def14a

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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CALLIDUS SOFTWARE INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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CALLIDUS SOFTWARE INC.

160 West Santa Clara Street, Suite 1500

San Jose, CA 95113

To our stockholders:

You are cordially invited to attend the 2007 annual meeting of stockholders of Callidus Software Inc. to be held on Tuesday, June 5, 2007, at 10:00 a.m. Pacific Time at our headquarters located at 160 West Santa Clara Street, Suite 1500, San Jose, California 95113. Details regarding the business to be conducted at the annual meeting are described in the following notice of annual meeting and proxy statement. Also enclosed in this mailing are three other documents: our annual report, which contains information about our business and includes our fiscal 2006 audited financial statements; a proxy card for you to record your vote; and a return envelope for your proxy card.

Your vote is important. Whether or not you plan to attend the annual meeting, please complete and return the enclosed proxy card as soon as possible. Voting by written proxy will ensure your representation at the annual meeting. Please review the instructions on the proxy card regarding voting by written proxy, as well as the question and answer section in the first part of the proxy statement.

Sincerely,

V. Holly Albert,

Secretary

San Jose, California

April 27, 2007

YOUR VOTE IS IMPORTANT

IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE.

CALLIDUS SOFTWARE INC.

160 West Santa Clara Street, Suite 1500

San Jose, CA 95113

(408) 808-6400

NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS


TIME AND DATE:		10:00 a.m., Pacific Time, on June 5, 2007

PLACE:		Callidus Software Inc. 160 West Santa Clara Street, Suite 1500 San Jose, CA 95113

ITEMS OF BUSINESS:		(1) To elect our Class I directors;

		(2) To ratify the appointment of KPMG LLP as our independent auditors for the fiscal year ending December 31, 2007; and

		(3) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

WHO CAN VOTE:		You are entitled to vote if you were a stockholder of record at the close of business on the record date, April 11, 2007.

VOTING BY PROXY:		Please submit a proxy as soon as possible so that your shares can be voted at the annual meeting in accordance with your instructions. For specific instructions on voting, please refer to the instructions on the enclosed proxy card.

2006 ANNUAL REPORT:		A copy of our annual report is enclosed.

DATE OF MAILING:		This notice, the attached proxy statement, the accompanying proxy card and our annual report are first being mailed to stockholders on or about April 27, 2007.

By Order of the Board of Directors

V. Holly Albert,

Secretary

San Jose, California

April 27, 2007

PROXY STATEMENT
2007 ANNUAL MEETING OF STOCKHOLDERS
CALLIDUS SOFTWARE INC.
(Solicited on behalf of the Board of Directors)

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING,
THE PROXY MATERIALS AND VOTING YOUR SHARES

WHAT IS A PROXY?

A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. Ronald J. Fior and V. Holly Albert have been designated as proxies for our 2007 annual meeting of stockholders.

WHO CAN VOTE AT THE MEETING?

The record date for our 2007 annual meeting of stockholders is April 11, 2007. The record date was established by our Board of Directors. Stockholders of record at the close of business on the record date are entitled to:


	•	receive notice of the meeting; and

	•	vote at the meeting and any adjournments or postponements of the meeting.

On the record date, 28,855,750 shares of our common stock were outstanding. Each stockholder is entitled to one vote for each share of common stock held on the record date.

WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A “STOCKHOLDER OF RECORD” AND HOLDING SHARES AS “BENEFICIAL OWNER” (OR IN “STREET NAME”)?

Most stockholders are considered “beneficial owners” of their shares, that is, they hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially or in “street name.”

Stockholder of Record: If your shares are registered directly in your name with our transfer agent, you are considered the “stockholder of record” with respect to those shares and we are sending the proxy materials directly to you. As our stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the annual meeting. We have enclosed a proxy card for your vote.

Beneficial Owner: If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank, or nominee (who is considered the stockholder of record with respect to those shares). As the beneficial owner, you have the right to direct your broker, bank, or nominee as to how to vote your shares if you follow the instructions you receive from your broker, bank, or nominee. You are also invited to attend the annual meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the annual meeting unless you request, complete, and deliver the proper documentation provided by your broker, bank or nominee and bring it with you to the meeting.

WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK?

By Written Proxy: Stockholders of record can vote their shares by marking, signing and timely returning the enclosed proxy card. Street name or beneficial holders must follow the directions provided by their broker, bank, or other nominee in order to direct such broker, bank or nominee as to how to vote their shares.

By Telephone and Internet Proxy: Street name or beneficial holders may vote by telephone or the Internet if their banks, brokers or nominees make those methods available, by following the instructions provided to them with the proxy materials.

In Person: All stockholders may vote in person at the meeting. Street name or beneficial holders must obtain a legal proxy from their broker, bank or nominee prior to the annual meeting in order to vote in person.

HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?

A majority of our outstanding shares as of the record date must be present at the annual meeting in order to hold the annual meeting and conduct business. This is called a quorum. Shares are counted as present at the annual meeting if the holder of the shares:


	•	is present and votes in person at the annual meeting; or

	•	has timely and properly submitted a proxy card.

HOW ARE ABSTENTIONS COUNTED?

Stockholders may choose to abstain or refrain from voting their shares on one or more issues presented for a vote at the annual meeting. However, for purposes of determining the presence of a quorum, abstentions are counted as present.

WHAT ARE THE CHOICES WHEN VOTING FOR DIRECTOR NOMINEES, AND WHAT VOTE IS NEEDED TO ELECT DIRECTORS?

In the vote on the election of our director nominees, stockholders may:


	•	vote in favor of all nominees;

	•	withhold votes as to all nominees; or

	•	withhold votes as to specific nominees

Assuming a quorum is present, directors will be elected by a plurality of the votes cast.

Majority Vote Policy: Our corporate governance guidelines, which are summarized later in this proxy statement, set forth the procedures if a director-nominee is elected, but receives a majority of “withheld” votes. In an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to promptly tender his or her resignation to the board of directors following certification of the shareholder vote.

The Nominating and Corporate Governance Committee is required to make recommendations to the Board with respect to any such letter of resignation. The Board is required to take action with respect to this recommendation and to disclose their decision-making process. Full details of this Policy are set out in our corporate governance guidelines which are available on our website located at http://www.callidussoftware.com/callidus/investor-relations/governance/index.jsp and under “Vote Required in Proposal One — Election of Directors.”

THE BOARD RECOMMENDS A VOTE FOR ALL OF THE DIRECTOR NOMINEES.

WHAT ARE THE CHOICES WHEN VOTING ON THE RATIFICATION OF THE SELECTION OF AUDITORS, AND WHAT VOTE IS NEEDED TO RATIFY THEIR SELECTION?

In the vote on the ratification of the selection of KPMG LLP as our independent auditors, stockholders may:


	•	vote in favor of ratification;

	•	vote against ratification; or

	•	abstain from voting on ratification.

Assuming a quorum is present, the selection of KPMG LLP as our independent auditors will be ratified if the affirmative vote of a majority of the shares represented and entitled to vote on the matter at the meeting is obtained. In the event that the stockholders do not ratify the selection of KPMG LLP, the appointment of the independent auditors will be reconsidered by the Audit Committee of the Board of Directors.

THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF KPMG LLP AS
OUR INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2007.

WHAT IF A STOCKHOLDER DOES NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY?

Stockholders should specify their choice for each matter on the enclosed proxy card. If no specific instructions are given, proxies that are signed and returned will be voted FOR the election of all director nominees and FOR the proposal to ratify the selection of KPMG LLP as our independent auditors.

WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

It means that your shares are registered differently or you have multiple accounts. Please vote all of these shares by completing and returning each proxy card you receive.

WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY?

Your shares may be voted if they are held in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under NASDAQ rules to vote shares for which their customers do not provide voting instructions on certain “routine” matters.

We believe that the uncontested election of directors and the ratification of the selection of KPMG LLP as our independent auditors are considered routine matters for which brokerage firms may vote shares that are held in the name of brokerage firms and which are not voted by the applicable stockholder.

HOW DO I CHANGE OR REVOKE MY PROXY?

You may change or revoke your proxy at any time before it is voted. Proxies for shares held of record may be changed or revoked by timely (i) filing with our Secretary a written notice of revocation bearing a later date than the proxy, (ii) duly executing a later dated proxy relating to the same shares and delivering it to our Secretary, or (iii) attending the annual meeting and voting in person (although attendance at the annual meeting will not in and of itself constitute a revocation of a proxy). Any notice of revocation or subsequent proxy must be delivered prior to commencement of the vote at the meeting. Any written notice of revocation or subsequent proxy for shares held of record should be delivered to: Callidus Software Inc., 160 West Santa Clara Street, Suite 1500, San Jose, California 95113, Attention: Secretary.

HOW DO I PROPOSE ACTIONS FOR CONSIDERATION OR NOMINATE INDIVIDUALS TO SERVE AS DIRECTORS AT NEXT YEAR’S ANNUAL MEETING OF STOCKHOLDERS?

Stockholders may submit proposals for consideration at a future annual meeting of stockholders, including director nominations. The manner in which you may present a proposal or nominate a candidate for the Board of Directors is described in our bylaws. You may contact our Secretary at our corporate headquarters for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. Our bylaws are also available on our website located at http://www.callidussoftware.com/callidus/investor-relations/governance/index.jsp. When submitting a candidate for nomination to the Board of Directors to the Secretary, you should submit all information relating to such potential nominee required under Regulation 14A of the Securities Exchange Act of 1934, as amended (“Exchange Act”), including biographical and other information about the candidate, a statement of the candidate’s qualifications and any other data supporting the nomination.

Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present proper proposals for inclusion in our proxy statement and for consideration at our next annual meeting of stockholders by submitting their proposals to our Secretary in a timely manner. In order to be included in our proxy materials for our 2008 annual meeting of stockholders, your proposals must be received by us no later than December 31, 2007 and have complied with the requirements of Rule 14a-8 of the Exchange Act.

Stockholders intending to present a proposal at our 2008 annual meeting, but not intending to have such proposal included in our 2008 proxy materials, must comply with the requirements set forth in our bylaws. The bylaws require, among other things, that you must submit a written notice of intent to present such a proposal to our Secretary at our principal executive offices not later than the close of business on the ninetieth calendar day, nor earlier than the close of business on the one hundred and twentieth calendar day, prior to the first anniversary of the preceding year’s annual meeting. Therefore, we must receive notice of such proposals for the 2008 annual meeting on or after February 6, 2008 and on or before March 7, 2008. Notices received outside of this period, along with any proposals contained therein, will be considered untimely and the proposals or nominees set forth therein will not be brought before the annual meeting.

