsoft Corporation's ("Microsoft") SQL Server,
Oracle Corporation's ("Oracle") Oracle 8 (NT and over 10 versions of Unix), and
Sybase, Inc.'s ("Sybase") System 11 (on multiple versions of Unix). If the
customer decides to switch to other PeopleSoft supported RDBMS or hardware
platforms, user disruption is usually minimized because only the "back-end"
database changes, while the "front-end" application remains the same. No
assurance can be given concerning the successful development of PeopleSoft
software products on additional platforms, the specific timing of the releases
of any future software products, the performance characteristics of PeopleSoft
applications on additional platforms or their acceptance in the marketplace.

Not all software products or release versions of the Company's software
products are currently available on all of the above platforms. Presently,
releases or new software products are initially introduced on Oracle with a
subsequent release supporting certain other RDBMS versions. As a result of the
complexities inherent in the DB2 environment and the performance demanded by
customers in the DB2 environment, the DB2

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version requires more lengthy development and testing periods to achieve market
acceptance. In addition, 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. Such future or existing RDBMS
products may or may not be architecturally compatible with PeopleSoft's software
product design. No assurance can be given concerning the successful porting to
new platforms, the specific timing of completion of any such ports or their
acceptance in the marketplace.

Graphical User Interface

PeopleSoft's release 8 products are designed to be accessed through the use
of a web browser, which is responsible for rendering the graphical user
interface ("GUI"). By exploiting standard web "look and feel" similar to popular
consumer websites, PeopleSoft believes that the web browser interface will
leverage user's existing knowledge and help to reduce training time.(1) Desktop
integration with other common applications such as Microsoft Excel is achieved
through the use of standard Internet protocols. Web-based reporting is also a
new feature of PeopleSoft 8, allowing the user to execute reports on a server
and view the output directly in their web browser.

Application Security Architecture

The Company's application software products incorporate extensive security
features designed to protect certain sensitive data managed by these
applications from unauthorized retrieval or modification. The Company has
developed a security architecture utilizing the capabilities of its own
applications, the client operating system software, some of the security
features contained in the RDBMS platforms on which the applications run, as well
as certain third-party security products such as LDAP directory servers. To
date, the Company is not aware of any violations of its application security
architecture within its installed base.

APPLICATION SOFTWARE PRODUCTS

STATEMENT OF POSSIBLE FUTURE DIRECTION: This document contains statements
of future direction concerning possible functionality for PeopleSoft's software
products and technology. All functionality and software products will be
available for license and shipment from PeopleSoft only if and when generally
commercially available. PeopleSoft disclaims any express or implied commitment
to deliver functionality or software unless or until actual shipment of the
functionality or software occurs. The statements of possible future direction
are for informational purposes only and PeopleSoft makes no express or implied
commitments or representations concerning the timing and content of any future
functionality or releases.

Applications for eBusiness start with back-office functions that provide a
foundation for business processes for customers, suppliers, and
employees -- such as general ledger, payables, billing, payroll, and enterprise
planning. The power of applications for eBusiness is then unleashed with
front-office functions that directly build and sustain relationships with
customers, suppliers, and employees -- such as applications for procurement,
electronic storefronts, employee benefits, travel and expense, and customer
service. The Company's most recent release, PeopleSoft e7.5, enables customers
to deploy and execute close to 90 percent of PeopleSoft transactions through a
Java-based Web Client and numerous Web-enabled Self-Service Applications.
PeopleSoft Self-Service Applications help organizations to distribute
functionality throughout the enterprise to a broad base of users, using Internet
technology. These applications enable employees, customers, suppliers, and other
occasional users to perform self-service administrative tasks specific to their
roles. In addition, PeopleSoft e7.5 provides an HTML access framework that
enables customers to deploy thin client HTML based Internet applications.

The Company is currently developing PeopleSoft 8, which is expected to
deliver on PeopleSoft's mission to provide applications for eBusiness to our
customers: 100 percent Internet browser delivery, open integration, business
intelligence, rapid and flexible deployment. PeopleTools 8, the Company's
Internet Architecture, and certain analytical applications based on PeopleTools
8 were released during the fourth quarter of 1999. The

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(1) Forward-Looking Statement
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Company is currently developing release 8 of Human Resources Management,
Financials and Supply Chain Management, which are expected to be released in
2000.(1)

Below is a brief description of certain of the Company's software products
commercially available as of December 31, 1999. Please note that products may be
shared between product lines and therefore, may appear in more than one product
line. This allows our customers the flexibility to purchase the set of products
that best address their business needs.

PeopleSoft eCommerce Applications

In 1999, PeopleSoft released PeopleSoft eStore and PeopleSoft eProcurement,
two eCommerce applications which enable customers to conduct business over the
Internet. PeopleSoft eStore is a comprehensive online sales and customer service
solution that combines best-of-breed online selling functionality with deep
integration into the supply chain and other back-office systems -- to deliver
the kind of value needed to succeed online. eStore runs end-to-end and supports
sales both to consumers and to other businesses. PeopleSoft eStore is designed
for established enterprises looking to create new sales channels and supplement
existing channels -- as well as for rapidly developing companies reliant on the
Internet for success.

With PeopleSoft's eProcurement solution, organizations benefit from the
Internet on purchases of maintenance, repairs, or operations ("MRO"). Integrated
into the PeopleSoft eBusiness backbone and developed with Commerce One,
PeopleSoft eProcurement is a Web-based electronic procurement application
providing a single interface for thousands of users across the enterprise to
manage all types of MRO goods and services activity.

PeopleSoft Human Resources Management

PeopleSoft Human Resources Management helps organizations track their most
important asset: people. Our modular, global solution set enables organizations
to: manage positions and compensation, recruit, hire, and train employees,
promote, allocate, and retire personnel, and comply with local and international
regulatory requirements. PeopleSoft Human Resources Management software
includes: PeopleSoft Human Resources, PeopleSoft Benefits/FSA Administration,
PeopleSoft Pension Administration, PeopleSoft Payroll, PeopleSoft Payroll
Interface, PeopleSoft Time and Labor, and PeopleSoft Stock Administration.

PeopleSoft Financial Management

PeopleSoft Financial Management helps capture and administer financial data
smoothly, quickly, and accurately -- across the enterprise. Consistent with an
organization's practices and policies, PeopleSoft Financial Management assists
in fulfilling both internal and external reporting requirements and regulatory
compliance worldwide, and provides internal controls. PeopleSoft Financial
Management applications are designed to support the following integrated
business processes, but can also operate as stand-alone modules: Record to
Report, Plan and Budget, Manage Employee Expenses, and Asset Lifecycle.
PeopleSoft Financial Managementsoftware includes: PeopleSoft General Ledger,
PeopleSoft Payables, PeopleSoft Receivables, PeopleSoft Asset Management,
PeopleSoft Projects, PeopleSoft Budgets, PeopleSoft Expenses, and PeopleSoft
Cash Management.

PeopleSoft Student Administration

PeopleSoft Student Administration 7.6 is a dynamic eBusiness application
that provides role-based communication and information access for educational
organizations -- its applicants, recruiters, students, instructors, alumni,
employees, and guests. PeopleSoft Student Administration 7.6 delivers an
intelligent, role-based Internet facility that can be integrated into a college
or university's existing Web site. PeopleSoft supplies the technology
infrastructure to convey the institutional personality without advertising
requirements.

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(1) Forward-Looking Statement
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When a user logs onto their individually tailored Web site, PeopleSoft Student
Administration 7.6 identifies the individual's role or roles and delivers
personalized access and content appropriate to the user and the business
process. PeopleSoft Student Administration 7.6 also uses the role metaphor to
merge all appropriate activities into a single easy-to-use Web interface,
eliminating the need to navigate through different pages to complete different
tasks.

PeopleSoft Treasury Management

PeopleSoft Treasury Management provides cash management, risk management,
and deal management capabilities to support global, multi-center treasury units.
PeopleSoft Treasury Management helps synchronize the entire money management
chain, including: high-volume cash transaction traffic, complex foreign exchange
risk hedging, trading multi-instrument debt or investment portfolio. PeopleSoft
Treasury Management software includes: PeopleSoft Cash Management, PeopleSoft
Deal Management, PeopleSoft Risk Management, PeopleSoft Budgets, PeopleSoft
Expenses, PeopleSoft Payables, and PeopleSoft Receivables.

PeopleSoft Enterprise Performance Management

PeopleSoft Enterprise Performance Management integrates information from
outside and inside an organization to help measure and analyze its true
performance. By enhancing the data using advanced business algorithms, comparing
cause-and-effect relationships, and delivering the information in an easy-to-
understand, actionable format, Enterprise Performance Management helps customers
better understand the real driving forces behind their organization's business
operations. PeopleSoft Enterprise Performance Management software includes:
PeopleSoft Enterprise Warehouse, PeopleSoft Workbenches, PeopleSoft Balanced
Scorecard, PeopleSoft Workforce Analytics, PeopleSoft Industry Analytics, and
PeopleSoft Strategy and Financial Management.

PeopleSoft Project Management

PeopleSoft Project Management is an integrated suite of enterprise
applications designed to maximize the profitability of an organization's
projects. By combining all project data into a single repository, users gain
easy access to critical information. PeopleSoft Project Management helps:
identify and capture all project costs, from initial estimates through actuals;
manage all resources associated with each job -- even in multiple sites,
countries, and languages; track materials, labor, and overhead; calculate
financial indicators related to billing, sales, earnings, interest, performance,
and completed projects; view up-to-the-minute project status; and respond
quickly to issues. PeopleSoft Project Management software includes: PeopleSoft
Projects, PeopleSoft Purchasing, PeopleSoft Payables, PeopleSoft Expenses,
PeopleSoft Asset Management, PeopleSoft Inventory, PeopleSoft Time and Labor,
PeopleSoft Payroll, and PeopleSoft Budgets.

PeopleSoft Sales and Logistics

PeopleSoft Sales and Logistics helps users place accurate orders, provide
reliable promise dates, and create flexible product configurations. This
application set enables users to: capture, maintain, and share product and
distribution information across the enterprise; define and verify make-to-order
or assemble-to-order requirements; enter configured sales orders and quotes on a
laptop, in front of customers; determine the available material and capacity in
the supply chain; and prepare, calculate, and submit invoices. PeopleSoft Sales
and Logistics software includes: PeopleSoft Remote Order Entry, PeopleSoft Order
Management, PeopleSoft Product Configurator, PeopleSoft Billing, PeopleSoft
Receivables, PeopleSoft Order Promising, and PeopleSoft Inventory.

PeopleSoft Materials Management

PeopleSoft Materials Management enables users to closely track and control
the purchase, inventory, and flow of materials throughout the organization. This
application helps users: purchase the right material at the right price, analyze
and control inventory across the enterprise, calculate replenishments,
distribute accurate materials on time, track consumption of goods and services.
PeopleSoft Materials Management software

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includes: PeopleSoft Purchasing, PeopleSoft Payables, PeopleSoft Inventory,
PeopleSoft Expenses, and PeopleSoft Asset Management.

PeopleSoft Supply Chain Planning

PeopleSoft Supply Chain Planning helps meet customer demand for on-time and
accurate delivery of products, on a global basis. With PeopleSoft Supply Chain
Planning users can: forecast demand based on order history, economic indicators,
and input from employees, suppliers, and customers; determine when and where to
produce and distribute finished products, based on the availability of raw
materials, aggregate capacity, and finished goods; establish reliable promise
dates for customer orders, share real-time planning information with suppliers
and customers, reduce inventory, and improve throughput of goods. PeopleSoft
Supply Chain Planning software includes: PeopleSoft Demand Planning, PeopleSoft
Enterprise Planning, and PeopleSoft Order Promising.

PeopleSoft Procurement

PeopleSoft Procurement enables service-based organizations to efficiently
procure operating materials, then track the distribution and consumption of
those materials throughout the enterprise. Our Procurement applications helps
users: procure a variety of operating materials, from office supplies to
advertisements, effectively bill for all operating materials, procure the right
material at the lowest cost, manage inventory, allocate operating materials,
track consumption of goods and services. PeopleSoft Procurement software
includes: PeopleSoft Purchasing, PeopleSoft Payables, PeopleSoft Inventory,
PeopleSoft Expenses, and PeopleSoft Asset Management.

PeopleSoft/Vantive Customer Relationship Management

The Vantive Enterprise is a full suite of customer relationship management
("CRM") products that helps companies manage customer relationships through any
channel of interaction -- the Web, phone, email, fax or directly through sales
and service representatives. The Vantive Enterprise provides the ability to
consolidate customer data from different applications, including legacy and
back-office applications, helping companies to provide a total view of the
customer and more effectively meet the customer's needs. The Vantive Enterprise
can be used as separate modules or together as an integrated enterprise suite.
PeopleSoft/ Vantive customer Relationship Management software includes: Vantive
eBusiness Applications, Vantive Support and Quality, Vantive Sales and
Marketing, Vantive FieldService, Inventory, and Procurement, and Vantive
HelpDesk. The Vantive Enterprise Applications described above were designed on a
client-based architecture. The Company released the first suit of web-enabled
CRM applications in January of 2000.

The following section includes a description of some of the products that the
Company either released or expects to release during 2000.

PeopleSoft Service Revenue Management

PeopleSoft Service Supply Chain, will be a collection of complementary
applications integrated into a single system for tracking all the time, labor,
expenses, and billings associated with delivering services. This unique
application will assist organizations to: adhere to revenue and expense matching
principles, tailor accounting processes for a given revenue recognition
methodology, manage complex contracts that vary by organization, customer,
project, and so on. PeopleSoft Service Supply Chain software is expected to
include: PeopleSoft Time and Labor, PeopleSoft Payroll, PeopleSoft Projects,
PeopleSoft Billing, PeopleSoft Expenses, PeopleSoft Receivables, PeopleSoft
Payables, and PeopleSoft Purchasing. PeopleSoft Service Revenue Management will
also include two new modules, workforce scheduling and contract administration,
with functionality targeted at professional services firms. Together, these
application will provide PeopleSoft's Professional Services Information Suite.

PeopleSoft Professional Services Automation, is designed to enable
professional services organizations to more effectively leverage its workforce
and determine which skills are most critical to success. PeopleSoft

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Professional Services Automation integrates the human resources, financial, and
business intelligence systems needed to deliver a complete, 360-degree view of
an organization's knowledge workers and their capabilities.

PeopleSoft Application Service Provider

The Company launched PeopleSoft eCenter during first quarter of 2000.
PeopleSoft eCenter is expected to provide companies with a one-stop shop for
application software and services. As the application service provider ("ASP"),
PeopleSoft expects to host, maintain, and upgrade the customer's applications.
This model is especially valuable to dot com start-ups and small and mid-size
companies that cannot afford the costs of deploying software. It also appeals to
well-established organizations looking for more operational simplicity, less
reliance on scarce Information Technology resources, and ways to lower the total
cost of ownership of their systems.

The Company's software products are generally licensed to end-user
customers under non-exclusive, non-transferable, perpetual license agreements.
In most cases, the Company licenses its software products solely for the
customer's internal operations. License fees for the Company's software products
are a function of the particular combination of PeopleSoft software products
chosen and, the number of employees for HRMS software products, the number of
enrolled students for Higher Education software products or revenues of the
licensing entity for Financial, Supply Chain and Manufacturing software products
and the number of named users for third party workstation based software tools.

SERVICES AND CUSTOMER SUPPORT

The Company believes that a high level of customer service is required to
be successful in the enterprise software marketplace due to the number of
different hardware and software vendors involved in an implementation and the
inherent complexity of the software. The Company also believes that the
opportunity exists to differentiate itself from competitors on a service level
due to the demanding service requirements of this market. The Company's customer
service staff consisted of 3,426 employees as of December 31, 1999.

Service revenue consists primarily of software support (maintenance) fees,
customer training fees, consulting fees, and other miscellaneous fees. Services
revenues constituted 45%, 55% and 74% of the Company's total revenues during the
years ended December 31, 1997, 1998 and 1999. Service revenue may fluctuate due
to, but not limited to, changes in levels of consulting activity, the related
satisfaction of significant agreement milestones, satisfaction of the Company's
revenue recognition criteria, and seasonality. Services provided by the Company
include the following categories.

Software Maintenance and Support

The Company provides 24-hour hot-line telephone support, staffed with a
group of experienced professionals and supported by a computerized call tracking
and problem reporting system. The Company supports worldwide operations with
hubs in North America, Europe and the Asia/Pacific region. PeopleSoft has
provided Internet access to this hotline as an alternative to telephone bound
service since August of 1995. This service provides subscribing customers with
company news, direct access to other PeopleSoft subscribing customers, the
ability to download and apply software product fixes and access to an online
troubleshooting database.

Typically, software product license fees include the first year of
maintenance support. Thereafter, ongoing maintenance contracts are offered to
customers, and are renewable on an annual basis. The maintenance agreement
entitles the customer to software product enhancements or upgrades released
during the term of the maintenance agreement, access to the PeopleSoft Customer
Care Center, and 24-hour hot-line telephone support.

CONSULTING SERVICES

The Company offers a variety of consulting services to its customers
including implementation assistance, project planning, upgrade, electronic
commerce, workflow, OLAP deployment, and minor software product

8
<PAGE> 11

enhancements. The Company has several technology labs, which currently
concentrate on upgrading customers from one PeopleSoft release to the next.
Additionally, the Company has a rapid implementation lab that specializes in the
development of tools, templates and methodologies to assist our customers and
partners in similar efforts. The Company frequently works closely with third
party consulting and systems integration firms such as Andersen Consulting,
Deloitte and Touche LLP, KPMG Peat Marwick LLP and PriceWaterhouseCoopers LLP
who provide the customer with a full range of reengineering, customization and
project management services. These third party consulting firms have also
licensed PeopleSoft applications to develop programs to support customers
implementing the Company's software products. During the past year PeopleSoft
significantly expanded its consulting services group to meet growing customer
demands for such services. There can be no assurance that PeopleSoft will be
successful in further expanding its consulting services group, or that revenues
from consulting services will not decrease.

To help reduce the time-to-implement and improve a customer's opportunity
to achieve a higher return on investment from licensing a PeopleSoft product,
the Company has created the PeopleSoft Advantage Tool Kit ("ATK"). This tool kit
is bundled with the product, and provides customers and partners with specific
implementation guidance and facilities. The Advantege Tool Kit was successfully
utilized in a beta setting during 1998 and was deployed in 1999. The Company
believes that ATK will significantly reduce the time-to-implement and long-term
cost of ownership for the licensed products, as well as facilitating the overall
process of upgrading and extending applications throughout a customer's
enterprise.(1) No assurance can be given concerning the successful development
of enhancements or new software products, the specific timing of completing new
releases or new software products or the level of their acceptance in the
marketplace.

Customer Education and Training

The Company offers comprehensive education for key learner groups in the
PeopleSoft customer base -- executives, the project team and application
users -- with the goal of ensuring each customer's success with the Company's
software products and beyond. Training is also available for third party
consultants and non-licensed customers. Products and services include project
team training classes, end user training classes, the end-user training kit,
course development and delivery services, and workforce performance consulting
services. Training delivery methods include instructor-led classes, distance
learning offerings, and electronic performance support systems (EPSS) that are
designed to integrate with the PeopleSoft software.

Customer Care Center

The Customer Care Center (CC) is a pool of customer service resources that
are available via 1-800 number access. All PeopleSoft maintenance customers have
access to the CC personnel. These service professionals are focused on resolving
customer's business issues. The CC is also responsible for all customer software
orders, maintaining customer contracts and the maintenance of customer service
systems such as The Vantive Enterprise.

PeopleSoft Advisor

This group develops and delivers PeopleSoft business information to the
customer base via seminars, conference calls, newsletters, webcasts, etc.,
serving as a communication vehicle for all customers.

SALES AND MARKETING

The Company markets and licenses its software products in most major world
markets primarily through a direct sales organization of 1,157 employees as of
December 31, 1999. The domestic direct sales organization is based in over 25
field sales offices located in major metropolitan areas throughout the United
States. International sales activities are managed out of the Company's offices
in Toronto, Vancouver, Ottawa, and Montreal, Canada; Amsterdam, the Netherlands;
Paris, France; Reading, England; Munich, Germany; Brussels, Belgium; Milan,
Italy; Zurich, Switzerland; Mexico City, Mexico; Sydney, Perth and Melbourne,

- ---------------

(1) Forward-Looking Statement
9
<PAGE> 12

Australia; Auckland, New Zealand; Buenos Aires, Argentina; Sao Paulo, Brazil;
Tokyo, Japan; Madrid, Spain; Johannesburg, South Africa; Hong Kong and
Singapore. Most of the Company's licenses for PeopleSoft software products to
date have been in the U.S. and Canada, and a significant portion of
international sales have been to overseas affiliates of a customer's U.S. based
enterprise. To augment its direct sales channel, the Company has: (i) a teaming
agreement with Andersen Consulting to address the PeopleSoft HRMS and PeopleSoft
Financials requirements of federal, state and local government agencies; (ii)
agreements for consulting and system integration with Deloitte and Touche LLP,
KPMG Peat Marwick LLP and PriceWaterhouseCoopers LLP; and (iii) agreements with
other third party distributors and system integrators in various countries where
it does not have a direct sales force.

In support of its sales force, the Company conducts comprehensive marketing
programs, which include telemarketing, direct mail, public relations,
advertising, seminars, trade shows and ongoing customer communication programs.
The sales cycle begins with the generation of a sales lead, or often the receipt
of a request for proposal ("RFP") from a prospect, which is followed by
qualification of the lead, an analysis of the customer's needs, response to an
RFP (if solicited by the customer), one or more presentations to the customer,
customer internal sign-off activities, and contract negotiation and
finalization. While the sales cycle from customer to customer varies
substantially, the sales cycle has historically required six to twelve months.

Generally, customers obtain separate licenses for the underlying database
management systems directly from the RDBMS vendors, however, the Company may
also sublicense runtime versions of Oracle's, Sybase's or Informix's RDBMSs and
certain connectivity software products to its customers, and in some cases, has
made royalty prepayments under these agreements. In addition, the Company
incorporates SQRIBE Technology Corporation's ("SQRIBE") SQR, ReportMate,
Seagate's Crystal Report Writer, BEA's Tuxedo and Jolt Middleware, Cognos'
Powerplay, Select Software's data modeling and process modeling tools, and
Rational Software Corporation's SQA Robot with all of its software products. The
Company has sublicensing arrangements with Microsoft, Oracle, Informix, SQRIBE,
Seagate, BEA, Cognos, Select Software, Folio Corporation and Rational and
accordingly, the Company must rely on the strength of such companies'
trademarks, trade secrets, contractual arrangements, copyrights and patents for
protection and continued usage of such intellectual property by the Company.
Termination of the relationship with any of these companies could adversely
affect the Company's software product offerings and ability to generate revenue
software application license sales. We can not assure you that these
relationships will not be terminated in the future.

A key aspect of the Company's sales and marketing strategy is to build and
maintain strong working relationships with businesses the Company believes play
an important role in the successful marketing of its software products. The
Company's customers and potential customers often rely on third party system
integrators to develop, deploy and manage client/server applications. These
include: (i) RDBMS software vendors (such as Informix, Microsoft, Oracle and
Sybase); (ii) hardware vendors (such as Compaq Computer Corporation, Hewlett
Packard Corporation, IBM, Sequent Computer Systems, Inc. and Sun Microsystems,
Inc.), which offer both hardware platforms and, in the case of IBM, proprietary
RDBMS products on which the Company's software products run; (iii) technology
consulting firms and systems integrators (such as Andersen Consulting, IBM's
ISSC, Deloitte and Touche LLP, PriceWaterhouseCoopers LLP, and KPMG LLP) some of
which are active in the selection and implementation of large information
systems for the information-intensive organizations that comprise the Company's
principal customer base; and (iv) benefits consulting firms (such as Towers
Perrin, Wyatt Co. and William M. Mercer & Co.) that are active in the
implementation of human resource management systems. The Company believes that
its marketing and sales efforts are enhanced by the worldwide presence of these
companies. PeopleSoft has conducted several joint marketing and sales programs
with these vendors and other technology and software partners, including
seminars, direct mail campaigns and trade show appearances. 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 the
Company or its partners are unable to adequately train a sufficient number of
consulting personnel to support the implementation of the Company's software
products, the Company may lose customers. In addition, PeopleSoft's software
applica-

10
<PAGE> 13

tion architecture, including PeopleTools, may facilitate reduced implementation
costs for customers compared to the competitive alternatives from Oracle and
SAP. Therefore, systems integrators may actually generate lower integration fees
when implementing PeopleSoft applications when compared to competitive
offerings.

Due to the foregoing factors, it is possible that in a future quarter or
quarters, the Company's operating results could not meet the published
expectations of certain public market financial analysts. In such an event, the
price of the Company's common stock would very likely be materially adversely
affected.

International Operations

During the years ended December 31, 1997, 1998 and 1999, the Company's
international revenues were approximately 15%, 17% and 23% of total revenues.
International revenues from Europe in 1999 represented 13% of total revenues
compared to 9% in 1998. No other region had revenues greater than 10% of total
revenues; and none of the regions had more than 5% of total assets in 1997, 1998
or 1999. The Company markets certain of its software products to a variety of
industries through foreign subsidiaries located in Canada, the United Kingdom,
the Netherlands, Germany, France, Spain, Switzerland, Italy, Belgium, South
Africa, Mexico, Argentina, Brazil, Venezuela, Australia, Singapore, Japan,
Malaysia, Hong Kong, and New Zealand. In addition, the Company also markets
through distributors in the Asia/Pacific and Latin America region.

COMPETITION

PeopleSoft competes with a variety of software vendors, including Internet
application vendors in the enterprise application software market segment,
vendors in the manufacturing software application market segment, vendors in the
emerging enterprise resource optimization software solutions market segment,
providers of human resource management system software products, providers of
financial management systems software products, and numerous small firms that
offer products with new or advanced features. As a result, the market for
business application software has been and continues to be intensely
competitive. Some competitors have become more aggressive with their payment
terms and/or issuance of contractual implementation terms or guarantees.
PeopleSoft may be unable to continue to compete successfully with new and
existing competitors without lowering prices or offering other favorable terms.
In addition, PeopleSoft believes it must differentiate itself through different
or more subtle architectural and technological factors. In the enterprise
application 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; (iii) the
availability of localized software products and technical support in key markets
outside the United States; and (iv) the strength of Internet focused product
offerings and vision.

Some of PeopleSoft's competitors including Oracle and SAP, the Company's
primary competitors in the enterprise application market, have an advantage over
PeopleSoft due to their significant worldwide presence, longer operating and
product development history, and substantially greater financial, technical and
marketing resources than PeopleSoft. At least one competitor has a larger
installed base. In addition, Oracle Corporation is a competitor whose relational
database management system underlies a significant portion of PeopleSoft's
installed applications.

Furthermore, potential customers may consider outsourcing options,
including data center outsourcing and service bureaus, as viable alternatives to
licensing PeopleSoft's software products. Although PeopleSoft is pursuing an
outsourcing program that it believes will address the needs of the marketplace,
this program may not be successful.

SOFTWARE PRODUCT DEVELOPMENT

Since inception, the Company has made substantial investments in research
and software product development. The Company believes that timely development
of new software products, enhancements to

11
<PAGE> 14

existing software products and the acquisition of rights to sell or incorporate
complimentary technologies and products into its software product offerings is
essential to maintain its competitive position in the market. The applications
software market is characterized by rapid technological change, frequent
introductions of new products, changes in customer demands and rapidly evolving
industry standards. The Company believes that software product development is
most effectively and expeditiously accomplished by small teams comprised of
relatively senior people who are focused on certain software product areas.
Accordingly, the Company's development organization is comprised of small,
focused development groups assigned to each of the software products within the
primary software product areas: Customer Relationship Management, PeopleSoft
Enterprise Performance Management, PeopleSoft Human Resources Management,
PeopleSoft Financials, PeopleSoft Financials for the Public Sector, PeopleSoft
Distribution, PeopleSoft Manufacturing, PeopleSoft Supply Chain Planning,
PeopleSoft Learning Solutions and PeopleTools. During the fourth quarter of
1999, PeopleSoft delivered its PeopleTools 8 Internet architecture, which
enables rapid development, deployment, and cost effective management of Internet
applications. PeopleSoft's application development is undertaken utilizing this
Internet architecture. In addition, the Company's documentation group develops
the user and system administration documentation for each software product.

The Company's current focus in application development is to complete its
next major release, PeopleSoft 8. PeopleSoft 8 is expected to be the first pure
HTML Internet client offering from the Company, and includes internet
technologies, such as XML, publish-subscribe and business interlinks. In
addition to this major technology shift, the Company expects to deliver enhanced
functionality in its core products and a number of new applications, mostly
focused on eCommerce and internet collaboration. During the fourth quarter of
1999, the Company delivered its first suite of products exploiting the pure HTML
PeopleSoft Internet Architecture, PeopleSoft Enterprise Performance Management,
comprised of the Balanced Scorecard, CRM Analytics and Workforce Analytics
products. In addition, the Company anticipates continuing to invest in expanded
functionality across all of its software product offerings, including global
product requirements and industry specific requirements.(1) There can be no
assurance that such development efforts will result in products, features or
functionality or that the products, features or functionality that are developed
will be accepted by the market.

The Company's research and development staff consisted of 1,458 and 1,693
employees as of December 31, 1998 and 1999. The Company's total research and
development expenses were approximately $147.1 million in 1997, $238.0 million
in 1998, and $297.2 million in 1999. During 1998, the Company capitalized $27.8
million in software related to the purchase of Intrepid Systems, Inc. During
1999, the Company capitalized $10.6 million and $3.0 million related to the
acquisition of TriMark Technologies, Inc, and Distinction Software, Inc.,
respectively. Capitalized software development and purchased software costs are
amortized over the estimated useful life of the software product beginning with
general availability for a period not to exceed five years. Total capitalized
software amortization, which is charged to cost of license fees, amounted to
$4.0 million in 1997, $5.7 million in 1998, and $9.3 million in 1999. In
addition, during 1997 and 1998, the Company recorded one-time in-process
research and development charges of $21.1 million and $23.1 million related to
certain acquisitions.

