<PAGE>
As filed with the Securities and Exchange Commission on August 7, 1998
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-3
______________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________________
PERITUS SOFTWARE SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
______________________
MASSACHUSETTS 04-3126919
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2 FEDERAL STREET
BILLERICA, MASSACHUSETTS 01821-3540
(978) 670-0800
(Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Registrant's Principal
Executive Offices)
______________________
ALLEN K. DEARY
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
PERITUS SOFTWARE SERVICES, INC.
2 FEDERAL STREET
BILLERICA, MASSACHUSETTS 01821-3540
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent For Service)
with a copy to:
PETER B. TARR, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]___________.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]______________.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
_____________________________________________________________
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum
Securities to be Registered to be Offering Aggregate Amount of
Registered Price Offering Price(1) Registration
Per Share (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 2,093,433 $4.6875 $9,812,967 $2,895
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act and based upon the average of the
high and low sale prices of the Common Stock on the Nasdaq National Market
on August 6, 1998.
_____________________________________________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
================================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 7, 1998
PROSPECTUS
2,093,433 SHARES
PERITUS SOFTWARE SERVICES, INC.
COMMON STOCK
_____________________
This Prospectus relates to 2,093,433 issued and outstanding shares (the
"Shares") of Common Stock, $0.01 par value per share (the "Common Stock"), of
Peritus Software Services, Inc. (the "Company") which may be offered and sold,
from time to time, by or on behalf of American Premier Underwriters, Inc., a
stockholder of the Company (the "Selling Stockholder"). The Shares were issued
by the Company as consideration, in part, for the acquisition by the Company of
substantially all of the assets of Millennium Dynamics, Inc. ("MDI") from the
Selling Stockholder on December 1, 1997. Pursuant to the terms of a Registration
Rights Agreement between the Company and the Selling Stockholder (the
"Registration Rights Agreement"), the Company agreed to register the Shares
under the Securities Act of 1933, as amended (the "Securities Act"), and to use
its best efforts to cause the Registration Statement of which this Prospectus
constitutes a part to be declared and remain effective until the earlier of (i)
the sale of all of the Shares by the Selling Stockholder or (ii) December 1,
1999. The Selling Stockholder has advised the Company that it proposes to sell,
from time to time, all or part of the Shares covered by this Prospectus on the
Nasdaq National Market, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. Pursuant to the
Registration Rights Agreement, the Selling Stockholder agreed to limit the
number of Shares it will sell prior to January 1, 1999, as determined by a
formula. See "Plan of Distribution."
This Prospectus may be used by the Selling Stockholder or by any broker-
dealer who may participate in sales of the Shares. The Selling Stockholder will
pay all commissions, transfer taxes and other expenses associated with the sale
of the Shares.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholder. The Company and the Selling Stockholder
have agreed to indemnify each other against certain liabilities, including
certain liabilities under the Securities Act. See "Use of Proceeds."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "PTUS." On August 4, 1998, the closing sale price of the Common
Stock on the Nasdaq National Market was $4.688 per share.
_____________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________
The date of this Prospectus is August 7, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such documents may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents also may be obtained at
prescribed rates by writing to the Securities and Exchange Commission Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
the Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Copies of such documents may also be inspected at the offices of the
Company. The Company's Common Stock is traded on the Nasdaq National Market
under the Symbol "PTUS."
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules thereto,
the "Registration Statement") under the Securities Act with respect to the
Shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares, reference is made to such
Registration Statement. Statements contained in this Prospectus regarding the
contents of any agreement or other document are not necessarily complete, and in
each instance reference is made to the copy of such agreement or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1997, including the amendment thereto on Form 10-K/A filed with the
Commission on May 20, 1998;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
(3) The Company's Current Report on Form 8-K dated December 1, 1997,
including the amendment thereto on Form 8-K/A filed with the Commission
on February 17, 1998; and
(4) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, as filed with the Commission on
June 4, 1997.
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<PAGE>
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Shares registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated by reference into this Prospectus (without exhibits to such
documents other than exhibits specifically incorporated by reference into such
documents). All such requests shall be directed to: Peritus Software Services,
Inc., 2 Federal Street, Billerica, Massachusetts 01821-3540, Attention:
Corporate Secretary, telephone (978) 670-0800.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION OF AN OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. For this purpose,
any statements contained herein or incorporated herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements. These factors include those set forth in "Risk Factors" herein and
elsewhere in this Prospectus.
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<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk.
In addition to the other information included or incorporated by reference in
this Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the shares of Common Stock offered by this
Prospectus.
LIMITED OPERATING HISTORY
The Company was founded in August 1991 and began operations in 1992. Most
of the Company's revenue to date has been attributable to software maintenance
outsourcing and other services, and the Company had no license revenue prior to
1996. The Company's software maintenance AutoEnhancer/2000 and VANTAGE YR 2000
software, which the Company anticipates will provide the principal source of new
license revenue for the foreseeable future, has a limited history of client
acceptance and use. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by organizations in their early stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services that incorporate such technologies and
achieve market acceptance for its products and services. There can be no
assurance that the Company will be successful in addressing such risks.
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company's revenue and operating results have varied substantially from
quarter to quarter. The Company's quarterly operating results may continue to
fluctuate due to a number of factors, including the timing, size and nature of
the Company's individual outsourcing, technology transfer, insourcing,
renovation and licensing transactions; unforeseen difficulties in performing
such transactions; the performance of the Company's value added integrators and
distributors; the timing of the introduction and the market acceptance of new
services, products or product enhancements by the Company or its competitors;
the relative proportions of revenue derived from license fees and professional
services; changes in the Company's operating expenses; personnel changes;
foreign currency exchange rates and fluctuations in economic and financial
market conditions.
