<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1 ON
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 000-22647
PERITUS SOFTWARE SERVICES, INC.
------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-3126919
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2 Federal Street, Billerica, Massachusetts 01821-3540
-------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (978) 670-0800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Not applicable Not applicable
<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(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 the 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]
As of March 19, 1999, the aggregate market value of voting stock held by non-
affiliates of the registrant was approximately $4,508,334. As of that date,
there were 16,349,986 shares outstanding of the registrant's common stock, $0.01
par value. The registrant has no shares of non-voting common stock authorized
or outstanding.
2
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Peritus Software Services, Inc. (the "Company" or "Peritus") hereby amends
its Annual Report on Form 10-K for the fiscal year ended December 31, 1998 by
providing the information required in Part III, Items 10, 11, 12 and 13, not
previously provided in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 filed with the Securities and Exchange Commission
on April 14, 1999.
Part III. Item 10.
Directors and Executive Officers of the Company
For each member of the Board of Directors and each person serving as an
executive officer of the Company, there follows information given by each
concerning his principal occupation and business experience for the past five
years, the names of other publicly held companies of which such person serves as
a director and such person's age and length of service as a director of the
Company.
Arthur Carr, age 67, has served on the Board of Directors of the Company since
November 1995. Mr. Carr has been a private investor since December 1993. From
1991 to November 1993, Mr. Carr served as Chairman, President and Chief
Executive Officer of Bytex Corporation, a manufacturer of data communications
equipment. Mr. Carr is a member of the Compensation Committee of the Board of
Directors of the Company.
W. Michael Humphreys, age 47, has served on the Board of Directors of the
Company since March 1996. Mr. Humphreys has been a partner of Matrix Partners, a
private venture capital firm, since 1982. Prior to his association with Matrix
Partners, he was a general partner of Hellman, Ferri Investment Associates, a
private venture capital partnership. Mr. Humphreys is a director of GeoTel
Communications Corporation, a developer of telecommunications software, as well
as several privately held companies. Mr. Humphreys is a member of the
Compensation Committee of the Board of Directors of the Company.
Axel Leblois, age 50, has served on the Board of Directors of the Company
since February 1995. Since July 1997, he has served as President and Chief
Executive Officer of ExecuTrain Corp., a computer training company, and since
January 1996, Mr. Leblois has served as the Chairman of World Times Inc., a
publishing company. From May 1991 to December 1995, he served as President and
Chief Executive Officer of Bull HN Information Systems Inc. Mr. Leblois is a
director of Wang Global, a provider of networked technology services and
solutions. Mr. Leblois is a member of the Audit Committee of the Board of
Directors of the Company.
Henry F. McCance, age 56, has served on the Board of Directors of the Company
since March 1996. Mr. McCance has been a general partner of Greylock Management
Corporation ("Greylock"), a private venture capital firm, since 1973. He is
Chairman of the Board, President and Secretary of Greylock, the service
organization to the Greylock venture capital
3
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partnerships. Mr. McCance is a director of several privately held companies. Mr.
McCance is a member of the Compensation Committee of the Board of Directors of
the Company.
Roland D. Pampel, age 64, has served on the Board of Directors of the Company
since November 1995. Mr. Pampel is recently retired. From March 1994 to January
1997, Mr. Pampel held the positions of President, Chief Executive Officer and
director of Microcom, Inc. (''Microcom''), a manufacturer of computer equipment.
Prior to joining Microcom, Mr. Pampel was President and Chief Executive Officer
of Nicolet Instrument Inc., a manufacturer of medical instruments, from October
1991 to September 1993. He currently serves on the Board of Directors of
Infinium Software, Inc., a provider of client-server business software
applications. Mr. Pampel is a member of the Audit Committee of the Board of
Directors of the Company.
Andrea C. Campbell, age 47, co-founded the Company and since June 1998 has
served as its Vice President, Outsourcing Research and Development. She served
as the Company's Vice President, Outsourcing Operations from June 1996 to June
1998 and as Vice President, Consulting and Technology Transfer Services from
September 1992 to June 1996. Ms. Campbell was previously employed as Human
Resources Director at Bull HN Information Systems Inc., a manufacturer of
computer products, from March 1990 to August 1992.