During the fourth quarter of 1998 the Company formed a new company,
Momentum Business Applications, Inc. ("Momentum Business Applications"), to
select and develop certain software application products, and to commercialize
such products, most likely through licensing to the Company. The Company
contributed $250 million to Momentum Business Applications. Momentum Business
Applications' software application development activities will take place under
a development and license agreement with the Company. During 1999, the Company
recognized revenue from development services in the amount of $27.6 million.
These development services were focused on eBusiness, analytic applications, and
industry specific applications, the majority being in analytic applications, as
the Company delivered a suite of products to the market in late 1999. Per the
terms of the development contract with Momentum Business Applications, the
Company performed development services on behalf of Momentum Business
Applications. Momentum

- ---------------

(1) Forward-Looking Statement
12
<PAGE> 15

Business Applications pays the Company one hundred and ten percent (110%) of the
Company's fully burdened costs relating to the research and development provided
by the Company.

PeopleSoft entered into development arrangements in 1995 and 1997 for the
purpose of developing the Student Administration software applications, which
were commercially released in December 1997. Under these agreements, PeopleSoft
is the exclusive remarketer of the Student Administration software products, and
pays a royalty to the third parties based on license fees received from end user
licenses of these software products. All ownership rights and interests in the
software will transfer to the Company, upon the later of five years from the
commercial release of the applications or when $17 million in cumulative
royalties have been paid to the third parties. Through December 31, 1999, the
Company had paid $8.8 million in royalties.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY

The Company regards certain aspects of its internal operations, software
and documentation as proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
its proprietary information. There can be no assurance that any issued patents
will result from such applications or that, if issued, such patents will provide
any meaningful competitive advantage. Existing copyright laws afford only
limited protection. The Company believes that, because of the rapid pace of
technological change in the computer software industry, patent, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent software product
enhancements and the timeliness and quality of support services. There can be no
assurance that these protections will be adequate or that PeopleSoft's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Many customers of PeopleSoft
are beneficiaries of a source code escrow account arrangement to enable the
customer to acquire a future limited right to use the Company's source code
solely for their internal provision of maintenance services. This possible
access to the Company's source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. In
addition, the laws of certain countries in which the Company's software products
are or may be licensed do not protect the Company's software products and
intellectual property rights to the same extent as the laws of the United
States.

The Company does not believe its software products, third-party software
products the Company offers under sublicense agreements, Company trademarks or
other Company proprietary rights infringe the property rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future software products or that any such assertion may not require the Company
to enter into royalty arrangements or result in costly litigation.

The Company's license agreements with its customers contain provisions
designed to limit the exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in such
license agreements may not be valid as a result of future federal, state or
local laws or ordinances or unfavorable judicial decisions. Although the Company
has not experienced any product liability claims to date, the license and
support of its software for use in mission critical applications creates the
risk of a claim being successfully pursued against the Company. Damage or
injunctive relief resulting under such a successful claim could cause a
materially adverse impact on the Company's business, operating results and
financial condition.

PERSONNEL

As of December 31, 1999, the Company employed 6,929 people, including 1,157
in sales and marketing, 1,693 in product development, 3,426 in customer
services, and 653 in administration. None of the Company's employees in the
United States are represented by a labor union or are subject to a collective
bargaining agreement. Certain of the international employees are covered by the
customary employment contracts and agreements of the countries in which they are
employed. The Company believes that relations with its employees are good.

13
<PAGE> 16

The executive officers of the Company as of December 31, 1999, were as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig A. Conway................... 45 President and Chief Executive Officer/Director
Guy Dubois........................ 45 Executive Vice President, International
Jay Fulcher....................... 37 Executive Vice President, Consulting
Mike Gioja........................ 42 Executive Vice President, Development
Howard Gwin....................... 41 Executive Vice President, Worldwide Operations
Baer Tierkel...................... 39 Executive Vice President, Worldwide Marketing
Phil Wilmington................... 41 Executive Vice President, North America
Stephen F. Hill................... 40 Vice President and Chief Financial Officer
Anne S. Jordan.................... 48 Sr. Vice President, General Counsel and Secretary
</TABLE>

MR. CRAIG CONWAY joined the Company in May 1999 as President and Chief
Operating Officer, and was promoted to Chief Executive Officer in September
1999. He oversees all PeopleSoft business operations including sales, marketing,
professional services, customer support, development, finance and
administration. From 1996 to 1999, Mr. Conway was President and Chief Executive
for OneTouch Systems, a leader in the field of interactive broadcast networks.
From 1993 to 1996, Mr. Conway served as President and Chief Executive for TGV
Software, Inc., an early developer of IP network protocols and applications for
corporate intranets and the Internet. Mr. Conway also spent eight years at
Oracle Corporation as Executive Vice President in a variety of roles including
marketing, sales and operations. Mr. Conway graduated from State University of
New York with a degree in Computer Science and Mathematics.

MR. GUY DUBOIS joined the Company in March 1999. Prior to being promoted to
his current role in January 2000, Mr. DuBois served as Executive Vice President
and General Manager, International of The Vantive Corporation. From August 1995
to March 1999, Mr. DuBois was Vice President and General Manager of the Europe,
Middle East, Africa operations of Sybase Corporation. From August 1994 to August
1995, Mr. DuBois was Vice President of Southern Europe at Sybase. Prior to that,
he was Deputy Managing Director of Digital Equipment Corporation France.

MR. JAY FULCHER joined the Company in 1996 and has previously served as
President, Products Division; Vice President and General Manager, Manufacturing
business unit; and Vice President of sales for the Manufacturing business unit.
Prior to joining PeopleSoft, Mr. Fulcher was vice president of worldwide sales
and marketing for Red Pepper Software, from March 1996 to October 1996. He has
over fifteen years of experience in the computer industry and has also held
senior management positions with Dun & Bradstreet and SAP America. Mr. Fulcher
graduated from San Jose State University with a degree in Business
Administration, Management and Economics.

MR. MICHAEL GIOJA joined the Company in May of 1999. Prior to joining the
PeopleSoft, Mr. Gioja was Executive Vice President of SAP's Global Human
Resources Development and HR Business Unit. Previously, Mr. Gioja worked in
application development and deployment at IBM for thirteen years. Mr. Gioja
holds a Bachelor of Science degree in Computer Science from the State University
of New York at Oswego. Mr. Gioja left the Company in March of 2000.

MR. HOWARD GWIN joined the Company in 1994. In his most recent role, Mr.
Gwin was responsible for the management and direction of all sales and customer
support operations for PeopleSoft's Worldwide Field Operations. Prior to joining
PeopleSoft, Mr. Gwin held senior management roles with Xerox Canada, Ltd. and
IBM Canada, Ltd. He earned a bachelor's degree from Simon Fraser University in
Vancouver, British Columbia. Mr. Gwin left the Company in January of 2000.

MR. BAER TIERKEL joined the Company in 1991 as a Product Manager. Prior to
his current role, Mr. Tierkel was responsible for launching PeopleSoft's
eBusiness business units. Previously, as Vice President of PeopleTools Products
& Technology, Mr. Tierkel was responsible for the industry-leading technologies
used to create PeopleSoft applications. Prior to joining PeopleSoft, Mr. Tierkel
served as President of Allegro Technology, Inc., a global informational
technology services company, providing products for packaged

14
<PAGE> 17

international software product development. Mr. Tierkel attended the Boston
University School of Management, where he received a B.S. in Business
Administration.

MR. PHIL WILMINGTON joined the Company in 1992. Before being promoted to
his current role in January 2000, Mr. Wilmington held various positions
including President of the Services Division, Vice President of Emerging
Markets, General Manager of the Financial Services business unit, and General
Manager of the Midwest Region. Prior to joining PeopleSoft, Mr. Wilmington
served as Executive Vice President of Field Operations at Trinet, Inc., and as
Vice President of Sales and Operations at Tesseract Corp. Mr. Wilmington holds a
bachelor's degree in Marketing and Business Administration from Bradley
University.

MR. STEPHEN HILL joined the Company in 1992 as PeopleSoft's Corporate
Controller. Since then, Mr. Hill has also served as PeopleSoft's Vice President,
Corporate Controller; Vice President, Treasurer; Vice President, Investor
Relations; and, most recently, Vice President, Business Development. Prior to
his employment with PeopleSoft, Mr. Hill worked at Ernst and Young for more than
nine years. Mr. Hill holds a bachelor's degree in Business Administration from
the University of California, Berkeley.

MS. ANNE JORDAN joined the Company in July 1999 as Senior Vice President,
General Counsel and Corporate Secretary for PeopleSoft. Prior to joining
PeopleSoft, Ms. Jordan was Vice President, Administration and General Counsel
for Sega of America, Inc., from September 1994 to June 1999. Prior to that she
was a partner in the Palo Alto firm of Carr & Ferrell and held positions as Vice
President and General Counsel for Worlds of Wonder, Inc., Assistant General
Counsel for Dole Foods, Inc., and corporate counsel for Beatrice Companies, Inc.
and Gould Inc. Ms. Jordan received a B.A. from Northwestern University and a
J.D. from DePaul University.

15
<PAGE> 18

ITEM 2. PROPERTIES

FACILITIES

As of December 31, 1999, the Company leased the majority of its facilities
and its principal locations are in or near the following cities:

<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION SQUARE FEET EXPIRATION DATE PRINCIPAL ACTIVITIES
-------- ----------- --------------- --------------------
<S> <C> <C> <C>
Irvine, CA................ 28,805 November 2000 Sales, Marketing and Customer Service
Encino, CA................ 26,000 June 2001 Development
Pleasanton, CA............ 365,000 September 2004 Headquarters
Pleasanton, CA............ 80,000 September 2004 Headquarters and Data Center
Pleasanton, CA............ 216,000 February 2002 Corporate HQ, Development and Technical Support
Pleasanton, CA............ 42,500 September 2003 Corporate HQ, Development and Technical Support
Pleasanton, CA............ 66,000 July 2006 Sales, Marketing and Customer Service
Development, Sales, Marketing and Customer
Santa Clara, CA........... 48,000 May 2001 Service
Development, Sales, Marketing and Customer
Santa Clara, CA........... 90,000 October 2005 Service
Development, Sales, Marketing and Customer
Santa Clara, CA........... 24,000 December 2003 Service
Coral Gables, FL.......... 10,000 July 2002 Sales, Marketing and Customer Service
Atlanta, GA............... 59,000 June 2000 Sales, Marketing and Customer Service
Chicago, IL............... 102,000 December 2001 Sales, Marketing and Customer Service
Boston, MA................ 21,000 November 2004 Sales, Marketing and Customer Service
Bethesda, MD.............. 46,000 August 2000 Sales, Marketing and Customer Service
Detroit, MI............... 14,000 June 2003 Sales, Marketing and Customer Service
Minneapolis, MN........... 13,000 July 2002 Sales, Marketing and Customer Service
Manchester, NH............ 12,000 August 2003 Sales, Marketing and Customer Service
Teaneck, NJ............... 47,000 May 2003 Sales, Marketing and Customer Service
Philadelphia, PA.......... 13,000 September 2001 Sales, Marketing and Customer Service
Dallas, TX................ 35,000 October 2004 Sales, Marketing and Customer Service
Dallas, TX................ 12,000 September 2002 Sales, Marketing and Customer Service
Melbourne, Australia...... 10,000 March 2001 Sales, Marketing and Customer Service
Sydney, Australia......... 21,000 September 2000 Sales, Marketing and Customer Service
Montreal, Canada.......... 15,000 July 2002 Sales, Marketing and Customer Service
Toronto, Canada........... 40,000 August 2003 Sales, Marketing and Customer Service
Vancouver, Canada......... 16,000 April 2002 Sales, Marketing and Customer Service
Reading, England.......... 15,000 May 2005 Sales, Marketing, Customer Service and Admin.
Reading, England.......... 17,000 April 2002 Sales, Marketing, Customer Service and Admin.
Munich, Germany........... 14,000 July 2001 Sales, Marketing and Customer Service
Mexico City, Mexico....... 27,000 July 2000 Development, Sales, Customer Service and Admin.
Amsterdam, the
Netherlands............. 22,000 June 2000 Sales, Marketing, Customer Service and Admin.
Singapore................. 14,000 December 2000 Sales, Marketing and Customer Service
Tokyo, Japan.............. 15,000 February 2001 Sales, Marketing and Customer Service
</TABLE>

In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. This lease is structured as an
operating lease with rental payments due beginning upon the completion of the
construction, which occurred during the fourth quarter of 1998. The cost for the
construction of the facility totals $70.0 million including interest during the
construction period. The rental payments equal the amount of interest under the
agreement. The interest rate charged on amounts funded prior to the commencement
of the lease payments was LIBOR plus 0.625% as measured on the date of each
funding rollover. At each funding or rollover date, the Company had its choice
of term and LIBOR rate (1 month, 2 months, 3 months, 6 months, 9 months or 12
months) applicable to each tranche at the date the respective funding amount was
requested and approved. Each subsequent funding rollover date was the
corresponding maturity of the chosen LIBOR term. The Company began accruing
interest concurrent with the lessor's first drawdown of the construction
commitment in January 1997. Throughout the construction

16
<PAGE> 19

period, the accrued interest amount, which was approximately $1.1 million and
$4.5 million as of December 31, 1997 and the end of the construction phase,
respectively, has been added to the construction cost. The Company has an option
to renew the lease for an additional three years, subject to certain conditions,
or purchase the building for $70.0 million. If at the end of the lease term the
Company does not purchase the property, the Company would guarantee a residual
value to the lessor equal to 85% of the lessor's cost of the facility. Under
this lease, the Company is required to maintain compliance with certain
financial covenants, is prohibited from making certain payments, including cash
dividends, and is subject to various other restrictions.

In 1998, the Company negotiated an amendment to this lease that extends the
term of the lease until February 2003, with an option to renew for an additional
three years. Additionally, the Company negotiated a fixed rate funding option
under which the Company may elect that any or all of the amounts funded to date
be charged a fixed interest rate. The Company has the option of setting the
fixed rate expiration date for any date through the end of the lease term.

During the third quarter of 1998, the Company entered into agreements to
sell one of its Pleasanton, California office buildings and related land, and to
simultaneously lease back a substantial portion of the office space contained
therein. The initial lease term is for 10 years. The Company has options to
terminate up to 50% of the space at anytime following the initial 4 years of the
lease term and the remaining 50% at following the 5th year of the term; or
alternatively, the Company may extend the term of the lease in five-year
increments up to 20 years. Fees due upon termination, if applicable, are not
significant to the overall lease payments but are being accrued over the initial
term of the agreement. The sales price of approximately $50.0 million resulted
in a book gain of approximately $24.4 million, which will be amortized over the
lease period. The Company holds a right of first refusal to additional space
within the site as other tenants' leases expire.

ITEM 3. LEGAL PROCEEDINGS

Beginning on January 29, 1999, a series of class action lawsuits were filed
in the United States District Court for the Northern District of California
against the Company and certain of its officers and directors, alleging
violations of Section 10(b) of the Securities Exchange Act of 1934. The actions
were consolidated in June 1999 under the name of the lead case Suttovia v.
Duffield, et al., C 99-0472. Following appointment of lead plaintiffs under the
provisions of the Private Securities Litigation Reform Act, a consolidated
amended complaint was filed on December 6, 1999. The Consolidated Complaint
names the Company and David Duffield, Albert Duffield, Ronald Codd, Kenneth
Morris, Margaret Taylor, Aneel Bhusri, James Bozzini and George Still as
defendants.

The Consolidated Complaint purports to bring claims on behalf of all
purchasers of PeopleSoft common stock during the period April 22, 1997 to
January 28, 1999, the date when the Company first announced results for the 1998
fiscal year, and disclosed that certain of the Company's accounting practices
were being reviewed by the Securities and Exchange Commission. The Consolidated
Complaint alleges that PeopleSoft misrepresented, inter alia, the degree of
market acceptance of its products, the technical capabilities of its products,
the success of certain acquisitions it had made, and the anticipated financial
performance of the Company in fiscal 1999. The Consolidated Complaint abandons
all of the allegations in the original complaints concerning alleged accounting
improprieties, including claims of accounting fraud related to the Company's
write-downs for "in process research and development" in connection with various
acquisitions, and claims of accounting fraud related to the Company's spin-off
of Momentum Business Applications, Inc. (Momentum had been a named defendant in
the original actions, but was eliminated as a defendant when the Consolidated
Complaint was filed).

17
<PAGE> 20

The Company believes that the claims asserted in the Consolidated Complaint
are without merit, and the Company intends to vigorously defend the action. On
February 10, 2000, the defendants filed motions to dismiss the Consolidated
Complaint without lease to amend. The motions will be heard on May 4, 2000.
There can be no assurance that if the motion is unsuccessful, and if there is an
unfavorable resolution of the litigation, there would not be a potential
material adverse impact on the Company's future financial position or results of
operations or cash flows. However, the Company has in place significant amounts
of insurance that would be available in the event of an adverse result.

Beginning on July 6, 1999, a series of similar securities class action
lawsuits were filed alleging that Vantive and certain current and former
directors and officers violated Section 10(b) of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder. The original complaints alleged that from
April 23, 1997 to July 6, 1998, Vantive misled the investing public as to
Vantive's future prospects and failed to disclose facts which it knew would
result in decreased demand for its products or decreased operating margins. The
original complaints further alleged that various officers and directors intended
to profit thereby by artificially inflating the price of Vantive's stock so that
they could sell significant amounts of their stock at inflated prices. The
allegations appear to have been triggered by Vantive's announcement of
preliminary results for the second quarter of 1998, released on July 6, 1998. On
November 15, 1999, plaintiffs filed a First Consolidated Amended Complaint. The
First Consolidated Amended Complaint added to the previous complaints, among
other things, allegations of accounting improprieties. The Company filed a
motion to strike and a motion to dismiss the First Consolidated Amended
Complaint. The court heard argument on the motions on February 24, 2000. On
March 21, 2000, the Company received an order from the court granting the
Company's motion to dismiss with prejudice. The order indicated that the court
would enter a judgment in the Company's favor. Plaintiffs will have a right to
appeal.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is traded on the Nasdaq National Market under
the symbol PSFT. The following table lists the high and low closing prices for
the PeopleSoft Common Stock as reported on Nasdaq for the last two years.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fourth quarter of 1999..................................... $23.63 $14.50
Third quarter of 1999...................................... $18.25 $13.06
Second quarter of 1999..................................... $17.50 $12.13
First quarter of 1999...................................... $24.50 $14.63

Fourth quarter of 1998..................................... $32.50 $16.81
Third quarter of 1998...................................... $50.88 $27.25
Second quarter of 1998..................................... $55.94 $41.94
First quarter of 1998...................................... $52.69 $31.44
</TABLE>

The trading price of the Company's common stock is subject to wide
fluctuations in response to quarterly variations in contracting activity and
operating results, announcements of technological innovations or new software
products by the Company or its competitors, as well as other events or factors.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly affected the market price of many
high technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock.

18
<PAGE> 21

As of March 14, 2000, the approximate number of common stockholders of
record was 3,731, representing approximately 148,000 shareholder accounts.

The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's facility lease prohibits the payment of cash dividends without the
lessor's consent.

In December 1998, the Company declared a stock dividend of one share of
Momentum Business Applications Class A Common Stock for every fifty shares of
PeopleSoft stock held as of December 31, 1998. The Company's stockholders were
not required to pay cash or other consideration for the Momentum Business
Applications shares received. In total, 4.7 million shares were distributed. No
fractional shares were distributed. The distribution was taxable as a dividend
to each holder in the amount of the fair market value of the Momentum Business
Applications shares distributed to each shareholder. The average market value of
the shares on January 16, 1999 (the first day of trading) was $16.75. Prior to
the distribution, the Company contributed $250.0 million to Momentum Business
Applications.

Certain provisions of the Company's Certificate of Incorporation and Bylaws
could delay the removal of incumbent directors and could make a merger, tender
offer or proxy contest involving the Company more difficult, even if such events
would be beneficial to the interests of the stockholders. In addition, the
Company has 2,000,000 shares of authorized Preferred Stock. The Company may
issue shares of such Preferred Stock in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding voting
stock of the Company. In addition, the staggered terms of the Company's Board of
Directors could have the effect of delaying or deferring a change in control of
the Company.

Under a stockholder rights plan adopted in 1995, each share of the
Company's common stock carries the right ("Right"), under certain circumstances,
to purchase equity securities of the Company or an acquirer. Ten days after a
tender offer or acquisition of 20% or more of the Company's common stock, each
Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition after such rights are triggered, each Right
entitles the holder to purchase common stock of the Company with a fair value of
twice the Exercise Price or, in certain circumstances, securities of the
acquiring company for the Exercise Price. Each Right expires in February 2005,
and, during specified periods, the Company may redeem or exchange each Right for
$.01 or one share of common stock, respectively.

Based on the number of shares of common stock outstanding at March 14,
2000, officers and directors of the Company and persons who may be deemed to be
affiliates, as a group, beneficially owned approximately 20% of PeopleSoft's
outstanding common stock. As a result, officers and directors and their
affiliates may have influence over the election of the Board of Directors and
any matters requiring approval by the stockholders of the Company. In addition,
the Company has entered into agreements with its officers and directors
indemnifying them against losses they may incur in legal proceedings resulting
from their service to the Company.

19
<PAGE> 22

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(a)(c)
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues:
License fees................................ $154,439 $294,041 $ 509,666 $ 664,277 $ 339,676
Services.................................... 102,735 219,738 422,488 810,491 1,061,838
Development and other services.............. -- -- -- -- 27,632
Total revenues....................... 257,174 513,779 932,154 1,474,768 1,429,146
Costs and Expenses:
Cost of license fees........................ 8,666 12,749 22,371 44,418 42,578
Cost of services............................ 62,757 131,169 251,926 465,670 564,404
Cost of development services................ -- -- -- -- 25,107
Sales and marketing......................... 81,634 160,162 270,470 407,023 391,572
Product development......................... 41,944 77,914 147,061 237,970 297,212
General and administrative.................. 18,349 32,275 52,984 73,828 97,387
In-process research and development,
acquisition and other charges............. -- 29,393 21,121 24,795 73,050
Contribution to Momentum Business
Applications.............................. -- -- -- -- 176,409
-------- -------- ---------- ---------- ----------
Total costs and expenses............. 213,350 443,662 765,933 1,253,704 1,667,719
-------- -------- ---------- ---------- ----------
Operating income (loss)....................... 43,824 70,117 166,221 221,064 (238,573)
Other income, net............................. 4,588 7,174 11,167 20,778 72,175
-------- -------- ---------- ---------- ----------
Income (loss) before taxes.................... 48,412 77,291 177,388 241,842 (166,398)
Provision for income taxes.................... 19,031 30,525 76,083 101,904 11,367
-------- -------- ---------- ---------- ----------
Net income (loss)............................. $ 29,381 $ 46,766 $ 101,305 $ 139,938 $ (177,765)
======== ======== ========== ========== ==========
Basic earnings (loss) per share(b)............ $ 0.13 $ 0.20 $ 0.42 $ 0.56 $ (0.67)
======== ======== ========== ========== ==========
Shares used in basic calculation(b)........... 221,042 231,055 239,572 249,807 263,914
======== ======== ========== ========== ==========
Diluted earnings (loss) per share(b).......... $ 0.12 $ 0.18 $ 0.37 $ 0.50 $ (0.67)
======== ======== ========== ========== ==========
Shares used in diluted calculation(b)......... 247,972 260,776 270,204 281,059 263,914
======== ======== ========== ========== ==========
BALANCE SHEET DATA:
Working capital............................... $113,900 $142,765 $ 353,943 $ 604,149 $ 607,213
Total assets.................................. $356,828 $598,444 $1,060,960 $1,623,525 $1,687,878
Long-term obligations......................... $ 650 $ 755 $ 69,362 $ 69,299 $ 70,385
Stockholders' equity.......................... $187,751 $292,679 $ 473,036 $ 732,336 $ 764,619
</TABLE>

- ---------------

NOTES:

(a) Historical results of operations are not necessarily indicative of future
results. Refer to the Risk Factors That Affect Future Results and Market
Price of Stock under Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for discussion of factors
that may impact future results.

(b) All share and per share amounts have been restated to reflect two-for-one
stock splits of the Company's common stock November 1996 and December 1997.
All prior period amounts have been restated to reflect the mergers with Red
Pepper Software Company in October 1996 and The Vantive Corporation in
December 1999, which were accounted for under the pooling of interests
method of accounting.

20
<PAGE> 23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Discussion and Analysis of Financial Condition and Results of
Operations contains descriptions of the Company's expectations regarding future
trends affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Future results are subject to risks and uncertainties, which could cause
actual results and performance to differ significantly from those contemplated
by the forward-looking statements. For a discussion of factors that could affect
future results, see "Factors That May Affect Future Results and Market Price of
Stock." Forward-looking statements contained throughout this Annual Report
include but are not limited to those identified with a footnote(1) symbol. The
Company undertakes no obligation to update the information contained in this
Item 7.

As more fully described in the "Merger" section below, PeopleSoft, Inc.
("PeopleSoft") merged with The Vantive Corporation, Inc. ("Vantive") on December
31, 1999. The consolidated financial statements included in this Annual Report
on Form 10-K have been prepared following the pooling of interest method of
accounting and therefore reflect the combined financial position, operating
results and cash flows of PeopleSoft and Vantive as if they had been combined
for all periods presented. Certain prior period amounts have been reclassified
to conform to the current period presentation. The management's discussion and
analysis of financial condition and results of operations that follows is also
based on the assumption that PeopleSoft and Vantive were combined for the last
three years.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of total revenues and the percentage of period over period growth represented by
certain line items in the Company's consolidated statements of income:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
PERCENTAGE OF
DOLLAR INCREASE PERCENTAGE OF
YEAR OVER YEAR TOTAL REVENUES
---------------- --------------------
98/97 99/98 1997 1998 1999
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......................................... 30% (49)% 55% 45% 24%
Services.............................................. 92 31 45 55 74
Development and other services........................ N/A N/A -- -- 2
--- ---- --- --- ---
Total revenues................................ 58 (3) 100 100 100
Costs and expenses:
Cost of license fees.................................. 99 (4) 2 3 3
Cost of services...................................... 85 21 27 31 39
Cost of development services.......................... N/A N/A -- -- 2
Sales and marketing................................... 50 (4) 29 28 27
Product development................................... 62 25 16 16 21
General and administrative............................ 39 32 6 5 7
In-process research and development and merger related
costs.............................................. N/A N/A 2 2 5
Contribution to Momentum Business Applications........ N/A N/A -- -- 12
--- ---- --- --- ---
Total costs and expenses...................... 64 33 82 85 116
--- ---- --- --- ---
Operating income (loss)................................. 33 (208) 18 15 (16)
Other income, net....................................... 86 247 1 1 5
--- ---- --- --- ---
Income (loss) before income taxes............. 36 (169) 19 16 (11)
Provision for income taxes.............................. 34 (89) 8 7 1
--- ---- --- --- ---
Net income (loss)....................................... 38% (227)% 11% 9% (12)%
=== ==== === === ===
</TABLE>

21
<PAGE> 24

REVENUES

The Company licenses software under non-cancelable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and periodic updates. License fee
revenues are generally recognized when a non-cancelable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable, and
collection is considered probable. For customer license agreements, which meet
these recognition criteria, the portion of fees related to software licenses
will generally be recognized in the current period, while the portion of the
fees related to services is recognized as the services are performed. When the
Company enters into a license agreement with a customer requiring significant
customization of the software products, the Company recognizes revenue related
to the license agreement using contract accounting. The Company allocates a
portion of contractual license fees to post-contract support activities covered
under its contracts including first year maintenance, installation assistance
and limited training services. Revenues from maintenance agreements are
recognized ratably over the maintenance period, which in most instances is one
year.

Revenues from licensing fees increased by 30% from $509.7 million in 1997
to $664.3 million in 1998 and decreased by 49% from 1998 to $339.7 million in
1999. The increase in license fee revenues from 1997 to 1998 was primarily
attributable to continued increased market acceptance of, and expanded breadth
of, the Company's software product offerings and the increased capacity created
by continued growth in the Company's sales, marketing and customer service
organizations, and achievement of specific contract related milestones or other
conditions which allowed the Company to recognize more deferred license revenue
than in the prior year period. The decrease in license fee revenues from 1998 to
1999 was primarily attributable to an industry wide decline in demand for ERP
back office products during 1999, partially attributed to customer's focus on
year 2000 projects. At December 31, 1998 and 1999, the Company's had deferred
license revenue in the amount of $69.2 million and $70.8 million. The deferred
revenue balances do not include items which are both deferred and unbilled. The
Company's practice is to net such deferred items against the related receivables
balances. As of December 31, 1998 and 1999, $29.2 million and $37.0 million in
unbilled receivables was netted against deferred license revenue.

Revenues from services increased by 92% from $422.5 million in 1997 to
$810.5 million in 1998 and increased by 31% from 1998 to $1,061.8 million in
1999. The growth in service revenue in 1998 was primarily attributable to:
increases in the installed base of customers receiving ongoing maintenance,
training and other support services; and a $162.4 increase in consulting revenue
as a result of expanded demand for PeopleSoft's direct assistance during
enterprise implementation projects. The services revenue growth in 1999 resulted
primarily from an increase in revenue from consulting services in enterprise
implementation projects in the amount of $173.1 million and an increase in
maintenance revenue in the amount of $96.2 million, partially offset by a
decrease in training revenue of $18 million. The slower services revenue growth
in 1999, when compared to 1998, was primarily the result of the decrease in
license activity during the year. Service revenue as a percentage of total
revenue was 45%, 55%, and 74% for the years ended December 31, 1997, 1998, and
1999 respectively. The increase in revenue from services as a percentage of
total revenues during 1998 was primarily the result of the strong service
revenue growth during the year. The increase in service revenue as a percentage
of total revenues during 1999 reflects primarily the change in revenue mix
during the year resulting from the 49% decrease in license revenue and the 31%
increase in service revenue. There can be no assurance that PeopleSoft will be
successful in further expanding its consulting services group, or that revenues
from consulting services will not decrease.