WHO BEARS THE COST OF THIS SOLICITATION?

We will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition, we may reimburse banks, brokerage firms, and other custodians, nominees, and fiduciaries representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Proxies may be solicited by certain of our directors, officers and employees, personally or by mail, telephone, facsimile, email or other means of communication (electronic or otherwise). No additional compensation will be paid for such services.

WHAT IF ONLY ONE COPY OF THESE PROXY MATERIALS WAS DELIVERED TO MULTIPLE STOCKHOLDERS WHO SHARE A SINGLE ADDRESS?

In some cases, only one copy of this proxy statement is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and the accompanying 2006 annual report to a stockholder at a shared address to which a single copy of the document was delivered. To request a separate delivery of these materials now or in the future, you may submit a written request to our Secretary at Callidus Software Inc., 160 West Santa Clara Street, Suite 1500, San Jose, CA 95113 or a verbal request by telephone to Investor Relations at (408) 808-6577. Additionally, any stockholders who are presently sharing an address and receiving multiple copies of either the proxy statement or the 2006 annual report and who would rather receive a single copy of such materials may instruct us accordingly by directing their request to us in the manner provided above.

PROPOSALS FOR ACTION AT THE ANNUAL MEETING

Proposal One:

Election of Directors

Our bylaws provide that the Board of Directors may consist of five to nine directors, the exact number of which is determined by the Board of Directors from time-to-time. The Board of Directors is currently comprised of seven directors. Our certificate of incorporation provides that the Board of Directors shall be divided into three classes, each consisting of as nearly one third of the total number of directors as possible. Each class of directors serves a three-year term expiring at the annual meeting of stockholders in the year listed in the table below:


Class I (2007)	Class II (2008)	Class III (2009)

George B. James	William B. Binch	Charles M. Boesenberg
David B. Pratt	Michele Vion	Michael A. Braun
Robert H. Youngjohns

Based on the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated George B. James, David B. Pratt and Robert H. Youngjohns for election as Class I directors, each to serve three-year terms to expire at the annual meeting of stockholders in 2010 or until their successors are duly elected and qualified. Messrs. James, Pratt and Youngjohns are currently serving as Class I directors and have consented to serve for a new term.

Directors in Class II and Class III are not being re-elected this year and will continue in office for the remainder of their terms, as described above, unless such directors resign or their service as directors otherwise ceases in accordance with our certificate of incorporation or bylaws.

Vote Required

The three Class I directors being voted on this year are elected by a plurality of the votes actually cast. This means that the director nominee with the most affirmative votes for a particular seat is elected for that seat. Abstentions have no effect on the outcome of the vote.

In an uncontested election (i.e., an election where the only nominees are those recommended by the Board), any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” such election (a “Majority Withheld Vote”) is obligated to promptly tender his or her resignation to the Board following certification of the shareholder vote. This election is an uncontested election.

In the event of a tendered resignation following a Majority Withheld Vote, the Nominating and Corporate Governance Committee shall thereafter promptly consider the resignation offer and recommend to the Board action with respect to the tendered resignation, which may include accepting the resignation, maintaining the director but addressing the underlying cause of the withheld votes, resolving not to re-nominate the director in the future, rejecting the resignation, or any other action such committee deems to be appropriate and in the best interest of the Company. In considering what action to recommend with respect to the tendered resignation, the Nominating and Corporate Governance Committee will take into account all factors deemed relevant by the members of the Nominating and Corporate Governance Committee including, without limitation, any stated reasons why shareholders “withheld” votes for election from such Director, the length of service and qualifications of the director whose resignation has been tendered, the overall composition of the Board, the director’s contributions to the Company, and the Company’s Corporate Governance Guidelines.

The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following certification of the shareholder vote. In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors and possible actions considered by the Nominating and Corporate Governance Committee and such additional information, factors and possible actions the Board believes to be relevant or appropriate.

Following the Board’s decision on the Nominating and Corporate Governance Committee’s recommendation, the Company will promptly disclose the Board’s action with respect to the tendered resignation (providing a description of the process by which the decision was reached and, if applicable, the reasons for not accepting the tendered resignation) in a Form 8-K filed with the Securities and Exchange Commission.

Except as indicated below, any director who tenders his or her resignation pursuant to this provision shall not participate in the Nominating and Corporate Governance Committee recommendation or Board consideration regarding the action to be taken with respect to the tendered resignation. If a majority of the members of the Nominating and Corporate Governance Committee received a Majority Withheld Vote at the same election, then the independent directors who are on the Board who did not receive a Majority Withheld Vote will appoint a Board committee amongst themselves solely for the purpose of considering the tendered resignation and will recommend to the Board action to be taken with respect to the tendered resignation. This Board committee may, but need not, consist of all of the independent directors who did not receive a Majority Withheld Vote. If all of the independent directors receive Majority Withheld Votes, all directors will participate in the consideration of the action to be taken with respect to the tendered resignations. To the extent that one or more directors’ resignations are accepted by the Board, the Nominating and Corporate Governance Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.

It is the intention of the persons named as proxies herein to vote in favor of the candidates nominated by the Board of Directors unless such authority is withheld. If any nominee should not be available for election, the proxies will be voted in the best judgment of the persons authorized as proxies.

THE BOARD RECOMMENDS A VOTE FOR ALL OF THE DIRECTOR NOMINEES.

Information Concerning Director Nominees

George B. James, age 69, has served as a director of Callidus since May 1999. Mr. James also currently serves as director of The Sharper Image, a consumer products company, and Pacific States Industries, a private lumber distribution company. From 1985 to 1998, Mr. James served as Senior Vice President and Chief Financial Officer of Levi Strauss & Company, an apparel manufacturer. Prior to joining Levi Strauss & Company, Mr. James was Executive Vice President and Chief Financial Officer, and later Group President, with Crown Zellerbach Corporation, a paper mill company, from 1982 to 1985. His previous experience also includes ten years with Arcata Corporation, a forest product and printing company, as Senior Vice President and Chief Financial Officer, and three years with PepsiCo Leasing Corporation, an equipment leasing company, as Vice President of Finance. Mr. James holds a B.A. in Economics from Harvard College and an M.B.A. from the Stanford Graduate School of Business.

David B. Pratt, age 67, has served as a director of Callidus since June 2004 and served as our Interim President and Chief Executive Officer from June 2004 to May 2005. Prior to joining Callidus, Mr. Pratt served as Interim President and Chief Executive Officer of AvantGo, Inc., a mobile internet service company, from October 2002 to February 2003. From April 2002 until October 2002, he volunteered as Interim President and Chief Executive Officer of the YMCA of the Mid-Peninsula, where he remains a member of the board of directors. From January 2000 to March 2001, Mr. Pratt served as President and Chief Executive Officer of gForce Systems, an enterprise software company focusing on e-learning. Prior to joining gForce, Mr. Pratt was Executive Vice President and Chief Operating Officer of Adobe Systems, Inc., a software company, from May 1988 to January 1998. From October 1987 to April 1988, Mr. Pratt was Executive Vice President and Chief Operating Officer of Logitech, Inc., a manufacturer of computer input devices. Prior to Logitech, Mr. Pratt served as Senior Vice President and Chief Operating Officer of Quantum Corporation from February 1986 to March 1987. Mr. Pratt currently serves on the boards of directors of The SETI Institute and YMCA of the USA, and has in the past also served on the boards of directors of several other corporations. Mr. Pratt holds an M.B.A. from the University of Chicago and a Bachelor of Science degree in Electrical Engineering from the Massachusetts Institute of Technology.

Robert H. Youngjohns, age 55, has served as a director of Callidus and as our President and Chief Executive Officer since May 2005. From 1995 to May 2005, Mr. Youngjohns was employed by Sun Microsystems, Inc., a computer networking company, in a variety of roles including Executive Vice President of Strategic Development and Sun Financing from 2004 to May 2005, Executive Vice President of Global Sales Operations from 2002 to 2004, and Vice President of Europe, the Middle East and Africa from 1998 to 2002. Prior to joining Sun, Mr. Youngjohns spent 18 years at IBM Corporation, an information technology company, during which time he rose to the position of Director of IBM Corporation’s EMEA RS/6000 business. Mr. Youngjohns holds an M.A. in physics and philosophy from Oxford University.

Information Concerning Directors Continuing in Office

William B. Binch, age 67, has served as a director of Callidus since April 2005. Mr. Binch also currently serves as the lead director of SPSS Inc., a predictive analytics technology company; and on the boards of MedeFinance Inc., an application service provider of financial and analytical resources to the healthcare industry; and Saama Technologies, Inc., a consulting and system integration firm specializing in business intelligence and analytics. From 2003 to 2004, Mr. Binch served as the Chief Executive Officer and President of SeeCommerce, a business performance management software company. Prior to joining SeeCommerce in 1999, Mr. Binch served as Senior Vice President of Worldwide Operations for Hyperion Solutions Corporation, an enterprise software and services company, and as a senior executive at Business Objects S.A. and Prism, Inc., both of which are business intelligence and data warehousing companies. Mr. Binch also previously served for five years at Oracle Corporation, ultimately as Vice President of Strategic Accounts. Mr. Binch holds a B.S., IE degree from the University of Maryland.

Charles M. Boesenberg, age 58, has served as a director of Callidus since February 2006. Mr. Boesenberg also currently serves on the boards of Interwoven, Inc., an enterprise content management provider, Rackable Systems, Inc., a developer of scalable rack mount servers, and Keynote Systems, Inc., a provider of on-demand test and measurement products for mobile communications and Internet performance. Prior to its acquisition by Attachmate

Corporation in June 2006, Mr. Boesenberg served as chairman and CEO of NetIQ Corporation, a leading provider of integrated systems and security management software solutions, from August 2002 and served as President and CEO of NetIQ from January 2002 to July 2002. Mr. Boesenberg also served as lead independent director of Maxtor Corporation, a provider of hard disk drive storage products and solutions, from January 2002 until its merger with Seagate Corporation in 2006, and as a director of Onyx Software Corporation, a provider of enterprise customer processing software solutions. Mr. Boesenberg also previously served as a member of the Boards of Directors of Symantec Corporation, a provider of Internet security technology, from June 1994 until September 2002, Macromedia, Inc., a developer of software that helps create and deliver effective user experiences on the Internet, fixed media, and wireless and digital devices, from December 2004 to December 2005, Epicor Software, a provider of integrated enterprise software solutions for mid-market companies, from December 2000 until May 2003. Prior to joining NetIQ, Mr. Boesenberg was President of Post PC Ventures, a management and investment group from March 2000 to December 2001. From December 1998 to February 2000, Mr. Boesenberg served as director, President and Chief Executive Officer of Integrated Systems, Inc., a provider of embedded systems software. Before joining Integrated Systems, Mr. Boesenberg was President and Chief Executive Officer of Magellan Corporation, which was the surviving corporation of a merger with Ashtech, Inc., a position that he assumed in January 1995 with Ashtech. Magellan specializes in satellite navigation and communication products. Mr. Boesenberg has held senior executive positions with a number of technology companies including International Business Machines Corporation and Apple Computer, Inc. Mr. Boesenberg holds a Bachelor of Science degree in Mechanical Engineering from the Rose Hulman Institute of Technology and a Master of Science Degree in Business Administration from Boston University.