The timing, size and nature of individual outsourcing, technology transfer,
insourcing, renovation and licensing transactions are important factors in the
Company's quarterly operating results. Many such transactions involve large
dollar amounts, and the sales cycle for these transactions is often lengthy and
unpredictable. In addition, the sales cycle associated with these transactions
is subject to a number of uncertainties, including clients' budgetary
constraints, the timing of clients' budget cycles and clients' internal approval
processes. There can be no assurance that the Company will be successful in
closing such large transactions on a timely basis or at all. In addition, if the
Company derives a greater proportion of total revenue from license revenue, the
Company may realize a disproportionate amount of its revenue and income in the
last month of each quarter and, as a result, the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a given
quarter. Accordingly, delays in product delivery or in the closing of sales near
the end of a quarter could cause quarterly revenue and, to a greater degree,
operating results to fall substantially short of anticipated levels. Most of the
Company's outsourcing engagements are performed on a fixed-price basis and,
therefore, the Company bears the risk of cost overruns and inflation. A
significant percentage of the Company's revenue derived from these engagements
is recognized on the percentage-of-completion method, which requires
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<PAGE>
revenue to be recorded over the term of a client contract based upon the
relative effort expended thereunder. A loss is recorded at the time when current
estimates of project costs exceed unrecognized revenue. The Company's operating
results may be adversely affected by inaccurate estimates of contract completion
costs.
The Company's expense levels are based, in part, on its expectations as to
future revenue and are fixed, to a large extent, in the short term. As a result,
the Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenue in relation to the Company's expectations would have an immediate and
material adverse effect on the Company's business, financial condition and
results of operations. The timing of any expense increases in research and
development, client technical support and professional services staff, sales
force and administrative infrastructure and the rate at which new personnel
become productive could cause material fluctuations in quarterly and annual
results of operations.
Due to all of the foregoing factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that future revenue and operating results will not
vary substantially. In the quarter ended March 31, 1998, the Company's operating
results were below the expectations of public market analysts. It is possible
that in a future quarter the Company's operating results will again be below the
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected.
DEPENDENCE ON YEAR 2000 MARKET
The growth in the Company's revenue in 1996, 1997 and 1998 to date resulted
primarily from increased demand for the Company's services and products relating
to resolution of the year 2000 problem. Although the Company believes that the
market for products and services relating to the year 2000 problem will grow as
the year 2000 approaches, there can be no assurance that this market will
develop to the extent anticipated by the Company, if at all. Significant expense
for sales and marketing may be required to inform potential clients of the year
2000 problem and the need for products and services addressing the problem.
There can be no assurance that the year 2000 solution providers will devote the
resources necessary to effectively inform potential clients of this problem or
that potential clients will understand or acknowledge the problem. In addition,
affected organizations may not be willing or able to allocate the resources,
financial or otherwise, to address the problem in a timely manner. Many
organizations may attempt to resolve the problem internally rather than contract
with outside firms such as the Company and value added integrators to which the
Company licenses its software products. Due to these factors, development of the
market for year 2000 products and services is uncertain and unpredictable. If
the market for year 2000 products and services fails to grow, or grows more
slowly than anticipated, the Company's business, financial condition and results
of operations could be materially adversely affected.
NEED TO DEVELOP ADDITIONAL PRODUCTS AND SERVICES
The Company currently generates significant revenue from, and devotes
significant resources to, products and services that address the year 2000
problem. Although the Company believes that the demand for its products and
services relating to the year 2000 problem will continue to exist for some time
after the year 2000, this demand will diminish significantly over time and will
eventually disappear. There can be no assurance that the Company will be able to
expand successfully its business beyond the year 2000 market. Specifically,
there can be no assurance that mass change markets such as those associated with
Europe's expected conversion to the euro currency or Japan's anticipated
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<PAGE>
telephone number expansion will develop or reach the size currently estimated or
that the Company will successfully develop or market products and services
capable of handling such mass changes. The failure to diversify and develop
additional products and services would have a material adverse effect on the
Company's business, financial condition and results of operations.
CONCENTRATION OF CLIENTS AND CREDIT RISK
To date, the Company's revenue has been dependent on a few major clients,
including American Telephone and Telegraph, Inc., Bull HN Information Systems,
Inc., Stratus Computer, Inc., Computervision Corporation, Metropolitan Life
Insurance Company, IBM Global Services and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Most of the Company's contracts with its clients are terminable at
will by either party upon written notice in accordance with the terms of the
contract, at which time payment for services rendered to date is due. In
addition, certain contracts provide for limited price protection and related
notice provisions that could require the Company to adjust the pricing
provisions of these contracts. To date, the Company has not made any such
adjustments. Although the Company's largest clients have varied from period to
period, the Company anticipates that its results of operations in any given
period will continue to depend to a significant extent upon revenue from a small
number of clients. There can be no assurance that the Company's major clients
will continue to purchase products and services from the Company at current
levels, if at all, or that the Company will be able to replace revenue from such
clients with revenue from other clients. The loss of, or a significant reduction
in revenue from, any of the Company's major clients could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, with such a large percentage of the Company's revenue
attributable to a small number of clients, the loss of one or more major clients
could have a material adverse effect on the Company's liquidity.
MANAGEMENT OF GROWTH
The Company's business has grown significantly in size and complexity over
the past few years. In addition, the number of employees increased during the
same period, and the Company may hire additional personnel in the future. The
growth in the size and complexity of the Company's business as well as its
client base has placed and is expected to continue to place a significant strain
on the Company's management and operations. Certain members of the Company's
senior management team have been with the Company for a limited time and the
Company's senior management has had limited experience in managing publicly
traded companies. The Company anticipates that continued growth, if any, will
require it to recruit and hire a substantial number of new development,
managerial, finance, sales and marketing and support personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in hiring or retaining such personnel. The Company's ability to
compete effectively and to manage future growth, if any, will depend on its
ability to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's operations.