The Company recognized revenue from development services in the amount of
$27.6 million during 1999. Per the terms of the development agreement with
Momentum Business Applications, the Company performed development services on
behalf of Momentum Business Applications. Momentum Business Applications pays
the Company one hundred and ten percent (110%) of the Company's fully burdened
costs relating to the research and development provided by the Company. In
addition to development services Momentum Business Applications paid third-party
royalty costs in the amount of $4.0 million for technology, which will be

22
<PAGE> 25

incorporated into products developed by Momentum Business Applications. The
Company also charged Momentum Business Applications a quarterly administrative
fee of $0.1 million.

Total revenues increased by 58% from $932.2 million in 1997 to $1,474.8
million in 1998 and decreased by 3% from 1998 to $1,429.1 million in 1999. The
increase in total revenues in 1998 is primarily attributable to the strong
growth in services revenue, while the decrease in total revenues in 1999
resulted from the 49% decrease in license revenue, partially offset by the 31%
growth in services revenue.

Revenues from international operations increased by 72% from $143.9 in 1997
or 15% of total revenue to $246.9 million or 17% of total revenue during 1998;
and increased by 34% from 1998 to $330.6 million or 23% of total revenues for
1999. The dollar increases in international revenues in 1998 and 1999 resulted
primarily from expanded international operations and the introduction of
PeopleSoft Release 6 and later Release 7.5, which incorporated additional global
features and functionality. Revenues from Europe in 1999 represented 13% of
total revenues compared to 9% in 1998. No other region had revenues greater than
10% of total revenues in 1998 or 1999.

Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions", were issued in October 1997,
March 1998, and December 1998 and address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede SOP 91-1 and, in part, were effective for
transactions entered into for fiscal years beginning after December 15, 1997.
Based on its reading and interpretation of SOPs 97-2 and 98-4, the Company
believes it is currently in compliance with the standards. SOP 98-9 provides
additional guidance regarding software revenue recognition and is required to be
adopted as of the beginning of the Company's first quarter of fiscal 2000. There
can be no assurance that complying with the provisions of SOP 98-9 or future
additional guidance pertaining to these standards will not result in unexpected
modification of the Company's current revenue recognition policies that could
have a material adverse effect on the Company's future license revenues, results
of operations and financial condition.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") and amended it in March 2000. PeopleSoft is required to adopt the
provisions of SAB 101 in its second fiscal quarter of 2000. The Company is
currently reviewing the provisions of the statement and has not fully assessed
the impact of its adoption. While SAB 101 does not supercede the software
industry specific revenue recognition guidance which the Company believes it is
in compliance with, the SEC Staff has recently informally indicated its views
related to SAB 101 which may change current interpretations of software revenue
recognition requirements. Such SEC interpretations could result in many software
companies including PeopleSoft recording a cumulative effect of a change in
accounting principles retroactive to January 1, 2000.

COSTS AND EXPENSES

Cost of license fees consists principally of royalties, technology access
fees for certain third-party software products and amortization of capitalized
software costs. Cost of license fees increased from $22.4 million in 1997 to
$44.4 million in 1998, and decreased to $42.6 million in 1999, representing 2%
of total revenues in 1997 and 3% of total revenues in each of 1998 and 1999.
Cost of license fees represented 4%, 7% and 13% of license fee revenues in 1997,
1998 and 1999. Royalty costs in 1998 included a one-time $2.5 million buy out of
royalty fees related to providing certain technology embedded in Release 7.5 to
its existing customer installed base. Also, included in the 1998 cost of license
fees amount is $1.4 million amortization of Intrepid purchased software. In
addition, cost of license fees in 1998, increased due to royalty agreements
related to OLAP tools embedded within the Company's products and royalties owed
on the Student Administration and Treasury products. The decrease in absolute
dollars in cost of license fees in 1999, resulted primarily from a decrease in
royalties of $11.7 million resulting from the decrease in license revenue during
the year, partially offset by an increase of $6.8 million in capitalized
software amortization expense related to the software acquired from Intrepid,
TriMark and Distinction. The increase in cost of licenses as a percentage of
license revenue from

23
<PAGE> 26

1998 to 1999 results from the decrease in license revenue over those periods.
Despite the lower license revenue, certain royalty costs and all capitalized
software amortization are fixed in nature and thus are recorded as period costs.
The Company's system solutions are based on a combination of internally
developed technology and application products, as well as bundled third-party
products and technology. Cost of license fees as a percentage of license fee
revenues may fluctuate from period to period due principally to the mix of sales
of royalty-bearing software products in each period and seasonal fluctuations in
revenues contrasted with certain fixed expenses such as the amortization of
capitalized software. Royalties associated with certain software products
currently under development by joint business arrangements and charges
associated with software products and technologies acquired from various third
party vendors may cause the cost of license fees as a percentage of license fee
revenues to increase in future periods.

Cost of services consists primarily of employee-related costs and other
expenses incurred to provide consulting, customer care center administrative
support, account management field support, training, and product support. These
costs increased from $251.9 million in 1997, to $465.7 million in 1998, and to
$564.4 million in 1999, representing 27%, 31%, and 39% of total revenues and
60%, 57% and 53% of service revenues in those years. The dollar increase in cost
of services is due to expansion of the Company's customer service resources,
including consulting and telephone support, and is consistent with the increase
in services revenue. In particular, the Company has made a significant
investment in its professional consulting services organization, which has grown
substantially over the past two years. The decrease of cost of services as a
percentage of service revenues is due to efficiency gains, particularly in the
Company's maintenance business. The Company anticipates cost of services will
increase in dollar amount, and may increase as a percentage of service revenues
and total revenues in future periods.(1)

Sales and marketing expenses increased from $270.5 million in 1997, to
$407.0 million in 1998, and decreased to $391.6 million in 1999, representing
29%, 28%, and 27% of total revenues. The increase in sales and marketing
expenses in 1998 is largely attributable to the Company's expansion of its sales
and marketing force, both domestic and international, from approximately 1,217
employees as of December 31, 1997 to 1,802 employees as of December 31, 1998.
Additionally, the Company's commission expense increased by approximately $19.0
million from 1997 to 1998 as a result of the higher revenue. The decrease in
sales and marketing expenses in 1999 was primarily the result of a $27.0 million
decrease in commission expense, partially offset by miscellaneous increases in
the sales and marketing expense of the Company's CRM products. Sales and
marketing expenses as a percentage of total revenues have declined versus the
prior years due to the relatively lower expense levels associated with both
maintenance and other services revenues, both of which have grown as a
percentage of total revenues during the last two years. Sales and marketing
expenses may increase as a percentage of total revenues in future periods as the
Company increases its marketing and advertising costs. In addition, the Company
may choose to invest in sales resources for new product areas.(1)

Software product development expenses increased from $147.1 million in
1997, to $238.0 million in 1998, and to $297.2 million in 1999, representing 16%
of total revenues in each of 1997 and 1998 and 21% in 1999. The Company's
research and development staff consisted of 1,458 and 1,693 employees as of
December 31, 1998 and 1999. Capitalization of internal software development
costs was $2.5 million in 1997, $5.6 million in 1998, and $1.5 million in 1999.
In general, software product development expenditures consist of costs related
to the Company's staff of software developers and outside consultants, and the
associated infrastructure costs required to support software product development
initiatives. During 1999, software product development expenses increased in
dollar amount and as a percentage of total revenues as the Company continued to
invest heavily in its eBusiness applications and Internet technologies. During
the fourth quarter of 1999, the Company delivered its first suite of products
exploiting the pure HTML PeopleSoft Internet Architecture, PeopleSoft Enterprise
Performance Management, comprised of the Balanced Scorecard, CRM Analytics and
Workforce Analytics products. The Company's current focus in application
development is to complete its next major release, PeopleSoft 8. PeopleSoft 8 is
expected to be the first pure HTML internet client offering from the Company,
and includes internet technologies, such as XML, publish-subscribe and business
interlink. In addition to this major technology shift, the Company expects to
deliver enhanced functionality in

- ---------------

(1) Forward-Looking Statement
24
<PAGE> 27

its core products and a number of new applications, mostly focused on eCommerce
and internet collaboration.(1) The Company expects that the dollar amount
invested in software product development expenses will continue to increase
during 2000 as the Company continues to invest in expanded functionality across
all of its software product offerings, including global product requirements and
industry specific requirements.(1) There can be no assurance that such
development efforts will result in products, features or functionality or that
software products, features or functionality that are developed will be accepted
by the market.

General and administrative expenses increased from $53.0 million in 1997 to
$73.8 million in 1998, and to $97.4 million in 1999, representing 6%, 5%, and 7%
of total revenues. The dollar increase in 1998 resulted primarily from increases
in staffing and related infrastructure to support the Company's growth. In
addition, general and administrative expenses for 1998 include one-time charges
of $6.3 million related to a contractual dispute and associated termination of
the Company's arrangement with a distributor. The dollar increase in 1999 is
primarily due to an increase in amortization of goodwill and value of workforce
expense of about $6.6 million, resulting from the Intrepid, TriMark and
Distinction acquisitions, an increase in depreciation expense of approximately
$6.5 million, and an increase in salaries and benefits of approximately $5.7
million.

IN-PROCESS RESEARCH AND DEVELOPMENT, ACQUISITION AND OTHER CHARGES

The following table sets forth the components of "In-process research and
development, acquisition and other charges" (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Acquired in-process research and development and other
acquisition charges................................. $21,121 $24,795 $ --
Vantive merger transaction costs...................... -- -- $15,835
Restructuring and exit charges........................ -- -- 42,793
Product exit charge................................... -- -- 10,442
Leasehold improvements write off...................... -- -- 3,980
------- ------- -------
In-process research and development, acquisition
and other charges.............................. $21,121 $24,795 $73,050
======= ======= =======
</TABLE>

For a discussion of the acquired in-process research and development and
other acquisition charges and the product exit charge see "Business
Combinations." The Vantive merger transaction costs are discussed below under
"Merger." Restructuring and exit charges are discussed below under
"Restructuring and Exit Charges." The leasehold improvements write-off relates
to the abandonment of certain facilities, which had leasehold improvements that
had not been fully depreciated as of the time the decision to abandon the
facilities was made.

MERGER

On December 31, 1999, PeopleSoft merged with Vantive, a supplier of
customer relationship management solutions, in a business combination accounted
for under the pooling of interests method of accounting. PeopleSoft acquired all
of the outstanding capital stock of Vantive, in exchange for approximately 23.3
million shares of PeopleSoft's common stock and the assumption of approximately
4.9 million Vantive outstanding stock options by PeopleSoft, ("the
Acquisition"). The Acquisition was effected by means of a merger pursuant to
which a wholly owned subsidiary of PeopleSoft merged with and into Vantive, with
Vantive as the surviving company. Promptly thereafter, PeopleSoft merged Vantive
into itself and the separate corporate existence of Vantive ceased.

- ---------------

(1) Forward-Looking Statement
25
<PAGE> 28

Combined and separate results of the companies for the three-year period
ended December 31, 1999, the date of Acquisition, were as follows (in
thousands):

<TABLE>
<CAPTION>
PEOPLESOFT VANTIVE ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
1997
Total revenues.................... $ 815,651 $117,346 $ (843) $ 932,154
Net income (loss)................. 108,263 (6,958) -- 101,305
Diluted net income (loss) per
share.......................... 0.44 (0.28) 0.21 0.37
1998
Total revenues.................... $1,313,673 $163,100 $(2,005) $1,474,768
Net income (loss)................. 143,218 (2,286) (994) 139,938
Diluted net income (loss) per
share.......................... 0.55 (0.08) 0.03 0.50
1999
Total revenues.................... $1,237,871 $191,518 $ (243) $1,429,146
Net (loss) income................. (167,941) (9,988) 164 (177,765)
Net loss per share................ (0.69) (0.37) 0.39 (0.67)
</TABLE>

The consolidated financial statements have been adjusted to eliminate
transactions between PeopleSoft and Vantive. There were no material differences
between the accounting policies of PeopleSoft and Vantive and the fiscal years
of both companies ended on December 31; accordingly, no other adjustments were
required for these items.

Fees and expenses incurred in connection with the Acquisition and the
integration of the combined companies have been charged in the accompanying
consolidated statements of income for the year ended December 31, 1999 as
required under the pooling of interests method of accounting. These fees and
expenses include transaction costs of approximately $15.8 million relating to
financial advisory, legal, and accounting fees, employee costs payable at the
effective time of the merger and other direct expenses. In addition, charges of
approximately $34.1 million were recorded to reflect certain exit costs incurred
to consolidate the worldwide operations of PeopleSoft and Vantive.

RESTRUCTURING AND EXIT CHARGES

In the first quarter of 1999, the Company adopted a restructuring plan and
incurred a pretax restructuring charge of $4.4 million. PeopleSoft eliminated
approximately 430 redundant and unnecessary positions, primarily in the U.S., in
the administration, sales support, and marketing support areas. All severance
costs associated with this restructuring were paid in 1999 and were funded
through operating cash flow.

During the second and third quarters of 1999, Vantive, which subsequently
merged with the Company, adopted a restructuring plan and incurred pretax
charges of $4.3 million to implement a restructuring program aimed at reducing
its cost structure. The restructuring charges consisted primarily of write-offs
of operating assets associated with the termination of certain projects and
relationships that were inconsistent with changes in the operational direction
of Vantive. Additional charges were associated with employee severance. As a
result of these restructuring actions, five U.S. employees separated from
Vantive, including the former chief executive officer and chief operating
officer. Approximately $0.7 million of the restructuring charges were cash
charges, substantially paid in 1999 and funded through operating cash flow. The
remaining $3.7 million represented fixed asset write-downs in the amount of $3.0
million, non-cash compensation expense in the amount of $0.5 million and
write-off of the remaining unamortized goodwill attributable to the Wayfarer
acquisition in the amount of $0.2 million.

In the fourth quarter of 1999 the Company incurred a pretax exit charge of
$34.1 million, to consolidate the worldwide operations of PeopleSoft and
Vantive. The exit charge included employee severance, write-off of duplicative
equipment and other fixed assets, costs associated with the elimination of
excess facilities, and costs to terminate contracts with third parties that
provide redundant or conflicting services. Approximately 44 redundant positions
in the U.S., primarily in the management and administration areas, will be
eliminated. A total of 39 employees left the Company during the first quarter of
2000. The additional five employees will

26
<PAGE> 29

leave the Company during the second quarter of 2000. Approximately $21.8 million
of the exit charge is a cash charge and is expected to be funded through
operating cash flow. The remaining $12.3 million represents asset write-downs.
These exit actions are expected to be substantially completed by the end of
2000.(1)

The company expects the 1999 restructuring and exit charges to be recovered
over an 18 to 24 month period(1). However, no assurance can be given that the
Company will be able to recover these expenses on that schedule, if at all. For
further details on these restructuring actions, see "Restructuring and exit
charges" under "Notes to Consolidated Financial Statements."

BUSINESS COMBINATIONS

During the three years ended December 31, 1999, the Company completed the
acquisitions described below, which were accounted for under the purchase method
of accounting and, accordingly, the results of operations of each acquisition
are included in the consolidated statements of income since the acquisition
date, and the related assets and liabilities were recorded based upon their fair
values at the date of acquisition. Pro forma results of operations have not been
presented for any of the acquisitions because the effects of these acquisitions
were not material to the Company on either an individual or an aggregate basis.

1999

Distinction Software, Inc.

In August 1999, the Company acquired all of the outstanding equity
interests of Distinction Software, Inc. ("Distinction"), a supply chain
management software company. The Company paid an aggregate purchase price of
$15.2 million. Significant components of the purchase price included issuance of
common stock with a fair value of $11.9 million, issuance of options to purchase
common stock with a fair value of $0.1 million, to Distinction employees, and
forgiveness of debt in the amount of $3.2 million.

The Company allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $3.0
million to completed products and technology, $0.1 million to assembled
workforce, $1.1 million to customer list and $11.1 million to goodwill. The
capitalized intangible assets are being amortized over their estimated useful
lives of two to four years.

In performing this allocation, the Company considered, among other factors,
intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Distinction's
products. The Company determined that technological feasibility had been reached
for the products acquired and, therefore, none of the purchase price was
allocated to in-process research and development. The projected incremental cash
flows were discounted back to their present value using a discount rate of 22%
for developed technology. This discount rate was determined after consideration
of the Company's cost of capital, the weighted average return on assets, venture
capital rates of return, and revenue growth assumptions. Associated risks
include achieving anticipated levels of market acceptance and penetration,
market growth rates and risks related to the impact of potential changes in
future target markets.

The Company's projections may ultimately prove to be incomplete or
inaccurate, and unanticipated events and circumstances are likely to occur.
Therefore, no assurance can be given that the underlying assumptions used to
forecast revenues and costs to develop such projects will transpire as
estimated.

TriMark Technologies, Inc.

In May 1999, the Company acquired the assets and assumed certain
liabilities of TriMark Technologies, Inc. ("TriMark"), a leading developer of
software solutions for the insurance industry. The assets acquired included
Transcend, TriMark's UNIX based client/server administration solution for
annuity and life insurance processing. The Company paid an aggregate purchase
price of $29.9 million. Significant components of the $29.9 million purchase
price included issuance of common stock with a fair value of $18.1 million,

- ---------------

(1) Forward-Looking Statement
27
<PAGE> 30

issuance of options to purchase common stock with a fair value of $8.2 million,
to TriMark employees, and forgiveness of debt of $3.6 million.

The Company has allocated the excess purchase price over the fair value of
net tangible assets acquired to the following identifiable intangible assets:
$10.6 million to completed products and technology, $4.9 million to customer
list, $0.4 million to assembled workforce, and $14.1 million to goodwill. The
capitalized intangible assets are being amortized over their estimated useful
lives of three to five years.

In performing this allocation, the Company considered, among other factors,
its intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of TriMark's product.
The Company determined that technological feasibility had been reached for the
Transcend product prior to the date of acquisition and therefore, none of the
purchase price was allocated to in-process research and development. The
projected incremental cash flows were discounted back to their present value
using discount rate of 20% for developed technology. This discount rate was
determined after consideration of the Company's cost of capital, the weighted
average return on assets, venture capital rates of return, and revenue growth
assumptions. Associated risks include achieving anticipated levels of market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets.

1998

Intrepid Systems, Inc.

In October 1998, the Company acquired the assets and assumed certain
liabilities of Intrepid. The Company paid an aggregate purchase price of $51.5
million. The assets acquired included two products: Evolution and Decision
Master. Evolution is a retail management system supporting on-line transaction
processing ("OLTP") systems for merchandise management, store operations
management and financial management for sales systems and retail stock ledgers.
Decision Master is an on-line analytic processing ("OLAP") decision support
system designed to provide better data and analysis tools which may be used to
improve retail operations.

The Company allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $27.8
million to completed products and technology, $2.2 million to assembled
workforce, $13.9 million to in-process research and development and $7.1 million
to goodwill. As of the acquisition date, technological feasibility of the
in-process technology had not been established and the technology had no
alternative future use; therefore, the Company expensed the amount of the
purchase price allocated to in-process research and development of approximately
$13.9 million as of the date of the acquisition in accordance with generally
accepted accounting principles. The capitalized intangible assets are being
amortized over their estimated useful lives of five years.

In performing this allocation, the Company considered, among other factors,
its intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Intrepid's products
and the research and development projects in process at the date of the
acquisition. Evolution's in-process research and development ("IPR&D")
activities included the planning, designing and testing for re-writing certain
functionality to improve performance, adding new functionality to better address
competitive offerings, conforming the "look and feel" of the system with
PeopleSoft's standards, and expanding the integration of Evolution with
complementary PeopleSoft products. Decision Master's IPR&D activities included
the planning, designing and testing for the re-writing of nearly the entire
product to support or incorporate several new products and/or technologies
particularly in the areas of extracting, translating and loading data, defining
and creating the data warehouse and "meta" data layer, and accessing and
analyzing the meta data. The Company allocated $4.3 million and $9.6 million to
the Evolution and Decision Master IPR&D projects.

28
<PAGE> 31

With regard to the IPR&D projects, the Company considered, among other
factors, the stage of completion of each project, the attainment of
technological feasibility, the importance of each project to the overall
development plan, alternative future uses of the technology and the projected
incremental cash flows from the projects when completed and any associated
risks. The incremental cash flows were discounted at an annual rate of 25% to
determine the value of each IPR&D project. The discount rate reflects the risks
associated with the inherent difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, achieving anticipated
levels of market acceptance and penetration, market growth rates, competitive
risks, information technology investment trends in the retail industry, and
risks related to the impact of potential changes in future target markets. The
Company anticipated that the IPR&D projects would take up to 18 months to
complete and would require an additional $3.2 million and $1.4 million to
complete for Evolution and Decision Master. Estimated revenue from the purchased
in process projects peak in the year 2002 at $23.0 million with respect to the
decision support system and 2003 at $11.0 million with respect to the
merchandise management system, and, thereafter, decline through 2005 as other
new products are expected to be introduced. Revenues and costs to date related
to the Evolution product, have been materially consistent with the assumptions
used in the valuation model. These projections were based on management's
estimates of market size and growth, expected trends in technology and the
expected timing of new product introductions.

The Decision Master product is now complete and was released in the fourth
quarter of 1999 as part of the PeopleSoft's Enterprise Performance Management
product offering. Development plans for the Evolution product have been
terminated. During the 2000 annual budget process, it was determined that the
market for the Evolution product did not grow as estimated at the time of the
Intrepid acquisition. With this knowledge and the fact that the Company could
not commit to fund all of the product initiatives being proposed for 2000, the
Company decided not to pursue Evolution's development past the fourth quarter of
1999. Without future development, Evolution is not a viable, marketable product
and thus no future cash flows are expected to be realized from this product. As
a result, in the fourth quarter of 1999, the Company recorded a product exit
charge in the amount of $10.4 million.

Should actual growth rates be materially lower in future periods, the
Company will realize a lower return on its remaining investment in Intrepid. The
Company will periodically assess whether there has been an impairment in the
carrying value of acquisition costs related to Intrepid's products based on the
then current level of licensing activity and the Company's assessment of the
overall market conditions in the retail industry. Should the Company determine
that there has been an impairment, there could be additional charges to
operations related to reducing the carrying value of the impaired assets to
their net realizable value.

Wayfarer Communications, Inc.

In June 1998, the Company acquired Wayfarer Communications, Inc.
("Wayfarer"), a development-stage company that specialized in web-based
information delivery. The Company issued 135,274 shares of its common stock and
exchanged 1,857 shares of the Company's common stock for 89% of Wayfarer shares.
In December 1998, the Company issued 10,544 shares for the remaining shares of
Wayfarer and recorded charges associated with acquiring the remaining minority
interest of approximately 11% of Wayfarer. The Company acquired in-process
research and development related to the creation of a web-browser front end
which would be used in conjunction with a new technology designed to distribute,
leverage and make use of the knowledge, resources and information that companies
had stored in their ERP and front office automation systems.

In connection with the acquisition, the Company recorded a charge of $9.2
million associated with the acquired in-process research and development and
compensatory expenses of approximately $1.7 million. As of the acquisition date,
technological feasibility of the in-process technology had not been established
and the technology had no alternative future use; therefore, the Company
expensed the amount of the purchase price allocated to in-process research and
development in accordance with generally accepted accounting principles. In
addition, the Company recorded goodwill of approximately $0.4 million at the
time of the acquisition, to be amortized over five years.

29
<PAGE> 32

The Company allocated the purchase price to the fair value of the net
tangible assets and identified intangible assets acquired including the
in-process research and development technology. In performing this allocation,
the Company considered, among other factors, intentions for future use of the
acquired assets and estimates of future performance of the technology present at
the date of acquisition. The IPR&D activities included the planning, designing,
prototyping, scalability verification and testing activities that were necessary
to establish that the proposed technologies would meet their design
specifications including functional, technical and economic performance
requirements.

Management has assessed the projects related to the acquired in-process
technology and determined that the release of the functionality that relates to
the projects that were in existence at the time of the acquisition will not
occur. Rapid changes in the development of technology surrounding the Web have
resulted in the termination of the release of the functionality related to the
acquired in-process technology. This conclusion is consistent with the
termination of funding for these projects during the second quarter of 1999. As
a result, the expected revenue originally used in the valuation forecast at the
time of the acquisition will not materialize.

As of September 1999, the Company had not received any revenue related to
the in-process technology, management had determined that the Wayfarer
technology would not be incorporated into the Company's future product releases,
and all development plans for a separate generation product based on the
acquired technology had been terminated. As of June 30, 1999, no engineering
personnel were working on the in-process projects. In addition, the Company's
research and development expenditures attributable to the Wayfarer technology
were significantly lower than the valuation forecast assumptions. The risks
associated with these projects were considered high and no assurance could be
made that products derived from the Wayfarer technology would meet market
expectations. There were no research and development expenses attributable to
the Wayfarer technology during the second half of 1999. The remaining $0.2
million of unamortized goodwill attributable to the Wayfarer acquisition was
expensed as part of the restructuring charge taken in the three-month period
ended September 30, 1999.

1997

Innovative Computer Concepts, Inc.

In August 1997, the Company completed the acquisition of Innovative
Computer Concepts, Inc. ("ICC"), a development-stage software company founded
with the intent of designing and marketing a client/server based spare parts,
inventory and procurement management software system. Upon consummation of the
acquisition, ICC became a wholly owned subsidiary of the Company. The Company
paid an aggregate purchase price of $21.0 million (including direct costs of the
acquisition). At the time of the acquisition, ICC's in-process research and
development value was comprised of several individual on-going projects which
included a client/server object-oriented application server architecture, a
transaction bus, an event logger, a transaction processor, a business rule
engine, an object/relational data layer and productivity tools.

30
<PAGE> 33

In connection with the acquisition, the Company received an appraisal of
the intangible assets, which indicated that approximately $21.1 million
represented acquired in-process research and development. As of the acquisition
date, technological feasibility of the in-process technology had not been
established and the technology had no alternative future use; therefore, the
Company expensed the amount of the purchase price allocated to in-process
research and development as of the date of the acquisition in accordance with
generally accepted accounting principles. In addition, the Company recorded
goodwill of approximately $0.7 million, which is being amortized over five
years.

With regard to the IPR&D project, the Company considered, among other
factors, the stage of completion of the project, the attainment of technological
feasibility, the importance of the project to the overall development plan,
alternative future uses of the technology and the projected incremental cash
flows from the project when completed and any associated risks. The incremental
cash flows were discounted at an annual rate of 40% to determine the value of
the IPR&D project. The discount rate reflects the risks associated with the
inherent difficulties and uncertainties in completing the project and thereby
achieving technological feasibility, achieving anticipated levels of market
acceptance and penetration, market growth rates, competitive risks, and
profitability. Actual costs and time frame to complete the development efforts
are believed to be consistent with the estimates made at the time of the
acquisition. Cash flows from license and services revenue obtained from the
combined ICC-derived technology and Vantive products whose sales the Company
believed were dependent upon the Company being able to offer the ICC-derived
technology (together, the "Combined Revenues") were estimated to be
approximately $360 million over five years assuming the successful completion
and market acceptance of the ICC technology in conjunction with the Vantive
products. The Combined Revenues were expected to peak in 1999 and then decline
as other new products and technologies are expected to enter into the market.
The Company offers its products both as a suite and as single applications, and
derives concurrent user fees which are not necessarily application specific. As
a result, the Company cannot determine precisely the breakdown of revenues
attributable to specific applications for customers who have purchased more than
one application. However, the Company believes that the Combined Revenues
generated to date have been below the assumptions used in the original analysis.
Approximately 50% of the Company's FieldService specific sales in 1999 included
the ICC-derived inventory and procurement modules. This is slightly below the
original expectations for the FieldService product. Sales of the Company's
HelpDesk and Sales Force Automation applications have been less influenced by
the availability of the ICC derived spare parts inventory and procurement
modules.

CONTRIBUTION TO MOMENTUM BUSINESS APPLICATIONS

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<PAGE> 34

met the requirements for consolidation. As a result, the Company incurred a
charge of $176.4 million, which represents the $250.0 million contribution less
the $78.6 million dividend recorded as of December 31, 1998, investment banker
fees of $2.9 million, other expenses related to the formation of Momentum
Business Applications, and expenses incurred by Momentum Business Applications
while consolidated with the Company.

OTHER INCOME, NET

Other income, net for 1997, 1998 and 1999 was $11.2 million, $20.8 million
and $72.2 million. The increase in 1998 was primarily the result of an increase
in interest income of $11.4 million resulting from higher cash and investment
balances based upon improved cash collections and higher pre-tax return on
investments, partially offset by an increase in interest expense in the amount
of $2.9 million due to the issuance of $69.0 million in convertible notes in
1998. The increase in Other income, net in 1999 was primarily the result of
$51.3 million in gains on the sale of certain strategic investments in several
new publicly traded internet start-up companies. See also "Investments in
Corporate Equity Securities and Unrealized Gains."

PROVISION FOR INCOME TAXES

The Company's income tax provision increased from $76.1 million in 1997 to
$101.9 million in 1998 and decreased to $11.4 million in 1999. Excluding the
impact of nondeductible one-time charges of $195 million in 1999, the Company's
effective tax rate was 42.9%, 42%, and 35.6% in 1997, 1998 and 1999. The 1999
rate is lower than 1998 due to an increase in the research and development
credit and the recognition of previously unrecognized foreign tax benefits. The
Company increased its valuation allowance by $4.6 million in 1999 to a total of
$18.8 million. The increase relates to foreign operating losses.

EARNINGS PER SHARE

Diluted earnings (loss) per share increased from $0.37 in 1997 to $0.50 in
1998 and decreased to $(0.67) in 1999. Earnings per share for 1998 increased as
a result of the 38% increase in net income from $101.3 million for the year
ended December 31, 1997 to $139.9 million for the year ended December 31, 1998,
partially offset by a 4% increase in the number of shares used in the diluted
per share computation from 270.2 million shares for the year ended December 31,
1997 to 281.1 million shares for the year ended December 31, 1998. The increase
in weighted average shares outstanding was due to the exercise of stock options
and the issuance of shares under the employee stock purchase plan. Loss per
share for 1999 was $(0.67) primarily due to the expense of $176.4 million for
the contribution to Momentum Business Applications, $73.1 million of in-process,
research and development and other charges, partially offset by a gain on sale
of corporate equity securities in the amount of $51.3 million and a decrease of
6% in the number of shares used in the per share computation from 281.1 million
shares for 1998 to 263.9 million shares outstanding as of December 31, 1999.
Common equivalent shares of 8.2 million were excluded from the computation for
the year ended December 31, 1999, as their effect is antidilutive. Shares
outstanding during 2000 might be impacted by the following factors: (i) the
issuance of common stock associated with stock option exercises and the employee
stock purchase plan; (ii) any fluctuations in the Company's stock price, which
could cause changes in the number of common stock equivalents included in the
earnings per share computation; (iii) potential conversion of subordinated notes
into common stock of the Company; and (iv) the issuance of common stock to
effect business combinations, should the Company enter into such transactions.

