-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TA+TPG5zJJaBk8kOiBhtSZJd+5HhjKD9wQk1qhocFxwUl+QsymUXW6LvDdi7UCbM YmwaFezSjIV7Cv2W8tsYOg== 0001012870-00-000623.txt : 20000215 0001012870-00-000623.hdr.sgml : 20000215 ACCESSION NUMBER: 0001012870-00-000623 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHORDIANT SOFTWARE INC CENTRAL INDEX KEY: 0001042134 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 931051328 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-92187 FILM NUMBER: 537923 BUSINESS ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 950142217 BUSINESS PHONE: 4085176100 MAIL ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 950142217 S-1/A 1 AMENDMENT TO FORM S-1 As filed with the Securities and Exchange Commission on February 14, 2000 Registration No. 333-92187 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------- AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------------- CHORDIANT SOFTWARE, INC. (Exact Name of Registrant as Specified in Its Charter) --------------------- Delaware 7372 93-1051328
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number Identification No.)
20400 Stevens Creek Blvd., Suite #400 Cupertino, CA 95014 (408) 517-6100 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- Samuel T. Spadafora Chordiant Software, Inc. President, Chief Executive Officer and Chairman of the Board 20400 Stevens Creek Blvd., Suite 400 Cupertino, CA 95014 (408) 517-6100 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------------- Copies to: Craig E. Dauchy, Esq. Curtis L. Mo, Esq. Eric C. Jensen, Esq. Richard C. Leska, Esq. Cooley Godward LLP Julie Freese, Esq. Five Palo Alto Square Brobeck, Phleger & Harrison LLP 3000 El Camino Real Two Embarcadero Place Palo Alto, CA 94306 2200 Geng Road Palo Alto, CA 94303
--------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"), check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000 PRELIMINARY PROSPECTUS [LOGO OF CHORDIANT SOFTWARE, INC.] 4,500,000 Shares Common Stock Chordiant Software, Inc. is offering 4,500,000 shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol CHRD. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share. -------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 8. --------------
Per Share Total --------- ----- Public Offering Price........................................... $ $ Underwriting Discounts and Commissions.......................... $ $ Proceeds to Chordiant........................................... $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We have granted the underwriters a 30-day option to purchase up to an additional 425,000 shares of our common stock to cover over-allotments. Two of our stockholders, who are identified on page 67, have granted the underwriters a 30-day option to purchase up to an additional 250,000 shares of our common stock to cover over-allotments. -------------- Robertson Stephens Dain Rauscher Wessels Thomas Weisel Partners LLC The date of this prospectus is , 2000 [INSIDE FRONT COVER OF PROSPECTUS] The inside front cover graphic for Chordiant will be a single page (not gate folded): On the top center of the inside front cover there will be the Chordiant logo. Below the logo the page will read e-Business Infrastructure Software. In the middle of the page the following graphic will appear: The graphic is circular in shape with two layers. The inside layer contains images of 3 men and women who are on the telephone and working with computers. Five words are written (equal distant apart) inside the outside circular layer: FAX, INTERNET, PHONE, EMAIL, INTERACTIVE TV. The outer layer has a shadow of a woman on the bottom left of the outer circle and a vertical view of 3 skyscrapers. Eight words are written in oval blocks (equal distant apart) inside the outer layer of the circle: CUSTOMER DATABASE, SALES, MARKETING, CUSTOMER SERVICE, FIELD SERVICE, PRODUCT OFFERING, BILLING, FULFILLMENT. At the bottom of the page the inside front cover will read: Chordiant provides e-business infrastructure software that it believes enables companies to offer their customers personalized marketing, sales programs, e-business services, and customer support across multiple communication channels. TABLE OF CONTENTS
Page ---- Summary.................................................................. 4 Risk Factors............................................................. 8 Forward-Looking Statements............................................... 15 Use of Proceeds.......................................................... 15 Dividend Policy.......................................................... 15 Capitalization........................................................... 16 Dilution................................................................. 17 Selected Consolidated Financial Data..................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 19 Business................................................................. 28 Management............................................................... 42 Related Party Transactions............................................... 55 Principal Stockholders................................................... 58 Description of Capital Stock............................................. 62 Shares Eligible for Future Sale.......................................... 65 Underwriting............................................................. 67 Legal Matters............................................................ 69 Experts.................................................................. 69 Where You Can Find More Information...................................... 70 Index to Financial Statements............................................ F-1
--------------------- Dealer Prospectus Delivery Obligation Until , 2000, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and for their unsold allotments or subscriptions. 3 SUMMARY This summary highlights information contained in this prospectus. This summary does not contain all the information you should consider before buying shares in the offering. You should read the entire prospectus carefully. In this prospectus, the terms Chordiant, we, us, and our refer to Chordiant Software, Inc. and its wholly owned subsidiary Chordiant International, Inc.. Except as otherwise indicated, information in this prospectus is based on the following assumptions: . the conversion of all our outstanding shares of preferred stock and convertible debentures into shares of common stock upon the closing of this offering; . no exercise of the underwriters' over-allotment options; and . the filing of our amended and restated certificate of incorporation before the closing of this offering. Chordiant and the Chordiant logo are registered trademarks of Chordiant. WSOP, CCS-Customer Communications Solution and One Click, One Call, One Customer are trademarks of Chordiant. This prospectus also includes trademarks owned by other parties. All other trademarks mentioned are the property of their owners. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus. Chordiant Software, Inc. Chordiant provides e-business infrastructure software that it believes enables companies to offer their customers personalized marketing, sales programs, e-business services and customer support across multiple communication channels. These channels include the internet, e-mail systems, automated telephony self-service systems, and customer service representatives in call centers and retail outlets. We believe that companies that use organization-wide customer information to provide consistent customer support through all channels of customer contact will be able to compete more successfully in the rapidly changing internet economy. Our Customer Communications Solution, or CCS, software product, is comprised of a suite of applications. It includes standard business services, a workflow engine and enterprise integration services supporting network, telephony, and data management connections. It also connects with existing databases and computer systems. Our product is licensed to our customers as a complete e-business infrastructure system. CCS includes a customer service representative application, a web communications application and an e-mail communications application. Our software is designed to enable companies to: . develop a comprehensive single view of the customer; . use automated, sophisticated decision making processes; . offer their customers consistent experiences across multiple communications channels; and . utilize standard and customizable business services. We license our product and provide related services primarily through our direct sales organization, complemented by the selling and support efforts of systems integrators. We license our product to multinational market leaders in business-to-consumer industries. Our customers include Bank One International, Cable & Wireless Communications, Canadian Tire Acceptance Limited, Chase Manhattan Mortgage Corporation, 4 Metropolitan Life Insurance Company, Direct Line Group Services Limited, First USA Bank, General Motors' OnStar division, KLM Royal Dutch Airlines and Thomas Cook Global Services. Our objective is to continue to provide innovative e-business infrastructure software that enables a company to offer its customers personalized interactions across multiple communication channels. Our principal executive offices are located at 20400 Stevens Creek Blvd., Suite 400, Cupertino, CA 95014, and our telephone number is (408) 517-6100. Our internet address is www.chordiant.com. The information on our web site is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. 5 The Offering Common stock offered................................ 4,500,000 shares Common stock to be outstanding after this offering.. 34,818,295 shares Use of proceeds..................................... General corporate purposes, including working capital and capital expenditures. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. CHRD
-------------------- The number of shares of common stock to be outstanding after this offering assumes no exercise of the underwriters' over-allotment options. The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of December 31, 1999, and excludes: . 7,773,658 shares subject to options outstanding as of December 31, 1999, at a weighted average exercise price of $1.82 per share; . 898,276 additional shares that we could issue under our equity incentive stock option plan; . 700,000 shares that we could issue under our non-employee directors' stock option plan; and . 2,000,000 shares that we could issue under our employee stock purchase plan. 6 Summary Consolidated Financial Data (in thousands, except per share data)
Year Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- (in thousands, except per share data) Consolidated Statement of Operations Data: Net revenues: License......................................... $ 1,142 $ 4,360 $ 8,007 Service......................................... 1,766 8,105 9,581 -------- -------- -------- Total net revenues.......................... 2,908 12,465 17,588 Cost of net revenues............................. 1,535 9,372 14,749 -------- -------- -------- Gross profit .................................... 1,373 3,093 2,839 Loss from operations............................. (11,923) (17,880) (22,351) Net loss......................................... $(11,593) $(17,440) $(23,137) ======== ======== ======== Net loss per share: Basic and diluted............................... $ (2.31) $ (3.44) $ (4.34) ======== ======== ======== Weighted average shares......................... 5,009 5,075 5,327 ======== ======== ======== Pro forma net loss per share (unaudited): Basic and diluted............................... $ (0.93) ======== Weighted average shares......................... 24,805 ========
December 31, 1999 ------------------------------- Actual Pro Forma As Adjusted -------- --------- ----------- (unaudited) Consolidated Balance Sheet Data: Cash and cash equivalents....................... $ 6,719 $ 6,719 $68,394 Working capital................................. 1,833 1,833 63,508 Total assets.................................... 22,086 22,086 83,761 Borrowings...................................... 13,225 3,225 3,225 Deferred revenues............................... 10,196 10,196 10,196 Mandatorily redeemable preferred stock.......... 51,609 -- -- Stockholders' equity (deficit).................. (57,782) 3,827 65,502
See note 2 of notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data. The pro forma consolidated balance sheet data reflects the conversion of outstanding shares of preferred stock and convertible debt that will be effective upon the closing of this offering. The as adjusted balance sheet data reflects the net proceeds from the sale by us of shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, after deducting underwriting discounts and commissions and offering expenses, and our estimated offering expenses. 7 RISK FACTORS This offering and an investment in our common stock involve a high degree of risk. Please carefully consider the following risk factors before deciding to purchase shares of our common stock. Any of the following risks could seriously harm our business and results of operations. As a result, the trading price of our common stock could decline, and you could lose part or all of your investment. Risks Related to Chordiant Because our short operating history makes it difficult to evaluate our prospects, our future financial performance may disappoint investors and result in a decline in our stock price. You must consider our prospects given the risks, expenses and challenges we might encounter because we are at an early stage of development in a new and rapidly evolving market. Until September 1997, we were engaged primarily in the research and development of our CCS software product. We licensed our first product in September 1997 and our sales and service organizations are relatively new and still growing. Due to our short operating history, our future financial performance is not predictable and may disappoint investors and result in a decline in our stock price. The revenue and income potential of our product is unproven. We expect to continue to incur losses and we may not achieve or maintain profitability, which may cause our stock price to decline. We incurred net losses of $11.6 million for 1997, $17.4 million for 1998 and $23.1 million for 1999. As of December 31, 1999, we had an accumulated deficit of $62.6 million. We expect to continue to incur losses on both a quarterly and annual basis at least through 2000. Moreover, we expect to continue to incur significant sales and marketing and research and development expenses and to establish additional sales offices domestically and internationally, and, as a result, we will need to generate significant revenues to achieve and maintain profitability. We cannot be certain that we can sustain this growth or that we will generate sufficient revenues to achieve profitability. Our operating results fluctuate significantly and an unanticipated decline in revenues may disappoint investors and result in a decline in our stock price. Our quarterly revenues will depend primarily upon product implementation by our customers. We have historically recognized most of our license and services revenue using the percentage-of-completion method using labor hours incurred as the measure of progress towards completion of implementation of our product and we expect this practice to continue. Thus, delays in implementation by our customers will reduce our quarterly revenue. Historically, a substantial portion of new customer orders have been booked in the third month of the calendar quarter, with a concentration of these bookings in the last two weeks of the third month. We expect this trend to continue and, therefore, any failure or delay in bookings would decrease our quarterly deferred revenue. If our revenues or operating margins are below the expectations of any securities analysts that may analyze us, or investors, our stock price is likely to decline. We have limited experience with large-scale deployments and if our product does not successfully operate in a company-wide environment, we may lose sales and suffer decreased revenues. If existing customers have difficulty deploying our product, particularly in large-scale deployments, it could damage our reputation and reduce our revenues. Our success requires that our product be highly scalable, or able to accommodate substantial increases in the number of users. To date, no large- scale deployment has been operating at any customer site and our product is currently being used by only a limited number of users. Our product is expected to be deployed on a variety of computer hardware platforms and to be used in connection with a number of third-party software applications by personnel who may have not previously used application software systems or our product. These deployments present very significant technical challenges, which are difficult or impossible to predict. 8 Failure to successfully customize or implement our product for a customer could prevent recognition of revenues, collection of amounts due or cause legal claims by the customer. If a customer is not able to customize or deploy our product successfully, the customer may not complete expected product deployment, which would prevent recognition of revenues and collection of amounts due, and could result in claims against Chordiant. We have in the past had disputes with customers concerning product performance. One dispute, from a 1995 consulting agreement, resulted in a settlement following contractually-required mediation. One, from a 1997 CCS product license, resulted in a settlement following litigation. In a letter dated January 25, 2000, Chase Manhattan Mortgage Corporation claimed that we breached our license and related services agreements with them and provided notice of Chase's intent to terminate the agreements. Chase alleged that we failed to meet product specifications and development-related milestones and requested that we either cure the alleged breaches, or if unable to do so, refund Chase's past payments. In later correspondence, Chase has maintained that our product does not have the requested functionality and that we misrepresented potential scalability. Chase and Chordiant are discussing deliverables requested by Chase to cure the alleged breaches. We do not believe that we have breached our agreements with Chase and intend to continue to satisfy our obligations to Chase. Chordiant intends to defend itself vigorously if an action is bought by Chase. During the years ended December 31, 1999 and 1998, we recognized $5.3 million and $1.5 million of revenue from Chase. At December 31, 1999, our outstanding receivables balance from Chase was $1.7 million. This or any customer disputes, with or without merit, could be costly and time-consuming to defend, reduce our revenues, and harm our reputation. An unfavorable outcome in the dispute with Chase could harm our business. Our product has a long sales and implementation cycle, which makes it difficult to predict our quarterly results and may cause operating results to vary significantly. The period between initial contact with a prospective customer and the implementation of our product is unpredictable and often lengthy, ranging to date from three to twenty-four months. Thus, deferred revenue could vary significantly from quarter to quarter. Any delays in the implementation of our product could cause reductions in our revenues. The licensing of our CCS product is often an enterprise-wide decision that generally requires us to provide a significant level of education to prospective customers about the use and benefits of our product. The implementation of our products involves significant commitment of resources and is commonly associated with substantial implementation efforts that may be performed by us, the customer or third-party system integrators. Customers generally consider a wide range of issues before committing to purchase our product, including product benefits, ability to operate with existing and future computer systems, ability to accommodate increased transaction volume and product reliability. Because a small number of customers account for a substantial portion of our software license revenues, our revenues could decline if we lose a major customer. We derive a significant portion of our software license revenues in each quarter from a limited number of customers. Loss of a major customer in a particular quarter could cause a decrease in revenue, deferred revenues and net income. In 1998, sales to our four largest customers, KLM Royal Dutch Airlines, Thomas Cook Global Services, Canadian Tire Acceptance Limited and Chase Manhattan Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total net revenues. For the year ended December 31, 1999, revenues from Chase Manhattan Mortgage Corporation and First USA Bank accounted for 30% and 19% of our total net revenues. We expect that a limited number of customers will continue to account for a substantial portion of our revenues. As a result, if we lose a major customer, if a contract is delayed or cancelled, our revenues would be adversely affected. In addition, customers that have accounted for significant revenues in the past may not generate revenues in any future period causing our failure to obtain new significant customers or additional orders from existing customers to materially affect our operating results. 9 Defects in our product could diminish demand for our products and result in loss of revenues, decreased market acceptance and injury to our reputation. Errors may be found from time to time in our new or enhanced products after commencement of commercial shipments resulting in loss of revenues, decreased sales, injury to our reputation or increased warranty and repair costs. Although we conduct extensive product-testing during product development, we have in the past discovered software errors in our products and as a result have experienced delays in shipment of products. The latest version of our CCS product was introduced in October, 1999. Our failure to maintain strong relationships with system integrators would harm our ability to market and implement our product and reduce future revenues. Failure to establish or maintain relationships with systems integrators would significantly harm our ability to license our software product. System integrators install and deploy our product, in addition to those of our competitors, and perform custom integration of systems and applications. Some system integrators also engage in joint marketing and sales efforts with us. If these relationships fail, we will have to devote substantially more resources to the sales and marketing, implementation and support of our product than we would otherwise. Our efforts may also not be as effective as those of the system integrators which could reduce revenues. In many cases, these parties have extensive relationships with our existing and potential customers and influence the decisions of these customers. A number of our competitors have stronger relationships with these system integrators and, as a result, these system integrators may be more likely to recommend competitors' products and services. In particular, we have established a non-exclusive relationship with Electronic Data Systems Corporation, or EDS, a large system integrator and one of our principal stockholders. In each of 1998 and 1999, over 30% of our revenues were derived from customers for whom Electronic Data Systems has been engaged to provide system integration services. Deterioration of our relationship with Electronic Data Systems could have a material adverse effect on sales of our product. To date, our sales have been concentrated in the financial services, travel, automotive and telecommunications markets and if we are unable to continue sales in these markets or successfully penetrate new markets, our revenues may decline. Sales of our products and services in four markets--financial services, travel and leisure, automotive and telecommunications--accounted for 98% of total net revenues in 1998 and 87% of our total net revenues in 1999. We expect that revenues from these four markets will continue to account for a substantial portion of our total net revenues in 2000. If we are unable to successfully increase penetration of our existing markets or achieve sales in additional markets, or if the overall economic climate of our target markets deteriorates, our revenues may decline. Continued negative gross margin in service revenues could adversely impact our overall gross margin and income. Our services revenues have historically had lower gross margins than our license revenues. As a result, an increase in the percentage of total net revenues represented by services revenues, or an unexpected decrease in license revenues, could have a detrimental impact on our overall gross margins. We anticipate that service revenues will continue to represent over 30% of total net revenues. To increase services revenues, we must expand our services organization, successfully recruit and train a sufficient number of qualified services personnel, and obtain renewals of current maintenance contracts by our customers. This expansion could further reduce gross margins in our service revenues. 10 We depend on technology licensed to us by third parties, and the loss or inability to maintain these licenses could prevent or delay sales of our product. We license technology from several software providers that is incorporated in our product. In particular, we license Forte Tool and related Forte products from Forte Software, a Sun Microsystems, Inc. company. Our license agreement with Forte expires in September 2001, and can be extended upon agreement of the parties. We anticipate that we will continue to license technology from Forte and other third parties in the future. This software may not continue to be available on commercially reasonable terms, if at all. The loss of the Forte technology or other technology licenses could result in delays in the license of our product until equivalent technology, if available, is developed or identified, licensed and integrated into our product. Defects in third party products associated with our CCS product could impair our CCS products' functionality and injure our reputation. The effective implementation of our products depends upon the successful operation of third-party products in conjunction with our products. Any undetected errors in these products could prevent the implementation or impair the functionality of our product, delay new product introductions or injure our reputation. In the past, while our business has not been materially harmed, product releases have been delayed as a result of errors in third-party software and we have incurred expenses in investigating the cause of these errors. Our customers have the ability to alter our source code and inappropriate alterations could adversely affect the performance of our product, cause injury to our reputation and increase operating expenses. Customers have access to our computer source code when they license our product and may alter the source code. Alteration may lead to implementation, operation and upgrade problems for our customers. This could adversely affect the market acceptance of our products, and any necessary investigative work and repairs could cause us to incur significant expenses and delays in implementation. If we fail to introduce new versions and releases of our CCS product in a timely manner customers may license competing products and our revenues may decline. If we are unable to ship or implement enhancements to our CCS product when planned, or fail to achieve timely market acceptance of these enhancements, we may suffer lost sales and could fail to achieve anticipated revenues. A majority of our total revenues have been, and are expected to be, derived from the license of our CCS product. Our future operating results will depend on the demand for this product by future customers, including new and enhanced releases that are subsequently introduced. If our competitors release new products that are superior to our product in performance or price, or we fail to enhance our product and introduce new features and functionality in a timely manner, demand for our product may decline. We have in the past experienced delays in the planned release dates of new versions of our software product and upgrades. New versions may not be released on schedule or may contain defects when released. If our product does not operate with the hardware and software platforms used by our customers, customers may license competing products and our revenues will decline. If our product fails to satisfy advancing technological requirements, the market acceptance of our product could be reduced. We currently serve a customer base with a wide variety of constantly changing hardware, software applications and networking platforms. Customer acceptance of our product depends on many factors such as: . our ability to integrate our product with multiple platforms and existing, or legacy systems; . our ability to anticipate and support new standards, especially internet standards; and . the integration of additional software modules under development with our existing product. 11 Our reliance on international operations may cause increased operating expenses and cause our net income to decline. In 1998, international revenues were 78% of our total net revenues. International revenues were 38% of total net revenues in 1999. We expect international revenues will continue to represent a significant portion of our total net revenues in future periods. We have faced, and will continue to face, risks associated with: . difficulties in managing our widespread operations; . difficulties in hiring qualified local personnel; . seasonal fluctuations in customer orders; . longer accounts receivable collection cycles; and . expenses associated with products used in foreign markets. Any of these factors could have a significant impact on our ability to deliver products on a competitive and timely basis and adversely affect our operating expenses and net income. Our international sales are currently U.S. dollar-denominated. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. In the future, we may elect to invoice some of our international customers in local currencies. Doing so will subject us to fluctuations in exchange rates between the U.S. dollar and the particular local currency. International expansion could be difficult and we may not achieve sales growth. If we are unable to expand our international operations and sales, and build relationships with third parties outside the United States on a timely basis, we may not achieve anticipated sales growth. We have expanded, and intend to continue expanding, our international operations and enter additional international markets. In October 1997, we opened an office in London, England and in January, 2000 we opened an office in the Netherlands. As of December 31, 1999 we had 40 employees based internationally. To increase our international sales opportunities, we will need to further develop our international sales, professional services and support organizations, and we will need to form additional relationships with system integration partners worldwide. Industry Risks Competition in our markets is intense and could reduce our sales and prevent us from achieving profitability. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could reduce our future revenues. The market for our product is intensely competitive, evolving and subject to rapid technological change. The intensity of competition is expected to increase in the future. Our current competitors include: .Internal information technology departments. In-house information technology departments of potential customers have developed or may develop systems that provide some or all of the functionality of our product. We expect that internally developed application integration and process automation efforts will continue to be a significant source of competition. .Point application vendors. We compete with providers of stand-alone point solutions for web-based customer relationship management and traditional client/server-based, call-center service customer and salesforce automation solution providers. 12 Many of our competitors have greater resources and broader customer relationships than we do. In addition, many of these competitors have extensive knowledge of our industry. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to offer a single solution and increase the ability of their products to address customer needs. Because competition for qualified personnel is intense, we may not be able to retain or recruit personnel, which could impact the development and sales of our product. If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or to reach expected levels of productivity, our ability to develop and market our product will be weakened. Our success depends largely on the continued contributions of our key management, engineering, sales and marketing and professional services personnel, including Samuel T. Spadafora, our chairman, president and chief executive officer. Except for our chief executive officer, we do not have employment agreements with any of our key personnel. We have experienced significant turnover in our key personnel in the recent past. In particular, our ability to increase our sales will depend on our ability to recruit, train and retain top quality sales people who are able to target prospective customers' senior management, and who can productively generate and service large accounts. There is a shortage of sales personnel and competition for qualified personnel is intense, particularly in Silicon Valley. If we are unable to protect our intellectual property we may lose a valuable asset or incur costly litigation to protect our rights. Our success and ability to compete depend upon our proprietary technology. We rely on trademark, trade secret and copyright laws to protect our intellectual property. We have no patents or patent applications. We ship source code to our customers and third-party integrators are given access to it. Despite our efforts to protect our intellectual property, a third party could copy or obtain the source code to our software or other proprietary information without authorization, or could develop software competitive to ours. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology or duplicate our products. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or know-how or to determine their scope, validity or enforceability. Enforcing or defending our proprietary technology is expensive, could cause the diversion of our resources and may not prove successful. Our protective measures may prove inadequate to protect our proprietary rights. If we are unable to protect our intellectual property, we may lose a valuable asset or incur costly litigation to protect our rights. If we become subject to intellectual property infringement claims, these claims could be costly and time-consuming to defend, divert management attention and cause product delays, and have an adverse effect on our revenues and net income. We expect that software product developers and providers of e-business software will increasingly be subject to infringement claims as the number of products and competitors in our industry grows and the functionality of products overlaps. Any claims, with or without merit, could be costly and time- consuming to defend, divert our management's attention, or cause product delays. We have no patents or patent applications that we could use defensively against any company bringing such a claim. If our product was found to infringe a third party's proprietary rights, we could be required to enter into royalty or licensing agreements to be able to sell our product. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all. 13 Offering Risks We may spend the proceeds from this offering in ways in which our stockholders may not agree. Our management has complete discretion on how to spend the proceeds to us from this offering and may spend these proceeds in ways with which our stockholders may not agree. We do not have a specific plan for use of the proceeds of this offering but will use the proceeds for additional working capital and other general corporate purposes. Our directors and executive officers will retain significant control over Chordiant after the offering, which may lead to conflicts with other stockholders over corporate governance. Following the completion of this offering, our directors, executive officers, and holders of 5% or more of our outstanding common stock will beneficially own approximately 79.9% of our outstanding common stock. These stockholders, acting together, will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions. This control may delay or prevent a third party from acquiring or merging with us. Our stock price may be volatile because our shares have not been publicly traded before, and, as a result, you may lose all or a part of your investment. The market price of our common stock may fluctuate significantly in response to factors including the following, most of which are beyond our control: . variations in our quarterly operating results; . changes in market valuations of similar companies; and . departures of key personnel. Before this offering, you could not buy or sell our common stock publicly. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. An active public market for our common stock may not develop or be sustained after the offering. We negotiated and determined the initial public offering price with the representatives of the underwriters and this price may not be indicative of prices that will prevail in the trading market. As a result you may be unable to sell your shares of common stock at or above the offering price. The substantial number of shares that will be eligible for sale in the near future may cause the market price for our common stock to drop significantly, even if our business is doing well. Sales of a substantial number of shares of our common stock in the public market following this offering could reduce the market price for our common stock. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law, and under agreements that our stockholders have entered into with the underwriters. These agreements generally restrict our stockholders from selling shares for a period of 180 days after the date of this prospectus. The following table indicates when the shares of our common stock that were outstanding as of December 31, 1999 will be eligible for sale into the public market:
Eligibility of Shares for Sale in Public Market ------------------------- For the first 180 days after the date of this prospectus...................................... -- 180 days after date of this prospectus........... 24,355,140 At various times after 180 days after date of this prospectus................................. 5,963,155
Additionally, of the 7,773,658 shares issuable upon exercise of options to purchase our common stock outstanding as of December 31, 1999, approximately 2,109,283 shares will be vested and eligible for sale 180 days after the completion of this offering. 14 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as anticipates, believes, continue, could, estimates, expects, intends, may, plans, potential, predicts, should or will, or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks and uncertainties including the risks outlined under the Risk Factors section. These risks may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform to actual results, unless required by law. USE OF PROCEEDS We estimate that the net proceeds to us from the sale of 4,500,000 shares of our common stock in this offering are approximately $61.7 million, approximately $67.6 million if the underwriters' over-allotment options are exercised in full. This assumes an initial public offering price of $15.00 per share and the deduction of underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds from the sale of shares in this offering for additional working capital and other general corporate purposes, including the payment of our outstanding bank lines of credit. As of December 31, 1999, the outstanding balance of our lines of credit was $2.4 million. We have not yet determined our expected use of the remaining portion of these proceeds, but we currently estimate that we will incur at least $32.6 million in operating expenses during the next twelve months as we increase our investments in our business. These operating expenses will be partially offset by revenues received from the licensing of our product. The amounts and timing of expenditures will vary depending on factors including the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. We will retain broad discretion in the allocation of our net proceeds from the sale of shares in this offering. Pending the uses described above, we will invest the net proceeds of this offering in short term interest bearing, investment-grade securities. We cannot predict whether the proceeds will be invested to yield a favorable return. We believe that our available cash, together with our net proceeds of this offering, will be sufficient to meet our capital requirements for at least the next twelve months. We will not receive any proceeds from the sale of shares by the selling stockholders in the over-allotment portion of this offering. DIVIDEND POLICY We have never declared or paid dividends on our capital stock. We do not anticipate paying any cash dividends . We currently intend to retain our earnings, if any, for the development of our business. 15 CAPITALIZATION The following table provides our capitalization as of December 31, 1999: . on an actual basis; . on a pro forma basis after giving effect to: . the conversion of all of our outstanding shares of preferred stock and convertible debentures into shares of common stock upon the closing of this offering; . no exercise of the underwriters' over-allotment options; . the filing of our amended and restated certificate of incorporation before the closing of this offering; and . a 1 for 2 reverse stock split. . on the same pro forma basis as described above, as adjusted to give effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $15.00 per share and after deducting the underwriting discounts and commissions, and estimated offering expenses.
As of December 31, 1999 -------------------------------- Pro Forma Actual Pro forma As Adjusted -------- --------- ----------- (in thousands) (unaudited) Long-term borrowings........................... $ 10,617 $ 617 $ 617 -------- -------- -------- Mandatorily redeemable preferred stock: 25,027,985 shares authorized, 22,412,194 shares issued and outstanding, actual; no issued and outstanding, pro forma and pro forma as adjusted............................. 51,609 -- -- -------- -------- -------- Stockholders' equity (deficit): Preferred stock, 51,000,000 shares authorized; no shares issued and outstanding Common stock: 300,000,000 shares authorized, 5,906,101 shares issued and outstanding, actual; 30,318,295 shares issued and outstanding, pro forma; and 34,818,295 shares issued and outstanding, pro forma as adjusted.................................... 6 30 35 Additional paid-in capital................... 14,652 76,237 137,907 Note receivable from stockholder............. (406) (406) (406) Unearned compensation........................ (9,470) (9,470) (9,470) Accumulated deficit.......................... (62,564) (62,564) (62,564) -------- -------- -------- Total stockholders' equity (deficit)........ (57,782) 3,827 65,502 -------- -------- -------- Total capitalization........................ $ 4,444 $ 4,444 $ 66,119 ======== ======== ========
The number of shares of common stock to be outstanding after this offering assumes no exercise of the underwriters' over-allotment options. The number of shares of common stock to be outstanding after this offering is based upon the number of shares outstanding as of December 31, 1999, and excludes: . 7,773,658 shares subject to options outstanding as of December 31, 1999 at a weighted average exercise price of $1.82 per share; . 898,276 additional shares that we could issue under our equity incentive stock option plan; . 700,000 shares that we could issue under our non-employee directors' stock option plan; and . 2,000,000 additional shares that we could issue under our employee stock purchase plan. Of the total shares outstanding, 161,384 shares are subject to our right of repurchase as of December 31, 1999. Please read the above information in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section and our consolidated financial statements and related notes beginning on page F-1 of this prospectus. 16 DILUTION As of December 31, 1999, we had a pro forma net tangible book value of $3.8 million, or $0.13 per share. Pro forma net tangible book deficit per share is equal to: . our total tangible assets minus total liabilities, divided by . the number of outstanding shares of our common stock, If we assume we have sold 4,500,000 shares of common stock in this offering at an offering price of $15.00 per share, and we deduct the underwriting discounts and commissions and the estimated related expenses, our net tangible book value as of December 31, 1999 would have been $65.5 million, or $1.88 per share. This is an immediate increase in net tangible book value of $1.75 per share to existing stockholders and an immediate dilution of $13.12 per share to new investors. The following table illustrates this per share dilution. Assumed initial public offering price per share............... $15.00 Pro forma net tangible book value per share as of December 31, 1999........................................................ $0.13 Increase per share attributable to new investors.............. 1.75 ----- Pro forma net tangible book value after this offering......... 1.88 ------ Dilution per share to new investors........................... $13.12 ======
The following table summarizes, as of December 31, 1999, on the pro forma basis described above, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering. We used an assumed initial public offering price of $15.00 per share and we have not deducted underwriting discounts and commissions and estimated offering expenses in our calculations.
Shares Purchased Total Consideration Average ------------------ -------------------- Price Per Number Percent Amount Percent Share ---------- ------- ------------ ------- --------- Existing stockholders........ 30,318,295 87.1% $ 58,143,845 46.3% $ 1.92 New investors................ 4,500,000 12.9% 67,500,000 53.7% 15.00 ---------- ---- ------------ ---- Total...................... 34,818,295 100% $125,643,845 100% ========== ==== ============ ====
If we issue additional shares of common stock in the future, purchasers of common stock in this offering may experience further dilution. This discussion and these tables assume no exercise of any outstanding stock options. The exercise of options outstanding under our stock option plans having an exercise price less than the offering price would increase the dilution to new investors. If the underwriters exercise their over-allotment options in full, the following will occur: . the number of shares of common stock held by existing stockholders will decrease to 30,068,295, or 86.4% of the total number of shares of our common stock outstanding; and . the number of shares held by new investors will increase to 4,750,000, or 13.6% of the total number of our common stock outstanding. 17 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data are from our consolidated financial statements. The following data are from our audited consolidated financial statements presented elsewhere in this prospectus: . consolidated statements of operations for 1997, 1998 and 1999; and . consolidated balance sheets at December 31, 1998 and 1999. The following data are from our audited combined financial statements not included in this prospectus: . consolidated statements of operations for 1995 and 1996; and . consolidated balance sheets at December 31, 1995, 1996 and 1997. When you read this selected consolidated financial data, it is important that you also read the consolidated financial statements and related notes included in this prospectus, as well as the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this prospectus. The historical results are not necessarily indicative of the operating results to be expected in the future.
Year Ended December 31, ---------------------------------------------- 1995 1996 1997 1998 1999 ------- ------- -------- -------- -------- (in thousands, except per share data) Consolidated Statement of Operations Data: Net revenues: License...................... $ -- $ -- $ 1,142 $ 4,360 $ 8,007 Service...................... 7,328 2,312 1,766 8,105 9,581 ------- ------- -------- -------- -------- Total net revenues....... 7,328 2,312 2,908 12,465 17,588 ------- ------- -------- -------- -------- Cost of net revenues: License...................... -- -- 73 425 397 Service...................... 5,634 2,353 1,462 8,947 14,352 ------- ------- -------- -------- -------- Total cost of net revenues............... 5,634 2,353 1,535 9,372 14,749 ------- ------- -------- -------- -------- Gross profit (loss)........... 1,694 (41) 1,373 3,093 2,839 ------- ------- -------- -------- -------- Operating expenses: Sales and marketing.......... 780 1,140 5,142 12,580 13,368 Research and development..... 2,741 4,598 6,240 5,858 6,494 General and administrative... 1,019 1,860 1,416 2,046 2,668 Stock-based compensation..... -- 3 498 489 2,660 ------- ------- -------- -------- -------- Total operating expenses............... 4,540 7,601 13,296 20,973 25,190 ------- ------- -------- -------- -------- Loss from operations.......... (2,846) (7,642) (11,923) (17,880) (22,351) Interest expense.............. -- (55) (112) (121) (1,067) Other income (expense), net... (44) 135 442 561 281 ------- ------- -------- -------- -------- Net loss...................... $(2,890) $(7,562) $(11,593) $(17,440) $(23,137) ======= ======= ======== ======== ======== Net loss per share: Basic and diluted............ $ (0.58) $ (1.51) $ (2.31) $ (3.44) $ (4.34) ======= ======= ======== ======== ======== Weighted average shares...... 5,000 5,002 5,009 5,075 5,327 ======= ======= ======== ======== ======== Proforma net loss per share: Basic and diluted............ $ (0.93) ======== Weighted average shares...... 24,805 ========
December 31, ---------------------------------------------- 1995 1996 1997 1998 1999 ------- ------- -------- -------- -------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents..... $ 2,053 $ 2,678 $ 18,916 $ 1,713 $ 6,719 Working capital (deficit)..... (852) (1,368) 7,767 (10,162) 1,833 Total assets.................. 6,113 7,282 21,360 11,521 22,086 Borrowings.................... 483 1,045 1,268 1,687 13,225 Deferred revenues............. 1,950 4,179 4,402 5,719 10,196 Mandatorily redeemable convertible preferred stock....................... 2,014 9,047 28,949 28,949 51,609 Stockholders' equity (deficit)................... (2,024) (9,586) (20,682) (37,604) (57,782)
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Chordiant provides e-business infrastructure software that it believes enables companies to offer their customers personalized marketing, sales programs, e-business services and customer support across multiple communication channels. Our product, Customer Communications Solution, or CCS, is a suite of applications designed to integrate customer information from different data sources, automate business processes dependent on a customer's specific profile and request, and provide consistent service to customers across communications channels including the internet, telephone, e-mail and branch offices. Chordiant was incorporated in California in March 1991 and was reincorporated in Delaware in October 1997. Before 1997, we were primarily engaged in custom consulting services. We released the first version of our CCS product in September 1997. With the release of this product, we accelerated the development of our sales and marketing organizations. We derive revenues primarily from licenses of our CCS product and from related services, which include implementation, consulting, customization and integration, post-contract customer support and training. Our product is typically licensed directly to customers for a perpetual term, with pricing based on the number of servers and the number of users. On contracts involving significant implementation or customization essential to the functioning of our product, license and service revenues are recognized using the percentage-of-completion method using labor hours worked as the measure of progress towards completion. We classify revenues from these arrangements as license and services revenues based upon the estimated fair value of each element. Provisions for estimated contract losses are recognized in the period in which the loss becomes probable and can be reasonably estimated. We expect that a majority of our license and service revenues will be recognized using this percentage-of-completion methodology. On contracts that do not involve significant implementation or customization essential to the functioning of our product, license revenues are recognized when there is persuasive evidence of an arrangement for a fixed and determinable fee that is probable of collection and when delivery has occurred. For arrangements with multiple elements, we recognize revenues for the delivered elements based upon the residual contract value as prescribed by Statement of Position No. 98-9, Modification of SOP No. 97-2 with Respect to Certain Transactions. Service revenues from consulting and training services are recognized as these services are performed. Service revenues from post-contract customer support are recognized over the contractual support term, generally one year. In the future, we expect to derive revenues from contracts that provide for implementation services at a fixed hourly rate. On other contracts we expect to derive revenues from the licensing of the installed product on a per transaction basis. In connection with these types of arrangements, we will recognize the fair value of the implementation services as the services are delivered and will recognize license fees on a monthly basis at the contractual rate. We bill customers according to contract terms. Amounts billed to customers in excess of revenues recognized are recorded as deferred revenues. Service revenues as a percentage of total revenues were 61% in 1997, 65% in 1998 and 54% in 1999. To help ensure the success of early product deployments by customers, in early 1998 we began establishing a significant service organization. The organization assists customers, and third parties such as system integrators, 19 in the design and implementation of our product. Since service revenues have a lower gross margin than license revenues, this service activity resulted in reduced overall gross margins. In addition, in the fourth quarter of 1998 and through 1999, we engaged third parties to provide services to customers, who then billed us for their services. As a result of using third party resources, revenues from these contracts generated very small gross margins. As a result of expansion of our service organization and use of system integrators that bill our customers directly for services, we believe that our use of third party service providers will decline substantially in future periods. We expect that service revenue will continue to represent over 30% of total revenues. We sell our product through our direct sales force, and augment our sales efforts through relationships with system integrators, application service providers and technology vendors. Our revenues to date have been derived from customer accounts in the United States, United Kingdom, Netherlands, Canada and South Africa. In October 1997, we opened an office in London, England and in January, 2000 we opened an office in the Netherlands. In 1998, international revenues were $9.7 million or approximately 78% of our total net revenues and in 1999, international revenues were $6.6 million or approximately 38% of our total revenues. We believe international revenues will continue to represent a significant portion of our total revenues in future periods. A small number of customers account for a significant portion of our total revenues. As a result, the loss or delay of individual orders or delays in the product implementations for a customer can have a large impact on our revenues. In 1997, revenues from Pagenet and Visa accounted for 53% and 28% of our total net revenues. In 1998, revenues from KLM Royal Dutch Airlines, Thomas Cook Global Services, Canadian Tire Acceptance Limited and Chase Manhattan Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total net revenues. In 1999, revenues from Chase Manhattan Mortgage Corporation and First USA accounted for 30% and 19% of our total net revenues. We expect that revenues from a small number of customers will continue to account for a majority of our total net revenues in the future as historical implementations are completed and replaced with new projects from new and existing customers. Since our inception, we have incurred substantial research and development costs and have invested heavily in the expansion of our product development, sales, marketing and professional services organizations. This was done to build an infrastructure to support our long-term growth strategy. The number of our full-time employees increased from 70 as of September 30, 1997 to 144 as of December 31, 1999, representing an increase of 206%. Generally as a result of start-up costs, development and increasing sales and marketing expenses, we have incurred net losses in each quarter since our inception and, as of December 31, 1999, had an accumulated deficit of $62.6 million. We anticipate that our operating expenses will continue to increase as we expand our product development, sales and marketing and professional services organization. We expect to incur net losses in the future. We believe that period-to-period comparisons of our operating results are not meaningful and should not be relied upon as indicative of future performance. Our prospects must be considered given the risks, expenses and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving businesses. There can be no assurance we will be successful in addressing these risks and difficulties. In addition, although we have experienced revenue growth recently, this trend may not continue. In addition, we may not achieve or maintain profitability in the future. 20 Results of Operations The following tables provide the consolidated statement of operations data for each of the years ended December 31, 1997, 1998 and 1999, as well as the percentage of our total net revenues represented by each item. This information has been derived from the consolidated financial statements included in this prospectus.
Year Ended December 31, ------------------------------ 1997 1998 1999 -------- -------- -------- (in thousands) Consolidated Statement of Operations Data: Net revenues: License....................................... $ 1,142 $ 4,360 $ 8,007 Service....................................... 1,766 8,105 9,581 -------- -------- -------- Total net revenues........................ 2,908 12,465 17,588 -------- -------- -------- Cost of net revenues: License....................................... 73 425 397 Service....................................... 1,462 8,947 14,352 -------- -------- -------- Total cost of net revenues................ 1,535 9,372 14,749 -------- -------- -------- Gross profit................................... 1,373 3,093 2,839 -------- -------- -------- Operating expenses: Sales and marketing........................... 5,142 12,580 13,368 Research and development...................... 6,240 5,858 6,494 General and administrative.................... 1,416 2,046 2,668 Stock-based compensation...................... 498 489 2,660 -------- -------- -------- Total operating expenses.................. 13,296 20,973 25,190 -------- -------- -------- Loss from operations........................... (11,923) (17,880) (22,351) Interest expense.............................. (112) (121) (1,067) Other income (expense), net................... 442 561 281 -------- -------- -------- Net loss....................................... $(11,593) $(17,440) $(23,137) ======== ======== ======== Year Ended December 31, ------------------------------ 1997 1998 1999 -------- -------- -------- As a Percentage of Total Net Revenues: Net revenues: License....................................... 39 % 35 % 46 % Service....................................... 61 65 54 -------- -------- -------- Total net revenues........................ 100 100 100 -------- -------- -------- Cost of net revenues: License....................................... 3 3 2 Service....................................... 50 72 82 -------- -------- -------- Total cost of net revenues................ 53 75 84 -------- -------- -------- Gross profit................................... 47 25 16 -------- -------- -------- Operating expenses: Sales and marketing........................... 177 101 76 Research and development...................... 214 47 37 General and administrative.................... 49 16 15 Stock-based compensation...................... 17 4 15 -------- -------- -------- Total operating expenses.................. 457 168 143 -------- -------- -------- Loss from operations........................... (410) (143) (127) Interest expense.............................. (4) (1) (6) Other income (expense), net................... 15 4 1 -------- -------- -------- Net loss....................................... (399)% (140)% (132)% ======== ======== ========
21 Net Revenues License. License revenues consist of licenses of our CCS software. License revenues increased from $1.1 million in 1997 to $4.4 million in 1998 to $8.0 million in 1999 due to the growth in the number of product implementations by new customers and higher average transaction size. Our average transaction size has increased due to deployments by our customers to larger numbers of users. Service. Service revenues consist of consulting assistance and implementation, customization and integration, and post-contract customer support and training. Service revenues increased from $1.8 million in 1997 to $8.1 million in 1998 to $9.6 million in 1999. The 1997 to 1998 increase in service revenues was due to consulting work performed in connection with several large customer implementations. The revenue increase in 1999 was primarily due to a continuation in large customer implementations as well as maintenance, support and consulting revenues associated with license agreements signed in earlier periods. Cost of Net Revenues License. Cost of license revenues consist primarily of royalty payments to third parties for technology incorporated in our product. We began paying royalties in 1997. Service. Cost of service revenues consist primarily of salaries, facility costs and payments to third-party consultants incurred in providing customer support, training and implementation services. Cost of service revenue was $1.5 million in 1997, $8.9 million in 1998 and $14.4 million in 1999. Our cost of service revenue increased significantly in 1998 compared to 1997 due to our use of a third-party service provider to provide implementation services to our customers and our hiring of additional service personnel. During the year ended December 31, 1999, we hired a number of additional service personnel in anticipation of supporting a larger customer base in future periods. These increased investment efforts to meet anticipated customer demand resulted in negative gross margins from service revenues for the years ended December 31, 1998 and 1999. We expect that the cost of services revenues will continue to increase in dollar amount as we continue to expand our professional services organization to meet anticipated customer demand. Operating Expenses Sales and marketing. Sales and marketing expenses consist of salaries, commissions, field office expenses, travel and entertainment, promotional expenses and facility costs. Sales and marketing expenses increased from $5.1 million in 1997 to $12.6 million in 1998, and were $13.4 million in 1999. The increase in these expenses for 1998 compared to 1997 was attributable to increases of $5.2 million in personnel expenses, $1.6 million in allocated depreciation and overhead costs, and $600,000 in marketing and advertising costs. The increase of $788,000 for 1999 compared to 1998 was attributable to $1.4 million increase in personnel expenses, offset by a decrease in $612,000 of advertising cost. We expect that sales and marketing expenses will continue to increase in dollar amounts as we continue to expand our sales and marketing efforts, establish additional U.S. and international sales offices and increase promotional activities. Research and development. Research and development expenses include costs associated with the development and enhancement of our product, quality assurance activities and allocated facility costs. These costs consist primarily of employee salaries, benefits and the cost of consulting resources that supplement our internal development team. Due to the relatively short time between the date our products achieve technological feasibility and the date they become generally available to customers, costs subject to capitalization under SFAS No. 86 have been immaterial and have been expensed as incurred. Research and development expenses decreased from $6.2 million in 1997 to $5.9 million in 1998, and were $6.5 million 1999. The decrease in these expenses for 1998 compared to 1997 was attributable to personnel related expenses. The increase in these expenses for 1999 compared to 1998 was attributable to an increase of $350,000 in personnel expenses and an increase of $250,000 in general and administrative costs. We anticipate that we will continue to devote 22 substantial resources to research and development and that these expenses will continue to increase in dollar amounts. General and administrative. General and administrative expenses consist of salaries for administrative, executive and finance personnel, recruiting costs, information systems costs, professional service fees and allocated facility costs. These expenses increased from $1.4 million in 1997, to $2.0 million in 1998 and were $2.7 million in 1999. The increase in these expenses for 1998 compared to 1997 was attributable to increases in $100,000 in professional service fees and $500,000 in facility costs due to the move of our corporate offices to a larger facility in support of our growing business. The increase in these expenses for 1999 compared to 1998 was attributable to increases of personnel expenses. This increase was primarily the result of additional finance, executive and information services and an increase in outside contractor expenses associated with increased recruiting efforts and expanded human resources programs. We believe that our general and administrative expenses will continue to increase in dollar amounts as a result of our growing operations and the additional expenses associated with operating as a public company. Amortization of stock-based compensation. Amortization of stock-based compensation includes the amortization of unearned employee stock-based compensation and expenses for stock granted to consultants in exchange for services. Employee stock-based compensation expense is amortized over a four- year vesting schedule using the multiple option approach. In connection with the grant of some employee stock options, we recorded aggregate unearned stock- based compensation expense of $11.3 million in 1999. Stock-based compensation included in operating expenses totalled $498,000 in 1997, $489,000 in 1998 and $2.7 million in 1999. From January 1, 2000 through February 10, 2000, we granted stock options to purchase an aggregate of 285,500 shares of common stock at a weighted-average exercise price of $8.37 per share. In connection with the grant of these stock options Chordiant recognized unearned compensation totalling $1,892,000 which will be amortized over the four year vesting period of the stock options. Interest and Other Income (Expense), and Interest Expense Interest and other income (expense), net, and interest expense consists of interest income generated from our cash, cash equivalents and short-term investments, interest expense incurred in connection with outstanding borrowings and other non-operating income and expenses. Interest and other income (expense), net of interest expense increased from $330,000 in 1997 to $440,000 in 1998, and was $(786,000) in 1999. The increase in these expenses for 1998 compared to 1997 was attributable to increased interest income. The losses for 1999 compared to 1998 was attributable to an increase in borrowings, resulting in increased interest expense. Provision for Income Taxes We have incurred operating losses for all periods since our inception. Our deferred tax assets primarily consist of net operating loss carryforwards, nondeductible allowances and research and development tax credits. We have recorded a valuation allowance for the full amount of our net deferred tax assets, as the future realization of the tax benefit is not considered by management to be more-likely-than-not. As of December 31, 1998, we had net operating loss carryforwards for federal tax purposes of approximately $25.7 million and for state tax purposes of approximately $13.0 million. As of December 31, 1999, we had net operating loss carryforward for federal tax purposes of approximately $48.0 million and for state tax purposes of approximately $23.7 million. These federal and state tax loss carryforwards are available to reduce future taxable income. The federal tax loss carryforwards expire beginning in 2011 and the state tax loss carryforwards expire beginning in 2001. Under the provisions of the Internal Revenue Code, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be used in the future to offset taxable income. 23 Quarterly Results of Operations The following table provides unaudited consolidated statement of operations data for the eight quarters in the period ended December 31, 1999, as well as that data expressed as a percentage of our total net revenues for the periods indicated. This data has been derived from unaudited consolidated financial statements that have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information.