DEPENDENCE UPON THIRD-PARTY CHANNELS; POTENTIAL FOR CHANNEL CONFLICT
The Company offers its products and services directly to end users through
its sales force and indirectly through third-party channels, which include value
added integrators and distributors. The Company has relied to a significant
degree on its value added integrators and distributors to provide sales and
marketing presence and name recognition, as well as the resources necessary to
offer large-scale, comprehensive software maintenance solutions, including
solutions relating to the year 2000
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problem. Although the Company dedicates significant resources to develop its
indirect channels, there can be no assurance that the Company will be able to
attract and retain a sufficient number of qualified firms to successfully sell
and market its products. While the Company has granted exclusive marketing
rights to certain distributors in defined geographic territories, these firms
are not prohibited from entering into similar arrangements with the Company's
competitors. The failure of the Company to maintain its current third-party
channels or develop other third-party channels, the Company's inability to
adequately support the requirements of its third-party channels, the development
of competitive products and services by the Company's value added integrators
and distributors or the entry by such firms into alliances with competitors of
the Company would substantially limit the Company's ability to provide its
products and services and, accordingly, would have a material adverse effect on
the Company's business, financial condition and results of operations.
Selling through indirect channels may also limit the Company's contacts
with end users of its products and services. As a result, the Company's ability
to accurately forecast sales, evaluate client satisfaction and recognize
emerging client requirements may be hindered. The Company's strategy of selling
its products directly to end users and indirectly through third-party channels
may result in distribution channel conflicts. The Company's direct sales efforts
may compete with those of its indirect channels and, to the extent different
value added integrators and distributors target the same clients, they may also
come into conflict with each other. There can be no assurance that channel
conflicts will not materially adversely affect its relationship with existing
value added integrators or distributors or adversely affect its ability to
attract new value added integrators and distributors. In addition, if the
Company is successful in increasing product sales through third-party channels,
the Company expects that any material increase in the Company's indirect sales
as a percentage of total revenue may materially adversely affect the Company's
average selling prices and gross margins due to potentially lower average
license fees from indirect channels.
COMPETITION
The market for the Company's products and services is intensely competitive
and is characterized by rapid changes in technology and user needs and the
frequent introduction of new products. The anticipated growth in the mass change
and year 2000 industries is expected to attract additional competitors, some of
which may offer additional products and services. There are no significant
barriers to entry in the year 2000 industry. In addition, the Company faces
competition in the software maintenance outsourcing services market. A number of
the Company's competitors are more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources than those of the Company and certain of the Company's value added
integrators and distributors. As a result, there can be no assurance that the
Company's products and services, including the solutions offered by the
Company's value added integrators and distributors, will compete effectively
with those of their respective competitors. The Company's value added
integrators and distributors may also offer or develop products and services
that compete with the Company's products and services. There can be no assurance
that such value added integrators and distributors will not give higher priority
to the sales of these or other competitive products and services.
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The future success of the Company's growth strategy will depend to a
significant extent on its ability to attract, train, motivate and retain highly
skilled software professionals, particularly project managers, software
engineers and other senior technical personnel. The Company believes that there
is a shortage of, and significant competition for, software development
professionals with the skills and
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experience necessary to perform the services offered by the Company. The
Company's ability to maintain and renew existing engagements and obtain new
business depends, in large part, on its ability to hire and retain technical
personnel with the information technology ("IT") skills that keep pace with
continuing changes in software evolution, industry standards and technologies
and client preferences. The inability to hire additional qualified personnel
could impair the Company's ability to satisfy its growing client base, requiring
an increase in the level of responsibility for both existing and new personnel.
There can be no assurance that the Company will be successful in retaining
current or future employees.
FIXED-PRICE, FIXED-TIME CONTRACTS
As a core element of its business philosophy, the Company's strategy is to
offer its outsourcing and technology transfer services on fixed-price, fixed-
time frame contracts, rather than contracts in which payment to the Company is
determined solely on a time-and-materials basis. These contracts are terminable
by either party generally upon prior written notice. Although the Company uses
its proprietary tools and methodologies and its past project experience to
reduce the risks associated with estimating, planning and performing the fixed-
price projects, the Company's standard outsourcing and technology transfer
agreements provide for a fixed-fee based on projected reductions in a client's
maintenance costs and increases in a client's maintenance productivity. The
Company's failure to estimate accurately the resources, costs and time required
for a project or its failure to complete its contractual obligations within the
time frame committed could have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL FOR CONTRACT LIABILITY
The Company's products and services relating to software maintenance,
especially solutions addressing the year 2000 problem, involve key aspects of
its clients' computer systems. A failure in a client's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. The Company attempts to limit contractually its
liability for damages arising from negligent acts, errors, mistakes or omissions
in rendering its products and services. Despite this precaution, there can be no
assurance that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
Additionally, the Company maintains general liability insurance coverage,
including coverage for errors and omissions. However, there can be no assurance
that such coverage will continue to be available on acceptable terms, or will be
available in sufficient amounts to cover one or more large claims, or that the
insurer will not disclaim coverage as to any future claim. The successful
assertion of one or more large claims against the Company that exceed available
insurance coverage or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, litigation,
regardless of its outcome, could result in substantial cost to the Company and
divert managements's attention from the Company's operations. Any contract
liability claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial conditions and
results of operations.
SOFTWARE ERRORS OR BUGS
The Company's software products and tools are highly complex and
sophisticated and could from time to time contain design defects or software
errors that could be difficult to detect and correct. Errors, bugs or viruses
may result in loss of or delay in market acceptance, a failure in a client's
system or loss or corruption of client data. Although the Company has not
experienced material adverse effects
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resulting from any software defects or errors, there can be no assurance that,
despite testing by the Company and its clients, errors will not be found in new
products, which errors could have a material adverse effect upon the Company's
business, financial condition and results of operations.