INVESTMENTS IN CORPORATE EQUITY SECURITIES AND UNREALIZED GAINS

The Company has classified its investments in several new publicly traded
Internet start-up companies as investments available for sale (included in
"Investments in corporate equity securities" in the accompanying consolidated
balance sheets). These investments, comprised of marketable securities, are
carried at fair value as determined by quoted market prices. Realized gains on
the sale of these investments for the year ended December 31, 1999 were $51.3
million. The aggregate fair value of Corporate Equity Securities held at
December 31, 1999, was $260.7 million. Gross unrealized gains were $241.0
million as of December 31, 1999,
32
<PAGE> 35

and are included, net of deferred income taxes of $92.8 million, as a component
of "Accumulated other comprehensive (loss) income". A substantial portion of the
unrealized holding gains relates to an investment in a company that completed
its public offering in the third quarter of 1999. These corporate equity
securities are subject to lock-up provisions, which expire at various dates
through August 2000. The Company intends to sell these investments when the
lock-up provisions expire(1). However, the stock market is highly volatile.
There is no assurance that the net unrealized holding gains as of December 31,
1999 will be realized.

NEWLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998.
Statement 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. As amended,
this statement is effective for fiscal years beginning after June 15, 2000. The
Company will apply the new rules prospectively to transactions beginning in the
first quarter of 2001. Based on current circumstances, the Company believes the
application of the new rules will not have a material impact on the consolidated
financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities provided cash of $341.5 million during
1998, and used cash of $46.7 million during 1999. During 1998, cash provided by
operating activities were primarily provided by earnings ($139.9 million) plus
non-cash items ($84.2 million), increases in deferred revenue ($194.1 million),
accrued compensation and related expenses ($40.9 million), and accounts payable
and accrued liabilities ($27.8 million), the sum of which, were partially offset
by increases in accounts receivable ($112.6 million) and other assets ($30.8
million). Cash used by operating activities during 1999 included the $176.4
million contribution to Momentum Business Applications. Excluding this
contribution, cash provided by operating activities in 1999 would have been
$129.7 million, primarily provided by net loss ($1.4 million) plus non-cash
items ($82.1 million), decreases in accounts receivable ($88.9 million) and
increases in accrued compensation and related expense ($12.5 million), partially
offset by increases in accounts payable ($17.4 million) and deferred revenue
($13.5 million) and increases in other assets ($13.3 million). On December 31,
1999, in connection with the merger with Vantive, the Company recorded certain
exit charges totaling $34.1 million. Approximately $21.8 million of the exit
charge is cash in nature and is expected to be paid during 2000 through
operating cash flow.(1)

The Company calculates accounts receivable days sales outstanding ("DSO")
as the ratio of the year-end accounts receivable to the sum of quarterly
revenues, multiplied by 90. Under this method, DSO was 93 days as of December
31, 1998 and 80 days as of December 31, 1999. The decrease in the DSO since
December 31, 1998 was primarily due to strong collection efforts during the
second half of 1999. The Company's DSO can fluctuate depending upon a number of
factors including the concentration of transactions that occur toward the end of
each quarter and fluctuations in quarterly operating results.

Net cash used in investing activities during the 1998 was $216.1 million
compared to $90.8 million in 1999. The Company's principal use of cash for
investing activities included net purchase of investments for $53.8 million and
$34.3 million during 1998 and 1999. Purchases of property and equipment,
comprised of computer and networking equipment, were $113.6 million and $57.2
million during 1998 and 1999. The Company expects purchases of property and
equipment to be around $55 million during 2000(1). Also, during 1998, cash used
in investing activities included $43.1 million used for the purchase of
Intrepid.

During 1998, the Company entered into agreements to sell one of its
Pleasanton, California office buildings and related land, and lease back a
substantial portion of the premises. Additionally, the Company purchased two
parcels of land for $50.0 million during the third quarter of 1998. These
transactions were structured as a like-kind exchange for tax purposes and,
therefore did not impact immediate cash flow. The Company is committed to lease
buildings costing approximately $110.0 million, which will be constructed on
- ---------------
(1) Forward-Looking Statement
33
<PAGE> 36

one of the sites. The construction is expected to be completed in the first
quarter of 2000. The lease term is for five years with the option to purchase
the buildings for $110.0 million at the end of the lease term. The Company also
entered into a five-year lease for a new facility in Pleasanton, California. The
lessor has funded $70.0 million for the construction of this facility that was
completed in the fourth quarter of 1998. The Company has an option to purchase
the building at the end of the lease term for $70.0 million. In the event the
Company exercises the options to purchase these buildings, the Company plans on
utilizing cash flow from operations to fund the purchase(s), however there can
be no assurance that the Company will maintain its levels of cash flows from
operations.

Net cash provided by financing activities for the year ended December 31,
1998 was $114.2 million compared to net cash used in financing activities of
$21.8 million in 1999. Proceeds from the exercise of common stock options by
employees and issuance of stock under the employee stock purchase program were
$70.2 million and $71.6 million for 1998 and 1999. During 1999, proceeds from
exercise of common stock options and issuances under the stock purchase plan
were offset by the Company's distribution of $78.6 million in Momentum Business
Applications shares to PeopleSoft shareholders. The Company believes granting
stock options is essential in attracting and retaining key employees who are
critical to the Company's success. In 1997, 1998 and 1999, the Company granted
options aggregating 5%, 8%, and 12%, of the common stock issued and outstanding
at the beginning of each year. The actual number of options granted each year is
based on a variety of factors including competitive factors associated with the
labor market, the Company's historical and anticipated employee count, the level
of hiring activity, and comparison of the Company's compensation philosophy and
practice to other similar technology companies. There can be no assurance that
employee stock activity will continue to generate substantial funds in the
future.

In November 1995, PeopleSoft issued warrants to purchase shares of the
Company's common stock with annual exercise dates through 1999. In November
1997, the Company issued 942,880 shares of common stock pursuant to the net
exercise of warrants to purchase 1,600,000 shares of common stock at $13.75 per
share. In March 1999, the Company issued 572,000 shares of common stock pursuant
to the net exercise of warrants to purchase 1,600,000 shares of common stock at
$13.75 per share. In November of 1999, the company issued 77,000 shares of
common stock pursuant to the net exercise of warrants to purchase 1,600,000
shares of common stock at $16.875 per share. During 1999, the Company issued a
warrant to purchase 40,000 shares of the Company's common stock. This warrant
has an exercise price of $12.69 per share and will expire on May 11, 2006.

As of December 31, 1999, the Company had $607.2 million in working capital,
including $414.0 million in cash and cash equivalents and $290.1 million in
short-term investments, consisting principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt and equity securities
of corporations, municipalities and the U.S. Government. The Company believes
that the cash and short term investment balances, proceeds from sale of
strategic investments, stock under the employee purchase plan and stock option
exercises, and potential cash flow from operations will be sufficient to meet
its operating cash requirements at least through 2000.(1)

YEAR 2000 READINESS

During 1999, the Company successfully completed its program to achieve Year
2000 Readiness. Preparations included the establishment of a Year 2000 Program
Management Office ("PMO") to ensure that it had adequately addressed exposures
related to the Year 2000 and was Year 2000 Ready. "Year 2000 Ready" meant that
the performance or functionality of the Company's internal systems would not be
significantly affected by the dates prior to, during, and after the Year 2000,
to include leap year calculations and specific day-of-the-week calculations.

As expected, the Company has not experienced a material adverse impact on
its business, products, results of operations, or financial condition as a
result of the Year 2000 issue.

- ---------------
(1) Forward-Looking Statement
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<PAGE> 37

Costs directly attributed to the Company's internal Year 2000 initiative
were in line with the original estimate of approximately $4.0 million. These
costs were expensed as incurred and were comprised primarily of the costs of
hardware and software required to complete Year 2000 testing within the
enterprise and consulting fees. These costs exclude internal resource costs for
individuals outside of the PMO; however, internal resource costs are not
considered to be material.

The Company will continue to monitor its critical processes, and those of
significant suppliers, third-party external interface suppliers, and utility
organizations that are critical to the Company's operations, for potential Year
2000-related problems.

ITEM 7A. FINANCIAL RISK MANAGEMENT

FOREIGN EXCHANGE RISK

The Company's revenues originating outside the United States were 15%, 17%
and 23% of total revenues in 1997, 1998 and 1999. International revenues
generated from Europe were 13% in 1999 and 8% in 1998. Revenues from all other
geographic regions were less than 10% of total revenues. International sales are
made mostly from the Company's foreign sales subsidiaries in the local countries
and are typically denominated in the local currency of each country. These
subsidiaries incur most of their expenses in the local currency as well.
Accordingly, all foreign subsidiaries use the local currency as their functional
currency.

The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.

The Company's exposure to foreign exchange rate fluctuations arise in part
from intercompany accounts in which the cost of software, including certain
development costs, incurred in the United States is charged to the Company's
foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability.

In January 1998, the Company initiated a foreign exchange hedging program
designed to mitigate the potential for future adverse impact on intercompany
balances due to changes in foreign exchange rates. The program uses forward
foreign exchange contracts as the vehicle for hedging these intercompany
balances. The Company uses one multinational bank for substantially all of these
contracts. In general, these forward foreign exchange contracts have terms of
three months or less. Gains and losses on the settled contracts are included in
"Other income, net" and are recognized in the current period, consistent with
the period in which the gain or loss of the underlying transaction is
recognized. The Company recorded net losses from these settled contracts and
underlying foreign currency exposures of approximately $0.9 million for each of
the years ended December 31, 1998 and 1999. At December 31, 1998, the Company
had outstanding forward exchange contracts to exchange Singapore dollars ($5.5
million), Swiss franks ($1.5 million), and New Zealand dollars ($4.0 million)
for U.S. Dollars. At December 31, 1999, the Company had outstanding forward
foreign exchange contracts to exchange Euros ($30.7 million), Singapore dollars
($6.0 million), South African rands ($1.4 million), Swiss franks ($2.7 million)
and New Zealand dollars ($1.7 million) for U.S. dollars, and to exchange U.S.
dollars for British pounds ($2.6 million) and Australian dollars ($2.5 million).
At December 31, 1999, each of these contracts had a maturity date in February
2000 and a book value that approximates fair value. The foreign exchange hedging
program is managed in accordance with a corporate policy approved by the
Company's Board of Directors and is not used for trading purposes.

In addition to hedging existing transaction exposures, the Company's
foreign exchange management policy allows for the hedging of anticipated
transactions, and exposure resulting from the translation of foreign subsidiary
financial results into U.S. Dollars. Such hedges can only be undertaken to the
extent that the

35
<PAGE> 38

exposures are highly certain, reasonably estimable, and significant in amount.
No such hedges have occurred through December 31, 1999.

For the years ended December 31, 1998 and 1999, the Company's revenues in
the Asia/Pacific region, which includes Far East countries, Australia and New
Zealand, were less than 5% of total revenues. As of December 31, 1999, less than
5% of the Company's assets were in the Asia/Pacific region. To date, the
Company's operations in the region are generating losses and negative cash
flows. As the Asia/Pacific currencies devalue, the translated loss reported on
the consolidated financial statements decreases. In addition, such currency
devaluations cause the Company's U.S. dollar cash funding requirements of these
foreign subsidiaries to decrease.

INTEREST RATES

The Company invests its cash in a variety of financial instruments,
consisting principally of investments in interest-bearing demand deposit
accounts with financial institutions, tax-advantaged money market funds and
highly liquid debt and equity securities of corporations, municipalities and the
U.S. Government. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances and are only
invested in short-term time deposits of the local operating bank.

The Company accounts for its cash equivalents and investments under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company classifies
debt and preferred equity securities based on management's intention on the date
of purchase and reevaluates such designation as of each balance sheet date. Debt
securities which management has the intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost. All other debt
and equity securities are classified as available for sale and carried at fair
value with net unrealized gains and losses included in "Accumulated other
comprehensive (loss) income", net of tax.

Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.

The Company's investments are made in accordance with an investment policy
approved by the Board of Directors. At December 31, 1999, the average maturity
of the Company's investment securities was approximately five months. All
investment securities had maturities of less than two years. The following table
presents certain information about the financial instruments held by the Company
at December 31, 1999 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading. The
Company believes its investment securities, comprised of highly liquid debt
securities of corporations, municipalities, and the U.S. Government, are similar
enough to aggregate.

Because of the Company's effective tax rate, the Company finds it
advantageous to invest largely in tax-advantaged securities. The average
interest rates below reflect a weighted average rate for both taxable
investments and tax-exempt investments. Below is a tabular presentation of the
maturity profile of the principal amount of the Company's investment securities
held at December 31, 1999 (in millions):

<TABLE>
<CAPTION>
EXPECTED MATURITY
---------------------------------- PRINCIPAL AMOUNT FAIR VALUE
1 YEAR OR LESS MORE THAN 1 YEAR 12/31/99 12/31/99
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities....... $354.9 $67.9 $422.8 $422.2
Weighted average interest rate...... 4.6% 4.4%
Held-to-maturity.................... $ 46.6 -- $ 46.6 $ 47.4
Weighted average interest rate...... 5.58%
</TABLE>

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<PAGE> 39

consolidated balance sheets). These investments, comprised of marketable
securities, are carried at fair value as determined by quoted market prices.
Realized gains on the sale of these investments for the year ended December 31,
1999 were $51.3 million. The aggregate fair value of investments in corporate
equity securities held at December 31, 1999, was $260.7 million. Gross
unrealized gains were $241.0 million as of December 31, 1999, and are included,
net of deferred income taxes of $92.8 million, as a component of "Accumulated
other comprehensive (loss) income". A substantial portion of the unrealized
holding gains relates to an investment in a company that completed its public
offering in the third quarter of 1999. These corporate equity securities are
subject to lock-up provisions, which expire at various dates through August
2000. The Company intends to sell these investments when the lock-up provisions
expire.((1)) However, the stock market is highly volatile. There is no assurance
that the unrealized holding gains as of December 31, 1999 will be realized.

In August 1997, the Company issued an aggregate of $69.0 million in
principal amount of convertible subordinated notes, due August 2002, to certain
investors. These notes bear interest at a rate of 4.75% per annum and are
convertible into the Company's common stock at the investor's option at any time
at a conversion price equal to $50.824242 per share. Based on the traded yield
to maturity, the approximate fair market value of the convertible subordinated
notes was $47.6 million and $59.3 million as of December 31, 1998 and 1999.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this form 10-K with a footnote (1) symbol. The
Company may also make oral forward-looking statements from time to time. Actual
results may differ materially from those projected in any such forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this Form 10-K.

The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some, but
not all, of these risks and uncertainties that may have a material adverse
effect on the Company's business, financial condition or results of operations.
This section should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the years ended December
31, 1997, 1998, and 1999 contained elsewhere in this Form 10-K.

PEOPLESOFT'S SUCCESS DEPENDS UPON ITS ABILITY TO RETAIN AND ATTRACT A
SUFFICIENT NUMBER OF QUALIFIED EMPLOYEES.

PeopleSoft believes that its future success will depend in large part upon
its ability to attract, train and retain highly-skilled technical, managerial,
sales and marketing personnel. Although PeopleSoft invests significant resources
in recruiting and retaining employees, competition for personnel in the software
industry is intense, and, at times, PeopleSoft has had difficulty locating
highly qualified candidates within 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 sales and technical
personnel may further narrow in certain areas, even if the non-compete
agreements are ultimately unenforceable. PeopleSoft may grant large numbers of
options or other stock-based awards to attract and retain personnel, which could
be highly dilutive to PeopleSoft stockholders. The failure to attract, train,
retain and effectively manage employees could increase PeopleSoft's costs, hurt
PeopleSoft's development and sales efforts and cause a degradation of
PeopleSoft's customer service.

During the last two years, PeopleSoft has experienced turnover of several
senior executives. PeopleSoft has hired or promoted qualified candidates to fill
these positions. However, since the employees are new to the positions, it is
possible that the newly hired or promoted employees will not easily transition
into these

- ---------------

(1) Forward-Looking Statement
37
<PAGE> 40

leadership roles or be able to successfully lead PeopleSoft in its efforts to
grow the company. In addition, uncertainty created by turnover of key employees
could cause fluctuations in PeopleSoft's stock price and further turnover of
PeopleSoft employees.

PEOPLESOFT COULD EXPERIENCE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
WHICH COULD ADVERSELY IMPACT ITS STOCK PRICE.

PeopleSoft's revenues and results of operations are difficult to predict
and may fluctuate substantially from quarter to quarter. License revenues in any
quarter depend substantially upon PeopleSoft's total contracting activity and
its ability to recognize revenues in that quarter in accordance with its revenue
recognition policies.

PeopleSoft's contracting activity is difficult to forecast for a variety of
reasons, including the following:

- a significant portion of PeopleSoft's license agreements are completed
within the last few weeks of each quarter;

- PeopleSoft's sales cycle is relatively long and increasingly variable
since PeopleSoft has broadened its marketing emphasis to include software
product solutions for a customer's overall business;

- the size of license transactions can vary significantly;

- the possibility of economic downturns that are characterized by decreased
product demand, price erosion, technological shifts, work slowdowns and
layoffs may substantially reduce contracting activity;

- customers may unexpectedly postpone or cancel system replacement or new
system evaluations due to changes in their strategic priorities, project
objectives, budgetary constraints or company management;

- customer evaluations and purchasing processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be difficult and time consuming, even after
selection of a vendor;

- changes in PeopleSoft's sales incentive plans have had and may continue
to have an unpredictable impact on business patterns; and

- the number, timing and significance of software product enhancements and
new software product announcements by PeopleSoft and its competitors may
affect purchase decisions.

Several factors may require PeopleSoft to defer recognition of license
revenue for a significant period of time after entering into a license
agreement, including:

- whether the license agreement relates entirely to then unavailable
software products;

- whether enterprise transactions include both currently deliverable
software products and software products that are under development or
other undeliverable elements;

- whether the customer demands services that include significant
modifications, customizations or complex interfaces that could delay
product delivery or acceptance;

- whether the transaction involves acceptance criteria that may preclude
revenue recognition or if there are identified product-related issues,
such as known defects; and

- whether the transaction involves payment terms or fees that depend upon
contingencies.

Because of the factors listed above and other specific requirements under
GAAP for software revenue recognition, PeopleSoft must have very precise terms
in its license agreements in order to recognize revenue when it initially
delivers software or performs services. Although PeopleSoft has a standard form
of license agreement that meets the criteria under GAAP for current revenue
recognition on delivered elements, it negotiates and revises these terms and
conditions in some 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.

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<PAGE> 41

Variances or slowdowns in PeopleSoft's prior quarter contracting activity
may impact its consulting, training and maintenance service revenues since these
revenues typically follow license fee revenues. PeopleSoft's ability to maintain
or increase service revenue primarily depends on its ability to increase the
number of its licensing agreements. In particular, the significant decrease in
license revenues in 1999 versus the prior year may have a significant impact on
service revenues and earnings in fiscal 2000.

In addition, PeopleSoft's expense levels, operating costs and hiring plans
are based on projections of future revenues and are relatively fixed. If
PeopleSoft's actual revenues fall below expectations, its net income is likely
to be disproportionately adversely affected.

PEOPLESOFT HAS RECENTLY EXPANDED ITS TECHNOLOGY INTO SEVERAL NEW BUSINESS
AREAS AND CANNOT BE CERTAIN THAT ITS EXPANSION WILL BE SUCCESSFUL.

PeopleSoft's future success depends on the Internet being accepted and
widely used for commerce. PeopleSoft has recently expanded its technology into a
number of new business areas to foster long-term growth, including electronic
commerce, on-line business services and other products and services that can be
offered over the Internet. These areas are relatively new to PeopleSoft's
product development, sales and marketing personnel and PeopleSoft cannot be
assured that the markets for these products will develop or that it will be able
to compete effectively or will generate significant revenues in these new areas
making PeopleSoft's success in this area is difficult to predict.

PEOPLESOFT DEPENDS ON THIRD-PARTY TECHNOLOGY THAT COULD RESULT IN INCREASED
COSTS OR DELAYS IN THE PRODUCTION AND IMPROVEMENT OF PEOPLESOFT'S PRODUCTS.

PeopleSoft licenses numerous critical third-party software products that it
incorporates into its own software products. If any of the third-party software
vendors were to change their product offerings or terminate PeopleSoft's
licenses, PeopleSoft might 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 significantly increases, PeopleSoft's
gross margin levels could significantly decrease.

PeopleSoft relies on existing partnerships with certain other software
vendors who are also competitors. If these vendors change their business
practices in the future, PeopleSoft may be compelled to find alternative vendors
with complementary software, which may not be available on attractive terms, or
may not be as widely accepted or as effective as the software provided by
PeopleSoft's existing vendors.

THE RELATIONSHIP WITH MOMENTUM BUSINESS APPLICATIONS MAY NEGATIVELY IMPACT
PEOPLESOFT BECAUSE PEOPLESOFT GAVE UP SOME CONTROL OVER RESEARCH AND
DEVELOPMENT.

PeopleSoft faces a number of risks as of a result of its relationship with
Momentum Business Applications and the distribution of the Momentum Business
Applications Class A Common Stock to PeopleSoft stockholders. These include:

- PeopleSoft has less control over important research and development
projects. PeopleSoft and Momentum must agree on project selection,
budgets, timetables and specifications for each project, and Momentum has
oversight responsibilities for the actual product development;

- PeopleSoft could face restrictions on the amount and timing of its
utilization of, or could lose, the tax benefits associated with the
research and development expenditures on the projects pursued by
Momentum; and

- 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, which
would decrease earnings.

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<PAGE> 42

RECENT ACCOUNTING PRONOUNCEMENTS COULD ADVERSELY IMPACT PEOPLESOFT'S
PROFITABILITY BY DELAYING SOME REVENUE RECOGNITION INTO FUTURE PERIODS.

Over the past several years, the American Institute of Certified Public
Accountants issued Statement of Position, or SOP 97-2, "Software Revenue
Recognition," SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," and SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." These
standards address software revenue recognition matters primarily from a
conceptual level and do not include specific implementation guidance. PeopleSoft
believes that it is currently in compliance with SOPs 97-2 and 98-4. SOP 98-9
was effective beginning January 1, 2000 and imposes significant new requirements
such as establishing vendor specific objective evidence. PeopleSoft has changed
certain business policies to meet the requirements of SOP 98-9, however, the
effect of the SOP on the Company's 2000 financial results is not presently
determinable due to numerous factors including the actual implementation of such
policies, specifically negotiated exceptions to such policies, changes in market
conditions, and changes in interpretations of the SOPs. However, PeopleSoft
believes that SOP 98-9 may require significantly more revenue to be deferred for
certain types of transactions.

The American Institute of Certified Public Accountants has only issued some
implementation guidelines for these standards and the accounting profession is
still discussing a wide range of potential interpretations. These implementation
guidelines, once finalized, could lead to unanticipated changes in PeopleSoft's
current revenue accounting practices that could cause PeopleSoft to recognize
lower profits. As a result, PeopleSoft may change its business practices
significantly in order to continue to recognize a substantial portion of its
license revenues when it delivers its software products. These changes may
reduce demand, extend sales cycles, increase administrative costs and otherwise
adversely affect PeopleSoft.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") and amended it in March 2000. PeopleSoft is required to adopt the
provisions of SAB 101 in its second fiscal quarter of 2000. The Company is
currently reviewing the provisions of SAB 101 and has not fully assessed the
impact of its adoption. While SAB 101 does not supercede the software industry
specific revenue recognition guidance, which the Company believes it is in
compliance with, the SEC Staff has recently informally indicated its views
related to SAB 101 which may change current interpretations of software revenue
recognition requirements. Such SEC interpretations could result in many software
companies, including PeopleSoft, recording a cumulative effect of a change in
accounting principles retroactive to January 1, 2000.

PEOPLESOFT MAY CHANGE PRICING PRACTICES WHICH COULD IMPACT OPERATING
MARGINS OR CUSTOMER ORDERING PATTERNS.

In the future, PeopleSoft may choose to make changes to its pricing
practices. For example, PeopleSoft may offer additional discounts to customers,
reduce transactions that involve a perpetual use license to its software
products or change maintenance pricing. Such changes could reduce margins or
inhibit PeopleSoft's ability to sell its products.

THERE IS INTENSE COMPETITION IN THE INDUSTRY, WHICH REQUIRES THAT
PEOPLESOFT CONSTANTLY CREATE NEW PRODUCTS, IMPROVE ITS EXISTING PRODUCTS
AND SELL ITS PRODUCTS AT COMPETITIVE PRICES.

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<PAGE> 43

In addition, PeopleSoft believes it must differentiate itself through
different or more subtle architectural and technological factors.

Some of PeopleSoft's competitors may have an advantage over PeopleSoft due
to their significant worldwide presence, longer operating and product
development history, and substantially greater financial, technical and
marketing resources than PeopleSoft. At least one competitor has a larger
installed base. In addition, Oracle Corporation is a competitor whose relational
database management system underlies a significant portion of PeopleSoft's
installed applications.

Furthermore, potential customers may consider outsourcing options,
including data center outsourcing and service bureaus, as viable alternatives to
licensing PeopleSoft's software products. PeopleSoft began an outsourcing
partner program in 1999 and began hosting its own service bureau in early 2000,
both of which the Company believes address the needs of the marketplace;
however, these programs may not be successful.

SERVICES REVENUES CARRY LOWER GROSS MARGINS THAN LICENSE REVENUES AND AN
OVERALL INCREASE IN SERVICES REVENUE AS A PERCENTAGE OF TOTAL REVENUES
COULD HAVE AN ADVERSE IMPACT ON PEOPLESOFT'S BUSINESS.

Because service revenues have lower gross margins than license revenues, a
continued increase in the percentage of total revenue represented by service
revenues could have a detrimental impact on our overall gross margins and could
adversely affect operating results. In addition, PeopleSoft sub-contracts
certain consulting services to third parties which generally carry lower gross
margins than PeopleSoft's service business overall. As a result, PeopleSoft's
gross margins can be negatively impacted based on the percentage of service
revenues as a percentage of total revenue and the mix between services which are
provided by PeopleSoft employees versus services provided by third party
consultants.

PEOPLESOFT'S RECENT AND FUTURE ACQUISITIONS MAY NOT BE SUCCESSFUL.

PeopleSoft has in the recent past and may continue to acquire or invest in
complementary companies, products and technologies, and enter into joint
ventures and strategic alliances with other companies. Risks commonly
encountered in such transactions include:

- the difficulty of assimilating the operations and personnel of the
combined companies;

- the risk that PeopleSoft may not be able to integrate the acquired
technologies or products with its current products and technologies;

- the potential disruption of PeopleSoft's ongoing business;

- the inability to retain key technical and managerial personnel;

- the inability of management to maximize the financial and strategic
position of PeopleSoft through the successful integration of acquired
businesses;

- adverse impact on PeopleSoft's annual effective tax rate;

- dilution of existing equity holders caused by capital stock issuances to
the stockholders of acquired companies or to retain employees of the
acquired companies;

- difficulty in maintaining controls, procedures and policies;

- potential adverse impact on PeopleSoft's relationships with partner
companies or third-party providers of technology or products;

- the impairment of relationships with employees and customers; and

- issues with product quality, product architecture, legal contingencies,
product development issues, or other significant issues that may not be
detected through PeopleSoft's due diligence process.

In addition, combinations with other companies may not qualify for pooling
of interests accounting, which would require PeopleSoft to use the purchase
method of accounting. The purchase method of
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<PAGE> 44

accounting for business combinations may require large write-offs of any in
process research and development costs related to companies being acquired, as
well as ongoing amortization costs for goodwill and other intangible assets
valued in the combinations with companies. Such write-offs and ongoing
amortization charges may have a significant negative impact on operating margins
and net income in the quarter of the combination and for several subsequent
years. PeopleSoft may not be successful in overcoming these risks or any other
problems encountered in connection with such transactions.

IF AN INDUSTRY STANDARD DEVELOPMENT TOOL IS ESTABLISHED, CONFORMANCE TO THE
STANDARD COULD REQUIRE A COSTLY REDESIGN OF EXISTING SOFTWARE PRODUCTS.

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 marketplace. If a software
product other than PeopleTools becomes the clearly established and widely
accepted industry standard, PeopleSoft may not be able to respond appropriately
or sufficiently rapidly to the emergence of an industry standard or might be
compelled to abandon or modify PeopleTools in favor of such an established
standard; be forced to redesign its software products to operate with such third
party's software development tools; or face the potential sales obstacle of
marketing a proprietary software product against other vendors' software
products that incorporate a standardized software development toolset.

PEOPLESOFT'S SIGNIFICANT INTERNATIONAL OPERATIONS AND SALES SUBJECT IT TO
RISKS ASSOCIATED WITH RAPID AND UNEXPECTED GROWTH OUTSIDE OF THE UNITED
STATES.

PeopleSoft continues to invest in an effort to enhance its international
operations. The global reach of PeopleSoft's business could cause it to be
subject to unexpected, uncontrollable and rapidly changing events and
circumstances in addition to those experienced in United States locations.
Changes in the following factors, among others, could have an adverse impact on
PeopleSoft's business and earnings:

- conducting business in currencies other than United States dollars
subjects PeopleSoft to factors such as currency controls and fluctuations
in currency exchange rates;

- PeopleSoft may be unable to hedge some transactions because of
uncertainty or the inability to reasonably estimate its foreign exchange
exposure;

- PeopleSoft may hedge some anticipated transactions and transaction
exposures, but could experience losses if exchange rates move in the
opposite direction;

- differing foreign technical standards;

- increased cost and development time required to localize PeopleSoft
products;

- lack of experience in a particular geographic market;

- regulatory, social, political, labor or economic conditions in a specific
country or region;

- laws, policies and other regulatory requirements affecting trade and
investment including loss or modification of exemptions for taxes and
tariffs, and import and export license requirements;

- exposure to different legal standards; and

- operating costs in many countries are higher than in the United States.