Quarter Ended ------------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 1999 1999 1999 1999 --------- -------- --------- -------- --------- -------- --------- -------- (in thousands) (unaudited) Consolidated Statement of Operations Data: Net revenues: License................ $ 253 $ 955 $ 1,426 $ 1,726 $ 1,769 $ 1,671 $ 1,885 $ 2,682 Service................ 596 1,018 1,731 4,760 2,702 2,050 2,170 2,659 ------- ------- ------- ------- ------- ------- ------- ------- Total net revenues......... 849 1,973 3,157 6,486 4,471 3,721 4,055 5,341 ------- ------- ------- ------- ------- ------- ------- ------- Cost of net revenues: License................ -- -- 288 137 7 38 173 179 Service................ 694 1,183 2,227 4,843 3,313 3,050 3,402 4,587 ------- ------- ------- ------- ------- ------- ------- ------- Total cost of net revenues......... 694 1,183 2,515 4,980 3,320 3,088 3,575 4,766 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............ 155 790 642 1,506 1,151 633 480 575 ------- ------- ------- ------- ------- ------- ------- ------- Operating expenses: Sales and marketing.... 2,236 3,197 3,084 4,063 2,959 3,315 3,283 3,811 Research and development.......... 1,456 1,281 1,406 1,715 1,632 1,671 1,487 1,704 General and administrative....... 364 460 528 694 578 633 701 756 Stock-based compensation......... 4 33 237 215 268 294 202 1,896 ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses......... 4,060 4,971 5,255 6,687 5,437 5,913 5,673 8,167 ------- ------- ------- ------- ------- ------- ------- ------- Loss from operations.... (3,905) (4,181) (4,613) (5,181) (4,286) (5,280) (5,193) (7,592) Interest expense....... (27) (26) (31) (37) (67) (324) (356) (320) Other income (expense), net.................. 224 169 102 66 16 16 38 211 ------- ------- ------- ------- ------- ------- ------- ------- Net loss................ $(3,708) $(4,038) $(4,542) $(5,152) $(4,337) $(5,588) $(5,511) $(7,701) ======= ======= ======= ======= ======= ======= ======= ======= As a Percentage of Total Net Revenues: Net revenues: License................ 30 % 48 % 45 % 27 % 40 % 45 % 46 % 50 % Service................ 70 52 55 73 60 55 54 50 ------- ------- ------- ------- ------- ------- ------- ------- Total net revenues......... 100 100 100 100 100 100 100 100 ------- ------- ------- ------- ------- ------- ------- ------- Cost of net revenues: License................ -- -- 9 2 0 1 4 3 Service................ 82 60 71 75 74 82 84 86 ------- ------- ------- ------- ------- ------- ------- ------- Total cost of net revenues......... 82 60 80 77 74 83 88 89 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............ 18 40 20 23 26 17 12 11 ------- ------- ------- ------- ------- ------- ------- ------- Operating expenses: Sales and marketing.... 263 162 97 63 66 89 81 71 Research and development.......... 171 65 45 26 37 45 37 32 General and administrative....... 43 23 16 11 13 17 17 14 Stock-based compensation......... 1 2 8 3 6 8 5 36 ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses......... 478 252 166 103 122 159 140 153 ------- ------- ------- ------- ------- ------- ------- ------- Loss from operations.... (460) (212) (146) (80) (96) (142) (128) (142) Interest expense....... (3) (2) (1) -- (1) (9) (9) (6) Other income (expense), net.................. 26 9 3 1 0 1 1 4 ------- ------- ------- ------- ------- ------- ------- ------- Net loss................ (437)% (205)% (144)% (79)% (97)% (150)% (136)% (144)% ======= ======= ======= ======= ======= ======= ======= =======
24 We have a limited operating history, which makes it difficult to predict future operating results. We intend to continue to invest significantly in our professional services organization, sales and marketing, and research and development, and expect to incur net losses in the future. Our operating expenses are relatively fixed and a delay in the recognition of revenues from one or more license transactions could cause large variations in operating results from quarter to quarter. While a large portion of our license revenues each quarter is recognized from deferred revenues on a percentage of completion basis, our quarterly performance will depend upon entering into new contracts to generate revenues for both current and future quarters. New contracts will likely not result in revenues during the quarter in which the contract was signed, and we may not be able to accurately predict when revenues from these contracts will be recognized. Our future operating results will depend on factors including the following: . delays in our ability to recognize revenues due to decisions by our customers to postpone software delivery or implementation; . size and timing of customer orders and product and service delivery schedules; . length of our sales cycle; . the success of our international operations; . success in maintaining and enhancing existing relationships and developing new relationships with system integrators; . the level of utilization of our own professional services organization and third-party service providers; and . timing of our development and release of new and enhanced products. We believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that in some future quarter our operating results will be below the expectations of public market analysts, if any, and investors. If this happens, the price of our common stock would likely decline. Liquidity and Capital Resources Since inception, we have financed our operations primarily through private sales of common and preferred stock, with net proceeds totaling $51.6 million, and through the sale of $10.0 million in convertible debentures. As of December 31, 1999, we had $6.7 million in cash and cash equivalents, and $1.8 million in working capital with $13.2 million of outstanding debt. Of the outstanding debt, $10.0 million is in the form of convertible debentures that will convert into 2 million shares of our common stock on the closing of this offering. We intend to repay our outstanding bank line of credit following the closing of this offering. Net cash used in operating activities was $3.1 million in 1997 and $14.6 million in 1998 and $27.6 million for 1999. Net cash used in investing activities was $744,000 in 1997, $3.1 million in 1998 and $1.9 million for 1999. Investing activities consist primarily of purchases of property and equipment and net proceeds from transactions involving our short-term investments. Net cash generated from financing activities was $20.1 million in 1997, $448,000 in 1998 and $34.5 million in 1999. Net cash generated from financing activities consists primarily of net proceeds from the issuance of preferred stock. As of December 31, 1999, we had two lines of credit with a bank permitting us to borrow up to an aggregate of $5.0 million. Borrowings under the accounts receivable line of credit bear interest at the lending bank's prime rate of 8.50% as of December 31, 1999, and are limited to 80% of eligible accounts receivable. Borrowings under the equipment loan bear interest at the lending bank's prime rate plus 0.25%. Our assets secure borrowings under both lines of credit. The lines of credit require us to maintain a minimum quick ratio of 1.25 to 1.00, a minimum liquidity ratio of 1.25 to 1.00, and a minimum capital base of $4,000,000 through December 31, 1999 and $7,000,000 afterward. As of December 31, 1999, we were in compliance with our financial covenants and we had borrowed $2.4 million against the lines of credit. 25 Payments under non-cancelable operating lease agreements for facilities and other equipment expire on various dates through 2004, resulting in aggregate lease expenses ranging from $799,000 to $1.7 million per year. We finance the acquisition of property and equipment, primarily computer hardware and software for our increasing employee base, as well as for our management information systems, primarily through non-cancelable leases. We project capital expenditures of $1.7 million in 2000 for computer hardware and software applications. We expect to continue to experience growth in our operating expenses. We anticipate that operating expenses and planned capital expenditures will continue to be a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in other businesses, technologies or product lines. We believe that available cash and cash equivalents and the net proceeds from the sale of the common stock in this offering will be sufficient to meet our working capital and operating expense requirements for at least the next 12 months. After that period, we may require additional funds to support our working capital and operating expense requirements or for other purposes and may seek to raise these additional funds through public or private debt or equity financings. There can be no assurance that this additional financing will be available, or if available, will be on reasonable terms. Recently Issued Accounting Pronouncements In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities was issued. SFAS No. 133 establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because we do not currently hold any derivative instruments and do not engage in hedging activities, we expect the adoption of SFAS No. 133 will not have a material impact on our financial position. In July 1999, SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133 was issued. We will be required to adopt SFAS No. 133 in 2000. Qualitative and Quantitative Disclosures About Market Risk We are developing products in the United States and currently market our product in North America, Europe and Africa. Our financial results could be affected by factors including changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since all sales are currently made in U.S. dollars, a strengthening of the dollar could make our product less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is no material risk exposure. Therefore, no quantitative tabular disclosures have been provided. Year 2000 Readiness The year 2000 issue refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive functions that is not year 2000 compliant may not be able to distinguish whether 00 means 1900 or 2000, which may result in failures or the creation of erroneous results. We designed our product to be year 2000 compliant when configured and used properly, and provided that the underlying operating system of the host machine and any other software used with or in the host machine or our product are year 2000 compliant. However, we have not completely tested older versions of our product for year 2000 compliance. We continue to respond to customer questions about prior versions of our product on a case-by-case basis. We have defined year 2000 compliant as the ability to: . correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change; 26 . function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration; . respond to two-digit date input in a way that resolves the ambiguity of century in a disclosed, defined and predetermined manner; . store and provide output of date information in ways that are unambiguous about century if the date elements in interfaces and data storage specify the century; and . recognize year 2000 as a leap year. As part of our year 2000 compliance strategy, we request assurances from our vendors that licensed software is year 2000 compliant. To date, we have received assurances from all significant vendors of our enterprise resource planning software, and technology support software about their year 2000 compliance. Despite testing by us and current and potential customers, and assurances from developers of technology incorporated into our product, our product may contain undetected errors or defects associated with year 2000 date functions. Known or unknown errors or defects in our product could result in delay or loss of revenues, diversion of development resources, damage to our reputation, increased service and warranty costs, or liability from our customers, any of which could seriously harm our business. We are not aware of any year 2000 problems with our product caused by the recent commencement of year 2000. Litigation about year 2000 compliance issues could be significant, and we are aware of potential lawsuits against other software vendors. Because of the unprecedented nature of this litigation, it is uncertain whether or to what extent we may be affected by it. Congress recently passed a law that is intended to limit liability for some failures to achieve year 2000 compliance. There can be no assurance that this law will provide us with any protection. We have completed an assessment of our material internal information technology systems, including our own software products and third-party technology. We continue to assess our non-information technology systems. To the extent that we are unable to test the technology provided by third-party vendors, we are seeking assurances from these vendors that their systems are year 2000 compliant. We are not aware of any material operational issues or costs associated with preparing our internal information technology and non- information technology systems for year 2000. However, we may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal information technology and non- information technology systems. We do not have any information concerning the year 2000 compliance status of our customers. Our current or future customers may incur significant expenses to achieve year 2000 compliance. If our customers are not year 2000 compliant, they may experience material costs to remedy problems, or they may face litigation costs. In either case, year 2000 issues could reduce or eliminate the budgets that current or potential customers could have for or delay purchases of our product and services. As a result, our business could be harmed. We have funded our year 2000 plan from operating cash flows and have not separately accounted for these costs in the past. To date, these costs have not been material. We will incur additional costs related to the year 2000 plan for administrative personnel to manage the project, outside contractor assistance, technical support for our products, product engineering and customer satisfaction. In addition, we may experience material problems and costs with year 2000 compliance that could harm our business. Year 2000 issues affecting our business, if not adequately addressed by us, our third-party vendors or suppliers or our customers, could have a number of negative consequences. These include: . claims from our customers asserting liability, including liability for breach of warranties related to the failure of our product and services to function properly, and any resulting settlements or judgments; and . material disruption to our business. 27 BUSINESS Overview Chordiant provides e-business infrastructure software that it believes enables companies to offer their customers personalized marketing, sales programs, e-business services and customer support across multiple communication channels. Our product, Customer Communications Solution, or CCS, is a suite of applications designed to integrate customer information from disparate data sources, automate business processes dependent on a customer's specific profile and request, and provide consistent service to customers across communications channels including the internet, telephone, e-mail and branch offices. Our product is designed to enable companies to increase the value of their customers by facilitating interactions between customers and companies that we believe will help retain customers, grow revenues and increase profits. Our customers include multinational market leading business- to-consumer companies such as Bank One International, Cable & Wireless Communications, Canadian Tire Acceptance Limited, Chase Manhattan Mortgage Corporation, Direct Line Group Services Limited, First USA Bank, General Motors' OnStar division, KLM Royal Dutch Airlines, Metropolitan Life Insurance Company and Thomas Cook Global Services. Industry Background The internet is large, pervasive, and rapidly growing. The internet has emerged as a major platform for communication, providing new, highly efficient channels through which companies can engage in commerce and interact directly with customers. International Data Corporation forecasts that commerce conducted over the internet will grow from $50 billion in 1998 to $1.3 trillion by 2003. First generation electronic commerce companies generally offered a wider selection of products at lower prices than traditional businesses and measured success primarily by the number of web site visitors. These online businesses focused primarily on gaining new customers and focused less on ways to deliver high levels of customer service to retain existing customers. The internet has created a new set of retail challenges, including price standardization, product commoditization, decreased customer loyalty and high customer acquisition and retention costs. As a result many of these early online businesses struggled to continue their rapid growth without delivering consistent high quality customer service across the broad array of communications channels that were created by the convergence of traditional and internet-based communications channels. Today, we believe customers are placing increasing value on convenient access to information, products and services. To be successful in the next generation of online commerce, commonly referred to as e-business, we believe companies must take an approach to attract and retain valuable customers that is primarily focused on the customer. To attract customers, companies must focus on developing and executing a new set of strategies that provide users with personalized experiences when they first contact the company. Companies must be more responsive to customer needs and focus on delivering superior customer service and satisfaction to differentiate themselves from their competitors. Companies must work to retain their customers by providing relevant and targeted experiences each time interactions take place. Moreover, companies must recognize that every customer interaction provides an opportunity to sell additional, and more valuable, products and services and increase customer loyalty through personalized customer interaction. While the internet has emerged as a significant channel to initiate and maintain customer relationships, we believe that existing and established customer communication channels have not become less significant. Specifically, to remain competitive, we believe that companies must provide consistent high quality customer service across all communication channels including the internet, e-mail systems and automated telephony self-service systems as well as call center, branch and retail outlet contact points. Companies that use organization-wide customer information to provide consistent customer services through interactions across multiple channels and contact points will be able to compete more successfully in the rapidly changing internet economy. There are many challenges to implementing an approach to e-business that is focused on individual customers. These challenges include providing customers access to information and functionality that 28 traditionally resides within complex back-end systems, integrating and managing disparate systems and generating relevant processes in real time. Successful integration of these systems and the creation of a comprehensive single view of the customer will allow companies to control routing and prompting of appropriate responses to the customer in an automated and dynamic process. Many existing product technologies do not meet the new requirements of e- business. Client/server technologies for sales force automation, call centers and field service management were originally designed for departmental functions and use by employees rather than customers. The growth of the internet has given rise to a wide range of new products focused on a specific channel of customer contact such as web self-service, e-mail response, and marketing automation. These single function web-based products are not likely to completely replace existing means of handling customer service and commerce. For instance, many companies continue to rely heavily on telephone-based customer service representatives and are struggling to integrate web and e-mail products with the telephone. Companies have responded to the lack of integration among existing products by attempting to design and build their own e-business software applications. The cost and time to custom build these new systems can be prohibitive, and the expertise required to design and integrate the systems are often beyond the capabilities of most companies. Additionally, most commercially-available and custom-built systems do not have the flexibility to integrate existing and anticipated technologies or to allow customization to keep up with a constantly changing Internet economy. We believe that companies need a flexible, integrated e-business infrastructure solution that supports all channels of customer contact with a comprehensive single view of the customer and consistent business services. Today, customer data must be accessed from multiple data sources, existing applications and transaction systems to respond to customer inquiries according to company specific business rules. Unlike traditional customer profiles, a comprehensive single view of the customer must be updated real time for each customer contact and reflect the customer's contact history and other relevant information. A complete customer focused e-business solution improves the ability to attract, engage and retain customers on a personalized basis and understand their needs and preferences to provide consistent interactions with customers through any communication channel. Solution We provide e-business infrastructure software that we believe enables companies to offer their customers personalized marketing, sales programs, e- business services and customer support across multiple communication channels. We have designed our product to integrate customer information from different data sources, generate business processes dependent on a customer's specific profile and request, and provide uniform service and data to customers across multiple communications channels. Our product is designed to enable companies to deliver appropriate offers and information to a targeted customer at the time of customer need. We believe that companies that use our product can increase the value of their customers through improved retention rates and linked selling opportunities that result from a personalized customer interaction. Key benefits of our solution include: Comprehensive single view of the customer. Companies that have a comprehensive single view of their customers and distribute that information throughout the enterprise to the points of customer contact can provide a more consistent and personalized consumer experience. Our data management technology helps companies develop a single view of the customer by integrating, consolidating and managing data derived from external and internal sources. Our product uses multiple data sources, existing applications and transaction systems to build a comprehensive single view of the customer and generate the appropriate response at time of contact. A bank, for example, might use our product to integrate information about a customer contained in internal databases such as credit card, mortgage and savings account historical transaction systems, web logs and e-mail management systems, as well as external databases such as national credit check services. By integrating this information, the bank has a more comprehensive understanding of the customer's ability to repay a loan and the value of that customer's relationship with the bank. 29 Automated, sophisticated decision making processes. Workflow-driven business processes help companies to make automated, yet informed, decisions about customer inquiries. Our workflow processing system supports customizable business processes that allow companies to develop business rules that will be implemented consistently. Our workflow editor is a graphical user interface application that allows business analysts to customize and automate their company's unique business rules. Our sophisticated routing engine is designed to allow companies to instantly determine how to respond to specific customer inquiries and generate offers appropriate for particular customers. A bank, for example, could specify that at the time of contact, only customers with a solid credit card history, an existing home loan, a savings account with a minimum balance and a clean credit history should receive an attractive auto loan rate and free online bill payment services. Consistent customer experience across multiple channels. Companies that provide customers with a consistent experience across multiple communication channels should enjoy greater customer satisfaction because customers are able to receive the same reliable service and information regardless of how they choose to contact the company. There is a large and increasing number of customer communications channels, including web, e-mail, fax, self-service systems, call centers and retail outlets. Our product implements a common set of business rules uniformly across systems already existing in different customer communications channels. A bank, for example, could ensure that a particular customer receives the same attractive auto loan rate and online bill payment service promotion, regardless of whether the customer contacts the bank through the web, e-mail, a customer service call center or in person at a local branch. Standard and customizable business services. We believe that companies that implement customized business services will realize greater levels of efficiency, consistency and customer satisfaction. Our product provides a broad set of standard business objects, or fundamental business functions, that are common across industries. These standard business objects can be modified to accommodate specific customer and business processes, policies and transactions of individual companies. A bank, for example, could customize our business objects by activating specific financial services objects related to specific transactions, such as processing auto loans, and alter our standard loan business processes to bypass an external credit check if the customer has a clean credit and mortgage history. Strategy Our objective is to continue to provide innovative e-business infrastructure software that enables companies to offer their customers personalized marketing, sales programs, e-business services and customer support across multiple communication channels. Key elements of our strategy include: Continue technology leadership. The increasing demands for multi-channel interactive e-business solutions require a product that is adaptable, extensible and interoperable. To meet these requirements, we intend to continue to devote substantial resources to the development of new and innovative product capabilities. Because we have designed our product from the beginning to utilize the capabilities of the internet, we believe that our product is more easily adapted to a constantly changing, e-business environment. For example, is designed to accommodate additional contact points such as personal digital assistants, cellular telephones and digital television. Extend technology and integration alliances. We have sought, secured and continue to seek, strategic alliances to assist in developing, marketing and selling our product. This approach is intended to leverage the technology and resources available to perform application design and development services for our customers and provide additional marketing and technical expertise in industry segments. To help ensure that we deliver a comprehensive product to our customers, we have established strategic relationships with organizations in four general categories: . computing and network platform vendors; 30 . software platform vendors; . application service providers; and . systems integrators. Target leading global business-to-consumer companies. We intend to continue to target the global leaders in our primary business-to-consumer markets by providing solutions to the financial services, telecommunications, travel and retail industries, including many internet-only businesses that compete in these markets. These industries are characterized by commodity-like products and large numbers of dispersed customers, partners, vendors and suppliers. We believe that companies in these industries will be early users, and early beneficiaries, of an integrated system that can deliver personalized, real-time processes utilizing a comprehensive single view of the customer. Expand worldwide infrastructure. We intend to continue to grow our global presence by expanding our worldwide field sales, marketing and services organizations. We plan to continue to expand our international presence by adding direct sales personnel and increasing our indirect sales channels. In particular, we plan to expand our European operations from our existing international headquarters in London, England in early 2000. Growth Through Customer References. We plan to achieve additional market success as our customers become successful in using their e-business initiatives to increase customer retention and revenues. Our most successful customers become valuable references for our future sales opportunities. To ensure that all our customers become Chordiant references, we intend to: . hire and retain expert consultants to assist our customers in implementation of our product; . work with experienced and knowledgeable systems integrators to help enable our customers to implement large scale deployments successfully; . deliver high quality customer education and training on our product to assist our customers to meet and exceed their e-business expectations; and . deliver superior customer service to our customers, to help ensure their long-term satisfaction and success with our product. 31 Products Our software product, Customer Communications Solution, or CCS, is licensed to our customers as a complete e-business infrastructure system. CCS is available with the following customer facing applications: a customer service representative application, a web communications interface application and an e-mail communications interface application. Regardless of the customer-facing application chosen, CCS includes business management, operations management and customer case management capabilities. All applications utilize a standard set of business services that are customizable and a workflow engine. CCS also provides interfaces supporting various network protocols, telephone environments, existing systems and data management services. The CCS product is illustrated and summarized below: [Graphic: Depicts the components of the Chordiant product including the following: . Customer-Facing Applications -Customer Service Application -Web Communications Application -E-mail Communications Application . Management Applications -Business Management -Operations Management -Case Management . E-business Infrastructure -Business Services -Workflow Engine . Customers' IT Systems -Telephony Systems -Internal Databases -External Data Sources -Existing Applications -Third-Party Applications] Customer-Facing Applications CCS can be licensed with one or more customer-facing applications. All customer-facing applications share common access to the business services and workflow capabilities in our e-business infrastructure. All customer interactions through these applications are logged in a comprehensive case management system. In addition, companies can also choose to integrate their existing customer-facing applications into our product. Customer Service Representative Application. The customer service representative application supports high-volume processing of telephone calls and enables conversations between customers and representatives. The application provides the customer service representative with personalized recommendations, promotions, and sale offers based on a customer's demographic profile, preferences and history of purchases, inquiries and service incidents. Web Communications Application. The web communications interface application provides companies with web-based functionality including self- service enhancement features such as context-specific help, inquiry and escalation through web forms, or buttons that schedule an outbound call from a customer service representative. 32 E-mail Communications Application. The e-mail communications interface application provides a tracking and routing system to respond to customer e- mail. The application interface enables customer service representatives to manage both e-mail received from, and e-mail sent to, customers in a consistent manner. Management Applications CCS includes three management applications: business management, operations management and case management. Business Management. The business management application includes a workflow editor for design, modification and control of company specific workflow processes. These processes can be managed efficiently by sales, marketing and service management personnel, keeping the product and corporate business objectives coupled. Operations Management. The operations management application allows a real-time view of the processes, users and activity status throughout the enterprise. Case Management. The case management application enables companies to create and resolve customer case histories, manage customer service representative workloads and create user-defined workflows according to company specific business process. Customer case histories allow all customer- facing applications real-time access to data from previous interactions with a specific customer. Within the application, cases can be prioritized for purposes of assignment, workload management and reporting. Features of this capability include: . displays of a workload summary and real-time selection of case views; . automatic display of customer history for viewing, editing, tracking and routing; . case history analysis; and . work assignment and procedures for dealing with customers that need additional assistance by more experienced or more specialized service representatives. E-business Infrastructure The e-business infrastructure manages information and workflow between the customer-facing and management applications and applicable back-end systems. The infrastructure contains a workflow system with hundreds of standard business objects providing fundamental business services. We provide companies with a standard set of business services that contains functionality usable across industries. A company or system integrator can customize these services and define specific functions and rules according to the specialized needs of their business processes and customer profiles. Workflow rules can be processed in real time based on a customer's profile and request. Because business processes are automated by our workflow system, customer service representatives are available to manage customer relationships. Companies can also incorporate third-party applications into our infrastructure and allow our business services and applications to respond automatically to changes in these third-party applications and systems. Interfaces and coordination with back-end systems CCS provides interfaces supporting various network protocols, telephony environments, existing computer systems and data management services, allowing connection of our product to a company's existing information technology software. Our data management services enable companies to create a comprehensive single view of the customer from multiple data sources and update these sources in real time. The data management services can be customized to connect with third-party applications and systems to enable access to financial transactions, order processing, billing, payment and other financial and business services. This flexibility allows application developers to build and deploy applications that can access and manage multiple types of data through a single interface. 33 Customers and Case Studies We target multinational market leaders in business-to-consumer industries, particularly companies in the financial services, telecommunications, travel and leisure and automotive industries. In the future, we plan to expand into the retail, direct merchandise and utilities industries. Below is a list of our customers as of December 31, 1999, each of which has purchased $500,000 or more of product during the last two years. . Bank One International . Cable & Wireless Communications . Canadian Tire Acceptance Limited . Chase Manhattan Mortgage Corporation . Direct Line Group Services Limited . First USA Bank . General Motors' OnStar division . KLM Royal Dutch Airlines . Metropolitan Life Insurance Company . Thomas Cook Global Services . Total System Services, Inc. . Ventura A small number of customers account for a significant portion of our total revenues. As a result, the loss or delay of individual orders or delays in the product implementations for a customer can have a large impact on our revenues. In 1997, revenues from Pagenet and VISA accounted for 53% and 28% of our total net revenues. In 1998, revenues from KLM Royal Dutch Airlines, Thomas Cook Global Services, Canadian Tire Acceptance Limited and Chase Manhattan Mortgage Corporation accounted for 36%, 19%, 14% and 12% of our total net revenues. In 1999, revenues from Chase Manhattan Mortgage Corporation and First USA accounted for 30% and 19% of our total net revenues. We expect that revenues from a small number of customers will continue to account for a majority of our total net revenues in the future as historical implementations are completed and replaced with new projects from new and existing customers. The following are examples of how selected customers are using our product. None of these customers are actively endorsing or promoting our product. Bank One International Bank One International Credit Card, a subsidiary of Bank One Corporation, a U.S. bank, selected our product to provide its e-business and customer interaction software to support its European credit card operation. Bank One International's web site allows customers to apply online for a credit card and existing customers to access account details, view and print statements, examine recent transactions and conduct online payment of card balances. Our product facilitates the provision of these services by helping the customer to get the service they require through their preferred channel, and enables Bank One International to build relationships that will enhance customer retention. With the requirement to add the promotion of its products and services using the internet, Bank One International needed a solution capable of more than just providing web-enabled customer services. It needed a system that could integrate with both existing systems and other customer service delivery channels, such as the traditional call center. 34 Our product's ability to provide Bank One International's customers with consistent personalized service, whether through the internet, telephone, e- mail, or other communications methods, was key to meeting both current and future customer service requirements. With our product, Bank One International will have the flexibility to automate its business processes once, and then adapt the product to meet the requirements of alternative delivery channels. Bank One International chose our product for its ability to link front and back-end operations and integrate with Bank One International's outsourced processing system. First USA Bank First USA Bank, a leading issuer of Visa credit cards, has selected Chordiant software to provide the technology for its next-generation customer retention system. Marketing services advisors in key customer centers serving First USA's card members will use the Chordiant system. CCS is being deployed at an initial location and is scheduled for roll-out to two additional customer centers. Total System Services, Inc. Total System Services, Inc. is one of the leading information technology processors of data and transactions for issuers of credit cards. Total Systems' systems offer online accounting, data processing, electronic commerce services, portfolio management, account acquisition, credit evaluation, risk management and customer service. Until now, integrating customer-facing applications with back-end data, transaction systems and business processes required extensive custom development. Total Systems developed TSeclipseSM, a new customer interaction application that enables financial services companies to deliver personalized service using unique business processes. TSeclipse, is based on our product, a suite of applications and business processes, to provide a single view of the customer at every point of contact. TSeclipse is aimed at banks and private-label credit card issuers that need to provide faster, more efficient, and more personalized interactions for their consumers by delivering one-to-one service through call centers, through e- mail, and other customer contact methods. CCS was chosen because it provides a complete customer interaction solution, including real-time changes to business processes, and its support of multiple channels, such as the Web, and other e- business environments. Thomas Cook Global Services Chordiant's product has assisted Thomas Cook in launching its new Global Services business, a worldwide service center providing traveler assistance services. CCS is the core platform that Thomas Cook uses to provide a range of business processes enabling Global Services business to improve customer relationships. Operational since July 1998, the center offers travelers a range of services. With a single telephone call to the service center from anywhere in the world, Thomas Cook customers have access to a range of travel services. Technology We design and build our product to provide an e-business infrastructure for customer interaction applications. Using a software methodology based on a flexible, object oriented, multi-tiered architecture, our product combines advanced distributed object technology with a new approach to workflow capabilities called workflow sequenced object processing, or WSOP. WSOP provides a unique application development capability we call P3 Active. P3 Active was developed to deliver an enhanced level of personalization with every customer interaction experience based on distributed information and processing of business logic. 35 Our product is designed to handle multiple data sources, real-time transaction systems and a large number of transactions. Our product architecture supports a multi-tier e-business application environment for deployment of web browser applications and desktop applications and also extends application and business services to web, e-mail, fax, self-service telephone systems, call centers, direct mail and retail outlets. The core technologies that we have developed include: . multi-channel integration capabilities; . workflow engine for all queuing, routing, scheduling and applying business rules; and . persistent data management for integrating multiple real-time data sources. Our product is based on open system standards and is designed to be scalable and integrate with the enterprise, various information technology systems, networks and telephony systems. Our architecture is designed to utilize the capabilities of the Internet. Unlike a web-enabled client/server architecture, where the application and user interface reside on the client system, our product's multi-tier distributed object architecture provides the means to distribute discrete objects for each customer contact point and to deploy the application logic, business services and data management appropriately to all parts of the system. This allows for increased scalability, reliability and security. The web application, which operates outside a company's security system, or firewall, is open to the public through standard network protocols and security. The customer service representative application is typically used within the company's information technology infrastructure behind the firewall and is closed to public access. Our server software runs on both UNIX server platforms and Windows NT servers and can be configured for multiple servers. Our product architecture complies with software industry standards for building large systems for performance on both network applications and internet applications. For example, our product uses Java for application development and customization and Hypertext Transfer Protocol for internet access. Adherence to these industry standards provides compatibility with many existing applications. We develop our client software in Java, and we use Sun Microsystems' Forte Tool and C++ programming languages for the enterprise server programs and management of data. The distributed object architecture is based on industry standard interfaces at the object and communications level; Java and HTML for application development; and XML, CORBA, IIOP and Forte services for data management and transaction services. Sales and Marketing We license our product and sell services primarily through our direct sales organization, complemented by the selling and support efforts of system integrators, application service providers and technology vendors. Our market focus is in the business-to-consumer segment of the economy with a targeted effort on leading consumer focused companies and companies using the internet as the means of conducting business and serving customers. We target our sales and marketing efforts, together with our product design efforts, on industries such as retail banking, consumer financial services, telecommunications, travel and leisure, automotive and direct merchandisers and retailers. The sales process generally ranges from three to twenty-four months depending on the level of education that prospective customers need about the use and benefits of our products and the involvement of system integrators. During our sales process, we typically approach senior executive management teams including the senior marketing officer, chief information officer and chief executive officer of our potential customers. We utilize sales teams consisting of sales and technical professionals who work with our strategic partners to create organization-specific proposals, presentations and demonstrations that address the specific needs of each potential customer. We have sales offices in the greater metropolitan areas of Dallas, Chicago and New York, and in Cupertino, California, London, England and Amsterdam, the Netherlands. Technical sales consultants who provide pre-sales support to potential customers on product information and deployment capabilities 36 complement our direct sales professionals. We plan to significantly expand the size of our direct sales organization and to establish additional sales offices domestically and internationally. We focus our marketing efforts on educating potential customers, generating new sales opportunities and creating awareness of our product. We conduct a variety of marketing programs to educate our target market, including seminars, trade shows, press relations and industry analyst programs. Our marketing organization serves an integral role in acquiring, organizing and prioritizing customer and industry feedback to help provide product direction to our development organization. We also have a detailed product management process that surveys customers and identifies market needs to help predict and prioritize future customer requirements. Strategic Relationships To enhance the productivity of our sales and service organizations, we have established relationships with systems integrators, complementary technology providers and alternative service providers. System integrators We have established relationships with a number of leading system integrators including EDS. We plan to expand these relationships to increase our capacity to sell and implement our products. We have trained a significant number of consultants in these organizations for the implementation and support of our products. We believe that expanding our relationships with systems integrators and independent consulting firms will enable us to gain a greater share of emerging markets more rapidly. Application service providers Application service providers provide an additional channel of delivery for e-business services and customer interaction applications. A hosted application model may improve time-to-market, reduce the implementation risk and the internal resources required while facilitating the deployment to the client. We have recently entered into an application service provider relationship with Total Systems Services, Inc., an outsourcer for retail banking credit and consumer finance processing. Total Systems is expected to deliver our application and integrate their processing and data services with our e- business services and workflow. The resulting business model is intended to provide clients with transaction pricing for an immediately available solution hosted by Total Systems. We expect to continue to expand our relationships with other application service providers. Complementary technology providers We design our products to be based on industry standards and technologies, and to support a number of key software platforms. We have relationships with: . Sun Microsystems for development of business services and client applications, . IBM Software for IBM Visual Age tool support, . Forte Software, a division of Sun Microsystems, for enterprise data and transaction management services, and . Oracle and Sybase, Inc., providers of industry-standard relational databases. Professional Services and Customer Support We offer a broad range of customer services including professional consulting services and product support and training services. We believe that providing a high level of customer service is critical to achievement of rapid product implementation, customer success and continued revenues growth. 37 Professional Services Our professional service consulting teams assist our customer and system integrator partners in the design and implementation of our product. Our professional services organization deploys consultants as part of the project team alongside system integration partners and members of the client's internal team to provide the technical knowledge, business engineering, project guidance and quality assessments during the project. In the design stage, we provide a variety of professional services that help determine customer's business objectives and the technical requirements of the application implementation. In the implementation stage, we utilize our delivery methodology to assist customers and integration partners in planning and managing the implementation. System integrators, supported by our consultants, manage the overall project and implement the product with a customer's existing communications, applications, databases and transaction systems. In the final phases of an implementation the system integrators provide education and training to enable a customer's internal team to deploy the new system, train internal users and assume control over ongoing support. Our methodology includes: . user requirements and needs analysis; . business engineering consultation; . architectural analysis and performance planning; . project management support services; . engineering support for development and deployment; and . technical support for software integration and communications integration. Customer Support Services Our customers have a choice of support and maintenance options depending on the level of service desired. Our technical support is available to clients by telephone, over the web and by e-mail. We maintain a technical support hotline staffed by engineers from 8:00 a.m. to 9:00 p.m., eastern time, Monday through Friday, from our corporate headquarters in Cupertino, California and local support during business hours for European customers from London, England. An optional premium service is available providing technical support 24 hours a day, seven days a week. Additionally, we provide product enhancement releases to all customers as part of their support and maintenance contract. We use a customer service automation system to track each customer inquiry until it is resolved. We also make use of our web site and a secured customer forum to provide product information and technical support information worldwide 24 hours a day, seven days a week. Educational Services We provide educational services to train and enable our system integrators and customers to use our product. We offer a comprehensive series of training modules to provide the knowledge and skills to successfully deploy, use and maintain our products. These training courses focus on the technical aspects of our product as well as business issues and processes. A complete set of modules covering business engineering, project management and development engineering are available. Training courses can be provided on-site for a custom session at a fee and are regularly scheduled through classroom and lab instruction at our Cupertino, California corporate headquarters, and at our London, England offices for European system integrators and customers. Product Development We have made substantial investments in research and development through internal development and technology licensing. Our product development efforts are focused on extending our e-business services, application functionality, self-service and web-based collaboration functionality, and continued integration of key industry-specific transaction systems and services. 38 Our product development resources are organized into a number of development teams including: . system services and workflow development, . business services and application design, . tools and Internet development, . enterprise integration, . documentation, . quality assurances and . release management. Our software and internet applications teams have extensive experience in object oriented development, data management, workflow engineering, Java programming and Internet deployment. Our research and development expenditures were $6.2 million in 1997, $5.9 million in 1998 and $6.5 million in 1999. Competition The market for our product is new and rapidly evolving, and is highly competitive. The competitive landscape is rapidly evolving to address the convergence of e-business services and customer interaction applications. To realize the potential of this convergence, companies must be able to offer personalized marketing and sales and extend e-business services to all points of customer contact. This must be done through an integrated system and customer data model tailored by each company to meet its specific customer requirements. We face three main sources of competition: . custom-built solutions; . vendors with help desk, field service, call center or sales force automation products, and . vendors of enterprise resource planning products. There is no one competitor, nor is there a small number of competitors, that are dominant in our market. Custom-Built Solutions Corporate customer systems supporting branch and call centers have historically been custom-built by professional services organizations or internally developed. Custom development has the inherent limitation of being a high cost alternative because it relies on building the entire solution from scratch and the resulting configuration is difficult to upgrade to take advantage of new requirements and channels of communication such as the internet. We expect that internal development will continue to be a significant source of competition. Stand-alone Solution Vendors We compete with providers of stand-alone solutions for Web-based customer relationship management, such as Silknet, and Webline and providers of stand- alone e-mail response capabilities, such as Kana, Mustang Software and Brightware. We also compete against traditional client/server-based, call- center service customer and salesforce automation solutions, such as Siebel Systems, Vantive, Clarify and Pegasystems. Most point application providers started with a single application focus, such as service, salesforce automation or help desks, and then added additional modules addressing other needs, such as e-mail, field service or quality tracking. Although these vendors have started to pursue the enterprise-wide opportunity of providing e- business 39 services to all points of customer contact, their lack of multichannel integration, real-time data models for integration of multiple data sources and lack of personalization capability and their client/server architecture are limitations. Enterprise Application Vendors We anticipate competitive offerings and consolidation from several major enterprise software developers, such as Oracle, PeopleSoft, IBM and SAP. To date Oracle has announced and began delivery of modules to compete in various areas of the traditional customer relationship management market and PeopleSoft has purchased Vantive. We expect enterprise resource planning software vendors to acquire and integrate point solutions as they approach different segments of the e-business and customer relationship management markets. Other Potential Competitiors The telephony market for equipment and software is in the midst of a major transition from proprietary systems to open software applications running on commodity hardware. Recent software acquisitions announced by traditional telephony vendors, such as Lucent Technologies Inc.'s purchase of Mosaix, Inc. and Nortel Networks Corporations' purchase of Clarify are examples of the desire to move from hardware platforms into software applications. Examples of companies providing middleware in support of computer and telephony integration are Genesys Telecommunications Laboratories, Inc. and Geotel Communications Corporation, recently purchased by Cisco Systems. Providers of client/server and mainframe call center systems include Pegasystems for financial services and IMA and Quintas for outsourcers and call centers. These companies have not historically provided e-business infrastructure and customer management applications but may in the future. We believe that the principal competitive factors in our market include: . the breadth and depth of solutions; . product quality and performance; . relationships with system integrators; . the ability to implement solutions; . establishment of a significant base of reference customers; . the ability of products to operate with multiple software applications; . customer service; and . product price. Although we believe that our product competes favorably with these factors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial and personnel resources. Intellectual Property and Propriety Rights Our success is dependent upon our ability to develop and protect our proprietary technology and intellectual proprietary rights. We rely primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, and copyright and trademark laws to accomplish these goals. We license our product through non-exclusive license agreements that impose restrictions on customers' ability to utilize the software. In addition, we seek to avoid disclosure of our trade secrets, including requiring employees, customers and others with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We also seek to protect our rights in our product, 40 documentation and other written materials under trade secret and copyright laws. Due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product developments and enhancements to our existing product are more important than the various legal protections of our technology to establishing and maintaining a technology leadership position. We integrate third-party software into our product. This third-party software may not continue to be available on commercially reasonable terms. In particular, we license Forte Tool and related Forte products from Forte Software, a Sun Microsystems company. The license agreement expires in September 2001, and can be extended upon agreement of the parties. If we cannot maintain licenses to the Forte products or other key third-party software, shipments of our product could be delayed until equivalent software could be developed or licensed and integrated into our product. Moreover, although we are generally indemnified against claims that technology licensed from third parties infringes the intellectual property and proprietary rights of others, this indemnification is not always available for all types of intellectual property and proprietary rights and in some cases the scope of this indemnification is limited. There can be no assurance that infringement or invalidity claims arising from the incorporation of third-party technology, and claims for indemnification from our customers resulting from these claims, will not be asserted or prosecuted against us. These claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources in addition to potential product redevelopment costs and delays. Despite our efforts to protect our proprietary rights, existing laws afford only limited protection. Attempts may be made to copy or reverse engineer aspects of our product or to obtain and use information that we regard as proprietary. There can be no assurance that we will be able to protect our proprietary rights against unauthorized third-party copying or use. Use by others of our proprietary rights could materially harm our business. Furthermore, policing the unauthorized use of our product is difficult and expensive litigation may be necessary in the future to enforce our intellectual property rights. It is also possible that third parties will claim that we have infringed their current or future products. We expect that software developers will increasingly be subject to infringement claims as the number of products in different industry segments overlap. Any claims, with or without merit, could be time-consuming, result in costly litigation, prevent product shipment, cause delays, or require us to enter into royalty or licensing agreements, any of which could harm our business. Patent litigation in particular has complex technical issues and inherent uncertainties. If an infringement claim against us was successful and we could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement, our business would be harmed. Employees As of December 31, 1999, we employed 144 full-time employees. Of that total, 36 were primarily engaged in product development, engineering or systems engineering, 37 were engaged in sales and marketing, 41 were engaged in professional services and 30 were engaged in operational, financial and administrative functions. None of our employees is represented by a labor union and we have never experienced a work stoppage. We believe that our relations with our employees are good. Facilities Our headquarters are located in approximately 31,000 square feet in Cupertino, California, occupied under an office lease expiring in July 2004. We also lease office space in Mahwah, New Jersey; Irving, Texas; Chicago, Illinois; London, England and Amsterdam, the Netherlands. Legal Proceedings We are not a party to any material legal proceedings. We may be subject to various claims and legal actions arising in the ordinary course of business. 41 MANAGEMENT Officers and Directors Our officers and directors and key employees, the positions held by them, and their ages as of December 31, 1999 are as follows:
Name Age Position ------------------------------------------- --- ---------------------------- President, Chief Executive Samuel T. Spadafora........................ 57 Officer and Chairman Steven R. Springsteel...................... 42 Executive Vice President, Chief Financial Officer and Secretary Donald J. Morrison......................... 42 Executive Vice President, World Wide Sales and Marketing Chief Technology Officer and Joseph F. Tumminaro........................ 51 Director Senior Vice President, Steven J. Sherman.......................... 41 Engineering Stephen Kelly.............................. 38 Senior Vice President, EMEA Oliver D. Curme............................ 45 Director Kathryn C. Gould........................... 49 Director Mitchell E. Kertzman....................... 50 Director Robert S. McKinney......................... 56 Director William Raduchel........................... 52 Director Carol L. Realini........................... 45 Director David R. Springett......................... 55 Director
Samuel T. Spadafora has served as president, chief executive officer and a director of Chordiant since June 1998. In November 1999, Mr. Spadafora was elected as our chairman. From April 1994 to June 1998, Mr. Spadafora served as vice president of worldwide field operations for the microelectronic business of Sun Microsystems, Inc., a computer and networking company. From October 1988 to January 1994, Mr. Spadafora served as senior vice president and general manager of field operations for The Santa Cruz Operation, a software provider. Mr. Spadafora has also served as senior vice president of sales and marketing at Altos Computer System, and vice president of U.S. sales and operations at Memorex. Mr. Spadafora holds a B.A. in marketing from Eastern Michigan University. Steven R. Springsteel has served as our executive vice president and chief financial officer since November of 1996, and secretary since October 1999. From April 1995 to November 1996, Mr. Springsteel served as corporate controller at Global Village Communications, a communications company. From February 1994 to April 1995, Mr. Springsteel was vice president and chief financial officer and secretary at Multipoint Networks, a wireless data communications company. From September 1990 to February 1994, Mr. Springsteel served as corporate controller at the Santa Cruz Operation, a software provider. Mr. Springsteel received his B.A. in business administration from Cleveland State University. Donald J. Morrison has served as our executive vice president, world wide sales and marketing since January 1999. Mr. Morrison joined Chordiant as executive vice president of marketing in June 1997. From March 1995 to June 1996, Mr. Morrison served as senior vice president of marketing and OEM sales for Network Peripherals Inc., a high-speed networking company focused on fast ethernet products. From January 1994 to February 1995, Mr. Morrison served as vice president of marketing at Strategic Mapping, Inc., an applications software company. Mr. Morrison has also held various sales and marketing positions at the Santa Cruz Operation, a software provider. Mr. Morrison received his B.A. in business administration from San Francisco State University and his masters degree in marketing management from Golden Gate University. Joseph F. Tumminaro is a founder of Chordiant and has served as chief technology officer and a director since Chordiant's inception in March 1991. Mr. Tumminaro served as secretary of Chordiant from its inception until October 1999. From 1985 to 1990, Mr. Tumminaro served as president, vice president of technology and a director of J. Frank Consulting. Mr. Tumminaro received his B.A. from Southern Illinois University. 42 Steven J. Sherman has served as our senior vice president of engineering since October 1999. From January 1999 to September 1999, Mr. Sherman served as vice president of product development for The Vantive Corporation, a customer relationship management software vendor. From June 1996 to December 1998, Mr. Sherman served as executive vice president of product development and later president, of Tetra International, Inc. for Tetra plc, an enterprise software provider. From March 1994 to May 1996, Mr. Sherman was vice president of engineering for Frame Technology and Adobe Systems, both of which are publishing software companies. Mr. Sherman received his B.A. in mathematics and computer science from Emory University in 1979 and an M.B.A. from San Jose State University in 1991. Mr. Sherman has served on the board of Marin Research, Inc., a private project management software company, since September 1999. Stephen Kelly has served as our senior vice president of Europe, Middle East and Africa operations since October 1998. From October 1997 to September 1998, Mr. Kelly served as our vice president of Europe, Middle East and Africa operations. From 1987 to 1998, Mr. Kelly worked in various sales, alliances and marketing roles at Oracle Corporation's United Kingdom operations, most recently as director of Europe, Middle East and Africa alliances and industry groups. Mr. Kelly received his B.A. with honors in business administration and accounting from the University of Bath, in England. Oliver D. Curme has been a director of Chordiant since July, 1996. Mr. Curme has served as a general partner of several entities associated with Battery Ventures, a venture capital company since 1988. Mr. Curme received his B.S. from Brown University and his M.B.A. from Harvard Business School. Kathryn C. Gould has been a director of Chordiant since July, 1996. She is a manager for each of the general partners for Foundation Capital I, II, and III, a family of venture capital limited partnerships, and has been a member of that firm since December 1995. Since 1989, Ms. Gould has been a general partner of Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also serves as a director of Documentum, Inc., a publicly held web-based software application developer. Ms. Gould also serves as a director of Interwoven, a publicly held software provider. Ms. Gould received a B.Sc. in physics from the University of Toronto and an M.B.A. from the University of Chicago. Mitchell E. Kertzman has been a director of Chordiant since February, 1997. Mr. Kertzman has served as president, chief executive officer and a director of Liberate Technologies, a public internet access software company since November 1998. Before joining Liberate, Mr. Kertzman was a member of the board of directors of Sybase, a database company, from February 1995 until November 1998. He has served as chairman of Sybase's board of directors since July 1997. Between February 1998 and August 1998, he also served as co-chief executive officer of Sybase. From July 1996 until February 1997 Mr. Kertzman served as chief executive officer of Sybase and from July 1996 until July 1997 he also served as president of Sybase. Between February 1995 and July 1996, Mr. Kertzman served as an executive vice president of Sybase. In February 1995, Sybase merged with Powersoft Corporation, a provider of application development tools. Mr. Kertzman had served as chief executive officer and a director of Powersoft since he founded it in 1974. Mr. Kertzman has also served as a director of CNET, a internet content company since 1997. Robert S. McKinney has been a director of Chordiant since January, 2000. Mr. McKinney has served as president of Information Management Consulting, a consulting firm, since September, 1998 and is acting chief information officer of Metropolitan Life Insurance Company's individual business and client services business units, Mr. McKinney was chief information officer of Tenneco, an automotive parts manufacturing company, from March, 1996 to September, 1998 and chief information officer of PaineWebber, an investment banking firm, from February, 1990 to February, 1996. Mr. McKinney received a masters degree in management and industrial engineering from Columbia University and a B.S. in mechanical engineering from the U.S.M.M.S, Kings Point. William Raduchel has been a director of Chordiant since August, 1998. Mr. Raduchel is currently the chief technology officer of America Online Incorporated, an online service provider. Mr. Raduchel held various positions with Sun Microsystems, Inc., a computer systems company from 1989 to 1998 including chief 43 strategy officer from January, 1998 to September, 1999, vice president, corporate planning and development and chief Information officer from July 1991 to January 1998 and chief financial officer. Mr. Raduchel received his B.A. from Michigan State University in 1966 and his A.M. and Ph.D. from Harvard University in 1968 and 1972. He is a director of MIH Limited and OpenTV, Inc. and two private companies. Carol L. Realini was a founder of Chordiant and has been a director since our inception in March 1991. Ms. Realini has served as president, chief executive officer and chairman of Xokidz.com, Inc. since November 1999. From May 1997 to November 1999, she served as our chairman. From May 1997 until June 1998, Ms. Realini served as our president and chief executive officer. From January 1990 until May 1997, Ms. Realini served as president, chief executive officer and chairman of J. Frank Consulting, Inc., a consulting services firm and the predecessor company to Chordiant. From June 1988 to January 1990, Ms. Realini served as vice president of sales and marketing of Legato Systems, Inc. Ms. Realini received her B.A. with honors in mathematics from University of California, Santa Cruz and her masters degree from California State University, San Jose. David R. Springett, Ph.D. has been a director of Chordiant since January, 2000. Dr. Springett has served as president of the Community College Foundation, an educational foundation since February 1994. Dr. Springett was also president of Strategic Marketing Associates, a marketing company from January 1992 to January 1994 and held various positions with Xerox Corporation, a photocopy and computer equipment company, from May 1963 to May 1991, including vice-president strategic marketing and director European marketing. He is a board member of the California Vehicle Foundation and the California State Commission on Welfare Reform and Training. Dr. Springett has received degrees from the Royal Military College of Canada, the University of Toronto, Queen's University and Harvard University. Joseph F. Tumminaro, our chief technology officer and a director, and Carol L. Realini, a director, are married to each other. There are no other family relationships among any of our directors and executive officers. Board Committees The board of directors has established an audit committee and a compensation committee. The audit committee makes recommendations to the board of directors about the selection of independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors and reviews and evaluates our audit and control functions. The compensation committee makes recommendations about our 1999 equity incentive plan and concerning salaries and incentive compensation for our employees and consultants. The membership of the audit and compensation commttee is described below:
Audit Compensation ----- ------------ Oliver D. Curme Kathryn C. Gould William Raduchel Mitchell Kertzman David R. Springett
Director Compensation Directors currently receive no compensation from us for their services as members of the board or for attendance at committee meetings. In February 1997, Mr. Kertzman, a director of Chordiant, was granted an option to purchase 88,825 shares of our common stock at an exercise price of $0.14 per share. In August, 1998, Mr. Raduchel, also a director of Chordiant, was granted an option to purchase 87,500 shares of our common stock at an exercise price of $0.90 per share. Each option was granted under our 1999 equity incentive plan. 44 According to our 1999 non-employee directors' stock option plan, each non- employee director will be granted an option to purchase up to 25,000 shares of our common stock on the effective date of this offering, if a director on the effective date, or on a director's election or appointment to the board, if later. Directors will be granted an option to purchase up to 7,500 shares of our common stock on the day after each annual meeting of stockholders after the effective date of this offering. Also, directors who serve as committee members will be granted an option to purchase up to 5,000 shares of our common stock on the day after each of our annual meetings of stockholders. The exercise price of each option will be the fair market value of a share of our common stock on the date of grant of the option. 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. Individuals and investment entities affiliated with Ms. Gould and Mr. Curme have purchased shares of our preferred stock. See Related Party Transactions. For a further description of interlocking transactions, see Related Party Transactions. Board Composition We have authorized nine directors. Upon the closing of this offering and as provided by the terms of our amended and restated certificate of incorporation, the terms of office of the board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year. The division of the three classes, their election dates and the directors in each class are as follows: Class of director Date of election Directors in class ---------- ------------------------------------- -------------------- I first annual meeting of stockholders Oliver D. Curme Kathryn C. Gould Carol L. Realini II second annual meeting of stockholders Samuel T. Spadafora Joseph F. Tumminaro David R. Springett III third annual meeting of stockholders Mitchell E. Kertzman William Raduchel Robert S. McKinney
At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of Chordiant. 45 Executive Compensation The following table provides information concerning compensation for services performed during the year ended December 31, 1999 by our chief executive officer and our most highly compensated executive officers whose salary and bonus for the last year exceeded $100,000. As required by the rules of the Securities and Exchange Commission, the compensation described in the table excludes medical, group life insurance or other benefits that are available generally to all salaried employees of Chordiant and other perquisites and personal benefits received that do not exceed the lesser of $50,000 or 10% of any officer's salary and bonus disclosed in this table. None of the officers named below had any other annual compensation, was granted any restricted stock award, long term incentive plan payout or received any other compensation. Summary Compensation Table
Long-Term Compensation ------------------ ------------ Annual Compensation Awards ------------------ ------------ Securities Salary Underlying Name and Principal Position Year ($) Bonus ($) Options (#) --------------------------- ---- -------- --------- ------------ Samuel T. Spadafora.................... 1999 $250,000 $312,500 -- President and Chief Executive Officer Steven R. Springsteel.................. 1999 $183,912 $ 93,672 100,000 Chief Financial Officer Donald J. Morrison..................... 1999 $190,836 $122,645(1) 87,500 Senior Vice President, Worldwide Sales and Marketing Joseph F. Tumminaro.................... 1999 $162,083 $ 51,077 -- Chief Technology Officer John Palmer(2)......................... 1999 $175,734 $ 46,750 -- Former Executive Vice President, Engineering
- -------- (1) Includes commissions of $50,658. (2) In August 1999, Mr. Palmer resigned as our executive vice president, engineering and is no longer an officer of Chordiant. Option Grants in Fiscal Year 1999 The following table lists each grant of stock options during the year ended December 31, 1999, to each of the individuals listed on the previous table. The exercise price of each option was equal to the fair market value of our common stock as valued by the board of directors on the date of grant. The exercise price may be paid in cash, in shares of our common stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. The potential realizable value is calculated based on the ten-year term of the option at the time of grant. Stock price appreciation of 5% and 10% is assumed as prescribed by the rules of the Securities and Exchange Commission and does not represent our prediction of our stock price performance. The potential realizable values at 5% and 10% appreciation are calculated by: . multiplying the number of shares of common stock subject to a given option by the assumed initial public offering price of $15.00 per share; . assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table until the expiration of the options; and . subtracting from that result the aggregate option exercise price. 46 The initial public offering price may be higher than the estimated fair market value on the date of grant, and the potential realizable value of the option grants could be significantly higher than the numbers shown in the table if future stock prices were projected to the end of the option term by applying the same annual rates of stock price appreciation to the initial public offering price. The shares listed in the following table under Number of Securities Underlying Options Granted vest in a series of equal monthly installments over the four years following the vesting start date. Our stock option plans allow for the early exercise of options granted to employees. All options exercised early are subject to repurchase by Chordiant at the original exercise price, upon the option holder's cessation of service before to the vesting of the shares. Each of the options has a ten-year term, subject to earlier termination if the option holder's service with us ceases. See Employee Stock Plans for a description of other terms of these options. Percentages shown under % of Total Options Granted to Employees in Fiscal Year are based on an aggregate of 3,381,513 options granted to our employees under our equity incentive plans during the period from January 1, 1999 through December 31, 1999. Option Grants in Last Fiscal Year
Individual Grants --------------------------------------------- Potential Realizable Number of Value at Assumed Securities % of Annual Rates of Stock Underlying Total Options Price Appreciation Options Granted to Exercise For Option Term Granted Employees in Price Expiration --------------------- Name (#) Fiscal Year ($/Share) Date 5% ($) 10% ($) ---- ---------- ------------- --------- ---------- ---------- ---------- Samuel T. Spadafora..... -- -- -- -- -- -- Steven R. Springsteel... 50,000 1.5 2.90 03/19/09 1,076,671 1,800,307 50,000 1.5 4.00 11/16/09 1,021,671 1,745,307 Donald J. Morrison...... 37,500 1.1 2.90 03/19/09 807,503 1,350,230 50,000 1.5 4.00 11/16/09 1,021,671 1,745,307 Joseph F. Tumminaro..... -- -- -- -- -- -- John Palmer............. -- -- -- -- -- --
Fiscal Year-End Option Values The following table provides the number and value of securities underlying unexercised options that are held by each of the individuals listed on the previous page as of December 31, 1999. Amounts shown under the columns Value Realized and Value of Unexercised In- the-Money Options at Fiscal Year End are based on an assumed initial public offering price of $15.00 without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the exercise price payable for these shares. Our stock option plans allow for the early exercise of options granted to employees. All options exercised early are subject to repurchase by Chordiant at the original exercise price, upon the option holder's cessation of service before the vesting of the shares. Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Number of Securities Underlying Unexercised Value of Unexercised Options at In-the-Money Options at Shares Fiscal Year End (#) Fiscal Year End ($) Acquired on Value ------------------------ ------------------------- Name Exercise (#) Realized ($) Vested Unvested Exercisable Unexercisable - ---- ------------ ------------ ----------- ------------ ----------- ------------- Samuel T. Spadafora..... 45,000 646,413 903,825 861,175 $25,347,554 -- Steven R. Springsteel... 10,000 148,600 200,532 262,811 $ 6,407,423 -- Donald J. Morrison...... 15,000 220,500 253,260 339,598 $ 8,344,841 -- Joseph F. Tumminaro..... -- -- 28,560 2,465 $ 379,498 -- John Palmer............. -- -- 188,046 -- $ 2,769,797 --
47 Employee Stock Plans 1999 Equity Incentive Plan. Our board adopted our 1999 equity incentive plan on November 30, 1999. Our stockholders approved the plan on December 31, 1999. The incentive plan is an amendment and restatement of our 1997 equity incentive plan. Administration. The board administers the incentive plan unless it delegates administration to a committee. The board or this committee has the authority to construe, interpret and amend the incentive plan and determine: . the grant recipients; . the grant dates; . the number of shares subject to the award; . the exercisability and vesting of the award; . the exercise price; . the type of consideration; and . the other terms of the award. Share Reserve. We have reserved a total of 9,712,500 shares of our common stock for issuance under the incentive plan. On October 1 of each year for 10 years, starting on October 1, 2000, the share reserve will automatically be increased by a number of shares equal to the greater of: . 5% of our outstanding shares on a fully-diluted basis; or . that number of shares subject to stock awards made under the incentive plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board, and no more than 20 million shares of the share reserve, as increased, may be used for incentive stock options. If the recipient of a stock award does not purchase the shares subject to the stock award before the stock award expires or terminates, the shares that are not purchased again become available for issuance under the incentive plan. Eligibility. The board may grant incentive stock options that qualify under Section 422 of the Internal Revenue Code to our employees. The board also may grant nonstatutory stock options, stock bonuses and restricted stock purchase awards to our employees, directors and consultants. . A stock option is a contractual right to purchase a specified number of our shares at a specified price, called the exercise price, for a specified period of time. . An incentive stock option is a stock option that has met the requirements of Section 422 of the Internal Revenue Code. This type of option is free from regular tax at both the date of grant and the date of exercise. However, the difference between the fair market value on date of exercise and the exercise price is an item of alternative minimum tax unless there is a disqualifying disposition in the year of exercise. If two holding period tests are met--two years between grant date and sale date and one year between exercise date and sale date-- all profit on the sale of our shares acquired by exercising the incentive stock option is long-term capital gain income. However, if either of the holding periods is not met, there has been a disqualifying disposition, and a portion of any profit will be taxed at ordinary income rates. . A nonstatutory stock option is a stock option not meeting the Internal Revenue Code criteria for qualifying incentive stock options and, therefore, triggering a tax upon exercise. This type of option requires payment of state and federal income tax and, if applicable, other taxes on the difference between the exercise price and the fair market value on the exercise date. 48 . A restricted stock purchase award is our offer to sell our shares at a price either at or near the fair market value of the shares. A stock bonus is a grant of our shares at no cost to the recipient in consideration for past services performed. The board may not grant an incentive stock option to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or the total combined voting power of an affiliate of ours, unless the exercise price is at least 110% of the fair market value of the stock on the grant date and the option term is five years or less. Limits on Option Grants. There are limits on the number of shares that the board may grant under an option. . Section 162(m) of the Internal Revenue Code denies a deduction to publicly held corporations for compensation paid to the chief executive officer and the four highest compensated officers in a taxable year to the extent that the compensation for each the officer exceeds $1,000,000. When we become subject to Section 162(m), to prevent options granted under the incentive plan from being included in compensation, the board may not grant options under the incentive plan to an employee covering an aggregate of more than 5 million shares in any calendar year. . In addition, an employee may not receive incentive stock options that exceed the $100,000 per year limitation provide in Section 422(d) of the Internal Revenue Code. In calculating the $100,000 per year limitation, we determine the aggregate number of shares under all incentive stock options granted to that employee that will become exercisable for the first time during a calendar year. For this purpose, we include incentive stock options granted under the incentive plan as well as under any other stock plans that we maintain. We then determine the aggregate fair market value of the stock as of the grant date of the option. Taking the options into account in the order in which they were granted, we treat only the options covering the first $100,000 worth of stock as incentive stock options. We treat any options covering stock in excess of $100,000 as nonstatutory stock options. Option Terms. The board may grant incentive stock options with an exercise price of 100% or more of the fair market value of a share of our common stock on the grant date. It may grant nonstatutory stock options at a discount. If the value of our shares declines after the date of grant, the board may offer option holders the opportunity to replace their outstanding higher-priced options with new lower-priced options. To the extent required by Section 162(m) of the Internal Revenue Code, the repriced option is considered to be canceled and a new option granted, but both options will be counted against the Section 162(m) limit discussed above. The maximum option term is 10 years. The board may provide for exercise periods of any length in individual option grants. However, generally an option terminates three months after the option holder's service to us terminates. If this termination is due to the option holder's disability, the exercise period generally is extended to 12 months. If this termination is due to the option holder's death or if the option holder dies within three months after the option holder's service terminates, the exercise period generally is extended to 18 months following the option holder's death. The board may provide for the transferability of nonstatutory stock options but not incentive stock options. However, the option holder may designate a beneficiary to exercise either type of option following the option holder's death. If the option holder does not designate a beneficiary, the option holder's option rights will pass by will or by the laws of descent and distribution. Terms of Other Stock Awards. The board determines the purchase price of other stock awards. However, the board may award stock bonuses in consideration of past services without a purchase payment. Shares that we sell or award under the incentive plan may, but need not be, restricted and subject to a repurchase option in our favor based on with a vesting schedule that the board determines. The board, however, may accelerate the vesting of the restricted stock. 49 Other Provisions. Transactions not involving our receipt of consideration, including a merger, consolidation, reorganization, stock dividend, and stock split, may change the class and number of shares subject to the incentive plan and to outstanding awards. In that event, the board will appropriately adjust the incentive plan for the class and the maximum number of shares subject to the incentive plan, to the cap on the number of shares available for incentive stock options, and to the Section 162(m) limit. It also will adjust outstanding awards for the class, number of shares and price per share subject to the awards. If a change in control happens, the surviving entity may either assume or replace outstanding awards under the incentive plan. If this does not occur, then generally the vesting and exercisability of the awards will accelerate, and unexercised awards will terminate immediately before the event. A change in control includes the following: . A dissolution, liquidation or sale of all or substantially all of our assets. . A merger or consolidation in which we are not the surviving corporation. . A reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property. . After this initial public offering, generally the acquisition by any person, entity or group of the beneficial ownership of our securities representing at least 50% of the combined voting power permitted to vote in the election of directors. If there is a change in control, other than a merger or consolidation for the purpose of a change in domicile, then for options held by persons then performing services as an employee or director of, or consultant to, us, the vesting of the option will be accelerated by one year. Stock Awards Granted. As of December 31, 1999, we had issued . 1,040,504 shares upon the exercise of options under the incentive plan . options to purchase 7,773,658 shares at a weighted average exercise price of $1.82 per share were outstanding and . 898,276 shares remained available for future grant. As of December 31, 1999, the board had not granted any stock bonuses or restricted stock under the incentive plan. Plan Termination. The incentive plan will terminate in 2009 unless the board terminates it sooner. 1999 Non-Employee Directors' Stock Option Plan. Our board adopted the 1999 non-employee directors' stock option plan on November 30, 1999. Our stockholders approved the plan on December 31, 1999. The directors' plan provides for the automatic grant to our non-employee directors of options to purchase shares of our common stock. Share Reserve. We have reserved a total of 700,000 shares of our common stock for issuance under the directors' plan. On October 1 of each year for 10 years, starting on October 1, 2000, the share reserve will automatically be increased by a number of shares equal to the greater of: . 0.5% of our outstanding shares on a fully-diluted basis, or . that number of shares subject to options granted under the directors' plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board. If an option holder does not purchase the shares subject to their option before the option expires or terminates, the shares that are not purchased again become available for issuance under the directors' plan. 50 Administration. The board administers the directors' plan. The board has the authority to construe, interpret and amend the directors' plan but the directors' plan specifies the essential terms of the options, including: . the option recipients; . the grant dates; . the number of shares subject to the option; . the exercisability and vesting of the option; . the exercise price; and . the type of consideration. Eligibility. We automatically will issue options to our non-employee directors under the directors' plan as follows: . Each person who is an non-employee director on the effective date of this offering or who is first elected or appointed after the date of the prospectus as a non-employee director will automatically receive an initial option for 25,000 shares. The initial option is exercisable immediately but will vest at the rate of 25% of the shares on the first anniversary of the grant date and monthly over the next three years. . In addition, on the day after each of our annual meetings of the stockholders, starting with the annual meeting in 2001, each non- employee director will automatically receive an annual option for 7,500 shares. The annual option is exercisable immediately but will vest monthly over the next year. If the non-employee director is appointed to the board after the annual meeting, the annual option will be adjusted based on the time actually served by the director. . Finally, on the day after each of our annual meetings of the stockholders, starting with the annual meeting in 2001, each non- employee director who is serving on a board committee will automatically receive a committee option for 5,000 shares. The committee option is exercisable immediately but will vest monthly over the next year. If the non-employee director is appointed to the committee after the annual meeting, the committee option will be pro rated. As long as the option holder continues to serve with us, whether in the capacity of a director, an employee or a consultant, the option will continue to vest and be exercisable during its term. When the option holder's service terminates, we will have the right to repurchase any unvested shares at the original exercise price, without interest. Option Terms. Options have an exercise price equal to 100% of the fair market value of our common stock on the grant date. The option term is 10 years but it terminates three months after the option holder's service terminates. If this termination is due to the option holder's disability, the post-termination exercise period is extended to 12 months. If this termination is due to the option holder's death or if the option holder dies within three months after their service terminates, the post-termination exercise period is extended to 18 months following death. The option holder may transfer the option by gift to immediate family or for estate-planning purposes. The option holder also may designate a beneficiary to exercise the option following the option holder's death. Alternatively, the option exercise rights will pass by the option holder's will or by the laws of descent and distribution. Other Provisions. Transactions not involving our receipt of consideration, including a merger, consolidation, reorganization, stock dividend, and stock split, may change the class and number of shares subject to the directors' plan and to outstanding options. In that event, the board will appropriately adjust the directors' plan for the class and the maximum number of shares subject to the directors' plan and to the automatic option grants. It also will adjust outstanding options for the class, number of shares and price per share subject to the options. 51 If a change in control happens, the surviving entity may either assume or replace outstanding options under the directors' plan. If this does not occur, then generally the vesting of the options will accelerate, and unexercised options will terminate immediately before the event. A change in control includes the following: . A dissolution, liquidation or sale of all or substantially all of our assets. . A merger or consolidation in which we are not the surviving corporation. . A reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property. . Generally the acquisition by any person, entity or group of the beneficial ownership of our securities representing at least 50% of the combined voting power permitted to vote in the election of directors. If there is a change in control, other than a merger or consolidation for the purpose of a change in domicile, then for options held by persons then performing services as an employee or director of, or consultant to, us, the vesting of the option will be accelerated by one year. Options Issued. The directors' plan will not be effective until the effective date of this offering. We have not issued any options under the directors' plan. Plan Termination. The directors' plan has no set termination date. 1999 Employee Stock Purchase Plan Our board adopted the 1999 employee stock purchase plan on November 30, 1999. Our stockholders approved the plan on December 31, 1999. Administration. The board administers the purchase plan unless it delegates administration to a committee. The board or this committee has the authority to construe, interpret and amend the purchase plan and determine the terms of rights granted under the purchase plan. Share Reserve. We reserved 2,000,000 shares of our common stock for issuance to eligible employees with purchase rights under the purchase plan. On October 1 of each year for 10 years, starting on October 1, 2000, the share reserve will automatically be increased by a number of shares equal to the greater of: . 2% of our outstanding shares on a fully-diluted basis; or . that number of shares issued under the purchase plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board, and no more than 13,000,000 shares of the share reserve, as increased, may be used under the purchase plan. Eligibility. The purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The purchase plan provides a means by which eligible employees may purchase our common stock through payroll deductions. We implement the purchase plan by offerings of purchase rights to eligible employees. Generally, all of our full- time employees in the United States and in the United Kingdom who have been employed for at least 10 days may participate in offerings under the purchase plan. However, no employee may participate in the purchase plan if immediately after we grant the employee a purchase right, the employee has voting power over 5% or more of our outstanding capital stock. Offerings. Under the purchase plan, the board may specify offerings of up to 27 months. Unless the board determines differently, common stock is purchased for accounts of participating employees at a price per share equal to the lower of: . 85% of the fair market value of a share on the first day of the offering; or . 85% of the fair market value of a share on the purchase date. 52 The first offering will begin on the effective date of this offering, and we will offer shares registered on a Form S-8 registration statement. The fair market value of the shares on the first date of this offering will be the price per share at which our shares are first sold to the public as specified in the final prospectus for this offering. Otherwise, fair market value generally means the closing sales price, rounded up where necessary to the nearest whole cent, for these shares, or the closing bid, if no sales were reported, as quoted on the Nasdaq National Market on the last trading day before the relevant determination date, as reported in The Wall Street Journal. The board may provide that employees who become eligible to participate after the offering period begins nevertheless may enroll in the offering. These employees will purchase our stock at the lower of: . 85% of the fair market value of a share on the day they began participating in the purchase plan; or . 85% of the fair market value of a share on the purchase date. Participating employees may authorize payroll deductions of up to 15% of their compensation for the purchase of stock under the purchase plan. Employees may end their participation in the offering before a purchase period ends. Their participation ends automatically on termination of their employment. Other Provisions. The board may grant eligible employees purchase rights under the purchase plan only if the purchase rights together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate which exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding. Upon a change in control, the board may provide that the successor corporation either will assume or replace outstanding purchase rights. Alternatively, the board may shorten the ongoing offering period and provide that our stock will be purchased for the participants immediately before the change in control. Shares Issued. The purchase plan will not be effective until the effective date of this initial public offering of our stock. Therefore, as of the date of this prospectus, no shares of common stock have been purchased under the purchase plan. Plan Termination. The purchase plan has no set termination date. 401(k) Plan We have established the Chordiant corporation retirement savings plan effective January 1, 1996. The 401(k) plan is intended to qualify under Section 401 of the Code so that contributions by employees or by Chordiant, and income earned, are not taxable until withdrawn and so that contributions by us will be deductible by us when made. The 401(k) plan provides that each participant may reduce their pre-tax gross compensation by up to 15%, up to a statutorily prescribed annual limit of $10,000 in 1999, and have that amount contributed to the 401(k) plan. Employees become eligible to participate in the 401(k) plan upon commencement of their employment with Chordiant. Participants are fully vested in all amounts they contribute under the 401(k) plan and in the earnings on the contributed amounts. In addition to the employee salary deferrals described above, the 401(k) plan requires us to make contributions under the 401(k) plan on behalf of the participants. These contributions include a matching contribution of up to $1,500 per year of salary deferred contributions made by each participant. The employer contributions to the 401(k) plan each year will be divided among participants in the ratio that each participant's compensation bears to the compensation of all participants. Participants become vested in matching contributions and employer contributions according to a graded vesting schedule under which they become fully vested after five years of service with Chordiant. 53 Employee participants may elect to invest their accounts under the 401(k) plan in various established funds. Limitations On Directors' And Executive Officers' Liability And Indemnification Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions permitted under Delaware law relating to the liability of directors and officers. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving wrongful acts, including: . for any breach of the directors' duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . for any acts under Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, including an injunction or rescission, if a director breaches a fiduciary duty. These provisions will not alter a director's liability under federal securities laws. In addition, we intend to enter into separate indemnification agreements with our directors and executive officers that provide each of them indemnification protection if the amended and restated certificate of incorporation and amended and restated bylaws are subsequently amended. We believe that these provisions and agreements will assist us in attracting and retaining qualified individuals to serve as directors and officers. 54 RELATED PARTY TRANSACTIONS The following is a description of transactions since January 1, 1997, to which we have been a party, in which the amount involved in the transaction exceeds $60,000, and in which any of our directors, executive officers or holders of more than 5% of the capital stock had or will have a direct or indirect material interest, other than compensation arrangements that are described under "Management." The following executive officers, directors or holders of more than five percent of our voting securities purchased securities in the amounts and as of the date listed below. Option information is as of December 31, 1999.
Shares of Preferred Stock Common --------------------------------------------- Stock Series B Series C Series D Series E -------------- ---------- ---------- --------- ---------- Directors and Executive Officers Samuel T. Spadafora(1).. 1,810,150 -- -- -- -- Steven R. Springsteel(2)........ 473,345 -- -- -- -- Donald J. Morrison(3) .. 607,859 -- -- -- -- Joseph F. Tumminaro(4) ...................... 5,018,422 -- -- -- -- Steven Sherman(5) ...... 400,000 -- -- -- -- Stephen Kelly(6)........ 350,000 John Palmer(7) ......... 188,046 -- -- -- -- Mitchell Kertzman....... 88,825 -- -- -- -- William Raduchel........ 87,500 -- -- -- -- Carol Realini(4) ....... 5,018,422 -- -- -- -- Entities Associated with Directors Entities associated with Foundation Capital(8)............ -- 588,235 195,312 -- 52,631 Battery Ventures III, LP(9)................. -- -- 195,312 -- 26,316 Other 5% Stockholders Entities associated with Charter Growth Capital(10)........... -- -- -- 2,000,000 -- First Plaza Trust(11)... -- -- -- -- 3,947,368 MCI Systemhouse Corp.(12)............. -- -- 2,421,875 -- -- Norwest Venture Partners VI LP................. -- 2,073,529 195,312 -- 52,631 Orchid/T. Rowe Threshold III................... -- 470,588 351,562 -- 263,158 Vertex Investment II Ltd.(13).............. -- 1,175,625 390,624 -- 131,579 Price per share....... $0.04 to $4.00 $1.70 $2.56 (9) $3.80 Date(s) of purchase... various 6/1997 12/1997 (9) 9/1999
- -------- (1) Consists of: .shares held by Mr. Spadafora's children, .10,000 shares held by a family trust and .1,765,150 shares subject to outstanding options, of which 861,325 shares are fully vested. (2) Consists of: .shares held by Mr. Springsteel's children and .463,345 shares subject to outstanding options, of which 211,245 shares are fully vested. (3) Consists of: .shares held by trusts for the benefit of Mr. Morrison's children and .592,859 shares subject to outstanding options, of which 266,866 shares are fully vested. (4) The common stock held by Mr. Tumminaro and Ms. Realini consists of: . 4,970,000 shares held in a family trust and trusts for the benefit of Mr. Tumminaro and Ms. Realini's children 55 . 26,026 shares subject to outstanding options held by Mr. Tumminaro, of which 23,868 shares are fully vested and . 22,396 shares subject to outstanding options held by Ms. Realini, of which 21,802 shares are fully vested. (5) Consists of: . 100,000 shares of common stock held by Mr. Sherman, all of which are subject to a right of repurchase in favor of Chordiant if Mr. Sherman terminates his services as an employee and . 300,000 shares subject to an outstanding option, none of which are vested. (6) Consists of 350,000 shares subject to outstanding options, of which 99,999 shares are vested. (7) Consists of 188,046 shares subject to outstanding options, all of which shares are fully vested. In August 1999, Mr. Palmer resigned as our executive vice president, engineering and is no longer an officer of Chordiant. (8) Kathryn C. Gould, one of our directors, is a managing member of Foundation Capital Management, LLC, which is the general partner and managing member of Foundation Capital, LP and Foundation Capital Entrepreneurs Fund LLC. (9) Oliver D. Curme, one of our directors, is a general partner of, Battery Partners III LP, which is the sole general partner of Battery Ventures III, LP. (10) Consists of: . a convertible debenture held by Charter Growth Capital, L.P. convertible into 560,000 shares of series D preferred stock, . a convertible debenture held by CGC Investors, L.P. convertible into 35,000 shares of series D preferred stock, . and a convertible debenture held by Charter Growth Capital Co-Investment Fund, L.P. convertible into 1,405,000 shares of series D preferred stock. The conversion price of the debentures is $5.00 per share. The debentures were purchased in April 1999. (11) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust, a trust for the benefit of employee benefit plans of General Motors Corporation. These shares may be considered to be owned beneficially by General Motors Investment Management Corporation, a wholly owned subsidiary of General Motors. General Motors Investment Management is serving as the trust's investment manager for these shares and in that capacity it has the sole power to direct the trustee on the voting and disposition of these shares. Because of the trustee's limited role, beneficial ownership of the shares by the trustee is disclaimed. (12) MCI Systemhouse was acquired by Electronic Data Systems Corporation in April 1999. (13) Consists of: . 130,625 shares of series B preferred stock held by HWH Investment PTE, Ltd., . 522,500 shares of series B preferred stock and 195,312 shares of series C preferred stock held by Vertex Asia Ltd., and . 522,500 shares of series B preferred stock, 195,312 shares of series C preferred stock and 131,579 shares of series E preferred stock held by Vertex Investments II Ltd. Chordiant and the preferred stockholders described above have entered into an agreement giving preferred stockholders and holders of our convertible debentures registration rights for their shares of common stock following this offering. Upon the completion of this offering, all shares of our outstanding preferred stock and convertible debentures will be automatically converted into an equal number of shares of common stock. We intend to enter into indemnification agreements with our directors and officers for the indemnification of and advancement of expenses to these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. As described in the table above, in December 1997 we issued to MCI Systemhouse Corp. shares of our series C preferred stock. At that time we also entered into a license agreement for our product, under which 56 MCI Systemhouse prepaid $6 million of license fees. In April 1999 MCI Systemhouse was acquired by Electronic Data Systems Corporation and the shares of our stock held by MCI Systemhouse were transferred to Electronic Data Systems. MCI's right to distribute and license our software, including the prepayment arrangement, was still in effect at the time of Electronic Data Systems' acquisition of MCI. Following the acquisition, Chordiant and Electronic Data Systems agreed that the agreement with MCI Systemhouse would no longer be in effect. EDS may generally receive the following discounts from our list price under the agreement: . product purchases 35% . services 20% . educational services 25%
The rate for products used internationally is increased 15% from the discounted rate above. Before to the acquisition by Electronic Data Systems of MCI Systemhouse, in July 1998, we entered into an unrelated license agreement with Electronic Data Systems that allows Electronic Data Systems to license Chordiant's product and services for its internal use and to sublicense our product to its customers. The license under the agreement is worldwide and non-exclusive and Chordiant provides to Electronic Data Systems under the agreement warranties concerning the product and indemnification for infringement. Electronic Data Systems paid Chordiant $1,325,000 under this license agreement in 1998 and was obligated to pay $6,607,000 in 1999. The amounts payable in 1999 were credited against the $6 million prepayment made to Chordiant by MCI Systemhouse under the previous license agreement between Chordiant and MCI Systemhouse. As a result, Chordiant only received $607,000 in actual cash payments from Electronic Data Systems in 1999. The license agreement with Electronic Data Systems was signed nine months before the date that Electronic Data Systems became a principal stockholder of Chordiant. Chordiant believes that the terms of the Electronic Data Systems license are a result of an arm's length business negotiation and do not reflect negotiations with a related party. Carol Realini entered into a separation agreement with Chordiant dated December 9, 1998 terminating her employment with us as president and chief executive officer effective December 31, 1998. From January 1, 1999 until January 1, 2000, we continued to pay Ms. Realini's base salary and car allowance. Her option to purchase 20,373 shares of common stock was fully vested as of November 30, 1998. Her second option to purchase 2,023 shares of common stock shall continue to vest while she serves as a member of our board of directors. John Palmer entered into a separation agreement with Chordiant dated August 23, 1999 terminating his employment with us as executive vice president, engineering effective August 26, 1999. From his separation date until February 26, 2000, we have agreed to pay Mr. Palmer's base salary. Mr. Palmer is not eligible for further vesting of his options after August 26, 1999, but has the right to exercise the options that are vested for a period of up to ninety days after February 26, 2000. Options granted to our directors, executive officers and employees are immediately exercisable for both vested an unvested shares, with unvested shares being subject to a right of repurchase in our favor if termination of employment occurs before the vesting of all the shares. The following individuals have elected to pay the exercise price for some of their outstanding options with full recourse promissory notes secured by the common stock underlying the options. The notes bear interest at 5.74% to 5.88% per year, and interest payments on the notes are due and payable annually on the anniversary date of the note. Unpaid principal and interest on the notes are due and payable immediately upon termination of the participant's employment with us, or two years after the date of the promissory note. As of February 7, 2000, the original and outstanding aggregate principal amounts of the promissory notes executed by each executive officer in favor of Chordiant are listed below.
Aggregate Original and Outstanding Executive Officer Note Amount ----------------- ------------ Samuel T. Spadafora............................................ $276,800 Steven R. Springsteel ......................................... $197,723 Donald J. Morrison............................................. $ 68,906 Steven Sherman................................................. $400,000
All future transactions, including loans, between us and our officers, directors and principal stockholders will be approved by a majority of the board of directors, including a majority of the independent and disinterested directors. 57 PRINCIPAL STOCKHOLDERS The following table provides information about the beneficial ownership of our common stock as of December 31, 1999, and as adjusted to reflect the sale of our common stock offered by this prospectus, by: . each of the individuals listed in the Summary Compensation Table; . each of our directors; . each person, or group of persons, who is known by us to own beneficially 5% or more of our common stock; and . all current directors and executive officers as a group. Beneficial ownership is calculated based upon the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of December 31, 1999 are considered outstanding. These shares, however, are not considered outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table or as a result of applicable community property laws, each stockholder named in the table has sole voting and investment power to the shares shown as beneficially owned by them. Applicable percentage ownership in the following table is based on 30,318,295 shares of common stock outstanding as of December 31, 1999, after giving effect to the conversion of all outstanding shares of preferred stock and convertible debentures into common stock upon the closing of the offering and 34,818,295 shares of common stock outstanding immediately following completion of the offering. This table assumes no exercise of the underwriters' over-allotment options. Unless otherwise indicated, the address of each of the individuals named below is: c/o Chordiant Software, Inc., 20400 Stevens Creek Blvd, Suite 400, Cupertino, California 95014.
Beneficial Ownership Beneficial Ownership Before the Offering After the Offering ---------------------- ---------------------- Name of Beneficial Owner Shares Percent (%) Shares Percent (%) - ------------------------ ---------- ----------- ---------- ----------- Directors, Executive Officers: Samuel T. Spadafora(1)......... 1,810,150 5.64 1,810,150 4.95 Steven R. Springsteel(2)....... 473,343 1.54 473,343 1.34 Donald J. Morrison(3).......... 607,858 1.97 607,858 1.72 Joseph F. Tumminaro(4)......... 5,018,422 16.53 5,043,422 14.45 Steven Sherman(5).............. 400,000 1.31 400,000 1.14 Stephen Kelly(6)............... 350,000 1.14 350,000 1.00 John Palmer(7)................. 188,046 0.62 188,046 0.54 Oliver D. Curme(8)............. 2,501,263 8.25 2,526,263 7.26 Kathryn C. Gould(9)............ 3,115,813 10.28 3,140,813 9.02 Mitchell Kertzman(10).......... 88,825 0.29 113,825 0.33 Robert S. McKinney(11)......... 0 0.00 25,000 0.07 William Raduchel(12)........... 87,500 0.29 112,500 0.32 David R. Springett(13)......... 0 0.00 25,000 0.07 Carol L. Realini(4)............ 5,018,422 16.53 5,043,422 14.45 All directors and officers as a group(14).................... 14,641,223 42.81 14,816,223 38.11 Five Percent Stockholders: First Plaza Group Trust(15).... 3,947,368 13.02 3,947,368 11.34 The Chase Manhattan Bank 3 Chase Metrotech Center 7th Floor Brooklyn, NY 11245
58
Beneficial Ownership Beneficial Ownership Before the Offering After the Offering --------------------- --------------------- Name of Beneficial Owner Shares Percent (%) Shares Percent (%) - ------------------------ --------- ----------- --------- ----------- Entities associated with Foundation Capital, L.P(16)................. 3,115,813 10.28 3,115,813 9.02 70 Willow Road Suite 200 Menlo Park, CA 94025 Orchid & Co., nominee for T. Rowe Price Threshold Fund III, L.P.... 2,605,065 8.59 2,605,065 7.48 100 East Pratt Street Baltimore, MD 21202 Battery Ventures III, L.P.......... 2,501,263 8.25 2,501,263 7.26 20 William Street Suite 200 Wellesley, MA 02481 Electronic Data Systems Corporation...................... 2,421,875 7.99 2,421,875 6.96 5400 Legacy Drive Plano, TX 75024 Norwest Venture Partners VI, LP(17)........................... 2,321,472 7.66 2,321,472 6.67 245 Lytton Avenue Suite 250 Palo Alto, CA 94301 Entities associated with Charter Growth Capital(18)............... 2,000,000 6.60 2,000,000 5.74 525 University Avenue Suite 1500 Palo Alto, CA 94301 Entities associated with Vertex Investment II(19)................ 1,697,828 5.60 1,697,828 4.88 Three Lagoon Drive Suite 220 Redwood City, CA 94065
- -------- (1) Consists of: . shares held by Mr. Spadafora's children, . 10,000 shares held by a family trust and . 1,765,150 shares subject to an outstanding option, of which 861,325 shares are vested. (2) Consists of: . shares held by Mr. Springsteel's children and . 463,345 shares subject to outstanding options, of which 211,245 shares are vested. (3) Consists of: . shares held by trusts for the benefit of Mr. Morrison's children and . 592,859 shares subject to outstanding options, of which 266,866 shares are vested. (4) The common stock held by Mr. Tumminaro and Ms. Realini consists of: . 4,970,000 shares held by a family trust and trusts for the benefit of Mr. Tumminaro and Ms. Realini children . 26,026 shares subject to outstanding options held by Mr. Tumminaro, of which 23,868 shares are fully vested . 22,396 shares subject to outstanding options held by Ms. Realini, of which 21,802 shares are fully vested and . 25,000 shares subject to an outstanding option that will be automatically granted to Ms. Realini upon completion of the offering, none of which are vested.- A trust for the benefit of the family of Mr. Tumminaro and Ms. Realini and a trust for the benefit of the children of Mr. Tumminaro and Ms. Realini have granted an option to the underwriters to purchase up to aggregate of 250,000 shares of common stock to cover over-allotments. 59 (5) Consists of: . 100,000 shares of common stock held by Mr. Sherman, all of which are subject to a right of repurchase in favor of Chordiant if Mr. Sherman terminates his services as an employee . 300,000 shares are subject to an outstanding option, none of which are vested. (6) Consists of 350,000 shares subject to outstanding options, of which 99,999 shares are vested. (7) Consists of 188,046 shares subject to outstanding options, all of which shares are fully vested. In August 1999, Mr. Palmer resigned as our executive vice president, engineering and is no longer an officer of Chordiant. (8) Consists of 25,000 shares subject to an outstanding option that will be automatically granted to Mr. Curme upon completion of the offering, none of which are vested. Mr. Curme is a general partner of Battery Ventures III, L.P, which is the sole general partner of Battery Ventures III LP. Mr. Curme disclaims beneficial ownership of the shares held by these entities except to the extent of his proportionate partnership interest in these entities. (9) Consists of 25,000 shares subject to an outstanding option that will be automatically granted to Ms. Gould upon completion of the offering, none of which are vested. Ms. Gould is a managing member of Foundation Capital Management, LLC, which is the general partner and managing member of Foundation Capital, LP and Foundation Capital Entrepreneurs Fund LLC. She disclaims beneficial ownership of the shares held by the entities associated with Foundation Capital, except to the extent of her financial interest in these entities. (10) Consists of: . 88,825 shares subject to an outstanding option, of which 62,917 shares are vested and . 25,000 shares subject to an outstanding option that will be automatically granted to Mr. Kertzman upon completion of the offering, none of which are vested. (11) Consists of 25,000 shares subject to an outstanding option that will be automatically granted upon completion of the offering, none of which are vested. (12) Consists of 87,500 shares subject to an outstanding option, of which 29,166 shares are vested. (13) Consists of 25,000 shares subject to an outstanding option that will be automatically granted upon completion of the offering, none of which are vested. (14) Includes shares described in the notes above, as applicable. (15) The Chase Manhattan Bank acts as the trustee for First Plaza Group Trust. These shares may be considered to be owned beneficially by General Motors Investment Management, a wholly owned subsidiary of General Motors. General Motors Investment Management is serving as the trust's investment manager for these shares and in that capacity it has the sole power to direct the trustee about the voting and disposition of these shares. Because of the trustee's limited role, beneficial ownership of the shares by the trustee is disclaimed. (16) Consists of: . 260,724 shares held by Foundation Capital Entrepreneurs LLC and . 2,802,458 shares held by Foundation Capital LP. Foundation Capital Management, LLC is the managing member of Foundation Capital Entrepreneurs Fund, LLC and is the general partner of Foundation Capital, LP. Ms. Gould is a director of Chordiant and disclaims beneficial ownership of the shares held by these Foundation Capital entities, except to the extent of her financial interest as a member of Foundation Capital Management, LLC. (17) The sole general partner of Norwest Venture Partners VI, LP is Itasca VC Partners VI, LLP, whose managing partner is George Still and whose managing administrative partner is John Whaley. All voting and investment power of these shares is held solely by Norwest Venture Partners VI, LP acting by and through Itasca VC Partners VI and its managing partner and managing administration partner. 60 (18) Consists of: . a convertible debenture held by Charter Growth Capital, L.P. convertible into 560,000 shares of series D preferred stock, . a convertible debenture held by CGC Investors, L.P. convertible into 35,000 shares of series D preferred stock and . a convertible debenture held by Charter Growth Capital Co-Investment Fund, L.P. convertible into 1,405,000 shares of series D preferred stock. (19) Consists of: . 130,625 shares held by HWH Investment PTE, Ltd., . 717,812 shares held by Vertex Asia Ltd., and . 849,391 shares held by Vertex Investments II Ltd. 61 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 300,000,000 shares of common stock, and 51,000,000 shares of preferred stock. There were 30,318,295 shares of our common stock outstanding as of December 31, 1999, held by 114 stockholders, after giving effect to the conversion of our preferred stock and convertible debentures into common stock. Common Stock The holders of our common stock are permitted to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are allowed to receive dividends as may be declared by the board of directors out of funds legally available in proportion to their stockholdings. If we liquidate, dissolve or wind up, holders of common stock are allowed to share in proportion to their stockholdings in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive, conversion, or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock Under our amended and restated certificate of incorporation, our board has the authority, without further action by stockholders, to issue up to 51,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. The issuance of preferred stock could reduce the voting power of holders of common stock and reduce the likelihood that the holders of common stock will receive dividend payments and payments upon liquidation. This issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock could also have the effect of delaying, deterring or preventing a change in control of Chordiant. We have no present plans to issue any shares of preferred stock. Registration Rights Upon completion of this offering and subject to contractual limitations, the holders of 24,412,193 shares of common stock will have rights to register these shares under the Securities Act. If we propose to register any of our securities under the Securities Act, either for our own account or for the account of other securityholders, the holders of these shares will receive notice of the registration and will be allowed to include, at our expense, their shares of common stock. The holders of these shares may also require us, at our expense and on not more than two occasions at any time beginning on the later of September 28, 2000 or six months from the date of the closing of this offering, to file a registration statement under the Securities Act for their shares of common stock, and we will be required to use our best efforts to effect the registration. Further, the holders may require us, at our expense, to register their shares on Form S-3 when this form becomes available to us. These rights terminate six years after the effective date of this offering. Delaware Anti-Takeover Law Statutory Business Combination Provision. We are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: . before that date, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; 62 . upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or . on or after that date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, by the vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person associated with or controlling or controlled by the entity or person. Section 203 defines business combination to include: . any merger involving the corporation and the interested stockholder; . any sale or other transfer involving the interested stockholder of 10% or more of the assets of the corporation; . any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or . the receipt by the interested stockholder of the benefit of any loans, or other financial benefits provided by or through the corporation. Charter and Bylaw Protections Our amended and restated certificate of incorporation provides that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing. In addition, our amended and restated bylaws provide that special meetings of our stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors by a resolution adopted by a majority of the total number of authorized directors, or by the holders of 50% of our outstanding voting stock. Furthermore, our amended and restated certificate requires the advance notice of stockholders' nominations for the election of directors and business brought before a meeting of stockholders. Our amended and restated certificate specifies that our board of directors will be classified into three classes of directors. Under Delaware law, directors of a corporation with a classified board may be removed only for cause unless the corporation's certificate of incorporation provides otherwise. Our amended and restated certificate does not provide otherwise. In addition, the amended and restated certificate specifies that the authorized number of directors may be changed only by resolution of the board of directors and excludes cumulative voting for directors. Under cumulative voting, a minority stockholder holding a sufficient percentage of a class of shares may be able to ensure the election of one or more directors. Our amended and restated certificate provides that a majority of the directors in office, even if less than a quorum, can fill vacancies created by resignation, death, disqualification, removal or by an increase in the size of the board. Some provisions of our amended and restated certificate may only be amended with the approval of 66 2/3% of our outstanding voting stock and our amended and restated bylaws may be amended only by the board or by the approval of 66 2/3% of our outstanding voting stock. These provisions contained in our amended and restated certificate and our amended and restated bylaws could delay or discourage some types of transactions involving an actual or potential change in control of Chordiant or its management, which includes transactions in which stockholders might otherwise receive a 63 premium for their shares over then current prices. They may also limit the ability of stockholders to remove our current management or approve transactions that stockholders may consider to be in their best interests and, therefore, could adversely affect the price of our common stock. Transfer Agent And Registrar The transfer agent and registrar for our common stock is BankBoston, N.A. Its telephone number is (781) 575-3120. 64 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could reduce our price. Since, other than the shares offered in this offering, no shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below, sales of large amounts of our common stock in the public market after these restrictions lapse could reduce our stock's market price and our ability to raise equity capital. Upon completion of this offering, we will have outstanding an aggregate of 34,818,295 shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options after December 31, 1999. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by directors, officers or owners of ten percent or more of our stock. The remaining 30,094,801 shares of common stock are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 under the Securities Act. As a result of the contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: . no shares will be eligible for sale before 180 days from the date the registration statement of which this prospectus is a part is declared effective; . 24,109,283 shares will be eligible for sale upon the expiration of the lock-up agreements described below 180 days after the date this offering is declared effective; . 5,963,155 shares will be eligible for sale at various times after the expiration of the lock-up agreements described below 180 days after the date this offering is declared effective; and . 2,109,283 shares will be eligible for sale upon the exercise of vested options 180 days after the date this offering is declared effective. Lock-Up Agreements Our officers, directors, and stockholders have agreed, subject to some exclusions, not to transfer or dispose of any shares of our common stock or any securities convertible into shares of our common stock. This restriction will be applicable until 180 days after the date this offering is declared effective. Transfers can be made sooner in certain circumstances or with the prior written consent of FleetBoston Robertson Stephens Inc. Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of our public offering, a person who has beneficially owned shares of our common stock for at least one year, including any directors, officers or owners of ten percent or more of our stock, can sell, within any three-month period, a number of shares that does not exceed the greater of: . 1% of the number of shares of common stock then outstanding, which will equal approximately 345,948 shares immediately after this offering; or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four weeks preceding the filing of a notice on Form 144 for the sale. Sales under Rule 144 are also subject to other requirements concerning the manner of sale, notice filing and the availability of current public information about Chordiant. Rule 144(k) Under Rule 144(k), a person who is not a director, executive officer or owner of ten percent or more of our stock and was not at any time during the 90 days preceding a sale, and who has beneficially owned the 65 shares proposed to be sold for at least two years, including the holding period of any prior owner other than a director, executive officer or 10% stockholder, is allowed to sell these shares without complying with the manner of sale, notice filing, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, these shares may be sold immediately upon the completion of this offering. Rule 701 In general, under Rule 701, any Chordiant employee, director, officer, consultant or advisor who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of the offering is allowed to resell these shares 90 days after the effective date of our initial public offering in reliance on Rule 144, without having to comply with some restrictions, including the holding period, contained in Rule 144. The Securities and Exchanges Commission has indicated that Rule 701 will apply to stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of these options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than officers, directors and 10% stockholders, as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by officers, directors and 10% stockholders under Rule 144 without compliance with its one-year minimum holding period requirement. Registration Rights Upon completion of this offering, the holders of 24,412,193 shares of our common stock will have rights for the registration of their shares under the Securities Act. Registration of their shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by officers, directors and 10% stockholders, immediately upon the effectiveness of this offering. Stock Options After this offering, we intend to file a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our 1999 equity incentive plan, the 1999 employee stock purchase plan and the 1999 non-employee directors stock option plan. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Shares registered under the registration statements will, subject to Rule 144 volume limitations applicable to officers, directors and 10% stockholders and contractual limitations, be available for sale in the open market, immediately after the effective date of that registration statement. 66 UNDERWRITING The underwriters named below, acting through their representatives, FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, and Thomas Weisel Partners LLC, have each agreed with us and the selling stockholders, subject to the terms and conditions of the underwriting agreement, to purchase from us the number of shares of common stock listed opposite their names below. The underwriters are committed to purchase and pay for all of these shares if any are purchased.
Underwriters Number of Shares ------------ ---------------- FleetBoston Robertson Stephens Inc......................... Dain Rauscher Incorporated................................. Thomas Weisel Partners LLC................................. --------- Total.................................................... 4,500,000 =========
We have been advised by the representatives that the underwriters propose to offer the shares of common stock to the public at the initial public offering price of $ per share and to dealers at that price less a concession of not more than $ per share, of which $ may be allowed to other dealers. After the initial public offering, these prices may be reduced by the representatives. This reduction will not change the amount of proceeds to be received by us or the selling stockholders. The common stock is offered by the underwriters subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on 115 filed public offerings of equity securities, of which 82 have been completed, and has acted as an underwriter in an additional 56 public offerings of equity securities in which it has not acted as a lead or co-manager. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except for its contractual relationship with us under the underwriting agreement entered into for this offering. The following table summarizes the compensation to be paid to the underwriters by Chordiant:
Per Share Total ------------------- ------------------- Without With Without With Over- Over- Over- Over- allotment allotment allotment allotment --------- --------- --------- --------- Underwriting discounts and commissions paid by Chordiant................... $ $ $ $ Expenses payable by Chordiant......... $ $ $ $
Over-allotment Options. We have granted to the underwriters an option to purchase up to 425,000 additional shares of common stock at $ per share. Additionally, a principal stockholder and a family trust for the benefit of the family of Carol Realini and Joseph Tumminaro, each a director and founder of Chordiant, and an educational trust for the benefit of the children of Mr. Tumminaro and Ms. Realini have granted to the underwriters an option to purchase up to 250,000 additional shares of common stock at $ per share. Each option is exercisable for 30 days after the date of this prospectus. If the underwriters exercise either option, each of the underwriters will be required to purchase the same percentage of additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the total number of shares offered. If purchased, these additional shares will be sold by the underwriters on the same terms as those offered by this prospectus. If our option is exercised we will be required to sell the shares the underwriters choose to purchase under the option. If the selling stockholders' option is exercised they will be required to sell the shares the underwriters choose to purchase under the option. The underwriters are obligated to exercise the selling stockholders' option in full before exercising their option with us. The underwriters may exercise these options only to cover over-allotments made for the sale of the shares of common stock offered in this offering. 67 Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters, Chordiant and the selling stockholders, including indemnity against liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. Lock-up Agreements. Our officers, directors and stockholders have agreed, for a period of 180 days after the date of this prospectus, that, subject to exceptions, they will not offer to sell or transfer any shares of common stock or any securities convertible into shares of common stock owned as of the date of this prospectus or, with some exceptions, acquired by them after the date of this prospectus without the prior written consent of FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may release all or a portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders providing consent by the representatives to the sale of shares before the expiration of the lock-up period other than through this offering. Future Sales. We have agreed that until 180 days after the date of this prospectus, we will not, subject to some exceptions, without the prior written consent of FleetBoston Robertson Stephens Inc.: . consent to the transfer of any shares of our common stock held by our stockholders before the expiration of the lock-up period; or . issue, sell or transfer any shares of our common stock, or any securities convertible into our common stock other than (1)the sale of shares in this offering, (2)the issuance of common stock upon the exercise of outstanding options, (3)the issuance of options under existing stock option and incentive plans, and (4)the issuance of up to 3,400,000 shares as a result of future acquisitions. Listing. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol CHRD. No Prior Public Market. Before this offering, there was no public market for our common stock. As a result, the initial public offering price for the common stock offered in this offering will be determined through negotiations between us and the representatives. We will determine the initial offering price based on factors including: . prevailing market conditions, . our financial information, . market valuations of other companies that we and the representatives believe to be comparable to ours, . estimates of our business potential, and . our present state of development. Stabilization. The representatives have advised us that the underwriters may perform the following transactions. Transaction Description stabilizing bid a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock.
68 syndicate covering transaction a bid for or the purchase of the common stock on behalf of the underwriters to cover a position where the underwriter has sold shares it did not yet own, incurred by the underwriters for this offering. penalty bid an arrangement permitting the representatives to reclaim the selling concession otherwise payable to an underwriter for this offering if the common stock originally sold by the underwriter is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by the underwriter.