Michael A. Braun, age 57, has served as a director of Callidus since February 2000 and as our Chairperson of the Board since June 2004. Mr. Braun has served as the Chief Executive Officer of Intacct Corporation, an on-demand financial applications provider, since January 2007, and as Chief Executive Officer and Managing Member of the Interim CEO Network, an executive recruiting company, since November 2000. Mr. Braun has also served on the boards of directors of Captara, Inc., an on demand solution for enterprise lease management, since June 2006, and Boardwalktech, an enterprise spreadsheet software company, since July 2005. Mr. Braun retired from IBM Corporation, an information technology company, in July 2000. From October 1999 to July 2000, Mr. Braun served as General Manager of the Global Small Business Unit at IBM, prior to which time he served as the General Manager of the Consumer Division from August 1998 to October 1999. Mr. Braun was President, Chief Executive Officer and a Director of Blaze Software, a rules-based application software company, from June 1996 to July 1998, and Chairperson of the Board of Directors of Blaze Software from July 1998 until December 1999. From 1993 to 1996, he was President and Chief Executive Officer of Kaleida Labs, a multimedia software joint venture between IBM and Apple Computer. Prior to this, Mr. Braun held numerous executive positions at IBM. Mr. Braun received a B.A. in Psychology from the University of Rochester and an M.B.A. from the Simon School at the University of Rochester.

Michele Vion, age 47, has served as a director of Callidus since September 2005. Ms. Vion has been employed as Senior Vice President, Human Resources with Level 3 Communications, a communications systems company, since September 2006. Prior to her employment with Level 3, she was employed at Sun Microsystems, Inc., a computer networking company, in a variety of positions including Vice President of Human Resources from 2003 to 2005, Director of Human Resources from 2001 to 2003, and Director of Compensation from 1999 to 2001. Prior to her employment at Sun, Ms. Vion held senior human resource and compensation positions at Storage Technology Corporation, a data management and storage company, Electronic Data Systems Corporation, a global technology services company, and JP Morgan, a global financial services firm. Ms. Vion holds a Bachelor of Arts in East Asian Studies and Economics from Wesleyan University.

Proposal Two:

Ratification of Appointment of Independent Auditors

Our Audit Committee has appointed KPMG LLP, independent public accountants, to audit our financial statements for the fiscal year ending December 31, 2007. We are submitting this selection to our stockholders for ratification. Although we are not required to seek stockholder approval for this appointment, we believe it is sound corporate practice to do so. Representatives from KPMG LLP will be in attendance at the annual meeting to respond

to any appropriate questions and will have the opportunity to make a statement if they so desire. If the stockholders do not ratify the appointment of KPMG LLP, the Audit Committee of the Board of Directors will reconsider the appointment.

Vote Required

If a quorum is present, the affirmative vote of a majority of the shares present and entitled to vote at the annual meeting will be required to approve the ratification of the appointment of KPMG LLP as our independent auditors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL

Auditor Information

The fees billed or expected to be billed to us by KPMG LLP with respect to our 2006 fiscal year are as follows:

Audit Fees: The aggregate fees billed for services rendered by KPMG for the audit of our financial statements for the 2006 fiscal year and the reviews of periodic interim financial statements for the 2006 fiscal year were approximately $1,241,000, compared to approximately $537,000 for the 2005 fiscal year.

Audit-Related Fees: KPMG has not billed any fees for assurance and related services that were reasonably related to the performance of the audit or the review of our financial statements for either the 2006 or 2005 fiscal years.

Tax Fees: The aggregate fees billed for services rendered by KPMG for tax compliance, tax advice and tax planning were approximately $95,000 for fiscal year 2006, compared to approximately $83,000 for fiscal year 2005. The Audit Committee considered whether the provision of the foregoing services by KPMG was compatible with maintaining KPMG’s independence and determined that they were.

All fees billed in each of the last two fiscal years for products and services provided by KPMG are described above and all audit-related services and tax services were pre-approved by the Audit Committee.

INFORMATION ABOUT THE BOARD OF DIRECTORS

AND CORPORATE GOVERNANCE

Our Board of Directors, which is elected by our stockholders, is responsible for directing and overseeing our business and affairs. In carrying out its responsibilities, the Board of Directors selects and monitors our top management, provides oversight of our financial reporting processes and determines and implements our corporate governance policies.

Our Board of Directors and management have been and remain committed to good corporate governance to ensure that we are managed for the long-term benefit of our stockholders. To that end, during the past year, our Board of Directors and management have periodically reviewed our corporate governance policies and practices to ensure that they remain consistent with the requirements of the Sarbanes-Oxley Act of 2002, the rules of the Securities and Exchange Commission and the listing standards of the NASDAQ Global Market. In doing so, our Board also reviewed current best practices of similarly situated public companies.

We have in place a variety of policies and practices to promote good corporate governance. Consistent with our corporate governance guidelines and the rules of the NASDAQ Global Market, our Board of Directors has determined that a majority of the members of our Board of Directors is “independent” and that all members of the Audit and Qualified Legal Compliance, Compensation, and Nominating and Corporate Governance Committees also satisfy such independence criteria. Prior to March 13, 2007, compensation of our Chief Executive Officer was approved solely by our Compensation Committee. As of March 13, 2007, the compensation of our Chief Executive Officer is now approved by the independent members of the Board based upon the recommendation of the Compensation Committee and such other information as the Board of Directors chooses to consider. At the direction of our Board of Directors, we also have:


	•	periodically reviewed and made any necessary updates to the charters for our Audit, Compensation and Nominating and Corporate Governance Committees;


	•	established disclosure control policies and procedures in accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC;

	•	established a procedure for receipt and treatment of anonymous and confidential complaints or concerns regarding audit or accounting matters; and

	•	established a code of business conduct and ethics applicable to our officers, directors and employees.

In addition, we have adopted a set of corporate governance guidelines, as referred to above. The Nominating and Corporate Governance Committee of our Board of Directors is responsible for reviewing our corporate governance guidelines from time to time and reporting and making recommendations to the Board concerning corporate governance matters. Among the matters addressed by the corporate governance guidelines are:


	•	Director Independence — Independent directors shall constitute at least a majority of our Board of Directors.

	•	Monitoring Board Effectiveness — The corporate governance guidelines require that the Board of Directors conduct an annual self-evaluation of the functioning of the Board of Directors and its committees.

	•	Chairperson of the Board — The Chairperson of the Board, who is selected from among our independent directors, presides over all meetings of the Board of Directors and serves as a liaison between our Chief Executive Officer and our independent directors.

	•	Executive Sessions of Independent Directors — The non-employee directors regularly meet without management present, and such sessions are led by Mr. Braun, Chairperson of the Board, and the independent chairpersons of the applicable committees of the Board.

	•	Board Access to Independent Advisors — Our Board of Directors as a whole, and each of its committees separately, have authority to retain independent consultants, counselors or advisors as each deems necessary or appropriate.

	•	Board Committees — All members of the Audit, Compensation, and Nominating and Corporate Governance Committees are required to be independent in accordance with applicable NASDAQ criteria.

Copies of our corporate governance guidelines, code of business conduct and ethics and committee charters can be found on our website at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html.

Meetings of the Board of Directors

Our Board of Directors held nine regular meetings and authorized one action by unanimous written consent in 2006. Each director attended at least 75% of all meetings of the Board of Directors held during the period in which he or she was a director in 2006. Under our corporate governance guidelines, directors are expected to be active and engaged in discharging their duties and to keep themselves informed about our business and operations. Directors are also expected to make every effort to attend our annual meeting of stockholders, all meetings of the Board of Directors and all meetings of the committees on which they serve. Five of seven of our directors holding office at the time attended our 2006 annual meeting of stockholders.

Code of Business Conduct and Ethics

Callidus has adopted a code of business conduct and ethics that applies to all of our directors, officers and employees, including our chief executive officer, principal financial officer and principal accounting officer. During 2006, no waivers were granted from any provision of the code of business conduct and ethics.

A copy of our code of business conduct and ethics is available on our Internet website at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html and may also be obtained without charge by contacting our Secretary at Callidus Software Inc., 160 West Santa Clara Street, Suite 1500, San Jose, CA 95113. We intend to post any amendments to or waivers from our code of business conduct and ethics (to the extent applicable to our chief executive officer, principal financial officer or principal accounting officer) on the website referred to above.

Independence of Directors

The Board of Directors has determined that each of William B. Binch, Charles M. Boesenberg, Michael A. Braun, George B. James and Michele Vion is “independent” within the meaning of Rule 4200(a)(15) of the Nasdaq Global Market listing standards.

Stockholder Communications with the Board of Directors

Stockholders and other parties interested in communicating directly with the Board of Directors may do so by writing to Board of Directors, c/o Callidus Software Inc., 160 West Santa Clara Street, Suite 1500, San Jose, CA 95113 or by submitting an e-mail to callidusboard@callidussoftware.com. Stockholders and others may also direct their correspondence solely to the Chairperson of the Audit Committee or to the Secretary. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our Audit Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.

Committees of the Board of Directors

The Board of Directors uses committees to work on certain issues in more detail than would be reasonable at a meeting of the full Board of Directors. Each committee reviews the progress and results of its meetings with the full Board of Directors and makes recommendations to the Board of Directors as and when appropriate. The Board of Directors presently has three standing committees: an Audit Committee (which also serves as our Qualified Legal Compliance Committee), a Compensation Committee and a Nominating and Corporate Governance Committee. Each director who served on a committee attended at least 75% of all meetings of each such committee held during the period in 2006 during which he or she was a member of such committee. Each of the three standing committees of the Board of Directors described below operates pursuant to a written committee charter that is available to stockholders on our Internet website at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html.

