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                                                                   Exhibit 10.45
                                                                   -------------

                              Employment Agreement


         Agreement made as of the 20th day of Janaury, 1998 (the "Effective
Date"), by and between Peritus Software Services, Inc., a Massachusetts
corporation (the "Company"), and Adarsh K. Arora (the "Employee").

         The Company wishes to employ the Employee, and the Employee wishes to
continue to be employed by the Company. In consideration of the mutual covenants
and promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:

I.    Titles and Reporting Responsibilities
      -------------------------------------

         The Employee's title will be Vice President, Research and Development
or such other title as may be mutually agreed upon between Employee and the
Company. The Employee will report to either the CEO or the Chairman of the
Board. The Employee shall be based in the Company's offices in the greater
Chicago metropolitan area.

II.   Term of Employment
      ------------------

         The Company hereby agrees to employ the Employee and the Employee
hereby accepts employment with the Company for a period (the "Employment
Period") commencing on the Effective Date and ending May 31, 2001 unless earlier
terminated pursuant to the provisions of Section VII below. This Agreement shall
remain in full force and effect until expiration hereof unless and until earlier
terminated in accordance with Section VII of this Agreement.

III.  Responsibilities of the Employee
      --------------------------------

         The Employee agrees to undertake the duties and responsibilities
inherent in the position described in Section I above and such other duties and
responsibilities as the Company or its designee shall from time to time
reasonably assign. The Employee agrees to devote his entire business time,
attention and energies to the business and interests of the Company during the
term of this Agreement. The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.

IV.   Expense Reimbursement
      ---------------------

         The Company will reimburse the Employee for all reasonable documented
travel and other business expenses incurred in furthering the business of the
Company and in accordance with the Company's then current travel and business
expense policy. Expenditures of an extraordinary nature shall require prior
written approval of the Company.

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V.    Prohibitions
      ------------

         During the term of this Agreement, the Employee shall not:

         (a) be employed by or otherwise represent any other company, product,
         service or enterprise, without the prior written approval of the
         Company; or

         (b) make any representation, warranty, guarantee, or statement, orally
         or in writing, which would contravene any Company policy or compromise
         the Company's interests.

VI.   Compensation
      ------------

         (a) The Employee shall be paid a base salary (the "Base Salary") and,
         when appropriate, bonuses (Bonus Compensation") as described in this
         Section VI. The Employee's bi-weekly Base Salary shall be $7,115.38,
         which is the equivalent of $185,000 per year. Provided neither party
         has exercised the right to terminate this Agreement under Section VII,
         performance and compensation reviews will be conducted annually
         beginning January 1, 1998.

         (b) Bonus Compensation may be paid from time to time to the Employee as
         approved by the Board of Directors of the Company, by a Committee of
         the Board of Directors of the Company established for the purpose of
         determining bonus compensation or by a designee of the Board of
         Directors or such Committee who has been granted the authority to
         determine bonuses.

         (c) Except as otherwise provided, the Employee shall be entitled to
         participate in any and all benefit programs that the Company
         establishes and makes generally available to its employees for which he
         may be eligible under plan documents and applicable laws. In any case
         where contributions or benefits related to participation in a plan vary
         on the basis of compensation, "compensation" shall mean Employee's Base
         Salary only and shall not include expense reimbursements, advances,
         Bonus Compensation or any other compensation which may be paid by the
         Company. The Employee shall be entitled to vacation in accordance with
         the Company's then current policy, to be taken at such times as may be
         approved by either the CEO or the Chairman.

         (d) Any future revisions to Base Salary or Bonus Compensation may be
         implemented by the Board of Directors of the Company, by a Committee of
         the Board of Directors of the Company established for the purpose of
         determining bonus compensation or by a designee of the Board of
         Directors or such Committee who has been granted the authority to
         determine bonuses.

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VII.     Termination
         -----------

         The employment of the Employee by the Company pursuant to this
Agreement shall terminate:

         (a) By the Employee, without cause, by giving 45 days' prior written
         notice of termination to the Company or within such shorter period as
         is established by mutual agreement of the parties or upon Employee's
         commencement of employment or consulting with a third party, or by the
         Company, without cause, upon at least 52 weeks prior written notice
         (the "Notice Period") of termination to the Employee.

         (b) By either party, if the other party breaches any of its obligations
         under this Agreement and fails to remedy such breach within 30 days
         after written notice of such breach is provided to such other party;
         failure of the Employee to adequately perform the duties and
         responsibilities specified in Section III hereof shall be considered a
         breach of this Agreement

         (c) By the Company, effective immediately and without notice, for
         cause. For purposes of this Section VII (c), "cause" for termination
         shall be deemed to exist upon (a) good faith finding by the Company of
         the failure of the Employee to perform the assigned duties and
         responsibilities for the Company as specified in Section III above,
         dishonesty, gross negligence or misconduct, in which case the
         provisions of Section 7(b) shall not apply, or (b) the conviction of
         the Employee of, or the entry of a pleading of guilty or nolo
         contendere by the Employee to, any crime involving moral turpitude or
         any felony.