These transactions may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. The representatives have advised us that these transactions may be effected on the Nasdaq National Market and, if commenced, may be discontinued at any time. Internet Distribution. The representatives have advised us that a limited number of shares will be made available to the customers of E*TRADE Securities, Inc. E*TRADE Securities will make a copy of the prospectus in electronic format available on its web site located at www.etrade.com. E*TRADE will accept conditional offers to purchase shares from all of its customers that complete and pass an online eligibility profile. If demand for shares from the customers of E*TRADE exceeds the number of shares allocated to it, E*TRADE will use a random allocation methodology to distribute shares in even lots of 100 shares per customer. The representatives have advised us that there are no plans to direct shares to particular internet purchasers. Directed share program. At our request, the underwriters have reserved up to 225,000 shares of common stock at the initial public offering price, to directors, officers, employees, business associates and related persons of Chordiant. The number of shares of common stock available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. Any reserved shares that are not purchased by the identified persons will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We have agreed to indemnify the underwriters against liabilities and expenses, including liabilities under the Securities Act of 1933 for the sales of these shares. LEGAL MATTERS The validity of the issuance of the common stock offered by this prospectus will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Other specified legal matters in connection with this offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California. EXPERTS The consolidated financial statements as of December 31, 1998 and 1999, and for each of the three years in the period ended December 31, 1999, included in this prospectus, have been included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. 69 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 for the registration of the common stock offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement, parts of which are contained in exhibits to the registration statement as permitted by the Securities and Exchange Commission rules and regulations. For further information about us and our common stock, you should refer to the registration statement. The registration statement can be inspected and copied at the Securities and Exchange Commission's following locations: Public Reference Room Office Northeast Regional Office Midwest Regional Office 450 Fifth Street, N.W. Seven World Trade Center Citicorp Center Washington, D.C. 20549 Suite 1300 500 West Madison Street New York, NY 10048 Suite 1400 Chicago, IL 60661-2511
In addition, the registration statement is publicly available through the Securities and Exchange Commission's site on the Internet's world wide web, located at http://www.sec.gov. We will also file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may obtain copies of the documents that we file electronically with the Securities and Exchange Commission through the Securities and Exchange Commission's website located at http://www.sec.gov. You can also request copies of these documents, for a copying fee, by writing to the Securities and Exchange Commission. 70 CHORDIANT SOFTWARE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.......................................... F-2 Consolidated Balance Sheet................................................. F-3 Consolidated Statement of Operations....................................... F-4 Consolidated Statement of Stockholders' Deficit............................ F-5 Consolidated Statement of Cash Flows....................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Chordiant Software, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Chordiant Software, Inc.("Chordiant"), at December 31, 1998 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. These consolidated financial statements are the responsibility of the Chordiant's management; our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California January 18, 2000, except for Note 14 which is as of February 10, 2000 F-2 CHORDIANT SOFTWARE, INC. CONSOLIDATED BALANCE SHEET (amounts in thousands, except share and per share data)
Pro Forma Liabilities and Stockholders' December 31, Equity at ------------------ December 31, 1998 1999 1999 -------- -------- --------------- (unaudited) ASSETS Current Assets: Cash and cash equivalents............... $ 1,713 $ 6,719 Short-term investments.................. 1,051 2,000 Accounts receivable--third parties, net................................... 5,287 7,233 Accounts receivable--related parties.... 102 1,211 Other current assets.................... 274 1,775 -------- -------- Total current assets................. 8,427 18,938 Property and equipment, net............... 2,866 2,580 Other assets.............................. 228 568 -------- -------- $ 11,521 $ 22,086 ======== ======== LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Borrowings.............................. $ 776 $ 2,608 $ 2,608 Accounts payable--related parties....... 206 -- -- Accounts payable--third parties......... 4,346 2,101 2,101 Accrued expenses........................ 2,115 2,493 2,493 Prepaid licenses--related parties....... 6,000 -- -- Deferred revenue........................ 5,146 9,903 9,903 -------- -------- -------- Total current liabilities............ 18,589 17,105 17,105 Borrowings, long-term..................... 911 10,617 617 Deferred revenue.......................... 573 293 293 Other liabilities......................... 103 244 244 -------- -------- -------- 20,176 28,259 18,259 -------- -------- -------- Mandatorily Redeemable Convertible Preferred Stock, $0.001 par value; 25,027,985 shares authorized, 16,449,038 and 22,412,194 shares issued and outstanding; no shares issued and outstanding pro forma................... 28,949 51,609 -- -------- -------- -------- Commitments and contingencies (Notes 6 and 8) Stockholders' Equity (Deficit): Preferred Stock, $0.001 par value; 51,000,000 shares authorized; no shares issued and outstanding......... -- -- -- Common Stock, $0.001 par value; 300,000,000 shares authorized; 5,218,973 and 5,906,101 shares issued and outstanding; 30,318,295 shares issued and outstanding pro forma...... 5 6 30 Additional paid-in capital.............. 2,820 14,652 76,237 Note receivable from stockholder........ -- (406) (406) Unearned compensation................... (1,002) (9,470) (9,470) Accumulated deficit..................... (39,427) (62,564) (62,564) -------- -------- -------- Total stockholders' equity (deficit).......................... (37,604) (57,782) 3,827 -------- -------- -------- $ 11,521 $ 22,086 $ 22,086 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 CHORDIANT SOFTWARE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (amounts in thousands, except share and per share data)
Year Ended December 31, -------------------------------- 1997 1998 1999 --------- --------- ---------- Net revenues: License--third parties...................... $ 1,142 $ 4,360 $ 5,938 License--related parties.................... -- -- 2,069 Service--third parties...................... 1,677 8,013 9,007 Service--related parties.................... 89 92 574 --------- --------- ---------- Total net revenues...................... 2,908 12,465 17,588 --------- --------- ---------- Cost of net revenues: License--third parties...................... 73 425 263 License--related parties.................... -- -- 134 Service--third parties...................... 1,388 8,846 13,999 Service--related parties.................... 74 101 353 --------- --------- ---------- Total cost of net revenues.............. 1,535 9,372 14,749 --------- --------- ---------- Gross profit (loss).......................... 1,373 3,093 2,839 --------- --------- ---------- Operating expenses: Sales and marketing......................... 5,142 12,580 13,368 Research and development.................... 6,240 5,858 6,494 General and administrative.................. 1,416 2,046 2,668 Stock-based compensation.................... 498 489 2,660 --------- --------- ---------- Total operating expenses................ 13,296 20,973 25,190 --------- --------- ---------- Loss from operations......................... (11,923) (17,880) (22,351) Interest expense............................. (112) (121) (1,067) Other income (expense), net.................. 442 561 281 --------- --------- ---------- Net loss..................................... $ (11,593) $ (17,440) $ (23,137) ========= ========= ========== Net loss per share: Basic and diluted........................... $ (2.31) $ (3.44) $ (4.34) ========= ========= ========== Weighted average shares..................... 5,008,623 5,074,533 5,326,831 ========= ========= ========== Pro forma net loss per share (unaudited): Basic and diluted........................... $ (0.93) ========== Weighted average shares..................... 24,805,221 ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 CHORDIANT SOFTWARE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (amounts in thousands, except share data)
Note Common Stock Additional Receivable Total ----------------- Paid-in from Unearned Accumulated Stockholders' Shares Amount Capital Stockholder Compensation Deficit Deficit --------- ------ ---------- ----------- ------------ ----------- ------------- Balance at December 31, 1995.................. 5,000,000 $ 5 $ 803 $ -- $ -- $ (2,832) $ (2,024) Exercise of stock options.............. 70,625 -- 6 -- -- -- 6 Repurchase of common stock................ (66,250) -- (9) -- -- -- (9) Stock compensation..... -- -- 3 -- -- -- 3 Net loss............... -- -- -- -- -- (7,562) (7,562) --------- --- ------- ----- -------- -------- -------- Balance at December 31, 1996.................. 5,004,375 5 803 -- -- (10,394) (9,586) Exercise of stock options.............. 31,638 -- 4 -- -- -- 4 Repurchase of common stock................ (23,280) -- (5) -- -- -- (5) Stock compensation..... -- -- 498 -- -- -- 498 Net loss............... -- -- -- -- -- (11,593) (11,593) --------- --- ------- ----- -------- -------- -------- Balance at December 31, 1997.................. 5,012,733 5 1,300 -- -- (21,987) (20,682) Exercise of stock options.............. 236,635 -- 56 -- -- -- 56 Repurchase of common stock................ (30,395) -- (27) -- -- -- (27) Unearned compensation.. -- -- 1,500 -- (1,500) -- -- Amortization of unearned compensation......... -- -- -- -- 489 -- 489 Stock option cancellations........ -- -- (9) -- 9 -- -- Net loss............... -- -- -- -- -- (17,440) (17,440) --------- --- ------- ----- -------- -------- -------- Balance at December 31, 1998.................. 5,218,973 5 2,820 -- (1,002) (39,427) (37,604) Exercise of stock options.............. 712,703 1 745 (406) -- -- 340 Repurchase of common stock................ (25,575) -- (41) -- -- -- (41) Unearned compensation.. -- -- 11,274 -- (11,274) -- -- Amortization of unearned compensation......... -- -- -- -- 2,660 -- 2,660 Stock option cancellations........ -- -- (146) -- 146 -- -- Net loss............... -- -- -- -- -- (23,137) (23,137) --------- --- ------- ----- -------- -------- -------- Balance at December 31, 1999.................. 5,906,101 $ 6 $14,652 $(406) $ (9,470) $(62,564) $(57,782) ========= === ======= ===== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 CHORDIANT SOFTWARE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands)
Year Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- Cash flows from operating activities: Net loss........................................ $(11,593) $(17,440) $(23,137) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................. 913 521 1,276 Stock-based compensation....................... 498 489 2,660 Provision for doubtful accounts................ 569 17 470 Changes in assets and liabilities: Accounts receivable--third parties............ 467 (4,963) (2,416) Accounts receivable--related parties.......... (117) 15 (1,109) Other current assets.......................... 1,074 311 (1,501) Other assets.................................. (2) (181) (340) Accounts payable--third parties............... 37 3,936 (2,245) Accounts payable--related parties............. 206 -- (206) Accrued expenses.............................. (1,417) 1,308 378 Prepaid licenses--related parties............. 6,000 -- -- Deferred revenue.............................. 223 1,317 (1,523) Other liabilities............................. -- 103 141 -------- -------- -------- Net cash used in operating activities....... (3,142) (14,567) (27,552) -------- -------- -------- Cash flows from investing activities: Purchases of property and equipment............. (744) (2,033) (990) Purchases of short-term investments............. -- (9,558) (2,800) Proceeds from sales and maturities of short-term investments.................................... -- 8,507 1,851 -------- -------- -------- Net cash used in investing activities....... (744) (3,084) (1,939) -------- -------- -------- Cash flows from financing activities: Issuance of mandatorily redeemable convertible preferred stock, net........................... 19,902 -- 22,660 Exercise of stock options....................... 4 56 340 Repurchase of common stock...................... (5) (27) (41) Proceeds from borrowings........................ 558 781 14,627 Repayment of borrowings......................... (335) (362) (3,089) -------- -------- -------- Net cash provided by financing activities... 20,124 448 34,497 -------- -------- -------- Net increase (decrease) in cash and cash equivalents..................................... 16,238 (17,203) 5,006 Cash and cash equivalents at beginning of period.......................................... 2,678 18,916 1,713 -------- -------- -------- Cash and cash equivalents at end of period....... $ 18,916 $ 1,713 $ 6,719 ======== ======== ======== Supplemental cash flow information: Cash paid for interest.......................... $ 112 $ 112 $ 1,062 ======== ======== ======== Cash paid for income taxes...................... $ -- $ -- $ -- ======== ======== ======== Supplemental non-cash activities: Common Stock issued for stockholder note........ $ -- $ -- $ 406 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share and per share data) NOTE 1--THE COMPANY: Chordiant Software, Inc. ("Chordiant"), formerly J. Frank Consulting, Inc. and J. Frank & Associates, Inc., was incorporated in California in March 1991 and reincorporated in Delaware by merging into Chordiant Delaware, Inc., a wholly-owned Delaware subsidiary, in October 1997. At that time, Chordiant Delaware, Inc. changed its name to Chordiant Software, Inc. Chordiant provides e-business infrastructure software for customer interaction applications. Chordiant's product helps enable companies to offer their customers personalized marketing, sales programs, e-business services and customer support across multiple channels of communication. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of consolidation The accompanying consolidated financial statements include the accounts of the Chordiant and its wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash, cash equivalents and short-term investments Chordiant considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1998 and 1999, $1,477 and $6,087 of money market account balances, commercial paper and municipal bonds, the fair value of which approximates cost, are included in cash and cash equivalents. The gross unrealized gains and losses were not significant in the periods presented. Chordiant classifies its short-term investment securities as "available- for-sale." At December 31, 1998 and 1999, the fair value of these securities, comprised primarily of medium-term notes, approximates cost, and the gross unrealized gains and losses were not significant. These securities mature within one year. Fair value of financial instruments Chordiant's financial instruments, including cash and cash equivalents, accounts receivable, deposits, accounts payable and borrowings are carried at cost, which approximates fair value because of the short-term nature of those instruments. Property and equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of assets which range from three to seven years. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the estimated economic F-7 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) life of the asset or the lease term. Purchased internal-use software consists primarily of amounts paid for perpetual licenses to third party software applications which are amortized over their estimated useful life, generally three years. Prepaid licenses-related parties Prepaid licenses-related parties totalling $6 million was received from a stockholder in 1997. The intention of this cash advance was that the amount would be applied against future revenue contracts, to the extent that any such contracts are entered. During 1999, Chordiant delivered licenses to the stockholder and reduced the prepaid licenses-related parties account. Chordiant recognized this revenue in accordance with its revenue recognition accounting policy. Impairment of long-lived assets Chordiant evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards "SFAS No. 121", "Accounting for Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets if the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. Revenue recognition Chordiant derives revenues from licenses of its software and related services, which include assistance in implementation, customization and integration, post-contract customer support, training and consulting. On contracts involving significant implementation or customization essential to the functionality of the Chordiant's product, license and service revenues are recognized using the percentage-of-completion method using labor hours incurred as the measure of progress towards completion. Chordiant classifies revenues from these arrangements as license and services revenues, based upon the estimated fair value of each element. Provisions for estimated contract losses are recognized in the period in which the loss becomes probable and can be reasonably estimated. On contracts that do not involve significant implementation or customization essential to the functionality of Chordiant's product, license fees are recognized when there is persuasive evidence of an arrangement for a fixed and determinable fee that is probable of collection and when delivery has occurred. For arrangements with multiple elements, Chordiant recognizes revenue for services and post-contract customer support based upon vendor specific objective evidence (VSOE), VSOE for the services element is based upon the standard hourly rates it charges for services and based upon the complexity of the services and experience of the professional performing the services and such services are separately priced in the contract, VSOE for annual post- contract customer support is established with the stated future renewal rates included in the contracts. Chordiant recognizes revenue for the license portion of a multiple element arrangement based upon the residual contract value as prescribed by Statement of Position No. 98-9, "Modification of SoP No. 97-2 with Respect to Certain Transactions." Revenues from reseller arrangements are recognized when reported by the reseller upon re-licensing of Chordiant's software to end users. Chordiant's agreements with its customers and resellers do not contain product return rights. Other service revenues from consulting and training services are recognized as such services are performed. Service revenues from post-contract customer support are recognized ratably over the support period, generally one year. F-8 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) In future periods, Chordiant expects to derive revenues from contracts that provide for implementation services at a fixed hourly rate. On other contracts Chordiant expects to derive revenues from the licensing of the installed product on a per transaction basis. In connection with such arrangements, Chordiant will recognize the fair value of the implementation services as such services are delivered and will recognize license fees on a monthly basis at the contractual rate. Chordiant bills customers in accordance with contract terms. Amounts billed to customers in excess of revenues recognized are recorded as deferred revenues. Concentrations of Credit Risk Financial instruments that potentially subject Chordiant to concentrations of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. To date, Chordiant has invested excess funds in money market accounts, commercial paper, municipal bonds and term notes. Chordiant deposits cash, cash equivalents and short-term investments with financial institutions that management believes are credit worthy. Chordiant's accounts receivable are derived from revenues earned from customers located in the United States, United Kingdom, Canada, Netherlands and Africa. Chordiant performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Chordiant maintains an allowance for doubtful accounts receivable based upon the expected collectibility of all accounts receivable. The following table summarizes the revenues from customers, all of which were third parties, in excess of 10% of total net revenues:
Year Ended December 31, ---------------- 1997 1998 1999 ---- ---- ---- Company A..................................................... 28% -- -- Company B..................................................... -- 12% 30% Company C..................................................... -- -- 19% Company D..................................................... 53% -- -- Company E..................................................... -- 14% -- Company F..................................................... -- 36% -- Company G..................................................... -- 19% --
At December 31, 1998, Companies B and F accounted for 21% and 26% of accounts receivable, net. At December 31, 1999, companies B and C accounted for 24% and 8% of accounts receivable, net. Research and development Research and development costs are expensed as incurred in accordance with Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs." Software development costs Costs incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred until the technological feasibility of the product or enhancement has been established through the development of a working model. After establishing technological feasibility, additional development costs incurred through the date the product is available for general release would be capitalized and amortized over the estimated product life. No costs have been capitalized to date, as the effect on the financial statements for all periods presented is immaterial. F-9 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Advertising costs Advertising costs are expensed as incurred in accordance with Statement of Position No. 93-7, "Reporting on Advertising Costs." Advertising costs for the years ended December 31, 1997, 1998 and 1999 totaled $1,316, $1,955 and $1,340. Stock-based costs and expenses Chordiant accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of Chordiant's stock and the amount an employee must pay to acquire the stock. Foreign currency translation The functional currency of Chordiant's sales office located in the United Kingdom is its local currency. Foreign currency assets and liabilities are translated at the current exchange rates at each balance sheet date. Revenues and expenses are translated at weighted average exchange rates in effect during the year. Gains and losses resulting from foreign currency translation have not been material to the financial statements of any period presented. To the extent these gains or losses are recognized in future periods, such amounts will be recorded directly into a separate component of stockholders' deficit. Foreign currency transaction gains and losses are included in the determination of net income or loss. During the years ended December 31, 1997, 1998 and 1999, net foreign currency transaction gains or losses were immaterial. Income taxes Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in Chordiant's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Recapitalization In November 1999, Chordiant's board of directors approved the filing of a registration statement for an underwritten public offering of Chordiant's common stock whereupon the authorized number of shares of common stock will be increased to 300,000,000 and the authorized number of shares of undesignated convertible preferred stock will be increased to 51,000,000. All share information included in these consolidated financial statements have been retroactively adjusted to reflect this recapitalization. Reverse Stock Split In November 1999, Chordiant's Board of Directors approved a 1-for-2 reverse stock split of Chordiant's outstanding shares. The reverse stock split is expected to become effective before the effective date of the initial public offering. All share and per share information included in these consolidated financial statements have been retroactively adjusted to reflect this reverse stock split. F-10 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Net loss per share Basic net loss per share is computed by dividing the net loss for the period by the weighted average shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of the incremental number of common shares issuable upon conversion of mandatorily redeemable convertible preferred stock (using the if-converted method), common shares issuable upon the exercise of stock options (using the treasury stock method), common shares issuable upon the assumed conversion of convertible debt (using the if-converted method) and common shares subject to repurchase by Chordiant. The calculation of diluted net loss per share excludes potential common shares if their effect is anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
Year Ended December 31, ------------------------------- 1997 1998 1999 --------- --------- --------- Net loss..................................... $ (11,593) $ (17,440) $ (23,137) --------- --------- --------- Weighted average common shares............... 5,008,623 5,074,533 5,391,265 Weighted average unvested Common shares subject to repurchase........ -- -- (64,434) --------- --------- --------- Denominator for basic and diluted calculation................................ 5,008,623 5,074,533 5,326,831 --------- --------- --------- Net loss per share--basic and diluted........ $ (2.31) $ (3.44) $ (4.34) ========= ========= =========
The following table sets forth the weighted average potential common shares that are excluded from the calculation of diluted net loss per share as their effect is anti-dilutive:
Year Ended December 31, -------------------------------- 1997 1998 1999 ---------- ---------- ---------- Weighted average effect of antidilutive securities: Mandatorily redeemable convertible preferred stock.......................... 10,008,307 16,449,038 17,998,938 Convertible debt........................... -- -- 1,479,452 Employee stock options..................... 506,603 1,908,598 6,201,931 Common shares subject to repurchase........ -- -- 64,434 ---------- ---------- ---------- 10,514,910 18,357,636 25,744,755 ========== ========== ==========
Pro forma net loss per share (unaudited) Pro forma net loss per share for the year ended December 31, 1999, is computed using the weighted average number of common shares outstanding, including the assumed conversion of Chordiant's mandatorily redeemable convertible preferred stock and the conversion of convertible debt that the holders have committed to converting, into shares of Chordiant's common stock effective upon the closing of an initial public offering, as if such conversions occurred on January 1, 1999, or at the date of original issuance, if later. The resulting unaudited pro forma adjustment includes an increase in the weighted average shares used to compute basic and diluted net loss per share of 19,478,390 for the year ended December 31, 1999. The calculation of pro forma diluted net loss per share excludes other potential common shares as the effect is anti-dilutive. Pro forma potential common shares are comprised of common stock subject to repurchase and incremental common stock issuable upon the exercise of stock options. F-11 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Pro forma liabilities and stockholders' equity (unaudited) Effective upon the closing of Chordiant's initial public offering, the outstanding shares of mandatorily redeemable convertible preferred stock and the outstanding convertible debt will convert into 22,412,194 and 2,000,000 shares of common stock. Also effective upon the closing of this offering, Chordiant will be authorized to issue 300,000,000 shares of common stock and 51,000,000 shares of undesignated convertible preferred stock. The pro forma effects of these transactions are unaudited and have been reflected in the accompanying pro forma Liabilities and Stockholders' Equity as of December 31, 1999. Segment information Effective January 1, 1998, Chordiant adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way companies report information about operating segments in financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. In accordance with the provisions of SFAS No. 131, Chordiant has determined that it operates in a single operating segment. Foreign revenues are based on the country in which the customer is located. The following is a summary of total net revenues by geographic area:
Year Ended December 31, ---------------------- 1997 1998 1999 ------ ------- ------- United States......................................... $2,719 $ 2,729 $10,974 United Kingdom........................................ 189 3,441 3,973 Canada................................................ -- 1,724 642 Netherlands........................................... -- 4,500 1,653 Other................................................. -- 71 346 ------ ------- ------- $2,908 $12,465 $17,588 ====== ======= =======
Property and equipment information is based on the physical location of the assets. The following is a summary of property and equipment by geographic area:
December 31, ------------- 1998 1999 ------ ------ United States.................................................. $2,587 $2,350 United Kingdom................................................. 279 230 ------ ------ $2,866 $2,580 ====== ======
Comprehensive income Effective January 1, 1998, Chordiant adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income includes all changes in equity during a period from nonowner sources. To date, Chordiant has not had any material transactions that are required to be reported in comprehensive income other than its net loss. F-12 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments in other contracts (collectively referred to as derivatives), and for hedging activities. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivatives Instruments and Hedging Activities--Deferral of Effective Date of FASB Statement No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier application encouraged. Chordiant does not currently, nor does it intend in the future, to use derivative instruments and therefore does not expect that the adoption of SFAS No. 133 will have any impact on its financial position or results of operations. NOTE 3--BALANCE SHEET COMPONENTS:
December 31, ---------------- 1998 1999 ------- ------- Accounts receivable--third parties, net: Accounts receivable....................................... $ 5,541 $ 7,957 Allowance for doubtful accounts........................... (254) (724) ------- ------- $ 5,287 $ 7,233 ======= ======= Property and equipment, net: Computer hardware......................................... $ 3,190 $ 3,907 Purchased internal-use software........................... 895 1,082 Furniture and equipment................................... 983 1,036 Leasehold improvements.................................... 500 533 ------- ------- 5,568 6,558 Accumulated depreciation and amortization................. (2,702) (3,978) ------- ------- $ 2,866 $ 2,580 ======= ======= Accrued expenses: Accrued payroll and related expenses...................... $ 1,799 $ 1,753 Other accrued liabilities................................. 316 740 ------- ------- $ 2,115 $ 2,493 ======= =======
NOTE 4--SOFTWARE DEVELOPMENT AGREEMENT: During 1995, Chordiant and Visa International Services Association entered into an agreement to jointly perform research and development for a call center software application. In December 1996, Chordiant received notice from Visa terminating the agreement. At December 31, 1996, Chordiant had recorded the total advances received under the agreement of $2,500 as deferred revenue. On May 29, 1997, Visa and Chordiant completed mediation surrounding the termination of the agreement and Chordiant agreed to refund Visa $1,700 of the advances received. The remaining advances totaling $800 were recognized as service revenue from third parties during the year ended December 31, 1997. F-13 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) NOTE 5--RELATED PARTY TRANSACTIONS: Chordiant has entered into agreements with some holders of Chordiant's mandatorily redeemable convertible preferred stock. These agreements consist primarily of product licenses and related services. Revenues and related costs of revenues together with deferred revenues, accounts receivable, accounts payable and prepaid licenses from these related parties are separately disclosed in the consolidated statements of operations and cash flows and in the consolidated balance sheet. NOTE 6--BORROWINGS: Bank credit facility At December 31, 1999, Chordiant maintained a credit facility with a bank consisting of three equipment loans in the aggregate amount of $2,351. As of December 31, 1999, Chordiant had borrowed $910 under these loans. The loans accrue interest at the bank's prime rate plus 0.25% (8.5% at December 31, 1999). The loans mature in June 2000, March 2000 and December 2000. The loans are secured by the assets of Chordiant and include the following material financial covenants, a minimum quick ratio of 1.25 to 1.00, a minimum liquidity ratio of 1.50 to 1.00 and a minimum capital base of $4,000,000 through December 31, 1999 and $7,000,000 thereafter. At December 31, 1999, Chordiant was in compliance with these covenants. In January 1999, Chordiant renegotiated its credit facility and entered into an accounts receivable line of credit arrangement for borrowings of up to $4,000 and an equipment loan in the amount of $1,000. Chordiant's borrowings under the accounts receivable line of credit are limited to 80% of eligible accounts receivable, accrue interest at the bank's prime rate and mature in January 2000. The borrowings under the equipment loan accrue interest at the bank's prime rate plus 0.25%, 8.5% at December 31, 1999, and mature in January 2002. As of December 31, 1999, Chordiant had borrowed $2,376 against the lines of credit of which $1,485 is payable on demand. Convertible debt In April 1999, Chordiant raised $10,000 through a convertible debt financing arrangement. The convertible debt bears interest at a rate of 9% per annum and is payable in April 2004. The holders have the right to accelerate Chordiant's obligation to repay the convertible debt upon a change in control, initial public offering of at least $20,000 at a price not less than $10.00 per share, or a significant transaction, as defined. The convertible debt also provides the holders the right to convert the debt instrument into 2,000,000 shares of Chordiant's series D mandatorily redeemable convertible preferred stock at a conversion rate of $5.00 per share. The aggregate future payments under the bank credit facilities and convertible debt financing arrangement are as follows:
December 31, Year Ending December 31, 1999 ------------------------ ------------ 1999............................................................ $ 2,621 2000............................................................ 591 2001............................................................ 74 2002............................................................ -- 2003............................................................ -- 2004............................................................ 10,000 ------- 13,286 Less discount................................................... (61) Less current portion (net of discount).......................... (2,608) ------- Long term portion (net of discount)............................. $10,617 =======
F-14 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) NOTE 7--INCOME TAXES: No provision for income taxes has been recorded for any period presented as Chordiant has incurred net operating losses for tax purposes. Deferred tax assets and liabilities consist of the following:
December 31, ----------------- 1998 1999 -------- ------- Net operating loss carryforwards.......................... $ 9,483 $17,700 Accrued expenses and provisions........................... 3,588 3,700 Tax credit carryforwards.................................. 864 1,100 -------- ------- Gross deferred tax assets................................. 13,935 22,500 Deferred tax valuation allowance.......................... (13,935) (22,500) -------- ------- Net deferred tax assets................................... $ -- $ -- ======== =======
Chordiant provides a valuation allowance for deferred tax assets when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based on a number of factors, including the lack of a history of profits and that the market in which Chordiant competes is intensely competitive and characterized by rapidly changing technology, management believes that there is sufficient uncertainty regarding the realization of deferred tax assets that a full valuation allowance has been provided. At December 31, 1998, Chordiant had approximately $25,664 and $12,983 of net operating loss carryforwards for federal and state purposes. At December 31, 1999, Chordiant had approximately $47,989 and $23,702 of net operating loss carryforwards for federal and state purposes. These carryforwards are available to offset future taxable income and expire beginning in 2011 and 2001. Under the Tax Reform Act of 1986, the amounts of and the benefit from net operating losses that can be carried forward may be or limited in certain circumstances. Events that may cause limitations in the utilization of net operating losses include, a cumulative stock ownership change of more than 50% over a three year period and other events. Chordiant has not yet determined whether or not operating loss benefits are impaired or limited. NOTE 8--COMMITMENTS AND CONTINGENCIES: Leases Chordiant leases its facilities and some equipment under noncancelable operating leases that expire on various dates through 2004. Rent expense is recognized ratably over the lease term. Future minimum lease payments as of December 31, 1999, are as follows:
Year Ending December 31, ------------------------ 2000............................................................. $1,687 2001............................................................. 1,629 2002............................................................. 1,512 2003............................................................. 1,555 2004............................................................. 799 Thereafter....................................................... -- ------ $7,182 ======
Rent expense for the year ended December 31, 1997, 1998 and 1999 totaled $559, $1,036 and $1,438. F-15 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) NOTE 9--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: Mandatorily redeemable convertible preferred stock consists of the following:
Shares Issued and Redemption Outstanding Amount at --------------------- --------------- December 31, December 31, Shares --------------------- --------------- Authorized 1998 1999 1998 1999 ---------- ---------- ---------- ------- ------- Series A....................... 6,838,905 6,838,905 6,838,905 $ 9,000 $ 9,000 Series B....................... 5,410,917 5,410,917 5,410,917 9,199 9,199 Series C....................... 4,199,216 4,199,216 4,199,216 10,750 10,750 Series D....................... 2,000,000 -- -- -- -- Series E....................... 6,578,947 -- 5,963,156 -- 22,660 ---------- ---------- ---------- ------- ------- 25,027,985 16,449,038 22,412,194 $28,949 $51,609 ========== ========== ========== ======= =======
The series A, series B, series C, series D and series E have rights, preferences and restrictions concerning dividends, conversion, liquidation, voting and redemption as follows: Dividends The holders of Series A, B, C, D and E are entitled to receive noncumulative, preferential dividends of $0.1316, $0.17, $0.256, $0.50 and $0.38 per share per annum when and if declared by the board of directors. Conversion Each share of series A, B, C, D and E is convertible into one share of common stock, subject to protection from dilution. For series A, B, and C such conversion is automatic upon the completion of a public offering of common stock for which the aggregate proceeds exceed $10 million and the per share offering price equals or exceeds $4.00. For Series D and E such conversion is automatic upon the completion of a public offering of common stock for which the aggregate proceeds exceed $30 million and the per share offering price equals or exceeds $10.00, when the holders of the majority of the outstanding series A, B, C, D and E elect to convert such shares into common stock. A total of 24,412,194 shares of common stock have been reserved for the conversion of the preferred stock. Liquidation If any liquidation, dissolution or winding up of Chordiant occurs, series A, B, C, D and E stockholders are entitled to a per share distribution in preference to the holders of common stock equal to the original issue price per share of $1.316, $1.70, $2.56, $5.00 and $3.80 plus any declared but unpaid dividends. Upon liquidation, the series E stockholders are entitled to receive their liquidation before and in preference to the holders of series A, B, C and D. If funds are sufficient to make a complete distribution to the holders of series A, B, C, D and E as described above, all remaining assets shall be distributed among the holders of the common and preferred stock in proportion to their stockholdings until the holders of the series A, B, C, D and E have received a maximum distribution of $3.40, $3.40, $3.40, $6.64 and $6.64. F-16 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Voting The holders of series A, B, C, D and E have the right to one vote for each share of common stock into which the series A, B, C, D and E could be converted. The holders of series A, B, C, D and E have full voting rights and powers equal to the voting rights and powers of the holders of common stock. The consent of more than fifty percent of the holders of series A, B, C, D and E shares, voting together as a single class, is required for Chordiant to perform the following: . redeem or acquire any shares of series A, B, C, D or E except as discussed below; . in any twelve month period, repurchase shares of common stock having a value in excess of $25 excluding Chordiant's right to repurchase shares held by employees, and directors upon termination of employment; . create any new class of securities convertible into equity securities of Chordiant having preference over the series A, B, C, D and E shares; . pay or set aside payment of any dividend or distribution on any share of common stock; . effect any transaction or series of related transactions in which more than fifty percent of the voting power of Chordiant is disposed of; . increase or decrease the authorized amount of preferred stock; . cause the sale of shares of any additional stock by a subsidiary of Chordiant; and . consent to any liquidation, dissolution, or winding up of Chordiant. The holders of series A, B, C, D and E, voting as a separate class, are entitled to elect one member to the board of directors. The holders of common stock, voting as a separate class, are entitled to elect one member to the board of directors. The holders of common and preferred stock, voting together as a class on an as-if converted basis, shall be entitled to elect all remaining members of the board of directors. Redemption On or after June 17, 2001 for Series A and B, on or after December 31, 2001 for Series C, on or after April 6, 2003 for Series D and on or after September 28, 2003, for Series E Chordiant is required, at the written request of holders of not less than sixty percent of the then outstanding series A, B, C, D or E preferred stock to redeem such holders' outstanding shares of series A, B, C, D or E preferred stock for cash at the original issue price plus declared and unpaid dividends in three annual installments beginning no earlier than one full year following the date of the redemption request. NOTE 10--COMMON STOCK: During 1997, 1998 and 1999, Chordiant repurchased 23,280, 30,395, and 25,575 shares of common stock at original issuance prices for a total repurchase price of $5, $27, and $41. The shares were retired upon repurchase. NOTE 11--STOCK OPTION PLAN: In November 1999, the 1999 equity incentive plan was adopted by the board of directors and amends Chordiant's 1997 equity plan. The 1999 plan provides for the grant to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 and for grants to employees, directors and consultants of nonstatutory stock options and stock purchase rights. Unless terminated sooner, the 1999 plan will terminate automatically in 2009. A total of 9,712,500 shares of common stock have been reserved F-17 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) for issuance under the 1999 plan. The amount reserved under the plan will automatically increase at the end of each year by the greater of (1) 5% of outstanding shares on that date and (2) the number of shares subject to stock awards made under the 1999 plan during the prior twelve month period. However, the automatic increase is subject to reduction by the board of directors. The 1999 plan is administered by the board of directors or a committee that this board delegated this power and provides generally that the option price shall not be less than the fair market value of the shares on the date of grant and that no portion may be exercised beyond ten years from that date. Under the 1999 plan, stock options vest over a period that is limited to five years, but are typically granted with a four year vesting period. Each option outstanding under the 1999 plan may be exercised in whole or in part at any time. Exercised but unvested shares are subject to repurchase by Chordiant at the initial exercise price. At December 31, 1999, 161,384 shares were subject to repurchase. During 1997, the Company implemented the bonus and salary conversion plan. The bonus plan provides a means by which selected employees may elect to forego cash bonuses in exchange for fully vested options to purchase shares of Chordiant's common stock. During the years ended December 31, 1997, 1998 and 1999, 500,000, 189,108 and 0 options were granted under the bonus plan with exercise prices ranging from $0.07 to $0.32 per share. The shares subject to the bonus plan can not exceed 750,000. The following table summarizes option activity under Chordiant's stock- based compensation plans:
Years Ended December 31, ----------------------------------------------------------- 1997 1998 1999 ------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Outstanding at beginning of period............. 774,187 $0.12 2,217,653 $0.21 5,980,581 $ 0.60 Granted................. 1,619,762 0.25 4,435,474 0.74 3,392,550 3.66 Cancelled............... (144,658) 0.13 (435,911) 0.32 (886,770) 1.06 Exercised............... (31,638) 0.14 (236,635) 0.26 (712,703) 1.28 --------- --------- --------- Outstanding at end of period................ 2,217,653 0.21 5,980,581 0.60 7,773,658 1.82 --------- --------- --------- Options exercisable at end of period......... 517,545 1,284,044 2,672,112 --------- --------- --------- Weighted average minimum value of options granted during the period................ $0.06 $0.16 $ 0.79 ===== ===== ======
The following table summarizes information about stock options outstanding and exercisable at December 31, 1999:
Options Outstanding at Options Exercisable December 31, 1999 at December 31, 1999 ------------------------------ -------------------- Weighted Weighted Weighted Average Average Range of Number Average Exercise Number Exercise Exercise Prices Outstanding Remaining Price Exercisable Price --------------- ----------- --------- -------- ----------- -------- $0.08-0.14 1,170,332 7.03 $0.20 863,635 $0.20 $0.30-0.40 7,359 7.95 0.40 7,359 0.40 $0.64 2,886,815 8.36 0.64 1,432,236 0.64 $0.90-1.50 666,813 8.79 1.18 204,443 1.15 $2.90 727,607 9.21 2.90 123,577 2.90 $3.10-4.00 2,314,732 9.82 3.99 40,862 3.99 --------- --------- 7,773,658 2,672,112 ========= =========
F-18 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) During the years ended December 31, 1997, 1998 and 1999, Chordiant recorded unearned compensation expense of approximately $498, $1,500 and $11,274 related to the issuance of stock options. These expenses are being amortized over a period of four years from the date of issuance using the "multiple option" approach prescribed by FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Reward Plans. Amortization of unearned compensation expense related to these options of approximately $498, $489, and $2,660, was included in operating expenses as stock-based compensation in the years ended December 31, 1997 1998 and 1999. Had compensation cost for Chordiant's stock-based compensation awards been determined based on the minimum value at the grant dates as prescribed by SFAS No. 123, Chordiant's net loss would have been as follows:
Year Ended December 31, ----------------------------- 1997 1998 1999 -------- -------- --------- Net Loss: As reported............................. $(11,593) $(17,440) $(23,137) Pro forma............................... $(11,643) $(17,746) $(23,944) Basic and diluted net loss per share: As reported............................. $ (2.31) $ (3.44) $ (4.34) Pro forma............................... $ (2.32) $ (3.50) $ (4.49)
Under SFAS No. 123, the minimum value of each option grant is estimated on the grant date using the following weighted average assumptions:
Year Ended December 31, ---------------- 1997 1998 1999 ---- ---- ---- Expected lives in years.................................... 4.6 4.6 4.6 Risk free interest rates................................... 6.2% 6.2% 5.5% Dividend yield............................................. 0.0% 0.0% 0.0% Volatility................................................. 0.0% 0.0% 0.0%
Because the determination of the fair value of all options granted after Chordiant becomes a public entity will include an expected volatility factor in addition to the other factors described in the table above and because additional option grants are expected to be made each year, the above pro forma disclosures are not representative of the pro forma effects of option grants on reported results for future years. NOTE 12--EMPLOYEE BENEFIT PLANS: 401(k) Savings Plan Chordiant sponsors a 401(k) Savings Plan. Under the 401(k) plan, employees may elect to contribute up to 15% of their pre-tax compensation. Chordiant's contributions to the 401(k) plan totaled $66, $99, and $155 for the years ended December 31, 1997, 1998 and 1999. Defined Contribution Plan Chordiant also sponsors a defined contribution pension plan for the employees of Chordiant's sales office in the United Kingdom. Under the pension plan, each employee of the United Kingdom sales office may elect to contribute 5% of their pre-tax compensation. Chordiant's contributions to the pension plan totaled $0, $62, and $123 for the years ended December 31, 1997, 1998, and 1999. F-19 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) 1999 Employee Stock Purchase Plan In November 1999, the 1999 employee stock purchase plan was adopted by the board of directors and will be submitted to the stockholders for their approval before the date of Chordiant's initial public offering, to become effective on the date of the initial public offering. The purchase plan permits participants to purchase common stock through payroll deductions. A total of 2,000,000 shares of common stock have been reserved for issuance under to the purchase plan. The amount reserved under the plan will automatically increase at the end of each year by the greater of (1) 2% outstanding shares on such date and (2) the number of shares subject to stock awards made under the purchase plan during the prior twelve month period. However, the automatic increase is subject to reduction by the board of directors. 1999 Non-Employees Director Option Plan In November 1999, the 1999 director option plan was adopted by the board of directors and will be submitted to the stockholders for their approval before the date of Chordiant's initial public offering, to become effective on the date of the initial public offering. The director plan provides for the automatic grant of a nonstatutory option to purchase 25,000 shares of common stock to each new non-employee director who becomes a director after the date of Chordiant's initial public offering on the date that such person becomes a director. Each current and future non-employee director will automatically be granted an additional nonstatutory option to purchase 7,500 shares on the day after each of Chordiant's annual meetings of the stockholders. Each director who is a member of a board committee will automatically be granted an additional nonstatutory option to purchase 5,000 shares on the day after each of Chordiant's annual meetings of the stockholders. A total of 700,000 shares of common stock have been reserved for issuance under the director plan. The amount reserved under the plan will automatically increase each year by the greater of (1) 0.5% outstanding shares on such date and (2) the number of shares subject to stock awards made under the director plan during the prior twelve month period. However, the automatic increase is subject to reduction by the board of directors. NOTE 13--LICENSE AGREEMENT: During 1996, Chordiant entered into a value-added reseller license and services agreement with Forte Software, Inc. Under this agreement, Chordiant may acquire full-use product licenses for assignment to one or more third-party end-users and pay Forte Software, Inc. the license fees due upon delivery of the product licenses. The amounts payable to Forte Software, Inc. total 75% of the license fees charged to the end-user by Chordiant and are recognized as a cost of net revenues. During 1997, following the re-negotiation of a product license agreement with a third-party end-user, Forte Software, Inc. forgave some amounts due from Chordiant under the value-added reseller license and services agreement. Chordiant recognized $333 in other income during 1997. NOTE 14--SUBSEQUENT EVENTS: Stock Option Grants From January 1, 2000 through February 10, 2000, Chordiant granted stock options to purchase an aggregate of 285,500 shares of common stock at a weighted average exercise price of $8.37 per share. In connection with the grant of these stock options Chordiant recognized unearned compensation totalling $1,893 which will be amortized over the four year vesting period of the stock options. F-20 CHORDIANT SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (amounts in thousands, except share and per share data) Stock Option Exercises From January 1, 2000 through February 10, 2000, Chordiant issued 1,432,465 shares of common stock in connection with employee stock option exercises. Cash proceeds received by Chordiant from the exercises totaled $636. Additionally, Chordiant received notes receivable from stockholders totaling $588 in connection with such exercises. Potential Legal Proceedings In a letter dated January 25, 2000, a customer claimed that Chordiant breached a license and related services agreements and provided notice of the customer's intent to terminate the agreements. The customer alleged that Chordiant failed to meet product specifications and development-related milestones and requested that Chordiant either cure the alleged breaches or, if unable to do so, refund the customer's past payments. Chordiant, after consultation with legal counsel, does not believe that it breached its agreements with the customer and intends to continue to satisfy its obligations to the customer. Chordiant intends to defend itself vigorously if an action is brought by the customer. An estimate of the possible loss or range of possible loss upon an unfavorable outcome can not be made at this time. During the years ended December 31, 1999 and 1998, Chordiant recognized $5.3 million and $1.5 million of revenue from the customer. At December 31, 1999, Chordiant's outstanding receivable balance from the customer was $1.7 million. An unfavorable outcome in the dispute with the customer, could result in a material adverse effect on the consolidated financial position, results of operations and cash flows of Chordiant. F-21 [LOGO OF CHORDIANT SOFTWARE, INC.] ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000 PRELIMINARY PROSPECTUS [LOGO OF CHORDIANT SOFTWARE, INC.] 4,500,000 Shares Common Stock Chordiant Software, Inc. is offering 4,500,000 shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol CHRD. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share. -------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 8. --------------
Per Share Total --------- ----- Public Offering Price........................................... $ $ Underwriting Discounts and Commissions.......................... $ $ Proceeds to Chordiant........................................... $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We have granted the underwriters a 30-day option to purchase up to an additional 425,000 shares of our common stock to cover over-allotments. Two of our stockholders, who are identified on page 67, have granted the underwriters a 30-day option to purchase up to an additional 250,000 shares of our common stock to cover over-allotments. -------------- Robertson Stephens International Dain Rauscher Wessels Thomas Weisel Partners LLC The date of this prospectus is , 2000 UNDERWRITING The underwriters named below, acting through their representatives, FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, and Thomas Weisel Partners LLC, have each agreed with us and the selling stockholders, subject to the terms and conditions of the underwriting agreement, to purchase from us the number of shares of common stock listed opposite their names below. The underwriters are committed to purchase and pay for all of these shares if any are purchased.
Underwriters Number of Shares ------------ ---------------- FleetBoston Robertson Stephens Inc. and BancBoston Robertson Stephens International Limited................. Dain Rauscher Incorporated................................. Thomas Weisel Partners LLC................................. --------- Total.................................................... 4,500,000 =========
We have been advised by the representatives that the underwriters propose to offer the shares of common stock to the public at the initial public offering price of $ per share and to dealers at that price less a concession of not more than $ per share, of which $ may be allowed to other dealers. After the initial public offering, these prices may be reduced by the representatives. This reduction will not change the amount of proceeds to be received by us or the selling stockholders. The common stock is offered by the underwriters, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on 91 filed public offerings of equity securities, of which 73 have been completed, and has acted as a syndicate member in an additional 48 public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except for its contractual relationship with us under to the underwriting agreement entered into for this offering. The following table summarizes the compensation to be paid to the underwriters by Chordiant:
Per Share Total ------------------- ------------------- Without With Without With Over- Over- Over- Over- allotment allotment allotment allotment --------- --------- --------- --------- Underwriting discounts and commissions paid by Chordiant................... $ $ $ $ Expenses payable by Chordiant......... $ $ $ $
Over-allotment Options. We have granted to the underwriters an option to purchase up to 425,000 additional shares of common stock at $ per share. Additionally, a principal stockholder and a family trust for the benefit of the family of Carol Realini and Joseph Tumminaro, each a director and founder of Chordiant, and an educational trust for the benefit of the children of Mr. Tumminaro and Ms. Realini have granted to the underwriters an option to purchase up to 250,000 additional shares of common stock at $ per share. Each option is exercisable for 30 days after the date of this prospectus. If the underwriters exercise either option, each of the underwriters will be required to purchase the same percentage of additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the total number of shares offered. 67 If purchased, these additional shares will be sold by the underwriters on the same terms as those offered by this prospectus. If our option is exercised we will be required to sell shares the underwriters choose to purchase under the option. If the selling stockholders' option is exercised, they will be required to sell the shares the underwriters choose to purchase under the option. The underwriters are obligated to exercise the selling stockholders option in full before to exercising their option with us. The underwriters may exercise these options only to cover over-allotments made for the sale of the shares of common stock offered in this offering. Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters, Chordiant and the selling stockholders, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. Lock-up Agreements. Our officers, directors and stockholders have agreed, for a period of 180 days after the date of this prospectus, that, subject to exceptions, they will not offer to sell or transfer any shares of common stock or any securities convertible into shares of common stock owned as of the date of this prospectus or, with some exceptions, acquired by them after the date of this prospectus without the written consent of FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may release all or a portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders providing consent by the representatives to the sale of shares before the expiration of the lock-up period other than through this offering. Future Sales. We have agreed that until 180 days after the date of this prospectus, we will not, subject to some exceptions, without the written consent of FleetBoston Robertson Stephens Inc.: . consent to the transfer of any shares held by stockholders before the expiration of the lock-up period; or . issue, sell or transfer any shares of common stock or any securities convertible into our common stock other than (1)the sale of shares in this offering, (2)the issuance of common stock upon the exercise of outstanding options, (3)the issuance of options under existing stock option and incentive plans, and (4)the issuance of up to 3,400,000 shares as a result of future acquisitions. Listing. Our common stock has been approved for quotation on the Nasdaq National Market under the symbol CHRD. No Prior Public Market. Before this offering, there was no public market for our common stock. As a result, the initial public offering price for the common stock offered in this offering will be determined through negotiations between us and the representatives. We will determine the initial offering price based on factors including: .prevailing market conditions, .our financial information, .market valuations of other companies that we and the representatives believe to be comparable to ours, .estimates of our business potential, and .our present state of development. Stabilization. The representatives have advised us that the underwriters may perform the following transactions. 68 Transaction Description stabilizing bid a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. syndicate covering transaction a bid for or the purchase of the common stock on behalf of the underwriters to cover a position where the underwriter has sold shares it did not yet own, incurred by the underwriters for this offering. penalty bid an arrangement permitting the representatives to reclaim the selling concession otherwise payable to an underwriter for this offering if the common stock originally sold by the underwriter is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by the underwriter.