THE EURO CREATES UNCERTAINTY FOR PEOPLESOFT'S PRODUCT DEVELOPMENT AND AS A
RESULT COULD IMPACT SALES.

PeopleSoft's latest software release contains European Monetary Union, or
EMU, functionality that allows for dual currency reporting and information
management. However, since the Euro will not be the sole

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<PAGE> 45

legally required currency in any of the member nations until 2002, it is
possible that all issues related to conversion to EMU have not surfaced yet, and
may not have been adequately addressed. In addition, PeopleSoft's products may
be used with third-party products that may or may not be EMU compliant. Although
PeopleSoft continues to take steps to address the impact, if any, of EMU
compliance for such third-party products, failure of any critical technology
components to operate properly under EMU may adversely affect sales or require
PeopleSoft to incur unanticipated expenses to remedy any problems.

PEOPLESOFT'S CONTINUED GROWTH DEPENDS UPON ITS ABILITY TO BUILD AND
MAINTAIN RELATIONSHIPS WITH THIRD PARTIES.

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 current and potential customers often rely on third-party system
integrators to develop, deploy and manage client/server applications. PeopleSoft
believes that its marketing and sales efforts are enhanced by the worldwide
presence of these companies. However, these companies, most of which have
significantly greater financial and marketing resources than PeopleSoft, may
start, or in some cases increase, the marketing of business application software
in competition with PeopleSoft, or may otherwise discontinue their relationships
with or support of PeopleSoft. If PeopleSoft's partners are unable to recruit
and adequately train a sufficient number of consulting personnel to support the
implementation of PeopleSoft's software products, PeopleSoft may lose customers.
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 are
more difficult to install and maintain than competitors' similar product
offerings.

PeopleSoft has also in the past, 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 joint business
arrangements, PeopleSoft may distribute itself or jointly sell with its business
partners an integrated software product and pay a royalty to the business
partner based on end-user license fees. While PeopleSoft intends to develop
business applications that are integrated with its software products, these
software products may in fact not be integrated or brought to market or the
market may not accept the integrated enterprise solution. As a result,
PeopleSoft may not achieve the revenues that it anticipated at the time it
entered into the joint business arrangement.

PEOPLESOFT MAY NOT MEET THE CHALLENGES ASSOCIATED WITH RAPID GROWTH.

PeopleSoft has experienced rapid growth over the past decade. This growth
has resulted in increased responsibilities for management personnel and has
placed a significant strain upon operating and financial controls, systems, and
resources. To 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, procedures and controls.
PeopleSoft's personnel, procedures, systems and controls may not be adequate to
support its future operations.

PEOPLESOFT'S SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT ARE COMPLEX, WHICH
MAKES IT INCREASINGLY DIFFICULT TO INNOVATE, EXTEND ITS PRODUCT OFFERINGS,
AND TO AVOID COSTS RELATED TO CORRECTION OF PROGRAM ERRORS.

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:

- continue to enhance and expand its core applications;

- continue to provide enterprise solutions;

- continue to successfully integrate third-party products;

- enter new markets; and
43
<PAGE> 46

- develop and introduce new products that keep pace with technological
developments, including developments related to the Internet, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance. PeopleSoft may not be able to enhance existing products or
develop and introduce new products in a timely manner.

PeopleSoft's software products can be licensed for use with a variety of
popular industry standard relational database management systems. There may be
future or existing relational database management system platforms that achieve
popularity within the business application marketplace and on which PeopleSoft
may desire to offer its applications. These future or existing relational
database management system 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.

Despite testing by PeopleSoft and by third parties, PeopleSoft's software
programs, like all software programs generally, may contain a number of
undetected errors when they are first introduced or as new releases are
subsequently released. This may result in increased costs to correct such errors
and 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:

- vendor hardware platforms;

- operating systems and updated versions;

- PeopleSoft application software products and updated versions; and

- relational database management system 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.

PEOPLESOFT RELIES ON CLIENT INTERFACES WHICH COULD NEGATIVELY IMPACT
PEOPLESOFT IF CURRENT OR FUTURE CLIENT INTERFACES ARE NOT COMPATIBLE WITH
PEOPLESOFT'S CURRENT SOFTWARE PRODUCT DESIGN.

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 (for PeopleSoft releases prior to Release 6
only), Windows NT, Windows 95 and Windows 98. If Microsoft fundamentally changes
the architecture of its software products so that users of PeopleSoft's software
applications experience significant performance degradation or PeopleSoft's
software applications become incompatible with future versions of Microsoft's
Windows operating system, it could cause PeopleSoft to expend significant
resources to reconfigure its products. The use of a Web browser as a primary
user interface is emerging as an alternative to the traditional desktop access
through networked Microsoft Windows-based personal computers. This client access
via the Internet or an intranet involves numerous risks inherent in using the
Internet, including security, availability and reliability. PeopleSoft may wish
to offer its applications on future or existing client platforms that achieve
popularity within the business application marketplace. These future or existing
client platforms may or may not be architecturally compatible with PeopleSoft's
current software product design. PeopleSoft may not be able to support new
client interfaces and achieve market acceptance of new client interfaces that it
does support.

PEOPLESOFT HAS LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS AND MAY POTENTIALLY INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS.

PeopleSoft considers certain aspects of its internal operations, software
and documentation to be proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
this information. Outstanding applications may not result in issued patents and,
even if issued, the patents may not provide any meaningful competitive
advantage. Existing copyright laws afford

44
<PAGE> 47

only limited protection. PeopleSoft believes that the rapid pace of
technological change in the computer software industry has made trade secret and
copyright protection less significant than factors such as:

- knowledge, ability and experience of PeopleSoft's employees;

- frequent software product enhancements; and

- timeliness and quality of support services.

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 contingent
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. Defending PeopleSoft's rights could be costly.

Third parties may assert infringement claims against PeopleSoft. These
assertions could distract management, require PeopleSoft to enter into royalty
arrangements, and could result in costly and time consuming litigation,
including damage awards.

PEOPLESOFT MAY EXPERIENCE LIABILITY CLAIMS ARISING OUT OF THE LICENSING OF
ITS SOFTWARE AND PROVISION OF SERVICES.

PeopleSoft's agreements contain provisions designed to limit its exposure
to potential liability claims. However, these provisions could be invalidated by
unfavorable judicial decisions or by federal, state, local or foreign laws or
ordinances. For example, PeopleSoft might not be able to avoid or limit
liability for disputes relating to product performance or the provision of
services. If a claim against PeopleSoft were successful, PeopleSoft might be
required to incur significant expense and pay substantial damages. Even if
PeopleSoft was to prevail, the accompanying publicity could adversely impact the
demand for PeopleSoft's software.

UNCERTAINTY SURROUNDING THE YEAR 2000 OR THE FAILURE OF PEOPLESOFT'S OR
THIRD-PARTY'S PRODUCTS TO BE YEAR 2000 COMPLIANT AND PEOPLESOFT'S FAILURE
TO ADEQUATELY DEVELOP AND IMPLEMENT CONTINGENCY PLANS COULD IMPACT SALES,
SUBJECT PEOPLESOFT TO LIABILITY CLAIMS, OR CAUSE PEOPLESOFT TO EXPERIENCE
PRODUCT INTERRUPTIONS OR DELAYS THAT MIGHT CAUSE PEOPLESOFT TO INCUR
UNANTICIPATED EXPENSES.

PeopleSoft's internal business information systems are comprised primarily
of the same commercial application software products it generally offers for
license to customers. These applications have been tested for Year 2000
compliance and are certified by the Information Technology Association of
America as Year 2000 compliant. However, PeopleSoft cannot be sure that no Year
2000 compliance issues will arise related to its commercial application software
products. As a result, PeopleSoft's customers who use these products could
assert claims that could be costly and time consuming to defend and could result
in the payment of damages.

PeopleSoft uses other third-party vendor network equipment,
telecommunication products, and software products that 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
cause a significant disruption in PeopleSoft's business and cause PeopleSoft to
incur significant unanticipated expenses to remedy any problems.

PEOPLESOFT'S STOCK PRICE IS VOLATILE AND THERE IS A RISK OF LITIGATION.

The trading price of PeopleSoft common stock has in the past and may in the
future be subject to wide fluctuations in response to factors such as the
following:

- revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment community;

45
<PAGE> 48

- announcements of technological innovations by PeopleSoft or its
competitors;

- new products or the acquisition of significant customers by PeopleSoft or
its competitors;

- developments with respect to patents, copyrights or other proprietary
rights of PeopleSoft or its competitors;

- changes in recommendations or financial estimates by securities analysts;

- changes in management:

- conditions and trends in the software industry generally;

- the announcement of acquisitions or other significant transactions by
PeopleSoft or its competitors;

- adoption of new accounting standards affecting the software industry; and

- general market conditions and other factors.

Fluctuations in the price of PeopleSoft's common stock may expose
PeopleSoft to the risk of securities class action lawsuits. As a result of the
significant declines in the price of its common stock during the second half of
fiscal 1998 and the first half of fiscal 1999, several such lawsuits were filed
against PeopleSoft. Although PeopleSoft believes that these lawsuits are without
merit, defending against them could result in substantial costs and divert
management's attention and resources. In addition, any settlement or adverse
determination of these lawsuits could subject PeopleSoft to significant
liabilities. PeopleSoft cannot be assured that there will not be additional
lawsuits in the future.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is included in Part IV Item 14(a)(1)
and (2).

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

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<PAGE> 49

PART III

Certain information required by Part III is omitted from this Report on
Form 10-K because the registrant will file a definitive Proxy Statement pursuant
to Regulation 14A (the "Proxy Statement") not later than 120 days after the end
of the fiscal year covered by this Report on Form 10-K, and certain information
included therein is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Company's officers required by this Item is
included in the section in Part I hereof entitled "Personnel." The information
concerning the Company's directors required by this Item is incorporated by
reference to the Company's Proxy Statement under the heading "Election of
Directors -- Nominees." Information concerning the Company's officers, directors
and 10% shareholders compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the information contained in the
Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Transactions with
Management."

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) The following documents are filed as part of this Report:

1. Consolidated Financial Statements. The following consolidated financial
statements of PeopleSoft, Inc. are filed as part of this report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst and Young LLP, Independent Auditors......... F-1
Covered by Report of Ernst and Young LLP, Independent
Auditors:
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999........... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Not Covered by Report of Independent Auditors:
Supplemental Quarterly Financial Information.............. F-28
</TABLE>

2.Consolidated Financial Statements Schedules. None.

All schedules have been omitted as they are either not required or not
applicable, or the required information is included in the consolidated
financial statements or the notes thereto.

47
<PAGE> 50

3. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of October 11, 1999
between PeopleSoft, Inc. and Vantive (incorporated by
reference to Exhibit 2.1 filed with PeopleSoft, Inc.'s
Registration Statement on From S-4 (333-91111) filed with
the Securities and Exchange Commission on November 17,
1999).
2.2 Agreement and Plan of Merger dated September 30, 1998
between PeopleSoft, Inc. and Intrepid Systems, Inc.
(incorporated by reference to Exhibit 10.37 filed with
PeopleSoft, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
2.3 Agreement and Plan of Reorganization, dated November 19,
1998, by and among PeopleSoft, Inc., Certain Principal
Shareholders and Distinction Software, Inc. and amendment
dated May 17, 1999 (incorporated by reference to Exhibit 2.1
filed with PeopleSoft, Inc.'s Registration Statement on Form
S-3 (No. 333-86135) filed with the Securities and Exchange
Commission on August 27, 1999).
2.4 Agreement and Plan of Reorganization by and among the The
Vantive Corporation, Revo Acquisition Corporation and
Wayfarer Communications, Inc. dated June 18, 1998
(incorporated by reference to Exhibit 2.1 filed with The
Vantive Corporation's Form 8-K filed with the Securities and
Exchange Commission on July 15, 1998).
2.5 Agreement and Plan of Reorganization, dated June 12, 1998,
by and among PeopleSoft, Inc., TriMark Technologies, Gerald
Peters, and State Street Bank and Trust Company of
California N.A. and amendments dated October 1, 1998,
January 8, 1999, April 22, 1999, and April 30, 1999
(incorporated by reference to Exhibit 2.1 filed with
PeopleSoft, Inc.'s Registration Statement on Form S-3 (No.
333-78049) filed with the Securities and Exchange Commission
on May 7, 1999).
2.6 Agreement and Plan of Merger dated August 13, 1997 by and
among The Vantive Corporation, Igloo Acquisition Corporation
and Innovative Computer Concepts, Inc. as amended
(incorporated by reference to Exhibit 10.17 filed with The
Vantive Corporation's Form 8-K filed with the Securities and
Exchange Commission on September 26, 1997).
2.7 Stock Option Agreement between PeopleSoft, Inc. and The
Vantive Corporation dated as of October 11, 1999.
(incorporated by reference to Exhibit 2.5 filed with
PeopleSoft, Inc.'s Registration Statement on From S-4
(333-91111) filed with the Securities and Exchange
Commission on November 17, 1999).
3.1 Restated Certificate of Incorporation of PeopleSoft, Inc.
filed with the Secretary of State of the State of Delaware
on May 24, 1995 (incorporated by reference to Exhibit 4.1
filed with PeopleSoft, Inc.'s Form S-8 (No. 333-08575) filed
with the Securities and Exchange Commission on July 22,
1996).
3.2 Certificate of Amendment to Certificate of Incorporation of
PeopleSoft, Inc., as filed with the Secretary of State of
the State of Delaware on June 17, 1996 (incorporated by
reference to Exhibit 4.2 filed with PeopleSoft, Inc.'s Form
S-8 (No. 333-08575) filed with the Securities and Exchange
Commission on July 22, 1996).
3.3 Certificate of Amendment to Certificate of Incorporation of
PeopleSoft, Inc., as filed with the Secretary of State of
the State of Delaware on July 3, 1997 (incorporated by
reference to Exhibit 3.3 filed with PeopleSoft, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1997).
3.4 Certificate of Amendment to Certificate of Incorporation of
PeopleSoft, Inc., as filed with the Secretary of State of
the State of Delaware on June 29, 1998. (incorporated by
reference to Exhibit 3.4 filed with PeopleSoft, Inc.'s
Registration Statement on From S-4 (333-91111) filed with
the Securities and Exchange Commission on November 17,
1999).
</TABLE>

48
<PAGE> 51

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.5 Certificate of Designation as filed with the Secretary of
State of the State of Delaware on March 24, 1998
(incorporated by reference to Exhibit 3.4 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997).
3.6 Bylaws of PeopleSoft, Inc. as amended through December 31,
1998 (incorporated by reference to Exhibit 3.5 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
3.7 Amendments to the Bylaws of PeopleSoft, Inc. dated March 4,
1999, April 7, 1999 and February 3, 2000.
3.8 Specimen Certificate of PeopleSoft, Inc.'s Common Stock
(incorporated by reference to Exhibit 1 filed with Amendment
No. 1 to PeopleSoft, Inc.'s Form 8-A filed with the
Securities and Exchange Commission on November 6, 1992).
4.1 First Amended and Restated Preferred Shares Rights Agreement
dated December 16, 1997 (incorporated by reference to
Exhibit 1 filed with PeopleSoft, Inc.'s Form 8-A/A filed
with the Securities and Exchange Commission on March 25,
1998).
4.2 Indenture (including forms of Notes), dated as of August 15,
1997, between The Vantive Corporation and Deutsche Bank AG,
New York Branch, as trustee (incorporated by reference to
Exhibit 4.1 filed with The Vantive Corporation's
Registration Statement on Form S-3 (333-40449) filed with
the Securities and Exchange Commission on November 19,
1997).
10.1 (1) Amended and Restated 1989 Stock Option Plan and forms of
option agreements thereunder (incorporated by reference to
Exhibit 10.1 filed with PeopleSoft, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999).
10.2 1992 Employee Stock Purchase Plan as amended to date, and
form of subscription agreement thereunder (incorporated by
reference to Exhibit 10.2 filed with PeopleSoft, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999).
10.3 1992 Directors' Stock Option Plan and forms of option
agreements thereunder (incorporated by reference to Exhibit
10.3 filed with PeopleSoft, Inc.'s Registration Statement on
Form S-1 (No. 33-53000) filed October 7, 1992, Amendment No.
1 thereto filed October 26, 1992, Amendment No. 2 thereto
filed November 10, 1992 and Amendment No. 3 thereto filed
November 18, 1992, which Registration Statement became
effective November 18, 1992 and PeopleSoft, Inc.'s
Registration Statement on Form S-1 (No. 33-62356) filed on
May 7, 1993, which Registration Statement became effective
May 24, 1993 (collectively, the "Original S-1, as
amended")).
10.4 (1) Executive Bonus Plan (incorporated by reference to Exhibit
10.4 filed with PeopleSoft, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994).
10.5 The Vantive Corporation Amended and Restated 1991 Stock
Option Plan. (incorporated by reference to Exhibit 99.1
filed with PeopleSoft, Inc.'s Registration Statement on From
S-8 (333-94833) filed with the Securities and Exchange
Commission on January 18, 2000).
10.6 The Vantive Corporation 1995 Outside Directors Stock Option
Plan (incorporated by reference to Exhibit 99.2 filed with
PeopleSoft, Inc.'s Registration Statement on From S-8
(333-94833) filed with the Securities and Exchange
Commission on January 18, 2000).
10.7 The Vantive Corporation 1997 Nonstatutory Stock Option Plan
(incorporated by reference to Exhibit 99.3 filed with
PeopleSoft, Inc.'s Registration Statement on From S-8
(333-94833) filed with the Securities and Exchange
Commission on January 18, 2000).
10.8 Innovative Computer Concepts, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 99.4 filed with
PeopleSoft, Inc.'s Registration Statement on From S-8
(333-94833) filed with the Securities and Exchange
Commission on February 4, 2000).
</TABLE>

49
<PAGE> 52

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 Distinction Software Inc. Stock Option Plan (incorporated by
reference to Exhibit 99 filed with PeopleSoft, Inc.'s
Registration Statement on From S-8 (333-86103) filed with
the Securities and Exchange Commission on August 27, 1999).
10.10 TriMark Technologies, Inc. 1998 Director and Executive
Officer Non-Statutory Stock Option Plan and forms of option
agreements thereunder (incorporated by reference to Exhibit
99.1 filed with PeopleSoft, Inc.'s Registration Statement on
From S-8 (333-77911) filed with the Securities and Exchange
Commission on May 6, 1999).
10.11 TriMark Technologies, Inc. 1995 Director and Executive
Officer Stock Option Plan (as amended) and forms of option
agreements thereunder (incorporated by reference to Exhibit
99.2 filed with PeopleSoft, Inc.'s Registration Statement on
From S-8 (333-77911) filed with the Securities and Exchange
Commission on May 6, 1999).
10.12 TriMark Technologies, Inc. 1995 Employees and Consultants
Stock Option Plan and forms of option agreements thereunder
(incorporated by reference to Exhibit 99.3 filed with
PeopleSoft, Inc.'s Registration Statement on From S-8
(333-77911) filed with the Securities and Exchange
Commission on May 6, 1999).
10.13 TriMark Technologies, Inc. 1993 Stock Option Plan (as
amended) and form of option agreement thereunder
(incorporated by reference to Exhibit 99.4 filed with
PeopleSoft, Inc.'s Registration Statement on From S-8
(333-77911) filed with the Securities and Exchange
Commission on May 6, 1999).
10.14 Amendment and Restatement of PeopleSoft, Inc. 401(k) Plan,
dated December 13, 1995, Amendment No. 1 dated December 30,
1994, and Amendment No. 2, dated August 25, 1995
(incorporated by reference to Exhibit 2.1 filed with
PeopleSoft, Inc.'s Form 8-K filed with the Securities and
Exchange Commission on December 15, 1995).
10.15 Form of Indemnification Agreement entered into between
PeopleSoft, Inc. and each of its directors and officers
(incorporated by reference to Exhibit 10.6 filed with the
Original S-1, as amended).
10.16 Loan Agreement between PeopleSoft, Inc. and West America
Bank, N.A. dated October 31, 1995 (incorporated by reference
to Exhibit 2.1 filed with PeopleSoft, Inc.'s Form 8-K filed
with the Securities and Exchange Commission on December 15,
1995).
10.17 Office Lease for 1331 North California Boulevard dated July
23, 1990 between PeopleSoft, Inc. and 1333 North California
Boulevard, a California limited partnership, as amended by
the First Amendment to Lease dated April 24, 1991 and the
Second Amendment to Lease dated June 17, 1992 and related
Lease Guarantees dated July 26, 1990 and June 14, 1991
between 1333 North California Boulevard and David A.
Duffield (incorporated by reference to Exhibit 10.8 filed
with the Original S-1, as amended).
10.18 Lease dated July 24, 1992 between PeopleSoft, Inc. and Glen
Pointe Associates (incorporated by reference to Exhibit 10.9
filed with the Original S-1, as amended).
10.19 (2) Software License and Support Agreement dated June 23, 1992
between PeopleSoft, Inc. and ADP, Inc., as amended by
Amendment No. 1 dated September 30, 1992 (incorporated by
reference to Exhibit 10.12 filed with the Original S-1, as
amended).
10.20 Lease dated June 23, 1993 between PeopleSoft, Inc. and
Westbrook Corporate Center (incorporated by reference to
Exhibit 10.18 filed with PeopleSoft, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1994).
10.21 Lease dated January 17, 1994 between PeopleSoft, Inc. and
R-H Associates Bldg. III Corp. (incorporated by reference to
Exhibit 10.19 filed with PeopleSoft, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1994).
10.22 Lease dated March 10, 1994 between PeopleSoft, Inc. and
Rosewood Associates (incorporated by reference to Exhibit
10.20 filed with PeopleSoft, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994).
</TABLE>

50
<PAGE> 53

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23 Contract of Sale and Escrow Instructions between PeopleSoft,
Inc. and Rosewood Owner of California (B) LLC, a California
limited liability company, dated October 4, 1995
(incorporated by reference to Exhibit 2.1 filed with
PeopleSoft, Inc.'s Form 8-K filed with the Securities and
Exchange Commission on December 15, 1995).
10.24 Warrant Agreement between PeopleSoft, Inc. and The First
National Bank of Boston, as Warrant Agent, dated October 30,
1995 (incorporated by reference to Exhibit 10.1 filed with
PeopleSoft, Inc.'s Registration Statement on Form S-3 (No.
33-80755) filed with the Securities and Exchange Commission
on December 22, 1995).
10.26 Warrant Purchase Agreement between PeopleSoft, Inc. and
Goldman, Sachs & Co. dated October 30, 1995 (incorporated by
reference to Exhibit 10.2 filed with PeopleSoft, Inc.'s
Registration Statement on Form S-3 (No. 33-80755) filed with
the Securities and Exchange Commission on December 22,
1995).
10.27 Registration Rights Agreement between PeopleSoft, Inc. and
Goldman, Sachs & Co. dated October 30, 1995 (incorporated by
reference to Exhibit 10.3 filed with PeopleSoft, Inc.'s
Registration Statement on Form S-3 (No. 33-80755) filed with
the Securities and Exchange Commission on December 22,
1995).
10.29 Amendment No. 2 dated September 28, 1994, Amendment No. 3
dated September 21, 1995 and Amendment No. 4 dated December
28, 1995 to the Software License and Support Agreement dated
June 23, 1992 between PeopleSoft, Inc. and ADP, Inc.
(incorporated by reference to Exhibit 10.25 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995).
10.30 Amended Software Development Agreement dated December 22,
1995 between PeopleSoft, Inc. and Solutions for Education
Administrators, Inc. (incorporated by reference to Exhibit
10.26 filed with PeopleSoft, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995).
10.31 Exclusive Marketing and Distribution Agreement dated
December 22, 1995 between PeopleSoft, Inc. and SIS
Development LLC ("SIS") (incorporated by reference to
Exhibit 10.27 with PeopleSoft, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995).
10.32 Amendment No. 1 dated September 19, 1994, Amendment No. 2
dated May 15, 1995 and Amendment No. 3 dated June 19, 1995
to the Lease dated March 10, 1994 between PeopleSoft, Inc.
and Rosewood Associates (incorporated by reference to
Exhibit 10.28 filed with PeopleSoft, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996).
10.33 Systems Integrator Agreement dated August 25, 1995 between
PeopleSoft, Inc. and Shared Medical Systems Corporation
(incorporated by reference to Exhibit 10.29 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995).
10.34 Lease dated December 4, 1996 between PeopleSoft, Inc. and
Lease Plan North America, Inc. (incorporated by reference to
Exhibit 10.32 filed with PeopleSoft, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996).
10.35 Purchase Agreement dated October 22, 1996 between
PeopleSoft, Inc. and Norwest Equity Partners IV, L.P.
(incorporated by reference to the Exhibit 10.33 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996).
10.36 Red Pepper Software Company 1993 Stock Option Plan, and
forms of stock option agreement thereunder (incorporated by
reference to Exhibit 2.1 filed with PeopleSoft, Inc.'s Form
S-8 filed with the Securities and Exchange Commission on
October 24, 1996).
10.37 Agreement of Purchase and Sale dated July 22, 1998 between
PeopleSoft, Inc. and William Willson & Associates
(incorporated by reference to Exhibit 10.35 filed with
PeopleSoft, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
</TABLE>

51
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.38 Lease dated September 14, 1998 between PeopleSoft, Inc. and
Hacienda Plaza Associates, LLC (incorporated by reference to
Exhibit 10.36 filed with PeopleSoft, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998).
10.39 Development and License Agreement dated December 30, 1998
between PeopleSoft, Inc. and Momentum Business Applications,
Inc. (incorporated by reference to Exhibit 10.37 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.40 Marketing and Distribution Agreement dated December 30, 1998
between PeopleSoft, Inc. and Momentum Business Applications,
Inc. (incorporated by reference to Exhibit 10.38 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.41 Distribution Agreement dated December 30, 1998 between
PeopleSoft, Inc. and Momentum Business Applications, Inc.
(incorporated by reference to Exhibit 10.39 filed with
PeopleSoft, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998).
10.42 First Amendment to Participation Agreement and Appendix 1 to
Participation Agreement, Master Lease and Construction Deed
of Trust dated February 20, 1998 between PeopleSoft, Inc.
and Lease Plan North America, Inc. (incorporated by
reference to Exhibit 10.40 filed with PeopleSoft, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998).
10.43 Second Amendment to Participation Agreement, Master Lease,
Guarantee, Construction Deed of Trust, Cash Collateral
Agreement, Assignment of Lease and Appendix 1 to
Participation Agreement, Master Lease and Construction Deed
of Trust dated September 28, 1998 between PeopleSoft, Inc.
and Lease Plan North America, Inc (incorporated by reference
to Exhibit 10.41 filed with PeopleSoft, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998).
10.44 Participation Agreement dated September 28, 1998 between
PeopleSoft, Inc. and Wilmington Trust Company, ABN AMRO
Leasing, Inc., ABN AMRO Bank N.V., and Financial
Institutions listed in Schedule I of the Participation
Agreement (incorporated by reference to Exhibit 10.42 filed
with PeopleSoft, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.45 Master Lease dated September 28, 1998 between PeopleSoft,
Inc. and Wilmington Trust Company (incorporated by reference
to Exhibit 10.43 filed with PeopleSoft, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998).
10.46 Appendix 1 to the Participation Agreement and Master Lease
dated September 28, 1998 (incorporated by reference to
Exhibit 10.44 filed with PeopleSoft, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998).
10.47 Employment Agreement between Craig Conway and PeopleSoft,
Inc., dated May 10, 1999.
21.1 Subsidiaries of PeopleSoft, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24 Power of Attorney (see the signature page to this Form
10-K).
27.1 Financial Data Schedule
</TABLE>

- ---------------
(1) This agreement is a compensatory plan or arrangement.

(2) Confidential treatment previously granted.

52
<PAGE> 55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

PEOPLESOFT, INC.

By: /s/ STEPHEN F. HILL
------------------------------------
Stephen F. Hill
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)

Dated: March 29, 2000

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Craig Conway and
Stephen F. Hill, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ DAVID A. DUFFIELD Chairman of the Board of March 29, 2000
- ----------------------------------------------------- Directors
David A. Duffield

/s/ ANEEL BHUSRI Vice Chairman of the Board of March 29, 2000
- ----------------------------------------------------- Directors
Aneel Bhusri

/s/ CRAIG CONWAY President, Chief Executive March 29, 2000
- ----------------------------------------------------- Officer and Director (Principal
Craig Conway Executive Officer and Director)

/s/ STEPHEN F. HILL Vice President and Chief March 29, 2000
- ----------------------------------------------------- Financial Officer (Principal
Stephen F. Hill Financial and Accounting
Officer)

/s/ A. GEORGE BATTLE Director March 29, 2000
- -----------------------------------------------------
A. George Battle

/s/ STEVE GOLDBY Director March 29, 2000
- -----------------------------------------------------
Steve Goldby

/s/ GEORGE J. STILL, JR. Director March 29, 2000
- -----------------------------------------------------
George J. Still, Jr.

/s/ CYRIL J. YANSOUNI Director March 29, 2000
- -----------------------------------------------------
Cyril J. Yansouni
</TABLE>

53
<PAGE> 56

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders PeopleSoft, Inc.

We have audited the accompanying consolidated balance sheets of PeopleSoft,
Inc., as of December 31, 1998 and 1999 and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
consolidated balance sheet of The Vantive Corporation, a wholly-owned subsidiary
acquired in December 1999 in an acquisition accounted for as a pooling, as of
December 31, 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1998, which balance sheet reflects total assets of
$184,268,000 of the related consolidated financial statement total and which
statements of operations reflect total revenues of $117,346,000 and $163,100,000
and net losses of $6,958,000 and $2,286,000 of the related consolidated
financial statement total for the periods ended December 31, 1997 and 1998,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for The Vantive Corporation, is based solely on the report of the other
auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of PeopleSoft, Inc. at
December 31, 1998 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.