Eugene J. DiDonato, age 42, joined the Company in June 1997 as General Counsel
and since July 1997 has served as Vice President and General Counsel. Prior to
joining the Company, Mr. DiDonato was Vice President and General Counsel of
Cayenne Software, Inc. ("Cayenne") from November 1993 to June 1997, and General
Counsel of Cayenne from August 1993 to November 1993. Mr. DiDonato was employed
as a securities lawyer at Foley, Hoag & Eliot, a law firm in Boston, from April
1986 to July 1993.
Ronald C. Garabedian, age 47, joined the Company in February 1999 as Director
of Finance and has served as its Treasurer since April 1999. From 1995 to 1998,
Mr. Garabedian was the Treasurer and Controller of Japonica Partners, a private
investment company. From 1980 to 1994, he held various positions at Bull HN
Information Systems Inc., a manufacturer of computer products, where he most
recently served as Controller of public sector operations.
John D. Giordano, age 42, has served as the Company's President and Chief
Executive Officer since April 1999. He joined the Company in September 1998 as
Vice President, Finance and Chief Financial Officer and still holds those
offices. From March 1997 to December 1997, Mr. Giordano served on the Board of
Directors of the Company. Since 1978 and prior to joining the Company, Mr.
Giordano held various positions at Bull HN Information Systems Inc., a
manufacturer of computer products, where he most recently served as Vice
President, Chief Financial Officer and Treasurer.
4
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock ("Reporting Persons") to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Based solely on its review of copies of reports filed by
Reporting Persons with the Securities and Exchange Commission or written
representations from certain Reporting Persons that no Form 5 filing was
required for such person, the Company believes that, during 1998 all filings
required to be made by its Reporting Persons were timely made in accordance with
the requirements of the Exchange Act.
Part III. Item 11.
Executive Compensation
Director Compensation
All directors are reimbursed for expenses incurred in connection with their
attendance at Board of Directors and committee meetings. Mr. Pampel was also
compensated for providing six days of consulting to the Company at a rate of
$800 per day.
The Company's 1997 Director Stock Option Plan (the ''Director Plan'') was
adopted by the Board of Directors and approved by the stockholders of the
Company in May 1997. Under the terms of the Director Plan, directors of the
Company who are not employees of the Company or any subsidiary of the Company
are eligible to receive nonstatutory options to purchase shares of Common Stock.
A total of 200,000 shares of Common Stock may be issued upon exercise of options
granted under the Director Plan.
Pursuant to the terms of the Director Plan, options to purchase 15,000 shares
of Common Stock are granted to all non-employee directors upon the effective
date of the Company's initial public offering, or if a director was not then
serving on the Board of directors on the date of his or her initial election as
a director. On July 2, 1997, each of Messrs. Carr, Humphreys, Leblois, McCance
and Pampel received an option to purchase 15,000 shares of the Company's Common
Stock at an exercise price of $16.00 per share. In addition, options to purchase
3,000 shares of Common Stock are granted to each non-employee director on the
date of each annual meeting of stockholders of the Company provided, however,
that such director is serving on the Board of Directors at the adjournment of
such meeting. The exercise price per share of such options will be the closing
price of a share of Common Stock on the date of the grant. On June 10, 1998,
each of Messrs. Carr, Humphreys, Leblois, McCance and Pampel received an option
to purchase 3,000 shares of the Company's Common Stock at an exercise price of
$4.19 per share. All options granted under the Director Plan vest at a rate of
one-third of the shares per year over a period of three years from the date of
grant so long as the optionee remains a director of the Company.