Audit Committee and Qualified Legal Compliance Committee

The Audit Committee and Qualified Legal Compliance Committee currently consist of:

George B. James (Chair)

William B. Binch

Charles M. Boesenberg

The Audit Committee met nine times and took no actions by unanimous written consent in 2006. Messrs. James, Binch and Boesenberg were members of our Audit Committee at the end of 2006. Mr. James serves as Chairperson of the Audit Committee. After the 2007 annual meeting of stockholders, Ms. Vion will replace Mr. Binch on the Audit Committee. Each of Messrs. James, Binch, and Boesenberg and Ms. Vion is “independent” as defined under Marketplace Rules 4200(a)(15) and 4350(d)(2) of the Nasdaq Global Market listing standards and meets the independence requirements of Rule 10A-3(b)(i) under the Exchange Act. The Board of Directors has determined that each of Messrs. James, Binch, and Boesenberg qualify as “financial experts” as defined by the rules of the Securities and Exchange Commission. Pursuant to its charter, a copy of which is available on our Internet website at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html, the Audit Committee is responsible for the oversight of the quality and integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent auditors, the performance of our independent auditors and other significant financial matters. In discharging its duties, the Audit Committee is expected to:


	•	have the sole authority to appoint, retain, compensate, oversee and terminate the independent auditors;

	•	review and approve the scope of the annual audit;

	•	review and pre-approve the engagement of our independent auditors to perform audit and non-audit services and the related fees;


	•	review the integrity of our financial reporting process;

	•	review our financial statements and disclosures and filings with the Securities and Exchange Commission;

	•	review funding and investment policies;

	•	review and approve an annual report of the Audit Committee for inclusion in our annual proxy statement;

	•	review disclosures from our independent auditors regarding Independence Standards Board Standard No. 1; and

	•	review and assess annually our Audit Committee’s performance and the adequacy of its charter.

The members of our Audit Committee also act as our Qualified Legal Compliance Committee, or “QLCC”, which is responsible for reviewing any reports made to our QLCC by attorneys representing us or our subsidiaries of a material violation or breach arising under United States federal or state laws. As no such violations or breaches were reported to us in the last fiscal year, the QLCC did not meet in 2006. The QLCC has the authority and responsibility to adopt written procedures for the confidential receipt, retention and consideration of any report of violations and determine whether an investigation is necessary. The QLCC also has authority to initiate investigations and recommend that we implement appropriate measures in response to such reported violations. The Audit Committee, acting as the QLCC, reports to the Board of Directors at least once a year on any reports received and investigations conducted. The QLCC acts only by majority vote.

A report of the Audit Committee for fiscal year 2006 is included in this proxy statement.

Compensation Committee

The Compensation Committee currently consists of:

William B. Binch (Chair)

Michael A. Braun

Michele Vion

The Compensation Committee met six times and took three actions by written consent in 2006. After the 2007 annual meeting of stockholders, Mr. Boesenberg will replace Mr. Braun on the Compensation Committee. The Board of Directors has determined that each of the members of the Compensation Committee, and Mr. Boesenberg when he commences serving on the Compensation Committee after the 2007 annual meeting of stockholders, is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act, an “outside director” as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986 and “independent” as defined under Rule 4200(a)(15) of the Nasdaq Global Market listing standards.

Among the Compensation Committee’s specific responsibilities are the following:


•	overseeing our compensation and benefits policies generally;


	•	evaluating the performance of our executives and reviewing our management succession plans;

	•	overseeing and setting executive compensation and, at the request of the Nominating and Corporate Governance Committee from time-to-time, providing assistance, advice and/or recommendations regarding director compensation;

	•	reviewing and approving a discussion and analysis on executive compensation for inclusion in our annual proxy statement;

	•	reviewing and approving any employment, severance and change of control agreements with our senior executives, as well as any other compensation arrangements; and

	•	reviewing and assessing annually our Compensation Committee’s performance and the adequacy of its charter.

A copy of the Compensation Committee charter, which was amended and restated on March 13, 2007, can be accessed electronically at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html. For more information regarding the Compensation Committee’s processes and use of consultants, see the compensation discussion and analysis included in this proxy statement below.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee currently consists of:

Michael A. Braun (Chair)

George B. James

Michele Vion

The Nominating and Corporate Governance Committee met three times and took no actions by written consent in 2006. After the 2007 annual meeting of stockholders, Mr. Binch will replace Ms. Vion on the Nominating and Corporate Governance Committee. The Board of Directors has determined that each of the members of the Nominating and Corporate Governance Committee, and Mr. Binch when he commences serving on the Compensation Committee after the 2007 annual meeting of stockholders, is “independent” as defined under Rule 4200(a)(15) of the Nasdaq Global Market listing standards. Pursuant to its charter, the Nominating and Corporate Governance Committee is responsible for, among other things:


	•	making recommendations to our Board of Directors regarding nominees to the Board of Directors proposed for election by our stockholders as well as individuals to be considered to fill any vacancies that may occur on the Board of Directors;

	•	evaluating and recommending to our Board of Directors any revisions to our corporate governance guidelines;

	•	establishing criteria for membership on the Board of Directors and its committees, including criteria as to director independence;

	•	overseeing the process for evaluating the performance of our Board of Directors and its committees;

	•	evaluating the current composition, organization and governance of our Board of Directors and its committees, determining future requirements and making recommendations to our Board of Directors for approval;

	•	reviewing and recommending director compensation; and

	•	reviewing and evaluating annually the Nominating and Corporate Governance Committee’s performance, including compliance with its charter.

Consideration of Director Nominees

Stockholder Nominees. The bylaws of Callidus permit stockholders to nominate directors for consideration at an annual stockholder meeting. For a description of the process for nominating directors in accordance with our bylaws, see “Questions and Answers about the Annual Meeting, the Proxy Materials and Voting Your Shares — How Do I Propose Actions for Consideration or Nominate Individuals to Serve as Directors at Next Year’s annual meeting of stockholders?” The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board as described below under “Identifying and Evaluating Nominees for Directors.” In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capabilities on the Board and to achieve compliance with the membership criteria set forth below under “Director Qualifications.”

Director Qualifications. Our corporate governance guidelines contain Board membership criteria that apply to nominees recommended by our Nominating and Corporate Governance Committee for a position on our Board. The qualifications to be considered by the Nominating and Corporate Governance Committee include judgment, diversity, age, skills, background and experience in light of the Board’s present composition and the current

challenges and needs of the Board and its committees. The Nominating and Corporate Governance Committee also takes into account the independence, financial literacy and financial expertise standards required under our corporate governance guidelines, the Board committees’ charters and applicable laws and regulations and the ability of the candidate, in light of the candidate’s present activities and our corporate governance guidelines, to devote the necessary time and attention to serving as a director and a committee member. Each director must represent the interests of all stockholders.

Identifying and Evaluating Nominees for Directors. The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating and Corporate Governance Committee decides whether to fill such vacancies and, if so, considers various potential candidates to fill each vacancy. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current Board members, professional search firms engaged by us, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. As described above, the Nominating and Corporate Governance Committee considers certain properly submitted stockholder nominations for candidates for the Board. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Corporate Governance Committee. In evaluating director nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.

Chairperson of the Board

Our Board of Directors has elected Michael A. Braun to act as our Chairperson of the Board. Mr. Braun is an independent director within the meaning of Rule 4200(a)(15) of the Nasdaq Global Market listing standards. The duties of the Chairperson of the Board include: (i) presiding at all meetings of the Board, (ii) approving information sent to the Board, (iii) approving the meeting agenda for the Board and (iv) approving meeting schedules to assure that there is sufficient time for discussion of all items. Further, the Chairperson of the Board has authority to call meetings of the Board and/or the independent directors.

Executive Sessions

Executive sessions of non-employee directors are held regularly. The sessions are scheduled and led by our Chairperson of the Board and/or the applicable independent chairperson of the committee of the Board. Any non-employee director can request that an additional executive session be scheduled.

INFORMATION REGARDING COMPENSATION OF DIRECTORS

AND EXECUTIVE OFFICERS

Director Compensation

The Nominating and Corporate Governance Committee, along with the Compensation Committee, as requested from time-to-time, annually reviews director compensation in order to ensure that we attract and retain motivated individuals willing to establish challenging goals for our executive management team and to guide and assist them to achieve those goals. We believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve on our Board of Directors and that this approach is comparable to the policies of our peers. We consider the compensation outlined below suitable for the directors of our Company.

Director Cash Compensation

Since November 2003, the cash compensation component of our director compensation has been that each of our directors who is not an officer or employee of Callidus is paid a quarterly retainer of $5,000, a fee of $1,000 plus expenses for each meeting of the Board of Directors attended and a fee of $750 plus expenses for each committee meeting attended. We believe that this cash compensation policy is appropriately designed to encourage active participation in meetings as well as compensate our directors for their time and effort.

Director Equity Compensation

We believe it is important to align the long-term interests of the directors with those of the Company and its stockholders and that awarding equity compensation to our directors is an appropriate means to achieve this alignment. In March 2006, we increased the equity component of our director compensation, both for the initial grant of options to a new director and for their continued participation on our board of directors. Under this policy, upon first becoming a director, each non-employee director receives an option to purchase 45,000 shares of our common stock that vests over four years (25% after one year and monthly thereafter) and, thereafter, an annual grant of an immediately vested and exercisable option to purchase 15,000 shares immediately following each annual stockholders’ meeting.

Also, following each annual meeting of our stockholders, the chair of the Audit Committee receives a fully vested option to purchase 10,000 shares of our common stock, the chairs of the Compensation Committee and Nominating and Corporate Governance Committee each receive a fully vested option to purchase 5,000 shares of our common stock and our Chairperson of the Board (so long as such position continues to be held by an outside director) receives a fully vested option to purchase 20,000 shares of our common stock. All annual option grants under the director compensation policy are pro-rated if the director has served in the relevant capacity for only part of the previous year.

The table below shows the compensation awarded to each of our non-employee directors during the fiscal year ended December 31, 2006.

DIRECTOR COMPENSATION


	Fees Earned or		Option
Name	Paid in Cash ($)		Awards ($)(1)		Total ($)

William B. Binch	$	40,250	$	59,171	$	99,421
Charles M. Boesenberg	$	29,786	$	28,095	$	57,881
Michael A. Braun	$	35,750	$	121,653	$	157,403
George B. James	$	38,000	$	90,651	$	128,651
David B. Pratt	$	29,000	$	52,658	$	81,658
Michele Vion	$	34,750	$	42,835	$	77,585
John R. (Jack) Eickhoff(2)	$	17,222	$	36,293	$	53,515


(1)		Amounts represent the dollar amount recognized as compensation expense during 2006 utilizing the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-based Payments.” See Note 6 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards. Amounts in this column may represent options granted during and before 2006. Utilizing the provisions of SFAS No. 123R, the full grant date fair value of the option awards made to the directors in 2006 is $377,501. At December 31, 2006, the aggregate number of option awards outstanding for each director was as follows: William B. Binch 51,561; Charles M. Boesenberg 49,080; Michael A. Braun 191,706; George B. James 154,667; David B. Pratt 285,767; and Michele Vion 41,168.