INTEGRATION OF ACQUISITIONS
In December 1997, the Company acquired certain assets and assumed certain
liabilities of MDI from the Selling Stockholder and in January 1996, the Company
acquired Vista Technologies Incorporated, a developer of computer-aided
engineering software. The Company may from time to time seek acquisitions of
businesses, products and technologies that are complementary to those of the
Company. There can be no assurance that the Company will ultimately effect any
such acquisition, or that the Company will be able to integrate successfully
into its operations any business that it may acquire or has acquired. The
process of integrating an acquired company's business into the Company's
operations may result in ongoing and extraordinary operating difficulties and
expenditures, may absorb significant management attention that would otherwise
be available for the ongoing development of the Company's business and may
result in charges to operating results. In addition, future acquisitions by the
Company could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Acquisitions also involve other risks, including entering markets in
which the Company has limited or no direct prior experience and the potential
loss of key employees. There can be no assurance that a given acquisition,
whether or not consummated, would not have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED PROTECTION OF PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and protect its rights in
its software products and proprietary technology. In addition, the Company
currently requires its employees and consultants to enter into nondisclosure and
assignment of invention agreements to limit use of, access to and distribution
of its proprietary information. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate. The laws of some foreign countries may not protect the Company's
proprietary rights as fully or in the same manner as do the laws of the United
States. Also, despite the steps taken by the Company to protect its proprietary
rights, it may be possible for unauthorized third parties to copy aspects of the
Company's products, reverse engineer, develop similar technology independently
or obtain and use information that the Company regards as proprietary.
Furthermore, there can be no assurance that others will not develop technologies
similar or superior to the Company's technology or design around the proprietary
rights owned by the Company.
The Company has entered into license agreements with clients that allow
these clients access to and use of the Company's AutoEnhancer/2000 and Vantage
YR 2000 software source code for certain purposes. Access to the Company's
source code may increase the likelihood of misappropriation or misuse by third
parties.
As of the date of this Prospectus, the Company has six patent applications
on file with the United States Patent and Trademark Office (the "PTO")
pertaining to technologies, processes and methodologies with respect to the
Company's software. None of these patents has been granted and there can be no
assurance that a patent will be issued pursuant to any of these applications or
that, if granted, such patent would survive a legal challenge to its validity or
provide meaningful or significant protection to the Company. Some competitors of
the Company have announced the filing with the PTO
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of patent applications relating to fixing and assessing the year 2000 problem.
The Company expects that the risk of infringement claims against the Company
might increase because its competitors might successfully obtain patents for
software products and processes or because new and overlapping processes and
methodologies used in such services will become more pervasive, increasing the
likelihood of infringement. There can be no assurance that third parties will
not assert infringement claims against the Company in the future, that the
assertion of such claims will not result in litigation or that the Company would
prevail in such litigation or be able to obtain a license for the use of any
infringed intellectual property from a third party on commercially reasonable
terms, if at all. Furthermore, litigation, regardless of its outcome, could
result in substantial cost to the Company and divert management's attention from
the Company's operations. Any infringement claim or litigation against the
Company could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company maintains trademarks and service marks to identify its various
service offerings, products and software. Although the Company has several
trademark and service mark applications pending in the United States and foreign
jurisdictions, not all of the applications have been granted and, even if
granted, there can be no assurance that a particular trademark or service mark
will survive a legal challenge to its validity or provide meaningful or
significant protection to the Company. In some cases, entities other than the
Company are using certain trademarks and service marks, either in jurisdictions
in which the Company has not filed an application or in which the Company is
using a mark in a different manner than a third party. There may be some risk of
infringement claims against the Company in the event that a service or product
of the Company is too similar to that of another entity that is using a similar
mark.
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
The Company's proprietary software is currently designed, and may in the
future be designed to work on or in conjunction with certain third-party
hardware and/or software products. If any of these current or future third-party
vendors were to discontinue making their products available to the Company or to
licensees of the Company's software or to increase materially the cost to the
Company or its licensees to acquire, license or purchase the third-party
vendors' products, or if a material problem were to arise in connection with the
ability of the Company to design its software to properly use or operate with
third-party hardware and/or software products, the Company would be required to
redesign its software to function with or on alternative third-party products or
attempt to develop internally a replacement for the third-party products. In
such an event, interruptions in the availability or functioning of the Company's
software and delays in the introduction of new products and services may occur
until equivalent technology is obtained. There can be no assurance that an
alternative source of suitable technology would be available or that the Company
would be able to develop an alternative product in sufficient time or at a
reasonable cost. The failure of the Company to obtain or develop alternative
technologies or products on a timely basis and at a reasonable cost could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RAPID TECHNOLOGICAL CHANGE
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and new product
introductions and enhancements that may render existing products obsolete. As a
result, the Company's market position could erode rapidly due to unforeseen
changes in the features and functionality of competing products. The Company's
future success will depend in part upon its ability to enhance its existing
products and services and to develop and introduce new products and services to
meet changing client requirements. The process of
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developing products and services such as those offered by the Company is
extremely complex and is expected to become increasingly complex and expensive
in the future with the introduction of new platforms and technologies. There can
be no assurance that the Company will successfully complete the development of
new products in a timely fashion or that the Company's current or future
products will satisfy the needs of its target market.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has a subsidiary in India, a branch in the United Kingdom and
distributors in Canada, Europe and Japan, and intends to expand its
international sales activities as part of its business strategy. In July 1998,
the Company sold all of its interest in Persist S.A., its majority owned Spanish
subsidiary. In the first quarter of 1998, approximately 34%, in 1997,
approximately fifty percent, and in 1996 and 1995 substantially all, of the
Company's international revenue was attributable to revenue generated by Persist
S.A. In order to expand international sales, the Company must establish
additional foreign operations, hire additional personnel and establish
relationships with additional value added integrators and distributors. This
will require significant management attention and financial resources and could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will be able to address international market demand for the Company's
products and services. The Company's international sales are primarily
denominated in United States dollars. An increase in the value of the United
States dollar relative to foreign currencies could make the Company's products
more expensive and, therefore, potentially less competitive in those markets. In
addition, the Company's international business may be subject to a variety of
risks, including difficulties in collecting international accounts receivable or
obtaining United States export licenses, potentially longer payment cycles,
increased costs associated with maintaining international marketing efforts, the
introduction of non-tariff barriers and higher duty rates and difficulties in
enforcement of contractual obligations and intellectual property rights. There
can be no assurance that such factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
business, financial condition or results of operations.