5
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Executive Compensation
The following table sets forth the total compensation paid or accrued for the
three years ended December 31, 1998 for the three individuals who served as the
Company's Chief Executive Officer during 1998 and the Company's four other most
highly compensated executive officers in 1998 (such Chief Executive Officers and
such other executive officers are hereinafter referred to as the ''Named
Executive Officers''):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Name and Compensation
-------- ------------
Principal Position(1) Annual Compensation(2) Awards
--------------------- -------------------------------- ------
Securities
----------
Year Salary Bonus(3) Underlying
---- ------ -------- ---------- All Other
Options(4) Compensation(5)
---------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas A. Catalano(6)........................... 1998 $227,163 ---- ---- $5,000
President and Chief Executive 1997 250,000 $ 35,000 ---- 2,250
Officer 1996 ---- ---- 780,000 ----
Dominic K. Chan(6)............................... 1998 277,000 ---- ---- 1,072
Chairman of the Board, 1997 241,577 35,000 ---- 1,736
President, Chief Executive Officer, 1996 202,613 40,000 ---- 3,131
and Chief Technology Officer
Allen K. Deary(6) ............................... 1998 182,308 ---- 250,000 3,128
President, Chief Executive Officer 1997 191,850 35,000 150,000 3,088
and Chief Financial Officer 1996 147,903 40,000 14,200 3,002
Peter Espinosa .................................. 1998 167,885 50,000 225,000 303
Vice President, Worldwide Sales 1997 ---- ---- ---- ----
1996 ---- ---- ---- ----
John D. Giordano ................................ 1998 56,250 125,000 220,000 ----
Vice President, Finance and 1997 ---- ---- ---- ----
Chief Financial Officer 1996 ---- ---- ---- ----
Andrea C. Campbell .............................. 1998 166,500 ---- 100,000 4,000
Vice President, Outsourcing Research 1997 147,676 35,000 50,000 1,841
And Development 1996 137,500 40,000 17,085 2,027
Eugene J. DiDonato .............................. 1998 156,423 ---- 144,000 2,137
Vice President and General Counsel 1997 75,750 15,000 20,000 ----
1996 ---- ---- ---- ----
</TABLE>
- --------------
(1) Unless otherwise noted, lists principal position with the Company as of
December 31, 1998.
(2) Excludes perquisites and other personal benefits because the aggregate
amount of such compensation was in all cases less than the lesser of
$50,000 or 10% of the total of annual salary and bonus for the Named
Executive Officer.
(3) Amounts in this column represent bonuses earned under the Company's
executive compensation, retention or other bonus programs during 1996, 1997
and 1998.
6
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(4) Reflects the grant of options to purchase Common Stock. The Company has
never granted stock appreciation rights.
(5) Consists of the Company's matching contributions to the Company's 401(k)
Plan.
(6) Mr. Catalano was the Company's President and Chief Executive Officer
through August 17, 1998, the date upon which he resigned as an officer of
the Company. On November 18,1998, Mr. Catalano resigned as a Director of
the Company. Mr. Deary was the Company's President and Chief Executive
Officer from August 17, 1998 through November 5, 1998, and the Company's
Vice President, Finance and Chief Financial Officer until September 14,
1998. On November 5, 1998, Mr. Deary resigned as an officer and Director
of the Company. Dr. Chan became the President and Chief Executive
Officer on November 5, 1998 and resigned as an officer and Director on
April 1,1999.
The following table sets forth certain information concerning grants of stock
options to each of the Named Executive Officers during the year ended December
31, 1998:
Option Grants, Exercises and Year-End Values
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term(3)
Options Employees in Base Price Expiration ---------------------------
Name Granted(1) Fiscal Year Per Share(2) Date 5% 10%
- ------------------------- ---------- ---------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Catalano..... -- -- -- -- -- --
Dominic K. Chan......... -- -- -- -- -- --
Allen K. Deary.......... 250,000 7.9% $3.875 08/21/08 0 0
Peter Espinosa.......... 100,000 3.16% 0.875 10/06/08 $ 4,375 $ 8,750
125,000 3.95% 5.688 04/15/08 35,550 71,100
John D. Giordano........ 100,000 3.16% 0.875 10/06/08 55,028 139,452
120,000 3.79% 2.875 09/21/08 216,969 549,841
Andrea C. Campbell...... 100,000 3.16% 0.875 10/06/08 55,028 139,452
Eugene J. DiDonato...... 100,000 3.16% 0.875 10/06/08 55,028 139,452
10,000 .32% 4.00 06/30/08 25,156 63,750
24,000 .76% 4.13 06/15/08 62,141 157,661
10,000 .32% 19.25 01/22/08 121,062 306,795
</TABLE>
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(1) All options were granted pursuant to the 1997 Stock Incentive Plan (the
"1997 Plan") and, unless otherwise noted, grant a right to purchase shares
of Common Stock which vests in four equal annual installments beginning one
year after the date of grant. The options granted on October 6, 1998 vest
in five installments, the first on December 31,1998 and the next four in
quarterly installments thereafter.