(2)		Mr. Eickhoff chose not to stand for reelection to the board of directors at the Company’s June 6, 2006 annual meeting of stockholders. The amounts indicated represent the fees earned by Mr. Eickhoff through June 6, 2006 and the dollar amount indicated in the column entitled “Option Awards” represents compensation expense in connection with options granted to Mr. Eickhoff during and before 2006. Mr. Eickhoff did not have any option awards outstanding at December 31, 2006.

We have entered into change of control agreements with each of our non-employee directors. All of these agreements provide that in the event of a change of control of Callidus, any and all options to purchase common stock held by such individuals at the time of a change of control will immediately become vested and exercisable. Under the terms of each of these agreements, a change of control is defined to include: (i) the acquisition by any person of beneficial ownership, directly or indirectly, of securities representing 50% or more of the total voting

power represented by our then outstanding voting securities; (ii) a change in the composition of our Board of Directors within a rolling two-year period, as a result of which fewer than a majority of the directors are deemed to be incumbent directors, as defined in the agreements; (iii) a merger or consolidation involving Callidus resulting in a change in ownership of more than 50% of our voting securities; and (iv) a sale or disposition by us of all or substantially all of our assets.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K set forth below with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis set forth below be included in the Company’s Proxy Statement pursuant to Schedule 14A, filed in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended.

THE COMPENSATION COMMITTEE

William B. Binch, Chair

Michael A. Braun

Michele Vion

Compensation Discussion and Analysis

The following discussion and analysis focuses on the compensation paid to the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2006, as well as the other individuals included in the Summary Compensation Table elsewhere in this proxy statement, collectively referred to as the “named executive officers”, although much of the discussion applies to all senior executives of the Company.

Our Compensation Committee

The Compensation Committee of the Board of Directors is responsible for reviewing and recommending to our board of directors the total compensation arrangements for our Chief Executive Officer and other members of senior management. In addition, the Compensation Committee works with management in its review and approvals of various other compensation policies and matters, and oversees our equity incentive plans, including reviewing and approving all equity awards to our executive officers. During 2006, the Compensation Committee engaged an outside compensation consulting firm, Radford Surveys + Consulting, a division of Aon Consulting (“Radford”) to advise the Committee and the board of directors on executive and equity compensation matters, including guidance on peer company practices. The consulting firm reports directly to the Compensation Committee, and the Chairperson of the Compensation Committee in particular, which has sole authority to hire, fire and direct its work.

Objectives of the Executive Compensation Program

The executive compensation program seeks to encourage and reward executive contributions that are beneficial to the Company and its stockholders. Our Compensation Committee believes that the long-term success of the Company is closely tied to its ability to compete in extremely competitive markets for talented executives who are motivated to help the Company succeed. To successfully compete in such a tight market for executive talent, our Compensation Committee designed an executive compensation program intended to accomplish the following goals:


	•	maintain and enhance our ability to attract and retain highly qualified executives;

	•	encourage performance that aligns executive compensation risks and rewards to the Company’s top business priorities;


	•	foster a mindset among the executive team that the risks and rewards of our compensation plan are fair and consistent;

	•	focus the senior executive management team on the Company’s operating goals by tying a substantial portion of their compensation to performance targets to which they are held accountable.

Our executive compensation program is designed to promote the attainment of strategic annual and long-term business objectives to increase shareholder value. Our executive compensation consists primarily of cash compensation (both base salary and performance-based bonus) and equity compensation providing long-term incentives.

Determining Executive Compensation

The Compensation Committee’s review of individual senior executive compensation includes an assessment of prior and current compensation and peer group practice. The amounts and elements of our cash and equity components of our executive compensation program are naturally similar to those of many technology companies. This is primarily the result of industry trends and expectations of senior executives in the markets the Company targets for hiring and retention. In addition, stock option grant amounts are made by taking into account our retention and individual employee performance objectives as well as long-term goals established by our directors.

As part of its analysis and design of the executive compensation program, the Compensation Committee reviews pay data for senior executives in companies of similar size (based on revenues) and complexity from the software and other high-technology industries that it considers to be the Company’s peer group for compensation purposes. In 2006, the peer group approved by the Compensation Committee consisted of the following companies:


Actuate Corporation	Interwoven, Inc.	Stellent, Inc.
Advent Software, Inc.	iPass, Inc.	SupportSoft, Inc.
Agile Software Corporation	Kana Software, Inc.	Synplicity, Inc.
Altiris, Inc.	Netmanage, Inc.	Vignette Corporation
Ansoft Corporation	Pegasystems Inc.	Vitria Technology, Inc.
Ariba, Inc.	Phoenix Technologies Ltd.
Chordiant Software, Inc.	Secure Computing Corporation

Cash Compensation (Base Salary and Performance Bonuses)

For all senior executives, annual cash compensation consists of a base salary and a performance-based cash bonus component typically tied to semi-annual business operating targets established by our board of directors in January and July of each year. After reviewing Radford’s market information and guidance, and following discussions with the Company’s Chief Executive Officer regarding how to align business strategy with our executive compensation plan, the Compensation Committee sets total target cash compensation (which is base salary plus the target performance bonus) at a rate that it considers competitive with market practice and that will motivate our senior executives to excel.

The total target cash compensation generally falls within the upper third quartile of peer group data and is primarily driven by performance based incentives designed to motivate executives to exceed the business plan targets. In determining total target cash compensation for a specific senior executive, the Compensation Committee considers other factors, including the scope of the senior executive’s particular job, his or her performance in the job, the expected value of the senior executive’s future impact or contribution to the Company’s success and growth, the Company’s recent financial performance and market competitiveness. In addition, the Committee considers recommendations from the Company’s Chief Executive Officer regarding particular motivating factors for certain executive officers.

For example, for senior executive positions whose performance is more directly tied to corporate revenue and profit generation, such as the Company’s Chief Executive Officer, Senior Vice President of Worldwide Client Services and Senior Vice President of Worldwide Sales, the Compensation Committee has determined that their total cash compensation should generally be weighed more heavily on Company performance based metrics tied to

revenue and profit contribution. As such, certain senior executives typically have more of their total target cash compensation “at risk” than others, and so their total target cash compensation is on the higher range of the third quartile, with even higher amounts of compensation for above-target performance. For other senior executives, the total target cash compensation is at the lower range of the third quartile, but if the Company meets or exceeds the performance targets, the total cash compensation is intended to increase toward the 75^th percentile.

The Compensation Committee has apportioned the allocation between base salary and performance bonus based on various criteria, including in particular:


	•	market data provided by our independent consultant;

	•	internal review of each senior executive’s compensation, both individually and relative to other senior executives; and

	•	individual senior executive performance.

Base Salary

In setting base salaries, the Compensation Committee reviews Radford’s recommendations for market ranges with respect to base salary compensation of officers in comparable corporate positions, comparable industries, and comparable sized companies. Merit-based increases of senior executive salaries are considered on an annual basis and are awarded based on recommendations of our Chief Executive Officer after assessment of each member of the executive team’s performance as part of his regular performance review process, and the board of director’s assessment of our Chief Executive Officer’s performance.

Performance Bonuses

The Executive Incentive Bonus Plan was created as a means to recognize and reward the link between the achievement of Callidus’ corporate objectives and the senior executives’ contributions to its success. The plan is designed to motivate the senior executive team to achieve business targets by placing compensation “at risk” if the Company does not meet its objectives. The individual target bonus amounts are approved at the beginning of the calendar year by the Compensation Committee with performance targets established by the board of directors on a semi-annual basis. Depending on the senior executive’s position and market analysis, the target bonus amounts for 2006 ranged from 55%-100% of the base salary earned during the performance period. In general, the Compensation Committee and the board of directors set target levels based on business plan objectives established near the beginning of each year and attempt to set the target levels consistently from year-to-year based on challenging but achievable growth projections.

The Compensation Committee believes that semi-annual review and payment of the performance-based cash bonus for senior executives is appropriate to maintain executive motivation and allow the board of directors to make needed adjustments to performance targets, if any. Generally, performance-based cash compensation is awarded only if the Company achieves the minimum threshold performance which, when set, is intended to be a realistic performance level representing a substantial portion of “target” levels. If the Company meets the threshold, actual performance-based cash payments are based upon the difference between the established targets and actual performance and are pro rated accordingly. Typically at target, the percentage of the cash performance targets are weighted equally, 50% revenue and 50% operating income, although below target the Compensation Committee generally places more weight on the operating income metric. In addition to the target objectives, the Compensation Committee sets out stretch goals beyond the target levels to motivate the executives to exceed the target, for which they will receive payouts above the target bonus amounts.

The 2006 target bonuses for the named executive officers under the Executive Incentive Bonus Plan are set out in the following table.

Target Bonus (as a % of Base Salary)


	Target
Position	Achievement

President and Chief Executive Officer		100	%
Senior Vice President, Finance and Operations, Chief Financial Officer		55	%
Senior Vice President Worldwide Sales		100	%
Senior Vice President, Worldwide Client Services		75	%
Other Senior Executive Officers		55	%

We do not disclose specific performance targets because we believe they contain competitively sensitive information, the release of which would cause competitive harm to us. For 2006, the specific “target achievement” level was intended to be challenging to achieve and require significant progress from the previous year. The stretch goals would represent outstanding achievement. The board of directors sets threshold, target and stretch goals that it feels appropriate for a company of our size and stage of growth. The Compensation Committee assesses whether the goals have been met and approves payment of executive performance based compensation. The board of directors or the Compensation Committee each reserve the right to modify goals or exercise discretion in granting awards, which either feels is important given the volatility of our business.

In July 2006, the Compensation Committee determined that the senior executives had achieved above the minimum threshold, but less than the performance targets established by the board of directors for the first six months of the year. Additionally, the Compensation Committee considered the successful launch of the Company’s hosted on-demand services solution in the first half of 2006 that was intended to serve as a strategic business base from which to drive increasing recurring revenues.

In the first half of 2006, the Compensation Committee also authorized an additional cash-based sales performance incentive for the Company’s Senior Vice President of Worldwide Sales of $25,000 to encourage an increased focus on the Company’s hosted on-demand services offering. The Compensation Committee believed that this incentive was appropriate given the desire to focus the sales team on the long-term recurring revenue opportunities offered by our hosted on-demand services solution rather than solely on perpetual license based revenue transactions.