         (d) Upon the death or disability of the Employee. As used in this
         Agreement, the term "disability" shall mean the inability of the
         Employee, due to a physical or mental disability, to perform the
         essential functions of his/her job with or without a reasonable
         accommodation by the Company.

VIII.    Rights Following Termination
         ----------------------------

         (a) Following termination of this Agreement, pursuant to Section
         VII(b), VII(c), VII(d), or at the option of the Employee pursuant to
         Section VII(a), or upon expiration of this Agreement, the Company shall
         have no further responsibility to Employee except to pay Base Salary up
         to and including the last day of employment.

         (b) Following termination of this Agreement at the option of the
         Company pursuant to Section VII(a), the Company shall continue to pay
         to the Employee the Base Salary in accordance with its then current
         payroll policies until the earlier of either expiration of the Notice
         Period or the date Employee commences employment or consulting with a
         third party during the Notice Period. Employee shall perform such
         services for the Company as mutually agreed upon between Company and
         Employee as to scope, timing and location during such Notice Period.
         The Employee shall not be eligible to receive the

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         payments during the Notice Period unless and until the Employee signs a
         release in the form attached hereto as Exhibit A.

         (c) In the event of termination or expiration of this Agreement,
         Employee shall, at the instruction of the Company, promptly return to
         the Company or its designee all files, letters, memoranda, reports,
         records, data, sketches, drawings, laboratory notebooks, program
         listings, or other written, photographic, or other tangible material
         supplied by the Company to the Employee or created or maintained for
         the Company by the Employee.

         (d) Except as set forth above, neither party shall be entitled to any
         compensation or claim for goodwill or other loss, suffered by reason or
         termination of this Agreement.

         (e) The rights and obligations of the parties to this Agreement set
         forth in Section VIII and Section IX shall survive any termination or
         expiration of this Agreement. The termination or expiration of this
         Agreement shall in no case relieve either party from its obligations to
         pay to the other any monies accrued hereunder prior to such termination
         or expiration.

         (f) Employee shall not disclose the terms of this Agreement to any
         third party unless such third party is obligated to keep such
         information confidential.



IX.      Non-Competition
         ---------------

         (a)  During the Employment Period and (i) for a period of one year
              after the termination of this Agreement pursuant to Sections
              VII(b), VII(c), VII(d) or at the option of the Employee pursuant
              to Section VII(a) or expiration thereof or (ii) in the event of
              termination of this Agreement by the Company without cause under
              Section VII (a) for the Notice Period, the Employee will not
              directly or indirectly:

              (i) as an individual, proprietor, partner, stockholder, officer,
         employee, director, joint venturer, investor, lender, or in any other
         capacity whatsoever (other than as the holder of not more than one
         percent (1%) of the total outstanding stock of a publicly held
         company), engage in the business of developing, producing, marketing or
         selling products or services of the kind or type developed or being
         developed, produced, marketed or sold by the Company or any subsidiary
         of the Company while the Employee was employed by the Company provided
         that the foregoing restriction shall not apply after the end of the
         Employment Period to activities that are not related to the Company's
         year 2000 business activities.; or

              (ii) recruit, solicit or induce, or attempt to induce, any
         employee or employees of the Company to terminate their employment
         with, or otherwise cease their relationship with, the Company; or

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              (iii) solicit, divert or take away, or attempt to divert or take
         away, the business or patronage of any of the clients, customers or
         accounts, or prospective clients, customers or accounts, of the Company
         which were contacted, solicited, served or known by the Employee while
         employed by the Company.

         (b) If any restriction set forth in this Section IX is found by any
         court of competent jurisdiction to be unenforceable because it extends
         for too long a period of time or over too great a range of activities
         or in too broad a geographic area, it shall be interpreted to extend
         only over the maximum period of time, range of activities or geographic
         area as to which it may be enforceable.

         (c) The restrictions contained in this Section IX are necessary for the
         protection of the business and goodwill of the Company and are
         considered by the Employee to be reasonable for such purpose. The
         Employee agrees that any breach of this Section IX will cause the
         Company substantial and irrevocable damage and therefore, in the event
         of any such breach, in addition to such other remedies which may be
         available, the Company shall have the right to seek specific
         performance and injunctive relief.

X.       Other Agreements
         ----------------

         Employee represents that his performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
employment agreement with any previous employer or any agreement with any
previous employer or other party to keep in confidence proprietary information,
knowledge or data acquired by him in accordance or in trust prior to his
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party.
Employee has executed the Company's standard confidentiality and nondisclosure
agreement.