(2) Represents the per share fair market value of the Common Stock, as
determined by the Board of Directors, on the date of grant.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated
7
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based on rules promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the timing of such exercise and the future performance of the
Common Stock. There can be no assurance that the rates of appreciation
assumed in this table can be achieved or that the amounts reflected will be
received by the individuals.
(4) No gain to the optionees is possible without an appreciation in stock
price, which will benefit all stockholders commensurately. A zero percent
stock price appreciation will result in zero gain for the optionee.
8
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The following table sets forth certain information concerning stock options
exercised during 1998 and stock options held by each of the Named Executive
Officers on December 31, 1998:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Shares Number of Shares
Acquired Underlying Unexercised Value of Unexercised
On Value Options at Fiscal In-the-Money Options
Name Exercise Realized(1) Year-End at Fiscal Year-End(2)
- -------------------------- -------- -------------- -------- ---------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas A. Catalano ...... 109,843 $1,638,422 266,198/375,960 $ 0/0
Dominic K. Chan........... 0 0 18,750/0 0/0
Allen K. Deary ........... 100,000 1,794,490 0/0 0/0
Andrea C. Campbell ....... 50,000 941,033 201,186/127,966 76,447/0
Peter Espinosa............ 0 0 20,000/205,000 0/0
John D. Giordano.......... 0 0 20,000/200,000 0/0
Eugene J. DiDonato........ 0 0 25,000/139,000 0/0
</TABLE>
- --------------
(1) Represents the difference between the exercise price and the closing sale
price per share of the Common Stock on the date of exercise.
(2) Value based on the closing sale price per share ($0.59) of the Company's
Common Stock on December 31, 1998, as reported on the Nasdaq National
Market, less the exercise price.
9
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Employment Agreements
On March 15, 1996, the Company entered into a Non-Competition Agreement with
Dominic K. Chan (the "Chan Agreement") which terminates on the first anniversary
of the date on which Mr. Chan's employment with the Company terminates. The Chan
Agreement provides for severance payments to Mr. Chan in quarterly installments
over a one-year period following termination, in an aggregate amount not to
exceed the amount paid to Mr. Chan by the Company in combined salary and bonus
for the 12-month period immediately preceding the date of termination. The
Company's obligation to pay such severance is conditional upon Mr. Chan's
continued compliance with the terms of the Chan Agreement. The Chan Agreement
prohibits Mr. Chan, during the term thereof, from engaging in any business
activity that is directly or indirectly competitive in the United States with
any of the products or services being developed or otherwise provided by the
Company at the date of his termination. Mr. Chan's employment terminated on
April 1, 1999.
The Company entered into an employment agreement with Mr. Catalano on December
30, 1996, (the "Catalano Employment Agreement") pursuant to which Mr. Catalano
agreed to serve as President and Chief Operating Officer of the Company.
Although the Employment Agreement has no set term, it is terminable (i) by the
Company or Mr. Catalano without cause upon 45 days' prior notice, (ii) by either
party pursuant to a breach of the Employment Agreement by the other party and
failure to remedy the breach by such party after 30 days' prior notice, or (iii)
immediately by the Company with cause (as defined). The Catalano Employment
Agreement provides that Mr. Catalano is entitled to receive a base salary of
$250,000 in 1998 and is eligible to receive a bonus in an amount to be
determined by the Board of Directors, an appropriate committee or a designee
thereof. Mr. Catalano's base salary will be reviewed annually thereafter.