DEPENDENCE ON INDIA OFFSHORE SOFTWARE DEVELOPMENT CENTER
The Company has established an offshore software development center in
Bangalore, India that is intended to provide the Company with a cost advantage
as well as the ability to provide 24-hour coverage for its outsourcing services
clients. To provide its service delivery model, the Company must maintain
communications between its offices, the offices of its clients in the United
States and the Bangalore offshore software development facility. Any loss of the
Company's ability to transmit voice and data through satellite communications to
India could have a material adverse effect on the Company's business, financial
condition and results of operations. In the past, India has experienced
significant inflation, low growth in gross domestic product and shortages of
foreign exchange. India also has experienced civil unrest and terrorism and, in
the past, has been involved in conflict with neighboring countries. No assurance
can be given that the Company will not be adversely affected by changes in
inflation, interest rates, taxation, social stability or other political,
economic or diplomatic developments in or affecting India in the future. In
addition, the Indian government has exercised and continues to exercise
significant influence over many aspects of the Indian economy, and Indian
government actions concerning the economy could have material adverse effect on
private sector entities, including the Company. During recent years, India's
government has provided significant tax incentives and relaxed certain
regulatory restrictions in order to encourage foreign investment in specified
sectors of the economy, including the software development industry. Certain of
those benefits that directly affect the Company include, among others, tax
holidays, liberalized import and export duties and preferential rules on foreign
investment and repatriation. Notwithstanding these benefits,
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<PAGE>
however, India's central and state governments remain significantly involved in
the Indian economy. The elimination of any of the benefits realized by the
Company from its Indian operations could have a material adverse effect on the
Company's business financial condition and results of operations.
IMMIGRATION ISSUES
The Company believes that its success in part has resulted from its ability
to attract and retain persons with technical and project management skills from
other countries. Certain of the Company's United States-based employees are
working for the Company in the H-1B, non-immigrant work permitted visa
classification. There is a limit on the number of new H-1B petitions that the
Immigration and Naturalization Service may approve in any government fiscal
year, and in years in which this limit is reached, the Company may be unable to
obtain H-1B visas necessary to bring critical foreign employees to the United
States Compliance with existing United States immigration laws, or changes in
such laws making it more difficult to hire foreign nationals or limiting the
ability of the Company to retain H-1B employees in the United States, could
require the Company to incur additional unexpected labor costs and expenses. Any
such restrictions or limitations on the Company's hiring practices could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON GOVERNMENT CONTRACTS
One of the Company's strategies is to sell its products and services
directly or indirectly to state, federal and foreign government agencies. Any
failure to obtain a contract award, or a delay on the part of a government
agency in making the award or of ordering products and services under an awarded
contract, could have a material adverse effect on the financial performance of
the Company within a given period. Other risks involved in government sales are
the larger discounts (and thus lower margins) typically involved in government
sales, the dependence of the Company on the ability of the prime contractor to
obtain the award, the unpredictability of funding for various government
programs, the ability of the government agency to unilaterally terminate the
prime contract, and the dependence on the creditworthiness of the prime
contractor (some of which are relatively small organizations without substantial
funds). The Company anticipates that government sales may constitute a
significant but fluctuating portion of its revenue in the future.
POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock, which is traded on the Nasdaq
National Market, has been and is expected to continue to be subject to
significant fluctuations in response to operating results, announcements of
technological innovations or new products by the Company or its competitors,
patent or proprietary rights developments and market conditions for high
technology stocks in general. In additions, the stock market in recent years
has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. These market fluctuations, as well as general economic conditions,
may adversely affect the market price of the Common Stock. The trading prices
of many high technology companies' stocks are at or near their historical highs
and reflect price/earnings ratios substantially above historical norms. There
can be no assurance that the trading price of the Common Stock will remain at or
near its current level.
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LEGAL PROCEEDINGS
The Company and certain of its officers and directors have been named as
defendants in purported class action lawsuits filed in the United States
District Court for the District of Massachusetts by Robert Downey on April 1,
1998, by Scott Cohen on April 7, 1998, by Timothy Bonnett on April 9, 1998, by
Peter Lindsay on April 17, 1998, by Harry Teague on April 21, 1998, by Jesse
Wijntjes on April 29, 1998, by H. Vance Johnson and H. Vance Johnson as Trustee
for the I.O.R.D. Profit-Sharing Plan on May 6, 1998, by John B. Howard, M.D., on
May 21, 1998 and by Helen Lee on May 28, 1998 (collectively, the "complaints").