/s/ ERNST & YOUNG LLP
Walnut Creek, California
February 4, 2000

F-1
<PAGE> 57

PEOPLESOFT, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 531,722 $ 414,019
Short-term investments...................................... 249,416 290,122
Accounts receivable, less allowance for doubtful accounts of
$42,370 in 1998 and $45,794 in 1999....................... 427,268 331,104
Investments in corporate equity securities.................. -- 260,664
Deferred income taxes....................................... 60,683 --
Other current assets........................................ 49,124 63,467
---------- ----------
Total current assets.............................. 1,318,213 1,359,376
Property and equipment, at cost
Computer equipment and software........................... 208,702 218,221
Furniture and fixtures.................................... 51,650 55,686
Leasehold improvements.................................... 42,109 39,576
Land...................................................... 46,066 46,066
---------- ----------
348,527 359,549
Less accumulated depreciation and amortization......... (139,228) (187,056)
---------- ----------
209,299 172,493
Investments................................................. 31,616 67,852
Deferred income taxes....................................... 7,814 18,774
Capitalized software, less accumulated amortization......... 37,393 27,286
Other assets................................................ 19,190 42,097
---------- ----------
Total assets...................................... $1,623,525 $1,687,878
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 37,505 $ 27,555
Accrued liabilities......................................... 95,016 121,434
Accrued compensation and related expenses................... 116,825 130,245
Income taxes payable........................................ 22,587 19,055
Deferred income taxes....................................... -- 23,945
Deferred revenues........................................... 442,131 429,929
---------- ----------
Total current liabilities......................... 714,064 752,163
Long-term debt.............................................. 69,000 69,000
Other long-term liabilities................................. 18,732 14,050
Long-term deferred revenues................................. 89,393 88,046
Commitments and contingencies (see notes)
Stockholders' equity:
Preferred stock, $.01 par value, authorized: 2,000 shares;
issued: none........................................... -- --
Common stock, $.01 par value, authorized: 700,000 shares;
issued and outstanding: 255,673 shares in 1998 and
270,944 shares in 1999................................. 2,557 2,709
Additional paid-in capital.................................. 396,037 538,643
Dividend declared of Momentum Business Applications
shares.................................................... 78,622 --
Accumulated other comprehensive (loss) income............... (2,614) 143,298
Retained earnings........................................... 257,734 79,969
---------- ----------
Total stockholders' equity........................ 732,336 764,619
---------- ----------
Total liabilities and stockholders' equity........ $1,623,525 $1,687,878
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE> 58

PEOPLESOFT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
License fees.......................................... $509,666 $ 664,277 $ 339,676
Services.............................................. 422,488 810,491 1,061,838
Development and other services........................ -- -- 27,632
-------- ---------- ----------
Total revenues................................ 932,154 1,474,768 1,429,146
COSTS AND EXPENSES:
Cost of license fees.................................. 22,371 44,418 42,578
Cost of services...................................... 251,926 465,670 564,404
Cost of development services.......................... -- -- 25,107
Sales and marketing................................... 270,470 407,023 391,572
Product development................................... 147,061 237,970 297,212
General and administrative............................ 52,984 73,828 97,387
In-process research and development, acquisition and
other charges...................................... 21,121 24,795 73,050
Contribution to Momentum Business Applications........ -- -- 176,409
-------- ---------- ----------
Total costs and expenses...................... 765,933 1,253,704 1,667,719
-------- ---------- ----------
Operating income (loss)................................. 166,221 221,064 (238,573)
Other income, net....................................... 11,167 20,778 72,175
-------- ---------- ----------
Income (loss) before income taxes....................... 177,388 241,842 (166,398)
Provision for income taxes.............................. 76,083 101,904 11,367
-------- ---------- ----------
Net income (loss)....................................... $101,305 $ 139,938 $ (177,765)
======== ========== ==========
Basic income (loss) per share........................... $ 0.42 $ 0.56 $ (0.67)
======== ========== ==========
Shares used in basic per share computation.............. 239,572 249,807 263,914
======== ========== ==========
Diluted income (loss) per share......................... $ 0.37 $ 0.50 $ (0.67)
======== ========== ==========
Shares used in diluted per share computation............ 270,204 281,059 263,914
======== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 59

PEOPLESOFT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................... $ 101,305 $ 139,938 $(177,765)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 41,392 64,087 97,274
Provision for doubtful accounts....................... 13,110 17,795 7,559
Provision for deferred income taxes................... (10,932) (21,096) (35,202)
Gain on sales of investments and loss on disposition
of property and equipment, net..................... -- -- (48,243)
In-process research and development, acquisition and
other charges, net of payments..................... 21,121 23,396 60,691
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable................................ (235,023) (352,362) 65,117
Cash received from sales of accounts receivable.... 66,856 239,792 23,776
Accounts payable and accrued liabilities........... 32,680 27,777 (17,394)
Accrued compensation and related expenses.......... 29,805 40,911 12,491
Income taxes payable............................... 19,388 181 (3,532)
Deferred revenues.................................. 147,220 194,078 (13,549)
Other current and noncurrent assets................ (14,566) (30,843) (13,323)
Other noncurrent liabilities....................... (725) (2,198) (4,596)
--------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 211,631 341,456 (46,696)
INVESTING ACTIVITIES:
Purchase of investments................................. (239,519) (229,832) (419,936)
Sales of investments.................................... 71,644 176,064 385,639
Purchase of property and equipment...................... (63,518) (113,626) (57,209)
Disposition of property and equipment................... -- -- 411
Additions to capitalized software....................... (2,495) (5,555) (1,511)
Acquisitions............................................ (1,472) (43,106) 1,780
--------- --------- ---------
Net cash used in investing activities......... (235,360) (216,055) (90,826)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock and exercise of
options............................................... 35,288 70,229 71,610
Tax benefits from exercise of stock options............. 25,778 44,280 28,972
Proceeds from issuance of long-term debt................ 69,000 -- --
Distribution of Momentum Business Applications shares... -- -- (78,622)
Payments on capital leases.............................. (461) (330) (173)
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 129,605 114,179 21,787
Effect of foreign exchange rate changes on cash......... (1,276) (1,225) (1,968)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 104,600 238,355 (117,703)
Cash and cash equivalents at beginning of period........ 188,767 293,367 531,722
--------- --------- ---------
Cash and cash equivalents at end of period.............. $ 293,367 $ 531,722 $ 414,019
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest................................ $ 1,849 $ 4,632 $ 4,107
========= ========= =========
Cash paid for income taxes, net of refunds............ $ 36,544 $ 86,779 $ 30,565
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 60

PEOPLESOFT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE TOTAL
---------------- PAID-IN DIVIDEND RETAINED (LOSS) SHAREHOLDERS'
SHARES AMOUNT CAPITAL DECLARED EARNINGS INCOME EQUITY
------- ------ ---------- -------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996......... 235,195 $2,352 $194,849 $ -- $ 95,592 $ (114) $ 292,679
------- ------ -------- -------- --------- -------- ---------
Net income.......................... -- -- -- -- 101,305 -- 101,305
Currency translation................ -- -- -- -- -- (1,276) (1,276)
---------
Comprehensive income.............. 100,029
Exercise of common stock options and
issuances under stock purchase
plan.............................. 7,301 73 35,215 -- -- -- 35,288
Acquisitions........................ 1,142 12 19,729 -- (479) -- 19,262
Exercise of warrants................ 943 9 (9) -- -- -- --
Tax benefits from employee stock
transactions...................... -- -- 25,778 -- -- -- 25,778
------- ------ -------- -------- --------- -------- ---------
Balances at December 31, 1997......... 244,581 2,446 275,562 -- 196,418 (1,390) 473,036
------- ------ -------- -------- --------- -------- ---------
Net income.......................... -- -- -- -- 139,938 -- 139,938
Currency translation................ -- -- -- -- -- (1,224) (1,224)
---------
Comprehensive income.............. 138,714
Exercise of common stock options and
issuances under stock purchase
plan.............................. 10,832 108 70,121 -- -- -- 70,229
Acquisitions........................ 260 3 6,074 -- -- -- 6,077
Tax benefits from employee stock
transactions...................... -- -- 44,280 -- -- -- 44,280
Dividend declared of Momentum
Business Applications shares...... -- -- -- 78,622 (78,622) -- --
------- ------ -------- -------- --------- -------- ---------
Balances at December 31, 1998......... 255,673 2,557 396,037 78,622 257,734 (2,614) 732,336
------- ------ -------- -------- --------- -------- ---------
Net loss............................ -- -- -- -- (177,765) -- (177,765)
Unrealized gain on
available-for-sale investments,
net of tax........................ -- -- -- -- -- 147,875 147,875
Currency translation................ -- -- -- -- -- (1,963) (1,963)
---------
Comprehensive loss................ (31,853)
Exercise of common stock options and
issuances under stock purchase
plan.............................. 12,453 125 71,485 -- -- -- 71,610
Acquisitions........................ 2,148 21 38,376 -- -- -- 38,397
Exercise of warrants................ 649 6 (6) -- -- -- --
Tax benefits from employee stock
transactions...................... -- -- 28,972 -- -- -- 28,972
Dividend declared of Momentum
Business Applications shares...... -- -- -- (78,622) -- -- (78,622)
Compensation expense and other...... 21 -- 3,779 -- -- -- 3,779
------- ------ -------- -------- --------- -------- ---------
Balances at December 31, 1999......... 270,944 $2,709 $538,643 $ -- $ 79,969 $143,298 $ 764,619
======= ====== ======== ======== ========= ======== =========
</TABLE>

F-5
<PAGE> 61

PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

The Company

PeopleSoft, Inc. (the "Company") develops, markets and licenses enterprise
application software. The Company provides eBusiness applications for customer
relationship management, human resource management, financials, and supply
chain, along with a range of industry-specific solutions. The Company also
provides services such as maintenance, training, installation, consulting and
product support services. Customers consist primarily of large and medium sized
organizations including corporations, higher education institutions, non-profit
entities and federal, state and local government agencies.

Basis of Presentation

As more fully described in Note 2, PeopleSoft, Inc. ("PeopleSoft") merged
with The Vantive Corporation ("Vantive") on December 31, 1999. These
consolidated financial statements reflect the pooling of interest method of
accounting and therefore reflect the combined financial position, operating
results and cash flows of PeopleSoft and Vantive as if they had been combined
for all periods presented. Certain prior period amounts have been reclassified
to conform to the current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated. The results of operations of Momentum Business
Applications, Inc. ("Momentum Business Applications") were consolidated with the
results of operations of the Company through March 15, 1999 (See Note 10). The
Consolidated Balance Sheet as of December 31, 1999 excludes the accounts of
Momentum Business Applications.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Despite management's best effort to establish good
faith estimates and assumptions; actual results may differ from these estimates.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with insignificant interest
rate risk and remaining maturities of three months or less at the date of
purchase and are stated at amounts which approximate fair value, based on quoted
market prices. Cash equivalents consist principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt and preferred equity
securities of corporations, municipalities and the U.S. Government. All other
cash is held in bank demand deposits.

Accounts Receivable

Accounts receivable are comprised of billed receivables arising from
recognized or deferred revenues and unbilled receivables, which include accrued
license fees for payments not yet due and accrued services. Unbilled receivables
included in accounts receivable as of December 31, 1998 and 1999 were $118.4
million and $85.8 million. The Company's receivables are unsecured. Reserves are
maintained for potential losses. For the years ended December 31, 1997, 1998,
and 1999 actual loss experience has been within management's

F-6
<PAGE> 62
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

estimates. Future credit losses may differ from the Company's estimates and
could have a material impact on the Company's future results of operations.

Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method
over estimated useful lives of two to three years for computer equipment, five
years for telephones and office equipment, and seven years for furniture and
fixtures. Leasehold improvements are depreciated over the shorter of the lease
term or the useful life of the asset. Intangible assets are amortized over lives
of two to five years.

Capitalized Software

The Company capitalizes software purchased from third parties if the
related software product under development has reached technological feasibility
or if there are alternative future uses for the purchased software provided that
capitalized amounts will be realized over a period not exceeding five years.
Technological feasibility is attained when software products reach Beta release.
Costs incurred prior to the establishment of technological feasibility are
charged to product development expense. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies. Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the straight-line
method) on a product-by-product basis over the estimated life, which is
generally three years. All research and development expenditures are charged to
research and development expense in the period incurred.

In addition, the Company capitalizes costs of materials, consultants,
interest, and payroll and payroll-related costs for employees incurred in
developing internal-use computer software once technological feasibility is
attained. Costs incurred prior to the establishment of technological feasibility
are charged to general and administrative expense.

Capitalized software costs and accumulated amortization at December 31,
1998 and 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Capitalized software
Internal development costs................................ $ 18,786 $ 20,296
Obtained through business combinations.................... 34,332 32,032
Purchased from third parties.............................. 300 300
-------- --------
53,418 52,628
Accumulated amortization.................................... (16,025) (25,342)
-------- --------
$ 37,393 $ 27,286
======== ========
</TABLE>

Capitalized software amortization expense for 1997, 1998 and 1999 was $4.0
million, $5.7 million and $9.3 million.

Deferred Revenue

Deferred revenue is comprised of deferrals for license fees, maintenance,
training and other services. Long-term deferred revenue represents amounts
received for maintenance and support services to be provided

F-7
<PAGE> 63
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

beginning in periods on or after January 1, 2001. The principal components of
deferred revenue at December 31, 1998 and 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
License fees................................................ $ 69,164 $ 70,838
Maintenance................................................. 323,452 360,284
Training.................................................... 76,968 54,744
Other services.............................................. 61,940 32,109
-------- --------
531,524 517,975
Less: Long term deferred revenue............................ 89,393 88,046
-------- --------
$442,131 $429,929
======== ========
</TABLE>

Revenue Recognition

The Company licenses software under non-cancelable license agreements and
provides services including training, consulting and maintenance, consisting of
product support services and periodic updates. License fee revenues are
generally recognized when a non-cancelable license agreement has been signed,
the software product has been shipped, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable, and collection is
considered probable. For customer license agreements which meet these
recognition criteria, the portion of the fees related to software licenses are
generally recognized in the current period, while the portion of the fees
related to services is recognized as the services are performed. When the
Company enters into a license agreement with a customer requiring significant
customization of the software products, the Company recognizes revenue related
to the license agreement using contract accounting. The Company allocates a
portion of contractual license fees to post-contract support activities covered
under the contract including first year maintenance, installation assistance and
limited training services. Revenues from maintenance agreements are recognized
ratably over the maintenance period, which in most instances is one year.

Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions", were issued in October 1997,
March 1998, and December 1998 and address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede SOP 91-1 and, in part, are effective for
transactions entered into for fiscal years beginning after December 15, 1997.
Based on its reading and interpretation of SOPs 97-2 and 98-4, the Company
believes it is currently in compliance with the standards. SOP 98-9 was
effective beginning January 1, 2000 and imposes significant new requirements
such as establishing vendor specific objective evidence. PeopleSoft has changed
certain business policies to meet the requirements of SOP 98-9, however, the
effect of the SOP on the Company's 2000 financial results is not presently
determinable due to numerous factors including the actual implementation of such
policies, specifically negotiated exceptions to such policies, changes in market
conditions, and changes in interpretations of the SOPs.

F-8
<PAGE> 64
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

tions could result in many software companies, including PeopleSoft, recording a
cumulative effect of a change in accounting principles retroactive to January 1,
2000.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This statement provides for a liability approach under which deferred
income taxes are provided based upon enacted tax laws and rates applicable to
the periods in which the taxes become payable.

Foreign Currency Translation

The Company has determined that the functional currency of each foreign
operation is the local currency. The effects of translation rate changes related
to assets and liabilities located outside the United States are included as a
component of "Accumulated other comprehensive (loss) income." Foreign currency
transaction gains and losses are included in "Other income, net." Through 1999,
such gains and losses have not been significant.

Transfer of Financial Assets

The Company transfers the accounts receivable under certain software
license and service agreements with customers to financing institutions, on a
non-recourse basis. The Company records such transfers as sales of the related
accounts receivable when it is considered to have surrendered control of such
receivables under the provisions of Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). As of December 31, 1999, the
Company had servicing obligations related to approximately $2 million of account
receivables that had been sold under these arrangements.

Stock-based Compensation

In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued and effective
for the year ending December 31, 1996. As permitted by SFAS 123, the Company has
continued to account for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25") and has made the pro forma disclosures required by SFAS
123 for each of the three years in the period ending December 31, 1999 in Note
13.

Newly Issued Accounting Standards

2. MERGER

On December 31, 1999, PeopleSoft, Inc., ("PeopleSoft") merged with The
Vantive Corporation ("Vantive"), a supplier of customer relationship management
solutions, in a business combination accounted for under the pooling of
interests method of accounting. PeopleSoft acquired all of the outstanding
capital

F-9
<PAGE> 65
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

stock of Vantive, in exchange for approximately 23.3 million shares of
PeopleSoft's common stock and the assumption of approximately 4.9 million
Vantive outstanding stock options by PeopleSoft, ("the Acquisition"). The
Acquisition was effected by means of a merger pursuant to which a wholly owned
subsidiary of PeopleSoft merged with and into Vantive, with Vantive as the
surviving company. Promptly thereafter, PeopleSoft merged Vantive into itself
and the separate corporate existence of Vantive ceased. The accompanying
consolidated financial statements for 1999 are based on the assumption that the
companies were combined for the full year, and financial statements of all prior
years have been restated to give effect to the combination.

Combined and separate results of the companies for the three-year period
ended December 31, 1999, the date of Acquisition, were as follows (in thousands,
except per share amounts):

The consolidated statements of income include adjustments to eliminate
transactions between PeopleSoft and Vantive. There were no material differences
between the accounting policies of PeopleSoft and Vantive and the fiscal years
of both companies ended on December 31; accordingly, no other adjustments were
required for these items.

Fees and expenses incurred in connection with the Acquisition and the
integration of the combined companies have been charged in the accompanying
consolidated statements of income for the year ended December 31, 1999 as
required under the pooling of interests method of accounting. These fees and
expenses include transaction costs of approximately $15.8 million relating to
financial advisory, legal, and accounting fees, employee costs payable at the
effective time of the merger and other direct expenses. In addition, charges of
approximately $34.1 million were recorded to reflect certain exit costs which
include, employee severance, costs associated with the elimination of excess
facilities, costs to terminate contracts with third parties who provide
redundant or conflicting services and write-off of duplicative equipment and
other property and equipment (See Note 6).

3. INVESTMENTS IN DEBT AND EQUITY SECURITIES

The Company accounts for its cash equivalents and investments under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company classifies
debt and preferred equity securities based on management's intention on the date
of purchase and reevaluates such designation as of each balance sheet date. Debt
securities which management has the intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost. All other debt
and equity securities are classified as available for sale and carried at fair
value, which is determined based on quoted market prices, with net unrealized
gains and losses included in "Accumulated

F-10
<PAGE> 66
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

other comprehensive (loss) income," net of tax. At December 31, 1998 and 1999
the components of the Company's debt and preferred equity securities were as
follows (in thousands):

<TABLE>
<CAPTION>
AGGREGATE UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE COST FAIR VALUE GAINS LOSSES
------------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
State and local municipalities debt............. $238,925 $238,925 $ -- $ --
Corporate debt.................................. 19,158 19,158 -- --
Auction rate preferred stock.................... 63,828 63,828 -- --
-------- -------- ---- -----
$321,911 $321,911 $ -- $ --
======== ======== ==== =====
1999
State and local municipalities debt............. $302,240 $301,953 $ -- $(287)
Corporate debt.................................. 74,786 74,502 -- (284)
Auction rate preferred stock.................... 45,725 45,725 -- --
-------- -------- ---- -----
$422,751 $422,180 $ -- $(571)
======== ======== ==== =====
</TABLE>

<TABLE>
<CAPTION>
AMORTIZED AGGREGATE UNREALIZED UNREALIZED
HELD-TO-MATURITY COST FAIR VALUE GAINS LOSSES
---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
U.S. Government debt............................ $11,711 $11,903 $192 $ --
Corporate debt.................................. 31,463 29,677 -- (1,786)
------- ------- ---- -------
$43,174 $41,580 $192 $(1,786)
======= ======= ==== =======
1999
U.S. Government debt............................ $23,444 $23,783 $339 $ --
Corporate debt.................................. 23,166 23,638 472 --
------- ------- ---- -------
$46,610 $47,421 $811 $ --
======= ======= ==== =======
</TABLE>

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Recorded as:
Cash equivalents............................... $ 84,053 $110,816
Investments due in one year or less............ 249,416 290,122
Investments due in one year to 18 months....... 31,616 67,852
-------- --------
$365,085 $468,790
======== ========
</TABLE>

Unrealized gains and losses at December 31, 1998 and realized gains and
losses for the year ended December 31, 1998 were not material. The cost of
securities sold is based on the specific identification method.

The Company has classified its investments in several new publicly traded
Internet start-up companies as investments available for sale (included in
"Investments in Corporate equity securities" in the accompanying consolidated
balance sheets). These investments, comprised of marketable securities, are
carried at fair value as determined by quoted market prices. Realized gains on
the sale of these investments for the year ended December 31, 1999 were $51.3
million. The aggregate fair value of investments in corporate equity securities
held at December 31, 1999, was $260.7 million. Gross unrealized gains were
$241.0 million as of December 31, 1999, and are included, net of deferred income
taxes of $92.8 million, as a component of "Accumulated other comprehensive
(loss) income". A substantial portion of the unrealized holding gains relates to
an investment in a company that completed its public offering in the third
quarter of 1999. These

F-11
<PAGE> 67
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

corporate equity securities are subject to lock up provisions, which expire at
various dates through August 2000.

4. FINANCIAL INSTRUMENTS

The Company is not a party to any interest rate risk management
transactions and does not hold any derivative financial instruments for trading
purposes. The Company has written policies that place all foreign currency
forward transactions under the direction of corporate treasury and restrict all
derivative transactions to those intended for hedging purposes.

Forward Foreign Exchange Contracts

In January 1998, the Company initiated a foreign exchange hedging program
designed to mitigate the potential for future adverse impact on intercompany
balances due to changes in foreign exchange rates. The program uses forward
foreign exchange contracts as the vehicle for hedging these intercompany
balances. The Company uses one multinational bank for substantially all of these
contracts. In general, these forward foreign exchange contracts have terms of
three months or less. Gains and losses on the settled contracts are included in
"Other income, net" and are recognized in the current period, consistent with
the period in which the gain or loss of the underlying transaction is
recognized. The Company recorded net losses from these settled contracts and
underlying foreign currency exposures of approximately $0.9 million for each of
the years ended December 31, 1998 and 1999. At December 31, 1998, the Company
had outstanding forward exchange contracts to exchange Singapore dollars ($5.5
million), Swiss franks ($1.5 million), and New Zealand dollars ($4.0 million)
for U.S. Dollars. At December 31, 1999, the Company had outstanding forward
foreign exchange contracts to exchange Euros ($30.7 million), Singapore dollars
($6.0 million), South African rands ($1.4 million), Swiss franks ($2.7 million)
and New Zealand dollars ($1.7 million) for U.S. dollars, and to exchange U.S.
dollars for British pounds ($2.6 million) and Australian dollars ($2.5 million).
At December 31, 1999, each of these contracts had a maturity date in February
2000 and a book value that approximates fair value. Neither the cost nor the
fair value of these forward foreign exchange contracts was material at December
31, 1999. The foreign exchange hedging program is managed in accordance with a
corporate policy approved by the Company's Board of Directors.

Concentrations of Credit Risk

The Company does not have a concentration of credit or operating risk in
any one industry or any one geographic region within or outside of the United
States.

F-12
<PAGE> 68
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. IN-PROCESS RESEARCH AND DEVELOPMENT, ACQUISITION AND OTHER CHARGES

The following table sets forth the components of "In-process research and
development, acquisition and other charges" for the years ended December 31, (in
thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Acquired in-process research and development and other
acquisition charges....................................... $21,121 $24,795 $ --
Restructuring and exit charges.............................. -- -- 42,793
Vantive merger transaction costs............................ -- -- 15,835
Product exit charge......................................... -- -- 10,442
Leasehold improvements write off............................ -- -- 3,980
------- ------- -------
In-process research and development, acquisition and other
charges................................................ $21,121 $24,795 $73,050
======= ======= =======
</TABLE>

6. RESTRUCTURING AND EXIT CHARGES

During the second and third quarters of 1999, Vantive, which subsequently
merged with the Company, adopted a restructuring plan and incurred pretax
charges of $4.3 million to implement a restructuring program aimed at reducing
its cost structure. The restructuring charges consisted primarily of write-offs
of operating assets associated with the termination of certain projects and
relationships that were inconsistent with changes in the operational direction
of Vantive. Additional charges were associated with employee severance. As a
result of these restructuring actions, 5 U.S. employees separated from Vantive,
including the former chief executive officer and chief operating officer.
Approximately $0.7 million of the restructuring charges were cash charges,
substantially paid in 1999 and funded through operating cash flow. The remaining
$3.7 million represented fixed asset write-downs in the amount of $3.0 million,
non-cash compensation expense in the amount of $0.5 million and write-off of the
remaining unamortized goodwill attributable to the Wayfarer acquisition in the
amount of $0.2 million.

In the fourth quarter of 1999, the Company incurred a pretax exit charge of
$34.1 million to consolidate the worldwide operations of PeopleSoft and Vantive.
The exit charge included employee severance, write-off of duplicative equipment
and other fixed assets, costs associated with the elimination of excess
facilities, and costs to terminate contracts with third parties that provide
redundant or conflicting services. Approximately 44 redundant positions in the
U.S., primarily in the management and administration areas will be eliminated. A
total of 39 employees left the Company during the first quarter of 2000. The
additional five employees will leave the Company during the second quarter of
2000. Approximately $21.8 million of the exit charge is a cash charge and is
expected to be funded through operating cash flow. The remaining $12.3 million
represents asset write-downs.

F-13
<PAGE> 69
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth components of the Company's restructurings
and exit charges for 1999 and the company's restructuring reserves as of
December 31, 1999, which are included in "Accrued liabilities," (in thousands):

<TABLE>
<CAPTION>
EMPLOYEE ASSET
COSTS WRITE-DOWNS LEASES OTHER TOTAL
-------- ----------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Employee severance and related
costs............................... $ 9,578 $ -- $ -- $ -- $ 9,578
Property and equipment write-downs.... -- 15,380 -- -- 15,380
Contractual obligations............... -- -- 3,765 11,750 15,515
Other................................. -- 215 2,105 -- 2,320
------- -------- ------ ------- --------
Total restructuring and exit
charges.......................... 9,578 15,595 5,870 11,750 42,793
Cash payments......................... (4,961) -- -- -- (4,961)
Non-cash items........................ (449) (14,059) -- (215) (14,723)
------- -------- ------ ------- --------
Restructuring reserves.............. $ 4,168 $ 1,536 $5,870 $11,535 $ 23,109
======= ======== ====== ======= ========
</TABLE>

7. ACCRUED EMPLOYEE HEALTHCARE INSURANCE CLAIMS

The Company is self-insured, with certain stop loss insurance coverage, for
employee health care claims. Expense is recorded based on estimates of the
ultimate liability, including claims incurred but not reported. The liabilities
for accrued employee healthcare insurance claims were $3.9 million and $5.7
million as of December 31, 1998 and 1999.

8. CONVERTIBLE SUBORDINATED NOTES

In August 1997, the Company issued an aggregate of $69.0 million in
principal amount of convertible subordinated notes, due August 2002, to certain
investors and incurred approximately $2.4 million of offering expenses in
connection with this issuance. These notes bear interest at a rate of 4.75% per
annum and are convertible into the Company's common stock at the investor's
option at any time at a price of $50.824242 per share. Based on the traded yield
to maturity, the approximate fair market value of the convertible subordinated
notes was $47.6 million and $59.3 million as of December 31, 1998 and 1999.

9. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under operating leases, which
generally require the Company to pay operating costs, including property taxes,
insurance and maintenance. The Company also leases certain computer equipment
under operating leases. Computer leases require the return of the equipment or
payment of residual values at the end of the lease term. Such residual values,
which approximate fair values, are not material to the consolidated financial
statements.

In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. This lease is structured as an
operating lease with rental payments due beginning upon the completion of the
construction, which occurred during the fourth quarter of 1998. The rental
payments related to this lease have been included in the future minimum
operating lease payments schedule below. The cost for the construction of the
facility totals $70.0 million including interest during the construction period.
The rental payments equal the amount of interest under the agreement. The
interest rate charged on amounts funded prior to the commencement of the lease
payments was LIBOR plus 0.625% as measured on the date of each funding rollover.
The Company began accruing interest concurrent with the lessor's first drawdown
of the construction commitment in January 1997. Throughout the construction
period, the accrued interest amount, which was approximately $1.1 million and
$4.5 million as of December 31, 1997 and the end of the construction phase, has
been added to the construction cost. The Company has an option to renew the
lease for an additional three years, subject to certain conditions, or purchase
the building for $70.0 million. If at the

F-14
<PAGE> 70
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

end of the lease term the Company does not purchase the property, the Company
would guarantee a residual value to the lessor equal to 85% of the lessor's cost
of the facility. Under this lease, the Company is required to maintain
compliance with certain financial covenants, is prohibited from making certain
payments, including cash dividends, and is subject to various other
restrictions.

During the third quarter of 1998, the Company entered into agreements to
sell one of its Pleasanton, California office buildings and related land, and to
simultaneously lease back a substantial portion of the office space contained
therein. The initial lease term is for 10 years. The Company has options to
terminate up to 50% of the space at anytime following the initial 4 years of the
lease term and the remaining 50% at any time following the 5th year of the term;
or alternatively, the Company may extend the term of the lease in five-year
increments up to 20 years. Fees due upon termination, if applicable, are not
significant to the overall lease payments but are being accrued over the initial
term of the agreement. The sales price of approximately $50.0 million resulted
in a financial statement gain of approximately $24.4 million, which is being
amortized over the lease period. The Company holds a right of first refusal to
additional space within the site as other tenants' leases expire.

Additionally, the Company purchased two parcels of land for $50.0 million
during the third quarter of 1998. The Company has entered into an operating
lease agreement for facilities that will be constructed on one of the parcels.
The monthly lease amount will be determined at the end of construction when the
final construction cost is known. The estimated construction cost for the
facilities of $110.0 million includes interest costs during construction that
are added to the lease balance rather than paid by the Company. The expected
interest rate during construction is LIBOR plus 0.75% as measured on the date of
each funding or rollover; this rate may change depending on certain financial
ratios. As of December 31, 1999, a total of $91.3 million has been drawn under
the lease financing. The lease term is for 5 years with the option to purchase
the building for $110.0 million at the end of the lease term. If at the end of
the lease term the Company does not purchase the property, the Company would
guarantee a residual value to the lessor equal to 85% of the lessor's cost of
the facility. Under this lease, the Company is required to maintain compliance
with certain financial covenants, is prohibited from making certain payments,
including cash dividends, and is subject to various other restrictions.

