A definitive agreement is supposed to be hammered out in Q4.

The pact suggests that IBM is acting as spoiler. At the least it will be a complication for Oracle although one ex-Oracle VP quipped that PeopleSoft CEO Craig Conway appeared to be "hanging curtains in a burning building."

The axis, which will reportedly involve a combined investment worth a billion dollars, is called the "largest commitment to the integration of enterprise applications with IBM middleware" and is supposedly "unlike those that force adoption of a separate, proprietary middleware stack that limits [user] flexibility and choice."

Both companies will sell the results, contributing resources, domain expertise, integration technologies and funding. Sales will include third-party software and both PeopleSoft and IBM services.

The two are also supposed to collaborate on new pre-integrated software and establish a business process interoperability lab. The lab is called the first of its kind. It will be used for testing and certification to shorten time-to-market.

The pair is supposed to focus initially on banking, financial markets, insurance and telecommunications.

PeopleSoft is supposed to integrate stuff like the core components of WebSphere Portal, WebSphere Business Integration, WebSphere Application Server and WebSphere Studio Application Developer with its application portfolio.

Meanwhile, PeopleSoft, which has continued to rebuff Oracle's advances since Oracle won the suit brought by the Justice Department to block any takeover, moved to put another obstacle in Oracle's way and at the same time retain its employees, 80% of whom Oracle testified in court will be fired if it succeeds in acquiring the company.

PeopleSoft told the SEC at the end of last week that it had boosted its severance package. Now, if Oracle takes over, all employees will get a minimum of 12 weeks base salary and 12 weeks of health insurance payments, instead of a minimum of two weeks base pay for each year of service up to a maximum of three months base salary.

Executive officers besides the chief executive will get between 1.5 times and 2.0 times their annual base salaries and target bonus payments of up to 24 months of health coverage. The executive officers were supposed to get 0.75 and 1.0 times their annual base and target bonus.

PeopleSoft also accelerated the vesting of all employee stock options if a takeover occurs

In reaction, Oracle issued a statement saying that the move lowered the value of the company. It also said that press speculation that PeopleSoft had made its acquisition more expensive to Oracle was "not necessarily true."