The Downey complaint alleges a class period of October 22, 1997 to March 27,
1998. The Cohen, Bonnett, Wijntjes and Lee complaints allege a class period of
January 27, 1998 to March 27, 1998. The Lindsay, Teague and Johnson complaints
allege a class period of January 28, 1998 to March 27, 1998. The Howard
complaint alleges a class period of July 3, 1997 to March 27, 1998. The
complaints principally allege that the defendants violated federal securities
laws by making false and misleading statements and by failing to disclose
material information concerning the Company's December 1997 acquisition of
substantially all of the assets and assumption of certain liabilities of MDI
from the Selling Stockholder, thereby allegedly causing the value of the Common
Stock to be artificially inflated during the purported class periods. In
addition, the Howard complaint alleges violation of federal securities laws as a
result of the Company's purported failure to disclose material information in
connection with the Company's initial public offering on July 2, 1997, and also
names Montgomery Securities, Inc., Wessels, Arnold & Henderson and H.C.
Wainwright & Co., Inc. as defendants. The complaints further allege that certain
officers and/or directors of the Company sold stock in the open market during
the class periods and seek unspecified damages. On or about June 1, 1998, all of
the named plaintiffs and additional class members filed a motion for the
appointment of several of those individuals as lead plaintiffs, for approval of
lead and liaison plaintiffs' counsel and for consolidation of actions. Although
the Company believes that it and the other defendants have meritorious defenses
to the claims made in the complaints and intends to contest the lawsuits
vigorously, an adverse resolution of the lawsuits could have a material adverse
effect on the Company's financial condition and results of operations in the
period in which the litigation is resolved.
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<PAGE>
THE COMPANY
The Company provides solutions consisting of software products and services
that enable organizations to improve the productivity, quality and effectiveness
of their IT systems maintenance or software evolution functions. The Company
employs software tools, methodologies and processes designed to automate the
typically labor-intensive processes involved in conducting "mass change" and
other software maintenance tasks. In 1996, the Company released its first
commercially available product, its AutoEnhancer/2000 software, which is aimed
at the industry's most pressing mass change challenge, the year 2000 problem.
The Company also provides on a fixed-fee basis software maintenance outsourcing
services that employ the Company's proprietary software tools, methodologies and
processes to generate productivity gains in the software evolution process.
On December 1, 1997, Twoquay, Inc. ("Twoquay"), a wholly owned subsidiary
of the Company, acquired substantially all of the assets and assumed certain
liabilities of MDI from the Selling Stockholder in exchange for 2,175,000 shares
of Common Stock and $30 million in cash. The number of shares issued to the
Selling Stockholder was determined in accordance with the terms of the Asset
Purchase Agreement by and among the Company and Twoquay and the Selling
Stockholder and MDI dated October 22, 1997 (the "Purchase Agreement") based on
the Average Share Price (as defined therein) for the five trading days beginning
on the second day immediately preceding the date thereof and ending on the
second trading day immediately following the date thereof. Neither the Company
nor Twoquay had any material relationship with either the Selling Stockholder or
MDI prior to execution of the Purchase Agreement. The cash portion of the
purchase price was paid for from the proceeds of the Company's initial public
offering which closed on July 8, 1997. The shares of Common Stock issued to the
Selling Stockholder pursuant to the Purchase Agreement are entitled to certain
registration rights as set forth in the Registration Rights Agreement. Twoquay
changed its name to MDI after the closing of the acquisition. MDI's primary
product, Vantage YR2000, is a software toolset utilized for computer program
analysis. The software was designed and developed to automate the year 2000
conversion process.
The Company is a Massachusetts corporation organized in August 1991. The
Company's principal executive offices are located at 2 Federal Street,
Billerica, Masachusetts 01821-3540, and its telephone number at that location is
(978) 670-0800.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholder.
The Company will bear all costs (excluding any brokerage fees, underwriting
discounts and selling commissions and expenses incurred by the Selling
Stockholder for legal services), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees required under federal and state
securities laws, fees and expenses of counsel for the Company and fees and
expenses of accountants for the Company.
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<PAGE>
SELLING STOCKHOLDER
All of the Shares being offered by the Selling Stockholder were acquired by
it directly from the Company upon issuance thereof on December 1, 1997 in
connection with the acquisition of substantially all of the assets and
assumption of certain liabilities of MDI.
Immediately prior to the merger of MDI into the Selling Stockholder on
December 1, 1997 and the subsequent acquisition of subtantially all of the
assets of MDI by the Company from the Selling Stockholder, the Selling
Stockholder was the sole stockholder of MDI. William W. Verity, a director of
the Company since April 21, 1998, is a director of Chiquita Brands
International, Inc., an affiliate of the Selling Stockholder.
The following table sets forth, to the knowledge of the Company, the name
and the number of shares of Common Stock beneficially owned by the Selling
Stockholder as of the date of this Propsectus, all of which shares are offered
hereby the Selling Stockholder. If all of the Shares offered hereby are sold as
described herein, the Selling Stockholder will beneficially own no shares of
Common Stock after completion of the offering.
<TABLE>
<CAPTION>
Number of Shares of Common Stock
Name of Selling Stockholder Beneficially Owned Prior to Offering (1)
-------------------------------- --------------------------------------------
<S> <C>
American Premier Underwriters, Inc. 2,093,433(2)
</TABLE>
___________________
(1) The number of shares beneficially owned is determined under rules
promulgated by the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the indvidual
has sole or shared voting power or investment power and also any shares
which the individual has the right to acquire within 60 days after the date
of this Prospectus through the exercise of any stock option or other right.
The inclusion herein of such shares, however, does not constitute an
admission that the Selling Stockholder is a direct or indirect beneficial
owner of such shares. The Selling Stockholder has sole voting power and
investment power with respect to all shares of capital stock listed as
owned by the Selling Stockholder.
(2) Pursuant to the Registration Rights Agreement, the Selling Stockholder
agreed to limit the number of Shares it will sell prior to January 1, 1999,
as determined by a formula. See "Plan of Distribution."