Pursuant to the Catalano Employment Agreement, the Company granted Mr. Catalano,
and Mr. Catalano subsequently exercised an option to purchase 151,515 shares of
Common Stock. The Company also granted Mr. Catalano an incentive stock option to
purchase an additional 149,292 shares of Common Stock at an exercise price of
$3.30 per share (the ''Catalano ISO''), which was exercised as to 27,999 shares
on the date of grant, and a nonstatutory stock option to purchase an additional
630,788 shares of Common Stock (the ''Catalano NSO''), both at an exercise price
of $3.30 per share. The Catalano ISO and Catalano NSO became exercisable as
to 30,303 and 157,697 shares of common stock, respectively, on December 30,
1997. The Catalano ISO and Catalano NSO will then both vest as to the remaining
shares in 12 equal portions, the first of which became exercisable on the
last day of the first calendar quarter of 1998, and the remaining of which will
become exercisable on the last day of each succeeding calendar quarter. Mr.
Catalano's options will be fully vested as of the fourth anniversary of the
employment agreement. If his employment is terminated by the Company without
cause (as defined), Mr. Catalano will be entitled to receive severance
compensation for 52 weeks thereafter in an amount equal to the base salary which
would otherwise be payable to Mr. Catalano during that period. In addition, upon
any such termination, the ISO and NSO options will become exercisable as to that
number of shares which would have become exercisable if Mr. Catalano's
employment had terminated one year after the actual date of termination.
Throughout the term of the Catalano Employment Agreement, the Chairman of the
Board of the Company agrees to nominate Mr. Catalano as a candidate for election
to the Board of
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Directors of the Company. The Catalano Employment Agreement also contains a non-
solicitation covenant and a non-competition covenant pursuant to which Mr.
Catalano is prohibited, during the term of his employment, from engaging in any
business activity that would compete directly or indirectly with the products or
services of the kind or type developed by the Company. The non-competition
covenant extends for a one-year period after termination, but is limited during
this period to prohibit Mr. Catalano from engaging in business activities
competitive with the Company's products or services related to the Company's
year 2000 business activities. Mr. Catalano's resigned as President and Chief
executive officer on August 17, 1998 and pursuant to an agreement dated August
17, 1998, the Company continues to pay his base salary and his stock options
continue to vest through August 18, 1999.
On May 18, 1998, the Company entered into an employment agreement with
Peter Espinosa (the "Espinosa Employment Agreement"). The term of the Espinosa
Employment Agreement expires on May 31,2001 unless earlier terminated. It is
terminable (i) by Mr. Espinosa without cause upon 45 days' prior notice or by
the Company without cause upon 52 weeks prior notice, (ii) by either party
pursuant to a breach of the Espinosa Employment Agreement by the other party and
failure to remedy the breach by such party upon 30 days' prior notice, (iii)
immediately by the Company with cause (as defined), or (iv) upon the death or
disability of the employee. The Espinosa Employment Agreement provides for an
annual base salary of $225,000 as well as bonus compensation to be determined in
accordance with the Company's policies. If his employment is terminated by the
Company without cause (as defined), Mr. Espinosa will be entitled to receive
base compensation until the expiration of a notice period or the date Mr.
Espinosa commences employment or consulting with a third party during the notice
period. The Espinosa Employment Agreement also contains a non-solicitation
covenant and a non-competition covenant pursuant to which Mr. Espinosa, during
the term of his employment, is prohibited from engaging in any business activity
that would compete directly or indirectly with products or services of the kind
or type developed by the Company. The non-competition covenant extends for a
one-year period after termination (unless terminated without cause), but is
limited during this period to prohibit Mr. Espinosa from engaging in business
activity competitive with the Company's Year 2000 business activities. Mr.
Espinosa issued an unsecured promissory note dated May 29,1998 in the amount of
$150,000 payable to the Company. The note incurs interest at 6% per annum and
is payable in two equal annual installments of $75,000 together with accrued
interest. During 1998, the maximum amount outstanding under the note was
$150,000 plus interest. Pursuant to a separation agreement and release dated
March 30, 1999 between Mr. Espinosa and the Company, Mr. Espinosa's employment
with the Company was terminated and the Company forgave all principal and
interest payments under such note.