XI.      Notices
         -------

         All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or, if mailed, when mailed by certified or registered mail,
postage prepaid, or by recorded delivery service to the parties at the addresses
set forth below their signatures to this Agreement or at such other address as
may be given in writing by either party to the other party in accordance with
this Section XI.

XII.     Assignability
         -------------

         Employee acknowledges that the Company is entering into this Agreement
in reliance upon the personal reputation, qualifications and abilities of the
Employee and accordingly, the Employee may not assign his rights or obligations
under this Agreement, either voluntary or by operation of law.

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XIII.    Miscellaneous
         -------------

         (a) This Agreement shall not be binding upon the Company until it has
         been executed by a duly authorized officer of the Company.

         (b) This Agreement shall be governed by, and construed in accordance
         with, the substantive laws of The Commonwealth of Massachusetts.

         (c) This Agreement constitutes the entire understanding between the
         parties relating to the subject matter of this Agreement and supersedes
         all prior writings, negotiations or understanding with respect thereto
         except the confidentiality and nondisclosure agreement referenced in
         Section X above. No modification or addition to the Agreement shall
         have any effect unless it is set forth in writing and signed by both
         parties.

         (d) The waiver by the Company of any breach of any provision of this
         Agreement shall not be construed as a continuing waiver of such breach
         or as a waiver of other breaches of the same or of other provisions of
         this Agreement.

         (e) Should any provision of this Agreement be declared or be determined
         by any court of competent jurisdiction to be illegal or invalid, the
         validity of the remaining parts, terms, or provisions shall not be
         affected thereby and said illegal and invalid part, term or provision
         shall be deemed not to be a part of this Agreement.

         (f) The exercisability of Employee's options granted under the
         Company's 1992 Long Term Incentive Plan or 1997 Stock Incentive Plan in
         the event of a "change in control" or "acquisition event" as such terms
         are defined in such respective plans shall be governed by the terms of
         plans under which such options were granted and any related option
         agreements.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

                                              Peritus Software Services, Inc.



/s/ Adarsh Arora                           By: /s/ Douglas Catalano
-------------------------------                -------------------------------
Employee Signature

Address:1100 Woodfield #437                Address:  304 Concord Road
        -----------------------                      Billerica, MA  01821-3485
Schaumburg, IL 60173                                 Attn:  President
-------------------------------

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

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                                    EXHIBIT A
                                    ---------
                                     RELEASE

1. Release. In consideration of the payments provided to me under a certain
   -------
employment contract between Peritus Software Services, Inc., a Massachusetts
Corporation (the "Company") and me, I hereby fully, forever, irrevocably and
unconditionally release, remise and discharge the Company, and any subsidiary or
affiliated organization of the Company or their respective current or former
officers, directors, stockholders, corporate affiliates, attorneys, agents and
employees (the "Released Parties") from any and all claims, charges, complaints,
demands, actions, causes of action, suits, rights, debts, amounts of money,
promises, doings, omissions, damages, executions, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind and nature, known
or unknown, which I ever had or now have against the Released Parties,
including, but not limited to, all claims arising out of my employment, all
claims arising out of your separation of my employment, all claims arising from
any failure to reemploy me, all claims of race, sex, national origin, handicap,
religious, sexual orientation, benefit and age discrimination, all employment
discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
(S)2000 et seq., the Age Discrimination in Employment Act, 29 U.S.C. (S)621 et
seq., the Americans with Disabilities Act of 1990, 29 U.S.C. (S)12101 et seq.,
The Employee Retirement Income Security Act of 1974, 29 U.S.C. (S)1001 et seq.,
and similar state or local statutes, wrongful discharge claims, common law tort,
defamation, breach of contract and other common law claims, and any claims under
any other federal, state or local statutes or ordinances not expressly
referenced above.

2. Entire Understanding and Applicable Law. This Release contains and
   ---------------------------------------
constitutes my entire understanding with respect to the settlement of claims
against the Company and the Released Parties and cancels all previous oral and
written negotiations, agreements, commitments, and writings in connection
therewith. This Release shall be governed by the substantive laws of The
Commonwealth of Massachusetts to the extent not preempted by federal law.

3. Acknowledgements. I acknowledge that I have been given at least twenty-one
   ----------------
(21) days to consider this Release and that the Company advised me to consult
with any attorney of my own choosing prior to signing this Release. I
acknowledge that I may revoke this Release for a period of seven (7) days after
signing it, and the Release shall not be effective or enforceable until the
expiration of this seven (7) day revocation period.



Date:  __________________        Employee's Signature: ________________________

                                 Employee's Name:    Adarsh K. Arora

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