PLAN OF DISTRIBUTION
The Selling Stockholder has advised the Company that the Shares covered
hereby may be offered and sold by the Selling Stockholder, or by pledgees,
donees, transferees or other successors in interest, in private or public
transactions, in transactions involving principals, in transactions involving
brokers, or by any other lawful methods. Sales through brokers may be made by
any method of trading authorized by any stock exchange or market on which the
Shares may be listed, including block trading in negotiated transactions.
Without limiting the foregoing, such brokers may act as dealers by purchasing
any or all of the Shares covered by this Prospectus, either as
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<PAGE>
agents for others or as principals for their own accounts, and reselling such
Shares pursuant to this Prospectus. Sales of Shares are, in general, expected to
be made at the market price prevailing at the time of each such sale; however,
prices in negotiated transactions may differ considerably. The Selling
Stockholder may also offer to sell and sell the Shares in options transactions.
The Selling Stockholder has advised the Company that it does not anticipate
paying any consideration other than usual and customary broker's commissions in
connection with sales of the Shares. The Selling Stockholder is acting
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. In addition, any Shares covered by this Prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than pursuant to this Prospectus.
In offering the Shares covered by this Prospectus, the Selling Stockholder
and any broker-dealers who execute sales for the Selling Stockholder may be
considered to be "underwriters" within the meaning of the Securities Act, and
any profits realized by the Selling Stockholder and the compensation of such
broker-dealers may be deemed to be underwriting discounts and commissions.
The Company has agreed to indemnify in certain circumstances the Selling
Stockholder and any underwriter and certain control and other persons related to
the foregoing persons against certain liabilities, including liabilities under
the Securities Act. The Selling Stockholder has agreed to indemnify in certain
circumstances the Company and certain related persons against certain
liabilities, including liabilities under the Securities Act.
The Selling Stockholder is limited in the number of Shares it may sell by a
formula expressed in the Registration Rights Agreement. Such formula limits the
number of Shares which the Selling Stockholder may sell prior to January 1, 1999
to the sum of (i) the difference, if any, between 500,000 and the number of
Shares sold by the Selling Stockholder pursuant to certain "piggyback"
registration rights contained in the Registration Rights Agreement (the "Share
Difference") and (ii) one-half of the difference between the Shares held by the
Selling Stockholder on the date of the initial filing of the Registration
Statement of which this Prospectus is a part and the Share Difference. As of
the date of this Prospectus, the number of Shares that the Selling Stockholder
may sell under such formula prior to January 1, 1999 is 1,296,717.
The Company has agreed with the Selling Stockholder to keep the
Registration Statement of which this Prospectus constitutes a part effective
until the earlier of (i) the sale of all of the Shares by the Selling
Stockholder or (ii) December 1, 1999. The Company intends to deregister any of
the Shares not sold by the Selling Stockholder at the end of such period.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Hale and Dorr LLP, counsel to the Company.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Annual Report on Form 10-K of Peritus Software Services, Inc.
for the year ended December 31, 1997, as amended on Form 10-K/A on May 20, 1998,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on authority of said firm as experts in
auditing and accounting.
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The financial statements of Millennium Dynamics, Inc. appearing in the
Peritus Software Services, Inc. Current Report on Form 8-K/A dated February 17,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report therein and incorporated herein by reference. Such financial
statements referred to above are incorporated herein by reference in reliance
upon such report given upon their authority as experts in auditing and
accounting.
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<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION OF AN OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
_______________
TABLE OF CONTENTS
_______________
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................. 2
Incorporation of Certain Documents
By Reference......................................................... 2
Special Note Regarding Forward-Looking
Information.......................................................... 3
Risk Factors........................................................... 4
The Company............................................................ 14
Use of Proceeds........................................................ 14
Selling Stockholder.................................................... 15
Plan of Distribution................................................... 15
Legal Matters.......................................................... 16
Experts................................................................ 16
</TABLE>
================================================================================
================================================================================
PERITUS SOFTWARE SERVICES, INC.
2,093,433 SHARES
COMMON STOCK
______________
PROSPECTUS
______________
August 7, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in connection
with the sale and distribution of the securities being registered hereby, all of
which will be borne by the Registrant (except expenses incurred by the Selling
Stockholder for brokerage fees, selling commissions, underwriting discounts and
selling commissions and expenses incurred by the Selling Stockholder for legal
services). All amounts shown are estimates, except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
Filing Fee - Securities and Exchange Commission $ 2,895
Legal fees and expenses of the Registrant $25,000
Accounting fees and expenses $10,000
Miscellaneous expenses $ 5,000
-------
Total Expenses $42,895
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification to
its directors and officers under Section 67 is optional. In its Restated
Articles of Organization, the Registrant has elected to commit to provide
indemnification to its directors and officers in specified circumstances.
Generally, Article 6 of the Registrant's Restated Articles of Organization
indemnifies directors and officers of the Registrant against liabilities and
expenses arising out of legal proceedings brought against them by reason of
their status or service as directors or officers or by reason of their agreeing
to serve, at the request of the Registrant, as a director or officer of, or in a
similar capacity with, another organization or in any capacity with respect to
any employee benefit plan of the Registrant. Under this provision, a director
or officer of the Registrant shall be indemnified by the Registrant for all
expenses, judgments, fines and amounts paid in settlement of such proceedings,
even if he or she is not successful on the merits, if he or she acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the Registrant.
The Registrant's Restated Articles of Organization establish the
presumption that the director or officer has met the applicable standard of
conduct required for indemnification. The indemnification above shall be made
unless the Registrant determines that the applicable standard of conduct has not
been met. Such a determination may be made by a majority of a quorum of the
directors, independent legal counsel, a court of competent jurisdiction or a
majority vote of a quorum of the outstanding shares of stock (which quorum shall
consist of stockholders who are not parties to the suit). The Board of
Directors shall authorize advancing litigation expenses to a director or officer
at his request upon receipt of an undertaking by such director or officer to
repay such expenses if it is ultimately determined that he or she is not
entitled to indemnification for such expenses.