On August 13,1998, the Company entered into an employment agreement with John
D. Giordano (the "Giordano Employment Agreement"). The term of the Giordano
Employment Agreement expires on May 31, 2001 unless earlier terminated
thereunder. It is terminable (i) by Mr. Giordano without cause upon 30 days'
prior notice or by the Company without cause upon 52 weeks prior notice, (ii) by
either party pursuant to a breach of the Giordano Employment Agreement by the
other party and failure to remedy the breach by such party upon 30 to 120 days'
prior notice, (iii) immediately by the Company with cause (as defined), or (iv)
upon the death or disability of the employee. The employment agreement provides
for
11
<PAGE>
an annual base salary of $195,000 as well as bonus compensation to be determined
in accordance with the Company's policies, with a minimum bonus of $25,000 for
1998. If his employment is terminated by the Company without cause (as defined),
Mr. Giordano will be entitled to receive base compensation until the expiration
of a notice period or the date Mr. Giordano commences employment or consulting
with a third party during the notice period, provide that if the third party
compensation is less than the base salary , he shall receive the difference for
the 52 week notice period. The Giordano Employment Agreement also contains a
non-solicitation covenant and a non-competition covenant pursuant to which Mr.
Giordano, during the term of his employment, is prohibited from engaging in any
business activity that would compete directly or indirectly with products or
services of the kind or type developed by the Company. The non-competition
covenant extends for a one-year period after termination (unless terminated
without cause), but is limited during this period to prohibit Mr. Giordano from
engaging in business activity competitive with the Company's Year 2000 business
activities. The Giordano Employment Agreement was amended to provide for
retention payments of $60,000, $40,000, $30,000 and $30,000 on December 1, 1998,
January 1, 1999, February 1, 1999 and March 1, 1999, respectively, together with
a payment of $280,000 minus the foregoing payments, if made, in the event of a
change in control of the Company. On April 9, 1999, the Giordano Employment
Agreement was further amended to provide for the payment of a retention bonus of
$120,000 payable upon the earlier of September 30,1999, the termination of his
employment by the Company without cause or the merger, liquidation,
consolidation, sale of substantially all of the assets, bankruptcy,
reorganization or receivership of the Company. The retention bonus is in place
of the change in control payment referenced above.
Part III. Item 12.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 19, 1999(unless
otherwise specified) with respect to the beneficial ownership of shares of
Common Stock by (i) each person or entity known to the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) the
directors and director nominees of the Company, (iii) each Named Executive
Officer and (iv) all current directors and executive officers of the Company as
a group.
12
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Percentage of
Common Stock Common Stock
Beneficial Owner Beneficially Owned(1) Outstanding(2)
- -------------------------------------- --------------------- --------------
<S> <C> <C>
Dominic K. Chan(3) 2,327,113 14.2%
2 Gilboa Lane
Nashua, NH 03060
American Premier Underwriters, Inc.(4) 2,067,434 12.6%
One East Fourth Street
Cincinnati, OH 45202
Greylock Equity Limited Partnership
and Henry F. McCance(5) 1,149,258 7.0%
One Federal Street
Boston, MA 02110
Douglas C. Catalano(6) 522,551 3.1%
W. Michael Humphreys(7) 315,189 1.9%
Andrea C. Campbell(8) 221,186 1.3%
Allen K. Deary(9) 189,264 1.2%
Peter Espinosa(10) 73,504 *
Eugene J. DiDonato(11) 47,500 *
Roland D. Pampel(12) 40,575 *
John D. Giordano(13) 40,000 *
Arthur Carr(14) 36,875 *
Axel Leblois(15) 22,375 *
All current executive officers and
directors, as a group (9 persons)(16) 1,872,958 11.2%
</TABLE>
- --------------
* Less than 1% of outstanding Common Stock.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Share ownership is based upon information as of March 19,
1999 provided by Boston EquiServe, the Company's transfer agent. Under such
rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares
which the individual has the right to acquire within 60 days of March 19,
1999 through the exercise of any stock option, warrant or other right. The
inclusion herein of such shares, however, does not constitute an admission
that the named stockholder is a direct or indirect beneficial owner of such
shares.