Future minimum operating lease payments under all noncancellable leases for
the years ending December 31 are due as follows (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
2000.............................................. $ 55,445
2001.............................................. 47,889
2002.............................................. 43,176
2003.............................................. 33,651
2004.............................................. 24,784
Thereafter........................................ 44,697
--------
$249,642
========
</TABLE>

Rent expense totaled approximately $22.9 million, $42.2 million and $62.3
million in 1997, 1998 and 1999.

F-15
<PAGE> 71
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Beginning on January 29, 1999, a series of class action lawsuits were filed
in the United States District Court for the Northern District of California
against the Company and certain of its officers and directors, alleging
violations of Section 10(b) of the Securities Exchange Act of 1934. The actions
were consolidated in June 1999 under the name of the lead case Suttovia v.
Duffield, et al., C 99-0472. Following appointment of lead plaintiffs under the
provisions of the Private Securities Litigation Reform Act, a consolidated
amended complaint was filed on December 6 1999. The Consolidated Complaint names
the Company and David Duffield, Albert Duffield, Ronald Codd, Kenneth Morris,
Margaret Taylor, Aneel Bhusri, James Bozzini and George Still as defendants.

The Consolidated Complaint purports to bring claims on behalf of all
purchasers of PeopleSoft common stock during the period April 22 1997 to January
28, 1999, the date when the Company first announced results for the 1998 fiscal
year, and disclosed that certain of the Company's accounting practices were
being reviewed by the Securities and Exchange Commission. The Consolidated
Complaint alleges that PeopleSoft misrepresented, inter alia, the degree of
market acceptance of its products, the technical capabilities of its products,
the success of certain acquisitions it had made, and the anticipated financial
performance of the Company in fiscal 1999. The Consolidated Complaint abandons
all of the allegations in the original complaints concerning alleged accounting
improprieties, including claims of accounting fraud related to the Company's
write-downs for "in process research and development" in connection with various
acquisitions, and claims of accounting fraud related to the Company's spin-off
of Momentum Business Applications, Inc. (Momentum had been a named defendant in
the original actions, but was eliminated as a defendant when the Consolidated
Complaint was filed).

The Company believes that the claims asserted in the Consolidated Complaint
are without merit, and the Company intends to vigorously defend the action. On
February 10, 2000, the defendants filed motions to dismiss the Consolidated
Complaint without leave to amend. The motions will be heard on May 4, 2000.
There can be no assurance that if the motion is unsuccessful, and if there is an
unfavorable resolution of the litigation, there would not be a potential
material adverse impact on the Company's future financial position or results of
operations or cash flows. However, the Company has in place significant amounts
of insurance that would be available in the event of an adverse result.

The Company is party to various legal disputes and proceedings arising from
the ordinary course of general business activities. In the opinion of
management, resolution of these matters is not expected to have a material
adverse effect on the financial position, results of operations and cash flows
of the Company. However, depending on the amount and the timing, an unfavorable
resolution of some or all of these matters could materially affect the Company's
future results of operations or cash flows in a particular period.

F-16
<PAGE> 72
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. CONTRIBUTION TO MOMENTUM BUSINESS APPLICATIONS

During 1998, PeopleSoft formed Momentum Business Applications, Inc.
("Momentum Business Applications"), a research and development company designed
to develop eBusiness, analytical applications and industry-specific software
products. All of the outstanding shares of Momentum Business Applications Class
A Common Stock were transferred to a custodian on December 31, 1998 and
distributed as a dividend to holders of PeopleSoft Common Stock during January
1999. Prior to the distribution, PeopleSoft contributed $250.0 million to
Momentum Business Applications. The declared dividend of $78.6 million in the
accompanying consolidated financial statements represents the fair value of the
Momentum Business Applications Class A Common Stock distributed based on the
average market value on the day trading commenced. PeopleSoft consolidated the
results of operations of Momentum Business Applications with the results of
operations of the Company for the fourth quarter of 1998. However, during the
first quarter of 1999, Momentum Business Applications no longer met the
requirements for consolidation. As a result, the Company incurred a charge of
$176.4 million, which represents the $250.0 million contribution less the $78.6
million dividend recorded as of December 31, 1998, investment banker fees of
$2.9 million, other expenses related to the formation of Momentum Business
Applications, and expenses incurred by Momentum Business Applications while
consolidated with the Company.

In connection with the Company's contribution to Momentum Business
Applications and the distribution of Momentum Business Applications shares,
Momentum Business Applications and the Company entered into a number of
agreements, including a Development and License Agreement (the "Development
Agreement"), a Marketing and Distribution Agreement and a Services Agreement,
which are discussed below.

PeopleSoft and Momentum Business Applications have entered into a
Development Agreement pursuant to which the Company will conduct product
development and related activities on behalf of Momentum Business Applications
under work plans and cost estimates that have been proposed by the Company and
approved by Momentum Business Applications. Momentum Business Applications is
required to utilize the cash initially contributed by the Company plus interest
earned thereon, less administrative expenses and reserves of up to $2 million
(the "Available Funds") to conduct activities under the Development Agreement.
The Company has granted to Momentum Business Applications a perpetual,
worldwide, non-exclusive license to use certain of the Company's proprietary
technology solely for internal use in conjunction with the Development
Agreement. Per the terms of the development agreement with Momentum Business
Applications, the Company performed certain development services on behalf of
Momentum Business Applications during 1999; the Company recognized revenue from
development services in the amount of $27.6 million and recorded cost of
development services in the amount of $25.1 million. Momentum Business
Applications pays the Company one hundred and ten percent (110%) of the
Company's fully burdened costs relating to the research and development provided
by the Company. In addition to development services, during 1999, Momentum
Business Applications paid third party royalty costs in the amount of $4.0
million for technology, which will be incorporated into products developed by
Momentum Business Applications.

Under the terms of the Marketing and Distribution Agreement entered into by
the Company and Momentum Business Applications, Momentum Business Applications
has granted the Company an option to acquire a license to each product developed
under the Development Agreement. The license option for any such Momentum
Business Applications product is exercisable on a world-wide, exclusive basis at
any time from the date Momentum Business Applications agrees to develop the
product until the earlier of a) thirty days after the product becomes Generally
Available (as defined in the agreements); or b) the expiration of the purchase
option. The license option will expire, to the extent not previously exercised,
30 days after the expiration of the Company's option to purchase all of the
outstanding Momentum Business Applications shares as described below. If and to
the extent the license option is exercised as to any Momentum Business
Applications product, the Company will acquire a perpetual, exclusive license
(with the right to sublicense) to

F-17
<PAGE> 73
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

develop, make, have made and use the licensed product, and to sell and have sold
the licensed product. Upon exercising the license option, the Company will
assume responsibility for all ongoing development and sustaining engineering
expenses for the related product. Under the License Agreement for each licensed
product, the Company will make payments to Momentum Business Applications with
respect to the licensed product equal to 1% of net sales of the licensed product
by the Company and its sublicensees, distributors and marketing partners, plus
an additional 0.1% of such net sales for each full $1 million of Development
Costs of the licensed product that have been paid by Momentum Business
Applications, up to a maximum 6 percent royalty. The Company has the right to
buyout Momentum Business Applications's right to receive payments for licensed
products in accordance with a formula set forth in the Marketing and
Distribution Agreement. Through December 31, 1999, the Company has not incurred
any expenses in connection with the Marketing and Distribution Agreement.

Under the terms of the Services Agreement, during 1999, Momentum Business
Applications paid the Company $0.1 million per quarter to provide office
facilities, and to perform accounting, finance, human resources, information
systems and legal services on behalf of Momentum Business Applications.

PeopleSoft also has the right to purchase all (but not less than all) of
the Momentum Business Applications shares (the "Purchase Option"). The Purchase
Option will be exercisable by written notice to Momentum Business Applications
at any time 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 Business Applications has not paid (or accrued
expenses) for all but $15 million of Available Funds as of such date. In any
event, the Purchase Option will terminate on the 60th day after Momentum
Business Applications provides the Company with a statement that, as of the end
of any calendar month, there are less than $2.5 million of Available Funds
remaining.

Except in instances in which Momentum Business Applications's liabilities
exceed its assets, if the purchase option is exercised, the exercise price will
be the greatest of:

(1) 15 times the sum of (i) the actual worldwide payments made by or due
from the Company to Momentum Business Applications 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, the Company to
Momentum Business Applications if the Company had not previously
exercised its Product Payment Buy-Out Option with respect to any
Momentum Business Applications 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 Business Applications Product;

(2) the fair market value of six hundred thousand (600,000) shares of the
Company Common Stock, adjusted in the event of a stock split or
dividend, as of the date the Company exercises its Purchase Option;

(3) three hundred million dollars ($300,000,000) plus any additional funds
contributed to Momentum Business Applications by the Company, less the
aggregate of all amounts paid or incurred to develop the Momentum
Business Applications Products or pursuant to the Services Agreement as
of the date the Purchase Option is exercised; or

(4) seventy-five million dollars ($75,000,000).

In the event Momentum Business Applications's liabilities (other than
liabilities under the Development Agreement, the Marketing Agreement and the
Services Agreement) exceed Momentum Business Applications's assets, the Purchase
Option Exercise Price described above will be reduced by the amount such

F-18
<PAGE> 74
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

liabilities at the time of exercise are in excess of Momentum Business
Applications's cash and cash equivalents, and short term and long term
investments.

11. OTHER INCOME, NET

The following table sets forth the components of "Other income, net" (in
thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Interest income....................................... $11,914 $23,323 $23,526
Interest expense...................................... (1,849) (4,733) (4,107)
Gain on sale of corporate equity securities........... -- -- 51,281
Other................................................. 1,102 2,188 1,475
------- ------- -------
Other income, net................................... $11,167 $20,778 $72,175
======= ======= =======
</TABLE>

12. PER SHARE DATA

Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted income per share is computed by dividing net income by the sum of
weighted average number of common shares outstanding and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options, warrants and
convertible subordinated notes (using the treasury stock method). Common
equivalent shares of 8.2 million were excluded from the computation for the year
ended December 31, 1999, as their effect is antidilutive. The following table
sets forth the computation of basic and diluted income per share (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $101,305 $139,938 $(177,765)
======== ======== =========
Denominator:
Denominator for basic income per
share -- weighted average shares
outstanding.................................. 239,572 249,807 263,914
Employee stock options.......................... 27,580 27,847 --
Warrants........................................ 3,052 3,405 --
-------- -------- ---------
Denominator for diluted income (loss) per
share -- adjusted weighted average shares
outstanding, assuming exercise of common
equivalent shares............................ 270,204 281,059 263,914
======== ======== =========
Basic income (loss) per share..................... $ 0.42 $ 0.56 $ (0.67)
======== ======== =========
Diluted income (loss) per share................... $ 0.37 $ 0.50 $ (0.67)
======== ======== =========
</TABLE>

13. STOCKHOLDERS' EQUITY

Preferred Stock

Under a stockholder rights plan established in 1995, every share of common
stock carries the right (a "Right"), under certain circumstances, to purchase
equity securities of the Company or an acquiring company. Ten days after a
tender offer or acquisition of 20 percent or more of the Company's common stock,
each Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition, each Right entitles the holder to purchase
common stock of the Company with a

F-19
<PAGE> 75
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

fair value of twice the Exercise Price or, in certain circumstances, securities
of the acquiring company for the Exercise Price. Each Right expires in February
2005, and, during specified periods, the Company may redeem or exchange each
Right for $.01 or one share of common stock.

Common Stock

The Company has never paid cash dividends on its capital stock. At December
31, 1999, 66,600,877 authorized but unissued shares of common stock were
reserved for issuance under the Company's stock plans and for outstanding
warrants.

Stock Dividend

In December 1998, the Company declared a stock dividend of one share of
Momentum Business Applications Class A Common Stock for every fifty shares of
PeopleSoft stock held as of December 31, 1998, resulting in 4.7 million shares
distributed. The Company's stockholders were not required to pay cash or other
consideration for the Momentum Business Applications shares received. No
fractional shares were distributed. The distribution is taxable as a dividend to
each holder in the amount of the fair market value of the Momentum Business
Applications shares distributed to each shareholder. The average market value of
the shares on January 16, 1999 (the first day of trading) was $16.75.

Stock Plans

1992 Employee Stock Purchase Plan

Under the 1992 Employee Stock Purchase Plan ("ESPP"), eligible employees
may purchase common stock at a price equal to 85 percent of the lower of the
fair market value of the common stock at the beginning or end of each offering
period. Participation in the offering is limited to the lesser of ten percent of
an employee's compensation or $21,250 per year, may be terminated at any time by
the employee and automatically ends upon termination of employment with the
Company. A total of 10,220,900 shares of common stock have been reserved for
issuance under this plan of which 7,044,609 shares have been issued through
December 31, 1999. Under this plan, 741,628 shares, 835,166 shares and 1,755,442
shares were issued in 1997, 1998 and 1999, respectively. In January 2000,
832,967 shares were issued in connection with the offering period ended December
31, 1999. Subsequent six-month offering periods will commence on each January 1
and July 1.

1989 Stock Plan

Pursuant to the 1989 Stock Plan, incentive and non-qualified stock options
to purchase shares of the Company's common stock may be granted, and 116,336,337
shares have been reserved for issuance under this Plan. The exercise price of
each incentive and non-qualified stock option shall not be less than 100 percent
and 85 percent, respectively, of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested. Vesting is established by the Board of
Directors and generally occurs at the rate of 25 percent per year from the date
of grant.

In connection with the merger of PeopleSoft and Vantive on December 31,
1999, PeopleSoft assumed all of the outstanding stock options of the Vantive
1991 Amended and Restated Stock Option Plan, the 1995 Outside Directors Stock
Option Plan and the 1997 Non-Statutory Stock Option Plan. As of the date of the
merger, 4,815,069 shares of PeopleSoft common stock were reserved for issuance
upon the exercise of options assumed in connection with the business
combination.

Upon consummation of the merger with Vantive on December 31, 1999,
approximately 392,206 options issued under the Vantive Stock Option Plan became
immediately exercisable due to a change in ownership provision.

F-20
<PAGE> 76
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1999 TriMark Technologies, Inc. Plan

In connection with the acquisition of TriMark in 1999, PropleSoft assumed
all of the outstanding stock options of TriMark (adjusted for the exchange
ratio). As of the date of the acquisition, 593,689 shares of PeopleSoft common
stock were reserved for issuance upon the exercise of options assumed in
connection with the business combination.

1999 Distinction Software, Inc. Plan

In connection with the acquisition of Distinction Software in 1999,
PeopleSoft assumed all of the outstanding stock options of Distinction (adjusted
for the exchange ratio). As of the date of the acquisition, 5,864 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.

1993 Red Pepper Software Company Plan

In connection with the merger of PeopleSoft and Red Pepper in 1996,
PeopleSoft assumed all of the outstanding stock options of Red Pepper (adjusted
for the exchange ratio). As of the date of the merger, 2,163,388 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.

1992 Intrepid Systems, Inc. Plan

In connection with the merger of PeopleSoft and Intrepid in 1998,
PeopleSoft assumed all of the outstanding stock options of Intrepid (adjusted
for the exchange ratio). As of the date of the merger, 130,130 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.

Combined Option Activity

Option activity under the 1989 Stock Plan, including the 1993 Red Pepper
Software Company Plan, the 1992 Intrepid Systems, Inc. Plan, and the 1991, 1995
and 1997 Vantive Stock Option Plan stock options assumed by PeopleSoft as a
result of those mergers and the options canceled and granted as a result of the
December 14, 1998 option repricing, is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE SHARES
---------------- -----------
<S> <C> <C>
Balances at December 31, 1996............................ $ 5.97 41,688,306
Granted................................................ 22.13 12,195,585
Exercised.............................................. 3.28 (6,541,196)
Canceled............................................... 12.37 (1,022,971)
------ -----------
Balances at December 31, 1997............................ 10.19 46,319,724
Granted................................................ 25.29 31,707,904
Exercised.............................................. 4.58 (9,889,797)
Canceled............................................... 34.51 (19,454,184)
------ -----------
Balances at December 31, 1998............................ 11.79 48,683,647
Granted................................................ 12.99 29,691,322
Exercised.............................................. 4.05 (10,420,282)
Canceled............................................... 13.93 (13,191,859)
------ -----------
Balances at December 31, 1999............................ $13.41 54,762,828
====== ===========
</TABLE>

F-21
<PAGE> 77
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The exercise prices for the above grants range from $0.001 to $46.50. At
December 31, 1999, options to purchase 16,785,873 shares were exercisable and
options for 6,291,758 shares were available for grant.

1992 Directors' Stock Option Plan

Under the 1992 Directors' Stock Option Plan, directors who are not officers
or employees may receive nonstatutory options to purchase shares of common
stock. A total of 2,400,000 shares of common stock have been reserved for
issuance under this plan and, as of December 31, 1999, options to purchase
639,000 shares with exercise prices of $1.77 to $39.00 per share have been
granted. Under this plan, 34,000, 16,000, and 45,000 options were granted in
1997, 1998 and 1999, respectively. During 1999, options to purchase 64,000 were
cancelled. At December 31, 1999, options to purchase 283,000 shares were
exercisable, 505,000 were outstanding and options for 1,825,000 shares were
available for grant. The exercise price of each nonstatutory stock option shall
not be less than 100 percent of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested. Vesting is established by the Board of
Directors and generally occurs at the rate of 100 percent on the fifth
anniversary from the date of grant.

Stock-based Compensation

As permitted under SFAS 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards to employees. Under APB
Option No. 25, the Company generally recognizes no compensation expense with
respect to such awards, since the exercise price of the stock options granted
are equal to the fair market value of the underlying security on the grant date.

Pro forma information regarding net income and earnings per share is
required by SFAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock-based awards to
employees was estimated as of the date of the grant using a Black-Scholes option
pricing model. Limitations on the effectiveness of the Black-Scholes option
valuation model are that it was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable
and that the model requires the use of highly subjective assumptions including
expected stock price volatility. Because the Company's stock-based awards to
employees have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. Both of these plans are discussed in this Note
above. The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:

<TABLE>
<CAPTION>
OPTIONS ESPP
-------------------- --------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)............ 3.11 2.88 3.55 0.33 0.47 0.50
Expected volatility................. 0.43 0.46 0.42 0.42 0.44 0.42
Risk free interest rate............. 6.18% 5.47% 5.43% 5.44% 5.20% 4.68%
</TABLE>

F-22
<PAGE> 78
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for options
and the six-month purchase period for stock purchases under the ESPP. The
Company's pro forma information follows (in thousands expect for income per
share information):

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Net income
As reported......................................... $101,305 $139,938 $(177,765)
Pro forma........................................... $ 55,205 $ 55,511 $(263,274)
Basic income per share
As reported......................................... $ 0.42 $ 0.56 $ (0.67)
Pro forma........................................... $ 0.23 $ 0.22 $ (1.00)
Diluted income per share
As reported......................................... $ 0.37 $ 0.50 $ (0.67)
Pro forma........................................... $ 0.20 $ 0.20 $ (1.00)
</TABLE>

Because SFAS 123 is applicable only to stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not fully reflected
until approximately 1999.

The weighted-average fair value of all options granted during 1997, 1998
and 1999 was $5.84, $7.90, and $6.61 per share, respectively. The
weighted-average fair value of the ESPP during 1997, 1998 and 1999 was $6.47,
$4.13, and $4.45 per share, respectively.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING -----------------------------
RANGE OF NUMBER OF CONTRACTUAL WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ---------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$0.001 -- $ 2.00 2,236,549 4.29 $ 0.46 1,572,597 $ 0.80
2.01 -- 5.00 2,427,571 3.95 3.06 2,130,453 2.88
5.01 -- 12.00 8,333,098 6.88 8.38 4,051,034 7.94
12.01 -- 20.00 40,789,867 8.32 15.58 8,731,368 16.42
20.01 -- 24.00 1,276,532 8.77 21.32 248,990 21.14
24.01 -- 46.50 204,211 7.57 33.32 51,431 30.99
---------- ----------
55,267,828 16,785,873
========== ==========
</TABLE>

Warrants

In November 1995, the Company received $21.8 million through the private
placement of warrants to purchase an aggregate of 8,000,000 shares of the
Company's common stock. In November 1997, the Company issued 942,880 shares of
common stock pursuant to the net exercise of warrants to purchase 1,600,000
shares of common stock at $13.75 per share. In March 1999, the Company issued
572,000 shares of common stock pursuant to the net exercise of warrants to
purchase 1,600,000 warrants with an exercise price of $13.75 per share and
1,600,000 warrants with an exercise price of $16.875 per share. In November
1999, the Company issued 77,000 shares of common stock pursuant to the net
exercise of warrants to purchase 1,600,000 warrants with an exercise price of
$16.875 per share, at which time 1,600,000 warrants with an exercise price of
$19.375 per share were forfeited. During 1999, the Company issued a warrant to
purchase 40,000 shares of the Company's common stock. This warrant has an
exercise price of $12.6875 per share and will expire on May 11, 2006.

F-23
<PAGE> 79
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. RETIREMENT PLAN

The Company has two defined contribution savings plans, a qualified plan
(401k Plan) under the provisions of Section 401(k) of the Internal Revenue Code
that covers all full-time employees and a non-qualified plan which covers
employees with earnings over $160,000 per year. Under the terms of the 401k
Plan, member employees may contribute varying amounts of their annual
compensation (to a maximum of $10,000). The Company matches a portion of
qualified employee contributions based upon years of service, up to a maximum of
ten percent of the employee's compensation, subject to certain vesting
provisions based on length of employee service. Company contributions to the
401k Plan totaled $2.0 million in 1997, $4.6 million in 1998, and $6.9 million
in 1999. Under the terms of the non-qualified plan, member employees may
contribute varying amounts of their annual compensation up to 100 percent. The
Company matches a portion of non-qualified employee contributions based upon
years of service, up to a maximum of $10,000, subject to certain vesting
provisions based on length of employee service. Company contributions to the
non-qualified plan totaled $249,000 in 1997, $311,000 in 1998, and $216,000 in
1999.

15. INCOME TAXES

The provision for income taxes for the years ended December 31, consisted
of the following components (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 70,640 $102,217 $ 34,953
State............................................ 12,846 13,058 7,970
Foreign.......................................... 3,529 7,725 3,646
-------- -------- --------
87,015 123,000 46,569
Deferred:
Federal.......................................... (10,243) (17,976) (25,662)
State............................................ (868) (3,165) (9,540)
Foreign.......................................... 179 45 --
-------- -------- --------
(10,932) (21,096) (35,202)
-------- -------- --------
Provision for income taxes.................... $ 76,083 $101,904 $ 11,367
======== ======== ========
</TABLE>

The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the Company's income before taxes for
the years ended December 31, as follows (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory
rate.............................................. $62,086 $ 84,993 $(58,295)
State income tax, net of federal tax effect......... 8,924 7,452 (1,199)
Income from tax-advantaged investments.............. (2,995) (5,480) (4,409)
Research and development tax credit................. (3,211) (4,124) (7,641)
Non-deductible one-time charges..................... -- -- 69,442
Change in valuation allowance....................... 1,678 9,726 4,615
Acquired in-process technology...................... 8,571 8,505 --
Acquired net operating losses....................... -- (3,039) --
Other............................................... 1,030 3,871 8,854
------- -------- --------
Provision for income taxes........................ $76,083 $101,904 $ 11,367
======= ======== ========
</TABLE>

F-24
<PAGE> 80
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes at December 31, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Deferred tax assets:
Deferred revenue, net..................................... $ 10,275 $ 6,537
Depreciation.............................................. 7,466 11,912
Research and development costs............................ 1,895 418
Accrued compensation...................................... 11,163 11,820
Allowance for doubtful accounts........................... 27,554 26,715
Self insured claims accruals.............................. 1,566 1,861
Deferred compensation..................................... 3,212 5,188
Net operating losses and tax credits...................... 28,607 47,147
Acquisition reserves...................................... 2,141 6,781
Other..................................................... 10,927 16,379
-------- ---------
Total deferred tax assets......................... 104,806 134,758
Valuation allowance.................................... (14,137) (18,752)
-------- ---------
Net deferred tax asset............................ 90,669 116,006
Deferred tax liabilities:
Purchased technology and other intangible assets.......... (12,000) (11,881)
Capitalized software development costs.................... (2,965) (1,816)
Investments marked to market.............................. -- (92,792)
Other..................................................... (7,207) (14,688)
-------- ---------
Total deferred tax liabilities.................... (22,172) (121,177)
-------- ---------
Total net deferred tax asset (liability).......... $ 68,497 $ (5,171)
======== =========
</TABLE>

<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Recorded as:
Current deferred taxes.................................... $60,683 $(23,945)
Noncurrent deferred taxes................................. 7,814 18,774
------- --------
Total net deferred taxes.......................... $68,497 $ (5,171)
======= ========
</TABLE>

Deferred tax assets and liabilities are classified in the consolidated
balance sheet consistent with the classification of the related asset or
liability.

The net valuation allowance increased $4.6 million from December 31, 1998
to December 31, 1999 and $9.7 million from December 31, 1997 to December 31,
1998, primarily as a result of establishing allowances on net operating losses
incurred in domestic and foreign jurisdictions and other foreign tax benefits.
None of the allowance at December 31, 1999 is attributable to stock option
deductions; consequently, any reversal of the valuation allowance will be
reflected in a lower tax rate.

At December 31, 1999, the Company had net operating loss carryforwards of
approximately $34.5 million. These losses expire in various years between 2008
and 2018 and are subject to limitations on their utilization. The Company also
has net operating loss carryforwards in certain foreign jurisdictions of
approximately $44.9 million, which expire in various years. The Company has
credit carryforwards of approximately $17.0. These credits expire in various
periods from 2003 and 2018.

F-25
<PAGE> 81
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SEGMENT AND GEOGRAPHIC AREAS

The Company adopted Statement of Financial Accounting No. 131, "
Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131") on January 1, 1998. SFAS 131 establishes standards for the way in which
public companies disclose certain information about operating segments in the
Company's financial reports. Based on the criteria of SFAS 131, the Company
identified its chief executive officer ("CEO") as the chief operating decision
maker for the period ended December 31, 1999. The Company's CEO evaluated
revenue performance based on two segments: domestic and international. Data for
the two segments is presented as part of the geographic disclosures below.
Employee headcount and operating costs are managed by functional areas, rather
than by revenue segments, and are only reviewed by the CEO on a company-wide
basis. In addition, the Company does not account for or report to the CEO its
assets or capital expenditures by any segment other than the geographic
segments, as disclosed below. Thus, the Company is not required to disclose any
additional information pursuant to SFAS 131. The accounting policies for each of
the reportable segments shown below are the same as those described in the
summary of significant accounting policies.

Revenues from Europe represented 9%, and 13% of total revenues during 1998
and 1999. International revenues from all other geographic regions were less
than ten percent of total revenues. The following table presents a summary of
operating information and certain year-end balance sheet information by
geographic region for the years ended December 31, (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues from unaffiliated customers
Domestic operations.......................... $ 788,282 $1,227,866 $1,098,529
International operations..................... 143,872 246,902 330,617
---------- ---------- ----------
Consolidated................................. $ 932,154 $1,474,768 $1,429,146
========== ========== ==========
Operating income (loss)
Domestic operations.......................... $ 154,885 $ 224,522 $ (271,987)
International operations..................... 11,336 (3,458) 33,414
---------- ---------- ----------
Consolidated................................. $ 166,221 $ 221,064 $ (238,573)
========== ========== ==========
Identifiable assets
Domestic operations.......................... $ 923,356 $1,397,012 $1,474,855
International operations..................... 137,604 226,513 213,023
---------- ---------- ----------
Consolidated................................. $1,060,960 $1,623,525 $1,687,878
========== ========== ==========
</TABLE>

17. BUSINESS COMBINATIONS

1999

Distinction Software, Inc.

F-26
<PAGE> 82
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

common stock with a fair value of $11.9 million, issuance of options to purchase
common stock with a fair value of $0.1 million, to Distinction employees, and
forgiveness of debt in the amount of $3.2 million.

TriMark Technologies, Inc.

F-27
<PAGE> 83
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1998

Intrepid Systems, Inc.

In October 1998, the Company acquired the assets and assumed certain
liabilities of Intrepid Systems, Inc. ("Intrepid"). The acquired products
consist of applications that streamline, automate, and augment business
processes and decision support for the merchandise management and store
operations of medium and large retail companies. The Company paid an aggregate
purchase price of $51.5 million. Significant components of the $51.5 million
purchase price included cash payments of $35.3 million, assumption of net
current liabilities of $8.3 million, which included $2.2 million to close the
Intrepid facility, forgiveness of debt of $6.2 million, and transaction expenses
of $1.7 million.

In performing this allocation, the Company considered, among other factors,
its intention for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Intrepid's products
and the research and development projects in process at the date of the
acquisition. With regard to the in-process research and development projects,
the Company considered, among other factors, the stage of completion of each
project, the importance of each project to the overall development plan, and the
projected incremental cash flows from the projects when completed and any
associated risks. The projected incremental cash flows were discounted back to
their present value using discount rates of 20% and 30% for developed and
in-process technology. These discount rates were determined after consideration
of the Company's cost of capital, the weighted average return on assets, venture
capital rates of return, and revenue growth assumptions. Associated risks
include the inherent difficulties and uncertainties in completing each project
and thereby achieving technological feasibility, achieving anticipated levels of
market acceptance and penetration, market growth rates and risks related to the
impact of potential changes in future target markets.

In connection with the Intrepid acquisition, the Company acquired two
in-process products: Decision Master and Evolution. The Decision Master product
is now complete and was released in the fourth quarter of 1999 as part of the
PeopleSoft's Enterprise Performance Management product offering. Development
plans for the Evolution product have been terminated. During the 2000 annual
budget process, it was determined that the market for the Evolution product did
not grow as estimated at the time of the Intrepid acquisition. With this
knowledge and the fact that the Company could not commit to fund all of the
product initiatives being proposed for 2000, the Company decided not to pursue
Evolution's development past the fourth quarter of 1999. Without future
development, Evolution is not a viable, marketable product and thus no future
cash flows are expected to be realized from this product. As a result, in the
fourth quarter of 1999, the Company recorded a product exit charge in the amount
of $10.4 million.