The Registrant's Restated Articles of Organization also provide that, in
the event of a determination by the Registrant that a director or officer did
not meet the standard of conduct
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required for indemnification, or if the Registrant fails to make an
indemnification payment or an advance of expenses within 60 days after such
payment is claimed by a director or officer, such director or officer may
petition a court to make an independent determination of whether such director
or officer is entitled to indemnification. The Registrant's Restated Articles of
Organization explicitly provide for partial indemnification of costs and
expenses in the event that a director or officer is not entitled to full
indemnification.
Article 6 of the Registrant's Restated Articles of Organization also
eliminates the personal liability of the Registrant's directors to the
Registrant or its stockholders for monetary damages for breach of a director's
fiduciary duty, except to the extent such elimination or limitation is
prohibited by Chapter 156B of the Massachusetts General Laws.
The Registrant has purchased and maintains insurance coverage under a
policy insuring directors and officers of the Registrant against certain
liabilities which they may incur as directors or officers of the Registrant.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
4 Specimen Certificate for shares of Common Stock, $0.01 par value per
share, of the Registrant, incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (Commission File No. 333-
27087)
5 Opinion of Hale and Dorr LLP
23.1 Consent of Hale and Dorr LLP, included in Exhibit 5 filed herewith
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP
24 Power of Attorney, included on page II-4 of this Registration
Statement
</TABLE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
derivation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
II-2
<PAGE>
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included is a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in this
Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registratin statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Billerica, Commonwealth of Massachusetts on the 22nd
day of July, 1998.
PERITUS SOFTWARE SERVICES, INC.
/s/ Allen K. Deary
By:________________________________
Allen K. Deary
Vice President, Finance and
Chief Financial Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Allen K.
Deary, Eugene J. DiDonato and Peter B. Tarr, and each of them singly, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them, for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-3 of Peritus Software
Services, Inc. and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power of
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ------
<S> <C> <C>
/s/ Dominic K. Chan Chairman of the Board of July 22, 1998
- -------------------------------- Directors and Chief
Dominic K. Chan Technology Officer
/s/ Douglas A. Catalano President, Chief Executive July 22, 1998
- -------------------------------- Officer and Director
Douglas A. Catalano (Principal Executive
Officer)
/s/ Allen K. Deary Vice President, Finance, July 22, 1998
- -------------------------------- Chief Financial Officer
Allen K. Deary and Director (Principal
Financial Officer)
/s/ John E. MacPhee Vice President, Director July 22, 1998
- -------------------------------- of Finance and Treasurer
John E. MacPhee (Principal Accounting
Officer)
Director July __, 1998
- --------------------------------
Arthur Carr
/s/ W. Michael Humphreys Director July 22, 1998
- --------------------------------
W. Michael Humphreys
Director July __, 1998
- --------------------------------
Axel Leblois
/s/ Henry F. McCance Director July 22, 1998
- --------------------------------
Henry F. McCance
/s/ Roland D. Pampel Director July 22, 1998
- --------------------------------
Roland D. Pampel
/s/ William W. Verity Director July 22, 1998
- --------------------------------
William W. Verity
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
4 Specimen Certificate for shares of Common Stock, $0.01 par value per
share, of the Registrant, incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (Commission File No.
333-27087)
5 Opinion of Hale and Dorr LLP
23.1 Consent of Hale and Dorr LLP, included in Exhibit 5 filed herewith
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP
24 Power of Attorney, included on page II-4 of this Registration
Statement
</TABLE>
II-6
<PAGE>
EXHIBIT 5
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 * FAX 617-526-5000
August 7, 1998
Peritus Software Services, Inc.
2 Federal Street
Billerica, Massachusetts 01821-3540
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), for the registration of an aggregate of
2,093,433 shares of Common Stock, $0.01 par value per share (the "Shares"), of
Peritus Software Services, Inc., a Massachusetts corporation (the "Company"),
all of which Shares will be sold by a certain stockholder of the Company (the
"Selling Stockholder").
We are acting as counsel for the Company in connection with the
registration of the Shares by the Company for sale by the Selling Stockholder.
We have examined signed copies of the Registration Statement, as filed with the
Commission. We have also examined and relied upon minutes of meetings of the
stockholders and the Board of Directors of the Company as provided to us by the
Company, stock record books of the Company as provided to us by the Company, the
Restated Articles of Organization and Restated By-Laws of the Company and such
other documents as we have deemed necessary for purposes of rendering the
opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
Our opinion expressed below, insofar as it relates to the Shares being
fully paid, is based solely on a certificate of the Chief Financial Officer of
the Company.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares under the Registration Statement, to register and qualify the
Shares for sale under all applicable state securities or "blue sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts and the federal
laws of the United States of America. To the extent that any other laws govern
the matters as to which we are opining herein, we have assumed that such laws
are identical to the state laws of the Commonwealth of Massachusetts, and we are
expressing no opinion herein as to whether such assumption is reasonable or
correct.
<PAGE>
Peritus Software Services, Inc.
August 7, 1998
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be sold by the Selling Stockholder have been duly authorized and are
validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
January 27, 1998 appearing on page 39 of Peritus Software Services, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 7, 1998
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Peritus Software
Services, Inc. for the registration of 2,093,433 shares of its common stock and
to the incorporation by reference therein of our report dated October 29, 1997,
with respect to the financial statements of Millennium Dynamics, Inc., included
in the Peritus Software Services, Inc. Current Report on Form 8-K/A, dated
February 17, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Cincinnati, Ohio
August 6, 1998