Consequently, in July 2006, the Compensation Committee approved the payment of an aggregate of $740,742 to the senior executives, which was comprised of $624,512 for performance-based achievements, $91,230 in the form of discretionary cash performance bonuses, and the $25,000 cash-based sales performance incentive to the Company’s Senior Vice President of Worldwide Sales discussed above. In approving the discretionary cash performance bonuses, the Compensation Committee considered the fact that the deferral of revenues related to the newly launched on-demand business and its longer term nature had not been adequately considered when the senior executive performance-based compensation targets were set in January 2006 and that this strategic business initiative had a negative impact on the executives’ ability to meet or exceed their performance targets.

In January 2007, with regard to the second six months of 2006, the Compensation Committee determined that the Company’s performance exceeded the criteria for the target performance bonuses and approved payment of cash performance bonuses of a portion of the eligible stretch goal performance bonus amount. The Compensation Committee thus approved the payment of an aggregate of $872,976 to the senior executives for performance-based achievements.

Equity Compensation

The Committee believes that our equity compensation program is important for rewarding our executives and other key employees for long-term performance in a manner that reflects value received by our stockholders, while encouraging retention by subjecting all awards in 2006 to four year vesting. Although our equity incentive plan authorizes other types of awards, to date our Compensation Committee has only granted options and, in limited cases, restricted stock awards. In making decisions regarding equity compensation, the Committee considers the dilutive impact on stockholders, and we intend to limit future option grants such that the net dilution to issued and outstanding shares will approximate 5% annually over time.

During 2006, the majority of our named executive officers received option grants in January based on reviews by the Compensation Committee which included input from the Chief Executive Officer and examination of the market and peer group data and guidance received from Radford.

The exercise price of all stock options is no less than the closing price of our common stock on the NASDAQ Global Market on the date of grant. To avoid any appearance of impropriety concerning the timing of grants of stock options, in 2005 our Compensation Committee implemented a policy to grant all options for senior executives on the last trading day of the month in which the grant is approved. However, for grants other than new hire grants, if there is in effect a blackout period or a trading freeze period under the Company’s Policy and Procedure on Insider Trading on the last trading day of the month of approval, senior executive options will be granted on the last trading day of the first month after such approval on which a blackout period or trading freeze period is no longer in effect. This policy has been formalized and included in the Company’s Stock Option Administration Policy which can be found on the Company’s website at http://www.callidussoftware.com/callidus/investor-relations/governance/index.html.

Other Benefits

Change in Control and Severance. As described in this proxy, our chief executive officer has an employment agreement providing potential severance benefits, and all of our senior executive officers have change in control protections. The Committee believes that these severance and change in control arrangements mitigate some of the risk that exists for executives working in a smaller company. These arrangements are intended to attract and retain qualified executives who could have other job alternatives that may appear to them to be less risky absent these arrangements. Because of the significant acquisition activity in the high technology industry, there is a possibility that the Company could be acquired in the future. Accordingly, the Committee believes that the severance packages provide an incentive for these executives to continue to help successfully execute such a transaction from its early stages until closing, in support of a board of directors approved transaction that is considered in the shareholders best interest.

Other. Our senior executive officers otherwise participate in employee benefit plans that are provided to our other employees, including our Employee Stock Purchase Plan, 401(k) plan and health and welfare benefits. In addition, during 2006, we paid travel-related expenses for Mr. Furino of approximately $11,000 for his travel between his personal residence in southern California and our corporate offices in San Jose, California. Generally, we do not provide additional benefits or perquisites to our executives that are not available to all employees of the Company.

Accounting and Tax Considerations

In the first quarter of 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-based Payments” which requires us to expense stock options in our income statement over the stock option’s vesting period. As a result, in April 2006 we began to grant stock options with maximum terms of five years, instead of ten years as we had granted historically.

We generally intend to maximize the deductibility of executive compensation so long as the deductibility is compatible with the objectives of our compensation policies, including retention of high-performing individuals and maintaining competitive compensation. Section 162(m) of the Internal Revenue Code limits the tax deductibility by us of compensation in excess of $1 million paid to our chief executive officer, chief financial officer or any of our three other most highly compensated executive officers, unless the compensation is “performance-based” as defined by the Internal Revenue Code. The Committee has not adopted a policy that all compensation must qualify as deductible under Section 162(m). For example, our performance bonus plan does not qualify as “performance-based” compensation under Section 162(m). However, in 2006 the annual cash compensation for any named executive officer did not exceed the $1 million limit. We have granted in the past, and may grant in the future, equity compensation that does not qualify as “performance-based” for purposes of Section 162(m).

Executive Compensation

The following table sets forth all compensation awarded, earned or paid to our Chief Executive Officer, Chief Financial Officer and the next three most highly compensated executive officers for the last fiscal year, for services rendered to us in all capacities during such fiscal year. We refer to these individuals collectively as the “named executive officers.”

Summary Compensation Table


									Non-Equity
					Stock		Option		Incentive Plan		All Other
Name and Principal Position	Year		Salary ($)		Awards ($)(1)		Awards ($)(1)		Compensation ($)(2)		Compensation ($)			Total ($)

Robert H. Youngjohns		2006	$	395,200	$	41,000	$	689,829	$	481,629	$	—		$	1,607,658
President and Chief Executive Officer
Ronald J. Fior		2006	$	260,000	$	—	$	218,805	$	174,362	$	—		$	653,167
Senior Vice President, Finance and Operations, Chief Financial Officer
Richard D. Furino		2006	$	249,600	$	—	$	276,978	$	228,255	$	12,515(3	)	$	767,348
Senior Vice President, Worldwide Client Services
Leslie J. Stretch		2006	$	204,000	$	—	$	204,896	$	317,636	$	—		$	762,532
Senior Vice President, Worldwide Sales
Robert W. Warfield		2006	$	249,600	$	—	$	303,114	$	167,387	$	—		$	720,101
Chief Technology Officer


(1)		Amounts represent the dollar amount recognized as compensation expense during 2006 utilizing the provisions of SFAS No. 123R. See Note 6 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for 2006 regarding assumptions underlying valuation of equity awards. Amounts may represent awards granted during or before 2006.

(2)		Reflects amounts earned for 2006 performance by the applicable executive under the Company’s 2006 Executive Incentive Bonus Plan.

(3)		Reflects amounts reimbursed to Mr. Furino in connection with (i) personal commuter travel expenses of approximately $11,000 primarily in the form of commercial airline and related ground transportation to and from the Company’s offices in San Jose, California, and (ii) the incremental cost of personal benefits (travel, lodging, food and event related accommodations) of approximately $1,526 attributable to the attendance of Mr. Furino’s spouse at certain sales events.

Grants of Plan-Based Awards

The following table sets forth certain information concerning grants of stock options and non-equity incentive plan awards made to our named executive officers during 2006.


											All Other
											Option
											Awards:
					Estimated Future Payouts						Number of		Exercise or
			Compensation		Under Non-Equity Incentive						Securities		Base Price		Grant Date Fair
	Grant		Committee		Plan Awards (2)						Underlying		of Option		Value of Option
Name	Date(1)		Action Date(1)		Threshold ($)		Target ($)		Maximum ($)		Options(3)		Awards ($/sh)		Awards ($)

Robert H. Youngjohns		1/31/2006		12/6/2005		—		—		—		194,444	$	4.38	$	507,402
		1/24/2006		—	$	158,000	$	395,000		—
Ronald J. Fior		1/31/2006		12/6/2005		—		—		—		110,000	$	4.38	$	287,045
		1/24/2006		—	$	31,460	$	143,000		—
Richard D. Furino		1/31/2006		12/6/2005		—		—		—		125,000	$	4.38	$	326,188
		1/24/2006		—	$	56,160	$	187,200		—
Leslie J. Stretch		1/24/2006		—	$	96,000	$	240,000				—		—		—
Robert W. Warfield		1/31/2006		12/6/2005		—		—		—		150,000	$	4.38	$	391,425
		1/24/2006		—	$	30,202	$	137,280		—


(1)		Pursuant to Company policy, stock option grants to Executive Officers, including the named executive officers listed above are granted the last trading day of the month in which the grant is approved; provided, that if there is in effect a Blackout Period or a Trading Freeze Period under the Company’s Insider Trading Policy on the last trading day of the month of approval, the options will be granted on the last trading day of the first month after such approval on which a Blackout Period or Trading Freeze Period is not in effect. Because the Company’s quarterly Blackout Period was in effect on the last business day of December 2005, the option grants to the named executive officers above did not occur until the last business day of January 2006.

(2)		The amounts shown in the column entitled “Threshold” reflect the minimum payment level under the Company’s 2006 Executive Incentive Bonus Plan to be paid only upon achievement of 90% of the performance targets. The amounts under “Target” assume that 100% of the performance targets were achieved. There was no maximum payment level set in 2006, although payments could be above the “Target” amounts if performance exceeded the targets.

(3)		The amounts shown in the column entitled “All Other Option Awards: Number of Securities Underlying Options” reflect the number of shares of stock granted to each named executive officer in the form of a non-qualified stock option grant. Each option granted was subject to vesting over 48 equal monthly installments from the date of grant and had a maximum ten year term. In the event of a change of control of Callidus, all of the officers named in this chart will be entitled to additional vesting as described below in “Employment Contracts, Change of Control Arrangements and Severance Agreements of Named Executive Officers — Change of Control Arrangements.”

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END


	Option Awards
				Number of		Number of
				Securities		Securities		Option
				Underlying		Underlying		Exercise		Option
	Option Awards			Unexercised Options		Unexercised Options		Price		Expiration
Name	Grant Dates			(#) Excercisable		(#) Unexcercisable		($)		Date

Robert H. Youngjohns		5/31/2005	(1)		395,833		604,167	$	3.45		5/31/2015
		1/31/2006	(2)		48,611		145,833	$	4.38		1/31/2016
Ronald J. Fior		10/15/2002	(3)		75,000		0	$	0.84		10/15/2012
		12/23/2002	(4)		45,000		0	$	0.84		12/23/2012
		8/26/2003	(4)		50,000		10,000	$	4.17		8/26/2013
		9/1/2004	(5)		16,000		64,000	$	3.92		9/1/2014
		2/28/2005	(6)		47,916		52,084	$	4.51		2/28/2015
		1/31/2006	(2)		27,500		82,500	$	4.38		1/31/2016
Richard D. Furino		11/18/2003	(1)		46,249		13,751	$	14.00		11/18/2013
		2/18/2004	(4)		42,500		17,500	$	16.59		2/18/2014
		9/1/2004	(5)		20,000		80,000	$	3.92		9/1/2014
		2/28/2005	(6)		47,916		52,084	$	4.51		2/28/2015
		1/31/2006	(2)		31,250		93,750	$	4.38		1/31/2016
Leslie J. Stretch		11/30/2005	(1)		67,708		182,292	$	4.15		11/30/2015
Robert W. Warfield		12/23/2002	(4)		4,688		0	$	0.84		12/23/2012
		5/20/2003	(4)		76,561		13,751	$	1.00		5/20/2013
		8/26/2003	(4)		50,000		10,000	$	4.17		8/26/2013
		9/1/2004	(5)		10,000		40,000	$	3.92		9/1/2014
		2/28/2005	(6)		47,916		52,084	$	4.51		2/28/2015
		1/31/2006	(2)		37,500		112,500	$	4.38		1/31/2016


(1)		Option vests over a period of four years, with 25% of the number of shares vesting on the first anniversary of the date of grant and the remaining 75% vesting in equal monthly installments over the three years thereafter.