These transactions may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might prevail in the open market. The representatives have advised us that these transactions may be effected on the Nasdaq National Market and, if commenced, may be discontinued at any time. Internet Distribution. A limited number of shares will be made available to the customers of E*TRADE Securities, Inc. E*TRADE Securities will make a copy of the prospectus in electronic format available on its web site located at www.etrade.com. E*TRADE will accept conditional offers to purchase shares from all of its customers that complete and pass an online eligibility profile. If the demand for shares from the customers of E*TRADE exceeds the number of shares allocated to it, E*TRADE will use a random allocation methodology to distribute shares in even lots of 100 shares per customer. There are no plans to direct shares to particular internet purchasers. Directed share program. At our request, the underwriters have reserved up to 225,000 shares of common stock to be issued by Chordiant and offered for sale, at the initial public offering price, to directors, officers, employees, business associates and related persons of Chordiant. The number of shares of common stock available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. Any reserved shares that are not purchased by the identified persons will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We have agreed to indemnify the underwriters against liabilities and expenses, including some liabilities under the Securities Act of 1933, in connection with the sales of these shares. LEGAL MATTERS The validity of the issuance of the common stock offered hereby will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Other specified legal matters in connection with this offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California. EXPERTS The consolidated financial statements as of December 31, 1998 and 1999, and for each of the three years in the period ended December 31, 1999, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. 69 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by Chordiant in connection with the sale of the common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market filing fee. SEC Registration Fee............................................. $ 21,859 NASD Filing Fee.................................................. 5,000 Nasdaq National Market Additional Listing Fee.................... 95,000 Printing......................................................... 140,000 Legal Fees and Expenses.......................................... 500,000 Accounting Fees and Expenses..................................... 250,000 Blue Sky Fees and Expenses....................................... 10,000 Transfer Agent and Registrar Fees................................ 10,000 Miscellaneous.................................................... 76,338 ---------- Total.......................................................... $1,108,197 ==========
We intend to pay all expenses of registration, issuance and distribution. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by Delaware law, our amended and restated certificate of incorporation provides that no director of Chordiant will be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: . for any breach of duty of loyalty to us or to our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . under Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and executive officers, and may indemnify our other, officers and employees and agents, to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of parties that are being indemnified. We intend to enter into indemnification agreements with each of our directors and officers. These agreements will require us to indemnify each director and officer for expenses, including attorneys' fees, judgments, fines and settlement amounts, incurred by any of these persons in any action or proceeding arising out of that person's services as our director or officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement, Exhibit 1.1, will provide for indemnification by the underwriters of Chordiant, our directors, our officers who sign the registration statement, and our controlling persons for some liabilities, including liabilities arising under the Securities Act. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since inception, we have sold and issued the following unregistered securities: (1) From March 13, 1991 through December 31, 1999, we have granted stock options to purchase 10,372,693 shares of our common stock to employees, consultants and directors under to our 1999 equity incentive plan. Of these stock options, 1,731,702 shares have been canceled without being exercised, 816,829 shares have been exercised, 142,981 shares of which have been repurchased and 7,824,162 shares remain outstanding. (2) In April 1991, we issued a total of 5,000,000 shares of common stock to two purchasers at $0.044 per share, for a total purchase price of $220,000. (3) In June 1996, we issued a total of 6,838,905 shares of series A preferred stock to five purchasers at $1.316 per share, for a total purchase price of $9,000,000. Shares of series A preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of series A preferred stock owned. (5) In June 1997, we issued a total of 5,410,917 shares of series B preferred stock to thirteen purchasers at $1.70 per share, for a total purchase price of $9,198,564. Shares of series B preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of series B preferred stock owned. (6) In December 1997, we issued a total of 4,199,216 shares of series C preferred stock to twelve purchasers at $2.56 per share, for a total purchase price of $10,750,000. Shares of series C preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of series C preferred stock owned. (7) In April 1999, we issued $10,000,000 of convertible subordinated debt, which is convertible into 2,000,000 shares of series D preferred stock at $5.00 per share, to three purchasers. Shares of series D preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of series D preferred stock owned. (8) In September 1999, we issued a total of 5,963,155 shares of series E preferred stock to thirteen purchasers at $3.80 per share, for a total purchase price of $22,660,000. Shares of series E preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of series E preferred stock owned. The sales and issuances of securities described in paragraph (1) were exempt from registration under the Securities Act by virtue of Rule 701 of the Securities Act in that they were offered and sold either through a written compensatory benefit plan or through a written contract relating to compensation, as provided by Rule 701. The sales and issuances of securities described in paragraphs (2) or through (8) were exempt from registration under the Securities Act by virtue of Rule 4(2) or Regulation D of the Securities Act. With respect to the grant of stock options described in paragraph (1), an exemption from registration was unnecessary in that none of the transactions involved a "sale" of securities as this term is used in Section 2(3) of the Securities Act. Appropriate legends are affixed to the stock certificates issued in the transactions described in paragraphs (1) through (8). Similar legends were imposed in connection with any subsequent sales of any of these securities. All recipients either received adequate information about Chordiant or had access, through employment or other relationships, to such information. II-2 ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
Exhibit Number Description of Document ------- ----------------------- 1.1 Form of Underwriting Agreement.(1) 3.1 Amended and Restated Certificate of Incorporation of the Registrant to be effective following the closing of this offering.(1) 3.2 Amended and Restated Bylaws of the Registrant.(1) 3.3 Amended and Restated Certificate of Incorporation of the Registrant.(1) 3.4 Amendment to Certificate of Incorporation of the Registrant. (1) 4.1 Reference is made to Exhibits 3.1 through 3.3. 4.2 Specimen Stock Certificate. (1) 4.3 Amended and Restated Registration Rights Agreement, dated as of September 28, 1999.(1) 5.1 Opinion of Cooley Godward LLP. (1) 10.1 Form of Indemnification Agreement.(1) 10.2 1999 Equity Incentive Plan and form of stock option agreement.(1) 10.3 1999 Employee Stock Purchase Plan.(1) 10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.(1) 10.5 Cupertino City Center Net Office Lease by and between Cupertino City Center Buildings, as Lessor, and the Registrant, as Lessee, dated June 11, 1998.(1) 10.6 Forte Software, Inc. Value-Added ReSeller (VAR) License and Services Agreement, dated October 29, 1998.(2) 10.7 Software License Agreement between Electronic Data Systems Corporation and the Registrant, dated July 11, 1998. 10.8 Employment Agreement of Samuel T. Spadafora, dated April 24, 1998.(1) 10.9 Severance Agreement of Carol Realini, dated December 9, 1998.(1) 10.10 Severance Agreement of John Palmer, dated August 23, 1999.(1) 10.11 Form of Promissory Note executed by each of Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and Steven Sherman in favor of the Registrant.(1) 10.12 Form of Stock Pledge Agreement between the Registrant and each of Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and Steven Sherman.(1) 21.1 Subsidiaries of the Registrant.(1) 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).(1) 24.1 Power of Attorney (included in signature page).(1) 27.1 Financial Data Schedule.(1)
- -------- (1) Filed previously. (2) Confidential treatment requested for certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of this prospectus filed as part of this Registration Statement in reliance upon II-3 Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) That for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by a director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether the indemnification by it is against public policy as expressed in the Securities Act of 1933, and will be governed by the final adjudication of this issue. (4) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in the denomination and registered in the names required by the Underwriters to permit prompt delivery to each purchaser. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 4 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cupertino, State of California, on February 14, 2000. CHORDIANT SOFTWARE, INC. By: /s/ Steven R. Springsteel ---------------------------------- Steven R. Springsteel Chief Financial Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Samuel T. Spadafora and Steven R. Springsteel, and each of them, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and (iv) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof. In accordance with the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities and on these dates stated:
Signature Title Date --------- ----- ---- * President, Chief Executive February 14, 2000 ____________________________________ Officer (Principal Executive Samuel T. Spadafora Officer) and Chairman /s/ Steven R. Springsteel Executive Vice President and February 14, 2000 ____________________________________ Chief Financial Officer Steven R. Springsteel (Principal Financial and Accounting Officer), Secretary * Chief Technical Officer and February 14, 2000 ____________________________________ Director Joseph F. Tumminaro * Director February 14, 2000 ____________________________________ Oliver D. Curme * Director February 14, 2000 ____________________________________ Kathryn C. Gould * Director February 14, 2000 ____________________________________ Mitchell Kertzman * Director February 14, 2000 ____________________________________ Robert S. McKinney
II-5
Signature Title Date --------- ----- ---- * Director February 14, 2000 ____________________________________ William Raduchel * Director February 14, 2000 ____________________________________ Carol L. Realini * Director February 14, 2000 ____________________________________ David R. Springett
*By: /s/ Steven R. Springsteel ----------------------------- Steven R. Springsteel Attorney-in-Fact II-6 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1 Form of Underwriting Agreement.(1) 3.1 Amended and Restated Certificate of Incorporation of the Registrant to be effective following the closing of this offering.(1) 3.2 Amended and Restated Bylaws of the Registrant.(1) 3.3 Amended and Restated Certificate of Incorporation of the Registrant.(1) 3.4 Amendment to Certificate of Incorporation of the Registrant. (1) 4.1 Reference is made to Exhibits 3.1 through 3.3. 4.2 Specimen Stock Certificate. (1) 4.3 Amended and Restated Registration Rights Agreement, dated as of September 28, 1999.(1) 5.1 Opinion of Cooley Godward LLP. (1) 10.1 Form of Indemnification Agreement.(1) 10.2 1999 Equity Incentive Plan and form of stock option agreement.(1) 10.3 1999 Employee Stock Purchase Plan.(1) 10.4 1999 Non-Employee Directors' Plan and form of stock option agreement.(1) 10.5 Cupertino City Center Net Office Lease by and between Cupertino City Center Buildings, as Lessor, and the Registrant, as Lessee, dated June 11, 1998.(1) 10.6 Forte Software, Inc. Value-Added ReSeller (VAR) License and Services Agreement, dated October 29, 1998.(2) 10.7 Software License Agreement between Electronic Data Systems Corporation and the Registrant, dated July 11, 1998. 10.8 Employment Agreement of Samuel T. Spadafora, dated April 24, 1998.(1) 10.9 Severance Agreement of Carol Realini, dated December 9, 1998.(1) 10.10 Severance Agreement of John Palmer, dated August 23, 1999.(1) 10.11 Form or Promissory Note executed by each of Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and Steven Sherman executed in favor of the Registrant.(1) 10.12 Form of Stock Pledge Agreement between the Registrant and each of Samuel T. Spadafora, Steven R. Springsteel, Donald J. Morrison and Steven Sherman.(1) 21.1 Subsidiaries of the Registrant.(1) 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1 Power of Attorney (included in signature page).(1) 27.1 Financial Data Schedule.(1)
- -------- (1) Filed previously. (2) Confidential treatment requested for certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-10.6 2 VAR LICENSE & SERVICE AGREEMENT EXHIBIT 10.6 FORTE SOFTWARE, INC. VALUE-ADDED RESELLER (VAR) LICENSE AND SERVICES AGREEMENT VAR CHORDIANT SOFTWARE, INC ____________________________________________________________________________ Address 20400 Stevens Creek Blvd., Ste. 400 ________________________________________________________________________ City Cupertino State CA Zip 95014 ______________________________________ _____________________ ____________ This Value-Added Reseller (VAR) License and Services Agreement (the "Agreement") is between Forte Software, Inc., a Delaware corporation located at 1800 Harrison Street, Oakland, California, 94612 ("Forte"), and the company set forth above, including any wholly or majority owned subsidiaries (the "VAR") for the purpose of setting forth the terms and conditions upon which Forte shall grant to the VAR a license to use and Sublicense the Products listed in Exhibit A attached hereto. This Agreement shall supersede and replace the Value-Added Reseller License and Services Agreement dated September 19, 1996 (and all other agreements and understandings between the parties), which superseded the Value-Added Reseller License and Services Agreement dated February 1, 1995. The Effective Date of this Agreement is the last date set forth below. FORTE: VAR: FORTE SOFTWARE, INC. CHORDIANT SOFTWARE, INC. Signature: /s/ Bob L. Corey Signature: /s/ Steven R. Springsteel Name: Bob L. Corey Name: Steven R. Springsteel Title: Senior Vice President Title: EVP/CFO Date: October 30, 1998 Date: October 29, 1998 [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. TERMS AND CONDITIONS Forte and the VAR hereby agree that the following terms and conditions will apply to each license granted and to all services provided by Forte under this Agreement. 1. DEFINITIONS 1.1 "Cumulative Sublicense Fees" shall mean the total Sublicense fees, including Full Use Sublicense Fees, accrued to Forte beginning upon the Effective Date hereto for Products Sublicensed under this Agreement. 1.2 "Delivery Partners" shall mean a system integrator or other party engaged to provide services to a Sublicensee or VAR with respect to VAR Applications. 1.3 "Designated Developer" shall mean a person within the VAR designated by VAR to develop applications with the Product. 1.4 "Distributors" shall mean Delivery Partners or other third parties appointed by the VAR to market and grant Sublicenses of the VAR Application as further set forth in Section 3.1(h) hereto. 1.5 "Documentation" shall mean the user manuals and operator instructions furnished by Forte in conjunction with the Products. 1.6 "Effective Date" shall mean the date so specified on the signature page of this Agreement or on the applicable Order Form, Sublicense report, or other document. 1.7 "Order Form" shall mean Forte's standard form by which the VAR may order licenses and services for VAR's use under this Agreement. Such Order Form is attached hereto as Exhibit B. 1.8 "Price List" shall mean Forte's then-current price list for the country in which a Product license or service is to be used. 1.9 "Product" or "Products" shall mean the computer software program(s) owned or distributed by Forte for which the VAR is granted a license pursuant to this Agreement and as further set forth in Exhibit A, whether in printed or machine readable form and includes Updates (defined in Section 1.16). Forte agrees that Exhibit A may be amended from time to time by the parties to include other software Products not currently listed on Exhibit A that Forte licenses to its customers generally. 1.10 "Runtime Users" shall mean the maximum number of logged-in persons within a Sublicensee that may use the VAR Application at any one time. 1.11 "Standard Technical Support" shall mean Product technical support services provided under Forte's policies in effect on the date such services are ordered. 1.12 "Sublicense" shall mean a nonexclusive, nontransferable right granted by the VAR or Distributor to use a VAR Application for the Sublicensee's own internal business purposes and not for any further distribution. 1.13 "Sublicensee" shall mean a third party who is granted a Sublicense by the VAR or a Distributor. 1.14 "Support Fees" shall mean the fees payable annually for Standard Technical Support. 1.15 "Supported License" shall mean a Product license for which VAR has a current order for annual Standard Technical Support. 1.16 "Updates" shall mean updated versions of the Products and Documentation which encompass logical improvements, extensions and other changes to the Products which are generally made available to Product licensees who are current in their payment of Support Fees. Updates shall be governed by the terms of this Agreement. 1.17 "VAR Application" shall mean the VAR's software program containing modifiable Product code. A VAR Application shall be developed by the VAR through use of the Products as further set forth in Section 2.1 hereto. The VAR shall provide a description of each VAR Application using the form attached as Exhibit C, and each VAR Application shall be approved in writing by Forte prior to Sublicensing which approval will not be unreasonably withheld. Forte agrees that future approved VAR Applications shall be governed by the terms of this Agreement. Forte hereby approves VAR's CCS Application as described in Exhibit C attached hereto. Notwithstanding any provision to the contrary in this Agreement, nothing stated in this Agreement shall preclude VAR from developing any VAR software program through the use of any third party product. 1.18 "VAR Price List" shall mean the VAR's then-current standard product list and fee schedule. The VAR shall attach hereto as Exhibit D the initial VAR Price List which includes the VAR Application. The VAR agrees to notify Forte of all updates and revisions to such VAR Price List. 2. VAR LICENSE AND SERVICES 2.1 VAR Development License (a) Fees. In consideration for the license described in (b) below, VAR shall pay Forte the VAR license fee set forth on Exhibit A. Additional Designated Developer and other [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. licenses may be obtained for the applicable fees set forth in Exhibit A. (b) License Grant. Forte grants to VAR a nonexclusive, worldwide, nontransferable and nonassignable (except as otherwise specified herein) license to use the Documentation and the Products listed on Exhibit A only for the following purposes: (i) to market and Sublicense to Sublicensees worldwide (subject to Section 7.8) VAR Application Development Systems (as defined in Exhibit A) and the right to Sublicense such rights through multiple tiers of distribution, each for the purposes described below. In connection with its license pursuant to this clause, VAR shall limit access to such Products to the number of Designated Developers indicated on the applicable Order Form. (ii) to develop or prototype the VAR Application; (iii) to demonstrate the VAR Application to potential Sublicenses; (iv) to provide training and technical support to employees and Sublicensees solely in conjunction with the VAR Application; and (v) in connection with providing consulting services and/or providing or modifying VAR Applications to Sublicensees and potential Sublicensees. In addition to the temporary Sublicenses specified in Section 3.1(c), VAR may make up to five (5) copies of the Products for demonstration and training purposes, may make a reasonable number of copies of the Products for archival or backup purposes. Except as necessary to exercise its license rights or as otherwise permitted hereunder no other copies shall be made without Forte's prior written consent. Documentation may be obtained from Forte for the fees specified in the Price List. All titles, trademarks, and copyright and restricted rights notices shall be reproduced in such copies. All copies of the Product(s) and Documentation are subject to the terms of this Agreement. (c) Limitations on Use. VAR shall not use or duplicate the Products (including the Documentation) for any purpose other than as specified in the Agreement, or make the Products available to unauthorized third parties. VAR shall not (i) use the Products for its internal data processing or for processing customer data; (ii) except as noted in Exhibit A Section 4(d) rent, or timeshare the Products; (iii) market the Products by interactive cable or remote processing services or otherwise distribute the Products other than as specified in this Agreement; (iv) publish or describe to any third party the results of any benchmark tests run on the Products without Forte's prior written consent provided, however, that VAR may publish benchmark tests and comparisons limited in scope to the VAR Application's features; functionality and performance, so long as such benchmark tests and comparisons do not directly disclose the functionality, features or performance of any Product (including without limitation memory utilization, response time, transaction throughput, relative performance/functionality on different hardware and/or operating system platforms), or (v) cause or permit the reverse engineering, disassembly, decompilation, or otherwise attempt to derive source code of the Products. Transfer of a Product outside the United States for VAR Application development or support shall be permitted only with Forte's prior written consent, which shall not be unreasonably withheld, and is subject to VARs payment of Forte's then current international fee uplift. 2.2. Development License Support Subject to VAR's payment of the Support Fees set forth on Exhibit A, and so long as Forte continues to offer similar support services to its other Product licensees, Forte will provide annual Standard Technical Support to VAR as follows: (a) Telephone Support. Forte will provide telephone consultation at Forte's service location, to assist VAR in identifying, verifying and resolving problems in the use and operation of the Product. Telephone assistance services shall be limited to those VAR personnel indicated on the applicable Order Form, which may be amended from time to time by VAR upon written notice to Forte. (b) Problem Resolution. Forte will respond to problem reports concerning the Products submitted by VAR to Forte, using the form provided by Forte where possible, including backup material substantiating the Product problem. Upon proper notification of a failure of the Product to perform correctly, which failure can be reproduced at Forte's facility or via remote access to VAR's facility, Forte shall use reasonable efforts to correct the failure and to provide VAR with correcting Product, a work-around or other solution to the problem. Standard Technical Support services will be provided in accordance with the sections entitled "Types of Assistance Offered" and "How Forte Resolves Your Call" of the Forte Technical Support Users Guide ("Support Guide"), attached hereto as Exhibit F or policies that are substantially similar thereto. In the event of a conflict of inconsistency between this Section 2.2 and the Support Guide, Section 2.2 shall govern. (c) Updates. Forte will provide VAR with Updates. For a minimum of 12 months after the introduction of a new generally available release, Forte will use reasonable efforts to provide Standard Technical Support for the previous release of the Product. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (d) Renewal. Forte will notify the VAR at least 30 days before the annual support period is scheduled to expire. Fees for annual support are due annually in advance. Such fees will be those in effect at the beginning of the period for which the fees are paid. Annual support will terminate unless the VAR renews for the next year under Forte's then current policies by providing Forte with a purchase order and/or payment of the next year's fees prior to the expiration date. (e) Re-Instatement. VAR may reinstate lapsed support services only upon payment of the back Support Fees specified in the Price List, plus current year's Support Fees. 2.3 Consulting and Training Services Forte will provide on-site consulting services ordered by VAR at Forte's then-standard consulting rates under the terms and conditions of this Agreement and any relevant work order; provided, however, that Forte will consider offering Chordiant a discount on consulting orders of $100,000 or more (such consulting services to be used within six months of purchase). Scheduled service dates will be agreed upon mutually, subject to availability of Forte personnel. Forte's daily consulting rate is based on an eight-hour workday. VAR shall reimburse Forte for actual, reasonable travel and out-of-pocket expenses incurred in performing such services. VAR may also order training from Forte (scheduled classes at Forte's facilities or on-site) at Forte's then-standard rates under this Agreement. All consulting and training services must be utilized by VAR within six (6) months following the date ordered by VAR. Unless otherwise agreed by the parties in writing, Forte consulting services will be limited to transferring knowledge to and mentoring VAR's staff on "best practices" concerning the Products, and reviewing and providing input on VAR's design and implementation of applications developed and deployed using the Products. Development and deployment of applications will remain at all times under VAR's control and direction. Ultimate responsibility for development and deployment of such applications is with VAR, and Forte will not be liable to VAR or any third party for any delay in completion or non-completion of any application. 2.4 Ownership and Rights to Developments (a) Products and Documentation. VAR acquires only the right to use the Products and Documentation, and does not acquire any rights of ownership. All right, title, and interest in and to the Products and Documentation, including without limitation all intellectual property rights therein, shall at all times remain with Forte and its licensors. (b) VAR Application. Exclusive of Product, the VAR Application and all other software that VAR develops (or has developed by a third party), and all changes or modifications thereto, will remain the sole and exclusive property of VAR. Exclusive of Product, Forte shall have no interest or acquire any rights in the VAR Application or other software or in such changes or modifications. Except as may otherwise be agreed to in writing by the parties under Section 2(d)(i), Forte irrevocably assigns to VAR all right, title and interest worldwide in and to any changes or modifications to the VAR Application (exclusive of Product) and all applicable intellectual property rights related to the VAR Application (exclusive of Product), including without limitation, copyrights, trademarks, trade secrets, patents, moral rights, contract and licensing rights. Notwithstanding the foregoing and as a condition of this Agreement and in consideration for the licenses granted herein, VAR agrees that it shall not sublicense or otherwise distribute the VAR Application (containing any Product) after termination or expiration of this Agreement. Nothing in this Agreement shall restrict in any way the license by VAR, or require license or other payments to Forte with respect to products or applications which are not VAR Applications, or require VAR or any other party to license VAR Applications or Products. (c) Developments. Any ideas, know-how, or techniques concerning the Products or their use which may be developed, conceived or reduced to practice by Forte in the course of providing services under this Agreement, including without limitation any enhancements or modifications made to the Products (collectively, "Developments"), shall be the exclusive property of Forte. Forte may in its sole discretion develop, use, market, and license any Developments. Forte may create items similar or related to the VAR Developments or other products which are developed by Forte for VAR provided such items are independently developed without use of VAR's Confidential Information or trade secrets. Forte shall not be required to disclose information concerning any Developments which Forte deems to be proprietary and confidential. Any ideas, know-how, or techniques concerning the VAR Applications or Products or their use which may be developed, conceived or reduced to practice by VAR, including without limitation any enhancements or modifications made to the VAR Applications (collectively, "VAR Developments"), shall be the exclusive property of VAR. VAR may in its sole discretion develop, use, market, and license any VAR Developments. VAR may create items similar or related to the Products or Developments or other materials developed by Forte for VAR provided such items are independently developed without use of Forte's confidential information or trade secrets. VAR shall not be required to disclose to Forte any information concerning any VAR Developments. (d) Custom Work Product. Notwithstanding subsection (c) above, if consulting services rendered by Forte will by [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. mutual written agreement include the design or development of the VAR Application, other software, documentation, or other intellectual property specific to VAR's needs ("Custom Work Product"), then (i) the parties must agree in writing in each instance on the ownership rights in or to such Custom Work Product prior to Forte's commencement of such services or (ii) if no such agreement is reached, VAR shall have sole and exclusive ownership of the Custom Work Product. Under this subsection (ii), Forte irrevocably assigns to VAR all right, title and interest worldwide in and to the Custom Work Product and all applicable intellectual property rights related to the Custom Work Product, including without limitation, copyrights, trademarks, trade secrets, patents, moral rights, contract and licensing rights. Forte shall have the right to create items similar or related to Custom Work Product provided such items are independently developed without use of VAR's Confidential Information or trade secrets. Notwithstanding any other provision to the contrary, for any consulting services Forte provides to VAR which result in Custom Work Product that is exclusively owned by VAR under subsection (ii) above, Forte shall not be precluded from using Residuals (defined below) from such Custom Work Product. "Residuals" shall mean ideas, concepts and understandings related to the Custom Work Product which would be retained in the memory of an ordinary employee not intent on appropriating such Custom Work Product when performing such services. Notwithstanding the parties' agreement that VAR shall own any particular Custom Work Product, any Developments and any proprietary software or other items previously developed and/or owned by Forte and included in the Custom Work Product shall remain the exclusive property of Forte. Forte hereby grants to VAR a non-exclusive, perpetual, worldwide, fully paid-up license to copy, modify, Sublicense, distribute and use solely for VAR's exercise of rights granted under this Agreement all Developments and other Forte-owned items included in the Custom Work Product. All copies of any Custom Work Product which is wholly or partially owned by Forte shall include Forte's copyright notice and may not be provided to third parties without Forte's prior written consent. 3. SUBLICENSING 3.1 Terms and Conditions (a) Right to Sublicense. Forte hereby grants VAR a nonexclusive, nontransferable and nonassignable (except as expressly provided in this Agreement) license to market and Sublicense to Sublicensees worldwide (subject to Section 7.8) and the right to Sublicense such rights through multiple types of distribution (e.g., system integrators) (i) the Products as an integral part of the VAR Application, (ii) the Core System Products (as defined in Exhibit A) for use with applications other than the VAR Application (a "Full Use License"), provided that a Sublicensee has also received a license to a VAR Application and provided that a Forte Regional Sales Manager has reviewed and approved all quotations for any Products above and beyond a Forte Core System prior to being presented to the proposed Sublicensee. Each Sublicense shall be granted solely through a written Sublicense agreement which shall include terms substantially similar to those set forth on Exhibit E hereto. In the event of any Full Use License, Forte shall promptly ship such Products and Documentation directly to the applicable Sublicensee as identified on the Order Form. At Forte's request, VAR shall provide Forte with a copy of VAR's standard Sublicense agreement. VAR may only Sublicense those Products which VAR has previously licensed from Forte. (b) Sublicense Fees. VAR shall pay Forte the Sublicense fee set forth on Exhibit A. Sublicense fees shall be due and payable with each applicable Sublicense report. (c) Temporary Sublicenses. VAR and its Distributors shall be entitled to grant temporary Sublicenses of the VAR Application or Full Use Licenses at no charge, for evaluation/pilot purposes only, with no Sublicense fees owed to Forte as long as a maximum of twenty (20) such temporary Sublicenses are in effect at any one time. The term of each such temporary Sublicense shall be for a period not to exceed ninety (90) days. VAR shall terminate or pay to Forte the applicable Sublicense fees for perpetual Sublicenses for any temporary Sublicenses outstanding in excess of ninety (90) days. (d) Sublicensee Use. VAR is granted the Sublicensing rights described herein on the understanding that, except for a Full Use License or where such a restriction is not permitted by applicable law, Sublicensees will be permitted use of the Products only in connection with the VAR Application. VAR shall use reasonable commercial efforts to enforce the terms of its Sublicense agreements to the extent that they relate to the Products. If VAR is aware that a Sublicensee without a Full Use License is using a Product beyond the limited functionality set forth in the VAR Application Sublicense agreement (for example, use of any Product for development purposes outside of the scope of the VAR Application), VAR or Distributor shall immediately notify the Sublicensee of such unauthorized use. If the Sublicensee fails to discontinue such unauthorized use following notification, VAR or Distributor shall at VAR's option either terminate the sublicense, or forward to Forte one hundred percent (100%) of the applicable then current Product full use license fee. (e) Sublicensing Practices. At all times during this Agreement VAR shall: (i) avoid deceptive, misleading, illegal, or unethical practices that may be detrimental to Forte or to the Products; (ii) not make any representations, warranties, or guarantees to Sublicensees concerning the Product that are inconsistent with or in addition to those made in this Agreement and (iii) comply with all [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. applicable laws and regulations with respect to the VAR Application and related services rendered by VAR. (f) Sublicense Reports. Within forty-five (45) days of the last day of each quarter, VAR shall send Forte a report detailing for the quarter: (i) for each VAR Application or Product for a Full Use License shipped during the prior quarter, Sublicensee name and address, date of shipment, whether the Sublicense is temporary for evaluation purposes, and total Sublicense fees due to Forte; (ii) for each grant of additional rights to use a VAR Application previously shipped, a description of such additional rights, and a description of the applicable Sublicense fees and Support Fees due Forte for such grant; and the Distributor agreements executed during the prior month, including names and addresses of the Distributors. With each sublicense report, VAR shall simultaneously provide Forte with payment of all fees required under such report. VAR shall require its Distributors to report the information in clause (i) above to VAR on a quarterly basis and will include it in the report for the quarter in which VAR received the information. VAR hereby agrees that the information obtained by Forte pursuant to clause (i) above, with the prior written consent of the VAR Sales Director, may be used by Forte for the sole purpose of contacting such new Sublicensee to address any opportunities outside of the VAR Application solution. Such information shall be deemed to be Confidential Information as defined in Section 7.1 of this Agreement. The VAR shall be eligible for compensation on sales by Forte of Full Use Licenses above and beyond a Full Use Core System License to such customers, in accordance with the then-current `reverse royalty' or similar program maintained by Forte. (g) Sublicensee Documentation. VAR shall be responsible for providing documentation for Sublicensees. VAR shall have the right to incorporate portions of the Documentation into the VAR's documentation subject to the provisions of Section 7.4 of the Agreement at no additional charge to VAR. Forte shall provide VAR with electronic copies of all current documentation, in the form of CDs or such other means as reasonably requested by VAR. (h) Distributors. VAR may appoint Distributors to market and Sublicense the VAR Application under the terms of the Agreement. If a Distributor desires to make any Product-specific modifications to the VAR Application requiring the Product, it must do so pursuant to a development license unless such Distributor already has an appropriate license acquired directly from Forte or other third party. Each Distributor's agreement with VAR shall allow it to market and Sublicense the VAR Application only in accordance with the Sublicensing provisions of this Agreement. Forte shall be deemed a third party beneficiary of the portions of the Agreement between VAR and such Distributor that relate to the Products. VAR agrees to use all reasonable efforts to enforce its Distributor agreements and to inform Forte immediately of any known material breach thereof related to the Products. (i) VAR Audit. VAR shall maintain adequate books and records in connection with its activity under this Agreement, which shall include but not be limited to executed Sublicense agreements. Forte may at its expense, retain an independent third party to audit the relevant accounting books and records of VAR regarding shipment of VAR Applications or Products to ensure compliance with the terms of this Agreement. If an audit reveals that VAR has underpaid fees to Forte; VAR shall promptly pay such fees. Any such audit shall be conducted during regular business hours at VAR's offices and shall not interfere unreasonably with VAR's business activities. If the underpaid fees are in excess of five percent (5%) of the total fees previously paid and then payable from VAR, then VAR shall pay Forte's reasonable costs of conducting the audit. Audits shall be made no more than once annually. In addition, each Sublicensee and Distributor agreement shall permit VAR to conduct a similar audit of VARs Sublicensees and/or Distributors. VAR shall, upon reasonable evidence that an audit of a Sublicensee or Distributor is warranted, conduct such audit.. (j) Indemnification. VAR agrees to use reasonable commercial efforts to enforce the terms of its Sublicense and Distributor agreements required by this Agreement to the extent that they relate to the Products and to inform Forte of any known material breach of such Forte-related terms. VAR will defend and indemnify Forte against: (i) all direct damages to Forte arising from any use by VAR, its Distributors or its Sublicensees of any product not provided by Forte but used in combination with the Products if such claim would have been avoided by the exclusive use of the Products; and (ii) all direct damages suffered by Forte as a result of VAR's failure to include or reasonably enforce the required contractual terms set forth herein in each Sublicense and Distributor agreement, provided that: (i) Forte promptly notifies VAR in writing of the claim; (ii) VAR has sole control of the defense and all related settlement negotiations; and (iii) Forte provides VAR with the assistance, information, and authority necessary to perform the above; reasonable out-of-pocket expenses incurred by Forte in providing such assistance will be reimbursed by VAR. (k) Federal Government Sublicenses. The Products and Documentation are commercial computer software and documentation developed exclusively at private expense, and in all respects are proprietary data belonging solely to Forte. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Pursuant to DFARS 227.7202 or FAR 12.212, as applicable, the Government's right to use, reproduce or disclose the Products and Documentation acquired under this Agreement is subject to the restrictions of this Agreement. (l) Inherently Dangerous Applications. The Products are not specifically developed, or licensed for use in any nuclear, aviation, mass transit, or medical application or in any other inherently dangerous applications. VAR agrees to notify each Sublicensee of this limitation. VAR agrees, and each Sublicensee shall agree, that Forte shall not be liable for any claims or damages arising from VAR's or a Sublicensee's use of the Products for such applications. If VAR fails to notify Sublicensee of the limitations specified above, VAR agrees to indemnify and hold Forte harmless from any claims for losses, costs, damages, or liability arising out of or in connection with the use of the Products in such applications. (m) Notwithstanding Section 1.12 and Items 2 and 3 of Exhibit E and any other provision in this Agreement, VAR or Distributor shall have the right to allow a Sublicensee to transfer or assign a Sublicense granted by VAR or Distributor hereunder, upon written notice to VAR and such transferee/assignee agrees to be bound by the terms and conditions of the applicable Sublicense Agreement. 3.2 Sublicense Technical Support In consideration for the right to provide technical support services to its Sublicensees, the VAR agrees to pay Forte the applicable annual technical support services fee set forth in Exhibit A. Forte shall not be required to provide any assistance needed to install the VAR Application at Sublicensee sites. Forte shall not be required to provide any Product technical support, training and consulting to Sublicensees or Distributors. The VAR shall continuously maintain Standard Technical Support services from Forte during the period during which VAR provides technical support services to any Sublicensees. Any questions from the VAR's Sublicensees or Distributors regarding VAR Applications will be referred by Forte to the VAR. 3.3 Consulting and Training Services A Sublicensee may contract directly with Forte for consulting and training services at Forte's then-current rates. VAR shall have no right to market and/or sell Forte consulting and training services, but may order Forte consulting and training to be performed on behalf of a Sublicensee and/or Distributor hereunder. Forte agrees that VAR may order Forte consulting and training services under the terms of this Agreement and that no additional agreements (subcontract or otherwise) would be required by Forte to be perform such services for VAR or on behalf of VAR for a Sublicensee or Distributor. 4. INVOICING, PAYMENT & TAXES (a) Payment Terms. Invoices for payment of fees shall be payable in U.S. dollars on the Effective Date of the Order Form or Sublicense Report, as applicable. All payment obligations identified on executed Order Forms and Sublicense Reports (as calculated in accordance with Exhibit A) are noncancellable and, upon payment, are nonrefundable. VAR will provide Forte with a written purchase order for licenses and support at the time of execution of an Order Form or submission to Forte of a Sublicense Report, as applicable. Other applicable fees shall be payable when invoiced. All fees shall be deemed overdue if they remain unpaid 30 days after the quarterly report date. If the VAR's procedures require that an invoice be submitted against a purchase order before payment can be made, the VAR will be responsible for issuing such purchase order 30 days before the payment due date. All overdue amounts shall become interest at the rate of one and one-half percent (1-1/2%) per month or the maximum legal rate, if less, however, nothing herein shall limit Forte's right to terminate this Agreement as set forth herein. (b) Taxes. The fees listed in this Agreement do not include taxes. The VAR shall pay or reimburse Forte for all sales, use, excise, personal property, value-added, or other applicable taxes, duties or assessments based on the licenses granted or the services provided under this Agreement or on the VAR's use of the Products, except that the VAR shall have no responsibility for income taxes imposed on Forte. 5. TERM AND TERMINATION 5.1 Term This Agreement shall commence on the Effective Date hereto and shall be valid for a period of three (3) years. Each Sublicense granted under this Agreement shall continue in perpetuity unless terminated as provided in Paragraph 5.2 below. 5.2 Termination Upon written notice to Forte, VAR may terminate this Agreement and any license herein at any time. Upon written notice to VAR, Forte may terminate this Agreement and any license granted herein if VAR materially breaches this Agreement and fails to correct the breach within thirty (30) days following written notice from Forte specifying the breach. Notwithstanding the previous sentence, if the material breach is of such a nature that it cannot be reasonably be corrected within such 30 days, Forte agrees not to terminate the Agreement or any license granted herein, provided VAR uses all reasonable [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. and good faith efforts to cure such breach in a timely manner, but not to exceed 90 days from written notice specifying the breach. Forte agrees that it may not terminate any license that was granted hereunder to a Sublicensee, provided the license to such Sublicensee was granted in accordance with the terms herein when licensed and such Sublicensee is not in material breach of the Sublicense Agreement. 5.3 Effect of Termination (a) Upon expiration or termination of this Agreement, all VAR's right to market, Sublicense, and use the Products as set forth in this Agreement shall cease, and Forte may declare all sums owed hereunder immediately due and payable. VAR also agrees that it shall not sublicense or otherwise distribute the VAR Application (which contains any Product or any portion thereof) after expiration or termination of this Agreement. (b) Unless the expiration or termination of this Agreement is due to a material breach by VAR, VAR may continue using a single copy of the most recent release of the Products then in VAR's possession solely for the purpose of continuing technical support for Sublicenses granted prior to termination. Such continued use of the Products shall be subject to all the provisions of this Agreement, including, without limitation, payment of the Support Fees specified herein. (c) The termination of this Agreement or any license acquired hereunder shall not limit either party from pursuing any other remedies available to it including injunctive relief, nor shall such termination relieve VAR's obligation to pay all fees that have accrued or that VAR has agreed to pay under any Order Form or other similar ordering document under this Agreement. The parties' rights and obligations under Sections 2.1(c), 2.4, 3.1(d),(e),(f) and (h) through (m), and Sections 4, 5, 6, and 7 shall survive termination of this Agreement. 5.4 Return of Products upon Termination Except as provided in Section 5.3(b) above, upon expiration or termination of a license hereunder, VAR shall: (i) cease using the applicable Products; and (ii) represent in writing to Forte within one month after termination that VAR has destroyed or has returned to Forte the Products, Documentation and all copies except for a reasonable number of archived copies. This requirement applies to copies and storage in all forms, partial and complete, in all types of media and computer memory, and whether or not modified or merged into other materials. 6. WARRANTIES, REMEDIES, LIMITATION OF LIABILITY 6.1 Infringement Indemnity (a) Forte will defend and indemnify VAR against all costs (including reasonable attorneys fees and Sublicense fees attributable to Sublicenses for which VAR was required to refund license fees to the applicable Sublicensee due to such infringement,) arising from a claim that Products furnished and used within the scope of this Agreement infringe a copyright, patent, trademark, or other intellectual property right provided that: (i) VAR promptly notifies Forte in writing of the claim; (ii) Forte has sole control of the defense and all related settlement negotiations; and (iii) VAR provides Forte with the assistance, information, and authority necessary to perform the above; reasonable out-of-pocket expenses incurred by VAR in providing such assistance will be reimbursed by Forte. (b) Forte shall have no liability for any claim of infringement to the extent based on: (i) use of a superseded or altered release of a Product if such infringement would have been avoided by the use of a current unaltered release of the Product that Forte provides to VAR; or (ii) the combination, operation, or use of any Products furnished under this Agreement with programs or data not furnished by Forte if such infringement would have been avoided by the use of the Products without such programs or data. (c) In the event the Products are held or are believed by Forte to infringe, Forte shall have the option, at its expense, to: (i) modify the Products to be non-infringing; (ii) obtain for VAR a license to continue using the Products; (iii) substitute the Products with other software reasonably suitable to VAR; or if (i) - (iii) are not commercially reasonable for Forte, (iv) terminate the license for the infringing Products and refund the license fees paid for those Products. This Section 6.1 states Forte's entire liability for infringement. 6.2 Product Warranty Except as stated below, for each Supported License Forte warrants that each Product will perform the functions described in the associated Documentation when operated on the specified platform for a period of 30 days from the date of shipment of such Product to VAR. Forte further warrants that the Products will fully comply with the following millennium compliance statement when configured and used according to the Documentation. The definition of compliance is the ability to: 1. correctly handle date information before, during and after 1 January 2000 accepting date input, providing date output and performing calculation on dates; [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2. function according to the Documentation, during and after 1 January 2000 without changes in operation resulting from the advent of the new century; 3. where appropriate, respond to two digit date input in a way that resolves the ambiguity as to century in a disclosed, defined and predetermined manner; 4. store and provide output of date information in ways that are unambiguous as to century; 5. manage the leap year occurring in the year 2000, following the quad-centennial rule. Forte does not warrant that each Product will meet VAR's requirements, that the Products will operate in the combinations which VAR may select for use or with all non-Forte software used by VAR, that the operation of each Product will be uninterrupted or error-free, or that all Product errors will be corrected. Forte will undertake to correct any reported error condition in accordance with its then-current Standard Technical Support policies and the terms of this Agreement, with the terms of this Agreement to prevail in the event of any conflict. Forte shall have no obligation to undertake correction of errors caused by VAR modifications to the Product. VAR's sole and exclusive remedy for Product nonconformity shall be recovery of the license fees paid to Forte for such non-conforming Product. As an accommodation to VAR, Forte may supply VAR with (i) preproduction releases of Products labeled "Alpha," "Beta" or otherwise, which are not suitable for production use or for development of the VAR Application, or (ii) shareware items such as "Fshare" containing code developed by Forte and/or its customers and partners. Notwithstanding anything to the contrary in this Agreement, such preproduction releases and shareware are provided to VAR "as is" without warranty of any kind, express or implied, and neither party will be responsible to the other for any losses, claims or damages of whatever nature arising out of VAR's use of such items. Forte shall identify at the time of release of any such preproduction or shareware releases what type of support, if any, is provided by Forte. Unless stated otherwise, however, no support shall be provided by Forte for such releases. Standard Technical Support does not include support or updating of shareware items. VAR will promptly report any error condition discovered in a preproduction release, and provide Forte with appropriate test data if necessary to resolve problems encountered by VAR with a preproduction release. 6.3 Media Warranty Forte warrants all media delivered to VAR to be free of defects in materials and workmanship under normal use for 90 days from the Effective Date. Replacement of media without charge is VAR's sole and exclusive remedy in the event of a media defect. 6.4 Services Warranty Forte warrants that its Standard Technical Support, consulting and other services will be of a professional quality conforming to generally accepted industry standards and practices. This warranty shall be valid for 90 days from completion of service. For any breach of the above warranty, VAR's exclusive remedy and Forte's entire liability shall be: (i) the re-performance of the services; or (ii) if Forte is unable to perform the services as warranted, recovery of the fees paid to Forte for such deficient services. 6.6 Limitations of Warranties THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 6.7 Limitation of Liability IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS, REVENUE (EXCEPT AS ALLOWABLE AND DETERMINED TO BE A DIRECT DAMAGE) OR PRODUCT USE, OR LOSS OR INACCURACY OF DATA, AND IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES INCURRED BY EITHER PARTY OR ANY THIRD PARTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO SECTIONS 6.1, 3.1(j) AND TO THE EXTENT LOSS OF PROFITS AND/OR REVENUE ARE ALLOWABLE AND DETERMINED TO BE DIRECT DAMAGES DUE TO THE OTHER PARTIES UNATHORIZED COPYING OR DISTRIBUTION OF THE PRODUCT OR VAR APPLICATION EITHER PARTY'S LIABILITY FOR DAMAGES HEREUNDER, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY VAR UNDER THIS AGREEMENT FOR THE RELEVANT LICENSE OR SERVICE. The provisions of this Section 6 allocate the risks under this Agreement between Forte and VAR. Forte's pricing reflects this allocation of risk and the limitation of liability specified herein. 7. GENERAL TERMS [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7.1 Nondisclosure By virtue of this Agreement, the parties may have access to information that is confidential to one another ("Confidential Information"). Confidential Information shall be limited to the Products and the VAR Application, information related thereto, all other information clearly marked as confidential, and other items as agreed by the parties in writing. A party's Confidential Information shall not include information which (i) is or becomes a part of the public domain through no act or omission of the other party; or (ii) was in the other party's lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; or (iii) is lawfully disclosed to the other party by a third party without restriction on disclosure, or (iv) is independently developed by the other party. The parties agree, both during the term of this Agreement and for a period of five (5) years after termination hereof, to hold each other's Confidential Information in confidence. The parties agree not to make each other's Confidential Information available in any form to any third party or to use each other's Confidential Information for any purpose other than the implementation of this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the provisions of this Agreement. 7.2 Governing Law and Jurisdiction This Agreement shall be governed and construed under the laws of the State of California, as applied to agreements executed and performed entirely in California by California residents. In no event shall this Agreement be governed by the United Nations Convention on Contracts for the International Sale of Goods. In any legal action relating to this Agreement each party agrees (i) to the exercise of jurisdiction over it by a state or federal court in San Francisco or Alameda County, California; and (ii) that if a party brings the action, it shall be instituted in one of the courts specified in subparagraph (i) above. 7.3 Copyrights VAR acknowledges that the Products and Documentation are proprietary to Forte and protected by copyright, patent and/or trade secret laws. VAR agrees to include without alteration, in all copies and reproductions of the Products, Documentation and VAR Application, reproductions of Forte's restricted rights notices, copyright notices and other proprietary legends. A copyright notice in a Product does not, by itself, constitute evidence of publication or public disclosure. 7.4 Marks All trademarks, service marks, trade names or logos identifying the Products or Forte's business (the "Marks") are the exclusive property of Forte or its licensors. VAR will not take any action that jeopardizes Forte's or its licensors' proprietary rights or acquire any right in the Marks except as specifically set forth below. VAR will not register, directly or indirectly, any trademark, service mark, trade name, copyright, company name or other proprietary or commercial right which is identical or confusingly similar to the Marks or which constitute a translation of a Mark into another language. VAR will use the Marks exclusively to identify the Products and shall not use the Marks in combination with any trademarks, service marks, or logos of VAR which would create confusion as to the ownership or identity of the Marks (e.g. "ForteCCS"). Any such use of the Marks will clearly identify Forte or its licensors as the owner of the Marks and conform to Forte's then current trademark and logo guidelines which Forte agrees to supply to VAR at VARS request. At Forte's request, VAR will deliver to Forte a sample of all advertisements or promotional materials bearing a Mark. If Forte notifies VAR that the use of the Mark is inappropriate, in its reasonable judgment, VAR will not publish or otherwise disseminate the advertisement or promotional materials until they have been modified to Forte's reasonable satisfaction. VAR will immediately notify Forte if VAR learns of any potential infringement of the Marks by a Sublicensee. Forte will determine the steps to be taken under these circumstances. In connection with any such potential infringement of or by the Marks, VAR will (a) provide Forte, at Forte's expense, with the assistance that Forte may reasonably request and (b) not take steps that would prejudice Forte's rights in the Marks without Forte's prior approval. 7.5 Relationship between Parties In all matters relating to this Agreement, the VAR will act as an independent contractor. The relationship between Forte and the VAR is that of licenser/licensee. Neither party will represent that it has any authority to assume or create any obligation, express or implied, on behalf of the party, nor to represent the other party capacity. 7.6 Notice All notices relating to this Agreement shall be in writing and delivered by overnight delivery service or first class prepaid mail with return receipt requested to the address of such party specified above to the attention of its Chief Financial Officer or such other address specified by such other party in accordance with this Section. 7.7 Severability/Waiver [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. In the event any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions of this Agreement will remain in full force and effect. The waiver by either party of any default or breach of this Agreement shall not constitute a waiver of any other or subsequent default or breach. 7.8 Export Administration; U.S. Government Rights VAR agrees to comply fully with all relevant laws, regulations and orders of the United States and other countries to which the Products or VAR Application are shipped, the U.S. Department of Commerce, and other U.S. and applicable non-U.S. agencies to assure that all Products, Developments and Custom Work Product and related media are not exported in violation of the laws of the United States and other applicable countries. 7.9 Non-assignability and Binding Effect Notwithstanding Section 2.1(b) or any other provision hereof, the Agreement, Product and Documentation licenses granted herein may be transferred or assigned by VAR upon written notice to Forte to (a) any entity that is either directly or indirectly controlled by VAR ("control" for purposes of this Agreement shall mean ownership of at least 51% of the voting capital stock of a corporation, or 51% of the voting equity of any non-corporate entity), or (b) the surviving entity of a merger, acquisition or reorganization of all or substantially all of VAR's assets, capital stock or other equity, so long as such proposed transferee or assignee agrees in writing to be bound by the terms and conditions of this Agreement. Except as provided above, any attempted assignment of the rights or delegation of the obligations under this Agreement shall be void without the prior written consent of the non-assigning or non-delegating party. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement or the relevant provisions shall be binding upon, and inure to the benefit of, the successors, executors, heirs, representatives, administrators and assigns of the parties hereto. 7.10 Force Majeure Neither party shall be liable to the other for its failure to perform any of its obligations under this Agreement or any Exhibit, during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, provided that the party experiencing the delay promptly notifies the other of the delay. 7.11 Remedies The parties stipulate that the legal remedies of any party in the event of any default or threatened default by the other party in the performance of or compliance with any of the terms of this Agreement are not and shall not be adequate, and that such terms may be specifically enforced by a decree for specific performance of any agreement contained herein or by an injunction against a violation of any of the terms of this Agreement or otherwise. Except as specifically provided in this Agreement, no remedies in this Agreement are exclusive of any other remedies but shall be cumulative and shall include all remedies available hereunder or under any other written agreement or in law or equity, including rights of offset. 7.12 Entire Agreement This Agreement constitutes the complete agreement between the parties and supersedes all previous agreements or representations, written or oral, with respect to the Products and services specified herein. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. It is expressly agreed that any term and conditions of the VAR's purchase order shall be superseded by the terms and conditions of this Agreement. This Agreement shall also supersede the terms of any unsigned license agreement included in a package for Forte-furnished software. 7.13 Escrow Forte represents that it has deposited with an escrow agent copies of the source code and reasonable technical documentation for all the most recent versions of the Products licensed under the Agreement, pursuant to a Technology Escrow Agreement with such escrow agent, a copy of which has been provided to VAR. Upon VAR's execution of the instrument enrolling VAR as a party to the Technology Escrow Agreement attached as Exhibit G, VAR shall be entitled to receive a copy of the escrowed source code and documentation from the escrow agent in the event Forte becomes insolvent, is a party to a bankruptcy filing, ceases business operations generally or ceases to make available maintenance or support services for the then-current version of the licensed Product. Forte shall pay all relevant escrow fees to the escrow agent. In the event VAR receives the escrowed source code and documentation, VAR shall have the royalty-free, nonexclusive, perpetual right to use such source code solely for use in maintaining and supporting the licensed Products under the terms of this Agreement. All such source code, as delivered or modified, shall constitute Confidential Information of Forte for purposes of Section 7.1 of the Agreement, and VAR shall not disclose the source code or its modifications to others or permit others to copy the source code or modifications thereof. Forte shall update the deposited material within thirty (30) days after each major update to the licensed Product. Forte [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. acknowledges VAR's right to request and receive verification from the escrow agent (and/or Forte) confirmation that Forte has deposited source materials as obligated under this paragraph. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit A --------- Forte Software, Inc. ------------------- VAR Fees and Royalties ---------------------- 1. VAR License Fee. The parties agree that this Agreement supersedes the previous VAR agreement between the parties regarding distribution of the VAR Application. Forte acknowledges that VAR has previously paid all VAR license fees owed under such previous agreement. In consideration for payment of such license fees, the license to VAR pursuant to Section 2.1 is with respect to the following Products and components: Products -------- Forte Application Environment Forte Express Forte WebEnterprise (previously known as WebSDK) Components ---------- 5 Designated Developers Unlimited Client Environments Unlimited Server Environments Unlimited RDMBS Development Interfaces 1 Shared Repository 1 Documentation Set of Forte (both Hardcopy and CD ROM) 2. Additional Designated Developer and Other License Fees. The fee for ------------------------------------------------------ each additional Designated Developer license is [*]. Other items may be licensed for the fees set forth in the Price List. 3. Support Fees. Annual Support Fees for the license pursuant to Section 2.1 shall equal 18% of Forte's then-current Core System (as defined below) list price (currently $75,000). Annual Support Fees for Products or license components not listed in Section 1 above shall be the Support Fee then charged by Forte, multiplied by the then- current list price of the item acquired. 4. Sublicense Fees. Upon shipment of the VAR Application or invoicing of a Sublicensee for the license of the VAR Application, whichever occurs first, VAR agrees to pay Forte a Sublicense fee (due as described in the Agreement) as follows: a. Standard VAR Application Sublicenses. For each Standard VAR Application Sublicense (defined below) VAR agrees to pay Forte a Sublicense fee equal to: i) [*] of VAR's net license revenue from such Sublicense if the Sublicensee does not purchase a Full Use License (as defined in Section 3.1) for a Core System (as defined below) from Forte or VAR; or ii) [*] of VAR's net license revenue from such Sublicense if the Sublicensee purchases a Full Use Core System license (plus first year maintenance and support) directly from Forte or VAR prior to or simultaneously and in connection with the VAR Application license (i.e., a then-current Forte customer who does not buy a Core System license in connection with the VAR Application would not trigger this clause). b. Extended VAR Application Sublicenses. For each Extended VAR Application Sublicense (defined below) the following terms shall apply: [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. i) VAR shall pay Forte a Sublicense fee equal to [*] of VAR's net license revenue from such Sublicense, subject to paragraph iv below regarding Enterprise Customers; ii) the Sublicensee will be also be required to purchase at a minimum, one Full Use License for a Core System from Forte or VAR, which Forte agrees to provide at its then-current local list price, plus first year maintenance and support. This Full Use License is not required if the Sublicensee or a Delivery Partner has already acquired at least one Full Use License for a Core System and has unassigned Designated Developer seats sufficient for the applicable project. If the Sublicensee or Delivery Partner has already acquired a Core System license, but all Designated Developer seats have been assigned, the Sublicensee shall only be required to purchase additional Designated Developer licenses sufficient for the applicable project. Additional Designated Developer licenses, if needed, can be purchased by the Sublicensee, VAR and/or the Delivery Partner. If the Delivery Partner has a re-usable development license arrangement with Forte, additional development licenses could be obtained for the re-use fee due under that Delivery Partner's agreement with Forte. However, unless otherwise agreed by Forte and such Delivery Partner, such reusable development licenses are "project specific" and may not be used for non-VAR Application development. All additional Designated Developer licenses require the purchase of first year maintenance and support from Forte. iii) VAR shall not be required to obtain rights to include in the VAR Application and VAR Application-related functionality created by Sublicensees or their Delivery Partners, nor shall the Sublicensee be required to purchase Full Use and/or Runtime licenses to utilize any such new VAR Application-related functionality. Runtime licenses would, however, be required for a Sublicensee's deployment of functionality outside the scope of the VAR Application. iv) in the event VAR or a Distributor grants an Extended VAR Application Sublicense to any Enterprise Customer (defined below) during the initial three year term of this Agreement, Forte shall not be entitled to any Sublicense fees in connection with such VAR Application licenses; provided, however, that VAR shall remain liable to Forte for annual Technical Support fees for such Sublicenses on the terms set forth in Section 6 below as if such Sublicense fees had been paid to Forte. At the request of VAR, Forte shall provide information regarding a customer to indicate whether such customer is an Enterprise Customer. c. VAR Application Development System. For each Sublicense of a VAR Application Development System (defined below) VAR agrees to pay Forte a Sublicense fee [*] of VAR's net license revenue from such Sublicense. Each VAR Application Development System Sublicense will expressly state that it does not include a license to use the Products for development, and that Product licenses are available directly from Forte. d. Transaction-based or Account-based Sublicenses. For the initial three years of this Agreement, VAR shall have the right to enter into "Variable Fee" VAR Application Sublicenses under which VAR receives a recurring royalty from the Sublicensee based on the number of accounts or transactions serviced by the VAR Application. Such Variable Fee Sublicenses will have a maximum term of four years. Forte will receive a Sublicense fee equal to [*] of cash license fee collected from each such Variable Fee Sublicense for the entire term of each such Variable Fee Sublicense. On or before the expiration of such three year term, both companies will evaluate and discuss in good faith the appropriate revenue sharing and other terms for Variable Fee Sublicenses from then forward. e. Pre-paid Sublicense Fees. Forte acknowledges and agrees that VAR currently has a pre-paid Sublicense fee balance of [*], which may be applied dollar for dollar solely against Sublicense fees due Forte hereunder on Sublicenses of the VAR Application, but not Core Systems. 5. Definitions. a. "Standard VAR Application" means the current shipping standard release of the VAR Application which permits the performance of up to 90 person-days of initial development using the Products. Development performed without the Products (such as using the VAR Application Workflow editor, Non-Product generated scripts and tools, C++ programming language or any Java Software Development Environment) are not counted in the 90 days. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. b. "Extended VAR Application" means the current shipping standard release of the VAR Application where more than 90 person-days of initial development using the Products will be performed. Development performed without the Products (such as using the VAR Application Workflow editor, Non-Product generated scripts and tools, C++ programming language or any Java Software Development Environment) is not counted in the 90 days. c. "VAR Application Development System" means a VAR Application licensed by VAR to its customers, global system integrator partners, and/or Delivery Partners, for end user development, training, demonstration, and/or vertical application development activities. Product Sublicenses pursuant to Section 3.1 are not deemed licenses of the VAR Application Development System. d. "Net license revenue" for Standard VAR Application, Extended VAR Application, and VAR Application Development System transactions means the net license fee amount invoiced to the applicable Sublicensee net of product returns and credits. For Variable Fee Sublicenses, it shall mean VAR's net cash receipts from the applicable Sublicensee. e. A "Core System" shall mean 1 Client Environment, 5 Designated Developers for the Forte Application Environment, 10 Runtime Users, 1 Server Environment, 1 Development Server, 1 RDBMS Interface, 1 Shared Repository, 1 Documentation Set on both hard-copy and CD-ROM, and 5 student days of training. f. "Enterprise Customer" is defined as a Forte customer which, simultaneously with or prior to Sublicensing the VAR Application from VAR, has obtained Full-Use Product licenses from Forte either (A) under a "site license" allowing use of unlimited quantities of Product licenses by such customer, or (B) in a single transaction following December 31, 1996 which included such customer's payment of at least [*] of recognizable license revenue to Forte and on which Forte and VAR worked together leading up to such single transaction. Up to once annually, VAR shall have the right to engage an independent accountant to audit the accounting books and records of Forte to verify whether a customer is an Enterprise Customer. 6. Full Use Licenses. a. For each Full Use License, VAR shall pay to Forte a "Full Use Sublicense Fee" equal to Forte's then-current Core System list price in the country or countries in which the Full Use Sublicense will be used. The current Forte Price List is attached hereto as Exhibit I. Full Use Sublicense Fees are due net 30 days from the Shipment Date of the applicable Core System Product. If VAR issues a written Full Use Sublicense quote and such quote is accepted by the applicable Sublicensee, for a period of ninety (90) days after the date of submission of the quote to the Sublicensee, the Full Use Sublicense Fee payable by VAR with respect to the Products identified in the quote shall be based on the Forte Price List in effect on such date. b. VAR is free to determine unilaterally the Full Use Sublicense Fees; provided that all Full Use Sublicenses shall otherwise comply with Forte's then current internal pricing and configuration guidelines. c. Forte shall not be required to provide primary technical support to Sublicensees receiving a Full Use Sublicense in accordance with Section 3.2 of the Agreement with respect to use of the VAR Application; provided, however, that if such Sublicensee uses the Core System outside the scope of the VAR Application, such Sublicensee will be required to obtain and pay for technical support directly from Forte pursuant to a separate Support Agreement between Forte and the Sublicensee. VAR shall refer all support inquiries on projects outside the scope of the VAR Application to Forte. 7. Technical Support for Sublicenses. On September 1 of each year during the --------------------------------- term of this Agreement VAR shall pay Forte an annual technical support services fee [*] of the then current Cumulative Sublicense Fees (including Full Use Sublicense Fees) paid or owed by VAR attributable to all actively supported Sublicensees that have acquired annual technical support services for the VAR Application as of such date. 8. VAR/MCI Agreement. VAR acknowledges that on or around December 31, 1997 it ----------------- entered into an agreement with MCI Systemhouse ("MCI Agreement"). Within two months from the Effective Date of this Agreement, VAR agrees to allow Forte's counsel the one-time right to review (on VAR's premises) those portions of the MCI Agreement that are potentially relevant to the Products. Thereafter and for the term of this Agreement, VAR agrees - ---------- [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. to allow Forte's counsel the right to review the "pre-payment" provisions of the MCI Agreement. Forte agrees that the MCI Agreement is VAR Confidential Information. 9. Joint Marketing and Seminars. The parties agree to engage in joint marketing ---------------------------- activities and to conduct joint seminars for prospective customers, pursuant to a program to be mutually defined and implemented by the parties. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit B --------- Order Form ---------- [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit B ORDER FORM VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT
VAR INFORMATION Sold To: Ship To: Same as Sold To Bill To: Same as Sold To Address: Address: Address: City: City: City: State: Zip: State: Zip: State: Zip: Country: Country: Country: Contact: Contact: Contact: Phone: Phone: Phone: Fax: Fax: Fax:
TECHNICAL SUPPORT CONTACTS Primary: Secondary Name: Name: Address: Address: City: State: City: State: Country: Zip Code: Country: Zip Code: Contact: Contact: Phone: Phone: Fax: Fax:
LICENSES Product Qty. Price/Unit Line Total $ $ VAR License Forte Application Environment Forte Express, Forte Web SDK (Includes Five Developers, and Unlimited Client Environments, Server Environments and RDBMS's) Other:_____________________________ LICENSES TOTAL $________________
ORDER FORM VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT
SERVICES TECHNICAL SUPPORT $ $ Consulting* $ $ Training* $ $ License and Services Subtotal: $_______ Sales Tax (where applicable) $_______ GRAND TOTAL $_______
ADDITIONAL TERMS: * Consulting and training must be utilized within 6 months of the Effective Date of this Order Form. This order is placed subject to the terms and conditions of the Value-Added Reseller License and Services Agreement dated:______. The Effective Date of this Order Form is:______________.