Wayfarer Communications, Inc.

In June 1998, The Company acquired Wayfarer Communications, Inc.
("Wayfarer"), a privately held California corporation, by merging a wholly owned
subsidiary of Vantive into Wayfarer. At the time of the acquisition, Wayfarer
was a development-stage company that specialized in web-based information
delivery. The Company issued 135,274 shares of its common stock and exchanged
1,857 shares of the Company's common stock for 89% of Wayfarer shares. In
December 1998, the Company issued 10,544 shares for the

F-28
<PAGE> 84
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

remaining shares of Wayfarer and recorded charges associated with acquiring the
remaining minority interest of approximately 11% of Wayfarer.

The income approach was the primary technique utilized in calculating
acquired research and development. This approach included, but was not limited
to, an analysis of the market for Wayfarer products; the completion costs for
the projects; the expected cash flows attributable to the in-process research
and development projects; and the risks associated with achieving such cash
flows. The assumptions underlying the cash flow projections were derived
primarily from investment banking reports, acquiring and target company records
and discussions with the management of both companies. Primary assumptions such
as revenue growth and profitability were compared to indications of similar
companies as well as indications from industry analyst reports, to determine the
extent to which these assumptions were supportable. The Company did not assume
in its model any material change in its profit margins as a result of the
acquisition and did not assume any material increases in selling, general and
administration expenses as a result of the acquisition. Because Wayfarer was a
development-stage enterprise, the Company did not anticipate any expense
reductions/ synergies as a result of the acquisition. The rates utilized to
discount the net cash flows to their present value are based on venture capital
rates of return. Due to the nature of the forecast and the risks associated with
the projected growth, profitability and developmental projects, a discount rate
of approximately 27% was deemed appropriate for the business enterprise and for
the in-process research and development.

1997

Innovative Computer Concepts, Inc.

In August 1997, the Company completed the acquisition of Innovative
Computer Concepts, Inc. ("ICC"), a development-stage software company founded
with the intent of designing and marketing a client/server based spare parts,
inventory and procurement management software system. Upon consummation of the
acquisition, ICC became a wholly owned subsidiary of the Company. The Company
paid $0.1 million in cash and issued 540,846 shares of its common stock in
exchange for all outstanding shares of ICC. The Company also assumed all
outstanding ICC options, which were converted to options to purchase
approximately 26,714 shares of the Company's common stock, resulting in a total
purchase price of $21.0 million (including direct costs of the acquisition).

F-29
<PAGE> 85
PEOPLESOFT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

accepted accounting principles. In addition, the Company recorded goodwill of
approximately $0.7 million, which is being amortized over five years.

The income approach was the primary technique utilized in calculating the
acquired in-process research and development. This approach included, but was
not limited to, an analysis of the market for ICC products; the completion costs
for the projects; the expected cash flows attributable to the in-process
research and development projects; and the risks associated with achieving such
cash flows. The assumptions underlying the cash flow projections were derived
primarily from investment banking reports, independent analyst reports,
acquiring and target company records and discussions with the management of both
companies. Primary assumptions such as revenue growth and profitability were
compared to indications of similar public companies as well as indications from
industry analyst reports, to determine the extent to which these assumptions
were supportable. The Company did not assume in its model any material change in
its profit margins as a result of the acquisition and did not assume any
material increases in sales and marketing or general and administrative expenses
as a result of the acquisition. Because ICC was a development stage enterprise,
the Company did not anticipate any expense reductions/synergies as a result of
the acquisition. The rates utilized to discount the net cash flows to their
present value were based on venture capital rates of return. Due to the nature
of the forecast and the risks associated with the projected growth,
profitability and developmental projects, a discount rate of 40 % was deemed
appropriate for the business enterprise and for the in-process research and
development.

The remaining efforts necessary to develop the acquired in-process
technology into commercially viable products and services principally related to
the completion of all planning, designing, prototyping, scalability verification
and testing activities that were necessary to establish that the proposed
technologies would meet their design specifications including functional,
technical and economic performance requirements. The Company has successfully
developed the acquired in-process technology and is currently benefiting from
the license sales of the Vantive Inventory and Procurement applications.

18. SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental schedule sets forth non-cash activities for the
years ended December 31, (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
In conjunction with the land swap:
Land purchased...................................... $ -- $49,018 $ --
Less: Building and land sold, net of accumulated
depreciation..................................... -- 24,604 --
-------
Gain................................................ 24,414
Dividend declared of Momentum Business Applications
shares........................................... -- 78,622 --
Issuance of common stock and stock options in
connection with the following acquisitions:
ICC.............................................. 19,655 -- --
Wayfarer......................................... -- 4,331 --
TriMark.......................................... -- -- 26,321
Distinction...................................... -- -- 12,076
Capital lease additions............................... 35 350 --
</TABLE>

F-30
<PAGE> 86

SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)

Summarized quarterly supplemental consolidated financial information for
1998 and 1999 are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1998(A)(B)
Total revenues............................. $ 313,934 $357,976 $391,562 $411,296
Operating income........................... 56,687 50,029 65,846 48,502
Net income................................. 37,473 31,056 44,195 27,214
Basic income per share..................... $ 0.15 $ 0.12 $ 0.17 $ 0.11
Shares used in basic per share
computation.............................. 246,344 249,175 252,560 254,847
Diluted income per share................... $ 0.13 $ 0.11 $ 0.16 $ 0.10
Shares used in diluted per share
computation.............................. 278,780 281,603 279,584 274,930
1999(A)(B)
Total revenues............................. $ 350,109 $360,681 $346,079 $372,277
Operating loss............................. (175,460) (5,032) (1,920) (56,161)
Net income................................. (171,216) (542) (443) (5,564)
Basic (loss) income per share.............. $ (0.66) $ 0.00 $ 0.00 $ (0.02)
Shares used in basic per share
computation.............................. 258,360 262,481 266,089 269,170
Diluted (loss) income per share............ $ (0.66) $ 0.00 $ 0.00 $ (0.02)
Shares used in diluted per share
computation.............................. 258,360 262,481 266,089 269,170
</TABLE>

- ---------------
(a) All prior period amounts have been restated to reflect the merger with The
Vantive Corporation in December 1999, which was accounted for under the
pooling of interests method of accounting. Certain prior period amounts have
been reclassified to conform to the current period presentation.

(b) No cash dividends have been declared or paid in any period presented.

F-31
<PAGE> 87

EXHIBIT INDEX

- ---------------
(1) This agreement is a compensatory plan or arrangement.

(2) Confidential treatment previously granted.

<PAGE> 1

EXHIBIT 3.7

CERTIFICATE OF AMENDMENT
TO BYLAWS
OF
PEOPLESOFT, INC.

I, Anne S. Jordan, Secretary of PeopleSoft, Inc., a Delaware corporation
(the "Company"), hereby declare and certify that below is a true and correct
copy of the amendment to the Bylaws duly adopted by the board of directors of
the Company on February 3, 2000:

Section 3.2 of the Article III of the Bylaws of the PeopleSoft, Inc. is
amended to increase the Board of Directors to seven (7) persons.

IN WITNESS WHEREOF, I declare under penalty of perjury that the foregoing
statements are true and correct.

/s/ ANNE S. JORDAN
------------------------------
Anne S. Jordan, Secretary

[seal]

<PAGE> 2

CERTIFICATE OF AMENDMENT
TO BYLAWS
OF
PEOPLESOFT, INC.

I, Robert D. Finnell, Assistant Secretary of PeopleSoft, Inc., a Delaware
corporation (the "Company"), hereby declare and certify that below is a true and
correct copy of the amendments to the Bylaws duly adopted by the board of
directors of the Company on April 7, 1999:

1. Section 2.16 of Article II of the Bylaws of this Company is hereby
amended and restated to read in its entirety as follows:

"2.16 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 the principal executive offices of the
corporation not less than forty five (45) days prior to the date on which
the corporation first mailed proxy materials for the prior years annual
meeting; provided, however, that if the corporation's annual meeting of
stockholders occurs on a date more than thirty (30) days earlier or later
than the corporation's prior year's annual meeting, then the corporation's
board of directors shall determine a date a reasonable period prior to the
corporation's annual meeting of stockholders by which date the stockholders
notice must be delivered and publicize such date in a filing pursuant to
the Securities Exchange Act of 1934, as amended, or via press release. Such
publication shall occur at least ten (10) days prior to the date set by the
Board of Directors. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder purposes 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."
<PAGE> 3

2. Effectively immediately prior to the Annual Shareholders Meeting on
May 25, 1999, Section 3.2 of Article III of the Bylaws of this Company is
hereby amended and restated to read in its entirety as follows:

"3.2 NUMBER OF DIRECTORS

The Board of Directors shall consist of six (6) persons until changed
by a proper amendment to this Section 3.2. No reduction of the authorized
number of directors shall have the effect of removing any director before
that director's term expires."

IN WITNESS WHEREOF, I declare under penalty of perjury that the foregoing
statements are true and correct.

/s/ ROBERT D. FINNELL
--------------------------------------
Robert D. Finnell, Assistant Secretary

[seal]

<PAGE> 4

CERTIFICATE OF AMENDMENT
TO BYLAWS
OF
PEOPLESOFT, INC.

The first sentence of Section 3.2 of Article III of the Bylaws of this
Company is hereby amended to read in full as follows:

"The Board of Directors shall consist of seven (7) persons until
changed by a proper amendment to this Section 3.2."

IN WITNESS WHEREOF, I declare under penalty of perjury that the foregoing
statements are true and correct.

/s/ ROBERT D. FINNELL
--------------------------------------
Robert D. Finnell, Assistant Secretary

[seal]

<PAGE> 1
EXHIBIT 10.47

PEOPLESOFT, INC.

CRAIG CONWAY EMPLOYMENT AGREEMENT

This Agreement is made by and between PeopleSoft Inc. (the "Company"), and
Craig Conway ("Executive") as of May 10, 1999.

1. Duties and Scope of Employment.

(a) Positions: Employment Commencement Date: Duties. Executive's
employment with the Company pursuant to this Agreement shall commence on May 10,
1999 (the "Employment Commencement Date"). As of the Employment Commencement
Date, the Company shall employ he Executive as the President and Chief Operating
Officer of the Company reporting to the Chairman and the Chief Executive
Officer of the Company. It is expected that Executive shall be promoted to
Chief Executive Officer of the Company within six to twelve months from the
Employment Commencement Date, subject to Executive's reasonably acceptable
performance of his duties hereunder. The period of Executive's employment
hereunder is referred to herein as the "Employment Term." During the Employment
Term, Executive shall render such business and professional services in the
performance of his duties, consistent with executive's position within the
Company, as shall reasonably be assigned to him by the Board of Directors (the
"Board"), including direct responsibility for the day to day operations of the
Company, having he management committee directly report to him, Company
financial performance and hiring and employment termination decision-making
authority.

(b) Obligations. During the Employment Term, Executive shall devote
his full business efforts and time to the Company. Executive agrees, during the
Employment Term, not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the Board; provided, however, that Executive may serve in any
capacity with any civic, educational or charitable organization, or as a member
of corporate Boards of Directors or committees thereof upon which Executive
currently serves, without the approval of the Board; provided, further that
Executive may devote a reasonable amount of time to managing his family
investments (notwithstanding Section 3 of the Company's standard Employee
Proprietary Information Agreement).

2. Employee Benefits: Indemnification Agreement. During the Employment
Term, Executive shall be eligible to participate in the employee benefit plans
maintained by the Company that are applicable to other senior management to the
full extent provided for under those plans. Upon his commencement of employment
with the Company, Executive shall be offered an indemnification agreement
comparable in form and substance to indemnification agreements previously
entered into by and between the Company and its executive officers.

3. At-Will Employment. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Subject to the Company's obligation to provide severance benefits as
specified herein, Executive and the Company acknowledge that this employment
relationship may be terminated at any time, upon
<PAGE> 2
written notice to the other party, with or without good cause or for any or no
cause, at the option either of the Company or Executive.

4. Compensation.

(a) Base Salary. While employed by the Company, the Company shall
pay the Executive as compensation for his services a base salary at the
annualized rate of $500,000 (the "Base Salary"). Such salary shall be paid
periodically in accordance with normal Company payroll practices and subject to
the usual, required withholding. Executive's Base Salary shall be reviewed
annually by the Compensation Committee of the Board for possible increases in
light of Executive's performance and competitive data.

(b) Bonuses. Executive shall receive a cash bonus on account of and
subject to his employment through May 24, 2000 in an amount determined by the
Compensation Committee of the Board, which amount shall be no less than $250,000
and shall be paid shortly thereafter. For the remainder of the Company's 2000
fiscal year, Executive shall be eligible to earn a target bonus equal to 50% of
the Base Salary paid to Executive for that time period. In subsequent fiscal
years, Executive shall be eligible to earn a target bonus equal to 50% of Base
Salary (the "Target Bonus"). For each period, Executive shall be eligible to
receive a greater payment, up to 100% of Base Salary, based on achievement in
excess of the target milestones, and with lesser or no payments if the target
milestones, and with lesser or no payments if the target milestones are not
achieved. Executive's performance shall be evaluated by the Compensation
Committee of the Board of Directors based upon performance criteria specified
by that committee. The payment of any bonus under this Section 4(b) shall be
subject to Executive's employment with the Company through the end of the
relevant evaluation period (which employment requirement does not apply with
the respect to the Target Bonus component of severance payments made pursuant
to Section 4(d)). Executive's Target Bonus shall be reviewed annually by the
Compensation Committee of the Board for possible increases in light of
Executive's performance and competitive data.

(i) Stock Options. As of the Employment Commencement Date,
Executive shall be granted stock options (the "Stock Options") to purchase a
total of two million (2,000,000) shares of Company common stock with a per
share exercise price equal to twelve and eleven-sixteenths dollars
($12-11/16ths) (the "Employment Commencement Date Stock Value"). The Stock
Options shall be for a term of ten years (or shorter upon termination of
employment or consulting relationship with the Company) and, subject to
accelerated vesting as set forth elsewhere herein, shall vest as to 1/48th of
the shares on each month following the Commencement Date, so as to be 100%
vested on the four year anniversary thereof, conditioned upon executive's
continued employment or consulting relationship with the Company as of each
vesting date. The Stock Options may be exercised prior to vesting by means of
Executive entering into a fully recourse promissory note bearing the lowest
rate of interest to avoid imputed income to Executive, subject to Executive
entering into a standard form of restricted stock purchase agreement with the
Company. The Stock Options are intended to be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to the
<PAGE> 3
maximum extent permitted by the $100,000 rule of Code Section 422(d). Except as
specified otherwise herein, these option grants are in all respects subject to
the terms, definitions and provisions of the Company's 1989 Stock Plan and the
standard form of stock option agreement thereunder (the "Option Agreement"),
which documents are incorporated herein by reference; provided, however, that
to the extent that the Stock Options may not be granted under the 1989 Stock
Plan by virtue of the limitation on the number of shares subject to option that
may be granted thereunder in any fiscal year of the Company, they shall be
granted outside of the 1989 Stock Plan pursuant to a written option agreement
containing the same material terms and conditions as to those governing the
option granted under the 1989 Stock Plan. Any such non-Stock Plan stock option
shall be registered by the Company on Form S-8 prior to any vesting of such
option.

(ii) Restricted Stock. As soon as practicable following the
Employment Commencement Date, Executive shall purchase five hundred thousand
(500,000) shares of Company common stock at a purchase price of $0.01 per share
(the "Restricted Stock"). The Restricted Stock shall vest (i.e., the Company's
right to repurchase the Restricted Stock at its original purchase price shall
lapse) as to one hundred twenty five thousand (125,000) shares subject to the
Restricted Stock on May 10, 2000 and as to an additional one hundred twenty five
thousand (125,000) shares subject to the Restricted Stock each year thereafter
through May 10, 2003, conditioned upon Executive's continued employment or
consulting relationship with the Company on such dates. The Restricted Stock
shall be subject to the terms and conditions of the restricted stock purchase
agreement by and between Executive and the Company (the Restricted Stock
Purchase Agreement), which is incorporated herein by reference. The Restricted
Stock shall be registered by the Company on Form S-8 prior to the date of
purchase.

-3-
<PAGE> 4
(d) Severance.

(i) Involuntary Termination Other Than for Cause Restricted
Stock Performance-Based Vesting Acceleration. If Executive's employment with
the Company in involuntarily terminated by the Company other than for "Cause"
(as defined below), then, subject to Executive executing and not revoking a
standard form of mutual release of claims with the Company, in addition to any
benefits due Executive under Section 4(d)(ii) below, the Restricted Stock shall
vest pursuant to either or both, as applicable, of the Stock Performance
Milestones if the Stock Performance Milestones are achieved within six (6)
months following the date upon which Executive's employment terminates.

(ii) Voluntary Termination for Good Reason: Involuntary
Termination Other Than for Cause. If Executive's employment with the Company is
voluntarily terminated by Executive for "Good Reason" (as defined below) or is
involuntarily terminated by the Company other than for "Cause" (as defined
below), then, subject to Executive executing and not revoking a standard form
of mutual release of claims with the Company (i) Executive's Stock Options and
Restricted Stock shall immediately have their vesting accelerated to the same
extent as such Stock Options and Restricted Stock would have vested had
Executive remained employed by the Company for an additional twelve (12) months
(reduced to six (6) months if Executive voluntarily terminates his employment
for Good Reason within twelve (12) months after the Employment Commencement
Date), with such accelerated vesting based on service-based vesting provisions
only and not on achieving the Stock Performance Milestones, (ii) Executive
shall receive continued payments of one year's Base Salary plus Target Bonus,
less applicable withholding, in accordance with the Company's standard payroll
practices, and (iii) the Company shall pay the group health, dental and vision
plan continuation coverage premiums for Executive and his covered dependents
under Title X of the Consolidated Budget Reconciliation Act of 1985, as amended
("COBRA") for the lesser of (A) eighteen (18) months from the date of
Executive's termination of employment, or (B) the date upon which Executive and
his covered dependents are covered by similar plans of Executive's new employer.

For the purposes of this Agreement, "Cause" means (i) a material act of
dishonesty made by Executive in connection with Executive's responsibilities as
an employee, (ii) Executive's conviction of, or plea of nolo contendere to, a
felony, (iii) Executive's gross misconduct in connection with the performance
of his duties hereunder, (iv) Executive's death or permanent disability or (v)
Executive's material breach of his obligations under this Agreement; provided,
however, that with respect to clauses (iii) and (v), such actions shall not
constitute Cause if they

-4-

<PAGE> 5
are cured by Executive within thirty (30) days following delivery to Executive
of a written explanation specifying the basis for the Company's beliefs with
respect to such clauses.

For the purposes of this Agreement, "Good Reason" means (i) the failure of
the Company to appoint Executive as Chief Executive Officer and director within
twelve (12) months of the Employment Commencement Date, (ii) a reduction in
Executive's Base Salary or Target Bonus, (iii) a reduction in Executive's title
(whether or not material) or a material reduction in Executive's authority or
duties (other than a material reduction in authority or duties occurring solely
by virtue of a "Change of Control" (as defined below), as for example, when
Executive remains Chief Executive Officer of the Company following a Change of
Control, but the Company is a wholly-owned, privately-held subsidiary or
division of a larger company), (iv) the requirement that Executive relocate
more than twenty (20) miles from the current Company headquarters, or (v) the
Company's material breach of its obligations under this Agreement; provided,
however, that with respect to clause (v), such material breach shall not
constitute Cause if it is cured by the Company within thirty (30) days
following delivery to the Company of a written explanation specifying the basis
for the Executive's beliefs with respect to such clause.

The Executive shall not be required to mitigate the value of any severance
benefits contemplated by Section 4 of this Agreement, nor shall any such
benefits be reduced by any earnings or benefits that the Executive may receive
from any other source.

5. Change of Control Vesting Acceleration. In the event of a "Change of
Control" (as defined below) within twelve (12) months from the Employment
Commencement Date, any remaining unvested Stock Options and Restricted Stock
held by Executive shall have their vesting accelerated by an amount equal to
50% of the remaining unvested shares. Following such partial acceleration, the
remaining unvested shares shall continue to vest at the same rate as prior to
the Change of Control, subject to Executive's continued employment or
consulting relationship with the Company. In the event of a Change of Control
twelve (12) months or after the Employment Commencement Date, any remaining
unvested Stock Options and Restricted Stock held by Executive shall become 100%
vested and exercisable.

For the purpose of this Agreement, "Change of Control" is defined as:

(a) Any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing forty-five percent (45%) or more of the
total voting power represented by the Company's then outstanding voting
securities; or

(b) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the

-5-
<PAGE> 6
date hereof, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or

(c) The consummation of 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 fifty-five
percent (55%) 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

(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.

6. Total Disability of Executive. Upon Executive's becoming permanently
and totally disabled (as defined in accordance with Internal Revenue Code
Section 22(e)(3) or its successor provision) during the term of this Agreement,
employment hereunder shall automatically terminate, all payments of
compensation by the Company to Executive hereunder shall immediately terminate
(except as to amounts already earned) and all vesting of the Executive's Stock
Options and Restricted Stock shall immediately cease.

7. Death of Executive. If Executive dies while employed by the Company
pursuant to this Agreement, all payments of compensation by the Company to
Executive hereunder shall immediately terminate (except as to amounts already
earned, which shall be paid to his estate) and all vesting of the Executive's
Stock Options and Restricted Stock shall immediately cease.

8. Assignment. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, beneficiaries, executors and legal representatives of
Executive upon Executive's death and (b) any successor of the Company. Any such
successor of the Company shall be deemed substituted for the Company under the
terms of this Agreement for all purposes. As used herein, "successor" shall
include any person, firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly acquires
all or substantially all of the assets or business of the Company. None of the
rights of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive. Any attempted assignment, transfer, conveyance or other disposition
(other than as aforesaid) of any interest in the rights of Executive to receive
any form of compensation hereunder shall be null and void; provided, however,
that Executive shall be allowed to transfer vested Stock Options and Restricted
Stock consistently with the rules under Form S-8 for estate planning and wealth
management purposes.

-6-
<PAGE> 7
9. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally or by facsimile, (ii) one (1) day after being sent by
Federal Express or a similar commercial overnight service, or (iii) three (3)
days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors in interest
at the following addresses, or at such other addresses as the parties may
designate by written notice in the manner aforesaid:

If to the Company: PeopleSoft, Inc.
4460 Hacienda Drive
Pleasanton, CA 94588-3031
Attn: General Counsel

If to Executive: Craig Conway
at the last residential address known by the
Company.

10. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.

11. Proprietary Information Agreement. Executive agrees to enter into the
Company's standard Employee Proprietary Information Agreement (the "Proprietary
Information Agreement") upon commencing employment hereunder.

12. Entire Agreement. This Agreement, the Stock Plan, the Option
Agreements, the Restricted Stock Purchase Agreement, the indemnification
agreement and employee benefit plans referred to in Section 2 and the
Proprietary Information Agreement represent the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersede and replace any and all
prior agreements and understandings concerning Executive's employment
relationship with the Company.

13. Non-Binding Mediation, Arbitration and Equitable Relief.

(a) The parties agree to make a good faith attempt to resolve any
dispute or claim arising out of or related to this Agreement through
negotiation. In the event that any dispute or claim arising out of or related
to this Agreement is not settled by the parties hereto, the parties will
attempt in good faith to resolve such dispute or claim by non-binding mediation
in Contra Costa County, California to be conducted by one mediator belonging to
the American Arbitration Association. The mediation shall be held within thirty
(30) days of the request therefor. The costs of the mediation shall be borne
equally by the parties to the mediation.

-7-

<PAGE> 8
(b) Except as provided in Section 13(c) below, Executive and the
Company agree that, to the extent permitted by law, any dispute or controversy
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach, or termination
thereof which has not been resolved by negotiation or mediation as set forth in
Section 13(a) shall be finally settled by binding arbitration to be held in
Contra Costa County, California, in accordance with the National Rules for the
Resolution of Employment Disputes then in effect of the American Arbitration
Association (the "Rules"). The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator shall be
confidential, final, conclusive and binding on the parties to the arbitration.
Judgment may be entered under a protective order on the arbitrator's decision
in any court having jurisdiction.

(c) The arbitrator shall apply California law to the merits of any
dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby expressly
consents to the personal jurisdiction of the state and federal courts located
in California for any action or proceeding arising from or relating to this
Agreement and/or relating to any arbitration in which the parties are
participants.

(d) Executive understands that nothing in Section 13 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.

(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 13, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES, TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS ARISING OUT
OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING
ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES
RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT
NOT LIMITED TO, THE FOLLOWING CLAIMS:

(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESSED AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.

-8-
<PAGE> 9
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et seq;

(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

14. Consult & Legal Fee Reimbursement. The Company agrees to directly pay
Executive's reasonable consultant and legal fees associated with entering into
this Agreement up to $10,000 upon receiving invoices for such services.

15. Golden Parachute Excise Taxes. In the event that the benefits
provided for in this Agreement or otherwise payable to the Executive constitute
"parachute payments" within the meaning of Section 280G of the Code and will be
subject to the excise tax imposed by Section 4999 of the Code, then the
Executive shall receive a payment from the Company sufficient to pay the excise
tax and federal and state income and employment taxes arising from the payments
made by the Company to Executive pursuant to this sentence; provided, however,
that in no event shall the Company be obligated to pay Executive more than one
million dollars ($1,000,000) pursuant to this Section 15. Unless the Company
and the Executive otherwise agree in writing, the determination of Executive's
excise tax liability and the amount required to be paid under this Section 15
shall be made in writing by the independent auditors who are primarily used by
the Company immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 15, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code. The Company
and the executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 15.

16. No Oral Modification, Cancellation or Discharge. This Agreement may
only be amended, canceled or discharged in writing signed by Executive and the
Company's General Counsel and a member of the Compensation Committee of the
Board of Directors.

17. Withholding. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.

-9-
<PAGE> 10
18. Governing Law. This Agreement shall be governed by the laws of the
State of California.

19. Effective Date. This Agreement is effective upon the Employment
Commencement Date.

20. Acknowledgement. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement.

PEOPLESOFT, INC.

/s/ DAVID DUFFIELD
- ----------------------------------------
David Duffield

EXECUTIVE

/s/ CRAIG CONWAY
- ----------------------------------------
Craig Conway

-10-

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF PEOPLESOFT, INC.

SUBSIDIARY NAME INCORP/FORMED IN
- -----------------------------------------------------------------------

PEOPLESOFT ARGENTINA S.A. Argentina
Vantive Australia PTY Limited Australia
Vantive B.V The Netherlands
Vantive International Barbados
PEOPLESOFT DO BRASIL LTDA Brazil
Vantive Canada, Inc. Canada
PEOPLESOFT CREDIT CORPORATION California, USA
PEOPLESOFT PROPERTIES, INC. California, USA
PEOPLESOFT PROPERTIES, INC. California, USA
PEOPLESOFT USA, INC. California, USA
PEOPLESOFT VENTURES, INC. California, USA
PeopleSoft C.I. Holdings Ltd. Cayman Islands
PEOPLESOFT FRANCE S.A. France
Vantive France, SARL France
PEOPLESOFT GERMANY GMBH Germany
Vantive, GmbH Germany
PeopleSoft Italia Srl. Italy
PEOPLESOFT JAPAN K.K. Japan
PEOPLESOFT MEXICO SA DE CV Mexico
PSFT INTERNATIONAL HOLDINGS C.V. Netherlands
Vantive Singapore, PTE Ltd. Singapore
PEOPLESOFT IBERICA, S.L. Spain
PeopleSoft Schweiz A.G. Switzerland
Vantive UK Limited United Kingdom
PEOPLESOFT UK LTD. United Kingdom
Intrepid Systems (UK) Ltd. United Kingdom
Innovative Computer Concepts, Inc United States
Scotch Bonnet Integration, Inc United States

<PAGE> 1
Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-80755, No. 333-20555, 333-36951, 333-78049 and No. 333-86135)
of PeopleSoft, Inc. and in the related Prospectuses and in the Registration
Statements (Form S-8) pertaining to the Amended and Restated 1989 Stock Plan,
the 1992 Directors' Plan, the Amended and Restated 1992 Employee Stock Purchase
Plan, the Executive Restricted Stock Purchase Plan of PeopleSoft, Inc., the Red
Pepper Software Company 1993 Stock Option Plan, the Intrepid Systems, Inc. 1992
Stock Option Plan, the Trimark Technologies, Inc. 1998 Director and Executive
Non-statutory Stock Option Plan, the Trimark technologies, Inc. 1995 Director
and Executive Office Stock Option Plan, the Trimark Technologies, Inc. 1995
Employees and Consultants Stock Option Plan, the Trimark Technologies 1993 Stock
Option Plan, the Distinction Software, Inc. Stock Option Plan, The Vantive
Corporation Amended and Restated 1991 Stock Option Plan, the Vantive Corporation
1995 Outside Directors Stock Option Plan, the Vantive Corporation 1997
Nonstatutory Stock Option Plan and the Individual Option Agreements under the
Innovative Computer Concepts, Inc. 1995 Stock Incentive Plan assumed by the
Vantive Corporation of our report dated February 4, 2000, with respect to the
consolidated financial statements of PeopleSoft, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.

Walnut Creek, California
March 28, 2000

<PAGE> 1
Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated January 22, 1999 with respect to the consolidated financial
statements of The Vantive Corporation incorporation by reference in this Form
10-K, into the Company's previously filed Registration Statements on Form S-3
(File No. 333-22055, File No. 333-36951, File No. 333-78049, File No. 333-80755,
and File No. 333-86135) and Form S-8 (File No. 333-08575, File No. 333-14745,
File No. 333-65857, File No. 333-75199, File No. 333-77911, File No. 333-84641,
File No. 333-86103, File No. 333-94833, and File No. 333-91111).

/s/ Arthur Andersen LLP

San Jose, California
March 29, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN THIS FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 290,122
<RECEIVABLES> 331,104
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