(2)		Option vests over a period of four years in equal monthly installments commencing on December 6, 2005.

(3)		Option vests over a period of four years in equal monthly installments commencing on September 16, 2002.

(4)		Option vests over a period of four years in equal monthly installments commencing on the grant date.

(5)		Option vests 100% on September 1, 2007, subject to accelerated vesting, in whole or in part, if certain Company stock performance targets are met.

(6)		Option vests over a period of four years in equal monthly installments commencing on January 1, 2005.

Option Exercises and Stock Vested

The following table sets forth certain information regarding options exercised and stock vesting for our named executive officers during 2006.


	Option Awards				Stock Awards
	Number of				Number of
	Shares Acquired		Value Realized		Shares Acquired		Value Realized
Name	on Exercise (#)		on Exercise ($)		on Vesting (#)		on Vesting ($)

Robert H. Youngjohns		—		—		28,000	$	144,760
Ronald J. Fior		60,000	$	297,090		—		—
Richard D. Furino		—		—		—		—
Leslie J. Stretch		—		—		—		—
Robert W. Warfield		180,000	$	1,094,100		—		—

Employment Contracts, Change of Control Arrangements and Severance Agreements of Named Executive Officers

Change of Control Arrangements

We have change of control agreements with Messrs. Youngjohns, Fior, Furino, Stretch and Warfield. All of these agreements except those of Messrs. Youngjohns and Stretch, provide that in the event of a change of control of Callidus, any and all options to purchase common stock granted to these individuals prior to March 14, 2006 will immediately become vested and exercisable. Any options granted to such individuals after March 14, 2006, and all options granted to Messrs. Youngjohns and Stretch, will become immediately vested and exercisable if the individual is terminated without cause or resigns for good reason (as those terms are defined in the change of control agreements and summarized below) within 18 months after the change of control.

Under the terms of each of the change of control agreements, the terms “change of control,” “cause” and “good reason” are defined substantially as set forth below:


	•	a “change of control” is defined to include: (i) the acquisition by any person of beneficial ownership, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then outstanding voting securities; (ii) a change in the composition of our Board of Directors within a rolling two-year period, as a result of which fewer than a majority of the directors are deemed to be incumbent directors, as defined in the agreements; (iii) a merger or consolidation involving Callidus resulting in a change in ownership of more than 50% of our voting securities; and (iv) a sale or disposition by us of all or substantially all of our assets;

	•	“cause” is defined to mean the occurrence of any one or more of the following: (i) any material act of misconduct or dishonesty in the performance of the executive’s duties; (ii) any willful and material failure to perform the executive’s duties; (iii) any material breach of any employment agreement; or (iv) the conviction, or plea of guilty or nolo contendere to a misdemeanor involving theft, embezzlement, dishonesty or moral turpitude or a felony; provided that in the cases of (i) through (iii), the executive shall have 30 days from the date of notice by the Company to cure any act or omission that can reasonably be cured within such period; and

	•	“good reason” is defined to mean (i) any reduction in base salary or annual target bonus, (ii) any material reduction in any other benefits, (iii) any material reduction in duties or authority, or (iv) a requirement to relocate more than 35 miles.

If in 2006 there had been a change of control and one or more of the named executive officers had been terminated effective as of December 31, 2006, we estimate that the value of the acceleration of the options under the change of control agreements would have been as follows:


	Value of Stock
	Option Awards
Name	Outstanding(1)

Robert H. Youngjohns	$	996,609
Ronald J. Fior	$	301,504
Richard D. Furino	$	380,171
Leslie J. Stretch	$	246,627
Robert W. Warfield	$	393,567


(1)		Accelerated vesting of stock option award amounts was determined by measuring the fair value of the unvested stock options as of December 31, 2006, utilizing the provisions of SFAS 123R. Because this fair value is based on a variety of factors, the amounts indicated do not necessarily represent the actual amounts that might be received by the executives on their options.

Employment Agreement with Robert H. Youngjohns

On April 26, 2005, we entered in an employment agreement with Robert H. Youngjohns pursuant to which he commenced employment as our President and Chief Executive Officer on May 31, 2005. Under his employment agreement, if Mr. Youngjohns is terminated without cause or resigns for good reason (as those terms are defined in his employment agreement and as summarized in the section “Change of Control Agreements” above), he will receive 12 months of his then current base salary, target bonus and health benefits, as well as 6 months of accelerated vesting of his equity as described above. However, if the termination is in connection with a change of control, 100% of his unvested equity will become vested, as previously set forth in the section “Change of Control Agreements” above. If, in connection with a change of control, Mr. Youngjohns becomes subject to excise tax as a result of Section 280G of the Internal Revenue Code, we will reimburse him for the excise tax if his change of control benefits are at least 110% of the safe harbor amount under Section 280G, except that we will not be required to pay more than $700,000 in reimbursements.

If Mr. Youngjohns’ employment had been terminated without cause or Mr. Youngjohns had resigned for good reason effective as of December 31, 2006, and not in connection with a change of control, we estimate that he would have been entitled to the following compensation under his employment agreement:


							Accelerated Vesting		Total
	Salary		Target Bonus		Health		of Stock Option		Severance
Name	Equivalent		Equivalent		Benefits(1)		Awards(2)		Benefits

Robert H. Youngjohns	$	395,000	$	395,000	$	11,052	$	291,842	$	1,092,894


(1)		The amount indicated in the column entitled “Health Benefits” is based on an estimate of $921 per month payable to Mr. Youngjohns to cover the cost of COBRA contributions for continued health care coverage.

(2)		Accelerated vesting of stock option award amounts was determined by measuring the fair value of the unvested stock options as of December 31, 2006, utilizing the provisions of SFAS 123R.

Severance Agreements with Executive Officers

In November 2001, August 2002, October 2003, and November 2005 we entered into severance agreements with Messrs. Warfield, Fior, Furino, and Stretch, respectively. Pursuant to these agreements, we agreed to pay each of Messrs. Warfield, Fior and Furino six months of base salary plus benefits upon an involuntary termination for reasons other than cause. Under the agreement with Mr. Stretch, we agreed to pay seven months of his base salary plus benefits upon his involuntary termination other than for cause.

The following table identifies the amounts we estimate that the named executive officers in the table below would have been entitled to receive had they been terminated without cause effective as of December 31, 2006, if such termination had not been in connection with a change of control:


						Total
	Salary		Health			Severance
Name	Equivalent		Benefits			Benefits

Ronald J. Fior	$	130,000	$	8,052(1	)	$	138,052
Richard D. Furino	$	124,800	$	5,526(2	)	$	130,326
Leslie J. Stretch	$	140,000	$	9,394(1	)	$	149,394
Robert W. Warfield	$	124,800	$	8,052(1	)	$	132,852


(1)		The amount indicated in the column entitled “Health Benefits” is based on an estimate of $1,342 per month payable to the named executive officer to cover the cost of COBRA contributions for continued health care coverage.

(2)		The amount indicated in the column entitled “Health Benefits” is based on an estimate of $921 per month payable to the named executive officer to cover the cost of COBRA contributions for continued health care coverage.

On March 16, 2007, we entered into a Separation Agreement and Release of Claims with Mr. Warfield intended to supersede his agreement of November 2001. Under the terms of the March 2007 agreement, Mr. Warfield’s employment with the Company will terminate effective August 15, 2007. On August 15, 2007, the Company will pay Mr. Warfield four and one-half months of base pay and will provide an additional payment to him to cover four and one-half months of COBRA health coverage in exchange for a general release of claims against the Company. Mr. Warfield is also eligible to receive a cash performance bonus at the discretion of the Company’s Chief Executive Officer.

Equity Compensation Plan Information

The following table summarizes information about common stock that may be issued upon the exercise of options, warrants and rights under all of our equity compensation plans as of December 31, 2006.

Number of

Securities

Remaining Available

Number of

for Future Issuance

Securities to be

Under Equity

Issued Upon

Weighted Average

Compensation Plans

Exercise of

Exercise Price of

(Excluding

Outstanding

Securities

Options, Warrants

Reflected in First

and Rights

Column)

Equity compensation plans approved by stockholders(1)(2)

6,554,405

4.46

2,659,987

Equity compensation plans not approved by stockholders(3)

1,000,000

3.45

Total

7,554,405

4.33

2,659,987


(1)		The number of shares of common stock available under the Employee Stock Purchase Plan increases on July 1 of each year by the lesser of (i) 1,200,000 shares, (ii) 2.0% of the outstanding shares of common stock on the last day immediately preceding such date or (iii) a lesser amount determined by the Board.

(2)		The number of shares available under the 2003 Stock Incentive Plan increases on July 1 of each year by the lesser of (i) 2,800,000 shares, (ii) 5.0% of the outstanding shares of common stock on the last day immediately preceding such date or (iii) an amount determined by the Board.

(3)		Reflects a Non-Qualified Stock Option Agreement with Mr. Robert H. Youngjohns, our President and CEO, entered into in accordance with his employment agreement as an “inducement grant” outside of our stockholder approved plan. Under the terms of the Option Agreement, Mr. Youngjohns has the option to purchase


		1,000,000 shares of our common stock at an exercise price of $3.45 per share, which was the closing price of our common stock on May 31, 2005, the date of grant, on the Nasdaq Global Market. The option vests over a period of four years with 25% vesting on May 31, 2006 and the remaining amount vesting in equal monthly installments over the following 36 months. The maximum term of the option is 10 years from the date of grant.