(2) Number of shares of Common Stock deemed outstanding indicates 16,349,986
shares issued and outstanding as of March 19, 1999, plus any shares subject
to options held by the referenced beneficial owner(s).
(3) Includes 18,750 shares of Common Stock subject to outstanding options which
are exercisable within 60 days of March 19, 1999; 2,108,363 shares of
Common Stock held jointly with his wife, Marsha C. Chan; and 200,000 shares
of Common Stock held in the name of the Chan Family Irrevocable Trust of
which Dominic K. Chan's present and future offspring are beneficiaries and
as to which shares Dominic K. Chan disclaims beneficial ownership. Julian
Chan is Dominic Chan's son.
(4) American Premier Underwriters, Inc. is an indirect wholly-owned subsidiary
of American Financial Group, Inc. ("AFG"). Carl H. Lindner, Carl H. Lindner
III, S. Craig Lindner and Keith E. Lindner (collectively, the "Lindner
Family") beneficially owned approximately 32% of the outstanding common
stock of AFG at December 31, 1998. Through their ownership of common stock
of AFG and their positions as directors and executive officers of AFG and
APU, the members of the Lindner Family may be deemed to be controlling
persons with respect to AFG and APU.
(5) Includes 5,000 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999. Mr. McCance, a
general partner of Greylock Equity GP Limited Partnership (''Greylock''),
the general partner of Greylock Equity Limited Partnership, is a director
of the Company. Mr. McCance, together with the other general partners of
Greylock, shares voting and investment power with respect to the shares
owned by Greylock. Mr. McCance does not own any shares of the Company in
his individual capacity and disclaims beneficial ownership of the shares
held by Greylock Equity Limited Partnership, except to the extent of his
pecuniary interest therein.
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(6) Includes 313,193 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of March 19, 1999.
(7) Includes 5,000 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999. Mr. Humphreys, a
general partner of Matrix IV Management Co. L.P., the general partner of
Matrix Partners IV,L.P. ("Matrix") and the general partner of Matrix IV
Entrepreneurs Fund, L.P., is a director of the Company. Mr. Humphreys,
together with the other managing members of Matrix, shares voting and
investment power with respect to the shares owned by Matrix. Mr. Humphreys
owns 23,099 shares of the Company in his individual capacity and disclaims
beneficial ownership of shares owned by Matrix, except to the extent of his
pecuniary interest therein. Matrix and Matrix IV Entrepreneurs Fund, L.P.
own 287,045 and 45 shares, respectively.
(8) Consists of 221,186 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of March 19, 1999.
(9) Includes 10,713 shares held by Mr. Deary's wife and two children as to
which Mr. Deary disclaims beneficial ownership.
(10) Includes 71,250 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999.
(11) Consists of 47,500 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of March 19, 1999.
(12) Includes 39,375 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999. Also includes 1,200
shares of Common Stock held by four trusts of which Carol P. Pampel, Mr.
Pampel's wife, is sole trustee, as to which shares Mr. Pampel disclaims
beneficial ownership.
(13) Consists of 40,000 shares of Common Stock subject to outstanding stock
options which are exercisable within 60 days of March 19, 1999.
(14) Includes 14,375 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999. Also includes
10,000 shares of Common Stock held by Virginia L. Carr, Mr. Carr's wife, as
to which shares Mr. Carr disclaims beneficial ownership.
(15) Includes 14,375 shares of Common Stock subject to outstanding stock options
which are exercisable within 60 days of March 19, 1999.
(16) Includes an aggregate of 386,811 shares of Common Stock subject to
outstanding options which are exercisable within 60 days of March 19, 1999.
Part III. Item 13.