Executed by VAR Executed by Forte Software, Inc. Signature:_________________________________ Signature:_____________________________________ Name:______________________________________ Name:__________________________________________ Title:_____________________________________ Title:_________________________________________
Exhibit C --------- VAR Application Description --------------------------- The VAR Application is VAR's CCS product, as described below. I. CHORDIANT CCS PRODUCT DESCRIPTION Chordiant CCS - Customer Communications Solution(TM) - integrates customer communications points and customer facing applications with legacy databases, the web server, email/fax systems, telephony systems and existing business critical applications to create an enterprise-wide solutions serving multiple business units and customer types. Chordiant CCS(TM) includes a set of applications, business services, distributed workflow engine called "Workflow Sequencing Object Processing - WSOP(TM)", and system services, interfaces and data management. The Chordiant CCS(TM) 1.4 and 1.5 releases are packaged and delivered as a system which includes the Chordiant CCS ChorApps(TM), Chordiant CCS ChorObjects(TM), and Chordiant CCS ChorServices(TM). The ChorObjects(TM) and ChorServices(TM) are also referenced as the Chordiant CCS Foundation System. Chordiant CCS ChorApps(TM) (Applications) consist of the customer facing applications, business management applications, operational management applications, system administration and a variety of self-serve applications designed for integration with web sites and telephony devices. Chordiant CCS(TM) applications are dynamically created at time of customer inquiry and transaction based on the customer profile and request; applicable customer and business processes; together with the supporting business services and customer data. The dynamic ability to create applications is called P3 Active(TM) and is a result of technology provided by the Chordiant CCS Workflow Sequencing Object Processing(TM) (WSOP(TM)) system. Chordiant CCS(TM) applications are role-based and cover all the functionality required by the CR (Customer Representative) for customer information, service, marketing and selling functions; the Business Analyst/Management for defining and managing business processes, workflows and transactions; Marketing Management for management of campaigns, offerings and customer information; and the call center Operational Management for data maintenance, center operations, human resource scheduling, and system administration. Chordiant applications are workflow driven and are built from the hundreds of business services and objects provided in Chordiant CCS(TM), along with third party services provided by Chordiant's customers, system integration partners and technology partners. Chordiant CCS ChorObjects(TM) (Business Services, Objects and Workflow system) contains the business objects integrating your best customer and business practices together with the WSOP(TM) system, workflow components, workflow management, a workflow editor and management functions. This layer provides the rich set of business objects that are common across industries which when attributed and data enabled for a particular company reflect the company's specific customer and business processes, policies and transactions. Chordiant CCS ChorServices(TM) provides the business services to create the IT infrastructure for Chordiant CCS(TM) and to provide connectivity to telephony systems, internet, data networks, data base systems and transaction systems. ChorServices(TM) provides the services enabling customer communications; data access, management and routing; access and data interfaces to enterprise legacy and transaction systems and the ability to create customer interfaces into third-party applications and systems to enable financial transactions, order processing, billing, payment and other financial and business services. The ChorServices(TM) commonly integrate and communicate with a customer's telephony equipment, web servers, other application servers, legacy systems and transactional applications systems. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT D CHORDIANT CCS - RELEASE 1.5 NORTH AMERICA PRICE LIST
License Fees End-User License ---------------------------------------------------- Product Description Required Optional - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Foundation (Notes 1, 3) $900,000 . Chordiant CCS ChorObjects (Business Services) . Chordiant CCS ChorServices (System Services) Includes these Components: . Server Platform . Telephony and Communications Platform . Database Management Platform . Electronic Gateways Distributed Service Centers Deployment Option (Note2) . First Additional Center $375,000 . Second & Subsequent Additional Centers $187,500 Additional Components (Note 2) . Server Platform $ 25,000 . Telephony Platform $ 50,000 . Database Platform $ 25,000 . Electronic Gateways $ 50,000 - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS ChorApps (Applications) (Note 1) $600,000 - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Runtime Client Licenses 1 - 50 $ 950 51 - 100 $ 850 101 - 200 $ 750 201 - 500 $ 650 501 - 1,000 $ 600 1,001 - 2,000 $ 550 - --------------------------------------------------------------------------------------------------------------------
8. CHORDIANT CCS - RELEASE 1.5 NORTH AMERICA PRICE LIST
License Fees Global System Integrator License (GSI) -------------------------------------------------- Product Description Required Optional - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Development System for GSI Centers (Note 4) $550,000 . Chordiant CCS ChorObjects (Business Services) . Chordiant CCS ChorServices (System Services) Includes these Components: . Client Platform . Server Platform . Telephony and Communications Platform . Database Management Platform . Electronic Gateways . Chordiant CCS Delivery Model (Note 5) . Chordiant CCS Developer Training Includes one developer training class for 10 developers GSI Distributed Service Centers Deployment Option (Note 6) . First Additional GSI Center $300,000 . Second & Subsequent Additional GSI Centers $150,000 Includes one developer training class for each center - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Reference Applications $100,000 - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Development System Client Licenses 1 - 50 (per client license fee) $ 2000 51 - 100 $ 1500 10l- 200 S 1250 201- 500 $ I000 - --------------------------------------------------------------------------------------------------------------------
9. CHORDIANT CCS - RELEASE 1.5 NORTH AMERICA PRICE LIST
Description of Services Service Fees Chordiant CCS Annual Maintenance and Support (Note 7) . Premier End-User Support for Chordiant CCS 25% of Chordiant CCS Product License Fee Product License Fee (12 Months of 7 Days x 24 hours support) . Standard End-User Support for Chordiant CCS 20% of Chordiant CCS Standard Product Product License Fee (12 Months of Monday - Friday, 24 hours support) . Developer Support for Chordiant CCS $14,000. Per Client License Development System Support - 12 Months . Developer Support for Chordiant CCS $ 8,500. Per Client License Development System Support - 6 Months - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS Professional Services . Chordiant Systems Integration Quote . Chordiant Installation and Deployment Quote . Chordiant Application Consulting Quote . Chordiant Business Analysis Consulting Quote . Chordiant Development Facility Use $ 2,500 Per Day, Per Seat - ------------------------------------------------------------------------------------------------------------------------------ Chordiant Gold Team Assessment Service . Chordiant Gold Team Assessment $80,000 Per Engagement - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS University (Note 3) . CCS Enablement Training $ 500 Per Day, Per Student . CCS User Training $ 325 Per Day, Per Student - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS Documentation . Complete Documentation Sets (Additional) $ 1,000 Each . Single Library Set $ 500 Each . Single Book $ 150 Each - ------------------------------------------------------------------------------------------------------------------------------
10. CHORDIANT CCS - RELEASE 1.5 NORTH AMERICA PRICE LIST PRICE LIST NOTES: 1. License Fees for Chordiant CCS Foundation and Chordiant CCS Applications Chordiant CCS Foundation is licensed for a single customer service center and a single development site within one corporate subsidiary and/or business unit. Chordiant CCS Foundation includes; ChorServices and ChorObjects and one license of the telephony, database and web/electronic services components. Each corporate subsidiary and/or business unit is required to license a complete Chordiant CCS Foundation and Reference Application license. 2. License Fees for Additional Service Center Sites Additional license(s) for second and subsequent Distributed Service Center Sites are required within a single corporate subsidiary and/or business unit where users in those sites are accessing Chordiant CCS. 3. Chordiant CCS End-User Development Tools Chordiant CCS 1.5 includes development tools for End-User development purposes. Chordiant CCS 1.5 includes the Chordiant CCS Workflow Editor, Chordiant CCS Business Services, Chordiant CCS Reference Applications and one copy of the Forte TOOL development system. Additional licenses and copies of Forte TOOL Development System and Tools are available directly from Forte Software. 4. License Fees for Chordiant CCS Development System for GSI Partners Chordiant CCS Development System License for Chordiant contracted Global System Integrator (GSI) partners is a single development center site license in support of the GSI Partner's training, demonstration and vertical application development activities. This license is not applicable to end- user development work, end-user development projects require the Chordiant CCS End-User Development System product and license. The development system software includes one copy of the Chordiant CCS supported client, server, telephony and database objects and one electronics services facility. The Forte Development System and Tools are not included with the Chordiant CCS Development System. The Forte Development System and Tools is available directly from Forte Software. 5. License of Chordiant CCS Delivery Model Chordiant CCS GSI Development System and license for use on the specified end-user development project only. 6. License Fees for Additional GSI Development Center Sites License(s) for additional GSI Development Center Sites where Chordiant CCS Development System is deployed to serve the GSI Partner's training, demonstration and vertical application development activities. 11. This license(s) is not applicable to end-user development work, end-user development projects require the Chordiant CCS End-User Development System product and license. 7. Chordiant CCS Annual Maintenance and Support Chordiant CCS Annual Maintenance and Support services are provided and billed on an annual basis under separate agreement. 8. Chordiant CCS University Training Classes The indicated fees apply to Chordiant CCS training conducted at Chordiant Software, Inc. Chordiant CCS University in Cupertino, California. Training at client locations can be made available by arrangement. 9. North America and International Price Lists This Price List is for use with customers and partners in North America. See our international price list for regions outside of North America. 12. CHORDIANT CCS - RELEASE 1.5 INTERNATIONAL PRICE LIST
License Fees (U.S. Dollars) End-User License -------------------------------------------------- Product Description Required Optional - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Foundation (Notes 1, 3) $1,350,000 . Chordiant CCS ChorObjects (Business Services) . Chordiant CCS ChorServices (System Services) Includes these Components: . Server Platform . Telephony Platform . Database Platform . Electronic Gateways Distributed Service Centers Deployment Option (Note2) . First Additional Center $562,500 . Second & Subsequent Additional Centers $281,250 Additional Components (Note 2) . Server Platform $ 37,500 . Telephony Platform $ 75,000 . Database Platform $ 37,500 . Electronic Gateways $ 75,000 - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS ChorApps (Reference Applications) (Note 1) $ 900,000 - -------------------------------------------------------------------------------------------------------------------- Chordiant CCS Runtime Client Licenses 1 - 50 $ 1,625 51 - 100 $ 1,475 101- 200 $ 1.325 201- 500 $ 1,150 501 - 1,000 $ 1,075 1,001 - 2,000 $ 1,000 - --------------------------------------------------------------------------------------------------------------------
13. CHORDIANT CCS - RELEASE 1.5 INTERNATIONAL PRICE LIST
Service Fees Description of Services (U.S. Dollars) - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS Annual Maintenance and Support (Note 7) . Premier End-User Support for Chordiant CCS 25% of Chordiant CCS Standard Product Product License Fee (12 Months of 7 Days x 24 hours support) . Standard End-User Support for Chordiant CCS 20% of Chordiant CCS Standard Product Product License Fee (12 Months of Monday - Friday, 24 hours support) . Developer Support for Chordiant CCS $18,000 Per Client License Development System Support - 12 Months . Developer Support for Chordiant CCS $11,250 Per Client License Development System Support - 6 Months - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS Professional Services . Chordiant Systems Integration Quote . Chordiant Installation and Deployment Quote . Chordiant Application Consulting Quote . Chordiant Business Analysis Consulting Quote . Chordiant Development Facility Use $ 2,500 Per Day, Per Seat - ------------------------------------------------------------------------------------------------------------------------------ Chordiant Gold Team Assessment Service . Chordiant Gold Team Assessment $80,000 Per Engagement - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS University (Note 5) . CCS Enablement Training $ 500 Per Day, Per Student . CCS User Training $ 400 Per Day, Per Student - ------------------------------------------------------------------------------------------------------------------------------ Chordiant CCS Documentation . Complete Documentation Sets (Additional) $ 1,200 Each . Single Library Set $ 500 Each . Single Book $ 150 Each - ------------------------------------------------------------------------------------------------------------------------------
14. CHORDIANT CCS - RELEASE 1.5 INTERNATIONAL PRICE LIST PRICE LIST NOTES: 1. License Fees for Chordiant CCS Foundation and Chordiant CCS Applications Chordiant CCS Foundation is licensed for a single customer service center and a single development site within one corporate subsidiary and/or business unit. Chordiant CCS Foundation includes; ChorServices and ChorObjects and one license of the telephony, database and web/electronic services components. Each corporate subsidiary and/or business unit is required to license a complete Chordiant CCS Foundation and Reference Application license. 2. License Fees for Additional Service Center Sites Additional license(s) for second and subsequent Distributed Service Center Sites are required within a single corporate subsidiary and/or business unit where users in those sites are accessing Chordiant CCS. 3. Chordiant CCS End-User Development Tools Chordiant CCS 1.5 includes development tools for End-User development purposes. Chordiant CCS 1.5 includes the Chordiant CCS Workflow Editor, Chordiant CCS Business Services, Chordiant CCS Reference Applications and one copy of the Forte TOOL development system. Additional licenses and copies of Forte TOOL Development System and Tools are available directly from Forte Software. 4. Chordiant CCS Annual Maintenance and Support Chordiant CCS Annual Maintenance and Support services are provided and billed on an annual basis under separate agreement. 5. Chordiant CCS University Training Classes The indicated fees apply to Chordiant CCS mining conducted at Chordiant Soft, rare, Inc. Chordiant CCS University in London, England and Cupertino, California. Training at client locations can be made available by arrangement. 6. International Price List This Price List is for use with customers and partners in Europe, Middle- East, Africa, South America, Pacific Rim and Asia regions. All prices are in U.S. Dollars. 15. Runtime Server Pricing To use these charts, find the number of concurrent users at runtime and then read down the column to find the runtime server pricing.
Users 0 51 101 151 201 251 301 351 401 451 50 100 150 200 250 300 350 400 450 500 - --------------------------------------------------------------------------------------------------------------------------------- Servers ------------------------------------------------------------------------------------------------------------------------- 1 $15,000 Below Initial Runtime Server Charge 2 +$8K/svr $30,000 Pricing fixed at first value in column 3 +$8K/svr $45,000 4 +$8K/svr $60,000 5 +$8K/svr $75,000 6 +$8K/svr $90,000 7 +$8K/svr $105,000 8 +$8K/svr $120,000 9 +$8K/svr $135,000 10 +$8K/svr $150,000 11 +$8K/svr Users 501 551 601 651 701 751 801 851 901 951 550 600 650 700 750 800 850 900 950 1000 - ----------------------------------------------------------------------------------------------------------------------------------- Servers --------------------------------------------------------------------------------------------------------------------------- 11 $165,000 Below Initial Server Charge 12 +$8K/svr $180,000 Pricing fixed at first value in column 13 +$8K/svr $195,000 14 +$8K/svr $210,000 15 +$8K/svr $225,000 16 +$8K/svr $240,000 17 +$8K/svr $255,000 18 +$8K/svr $270,000 19 +$8K/svr $285,000 20 +$8K/svr $300,000 21 +$8K/svr - ------------------------------------------------------------------------------------------------------------------------------------
The Initial Runtime Server Charge licenses an increasing number of servers as the number of users increases. This gives sites great flexibility for satisfying their server needs. For example, for 500 users, the Initial Server Runtime Charge licenses the site for up to 10 servers at an Initial Runtime Server Charge of $150,000. The customer has the option of implementing their system as a single, large server or up to 10 different servers -- all for the same price. Additional servers licenses for this site, beyond the included 10 Servers, are available for $8,000 per Runtime Server. For sites with greater than 1,000 users, the Initial Runtime Server Charge is $15,000 per 50 Runtime Users. For sites with 1000 users, the site is licensed for up to 20 servers at an Initial Server Charge of $300,000. For every additional 50 Runtime Users, the site is authorized for an additional Runtime Server. Sites with greater than the number of servers covered by the Initial Server Charge must purchase licenses for the additional servers at $8,000 per server. Note: Each Runtime Server License includes: . Right-to-copy server runtime license . Right-to-copy database runtime licenses . Right-to-copy network protocols 16. Basic Guidelines 1. Each separate development site must buy a Core System. 2. For each different platform used for deployment, at least one such development environment must be purchased. 3. Developers are "designated licenses", not "concurrent licenses". See definition of Forte Developer License. 4. The server development license included in the Core System is for development only. If the same machine will be used for deployment, Runtime Server licenses are required (per Runtime Server matrix). 5. Volume discounts on Developers and Runtime Users are only available when purchased as part of a single order. For example, if a customer purchases 200 concurrent Runtime User licenses and two years later wants to purchase another 200 Runtime User licenses, the second 200 Runtime Users would not qualify for the next highest discount rate. 6. International Uplift can be waived on deployment licenses that will be ---------- deployed outside the U.S. and Canada but will be supported internally by the customer's U.S. or Canadian support organization and Forte's U.S. tech support group. Support & Maintenance 1. Telephone support and on-going product maintenance are 18% of the list price of the product(s). Support and maintenance charges are due in advance, annually. 2. Contact with Forte telephone support must be made through one of three designated support contacts. 17. Exhibit E --------- Sublicense Agreement Required Provisions ---------------------------------------- Each Sublicense agreement shall refrain from making any warranty on Forte's behalf, and shall include, at a minimum, contractual provisions which: 1) Except for a Full Use License or where such a restriction is not permitted by applicable law, prohibit use of the Products except in connection with the Sublicensee's use of the VAR Application. 2) Prohibit duplication (beyond the number of licensed copies) of the Products except for temporary transfer in the event of CPU malfunction and a reasonable number of backup or archival copies. 3) Prohibit timesharing, except for transaction-based or account-based Sublicenses as permitted under Section 4(d) of Exhibit A; or rental of the Products. 4) Prohibit reverse engineering, disassembly, decompilation, or other attempt to derive source code of the Products, except and as to the extent permitted by applicable law. 5) Prevent title from passing to the Sublicensee. 6) To the extent legally possible, disclaim Forte's liability for any indirect, incidental, or consequential damages arising from the use of the Products. 7) Require the Sublicensee, at the termination of the Sublicense, to discontinue use and destroy or return to the VAR the Products, Documentation and all archival or other copies of the Product except for a reasonable number of archival copies. 8) Require the Sublicensee to comply fully with all relevant export laws and regulations of the United States and of other countries in which the Products will be used to assure that neither the Products, not any direct product thereof, are exported, directly or indirectly, in violation of United States or other applicable law. 9) Allow VAR to audit the Sublicensees use of the VAR Application and the Products. 10) Allow VAR to comply with Section 3.1 (l) of this Agreement. [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit F --------- Forte Technical Support Users Guide ----------------------------------- [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. FORTE TECHNICAL SUPPORT USER'S GUIDE 1. Table of Contents Welcome to Forte Technical Support................. 3 How to Register for Technical Support......... 3 Your Technical Contacts....................... 3 How to Reach Technical Support................ 4 How to Change License Information............. 4 Types of Assistance Offered........................ 4 Problem Description/Troubleshooting........... 5 Support Limitations........................... 5 How To Make A Support Call......................... 6 Before You Call............................... 6 Describing the Problem........................ 6 Making the Call............................... 7 Call Tracking System.......................... 7 Modem Access.................................. 8 How Forte Resolves your Call....................... 8 Call Ranking and Response Time................ 8 Calling Us Back............................... 10 Call Escalation............................... 10 Call Resolution............................... 11 Making Test Cases............................. 11 Fixing a Defect............................... 11 Release Management Process.................... 12 Feedback on the Quality of Technical Support.. 12 Other Forte Services Offered....................... 12 Training...................................... 12 Consulting.................................... 13 Documentation................................. 13 Special Interface Projects.................... 14 Ordering more copies.......................... 14 Appendix Forte Technical Support Call Log Form Forte Technical Support Registration Form Forte Sales Office Locations - USA Forte Sales Office Locations - International 2. EXHIBIT F FORTE TECHNICAL SUPPORT USER'S GUIDE Welcome to Forte Technical Support At Forte, we believe that service, technical support, training, and consulting are just as important as the features and functions you receive when you purchase our software products. We can provide you with a spectrum of support--when you need it, whom you need it, and in the format that best suits your requirements. This guide provides you with everything you need to know about Forte Technical Support. How to Register for Technical Support Once you have purchased a support agreement from Forte, you will need to fill out a Technical Support Registration form and fax it to us at 510-869- 2010. This form provides us with the details of your site and the names of the personnel you have authorized to call Technical Support. This is where you will list your Primary Technical Contact (see below). This form is included in the appendix of this booklet and another form will be mailed to you after you purchase support, Your Technical Contacts You should designate one primary technical contact and two backup contacts for each Forte license. The primary contact is the focal point for contact with Forte Technical Support as well as internal support within your organization. This person should: . Be your Forte expert . Have the opportunity to gain Forte expertise over a wide range of uses . Be able to determine whether a particular issue should be referred to Forte Technical Support . Be accessible to all Forte users within your organization . Be able to provide timely response Each backup contact should be a co-worker of the primary technical contact, he at the same location, and be able to perform these duties in the absence of the primary contact. We feel it is essential that the primary and backup technical contacts (and preferably all Forte users) complete the full recommended Forte Training as outlined in the Forte Education Brochure. 3. The ability of your primary or backup contact to communicate effectively with Forte Technical Support will ultimately determine how effective our service is for your organization. These arrangements ensure your organization has information on, and control of your important technical relationship with Forte. When you contact Forte, we know you have already cried to resolve the issue and see the issue as important to your organization. How to Reach Technical Support Technical Support Hotline (510) 451-5400 The Technical Support Center is available from 8:00 a.m. to 6:00 p.m. Pacific time Monday through Friday, excluding United States public holidays. You will speak to a Technical Support dispatcher, who will take your call details and the initial problem description. The dispatcher will also tell you your call number and your call will then be transferred to a Technical Support Specialist, if one is available. If you call during a time when the Support Center is not available, you will be prompted to leave us voicemail and your call will be logged when the Support Center opens in the morning. Fax Number (510) 869-2010 This is the fax number for Forte Technical Support in case we require you to fax us some information about your problem. We recommend that you fax this information to us after you have called the Technical Support Hotline and received a call reference number, which you should include on the fax. Internet Address support@forte.com This is the interact address for Forte Technical Support should you decide to e-mail your question rather than use the telephone. If you send us a question via e-mail, your Forte call number will be e-mailed back to you. Please note that Forte provides an Internet Call Form on your product release media. Please complete the form with as much detail as possible so that we will have enough information to begin working on your call. How to Change License Information If you move, change phone numbers, or have personnel changes relating to your designated Technical Support contacts, please let us know so we can update our database. To make any changes, call Forte Technical Support and give us the new information. We will update the customer database and inform the other Forte department. Types of Assistance Offered 4. Technical Support provides the following assistance to Forte licensees related to their use of the current release of the licensed software, and subject to the terms and conditions in the Forte Software License and Services Agreement.
Assistance Provided Task Performed - ----------------------------------- --------------------------------------------------------- Problem Determination Analyze error messages. Identify and isolate the source of the problem. Provide technical information and technical status on open problems. Problem Resolution and Recovery Provide problem workarounds. Assistance Provide advice and guidance for operating system environment workaround. Escalate problem for immediate or scheduled fix. Product Usage Questions Assist with the configuration of your operating system environment related to Forte. Product operation or functionality issues. Provide current release information such as Compatibility, enhancements, fixes, and any restrictions.
Answering "product usage questions" may be limited to 30 minutes if we feel the questions could be answered by having the caller attend the relevant Forte training course. However, this time limit might be extended if the Support Center personnel have the time available, More extensive assistance for these questions is available by purchasing Forte Consulting (see section titled Other Forte Services for details). Problem Description/Troubleshooting Because the information you provide to Technical Support is vital to the process of problem resolution, it is important that you have prepared the problem description and supporting data, and reproduced the symptoms in a simple form. Forte Technical Support expects you to make a reasonable attempt to verify the error in your environment. We will always ask for the full error number that occurs; other common information that we will ask for depends on the nature of the problem. Support Limitations . We do not support Forte on uncertified hardware, compilers, or operating systems, We will talk to you about any problems you have, especially when it comes to using a new operating system. However, we do not guarantee Forte will work in environments other than those we explicitly support. 5. . We only support Forte software products. For instance, we do not support your computer's operating system. If you need help doing something on your operating system, you need to speak to whomever supports it. . We will not debug your application code, or application code that you have gotten from someone else. This restriction applies to third party software, software written by consultants, and so forth. If you believe you have run into a defect in a Forte software product, you need to establish that the problem lies in our Software. . We do not provide free training or consulting, although we do offer them as optional purchases. We can answer simple how-to questions and we can talk to you about other topics to a limited extent, but we will not answer questions such as "flow do I design my Forte application?" . We support techniques or workarounds given to you by members of Forte Technical Support, unless we tell you explicitly that they are unsupported. We can talk to you about workarounds given to you by others, including other Forte employees, and if them is a problem, we can help you to understand the cause, However, we cannot guarantee that using these workarounds will not cause other problems. How To Make A Support Call If you are using Forte Technical Support for the first time, you will find this section particularly useful. Please read it carefully so you will feel comfortable with the process we use to assist you. We advise you to keep a copy of your license and have your customer number available, in case you are asked for it when calling Technical Support. Before You Call Before you call for technical support, take a few minutes to gather The information you'll need to give the Forte Technical Support Specialist who takes your call. If you don't have the information, the resolution of your problem might be delayed. Describing the Problem Make some notes about the problem you are having. If possible, note the sequence of events leading up to the problem. Here are some questions to get you started: . What were you trying to accomplish? . What did you do? What commands did you enter? Provide exact syntax if possible. . What did you expect to happen? . What happened instead? Please provide exact syntax. 6. . Why do you think this is a problem with Forte?. . What have you tried to do to correct or understand this problem? . If your screen displayed any error messages, what ware they? Note the error number first then the error text, . Which manuals did you consult? Titles, publication dates, versions, and page numbers are important. Making the Call Now you are ready to call Forte Technical Support. This section describes how your call is handled. 1. The Technical Support dispatcher first asks you whether your call is new or a follow, up to a previous call. . If it is a follow-up call, give the dispatcher your call reference number. He or she attempts to connect you to the person working on the call. . If it is a new call, the dispatcher enters your name into our call tracking system, You might be asked to confirm your operating system, Forte version, or other relevant information about your site. 2. As you describe your issue or question, the dispatcher enters the details into our call tracking system. If you encountered error messages, plebe tell the dispatcher the error number first and the error message text, so that ii can be entered correctly. 3. The dispatcher discusses the impact of the problem and asks you to help determine an appropriate priority for your call. Call priority is outlined in detail in the section rifled How Forte Resolves Your Call. 4. The dispatcher tells you your call number and either connects you directly with a Technical Support Specialist, or gives you the timeframe during which you should expect a call back. All this usually takes only a few minutes. While you are on the phone with the dispatcher, please use your Forte Technical Support Call Log Form (locked in the Appendix) to record the details of your question and call number for your own reference. Call Tracking System Forte's call tracking system tracks information about each customer call. Afar verifying your customer information, the dispatcher enters the problem information into the system. From then on any of our Technical Support Specialists or dispatchers can view: 7. . A permanent record of your initial problem statement . Details of subsequent research carried out . Detail of further communication with you . The current status of your call Modem Access We recommend that our customers provide us with modem access to their machines. This access, with the ability to transmit the troublesome code to Forte machines, can speed up the resolution of the problem. How Forte Resolves your Call After speaking with you, the Technical Support Specialist establishes if the problem is: . the result of a Forte product error . the result of a user type error . a product usage question We might ask you to send us a test case to assist in the diagnosis. If the problem is identified as being the result of a Forte product error, the test case and the diagnostic notes are immediately sent to Forte Engineering. Call Ranking and Response Time Forte Technical Support prioritizes calls based on the urgency of need, We have three ranking: of calls: Standard (Rank 3), Time Critical (Rank 2) and Emergency (Rank 1). Calls generally arise from two very different kinds of situations: . One or more programmers experience a problem during the application development process. . An established production installation suddenly loses some or all of its functionality, threatening data integrity or data access. Problems at production installations usually take top priority, but not always. The problems a team of programmers encounters during a development could conceivably outweigh the problems a single user encounters in a production environment. Please assist us by letting us know the impact of the problem on your business and inform us of what you think the priority should be. Response time goals are listed for each priority of call, but if a Technical Support Specialist is available at the time of your call, we will try to respond immediately. 8. Standard Calls (Rank 3) Standard calls generally occur while using Forte during development, including "what if" and "how to" questions. The product Software is usable, but one or more functions might not operate as you expected. The problem may be one related to understanding Forte features or documentation. If a workaround exists, it is comparatively easy for you to implement. A production example of a Rank 3: The workstation for one of many end users is failing to properly redraw the screen A development example of a Rank 3: A programmer needs help understanding syntax errors encountered while developing an application. The "save" option does not work, and the workaround is to use the "save as" option. Our response time goal for Rank 3 calls is 24 business hours. Time Critical Calls (Rank 2) In time critical calls, the product software is usable, but functionality is degraded or restricted. In the case of production systems, the applications and some Forte modules remain usable, but the use of the production application itself is restricted. In the case of development systems, Forte and the development applications are unusable, or inaccessible. If a work, around exists, it is somewhat inconvenient to implement and will not be sufficient for the long term. A production example of a Rank 2: You can use parts of the production application and parts of the Forte product. A development example of a Rank 2: Development has been reduced to a minimum due to problems with the Forte development environment Our response time goal for Rank 2 calls is eight (8) business hours. Emergency Calls (Rank 1) Emergency calls take the highest priority. These are urgent cases where immediate he{p is needed. The production software is totally or partially inoperative, and the inability to use the software has a critical impact on your production operations. If there are known workarounds, they would be quite costly to implement. A production example of a Rank 1: 9. Your financial transaction system is inoperable. A development example of a Rank 1: Your development environment is totally corrupted, thus placing critical short term projects in jeopardy. Our response time goal for Rank I calls is four (4) business hours. However, we will make every effort to respond immediately. NOTE: In a Rank I situation, the first actions taken by the Technical Support Specialist, in agreement with you, are to judge whether the most critical action is to get the system up and working. If both parties agree that getting the system up and working is the top priority, be aware that you might lose diagnostic information that could help establish the cause of the problem, thus making the process of determining the cause more difficult. In the event that this diagnostic information is lost, Forte Technical Support will still make reasonable efforts to help you to determine the cause of the problem. If You and the Technical Support Specialist agree that there is time to collect the diagnostic information, this action will be carried out immediately. Calling Us Back Although we make every effort to keep you updated about the progress of your call, we also invite you to call to get the latest information and status. When you return a call to Forte Technical Support, please give us your call number so that we can retrieve your call status, If your call has changed in priority, please let us know so your call can be upgraded. If you have been able to solve the problem on your own, and the call can be closed, we would appreciate that information, tool. Call Escalation When a call is not being fixed within the agreed-upon time frame, the Director of Services and Support can activate the following procedure: . Assign sufficient skilled personnel to investigate the problem. . Notify senior Forte personnel that the error has been reported and that the escalation procedure has been activated. Technical Support will notify the relevant Forte Sales Representative, Sales Manager, and senior Pre-sales Representative, and will work with these people to ensure that a business focus as well as a technical focus is maintained until the error is brought under control. . Work with the customer to build an action plan to resolve the issues. During the period of the escalation Forte will provide regular updates to the customer at both a management and a technical level. 10. Call Resolution We close a call when we have confirmed with you that the call is resolved. A call is considered resolved when: . The problem is known not to recur or the defect has been rectified. . The apparent problem has been found to not really exist -- a misunderstanding or short term difficulty has ceased m exist. . The call occurred because of user inexperience and this is in the process of being rectified. In this instance. Forte strongly recommends the user attend the appropriate Font Training course, Making Test Cases In the process of diagnosing your problem, you might need to create a test case, especially if you think you have found a defect in our product. Please make the test case as small as possible and design it for portability. A test case should not include an entire application. It should be a subset of the application code -- for example, five to fifty lines -- and contain a small amount of data. In the come of narrowing down the problem, you isolate the code that causes the defect and you might realize that the problem is not a defect, but rather user error. When the Technical Support Specialist reports to Forte Engineering, the test case helps to ensure that when a fix is made, the fix will address your specific problem. Any changes to our code will be tested against your test case, Fixing a Defect Should a defect occur in a release, Forte will attempt to find a workaround for the problem. If a workaround exists, we will supply it immediately, The defect will be logged to the attention of Engineering and we will request that a fix be made in the next new feature production release, maintenance release, or customized emergency patch. When requesting a fix from Engineering, the Technical Support Specialist may ask you for help with certain information, such as: . How docs the defect affect your site? . What turnaround time do you request for the fix? . Have you tried all suggested workarounds, and if so, have they proven to be to difficult to implement? 11. This information ensures that Engineering understands the impact on customer business, as well as the technical nature of the problem. Out Engineering resources can then be allocated on a priority basis. If you should discover a defect of a "showstopper" type and a workaround is not available, we can "emergency patch" the codeline for your site, Due to time constrains, this patch will undergo minimal testing, but it will be tested against your submitted test case to ensure that it meets your requirements. This patch will also be made available to or. her customers who have experienced the same reported problem. Release Management Process Forte's product plan provides for a new feature product release every 15 months or so, with a maintenance release in between. With this schedule, a great deal of dine and effort goes into testing for product quality. Therefore, it is our policy to emergency patch the codeline as little as possible, since required changes will normally be made in the maintenance and new feature releases, which are then made available to our full customer base. It is important that you understand the release model outlined above, and use it in the planning of your own application development schedules. You should plan to do some level of testing as early as possible before each maintenance or new feature production release. You need to work proactively with Forte Technical Support to ensure that your issues are raised and fixed within a timeframe that allows them to be incorporated into the new release schedule. In this way, we can work together to ensure your success. Feedback on the Quality of Technical Support The management and staff of the Forte Technical Support Center are committed to providing you with world class quality and responsive service. We are always interested in meeting your needs and expectations. Your suggestions for enhancing the function and effectiveness of our service are always welcome. Any comments or suggestions may be sent to the Director of Customer Services and Support or to your local sales representative. Other Forte Services Offered There are other services that Forte can provide to complement Forte Technical Support. If you would like to order any of these services or need additional information about them, please contact your local Forte Sales Office. Training The Education Services group provides Forte users with an ever-expanding range of instruction. Classes are taught at our training centers or at customer locations. Course descriptions and current schedules are available by calling the Training Registrar at: 12. (510) 869-2050 or by calling your Forte sales office. Consulting Forte provides a number of on-site consulting services. In addition, Forte works closely with many integrator companies who are skilled in providing Forte application development services. Our consulting staff can assist you directly or in conjunction with an integrator. We offer product installation, a range of quality assurance services, technical product consulting, and Forte performance tuning, all of which are designed to help you achieve success in your system development projects. The Forte Consulting group can also provide specialist services and on-site technical product consulting as a partner of both the integrator and your organization. The benefits of using Forte Consulting Services are: . We provide you with an independent, experienced evaluation of your application architecture and system design to ensure that your business objectives are achieved by: . Correcting design problems prior to major system development to reduce costs and development time, and increase flexibility. . Evaluating your design techniques and approaches. Our consultants can offer ideas that might not have been considered. . We ask the "hard" questions and raise issues which might be difficult for your project team m address, While you retain the responsibility for the ultimate decision, alternative recommendations provide a basis for resolution. . We recommend design techniques for improving performance, flexibility, and productivity. . We assist your management with strategic planning as well as technical direction. . We provide on-the-job knowledge transfer to your staff by working with you on design problems. This type of training enhances the current project and the techniques you learn will be valuable in future design efforts. To discuss how Forte Consulting can help you, please contact your Forte Sales Office or the Director of Services and Support. We will discuss your requirements and develop a "deliverables schedule/" /to meet your objectives. Documentation 13. The Forte Technical Publications group, which is part of our Engineering organization, writes and publishes all documentation manuals which are distributed with the product. Problems with documentation and suggestions to improve the manual set can be addressed to Forte Technical Support. If you need more copies of any Forte documentation or want pricing information, please contact your local Forte Sales office. Forte Manuals Forte has an ever-expanding list of product manuals. The manuals currently available are: . Accessing Databases . A Guide to the Forte Workshops . Building International Applications . Display Library . Forte Installation Guide . Framework Library . Integrating with External Systems . System Management Guide . SystemMonitor Library . TOOL Reference Manual . Using Forte Express (available in early 1996) Special Interface Projects Our experienced specialists can help you with any Forte specific technical issues not covered in the services outlined above. If you require a special Forte interface for your site, or other specialized assistance with Forte we can help. For more information, please call your local Sales Office. Ordering more copies If you would like more copies of this guide, please call Forte Technical Support at: (510) 451-5400 or fax us at (510) 869-2010 In this section: 14. . Forte Technical Support Call Log Forms . Forte Technical Support Registration Form . Forte Sales Office Locations Forte Technical Support Call Log Form Call Ref. Date Opened Date Closed Problem Summary Number - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 16. Forte Technical Support Registration Form Please complete and fax co Technical Support at (510) 869-2010. Company Name:________________________________________________________________ Company Address:_____________________________________________________________ _____________________________________________________________ _____________________________________________________________ Phone Number: _________________________ Fax Number:____________ Management Contact:__________________________________________________________ Phone Number: _________________________ Fax Number:____________ Primary Technical Contact:___________________________________________________ Phone Number: _________________________ Fax Number:____________ Secondary Technical Contact:_________________________________________________ Phone Number: _________________________ Fax Number:____________ Secondary Technical Contact:_________________________________________________ Phone Number: _________________________ Fax Number:____________ Computer System Detail: Management Contact:__________________________________________________________ Server Platform: _______________________ GUI:_______________ Platform: _______________________ OS:__________________ Network Protocol: _______________________ Database:____________ 17. Forte Sales Office Location - USA CALIFORNIA MINNESOTA Forte Software, Inc. Forte Software, Inc. Corporate Headquarters 8400 Normandale Lake Blvd., Suite 920 Harrison Street Minneapolis, MN 55437 Oakland, CA 94612 612-921-8242 510-869-3400 Forte Software, Inc. NEW JERSEY 80 Pacific Concourse Drive Forte Software, Inc. Suite 200 33 Wood Avenue South, Suite 600 Los Angeles, CA 90045 Iselin, NJ 08830 643-4494 908-603-5283 COLORADO NEW YORK Forte Software, Inc. Forte Software, Inc. Interstate North Parkway 90 Park Avenue, Ste. 1600 Suite 700 New York, NY 1600 Atlanta, GA 30339 212-984-1854 980-6745 GEORGIA TEXAS Forte Software, Inc. Forte Software, Inc. Interstate North Parkway, Ste. 700 5001 LBJ Freeway, Suite 700 Atlanta, GA 30339 Dallas, TX 75244 980-6745 214-387-5257 ILLINOIS VIRGINIA Forte Software, Inc. Forte Software, Inc. W. 22nd Street 2010 Corporate Ridge, 7th Floor Tower Floor McLean, VA 22102 Oakbrook, IL 60512 703-749-1445 684-2255 MASSACHUSETTS WASHINGTON Forte Software, Inc. Forte Software, Inc. Burlington Mall Road 500 108th N.E., Suite 800 Suite 300 Bellevue, WA 98004 Arlington, MA 01803 206-688-3545 270-0672
18. Forte Sales Office Location - International FRANCE GERMANY Forte Software, Inc. Forte Software, Inc. Avenue Charles de Gaulle RHESSENSTRASSE 64 Neuilly sur Seine Frankfurt am Main France Germany 33-1-41-43-01-80 49-172-692-3365 UNITED KINGDOM Forte Software (UK) Ltd. London Road Berkshire United Kingdom 44-1344-4821-00 19. Exhibit G --------- Technology Escrow Agreement Enrollment -------------------------------------- [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. TECHNOLOGY ESCROW AGREEMENT THIS TECHNOLOGY ESCROW AGREEMENT including any Appendices and Exhibits ("Agreement") is effective this 12th day of July 1995, by and among FILESAFE, a California limited partnership ("Escrow Agent"), FORTE SOFTWARE, INC., a California corporation ("Depositor"), and each of the Depositor's licensees who execute an Exhibit A to this Agreement from time to time (a "Registrant"). WHEREAS, Depositor has entered or will enter into a contract with the Registrant (the "License Agreement") regarding certain proprietary technology and other materials of Depositor (the "Licensed Product"); WHEREAS, Depositor and Registrant desire the Agreement to be supplementary to said contract pursuant to 11 United States Code Section 365 (n); WHEREAS, availability of or access to certain proprietary data related to certain proprietary technology and other material is important to Registrant in the conduct of its business; WHEREAS, Depositor has deposited or will deposit with escrow Agent the related proprietary data to provide for retention and controlled access for Registrant under the conditions specified herein; NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in consideration of the promises, mutual covenants and conditions contained herein, the parties hereto agree as follows: 1. Establishment of Deposit Account. Following the execution and delivery of the Agreement and the payment of the escrow fee to Escrow Agent, Escrow Agent shall open a deposit account ("Deposit Account") for Depositor. The opening of the Deposit Account means that Escrow Agent shall establish an account ledger in the name of Depositor and request the initial deposit ("Initial deposit") from Depositor. Unless or until Depositor makes the Initial Deposit with Escrow Agent, Escrow Agent shall have no further obligation to Depositor except as defined by this section. Depositor agrees to designate one individual to receive notices from Escrow Agent and to act on behalf of Depositor in relation to the performance of its obligations as set forth in the Agreement and to notify Escrow Agent immediately in the event of any change from one designated representative to another in the manner stipulated in Exhibit B. 2. Deposit Submissions. Depositor must submit material to Escrow Agent for retention and administration of the Deposit Account together with a completed document describing the deposit material ("Deposit"), called a "Description of Deposit Materials", hereinafter referred to as an Exhibit C. Each Exhibit C should be signed by Depositor prior to submittal to Escrow Agent and will be signed by Escrow Agent upon completion of the Deposit inspection. 1. 3. Deposit Inspection. Upon receipt of an Exhibit C and Deposit, Escrow Agent will visually match the listed items on the Exhibit C to the labeling of the material ("Deposit Inspection"). Escrow Agent will not be responsible for the contents or for validating the accuracy of Depositor's labeling. Acceptance will occur when Escrow Agent concludes that the Deposit Inspection is complete. Upon acceptance Escrow Agent will sign the Exhibit C and assign the next sequential number to the Exhibit C. 4. Storage Unit. Escrow Agent will store the Deposit in a defined unit of space, called a storage unit. The cost of the first storage unit is included in the escrow fees. 5. Initial Deposit. The Initial Deposit will consist of all material initially supplied by Depositor to Escrow Agent. Escrow Agent shall issue a copy of the Exhibit C to Depositor and Registrant with{n ten (10) days of acceptance of the Initial Deposit by Escrow Agent. Escrow Agent shall identify the Initial Deposit beginning with Exhibit C/1. 6. Deposit Obligation of Confidentiality. Escrow Agent agrees to establish a locked receptacle in which it shall place the Deposit and shall put the receptacle under the administration of one or more of its officers, selected by Escrow Agent, whose identity shall be available to Depositor and Registrant at all times. Escrow Agent shall exercise a professional level of care in carrying out the terms of the Agreement. Escrow Agent acknowledges Depositor's assertion that the Deposit shall contain proprietary data and that Escrow Agent has an obligation to preserve and protect the confidentiality of the Deposit. Depositor grants Escrow Agent the irrevocable right to duplicate the Deposit only as necessary to preserve and safely store the Deposit and to provide a copy thereof as authorized herein to Registrant. Escrow Agent shall reproduce on all copies of the Deposit made by Escrow Agent any proprietary or confidentiality notices contained in the Deposit. Except as provided for in the Agreement, Escrow Agent agrees that it shall not divulge, disclose, make available to third parties, or make any use whatsoever of the Deposit. 7. Deposit Disposition after Expiry. Upon non-renewal or other termination of this Agreement, if Depositor requests the return of the Deposit, Escrow Agent shall return the Deposit to Depositor only after all outstanding invoices and the Deposit return fee are paid. If the fee(s) are not received by the anniversary date of the Agreement, Escrow Agent may, at its option, destroy the Deposit. 8. Registration Account. Following the execution and delivery of the Agreement and the payment of the escrow fee to Escrow Agent, Escrow Agent shall open a registration account ("Registration Account") for Registrant. The opening of the Registration Account means that Escrow Agent shall establish an account ledger in the name of Registrant entitling the Registrant to a copy of the Initial Deposit pursuant to Section 14. Unless and until Depositor makes the Initial Deposit with Escrow Agent, Escrow Age, at shall have no obligation to Registrant except as defined by this section. Registrant agrees to designate one individual to receive notices from Escrow Agent and to act on behalf of Registrant in relation to the performance of its obligations as set forth in the 2. Agreement and to notify Escrow Agent immediately in the event of any change from one designated representative to another. Escrow Agent shall have no obligation to any party who has not signed the Agreement. Escrow Agent, Depositor, and Registrant shall have the right to modify or cancel the Agreement without the consent of any third party. 9. Deposit Changes. "Deposit" means and includes the Initial Deposit and/or supplement(s) and/or replacement(s) accepted by Escrow Agent. Unless otherwise provided by the Agreement, Depositor has the obligation to keep the Deposit updated with current materials. Depositor hereby agrees to update the Deposit held by Escrow Agent with replacement technology releases within thirty (30) days of distribution of a major update. 10. Replacement. "Replacement" means and includes any material which replaces the Deposit or portions of the Deposit defined by Exhibit C(s). Within ten (10) days of receipt of a Replacement by Depositor, Escrow Agent will send a notice to Registrant stating that Depositor has replaced the Deposit, and Escrow Agent will include a copy of the Exhibit C defining the new material. Escrow Agent will either destroy or return to Depositor all material that is replaced by the Replacement as instructed in writing by Depositor. 11. Verification Rights. At Registrant's sole cost and expense, Depositor grants to Registrant the option to verify the Deposit for accuracy, completeness and sufficiency. Depositor agrees to permit at least one employee of Escrow Agent or an independent consultant reasonably acceptable to Depositor, at Registrant's election to be present at Depositor's facility to verify, audit, and inspect the Deposit to be held by Escrow Agent to confirm the quality and/or content of the Deposit for the benefit of Registrant. If Escrow Agent is selected to perform the verification Escrow Agent will be paid according to its then current fees. 12. Certification by Depositor. Depositor represents to Registrant that: (a) The Deposit delivered to Escrow Agent consist of source code deposited on computer magnetic media or CD-ROM and all available technical documentation which will enable Registrant to create and maintain the Product. (b) The Deposit will be defined in the Exhibit C(s). These representations shall be deemed to be made continuously throughout the term of the Agreement. 13. Term of Agreement. The Agreement will have an initial term of one year, commencing on the Effective Date. The Agreement may be renewed for additional one-year periods upon receipt by Escrow Agent of the specified renewal fees prior to the last day of the term ("Expiration Date"). In the event that renewal fees are not received thirty (30) days prior to the Expiration Date, Escrow Agent shall so notify Depositor and Registrant. If the renewal fees 3. are not received by the Expiration Date, Escrow Agent may terminate the Agreement without further notice and without liability of Escrow Agent to Depositor or Registrant. Registrant has the right to pay renewal fees and other related fees for so long as Depositor is required to maintain, the Deposit. In the event Registrant pays the renewal fees and Depositor is of the opinion that any necessary condition for renewal is not met, Depositor may so notify Escrow Agent and Registrant in writing. The resulting dispute will be resolved pursuant to the dispute resolution process defined in Section 19. 14. Expiry. If the Agreement is not renewed or is otherwise terminated, all duties and obligation of Escrow Agent to Depositor and Registrant will terminate. 15. Filing For Release of Deposit by Registrant. Upon notice to Escrow Agent by Registrant of the occurrence of a release condition as defined in Section 17 and payment of the release request fee, Escrow Agent shall notify Depositor by certified mail or commercial express mail service with a copy of the notice from Registrant. If Depositor provides contrary instruction within thirty (30) days of the mailing of the notice to Depositor, Escrow Agent shall not deliver a copy of the Deposit to Registrant. "Contrary Instruction" means the filing of an instruction with Escrow Agent by Depositor stating that a Contrary Instruction is in effect. Such Contrary Instruction means an officer of Depositor warrants that a release condition has not occurred or has been cured. Escrow Agent shall send a copy of the instruction by certified mail or commercial express mail service to Registrant. Escrow Agent shall notify both Depositor and Registrant that there is a dispute to be resolved pursuant to Section 19. Upon receipt of Contrary Instruction, Escrow Agent shall continue to store the Deposit until directed by Depositor and Registrant jointly, resolved pursuant to Section 19, by order by a court of competent jurisdiction, or termination of the Agreement. 16. Release of Deposit to Registrant. If Escrow Agent does not receive Contrary Instruction from Depositor, Escrow Agent is authorized to release the Deposit, or if more than one Registrant is registered to the Deposit, a copy of the Deposit, to the Registrant filing for release following receipt of any fees due Escrow Agent including Deposit copying and delivery fees. 17. Release Conditions of Deposit to Registrant. Release conditions are: (a) Depositor or its successor or assign hereunder files a petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. 701 et seq, or otherwise ceases business operations generally; (b) Depositor ceases to make available maintenance or support services for the then-current version of the Licensed Product, except as a result of a natural disaster or Act of God, government or other acts beyond the reasonable control of Depositor, and except when Registrant terminates or is no longer entitled to maintenance or support services for such version. 18. Conditions Following Release. Following a release and subject to payment to Escrow Agent of all outstanding fees, Registrant shall have the right to use Deposit only as specified in the License Agreement between Depositor and Registrant. Additionally, Registrant shall be required to maintain the confidentiality of the released Deposit. 4. 19. Disputes. In the event of a dispute, Escrow Agent shall so notify Depositor and Registrant in writing. Such dispute will be settled by arbitration in accordance with the commercial rules of the American Arbitration Association ("AAA"). Unless otherwise agreed to by Depositor and Registrant, arbitration will take place in Oakland, California. 20. Indemnification. Depositor and Registrant agree to defend and indemnify Escrow Agent and hold Escrow Agent harmless from and against any and all claims, actions and suits, whether in contract or in tort, and from and against any and all liabilities, losses, damages, costs, charges, penalties, counsel fees, and other expenses of any nature (including, without limitation, settlement costs) incurred by Escrow Agent as a result of performance of the Agreement except in the event of a judgment which specifies that Escrow Agent acted with gross negligence or willful misconduct or improper release of any deposit. 21. Audit Rights. Escrow Agent agrees to keep records of the activities undertaken and materials prepared pursuant to the Agreement. Upon reasonable notice and during normal business hours during the term of the Agreement, Depositor and Registrant will be entitled to inspect the records of Escrow Agent with respect to the Agreement, and accompanied by an employee of Escrow Agent, inspect the physical status and condition of the Deposit (provided that only Depositor shall be entitled to review the Deposit). The Deposit may not be changed by Depositor or Registrant during the audit. 22. General. Escrow Agent may act in reliance upon any written instruction, instrument, or signature believed to be genuine and may assume that any person giving any written notice, request, advice or instruction in connection with or relating to the Agreement has been duly authorized to do so. Escrow Agent is not responsible for failure to fulfill its obligations under the Agreement due to causes beyond Escrow Agent's control. Notices to Depositor and Escrow Agent should be sent to the parties at the addresses identified in the attached Exhibit B. Notices to Registrant should be sent to the party(s) at the address(s) identified for each such Registrant in the attached Exhibit D. The Agreement is to be governed by and construed in accordance with the laws of the State of California. The Agreement may only be amended in a writing signed by all of the parties. If any provision of the Agreement is held by any court to be invalid or unenforceable, that provision will be severed from the Agreement and any remaining provisions will continue in full force. 5. FORTE SOFTWARE, INC. FILESAFE, A California Limited Partnership DBA SourceFile DEPOSITOR ("ESCROW AGENT") Name:_________________________ Name:___________________________ Print Name:___________________ Print Name:_____________________ Title:________________________ Title:__________________________ 6. EXHIBIT A TECHNOLOGY ESCROW AGREEMENT Account Number: 7196 Registrant Number: 7196-____ The undersigned Registrant hereby enters into the Technology Escrow Agreement dated 12 July, 1995 (the "Agreement"), among Forte Software, Inc., a California corporation ("Depositor"), FileSafe, Inc., a California corporation ("Escrow Agent"), and Registrant. The term "Agreement" shall mean this Exhibit and the attached Technology Escrow Agreement, Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Technology Escrow Agreement. Notices to referred Registrant regarding Agreement terms and conditions should be addressed to: Registrant: ____________________________ Address: ____________________________ ____________________________ Designated Representative: ____________________________ Telephone: ____________________________ Facsimile: ____________________________ This Exhibit is effective this _______ day of ___________, 199__. Depositor, Registrant, and Escrow Agent hereby acknowledge and agree to be bound by the terms and conditions of the Agreement.