OWNERSHIP OF CALLIDUS SOFTWARE INC. COMMON STOCK

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of March 31, 2007 by the following:


	•	each person known by us to own beneficially more than 5% of our common stock;

	•	each of the directors and named executive officers individually; and

	•	all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, which generally attribute beneficial ownership of securities to each person who possesses, either solely or shared with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares of capital stock that a person would receive upon exercise of stock options or warrants held by that person that are immediately exercisable or exercisable within 60 days of the determination date, which in the case of the following table is March 31, 2007. Shares issuable pursuant to stock options and warrants exercisable within 60 days are deemed outstanding and held by the holder of such options or warrants for computing the percentage of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other person. The percentage of beneficial ownership for the following table is based on 28,855,750 shares of common stock outstanding as of March 31, 2007. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.


	Shares Beneficially
	Owned
Name	Number		Percent

Crosspoint Venture Partners(1)		6,776,701		23.48	%
2925 Woodside Road
Woodside, CA 94062
Invesco Private Capital, Inc.(2)		2,839,395		9.84
1166 Avenue of the Americas
New York, NY 10036
David Knott of Dorsett Management(3)		2,208,538		7.65
485 Underhill Boulevard,
Suite 205 Syosset,
New York 11791
William B. Binch(4)		57,186		*
Charles M. Boesenberg(5)		17,517		*
Michael A. Braun(6)		207,456		*
George B. James(7)		166,667		*
David B. Pratt(8)		314,135		1.09
Michele Vion(9)		23,668		*
Robert H. Youngjohns(10)		602,928		2.09
Ronald J. Fior(11)		303,367		1.05
Richard D. Furino(12)		168,446		*
Leslie J. Stretch(13)		132,408		*
Robert W. Warfield(14)		317,590		1.10
All directors and executive officers as a group (14 persons)(15)		2,447,995		8.48


*		Less than 1%.

(1)		Based on a stockholder’s questionnaire previously submitted by Crosspoint Venture Partners and additional communications with representatives of Crosspoint Venture Partners. The affiliates of Crosspoint Venture Partners are Crosspoint Venture Partners LS 2000, LP and Crosspoint Venture Partners 2000 Q, L.P. The general partner of Crosspoint Venture Partners 1997 L.P. is Crosspoint Associates 1997, L.L.C., a California limited liability company. The general partners of Crosspoint Associates 1997 are John B. Mumford, Rich Shapero, Seth Neiman, Robert A. Hoff and Donald B. Milder. John B. Mumford has sole voting power over the partnership’s Callidus holdings. The general partner of Crosspoint Venture Partners LS 1999 is Crosspoint Associates 1999, L.L.C., a California limited liability company. The general partners of Crosspoint Associates 1999 are John B. Mumford, Rich Shapero, Seth Neiman, Robert A. Hoff and Donald B. Milder. John B. Mumford has sole voting power over the partnership’s Callidus holdings. The general partner of Crosspoint Venture Partners LS 2000 is Crosspoint Associates 2000, L.L.C., a California limited liability company. The general partners of Crosspoint Associates 2000 are John B. Mumford, Rich Shapero, Seth Neiman, James Dorrian and Robert A. Hoff. John B. Mumford has sole voting power over the partnership’s Callidus holdings. The general partner of Crosspoint Venture Partners 2000 Q, L.P., a California limited partnership, is Crosspoint Associates 2000, L.L.C. The general partner of Crosspoint Venture Partners 2000 L.P., a California limited partnership is Crosspoint Associates 2000, L.L.C.


(2)		Based on a stockholder’s questionnaire previously submitted by INVESCO Private Capital, Inc. and additional communications with representatives of Invesco Private Capital. The affiliates of INVESCO Private Capital, Inc. are Chancellor V, L.P., Chancellor V-A, L.P., Citiventure 2000, L.P. and Euromedia Venture Fund (the “INVESCO Funds”). The general partner of Chancellor V, L.P. is IPC Direct Associates V, LLC. The managing member of IPC Direct Associates V, LLC is INVESCO Private Capital, Inc. The general partner of Chancellor V-A, L.P. is IPC Direct Associates V, LLC. The managing member of IPC Direct Associates V, LLC is INVESCO Private Capital, Inc. The general partner of Citiventure 2000, L.P. is IPC Direct Associates V, LLC. The managing member of IPC Direct Associates V, LLC is INVESCO Private Capital, Inc. The managing partner of Euromedia Venture Fund is IPC EuroMedia Associates, LLC. The managing member of IPC EuroMedia Associates, LLC is INVESCO Private Capital, Inc. The managing directors who make up the investment committee for each of the INVESCO Funds are Johnston Evans, Esfandiar Lohrasbpour and Alan Kittner.

(3)		Based on Schedule 13G filed with the Securities and Exchange Commission on February 13, 2007.

(4)		Includes 37,186 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007, and 4,000 shares held beneficially in the name of a family trust to which Mr. Binch has voting power as a trustee.

(5)		Includes 17,517 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(6)		Includes 188,706 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(7)		Includes 151,667 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(8)		Includes 277,642 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007, and 6,493 shares held beneficially in the name of a family trust to which Mr. Pratt has voting power as a trustee.

(9)		Includes 23,668 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(10)		Includes 566,781 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(11)		Includes 267,040 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.


(12)		Includes 166,354 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(13)		Includes 101,250 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007 and 31,158 shares held beneficially in an individual pension fund over which Mr. Stretch has control.

(14)		Includes 212,608 shares of common stock that may be acquired upon the exercise of stock options exercisable within 60 days after March 31, 2007.

(15)		See footnotes (4)-(14) above.

Certain Relationships and Related Transactions

Policies and Procedures for the Review and Approval of Related Party Transactions.

We regularly review all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. The Company’s legal and financial departments are primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions and determining whether a transaction is or may involve related parties. The legal and financial departments analyze whether the Company or a related person has a direct or indirect material interest in the transaction based on the totality of facts and circumstances. In addition, the Audit Committee reviews and approves any related person transactions that it determines are appropriate for the Company to undertake. As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in the Company’s annual proxy statement.

Related Party Transactions.

None.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act of 1934, as amended, requires our officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission reports of ownership and changes in ownership on Forms 3, 4 and 5 with respect to our securities. Such officers, directors and 10% stockholders are also required by Securities and Exchange Commission rules to furnish us with copies of all Section 16(a) reports they file. Based solely upon our review of copies of reports provided to us and written representations from our executive officers and directors with respect to our 2006 fiscal year, we believe that all reports required by Section 16(a) during fiscal 2006 were timely filed.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors (for the purposes of this report, the “Committee”) is composed of three independent outside directors. The Committee has prepared the following report on its activities with respect to Callidus’ audited financial statements for the fiscal year ended December 31, 2006 (the “audited financial statements”).


	•	The Committee has reviewed and discussed the audited financial statements with Callidus’ management and KPMG LLP (“KPMG”), Callidus’ independent auditors;

	•	The Committee has also discussed with KPMG the matters required to be discussed by Statements on Auditing Standards No. 61, as modified or supplemented;

	•	The Committee has received the written disclosures and the letter from KPMG required by Independence Standards Board Standard No. 1, as modified or supplemented, and has discussed with KPMG its independence from Callidus. The Committee also considered whether the provision of non-audit services by the independent auditors was compatible with maintaining the accountants’ independence and has discussed with them their independence; and

	•	Based on the review and discussions referred to above and relying thereon, the Committee has recommended to the Board of Directors that the audited financial statements be included in Callidus’ annual report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the Securities and Exchange Commission.

THE AUDIT COMMITTEE

George B. James, Chair

William B. Binch

Charles M. Boesenberg

▢

CALLIDUS SOFTWARE INC.

Notice of Annual Meeting of Stockholders
To be held June 5, 2007

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

You are cordially invited to attend the 2007 annual meeting of stockholders of Callidus Software Inc., a Delaware corporation, which will be held on June 5, 2007 at 10:00 a.m., local time, at the offices of Callidus Software Inc., 160 West Santa Clara Street, Suite 1500, San Jose, California, 95113. Whether or not you plan to attend the annual meeting, we ask that you sign and return the enclosed proxy card as promptly as possible to ensure that your shares will be represented. A self-addressed envelope has been enclosed for your convenience. If you attend the meeting, you may withdraw any previously given proxy and vote your shares in person.

By signing and returning this proxy card, you are hereby appointing Ronald J. Fior and V. Holly Albert, and each of them acting individually, as proxies, with the powers you would possess if personally present, and with full power of substitution, to vote all of your shares in Callidus Software Inc. at the annual meeting and at any adjournment or postponement thereof, upon all matters that may properly come before the meeting, including the matters described in the proxy statement.

(Continued and to be signed on the reverse side.)

14475

ANNUAL MEETING OF STOCKHOLDERS OF

CALLIDUS SOFTWARE INC.

June 5, 2007

Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.

ê Please detach along perforated line and mail in the envelope provided. ê

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x.


1.		To elect three Directors to serve until the 2010 annual meeting of stockholders:


		NOMINEES:
o	FOR ALL NOMINEES	O O	George B. James David B. Pratt
o	WITHHOLD AUTHORITY FOR ALL NOMINEES	O	Robert H. Youngjohns
o	FOR ALL EXCEPT (See instructions below)


INSTRUCTION:		To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: =



To change the address on your account, please check the box on the right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.		o


		FOR	AGAINST	ABSTAIN
2.	To ratify the appointment of KPMG LLP as our independent auditors for the fiscal year ending December 31, 2007.	o	o	o

3.	To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

The shares represented by this proxy card will be voted in accordance with your instructions if the card is signed and returned. If your card is signed and returned without instructions, your shares will be voted in favor of all director nominees and in favor of proposal 2. If you do not mail a proxy card or attend the annual meeting and vote by ballot, your shares will not be voted.

In the event that any other matter may properly come before the annual meeting, or any adjournment or postponement thereof, each proxy is authorized to vote on such matter in his discretion. You hereby revoke all previous proxies given to vote at the annual meeting or any adjournment or postponement thereof. By signing and returning this proxy card, you also hereby acknowledge the receipt of the notice of annual meeting of stockholders, proxy statement and 2006 annual report of Callidus Software Inc.

Signature of Stockholder

Date:

Signature of Stockholder

Date:


	Note:		Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

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	Page

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING, THE PROXY MATERIALS AND VOTING YOUR SHARES		1
PROPOSALS FOR ACTION AT THE ANNUAL MEETING		4
PROPOSAL ONE: ELECTION OF DIRECTORS		4
PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS		7
INFORMATION ABOUT THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE		8
INFORMATION REGARDING COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS		13
OWNERSHIP OF CALLIDUS SOFTWARE INC. COMMON STOCK		26
AUDIT COMMITTEE REPORT		29
ADDITIONAL INFORMATION		30