Certain Relationships and Related Transactions
Effective December 1, 1997, Twoquay, Inc., a wholly owned subsidiary of the
Company, acquired substantially all of the assets and assumed certain
liabilities of the business of Millennium Dynamics, Inc. ("MDI") from American
Premier Underwriters, Inc. ("APU") in exchange for $30 million in cash and
2,175,000 unregistered shares of Common Stock. Pursuant to a Registration
Rights Agreement between the Company and APU, the Company agreed to file a
Registration Statement on Form S-3 covering up to all of the related common
shares issued to APU by July 6, 1998 and to use its best efforts to cause such
Registration Statement to become effective prior to August 1, 1998. The Company
also granted APU certain incidental rights to register up to 500,000 of the
related common shares prior to
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July 6, 1998 in the event of a secondary offering of the Common Stock of the
Company. Under the terms of the Registration Rights Agreement, APU also agreed
that up to 837,500 of the related common shares issued by the Company would be
subject to certain restrictions on sale through December 31, 1998. A
registration statement relating to all of the foregoing shares was filed by the
Company. Twoquay changed its name to MDI after the closing of the acquisition.
In connection with the acquisition the Company assumed certain license
agreements for certain of technology and certain service agreements (under which
the Company derived revenue of approximately $458,000 during 1998) between MDI
and APU or APU's affiliates related to the MDI business. The license agreements
also include provisions for maintenance for which APU or APU's affiliates pay no
or set maintenance fees. The Company also had an agreement to use APU's or its
affiliates' computer systems for a fee. In addition, the Company leases space
for its vacated Cincinnati, Ohio facility from an affiliate of APU's which the
Company paid approximately $449,000 in rent in 1998.
On January 3, 1995, the Company entered into a General Computer Consulting
Services Agreement, with Met Life pursuant to which the Company provided certain
software conversion services to Metropolitan Life Insurance Company ("Met
Life".) In connection with the General Computer Consulting Services Agreement,
the Company entered into two Authorization Letters with Met Life, dated January
3, 1995 and November 27, 1995, respectively. On October 1, 1996, the Company
entered into a License Agreement with Met Life providing for the grant of non-
exclusive licenses to use certain proprietary software products developed by the
Company, as specified in certain subsequent purchase orders entered into between
the Company and Met Life. Mr. Miller, the Company's former Vice President,
Strategic Programs, was previously employed at Met Life from January 1964 to
August 1996, most recently in the position of Chief Information Officer of
Individual Business. The Company derived revenue of approximately $231,000 from
Met Life in 1998.
On May 1, 1996, the Company entered into a License and Alliance Agreement with
Computer Sciences Corporation ("CSC") providing for a grant of a non-exclusive
license to CSC to use the Company's AutoEnhancer/2000 software and related
services, and for the collaboration of the Company and CSC in connection with
providing year 2000 services to CSC's clients. The Company derived revenue of
$2,928,000 from January 1, 1997 through March 31, 1998, under the License and
Alliance Agreement. The initial term of the License and Alliance Agreement
terminated May 1, 1997. On March 15 and June 25, 1997, the Company executed
Amendments to the License and Alliance Agreement--Agreement for the Purchase of
a Special Inventory Package providing for the grant of a $2,500,000 usage-based
license payable by CSC during 1997. The Company derived approximately $129,273
in revenue from CSC in 1998. Prior to joining the Company as President and Chief
Operating Officer and as a Director, Mr. Catalano was employed by CSC from
November 1982 to December 1996, and most recently served as its President.
Robert Savoia, the Company's former Vice President, Business Development and
Marketing, served as Vice President and Managing Partner of CSC from 1989 to
December 1996 before joining the Company.
Donald M. Beck, the Company's former Vice President and General Manager of
Outsourcing until September 1998, was indebted to the Company for the maximum
amount of $130,000 plus 6% interest in 1998 pursuant to a promissory note dated
January 30, 1998. All
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principal and interest under such note was forgiven on December 1,
1998 in connection with the termination by the Company of Mr. Beck's employment.
For a description of certain employment and other arrangements between the
Company and its executive officers and directors, see "Part III. Item 11.
Executive Compensation."
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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.
Peritus Software Services, Inc.
By:/s/ John D. Giordano
---------------------------
John D. Giordano
President and Chief Executive Officer
April 30 , 1999
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(Date)
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