Filesafe, a California Forte Software, Inc. Limited Partnership - -------------------- ----------------- ------------------- Depositor Registrant Escrow Agent By:________________________ By:_______________________ By:________________________ Name:______________________ Name:_____________________ Name:______________________ Title:_____________________ Title:____________________ Title:_____________________ Date:______________________ Date:_____________________ Date:______________________
1. EXHIBIT B TECHNOLOGY ESCROW AGREEMENT Account Number: DESIGNATED REPRESENTATIVES AND LOCATIONS Notices to Depositor regarding Agreement terms and conditions should be addressed to: Depositor: Forte Software, Inc. 1800 Harrison Street Oakland, CA 94612 Designated Representative: Marcia S Ware Telephone: 510-986-3509 Facsimile: 510-869-2002 Notices to Escrow Agent regarding Agreement terms and conditions should be addressed to: Escrow Agent: FileSafe, L.P. Address: 50 Crisp Plaza, Suite 700 San Francisco, CA 94124-2924 Designated Representative: Ms. Beth Stearns Telephone: 415-715-2733 Facsimile: 425-822-4302 1. EXHIBIT C DESCRIPTION OF DEPOSIT MATERIALS Deposit Account No: 7196 Account Name: FORTE SOFTWARE, INC Depositor, pursuant to a specific Escrow Agreement between the parties, hereby deposits the below described materials into the above referenced Deposit Account by transferring them to Escrow Agent. DEPOSIT MATERIALS: I certify that the above described materials Received the identified materials: were delivered/sent to Escrow Agent By:____________________________________ By:_______________________________ Name:__________________________________ Name:_____________________________ Title:_________________________________ Title:____________________________ For:___________________________________ For:______________________________ Date:__________________________________ Date:_____________________________ Exhibit C No:_____________________ 1. EXHIBIT D TECHNOLOGY ESCROW AGREEMENT REGISTRATION DEPOSIT ACCOUNT ENROLLMENT DEPOSIT ACCOUNT NAME DEPOSIT ACCOUNT NUMBER - ---------------------------------------- --------------------------------- FORTE SOFTWARE INC 7196 1. Exhibit H Reserved/Open ----------------------- [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit I Forte Price List FORTE PRICING GUIDE ED HORST MARK HERRING FORTE SOFTWARE INTERNAL USE ONLY 1. Product Packaging And Definitions ================================================================================ Forte Application Environment A Core System is the starting point for any site. This Core System sells as a bundle for a fixed price and includes: 1 Client Environment 5 Forte Developer Licenses 10 Runtime User Licenses 1 Server Environment 1 Server Development License 1 RDBMS Development Interface 1 Shared Repository 1 Documentation Set on both hardcopy and CD-ROM 5 Student-days of Training Notes: 1. All clients (development and runtime) must be for the same platform. 2. All server components (development and repository) must be for the same platform. 3. The database interface must be on the server platform. 4. The license for all supported networking protocols is included in each platform license. 5. The server license included in this package is for development purposes only. If the same machine will also be used for use in a deployed application, a separate runtime license is required. Platform -- A given hardware and operating system combination. In the case of client platforms, it also includes a graphical user interface (GUI). If any of the part of the combination is different, it becomes a different platform. For example, each combination listed below would be considered a different platform:
Hardware Operating System GUI ---------- ---------------- --- PC (Intel) DOS Windows 3.1 PC (Intel) Windows NT Windows NT Macintosh Mac OS Mac OS Digital Alpha (AXP) OpenVMS DECwindows Digital Alpha (AXP) OSF/1 DECwindows
Client Environment -- All the Forte development tools and runtime system libraries for a designated client platform. For environments with a heterogeneous (mixed) set of clients, the 2. customer is required to purchase a different Client Environment for each platform. The one time charge per environment for these environments (and the server environments below) is the only place where Forte covers its expense of building, testing and maintaining a complex, heterogeneous environment. Forte Developer License -- This is distinct from the environment above. This is limited to the Forte Application Environment (Web Enterprise, Express and Conductor require additional purchases). The development environment provides the software and each developer requires an individual license to use the software in the environment. Note: these licenses are per designated developer and not per machine. For example, if a developer has both Windows and Macintosh machines, they are still only one developer. The company would, however, be required to have license rights for both Client Environments. "New" vs. "Additional" -- The term "new" (as in New Client Environment) indicates the addition of a new environment of a different platform (see above). For example, if a customer has been doing development exclusively on Windows and now wants Macintosh support, they will need a new Client Environment for the Macintosh. The term "additional" applies to the acquisition of subsequent copies of an already existing product. For example, if a customer wants to spread the development load over more than one Sun server, the second and subsequent Suns will be considered "additional" licenses. Runtime Server License -- Gives the customer the rights to run the server runtime libraries on a single server. It includes a license for all network protocols supported on that server. Runtime User License -- Forte charges for concurrently active users that are "logged into Forte". Any platform that has one or more active windows running a Forte application is considered to be a concurrent user and needs a separate license. The customer must license the peak number of concurrent users that will be running a Forte application. For example, if only 75 of 200 users will be using Forte at the same time, the customer must acquire 75 Runtime User Licenses. Server Environment -- The Forte development system for a designated server platform. A customer is required to have a separate Server Environment for each different platform used as a server in development or deployment. This Server Environment does not contain support for a database interface; the interface is purchased separately. Server Development License -- Gives the customer the right to use Forte products for development on the designated server machine. This is distinct from the Server Environment (above). A Server Environment must be purchased for each type of environment used for server development and is a one-time charge. A Server Development License must be purchased for the machine where server development will occur. RDBMS Interface -- Support for a designated RDBMS interface. Support for an additional RDBMS interfaces can be purchased separately. This includes scenarios where more than one database type is running on a single server (e.g. a VAX that runs both Sybase and Rdb). 3. Forte WebEnterprise Web Enterprise Server -- A standard Forte deployment server that incorporates all or part of Forte WebEnterprise in order to provide access to the server from the Web, or from or to IIOP. Examples include: - - a Forte Server that is connected to a Web Server via the WebEnterprise CGI, NSAPI or ISAPI - - a Forte Server that connects to an IIOP environment - - any Forte Server that exposes itself as an IIOP service - - any Forte Server that has the WebEnterprise libraries included in At least ONE Web Enterprise Server must be purchased before a customer can --------------------- develop for the Web. There is no additional charge per developer. - ------------------- Web Enterprise Developer License -- There is no additional charge per developer, the customer must have purchased at least one WebEnterprise Server. Each WebEnterprise Developer must have a Forte Developer License. Forte Express Express Developer License -- Each Express developer requires an individual license to use the Express software in the environment. Note: these licenses are per designated developer and not per machine. Each Express Developer must have an Express Developer License and a Forte Developer License. Forte Conductor Conductor Core System -- The starting point for any Conductor development. The Conductor Core system can only be purchased once the Forte Core System has been purchased. The RDBMS Development interfaces and repository that is used by Conductor must have already been purchased with the Forte Core System. If Conductor is to use a separate repository from the Forte development repository, an additional repository must be purchased. Similarly, any additional RDBMS interfaces needed for Conductor must be purchased (and may also be used with other Forte products). Conductor Developer License -- Each Conductor developer requires an individual license to use the Conductor software in the environment. Note: these licenses are per designated developer and not per machine. There is no correlation between Conductor developer licenses and Forte developer licenses. For example it is possible to have more or less Conductor developer licenses than Forte Developer Licenses. Additional Conductor Development Engines -- Each Conductor Core system comes with one Conductor Development Engine. A Conductor Development Engine is the software that runs on a server that stores process definitions and runs business processes for development. Additional engines might be required where customers have multiple project teams that desire autonomy over their development work, or developers that work in a disconnected distributed environment. The license for these engines ONLY covers development work, NO deployment is allowed on this engine. 4. Conductor Deployment Engines -- A single Conductor Deployment Engine consists of multiple components: - - Two engine units: These units can be deployed across multiple machines for failover purposes. - - One governer: An integral part of the Conductor environment. - - Multiple database services: The customer can configure as many database services they desire. Note: Each RDBMS Interface must be purchased with the Forte Application Environment. Additional engines are required to support large numbers of concurrent sessions and distributed environments. Note: It is possible to run multiple Conductor Deployment Engines on one machine. Each engine, not each machine, needs a separate license. Conductor Runtime Sessions -- Any application that connects to the Conductor engine to start, get, or perform work is considered a session. These Runtime Sessions could be traditional GUI clients, web browsers, or server applications like the email-server, credit-check servers, fax servers, etc. These clients could make use of any of the Conductor APIs. There is no difference to the pricing if these Runtime Sessions are from a Forte client or server, a C++ client or server, an ActiveX client, an IIOP application, etc.
Qty Description Unit Price Extended Price Discount Total - ----------------------------------------- ------------ ---------------- ----------- --------- Development Forte Application Environment Core System (Core System) 1 Client Environment $15,000 $15,000 5 Forte Developer Licenses $ 6,000 $30,000 10 Runtime User Licenses $ 750 $ 7,500 1 Server Environment $15,000 $15,000 I Server Development License $ 7,500 $ 7,500 I RDBMS Development Interface $ 7,500 $ 7,500 I Repository $ 7,500 $ 7,500 I Documentation Set $ 250 $ 250 5 Student-days of Training $ 350 $1.750 1 Media Set on CD-ROM $ 250 $ 250 Subtotal $92,250 19% $75,000 Additional Environments New Client Environment $15,000 New Server Environment $15,000 Additional Server Development License $ 7,500 Additional Developer Licenses (per Developer) I to 9 Developers $ 6,000 0% $ 6,000 10 to 24 Developers $ 6,000 10% $ 5,400 25 to 49 Developers $ 6,000 20% $ 4,800 50 or more Developers $ 6,000 35% $ 3,900 Optional Products & Interfaces Additional RDBMS Interface $ 7,500 Additional Repository License $ 7,500 Express License with Core System 1 to 10 Developers $20,000 0% $20,000 11 to 24 Developers (each) $ 2,000 10% $ 1,800 25 to 49 Developers (each) $ 2,000 20% $ 1,600 50 or more Developers (each) $ 2,000 35% $ 1,300 Conductor Licenses with Core System Conductor Core System
5.
Qty Description Unit Price Extended Price Discount Total - ----------------------------------------- ------------ ---------------- ----------- --------- 5 Conductor Developers 1 Conductor Development Engine $50,000 $50,000 (RDBMS Interface and Repository purchased with Forte Core) Additional Conductor Developers 1 to 19 Developers $ 4,000 10% $3,600 20 to 49 Developers (each) $ 4,000 20% $3,200 50 or more Developers (each) $ 4,000 35% $2,600 Additional Conductor Development Engines $20,000 $20,000 WebEnterprise Developers Providing at least one WebEnterprise $ 0 $ 0 Server license purchased Deployment (Runtime) Runtime User Packs 1 to 10 Runtime User Licenses $ 750 0% $ 750 11 to 25 Runtime User Licenses $ 750 10% $ 675 26 to 50 Runtime User Licenses $ 750 20% $ 600 51 to 100 Runtime User Licenses $ 750 30% $ 525 101 to 250 Runtime User Licenses $ 750 40% $ 450 251 to 1000 Runtime User Licenses $ 750 50% $ 375 1001 to 2000 Runtime User Licenses $ 750 60% $ 300 2000 or more Runtime User Licenses $ 750 70% $ 225 Runtime Servers (see next page) Per Matrix WebEnterprise Servers - additional fee per server 1 to 9 WebEnterprise Servers $15,000 0% $15,000 10 to 24 WebEnterprise Servers $15,000 17% $12,500 25 to 49 WebEnterprise Servers $15,000 33% $10,000 50 or more WebEnterprise Servers $15,000 45% $ 8,000 Conductor Concurrent Deployment Sessions 1 to 10 Deployment Session Licenses $ 250 0% $ 250 11 to 25 Deployment Session Licenses $ 250 10% $ 225 26 to 50 Deployment Session Licenses $ 250 20% $ 200 51 to 100 Deployment Session Licenses $ 250 30% $ 175 101 to 250 Deployment Session Licenses $ 250 40% $ 150 251 to 1000 Deployment Session Licenses $ 250 50% $ 125 1001 to 2000 Deployment Session Licenses $ 250 60% $ 100 2000 or more Deployment Session Licenses $ 250 70% $ 75 Conductor Deployment Engines Per Engine $20,000 0% $20,000 Engine includes 2 engine units, a governor And multiple database services. Additional Services and Products Training @ Forte facilities -- per $ 380 student-day Training @ Customer Site -- per $ 3,200 lecturer-day + expenses; 12 person limit Consulting -- On-site, per day, plus $ 2,000 travel and expenses Additional Documentation Set- Hardcopy $ 250
6.
Qty Description Unit Price Extended Price Discount Total - ----------------------------------------- ------------ ---------------- ----------- --------- Additional Documentation Set - CD- ROM $ 250 Maintenance 18% of Current List Price per Year International Uplift (outside U.S. and Canada) 30% of List Price
7. ADDENDUM A to VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT BETWEEN CHORDIANT SOFTWARE, INC. AND Forte Software, Inc. This Addendum A shall amend the Value-Added Reseller License and Services Agreement dated October 30, 1998 ("Agreement") between Chordiant Software, Inc. ("VAR") and Forte Software, Inc. ("Forte") as of the Effective Date indicated below. Other than the amendments listed below, the terms and conditions of the Agreement remain unchanged and in full force and effect. In the event of any conflict between the Agreement and this Addendum A, the latter shall govern. Capitalized terms herein shall have the same meaning as in the Agreement, unless otherwise indicated. 1. Forte hereby grants VAR the one time right to Sublicense, under the terms herein and under the Agreement, up to 20 Full Use Designated Developer Licenses of the Core System Products to Electronic Data Systems ("EDS" including EDS' subsidiary, Centrobe) for General Motors internal use. VAR shall pay Forte a Sublicense fee equal to Forte's then-current list price, [*], plus initial year Support Fees for such Sublicense. 2. VAR shall also have the ongoing right during the term of the Agreement to grant Sublicenses for additional Full Use Designated Developers Licenses of the Core System Products. For each such Sublicense, VAR shall pay Forte a Sublicense fee equal to Forte's then-current list price, plus initial year Support Fees. The parties have executed this Addendum A as of February 22, 1999 (the "Effective Date"). Executed by VAR Executed by Forte Software, Inc. Signature: /s/ Steven R. Springsteel Signature: /s/ Sayed Darwish Name: Steven R. Springsteel Name: Sayed Darwish (Please Print) (Please Print) Title: EVA/CFO Title: VP, General Counsel [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ADDENDUM B to VALUE-ADDED RESELLER LICENSE AND SERVICES AGREEMENT BETWEEN CHORDIANT SOFTWARE, INC. AND Forte Software, Inc. This Addendum B shall amend the Value-Added Reseller License and Services Agreement dated October 30, 1998 ("Agreement") between Chordiant Software, Inc. ("VAR") and Forte Software, Inc. ("Forte") as of the Effective Date indicated below. Other than the amendments listed below, the terms and conditions of the Agreement remain unchanged and in full force and effect. In the event of any conflict between the Agreement and this Addendum B, the latter shall govern. Capitalized terms herein shall have the same meaning as in the Agreement, unless otherwise indicated. 1. VAR shall pay a nonrefundable license fee of [*], payable ninety (90) days from the Effective Date of this Addendum B. Upon execution of this Addendum, such payment obligation is noncancelable. In consideration for such payment, the Sublicense fee rates and royalties specified in Exhibit A under the Agreement shall be adjusted as follows: A. In Section 4(a)(i), [*] is reduced to [*]. B. In Section 4(a)(ii), [*] is reduced to [*]. C. In Section 4(b)(i), [*] is reduced to [*]. D. In Section 4 (c), [*] is reduced to [*]. E. In Section 4 (d), [*] is reduced to [*]. 2. VAR shall pay a nonrefundable pre-paid license fee of [*], payable thirty (30) days from the Effective Date of this Addendum B. Upon execution of this Addendum, such payment obligation is noncancelable. In consideration for such pre-paid license fee, Forte shall waive the next [*] of Sublicense fees (i.e. credit VAR for any type of license fees otherwise due to Forte under the initial 3 year term of the Agreement for Products that VAR is currently permitted to Sublicense, but not Support Fees or fees for services) that would otherwise be due under the Agreement and Sublicense fee schedule, as amended in Section 1 above. The Effective Date of this Addendum B is March 1, 1999 (the "Effective Date"). Executed by VAR Executed by Forte Software, Inc. Signature: /s/ Steven R. Springsteel Signature: /s/ Marty Sprinzen [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Name: Steven R. Springsteel Name: Marty Sprinzen (Please Print) (Please Print) Title: EVP/CFO Title: President and CEO [*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.7 3 SOFTWARE LICENSE AGREEMENT EXHIBIT 10.7 SOFTWARE LICENSE AGREEMENT BETWEEN ELECTRONIC DATA SYSTEMS CORPORATION AND CHORDIANT SOFTWARE, INC. TABLE OF CONTENTS FOR SOFTWARE LICENSE AGREEMENT
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS 1.1 Agreement and Term........................................................ 1 1.2 Certain Definitions....................................................... 1 ARTICLE II. PURCHASE ORDERS 2.1 Preparation of Purchase Orders............................................ 2 2.2 Issuance and Acceptance of Purchase Orders................................ 2 2.3 Purchase Order Alterations................................................ 3 2.4 Evaluation Purchase Orders................................................ 3 2.5 Cancellation of Purchase Orders........................................... 4 ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES 3.1 General................................................................... 4 3.2 Transportation of Licensed Software....................................... 5 3.3 Risk of Loss.............................................................. 5 3.4 Installation of Licensed Software......................................... 5 3.5 Right to Cancel for Delays................................................ 5 3.6 Resale of Products by EDS................................................. 5 3.7 Time and Materials Services............................................... 6 3.8 Services in General....................................................... 7 3.9 Ownership of Intellectual Property Rights................................. 8 3.10 Use of Existing Materials................................................. 9 3.11 Further Acts.............................................................. 10 3.12 Time of Performance....................................................... 10 3.13 EDS Business Practices.................................................... 10 3.14 Education Services........................................................ 10 3.15 Development Services...................................................... 10 ARTICLE IV. PROVISION OF LICENSED SOFTWARE 4.1 Acceptance of Licensed Software........................................... 10 4.2 Grant of License.......................................................... 11 4.3 Transfer of Licensed Software............................................. 13 4.4 Ownership of Licensed Software and Modifications.......................... 13 4.5 Proprietary Markings...................................................... 14 4.6 Duplication of Documentation.............................................. 14 4.7 Non-Disclosure............................................................ 14 4.8 Licensed Software Support Services........................................ 14 4.9 Licensed Software Support Services Options................................ 17 4.10 Provision of Source Code.................................................. 18 4.11 Acquisition of Third Party Software....................................... 18 4.12 Software from an Authorized Third Party................................... 19 4.13 Software Audit............................................................ 19 ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES 5.1 Warranty.................................................................. 19 5.2 Proprietary Rights Indemnification........................................ 20 5.3 Cross Indemnification..................................................... 21
i 5.4 Limitation of Liability................................................... 22 5.5 Insurance................................................................. 22 5.6 Survival of Article V..................................................... 22 ARTICLE VI. PAYMENTS TO SUPPLIER 6.1 Charges, Prices, and Fees for Licensed Software and Services.............. 23 6.2 Modifications to Charges.................................................. 23 6.3 Auto Payment.............................................................. 23 6.4 Payment Through Invoicing................................................. 24 6.5 Taxes..................................................................... 24 ARTICLE VII. TERMINATION 7.1 Termination for Cause..................................................... 25 7.2 Termination for Insolvency or Bankruptcy.................................. 26 7.3 Termination for Non-Payment............................................... 26 7.4 Termination of Software License........................................... 26 7.5 Rights Upon Termination................................................... 26 ARTICLE VIII. MISCELLANEOUS 8.1 Binding Nature, Assignment, and Subcontracting............................ 26 8.2 Counterparts.............................................................. 27 8.3 Headings.................................................................. 27 8.4 Authorized Agency......................................................... 27 8.5 Relationship of Parties................................................... 28 8.6 Confidentiality........................................................... 28 8.7 Media Releases............................................................ 28 8.8 Dispute Resolution........................................................ 28 8.9 Electronic Communications................................................. 29 8.10 Proposals and Special Projects............................................ 29 8.11 Governmental Customers.................................................... 29 8.12 International Business.................................................... 29 8.13 Compliance with Laws...................................................... 29 8.14 Labor..................................................................... 30 8.15 Export.................................................................... 30 8.16 Notices................................................................... 30 8.17 Force Majeure............................................................. 30 8.18 Severability.............................................................. 31 8.19 Waiver.................................................................... 31 8.20 Remedies.................................................................. 31 8.21 Survival of Terms......................................................... 31 8.22 Nonexclusive Market and Purchase Rights................................... 31 8.23 GOVERNING LAW............................................................. 31 8.24 Entire Agreement.......................................................... 32
ii LIST OF EXHIBITS EXHIBIT A EDS BUSINESS PRACTICES - ---------------------- EXHIBIT B CHARGES, PRICES, AND FEES - ------------------------- EXHIBIT C THIRD PARTY SYSTEM ACCESS AGREEMENT - ----------------------------------- EXHIBIT D EDUCATION SERVICES - ------------------ EXHIBIT E DEVELOPMENT SERVICES - -------------------- EXHIBIT F RESELLER ACCESS AUTHORIZATION - ----------------------------- EXHIBIT G THIRD PARTY LETTER AGREEMENT - ---------------------------- EXHIBIT H END USER SOFTWARE LICENSE AGREEMENT - ----------------------------------- iii EXHIBIT 10.7 SOFTWARE LICENSE AGREEMENT -------------------------- THIS SOFTWARE LICENSE AGREEMENT (the "Agreement"), dated July 11, 1998 (the "Effective Date"), is between CHORDIANT SOFTWARE, INC., a Delaware corporation ("Chordiant"), and ELECTRONIC DATA SYSTEMS CORPORATION, a Delaware corporation ("EDS"). W I T N E S S E T H: WHEREAS, EDS desires to have the right to license computer software programs and to obtain services from Chordiant for EDS' Centrobe business or successor organizations as designated by EDS from time to time; and WHEREAS, Chordiant is willing to provide computer software programs and services to EDS in accordance with the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration received and to be received, Chordiant and EDS agree as follows: ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS -------------------------------------------- 1.1 Agreement and Term. The parties agree that the terms and conditions of ------------------ this Agreement apply to Chordiant's provision of computer software programs and services to EDS for EDS' Centrobe customers. The term of this Agreement commences on the Effective Date and the Agreement shall continue to be in effect until terminated by either party as set forth in this Agreement. 1.2 Certain Definitions. The following definitions apply to this Agreement: ------------------- (a) "Affiliate" means any entity controlling, controlled by or under common control with either party. For purposes of this Agreement, control means operational control in which the controlling entity has either (i) fifty one percent (51%) or more of the equity interest, or (ii) the maximum percentage of the equity interest allowed by local law, based on the entity's location or state of incorporation, as applicable, whichever is less. (b) "Applicable Specifications" means the functional, performance, operational, compatibility, and other specifications or characteristics of a Product described in applicable Documentation and such other specifications or characteristics of a Product agreed upon in writing by the parties. (c) "Documentation" means user guides, operating manuals, education materials, product descriptions and specifications, technical manuals, supporting materials, and other information provided, or to be provided, by Chordiant to EDS relating to the Products or used in conjunction with the Services, whether distributed in print, magnetic, electronic, or video format, in effect as of the date (i) a Product is shipped to or is accepted by EDS, as applicable, or (ii) the Service is provided to EDS. 1 (d) "Employee" means those employees, agents, subcontractors, consultants, and representatives of Chordiant provided or to be provided by Chordiant to perform Services pursuant to this Agreement. (e) "Licensed Software" means computer programs in object code (including micro code) provided or to be provided by Chordiant pursuant to this Agreement. The definition of Licensed Software also includes any enhancements, translations, modifications, updates, releases, or other changes to Licensed Software which are provided or to be provided as part of Chordiant's performance of warranty Service obligations or pre-paid support Services pursuant to this Agreement. (f) "Products" means, individually or collectively as appropriate, Licensed Software, Documentation, and Work Products (as later defined in this Agreement), provided or to be provided by Chordiant pursuant to this Agreement. (g) "Services" includes, but is not limited to, installation, education, acceptance testing, support, development, warranty, and time and materials services, provided or to be provided by Chordiant pursuant to this Agreement. (h) "Site" means geographically contiguous buildings, each of which, in whole or in part, is occupied or accessed by EDS or a customer of EDS. "Geographically contiguous" means adjacent tracts or parcels of real property separated, if at all, only by publicly dedicated rights of way or private easements. (i) "Source Code" means the instructions regarding the Licensed Software expressed in the high-level technical and specialized programming language in which the programmer wrote the software program. (j) "Warranty Period" means the period specified in Section 5.1(e) of this Agreement during which Chordiant is obligated to perform its warranty obligations. ARTICLE II. PURCHASE ORDERS ---------------------------- 2.1 Preparation of Purchase Orders. Chordiant agrees that computer software ------------------------------ programs and services which Chordiant generally makes available to other customers shall be made available to EDS under the terms and conditions of this Agreement. EDS may reasonably request non-confidential information about computer software programs and services in order to prepare purchase orders and Chordiant shall promptly provide to EDS, at no charge, sufficiently detailed non-confidential information which is responsive to EDS' request. From time to time and/or at EDS' request, Chordiant shall provide written information to EDS about computer software programs and services, and new releases, versions or options related thereto, available or to be available from Chordiant. 2.2 Issuance and Acceptance of Purchase Orders. References in this Section ------------------------------------------ to purchase orders also apply to alterations to Purchase Orders (as later defined in this Section). The following governs the issuance and acceptance of purchase orders under this Agreement: (a) EDS may issue to Chordiant written purchase orders identifying the Licensed Software and Services EDS desires to obtain from Chordiant. Each purchase order may include 2 other terms and conditions applicable to the Licensed Software and Services ordered; such other terms shall be consistent with the terms and conditions of this Agreement, or shall be necessary to place a purchase order, such as billing and shipping information, required delivery dates, installation locations, and Charges (as later defined in this Agreement). (b) Chordiant shall promptly accept purchase orders by providing to EDS a written or an oral acceptance of such purchase order, or by commencing performance pursuant to such purchase order. Chordiant shall accept purchase orders which do not establish new or conflicting terms and conditions from those set forth in this Agreement. Chordiant shall also accept purchase orders incorporating terms and conditions which have been separately agreed upon in writing by the parties. Notwithstanding the forgoing, Chordiant shall have the right to reject purchase orders for Services due to an inability to meet the delivery or commencement dates set forth in such purchase orders by promptly providing written notice to EDS of such inability and alternative dates that can be met by Chordiant. (c) Chordiant may reject a purchase order which does not meet the conditions described in subsection (b) above by promptly providing to EDS a written explanation of the reasons for such rejection. Chordiant shall accept an alteration to the originally issued purchase order if such alteration remedies the items set forth in Chordiant's written rejection. Purchase orders accepted in accordance with this Section are referred to as "Purchase Orders." EDS shall have no responsibility or liability for Licensed Software or Services provided without a Purchase Order so long as EDS returns such Licensed Software to Chordiant, at Chordiant's expense. 2.3 Purchase Order Alterations. EDS may issue an alteration to a Purchase -------------------------- Order in order to, without limitation, (i) change a location for delivery, (ii) reasonably modify the quantity or type of Licensed Software and Services to be delivered or performed, (iii) implement any reasonable change or modification as required by or permitted in this Agreement, (iv) correct typographical or clerical errors, or (v) order Licensed Software or Services which are of superior quality, or are enhancements to or are new releases or new options of the Licensed Software or Services set forth in the Purchase Order. Notwithstanding the forgoing, Chordiant shall have the right to reject purchase order alterations for Services due to an inability to meet the delivery or commencement dates if such inability is caused by such alteration, by promptly providing written notice to EDS of such inability and alternative dates that can be met by Chordiant 2.4 Evaluation Purchase Orders. EDS may issue a purchase order to Chordiant for -------------------------- Product evaluation by EDS in accordance with the following: (a) The evaluation period shall not exceed thirty (30) days (the "Evaluation Period") unless otherwise agreed upon by the parties in writing. (b) During the Evaluation Period, the Products shall be used by EDS in a non-production environment. (c) Chordiant shall provide the Products listed in the evaluation Purchase Order to EDS and shall pay all related transportation costs. 3 (d) Licensed Software provided pursuant to an evaluation Purchase Order shall be protected by EDS in accordance with the non-disclosure requirements specified in this Agreement which are applicable to Licensed Software. (e) EDS and Chordiant must mutually agree to Services required during the Evaluation Period, EDS shall pay Chordiant for such Services as per the Charges listed in Exhibit B of this Agreement, or as mutually agreed by the parties. If no agreement is reached as to the amount of Services required then Chordiant may reject such Evaluation Purchase Order. (f) At the conclusion of the Evaluation Period, EDS shall have the option of: (i) acquiring such Products pursuant to this Agreement, (ii) returning such Products to Chordiant at EDS' expense without obligation to Chordiant, and (iii) destroying all copies of such Products. (h) Products which Chordiant and EDS agree to be the subject of beta testing by EDS shall be subject to a separate agreement between the parties containing applicable beta test terms and conditions. 2.5 Cancellation of Purchase Orders. Except as otherwise agreed upon by the ------------------------------- parties, EDS may cancel all or a portion of a Purchase Order relating to Product(s), without charge or penalty up to ten (10) calendar days prior to the scheduled delivery date of the affected Product(s). In the event EDS cancels a Purchase Order or any portion thereof within ten (10) calendar days of the scheduled delivery date, as Chordiant's sole and exclusive remedy and EDS' sole liability, EDS shall reimburse Chordiant the direct, verifiable, non-recoverable expenses incurred by Chordiant as a result of such cancellation. Purchase Orders, or portions thereof, for Services may be canceled as specified in the applicable sections of this Agreement. ARTICLE III. PROVISION OF LICENSED SOFTWARE AND SERVICES --------------------------------------------------------- 3.1 General. EDS is entitled to obtain Licensed Software and Services for ------- the benefit of and use by Affiliates of EDS if such use is on behalf of EDS' Centrobe business. Such Affiliates and their respective employees are entitled to use the Licensed Software and Services in accordance with this Agreement and have and are entitled to all rights, benefits, and protections granted to EDS pursuant to this Agreement with respect to such Licensed Software and Services. However, an Affiliate of EDS shall only be entitled to obtain Licensed Software and Services directly from Chordiant pursuant to this Agreement if EDS so provides written notice to Chordiant. EDS is responsible for compliance by its Affiliates with the terms and conditions set forth in this Agreement. EDS and its Affiliates have the right to transfer (pursuant to Section 4.3 "Transfer of Licensed Software"), or remarket the Licensed Software and Services to third parties. 3.2 Transportation of Licensed Software. Chordiant shall deliver Licensed ----------------------------------- Software to EDS on the delivery date set forth in the applicable Purchase Order or as otherwise agreed upon by the parties. Charges for transportation of Licensed Software shall be paid by Chordiant. The method and mode of all transportation shall be those selected by Chordiant. 3.3 Risk of Loss. All risk of loss of, or damage to, Licensed Software ------------ shall be borne by Chordiant until receipt of delivery of such Licensed Software by EDS. Chordiant agrees to insure Licensed Software until receipt of delivery of such Licensed Software by EDS. If loss to or damage of 4 Licensed Software occurs prior to receipt of delivery by EDS, Chordiant shall immediately provide a replacement item or, if Licensed Software is not immediately replaceable, Chordiant shall give EDS highest priority for the provision of replacement Licensed Software. 3.4 Installation of Licensed Software. If installation is set forth in --------------------------------- the governing Purchase Order or is included in the Charge for Licensed Software, Chordiant shall install Licensed Software in good working order at the designated location on or before the installation date set forth in the applicable Purchase Order or as otherwise agreed upon by the parties. Installation Services shall include performance of Chordiant's usual and customary diagnostic tests to determine the operational status of the Licensed Software. Chordiant shall inform EDS of any education Services which are included with installation, and such education may be performed at a time mutually agreed upon by Chordiant and EDS. 3.5 Right to Cancel for Delays. In the event of a delay in delivery of -------------------------- all or any portion of Licensed Software listed on a Purchase Order or Licensed Software listed on a series of Purchase Orders which relate to a specific project or request for proposal (the Licensed Software listed on such series of Purchase Orders referred to as "Related Licensed Software"), or in the event of a delay in the performance of Services which is not excused in this Agreement, EDS may cancel without charge all or any portion of the Licensed Software, Related Licensed Software or Services for which delivery or performance has been so delayed. If, in EDS' opinion, the delivered Licensed Software or Related Licensed Software are not operable without the remaining undelivered Licensed Software or Related Licensed Software, EDS may, at Chordiant's expense, return any delivered Licensed Software or Related Licensed Software to Chordiant. EDS shall not be liable for any expenses incurred by Chordiant for canceled, undelivered, or returned Licensed Software or Related Licensed Software. EDS shall receive a refund of all amounts paid to Chordiant with respect to the canceled and/or returned Licensed Software, Related Licensed Software and Services. 3.6 Resale of Products by EDS. During the term of this Agreement, EDS may ------------------------- promote and resell Product licenses, in conjunction with EDS providing systems integration, outsourcing or facilities management services to a customer of EDS ("ITS Customer"), in accordance with the following terms and conditions: (a) Charges for Purchase Orders identified for resale of Product licenses shall be as set forth in Exhibit B. (b) For a Purchase Order not identified as subject to Auto Payment as defined in Section 6.3, Chordiant may invoice EDS for resale products upon delivery and payment will be made in accordance with the provisions of Section 6.4, Payment Through Invoicing. (c) Chordiant shall extend the same warranties and indemnifications, with respect to Products resold by EDS hereunder, as Chordiant extends to other end user customers. (d) The term of agreements, warranties and indemnities extended by Chordiant to an ITS Customer shall commence upon delivery of a Product to an ITS Customer and the ITS Customer shall be governed by Chordiant's then current End User Software License Agreement, which may be changed by Chordiant from time to time but is substantially similar to Exhibit H, from the delivery date to such ITS Customer. EDS shall not resell Product without first obtaining an End User Software License Agreement signed by Chordiant and ITS Customer. 5 (e) Chordiant shall make available to ITS Customers all training, technical support and other services related to the Products that are currently generally available or that may be generally available by Chordiant to other end user customers. (f) During the term that EDS is providing services to an ITS Customer, EDS shall have authorized access to Licensed Software acquired under this Section 3.6, in accordance with the provisions of Exhibit F, titled "Reseller Access Authorization". 3.7 Time and Materials Services. If available from Chordiant, EDS may --------------------------- obtain on a time and materials basis from Chordiant consulting, development and other Services (excluding support Services which are provided pursuant to other sections of this Agreement) agreed upon by the parties in accordance with the terms and conditions set forth below. (a) EDS may reasonably request on a purchase order the number and skill levels of Employees to perform Services. (b) During the course of performance of Services, EDS may request replacement of an Employee or a proposed Employee. In such event, Chordiant shall use best efforts to provide, within five (5) working days of receipt of such request from EDS, a substitute Employee of sufficient skill, knowledge, and training to perform the applicable Services. If, after use of best efforts, Chordiant is unable to provide such substitute Employee, EDS may, at its sole option, retain the Services of said unacceptable Employee until such time as Chordiant provides an acceptable substitute Employee. If, within the first thirty (30) days after an Employee's commencement of Services, EDS notifies Chordiant (i) such Employee's level of performance is unacceptable, (ii) such Employee has failed to perform as required, or (iii) such Employee, in EDS' sole opinion, lacks the skill, knowledge or training to perform at the required level, then EDS shall not be required to pay for Services provided by such Employee during such period and Chordiant shall refund to EDS all amounts paid for such Employee's Services; however, EDS shall pay for any Work Product created by said Employee which EDS continues to use after the replacement of said Employee and if EDS decides to retain the services of said Employee because no acceptable substitute has been made available, then EDS shall pay for any services performed after the date of notice to Chordiant at a discounted rate mutually agreed to by the parties. If EDS requests replacement of an Employee for the above- referenced reasons after such thirty (30) day time period, or at any time for a reason other than the reasons indicated above, EDS shall not be required to pay for, and shall be entitled to a refund of, any sums paid to Chordiant for such Employee's Services after the date of EDS' requested replacement of such Employee. (c) Chordiant shall not replace, without EDS' consent (which shall not be unreasonably withheld or delayed), an Employee then currently performing Services, for which the Employee is uniquely qualified, this includes but is not limited to: (i) EDS has provided training to said Employee to enable them to perform the Service, or (ii) EDS specifically requested and Chordiant agreed to provide said Employee to perform the Service; until the governing Purchase Order expires or is terminated; however, Chordiant may replace, without EDS' consent, an Employee for reasons relating to the Employee's termination with Chordiant, promotion, demotion, illness, death, or causes beyond Chordiant's control. 6 (d) EDS shall reimburse Chordiant for reasonable expenses incurred by Employees in the performance of Services (if requested by EDS or requested by Chordiant in advance and approved by EDS) which are related to travel, lodging, and meals; such expenses shall be reimbursed in accordance with EDS' guidelines for its own employees. (e) Chordiant shall establish and shall retain, for a period of three (3) years following the performance of time and materials Services, records which adequately substantiate the applicability and accuracy of Charges for such Services and related expenses to EDS. Upon receipt of thirty (30) days advance notice from EDS, Chordiant shall produce such records for audit by EDS subject to the confidentiality provisions of this Agreement. (f) Purchase Orders for Services provided or to be provided under this Section may be canceled at any time without charge or penalty, upon five (5) business days advance written notice to Chordiant, provided that EDS shall pay for Services already performed prior to the effective date of such notice. 3.8 Services in General. In connection with the performance of any ------------------- Services pursuant to this Agreement: (a) Unless a specific number of Employees is set forth in the governing Purchase Order, Chordiant warrants it will provide sufficient Employees to complete the Services ordered within the applicable time frames established pursuant to this Agreement or as set forth in such Purchase Order; however, it shall be considered an excused delay if EDS changes the technical specifications associated with such Services, then EDS and Chordiant shall set new time frames based upon such changed technical specifications. (b) Chordiant warrants that Employees shall have sufficient skill, knowledge, and training to perform Services and that the Services shall be performed in a professional and workmanlike manner. (c) Employees performing Services in the United States must be United States citizens or lawfully admitted in the United States for permanent residence or lawfully admitted in the United States holding a visa authorizing the performance of Services on behalf of Chordiant. (d) Chordiant warrants that all Employees utilized by Chordiant in performing Services are under a written obligation to Chordiant requiring Employee: (i) to maintain the confidentiality of information of Chordiant's customers, and (ii) if such Employee is not a full-time employee whose work is considered a "work for hire" under Section 101 of the United States Copyright Code, to assign all of Employee's right, title, and interest to Chordiant in and to any Work Product which is developed, prepared, conceived, made, or suggested by such Employee while providing Services on behalf of Chordiant. (e) Chordiant shall require Employees providing Services at an EDS location to comply with applicable EDS security and safety regulations and policies. (f) Chordiant shall provide for and pay the compensation of Employees and shall pay all taxes, contributions, and benefits (such as, but not limited to, workers' compensation benefits) which an employer is required to pay relating to the employment of employees. EDS shall not be liable to Chordiant or to any Employee for Chordiant's failure to 7 perform its compensation, benefit, or tax obligations. Chordiant shall indemnify, defend and hold EDS harmless from and against all such taxes, contributions and benefits and will comply with all associated governmental regulations, including the filing of all necessary reports and returns. (g) Chordiant shall allow EDS or its designated third party to conduct a background investigation and drug screening ("Investigation"), in accordance with applicable law, of any Employee performing Services in the United States, Canada and Mexico if EDS intends to provide the Employee with unescorted access to an EDS location. If an Employee declines such Investigation, the parties agree such Employee will not be allowed unescorted access to an EDS location; furthermore, Chordiant will contact other Employees with suitable training to see if they will agree to such Investigation. It will not be a breach of this Agreement if Chordiant has used reasonable efforts to request such Investigation of all suitable Employees and Chordiant is unable to supply a suitable Employee willing to undergo such Investigation. In connection with such Investigation EDS shall provide to Chordiant a standard form authorizing the Investigation and Chordiant shall promptly secure the completion of such form by the Employee. Any and all information obtained in connection with an Investigation of any Employee or acquired or made known during such Investigation shall be deemed confidential and shall not be revealed to persons without a bona fide need to know. If, after reviewing the results of an Investigation, EDS elects not to accept an Employee for performance of Services under this Agreement, Chordiant agrees to not utilize such Employee in the performance of Services. EDS shall waive the Investigation for an Employee if Chordiant provides EDS with written confirmation that: (i) Chordiant has conducted a background and drug screening investigation of such Employee with satisfactory results, or (ii) the Employee has been employed with Chordiant for at least five (5) years in good standing. 3.9 Ownership of Intellectual Property Rights. (a) For purposes of this ----------------------------------------- Agreement, the following definitions apply: (i) "Work Product(s)" means (in any form including Source Code) any and all processes, methods, formulas, manufacturing techniques, mask works, reports, programs, manuals, software, flowcharts and systems and any improvements, enhancements, or modifications to any of the foregoing, which are developed, prepared, conceived, or made by any Employee or by Chordiant as part of, in connection with, or in relationship to the performance of Services (except in connection with Chordiant's performance of warranty Service obligations or pre-paid support Services) pursuant to this Agreement. Work Products also means all such developments as are originated or conceived during the term of this Agreement but are completed or reduced to practice thereafter. (ii) "Existing Materials" means any confidential or proprietary materials which belong to third parties or in which Chordiant has a pre-existing intellectual property interest. (iii) "Ownership Rights" includes: (A) all rights, title and interests, and all United States and foreign intellectual property rights such as, but not limited to, patent, trade secret, and copyright; (B) the right to use, duplicate, and disclose Work Products and Work Product data, in whole or in part, in any manner and for any purpose and to authorize others to do so; (C) the exclusive right to prepare derivative works of Work Products and of any portion thereof, with full rights to authorize others to do the same; (D) the right to exploit Work Product, whether or not for profit; (E) the right to use, market or take any other 8 measures without attribution to another party; (F) the right to register ownership interest in a Work Product without contest or assertion of a competing ownership interest in such Work Product by another party; and, (G) all "moral rights" in and to Work Products. (b) Chordiant shall disclose promptly and cause Employees to disclose promptly in writing to EDS all Work Products; as to each such disclosure, such Employee and/or Chordiant shall specifically describe to EDS the features or concepts considered new or different. (c) It is the intent of the parties that EDS shall have all Ownership Rights in and to Work Products; however, if Chordiant desires ownership in Work Product, it must be mutually agreed upon in writing by the parties. In order to accomplish such intent, Chordiant (i) shall make and shall ensure that each Employee makes, without reservation, a non-terminable, irrevocable assignment to EDS of any and all Ownership Rights that Employees and/or Chordiant may have in or to such Work Product or any tangible media embodying such Work Product, and (ii) shall provide to EDS and shall ensure that each Employee provides such assignment prior to or concurrently with the provision of the affected Work Product to EDS. If Chordiant and/or Employees have any termination rights under law, then upon exercise of such termination rights, Chordiant shall automatically grant and Chordiant shall ensure that Employee grants, and EDS shall have an irrevocable, royalty-free, paid-up, worldwide, perpetual license to use the Work Product in the same manner, and for the same purposes as EDS did and was entitled to do prior to such termination. Except as necessary to perform Services or as agreed upon by the parties in a supplemental agreement entered into in accordance with this Agreement, Chordiant and Employees shall not exercise any Ownership Rights in and to the Work Product, and hereby waive and agree not to assert any or all "moral rights" in and to the Work Product, even after the termination or expiration of this Agreement. Unless otherwise agreed by the parties, EDS shall have no Ownership Rights with respect to any underlying ideas or concepts provided by Chordiant during the performance of Services. 3.10 Use of Existing Materials. To the extent that Work Product(s) under ------------------------- development may incorporate or require the use of Existing Materials, or to the extent Chordiant intends, in its performance of Services, to utilize any such Existing Materials (except as such are utilized by Chordiant in the performance of warranty Service obligations or pre-paid support Services), Chordiant shall: (i) notify EDS of such intent prior to commencement of performance of Services; (ii) identify to EDS the ownership of such Existing Materials; (iii) describe the use to which Chordiant intends to put such Existing Materials; and (iv) explain Chordiant's ability to proceed with performance of the Services without the use of such Existing Materials. EDS may require that Chordiant perform Services without the use of such Existing Materials. If any such Existing Material is owned by a third party and/or is used in the performance of Services, Chordiant warrants that it has acquired all licenses and authorizations necessary to utilize the Existing Material in the manner and for the purpose intended by Chordiant in its actual use of such Existing Material in the performance of Services. To the extent that Existing Materials are incorporated in Work Products, Chordiant grants to EDS and its Affiliates a royalty-free, irrevocable, worldwide, non-exclusive, perpetual right to use, modify and prepare derivative 9 works of such Existing Materials and to use and display such Existing Materials, with full rights to authorize others to do the same but only to the extent required to utilize the Work Product in accordance with the Ownership Rights granted in this Agreement, unless otherwise agreed to in writing by the parties for specific Work Product(s). 3.11 Further Acts. During and subsequent to the term of this Agreement, ------------ Chordiant shall do, or cause to be done, all such further acts and shall execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, any and all further documentation or assignments as EDS may reasonably require to evidence or perfect EDS' right to use, or Ownership Rights in, as the case may be, Licensed Software or Work Products. 3.12 Time of Performance. Time is expressly made of the essence with respect to ------------------- each and every term and provision of this Article. 3.13 EDS Business Practices. Chordiant shall comply with the EDS Business ---------------------- Practices set forth in Exhibit A. 3.14 Education Services. Education Services (as later defined) provided or to be ------------------ provided by Chordiant pursuant to this Agreement shall also be subject to the terms and conditions set forth in Exhibit E. 3.15 Development Services. Development Services provided or to be provided by -------------------- Chordiant pursuant to this Agreement shall also be subject to the terms and conditions set forth in Exhibit F unless otherwise agreed to in writing by the parties. ARTICLE IV. PROVISION OF LICENSED SOFTWARE ------------------------------------------- 4.1 Acceptance of Licensed Software. EDS shall accept delivered copy(ies) of ------------------------------- the Licensed Software on the date (the "Acceptance Date") when necessary Documentation has been received and (i) the Licensed Software performs in accordance with and/or conforms to its Applicable Specifications, (ii) the Licensed Software is used in a production environment, or (iii) on the ninetieth (90th) day after receipt of the Licensed Software by EDS, whichever occurs first. If, within such ninety (90) day period, EDS determines that the Licensed Software does not so perform and/or conform, EDS shall so notify Chordiant in writing and Chordiant shall have thirty (30) days from receipt of such notice to correct any non-conforming and/or non-performing features. If, after such thirty (30) day cure period, EDS determines that such Licensed Software still fails to perform in accordance with and/or conform to its Applicable Specifications, EDS may return the Licensed Software and related Documentation to Chordiant, at Chordiant's expense and without liability to Chordiant, and any amounts paid by EDS for the Licensed Software and Documentation shall be refunded by Chordiant to EDS. Acceptance of Licensed Software does not waive any warranty rights provided in this Agreement for the Licensed Software. 4.2 Grant of License. For each item of Licensed Software received by EDS, ---------------- Chordiant grants EDS and EDS has a worldwide, nonexclusive, irrevocable (except as provided in this Agreement), perpetual license to use, execute, store, and display the object code version of the Licensed Software, on behalf of EDS' Centrobe business and customers of EDS' Centrobe business (a "License") in accordance with the terms and conditions of this Agreement. All Licenses shall be deemed to be a Site Software License. 10 (a) A "Site Software License" permits EDS to use the Licensed Software at the Site designated in the Purchase Order and to copy the Licensed Software as necessary for dissemination at the Site and for archival, maintenance, disaster recovery testing, or back-up purposes. Notwithstanding the foregoing, the Licensed Software may be used at other than the designated Site, if (i) the designated Site cannot be used, (ii) the designated Site is replaced or changed by EDS, or (iii) EDS provides Chordiant with prior written notice. If EDS desires to run parallel operations in the process of conducting a disaster recovery test or transferring operations from one Site to another Site, EDS may operate the Licensed Software at two (2) Sites for the period of time reasonably necessary to complete the disaster recovery test or transfer. (b) "Runtime Client Licenses" (seats) are not restricted to the Site, i.e., can be located anywhere in the World interfacing with a Site Software License, but distribution is limited to the number of Runtime Client Licenses actually ordered on the applicable Purchase Order. (c) Any License granted under this Agreement permits EDS to (i) use Licensed Software for its corporate purposes including, but not limited to, providing services to or processing data of customers of EDS' Centrobe business, providing remote access to the Licensed Software, and performing disaster recovery, disaster testing, and backup as EDS deems necessary, and (ii) use, copy and modify Licensed Software and Documentation for the purpose of creating and using training materials relating to the Licensed Software, which training materials may include flow diagrams, system operation schematics, or screen prints from operation of the Licensed Software. Access to and use of the Licensed Software by customers of EDS shall be considered authorized use under this Section so long as such use is in conjunction with EDS' provision of services to, or EDS' processing the data of, such customers, and so long as any such customers are bound by obligations of confidentiality. (d) Unless the Third Party Letter Agreement, attached as Exhibit G has been executed, any License granted under this Agreement which includes the right to use the Forte Software, Inc. ("Forte") software embedded therein pursuant to the agreement between Chordiant and Forte shall be deemed to include the following provisions: (i) A provision which restricts use of the Licensed software to a maximum number of users and/or nodes and/or servers, specified geographic location, designated call center and computer/operating system configuration for EDS' own internal business purposes only. (ii) A provision which prohibits transfer or duplication of the Software except for temporary transfer in the event of a computer malfunction and a reasonable number of backup or archival copies. All titles, trademarks and copyright and restricted rights notices shall be reproduced in such copies. (iii) A provision which prohibits assignment, timesharing or rental of the Licensed Software. 11 (iv) A provision which prohibits any use of the software outside the scope of the Licensed Software. (v) A provision which prohibits causing or permitting the reverse engineering, disassembly, decompilation or any other attempt to derive Source Code of the Licensed Software, except as and to the extent permitted under applicable law. (vi) A provision which prohibits title to the Software from passing to EDS. (vii) A provision disclaiming Chordiant's suppliers' liability for any damages, whether direct, indirect, incidental or consequential. (viii) A provision which requires EDS, at termination of the Sublicense, to discontinue use and return or destroy all copies of the Software and Documentation. (ix) A provision which restricts publication of any results of benchmark tests run on the Licensed Software. (x) A provision which requires EDS to comply fully with all relevant export laws and regulations of the United States, to ensure that neither the Licensed Software, nor any direct product thereof, is exported, directly or indirectly, in violation of United States or other applicable law. (xi) A provision which allows Chordiant, at Chordiant's expense, to audit EDS' use of the Licensed Software. If the audit reveals that EDS has underpaid fees to Chordiant, EDS shall be invoiced directly for such underpaid fees based on the Chordiant Price List in effect at the time the audit is completed. If the underpaid fees are in excess of five percent (5%), then EDS shall pay Chordiant's reasonable costs of conducting the audit. (xii) A provision which states that the Licensed Software is not specially developed, or licensed for use in any nuclear, aviation, mass transit or medical application or in any other inherently dangerous application; that EDS agrees that Chordiant and its suppliers shall not be liable for any claims or damages arising from EDS' use of the Licensed Software for such applications; and that EDS agrees to indemnify and hold Chordiant and its suppliers harmless from any claims for losses, costs, damages or liability arising out of or in connection with the use of the Licensed Software in such applications. (xiii) A provision that Forte is a third party beneficiary of the portions of this Agreement relating to any Forte software. In the event of any conflict between the terms of this Section 4.2(d) and any other section of this Agreement, this Section 4.2(d) shall control. (e) Restrictions on Use. EDS agrees not to translate the Licensed Software into another computer language, in whole or in part. Except as provided in this Agreement, EDS shall not make copies or make media translations of the Products, in whole or in part, without Chordiant's prior written approval. EDS agrees that if, for any reason, it comes into possession of any Source Code outside the terms of this Agreement, or portion thereof, 12 for any Chordiant product, it will immediately deliver all copies of such Source Code to Chordiant. EDS shall not rent, electronically distribute or timeshare the Licensed Software or distribute the Licensed Software by interactive cable or remote processing services or otherwise distribute the Licensed Software other than as specified in this Agreement. EDS acknowledges Chordiant's claim that the Licensed Software contains trade secrets that belong to Chordiant and its suppliers. Except as permitted under the Section of the Agreement titled "Provision of Source Code", EDS shall not disassemble, de-compile, or reverse engineer the Licensed Software. Nothing contained in this Agreement shall be interpreted so as to exclude or prejudice the rights (if any) of EDS or any End User under the European Directive 91/250 on the Legal Protection of Computer Programs (14 May 1991, OJ 1991 (122/42) as implemented in the relevant jurisdiction) with respect to the Licensed Software. The governing License also includes the right to use the Source Code version of Licensed Software in accordance with the terms and conditions of the Section of this Agreement titled "Provision of Source Code." 4.3 Transfer of Licensed Software. During the performance or upon termination ----------------------------- of a contract with an EDS customer or upon any transfer of equipment incorporating Licensed Software to a third party (such customers and third parties referred to as "Transferee"), (i) EDS may sublicense the applicable Licensed Software to such Transferee pursuant to terms and conditions similar to those contained in this Article (excluding the right to sublicense or assign), (ii) the applicable License (excluding the right to sublicense or assign) may be assigned to such Transferee, or (iii) upon request by EDS, the Licensed Software will be licensed directly by Chordiant to such Transferee in accordance with the terms and conditions of Chordiant's standard software license agreement or as agreed upon by Chordiant and Transferee. Any assignment or sublicensing of Licensed Software in accordance with this Section shall be at no additional charge to EDS or Transferee, and EDS shall have no further liability or responsibility with respect to Licensed Software under (ii) or (iii) above. 4.4 Ownership of Licensed Software and Modifications. The Licensed Software ------------------------------------------------ shall be and remain the property of Chordiant or third parties which have granted Chordiant the right to license the Licensed Software and EDS shall have no rights or interests therein except as set forth in this Agreement. EDS shall be entitled to modify the Licensed Software and to develop software interfacing with the Licensed Software. All modifications of and interfaces to the Licensed Software developed by EDS shall be and remain the property of EDS, and Chordiant and its Employees shall have no rights or interests therein. Except in connection with Chordiant's performance of warranty Service obligations or pre-paid support Services, all modifications of and interfaces to the Licensed Software developed at EDS' expense by Chordiant and its Employees shall be considered Work Product and EDS shall have rights in such Work Product as established in the Section titled "Ownership of Intellectual Property Rights" elsewhere in this Agreement. Upon payment of the development software license fees set forth in the then-current price list (reduced by any applicable discounts), EDS shall have a non-exclusive license to use the development software at one (1) development center per development license for the sole purpose of providing development, customization and integration services for EDS Customers who have already entered into a Chordiant End User Software License Agreement or an EDS customer agreement. All such modifications of the Licensed Software developed by EDS shall be and remain the property of EDS. 13 Chordiant will provide support Services for modifications owned by EDS on a case-by-case basis under terms mutually agreed to in writing by the parties. 4.5 Proprietary Markings. EDS shall not remove or destroy any proprietary -------------------- markings or proprietary legends placed upon or contained within the Licensed Software. 4.6 Duplication of Documentation. EDS may duplicate Licensed Software ---------------------------- Documentation, at no additional charge, for EDS' use or for use by a customer of EDS in connection with the provision of Licensed Software so long as all required proprietary markings are retained on all duplicated copies. 4.7 Non-Disclosure. For the longer of, (i) the term of a License, or (ii) for -------------- as long a EDS retains backup copies of the Licensed Software associated with said License, and for two (2) years after, EDS will treat the Licensed Software with the same degree of care and confidentiality which EDS provides for similar information belonging to EDS which EDS does not wish disclosed to the public, but not less than reasonable care. This provision shall not apply to Licensed Software, or any portion thereof, which is (i) already known by EDS without an obligation of confidentiality, (ii) publicly known or becomes publicly known through no unauthorized act of EDS, (iii) rightfully received from a third party without obligation of confidentiality, (iv) disclosed without similar restrictions by Chordiant to a third party, (v) approved by Chordiant for disclosure, or (vi) required to be disclosed pursuant to a requirement of a governmental agency or law so long as EDS provides Chordiant with timely prior written notice of such requirement. It will not be a violation of this Section if (A) EDS provides access to and the use of the Licensed Software to third parties providing services to EDS so long as EDS secures execution by such third parties of a confidentiality agreement as would normally be required by EDS, or (B) EDS independently develops software which is similar to Licensed Software, so long as such independent development is substantiated by written documentation. 4.8 Licensed Software Support Services. The support Services set forth below ---------------------------------- for the Licensed Software shall be provided by Chordiant to EDS during the Warranty Period at no charge to EDS. Thereafter, such support Services shall be provided by Chordiant, upon EDS' request, for either a fixed or open-ended term, at the applicable Charges set forth in Exhibit B, upon the terms contained in the next Section. EDS may discontinue such support Services at any time by providing thirty (30) days' advance written notice to Chordiant. If such support Services were provided by Chordiant for an open-ended term, EDS shall promptly receive a refund of pre-paid support Charges which reflects the amount for discontinued support Services after the effective date of the notice. (a) Chordiant shall promptly notify EDS of any defects, errors or malfunctions ("Defects") in the Licensed Software or Documentation of which Chordiant becomes aware from any source and shall promptly provide to EDS modified versions of Licensed Software or Documentation which incorporate corrections of any Defects ("Corrections"). Chordiant shall also provide to EDS all operational and support assistance necessary to cause Licensed Software to perform in accordance with its Applicable Specifications and remedial support designed to provide a by-pass or temporary fix to a Defect until the Defect can be permanently corrected. Chordiant shall use its best efforts to respond to requests from EDS for Licensed Software support in a manner and time frame which are reasonably responsive considering the nature and severity of the Defect which gave rise to such request. 14 (b) Chordiant shall provide to EDS all changes to Licensed Software developed by Chordiant which are generally made available to other customers of Chordiant. Such changes could be designated as an Update or Enhancement as follows: (i) Chordiant shall provide to EDS any improvement or update to the Licensed Software which is denoted by Chordiant by a change to the tenths digit to the right of the decimal point in the then- current version number of the Licensed Software [x.(x)] (an "Update"). EDS shall have the option to implement any Update and any failure by EDS to so implement shall not affect EDS' right to continue to receive support and maintenance Services; provided that all applicable support Service fees have been paid. (ii) Chordiant shall provide to EDS any improvement or update to the Licensed Software which is denoted by Chordiant by a change to the digit to the left of the decimal point in the then-current version number of the Licensed Software [(x).x] (an "Enhancement"). EDS shall have the option to implement any Enhancement; however, EDS' only has the right to continue to receive support Services if it is on the most current Enhancement or the one just prior to such most current Enhancement; provided that all applicable support Service fees have been paid. If EDS stops support Services and is not operating on the most current Enhancement or the one just prior to such most current Enhancement, and wishes to resume support Services, EDS must bring its support Service payments current and install the most current Enhancement; i.e., EDS did not pay support Services for three (3) years and the Licensed Software EDS is running is version 2.0, but the current version is 7.0, EDS would have to pay for those prior three (3) years plus the current year and implement Enhancements required to be bring such Licensed Software to version 7.0. The ability to bring support Services current is contingent on Chordiant still offering support Services for such Licensed Software. If EDS is no longer receiving support Services for a specific Product(s), and Chordiant is considering whether to stop offering support Services for said Product(s), Chordiant shall notify EDS they are considering such decision and provide EDS with one (1) month to become current on support Service payments for such Product(s). This will allow EDS to either (i) be eligible for receipt of Source Code through escrow if Chordiant's decision is in fact to stop providing support Services for said specific Product(s), or (ii) begin receiving support Services for said Product(s) at whatever level of support Services Chordiant is offering at the time. (c) Chordiant offers two levels of support Services, (i) Standard, which provides telephone hot-line support twenty-four (24) hours per day, five (5) days per week; and (ii) Premium, which provides telephone hot-line support twenty-four (24) hours per day, seven (7) days per week. The applicable Charges for such support Services are set forth in Exhibit B. The severity assigned to a problem will be designated by EDS and will determine the response time and associated time to fix the problem or provide a work-around by Chordiant. The priority assigned will be reviewed by Chordiant for potential re-classification. However, any such re-classification shall be upon mutual agreement by the parties. The problem severity levels and associated times follows: 15 (i) Severity 1 - Critical. A problem that affects the behavior of the Licensed Software, software system, or application such that: 1) an essential marketed product, component, concept, and or function is missing or cannot be completed, or 2) a user cannot complete essential operations, or 3) the work in progress terminates/crashes causing loss of data, with no known work- around. Response time - within one (1) hour Time to fix or provide a work-around - within twenty four (24) hours of the problem being reported. (ii) Severity 2 - Serious. A problem that affects the behavior of the Licensed Software, software system, or application such that: 1) essential performance and/or functionality may be missing, or may be degraded, or 2) degradation of system performance and/or functionality imposes unreasonable constraints on users. These problems normally prevent the continuation of work in progress. Response time - within eight (8) hours Time to fix or provide a work-around - within two (2) working days of the problem being reported. (iii) Severity 3 - Problem. A Licensed Software problem that is a user inconvenience or annoyance and which may represent a loss of non-essential capability or is not required for essential operations or functional capability. The problem may adversely affect the user's accomplishment of an essential operation or functional capability. Examples of problems in this classification include, but are not limited to: functions that do not operate as documented/expected, unanticipated results from an operation, or functional documentation errors. Response time - within five (5) working days Time to fix or provide a work-around - within fifteen (15) working days of the problem being reported. (iv) Severity 4 - Minor. A Licensed Software problem that is a user inconvenience or annoyance and which does not affect an operational or essential functional capability. This classification is for problems that generally are annoyances, non-functional documentation or non-user friendly applications and/or documentation. Response time - within fifteen (15) working days Time to fix or provide a work-around - next product or documentation release. (v) Severity 5 - Other. All other problems, errors, defects and change requests not covered severity categories 1 through 4. Response time - within thirty (30) working days Time to fix or provide a work-around - no commitment, to be determined on a case-by-case basis. 16 (d) Chordiant shall provide to EDS any revisions to the existing Documentation developed for the Licensed Software or necessary to reflect all Corrections, Improvements, or Updates. (e) Chordiant shall make Licensed Software training available to persons designated by EDS to the extent agreed upon by the parties. (f) If the applicable Charge for Licensed Software is payable on a periodic basis, and such Charge includes provision of support Services, then if an Event of Default as described in the Section of this Agreement titled "Provision of Source Code" occurs or an event described in the Section of this Agreement titled "Termination for Insolvency or Bankruptcy" occurs and if Chordiant fails to provide the support Services described above, then EDS' Charge for the affected Licensed Software shall be immediately reduced to reflect such failure by subtracting that portion of the Charge allocable to the provision of support Services. 4.9 Licensed Software Support Services Options. EDS may obtain the support ------------------------------------------ Services described in the previous Section for Licensed Software on a central site support basis and/or on an individual site support basis. In the absence of a designation of central or individual site support in a Purchase Order, such support shall be deemed to be individual site support. The Charges for each option shall be as set forth in Exhibit B or as otherwise agreed upon by the parties. Where "central site support" is requested, support Services shall be provided by Chordiant to and shall be requested by EDS through a single point of contact identified by EDS on a Purchase Order. To the extent necessitated by geographic diversity or where required in order to support multiple time zones, EDS may designate multiple central site support locations. With respect to central site support, Chordiant shall provide to EDS one master disk and one copy of all Documentation relating to each Correction, Improvement, or Update. EDS shall be entitled to copy the disk and Documentation and distribute the copies or electronically transmit the copied information to each location supported by the central site. A designation of central site support shall not prevent an individual user of Licensed Software from contacting Chordiant in the event of a Severity 1 call. Where "individual site support" is requested, support Services shall be provided by Chordiant to the applicable licensed CPU, Site, or Network, or, in the case of a Corporate Software License, to a licensed user. 4.10 Provision of Source Code. EDS' ability to utilize adequately Licensed ------------------------ Software will be seriously jeopardized if Chordiant fails to maintain or support such Licensed Software unless complete Source Code and related Documentation is made available to EDS for EDS' use in satisfying EDS' maintenance and support requirements. Therefore, Chordiant agrees that if an "Event of Default" occurs, then Chordiant will provide to EDS one copy of the most current version of the Source Code for the affected Licensed Software and associated Documentation in accordance with the following: (a) An Event of Default shall be deemed to have occurred if Chordiant: (i) ceases to market or make available maintenance or support Services for the Licensed Software during a period in which EDS has a License or Licenses and is receiving, or is entitled to receive as per Section 4.8 of this Agreement, such maintenance and support for such License(s) and Chordiant has not promptly cured such failure despite EDS' demand that Chordiant make available or perform such maintenance and support, (ii) ceases business operations generally or (iii) has transferred all or substantially all of its assets or obligations set forth 17 in this Agreement to a third party which has not assumed all of the obligations of Chordiant set forth in this Agreement. (b) Chordiant will promptly and continuously update and supplement the Source Code as necessary with all revisions, Corrections, enhancements, and other changes developed for the Licensed Software and Documentation. Such Source Code shall be in a form suitable for reproduction and use by computer and photocopy equipment, and shall consist of a full source language statement of the program or programs comprising the Licensed Software and complete program maintenance Documentation which comprise the pre-coding detail design specifications, and all other material necessary to allow a reasonably skilled programmer or analyst to maintain and enhance the Licensed Software without the assistance of Chordiant or reference to any other materials. (c) Source Code received under this Section becomes a part of Licensed Software. The governing License for the Licensed Software includes the right to use Source Code received under this Section as necessary to modify, maintain, and update the Licensed Software. (d) Upon request by EDS, Chordiant will deposit in escrow with an escrow agent acceptable to EDS and pursuant to a mutually acceptable escrow agreement supplemental to this Agreement, a copy of the Source Code which corresponds to the most current version of the Licensed Software in use by EDS. EDS shall pay all fees of the escrow agent for services provided. Chordiant's entry into, or failure to enter into, an agreement with an escrow agent or to deposit the described materials in escrow shall not relieve Chordiant of its obligations to EDS described in this Section. (e) If, as a result of an Event of Default, Chordiant fails to provide required support Services, then any periodic license fee which EDS is required to pay under this Agreement for Licensed Software shall be reduced to reflect such lack of support Services. At such time as Chordiant commences offering the support Services described in this Agreement for Licensed Software, EDS may obtain such support Services as provided for elsewhere in this Agreement. 4.11 Acquisition of Third Party Software. If EDS has acquired software products ----------------------------------- from a third party and rights to such software products are subsequently acquired by Chordiant (whether through purchase of the third party in whole or in part, through purchase of the software products, through acquisition of the rights to market the software, or through any other means), then EDS shall have the option of (i) continuing to use the software products under the original license agreement with such third party at no additional charge to EDS other than applicable fees identified in such license agreement, or (ii) using the software products under the terms and conditions of this Agreement. 4.12 Software from an Authorized Third Party. If EDS acquires Chordiant's --------------------------------------- software products from a value added reseller, dealer, distributor, or other Chordiant authorized third party provider or if the Licensed Software is embedded in software products acquired from a third party, Chordiant agrees that, at EDS' option, such software products shall be deemed to have been acquired under this Agreement. 4.13 Software Audit. -------------- 18 Upon sixty (60) days advance notice from Chordiant, and no more often than once in any twelve (12) month period, Chordiant may audit EDS' use of the Chordiant Licensed Software solely to verify EDS has not exceeded the number of Licenses EDS has purchased. Said audit will be conducted by a third party audit professional selected by Chordiant with the prior written consent of EDS, during normal business hours, and not disrupt EDS' business. Chordiant shall be responsible for the fees and costs of such audit. If EDS has exceeded the number of Licenses it has purchased, Chordiant's sole and exclusive remedy will be to have EDS purchase the additional Licenses required to equal actual usage. ARTICLE V. WARRANTIES, INDEMNITIES, AND LIABILITIES ---------------------------------------------------- 5.1 Warranty. Chordiant represents and warrants that: -------- (a) Chordiant has not and will not enter into agreements or commitments which are inconsistent with or conflict with the rights granted to EDS in this Agreement; (b) No portion of the Products contain, at the time of delivery, any "back door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus," or other computer software routines or hardware components designed to (i) permit access or use of either the Products or EDS' computer systems by Chordiant or a third party not authorized by this Agreement, (ii) disable, damage or erase the Products or data, or (iii) perform any other such actions; (c) The Products and the design thereof shall not contain preprogrammed preventative routines or similar devices which prevent EDS from exercising the rights set forth in Article IV of this Agreement or from utilizing the Products for the purpose for which they were designed; (d) The media containing each Product shall be new and free from defects in manufacture, materials, and design. Each Product and its media shall function properly under ordinary use and operate in conformance with its Applicable Specifications and Documentation from the date of receipt until the date thirty (30) days from the applicable Acceptance Date of such Product; (e) The Products are, and shall continue to be as long as EDS is receiving support Services, data, program, and upward compatible with any other Products available or to be available from Chordiant so that data files created for a Product can be utilized without adaptation with other Products and Products will operate with other Products and will not result in the need for alteration, emulation, or other loss of efficiency. Chordiant shall provide to EDS at least ninety (90) days prior written notice to discontinue any Product; and (f) Neither the performance nor the functionality of the Products will be affected by any changes to the date format or date calculations within any part of the Product either before, during or after the year 2000. During the Warranty Period, Chordiant will provide warranty Service to EDS at no additional cost and will include all Services or replacement Products or Product media necessary to enable Chordiant to comply with the warranties set forth in this Agreement. Chordiant shall pass 19 through to EDS any manufacturers' warranties which Chordiant receives on the Products and, at EDS' request, Chordiant shall enforce such warranties on EDS' behalf. Chordiant agrees that EDS shall be entitled to pass through to Product end users any warranties received from Chordiant for such Products pursuant to this Agreement. EXCEPT AS SET FORTH IN THIS AGREEMENT, CHORDIANT EXPRESSLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY IN ANY TERRITORY OR JURISDICTION, RELATING TO THE PRODUCTS, AND FURTHER EXPRESSLY EXCLUDES ANY WARRANTY FOR NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY. 5.2 Proprietary Rights Indemnification. ---------------------------------- Chordiant represents and warrants that as of the Effective Date: no Product provided under this Agreement is the subject of any litigation ("Litigation"), furthermore, if a Product becomes the subject of Litigation after the Effective Date Chordiant will immediately notify EDS of such Litigation. EDS may terminate any License, and receive a full refund of any amounts paid for such Product after the date legal process regarding such Litigation has been served on Chordiant. Further; Chordiant represents and warrants that to Chordiant's knowledge, (i) Chordiant has all right, title, ownership interest, and/or marketing rights necessary to provide the Products to EDS, and (ii) as of the Effective Date each License, the Products and their sale, license, and use hereunder do not and shall not directly or indirectly violate or infringe upon any copyright, patent, trade secret, or other proprietary or intellectual property right of any third party or contribute to such violation or infringement. (a) Chordiant shall indemnify and hold EDS and Product end users and their respective successors, officers, directors, employees, and agents harmless from and against any and all actions, claims, losses, damages, liabilities, awards, costs, and expenses (including legal fees) resulting from or arising out of any Litigation, any breach or claimed breach of the foregoing warranties, or which is based on a claim that each License, the Products and their sale, license, and use hereunder do not, and shall not directly or indirectly violate or infringe upon any copyright, patent, trade secrete, or other proprietary or intellectual property right of any third party, or contribute to such violation or infringement ("Infringement"), and Chordiant shall defend and settle, at its expense, all suits or proceedings arising therefrom. EDS shall inform Chordiant of any such suit or proceeding against EDS, shall provide all reasonable assistance and cooperation, at Chordiant's expense, and shall have the right to participate in the defense of any such suit or proceeding at its expense and through counsel of its choosing. Chordiant shall notify EDS of any actions, claims or suits against Chordiant based on an alleged Infringement of any party's intellectual property rights in and to the Products. In the event an injunction is sought or obtained against use of the Products or in EDS' opinion is likely to be sought or obtained, Chordiant shall promptly, at its option and expense, either (A) procure for EDS and Product end users the right to continue to use the infringing Product as set forth in this Agreement, (B) replace or modify the infringing Products to make its use non- infringing while being capable of performing the same function without degradation of performance. If, after the use of reasonable best efforts, neither option (A) or (B) is accomplished by Chordiant within thirty (30) days of the effective date of an injunction then Chordiant will refund the unamortized portion of the Charges paid to Chordiant for such Product amortized on a five (5) year straight line basis from the 20 Acceptance Date of such Product, and any prepaid amounts associated with the affected Product. (b) The provisions of the foregoing indemnity shall not apply with respect to any instances of alleged Infringement based upon or arising out of: (i) alterations to Products where such alleged Infringement would not have occurred but for such alteration (except for those alterations made by Chordiant, third parties retained by Chordiant, or otherwise made prior to EDS' receipt of said Product); (ii) failure of EDS to use updated Products that are provided by Chordiant (at no cost to EDS) and were provided to avoid Infringement; provided such update is identified in writing as being provided for such purpose; (iii) use of any Products in connection with or in combination with any equipment, devices or software which have not been supplied or recommended by Chordiant, where such alleged Infringement would not have occurred but for the use of such Products in connection with or in combination with such equipment, devices or software; or (iv) use of Products in a manner for which same were neither designed nor contemplated as reflected in the Documentation. Notwithstanding any other provisions hereof, the forgoing indemnity shall not apply with respect to any Infringement based upon EDS activities associated with such infringing Product after Chordiant has completed performance of its replace, repair or refund obligations in (a) above. (c) THE FOREGOING SECTIONS 5.2(a) AND 5.2(b) STATE THE SOLE AND EXCLUSIVE REMEDY OF EDS AND THE ENTIRE LIABILITY AND OBLIGATION OF CHORDIANT WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY BY THE PRODUCTS OR ANY PART THEREOF. 5.3 Cross Indemnification. In the event any act or omission of a party or --------------------- its employees, servants, agents, or representatives causes or results in (i) damage to or destruction of property of the other party or third parties, and/or (ii) death or injury to persons including, but not limited to, employees or invitees of either party, then such party shall indemnify, defend, and hold the other party harmless from and against any and all claims, actions, damages, demands, liabilities, costs, and expenses, including reasonable attorneys' fees and expenses, resulting therefrom. The indemnifying party shall pay or reimburse the other party promptly for all such damage, destruction, death, or injury. 5.4 Limitation of Liability. Neither party shall be liable to the other ----------------------- pursuant to this Agreement for any amounts representing loss of profits, loss of business or indirect, consequential, exemplary, or punitive damages of the other party. The foregoing shall not limit the indemnification, defense and hold harmless obligations set forth in this Agreement, and shall not apply to any unauthorized use or disclosure of Chordiant's Source Code by EDS. 5.5 Insurance. Chordiant shall, at Chordiant's sole expense, maintain the --------- following insurance: (a) Commercial General Liability Insurance including contractual coverage: The limits of this insurance for bodily injury and property damage combined shall be at least: Each Occurrence Limit $1,000,000 General Aggregate Limit $2,000,000 Products-Completed Operations Limit $1,000,000 Personal and Advertising injury Limit $1,000,000 21 (b) Business Automobile Liability Insurance: Should the performance of this Agreement involve the use of automobiles, Chordiant shall provide comprehensive automobile insurance covering the ownership, operation and maintenance of all owned, non-owned and hired motor vehicles. Chordiant shall maintain limits of at least $1,000,000 per occurrence for bodily injury and property damage combined. (c) Workers' Compensation Insurance: Such insurance shall provide coverage in amounts not less than the statutory requirements in the state where the work is performed, even if such coverage is elective in that state. (d) Employers Liability Insurance: Such insurance shall provide limits of not less than $1,000,000 per occurrence. The insurance specified in (a) and (b) above shall: (i) name EDS, its directors, officers, employees and agents as additional insureds, and, (ii) provide that such insurance is primary coverage with respect to all insureds and additional insureds. The above insurance coverages may be obtained through any combination of primary and excess or umbrella liability insurance. EDS may require higher limits or other types of insurance coverage(s) as necessary and appropriate under the applicable purchase order. Chordiant shall provide at EDS' request certificates evidencing the coverages, limits and provisions specified above on or before the execution of the Agreement and thereafter upon the renewal of any of the policies. Chordiant shall require all insurers to provide EDS with a thirty (30) day advanced written notice of any cancellation, nonrenewal or material change in any of the policies maintained in accordance with this Agreement. 5.6 Survival of Article V. The provisions of Sections 5.2, 5.3, 5.4 and 5.6 --------------------- shall survive the term or termination of this Agreement for any reason. ARTICLE VI. PAYMENTS TO SUPPLIER --------------------------------- 6.1 Charges, Prices, and Fees for Licensed Software and Services. Charges, ------------------------------------------------------------ prices, and fees ("Charges") and discounts, if any, for Licensed Software and Services shall be determined as set forth in Exhibit B, in a Purchase Order, or as otherwise agreed upon by the parties, unless modified as set forth in this Agreement. Upon EDS' reasonable request, Chordiant shall: (i) provide to EDS current copies of Chordiant's standard published prices, and (ii) records which substantiate that EDS has received the Charges and discounts to which EDS is entitled to under this Agreement. In no event shall Charges exceed Chordiant's then current established charges, prices and fees. If promotional discounts or programs are extended to other customers, dealers, or distributors of Chordiant, EDS shall be entitled to participate in such promotional discounts or programs. All purchases which utilize any such discounts shall be deemed for all purposes including, without limitation, for purposes of calculating accumulated purchases and any discounts hereunder, to have been purchased or licensed under this Agreement. 6.2 Modifications to Charges. Where a change in an established Charge for ------------------------ Licensed Software or Services is provided for in this Agreement, Chordiant shall give to EDS at least ninety (90) days' prior written notice of such change. 22 (a) Any increase in a Charge shall not occur during the first twelve (12) months of this Agreement, during the term of the applicable Purchase Order or during the specified period for performance of Services, whichever period is longer. Thereafter, any increase in a Charge shall (i) not occur unless a minimum of twelve (12) months has elapsed since the effective date of the previously established Charge, and (ii) not exceed five percent 5% of such Charge. (b) All purchase orders issued by EDS prior to the end of the required notice period will be honored at the then current Charges so long as the scheduled delivery date of the applicable Licensed Software or Services is within ninety (90) days after the effective date of the increase. (c) If Chordiant's established Charge, less any applicable discount or promotion, on the scheduled delivery date is lower than the established Charge for such Licensed Software or Service stated in the applicable Purchase Order, then EDS shall be entitled to obtain such Licensed Software or Service at such lower Charge, less any applicable discount or promotion. 6.3 Auto Payment. This Section shall apply to Purchase Orders identified as ------------ being subject to automatic payment by EDS. (a) Single Payment for Recurring Charges. All Charges which are due and ------------------------------------ payable on a monthly, annual or other periodic basis for Licensed Software and Services ("Recurring Charges") shall be paid by EDS on the same date of the month for each month that such Charges are due (the "Remit Date"). The initial payment for a Recurring Charge shall be made on the first Remit Date after the Applicable Event provided that such Applicable Event occurs at least five (5) days prior to the first Remit Date. An "Applicable Event" is the event set forth in a Purchase Order that initiates payment of Charges (such as the installation, receipt, or acceptance of the Licensed Software; or the commencement or completion of Services). If the Applicable Event occurs less than five (5) days prior to the first Remit Date, the initial payment for such Recurring Charge shall be made on the following Remit Date, and EDS shall not be subject to interest or penalties as a result of such late payment. (b) Payment for Other Charges. Except for Recurring Charges, or unless ------------------------- otherwise agreed to by the parties in writing, all payments due Chordiant for Licensed Software and Services shall be paid within thirty (30) days after the date of the Applicable Event. (c) Invoices Required Under Auto Payment. Chordiant must send EDS an ------------------------------------ invoice to receive payment for any amounts due for any Charges which are payable and have not been identified on the applicable Purchase Order which is subject to automatic payment. (d) Reconciliation. From time to time, at either party's request, the -------------- other party shall assist with the reconciliation of the payments made by EDS to Chordiant. (e) Taxing Jurisdictions. Chordiant shall provide EDS with the list of -------------------- states and taxing jurisdictions, and their respective registration numbers where Chordiant is qualified and registered to collect sales/use taxes in all of the taxing jurisdictions within that state. If such written notification is not received by EDS from Chordiant, then EDS shall remit 23 the appropriate tax directly to the taxing authority. Chordiant shall promptly notify EDS of any additional jurisdictions to which Chordiant may qualify and register to collect sales/use taxes. 6.4 Payment Through Invoicing. This Section applies to Purchase Orders ------------------------- issued by EDS which are not identified as being subject to automatic payment or to any invoice received by EDS from Chordiant as permitted by this Agreement. (a) Except as otherwise set forth in this Agreement, any undisputed sum due to Chordiant pursuant to this Agreement shall be payable within thirty (30) days after receipt by EDS of a correct invoice therefor from Chordiant. Chordiant shall invoice EDS on or after the applicable Acceptance Date for the Licensed Software covered by such invoice. Periodic payments, if any, due to Chordiant pursuant to this Agreement shall be invoiced at the beginning of the period to which they apply. Payment for any other Services shall be invoiced as agreed upon by the parties or, in the absence of an agreement, upon completion of such Services. (b) A "correct" invoice shall contain (i) Chordiant's name and invoice date, (ii) the specific Purchase Order number if applicable, (iii) description including serial number as applicable, price, and quantity of the Licensed Software or Services actually delivered or rendered, (iv) credits (if applicable), (v) name (where applicable), title, phone number, and complete mailing address of responsible official to whom payment is to be sent, and (vi) other substantiating documentation or information as may reasonably be required by EDS from time to time. A correct invoice must be submitted to the appropriate invoice address listed on the applicable Purchase Order. 6.5 Taxes. ----- (a) Unless EDS provides evidence of exemption, EDS shall pay or reimburse Chordiant, where EDS is liable under applicable tax statute, amounts equal to taxes which are imposed upon EDS' acquisition of Products or Services including federal excise taxes, or sales or use taxes; provided, however, EDS shall not be obligated to pay or reimburse Chordiant for any taxes attributable to the sale of any Products or Services which are imposed on or measured by net or gross income, capital, net worth, franchise, privilege, any other taxes, or assessments, nor any of the foregoing imposed on or payable by Chordiant. (b) Chordiant agrees to reasonably cooperate with EDS in the audit or minimization of any applicable tax and shall make available to EDS, and any taxing authority, all information, records, or documents relating to any audits or assessments attributable to or resulting from the payment process under this Agreement, and the filing of any tax returns or the contesting of any tax. In the event Chordiant is in dispute with such taxing authority, Chordiant reserves the right to reasonably withhold any such information records or documents during such dispute period. EDS shall not be obligated to pay or reimburse Chordiant for additions to taxes, penalties, interest, fees, or other expenses or costs, if any, incurred by EDS as a result of, or attributable to, (i) Chordiant's failure to verify taxability of a purchase, (ii) Chordiant's failure to correctly calculate or remit taxes in a timely manner, or (iii) Chordiant's 24 negligence, misconduct or failure to file properly any required returns or reports, or other required documents. (c) Upon written notification by EDS and subsequent verification by Chordiant, Chordiant shall reimburse or credit, as applicable, EDS in a timely manner, for any and all taxes erroneously paid by EDS. (d) EDS shall provide Chordiant with, and Chordiant shall accept in good faith, resale, direct pay, or other exemption certificates, as applicable. Chordiant agrees to separately identify on the invoice the taxable and non-taxable purchases, the types of tax and the taxing authorities. (e) Where Products are destined or Services are performed internationally, then at EDS' direction, payment may be made by EDS or its affiliate (i) in country to the local affiliate, (ii) in the United States, or (iii) in a country mutually agreed upon by the parties. (f) If EDS or an affiliate of EDS is required by law to make any deduction or to withhold from any sum payable hereunder, then the sum payable by EDS or such affiliate of EDS upon which the deduction is based shall be paid to Chordiant net of such deduction or withholding. EDS or such affiliate of EDS shall pay the applicable tax authorities any such required deduction or withholding. ARTICLE VII. TERMINATION ------------------------- 7.1 Termination for Cause. Except as provided below by the Section of this --------------------- Agreement titled "Termination for Non-Payment," in the event that either party materially or repeatedly defaults in the performance of any of its duties or obligations set forth in this Agreement, and such default is not substantially cured within thirty (30) days after written notice is given to the defaulting party specifying the default, then the party not in default may, by giving written notice thereof to the defaulting party, terminate the applicable License or Purchase Order relating to such default as of a date specified in such notice of termination. Chordiant shall also have the right to reject any unfilled or future Purchase Orders from the business unit responsible for such default. 7.2 Termination for Insolvency or Bankruptcy. Either party may terminate this ---------------------------------------- Agreement and any Purchase Order by giving written notice to the other party in the event any of the following occur and are not resolved in such party's favor within forty five (45) days of such occurrence date: (i) the liquidation or insolvency of the other party, (ii) the appointment of a receiver or similar officer for the other party, (iii) an assignment by the other party for the benefit of all or substantially all of its creditors, (iv) entry by the other party into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, or (v) the filing of a meritorious petition in bankruptcy by or against the other party under any bankruptcy or debtors' law for its relief or reorganization. 7.3 Termination for Non-Payment. Chordiant may terminate a Purchase Order, or --------------------------- any portion thereof, or any License granted in connection with such Purchase Order, if EDS fails to pay when due any undisputed amounts due pursuant to such Purchase Order and such failure continues for a period of sixty (60) days after the last day payment is due, so long as Chordiant 25 gives EDS written notice of the expiration date of the aforementioned sixty (60) day period at least thirty (30) days prior to the expiration date. 7.4 Termination of Software License. EDS may terminate any License for any ------------------------------- reason by providing written notice to Chordiant. If EDS elects to so terminate a License, or if a License is terminated pursuant to 7.1 or 7.3 above, EDS shall return to Chordiant or, at EDS' option, destroy, all copies of the Licensed Software and Documentation in EDS' possession which are the subject of the terminated License, and an authorized representative of EDS shall certify such return or destruction. In the event EDS terminates a License, Chordiant shall credit to EDS a prorated amount of any prepaid charges for support Services for the Licensed Software. 7.5 Rights Upon Termination. Unless specifically terminated as set forth ----------------------- in this Article, all Licenses (and EDS' right to use the Licensed Software in accordance with such Licenses) and Purchase Orders which require performance or extend beyond the term of this Agreement shall, at EDS' option, be so performed and extended and shall continue to be subject to the terms and conditions of this Agreement. ARTICLE VIII. MISCELLANEOUS ---------------------------- 8.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall ---------------------------------------------- be binding on the parties and their respective successors in interest and assigns. Either party shall have the right to assign this Agreement to its parent corporation, if applicable; or to any entity into (i) which the party may be merged or reorganized or (ii) which a controlling interest in the associated party's capital stock or assets may be sold or assigned provided, however, that such assignees assume in writing the liabilities, obligations and responsibilities of the associated party under this Agreement. If a party hereto assigns the Agreement as set forth above, such party shall notify the other in writing of the assignment. Except as provided herein, neither party have the power to assign this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. If either party subcontracts or delegates any of its duties or obligations of performance in this Agreement or in a Purchase Order to any third party, such party shall remain fully responsible for complete performance of all of its obligations set forth in this Agreement or in such Purchase Order and for any such third party's compliance with the non-disclosure and confidentiality provisions set forth in this Agreement. 8.2 Counterparts. This Agreement may be executed in several counterparts, ------------ all of which taken together shall constitute one single agreement between the parties. 8.3 Headings. The Article and Section headings used in this Agreement are -------- for reference and convenience only and shall not enter into the interpretation hereof. 8.4 Authorized Agency. From time to time and at any time, EDS may assume ----------------- operational responsibility for computer software programs acquired directly or indirectly from Chordiant by third parties which become customers or Affiliates, or which are acquired by EDS, after the Effective Date. (a) With respect to such customers, and immediately upon execution of a contract between EDS and a customer, the computer software programs acquired from Chordiant by such customer shall be governed by the terms and conditions of this Agreement and EDS may use such computer software programs in accordance with this Agreement at no additional 26 charge to EDS or its customer, provided, however, that such computer software programs may only be used by EDS on behalf of that customer. With respect to each such customer, Chordiant, EDS and the customer shall execute an access agreement authorizing EDS' use of the computer software programs. Such access agreement shall be in a form substantially similar to the Third Party System Access Agreement attached to this Agreement as Exhibit C. (b) With respect to any such affiliate, and upon Chordiant's receipt of written notice from EDS and such affiliate, the license or other agreement governing the use and support of such computer software programs shall automatically be deemed to have been assigned to EDS, provided, however, that such assigned license or other agreement shall be superseded by, and the use and support of the computer software programs shall be governed by, the terms and conditions of this Agreement. (c) With respect to any third party with which EDS either (i) buys, leases, or otherwise acquires all or a substantial part of the assets or business of such third party, or (ii) consolidates with or merges with said third party, the license or other agreement governing the use and support of such computer software programs shall automatically be deemed to have been assigned to EDS. At that time, EDS may supersede such assigned license or other agreement with the terms and conditions of this Agreement, in which case the use and support of such computer software programs shall be governed by the terms and conditions of this Agreement, or EDS may elect to have the assigned license or other agreement continue to govern the use of such computer software programs. 8.5 Relationship of Parties. Both parties are performing pursuant to this ----------------------- Agreement only as an independent contractors. Both parties have the sole obligation to supervise, manage, contract, direct, procure, perform or cause to be performed its obligations set forth in this Agreement, except as otherwise agreed upon by the parties. Nothing set forth in this Agreement shall be construed to create the relationship of principal and agent between Chordiant and EDS. Chordiant shall not act or attempt to act or represent itself, directly or by implication, as an agent of EDS or its Affiliates or in any manner assume or create, or attempt to assume or create, any obligation on behalf of, or in the name of, EDS or its Affiliates. 8.6 Confidentiality. Each party acknowledges that in the course of --------------- performance of its obligations pursuant to this Agreement, it may obtain confidential and/or proprietary information of the other party or its affiliates or customers. "Confidential Information" includes: information relating to development plans, costs, finances, marketing plans, equipment configurations, data, access or security codes or procedures utilized or acquired, business opportunities, names of customers, research, and development; the terms, conditions and existence of this Agreement; any information designated as confidential in writing or identified as confidential at the time of disclosure if such disclosure is verbal or visual; and any copies of the prior categories or excerpts included in other materials created by the recipient party. Each party agrees that, for a period of two (2) years following its receipt of Confidential Information from the other party or the other party's affiliates or customers, whether before or after the Effective Date, such recipient party shall use the same means it uses to protect its own confidential and proprietary information, but in any event not less than reasonable means to prevent the disclosure and to protect the confidentiality of the Confidential Information. Further, the recipient party shall only use the Confidential Information for purposes of this Agreement, and shall not disclose the Confidential Information without the prior written consent of the other party. This provision shall not apply to Confidential Information which is (i) already known by the recipient party without an 27 obligation of confidentiality, (ii) publicly known or becomes publicly known through no unauthorized act of the recipient party, (iii) rightfully received from a third party (other than an affiliate or customer of the party owning the Confidential Information) without an obligation of confidentiality, (iv) disclosed without similar restrictions by the owner of the Confidential Information to a third party (other than an affiliate or customer of the party owning the Confidential Information), (v) approved by the party owning the Confidential Information, in writing, for disclosure, or (vi) required to be disclosed pursuant to a requirement of a governmental agency or law so long as the recipient party provides the other party with timely prior written notice of such requirement. 8.7 Media Releases. Except for any announcement intended solely for -------------- internal distribution by Chordiant or any disclosure required by legal, accounting, or regulatory requirements beyond the reasonable control of Chordiant, all media releases, public announcements, or public disclosures (including, but not limited to, promotional or marketing material) by Chordiant or its employees or agents relating to this Agreement or its subject matter, or including the name, trade name, trade mark, or symbol of EDS or any affiliate of EDS, shall be coordinated with and approved in writing by EDS prior to the release thereof. Chordiant shall not represent directly or indirectly that any Licensed Software or Service provided by Chordiant to EDS has been approved or endorsed by EDS or include the name, trade name, trade mark, or symbol of EDS or any affiliate of EDS on a list of Chordiant's customers without EDS' express written consent. 8.8 Dispute Resolution. In the event of any disagreement regarding ------------------ performance under or interpretation of this Agreement and prior to the commencement of any formal proceedings, the parties shall continue performance as set forth in this Agreement and shall attempt in good faith to reach a negotiated resolution by designating a representative of appropriate authority to resolve the dispute. 8.9 Electronic Communications. If Chordiant and EDS mutually agree, business ------------------------- communications between the parties, including, but not limited to, purchase orders, invoices, and payment may be submitted electronically. In such case, the parties shall mutually agree in writing upon supplemental terms and conditions, including technical standards, for the electronic exchange of such items. 8.10 Proposals and Special Projects. EDS may request a written proposal, quote, ------------------------------ or bid from Chordiant for the provision of Licensed Software and/or Services for a specific EDS project which may be governed by separately negotiated terms and conditions. In such event, any Licensed Software and Services obtained for such project shall be deemed for purposes of calculating accumulated purchases and any discounts set forth in this Agreement, to have been obtained pursuant to this Agreement. 8.11 Governmental Customers. This Agreement shall apply to the acquisition ---------------------- of Licensed Software or Services for use in or in support of the performance of, or resale under, a contract with a state, county, or local governmental entity (a "Governmental Customer"). Chordiant and EDS may negotiate in good faith a supplemental agreement incorporating required flow-down provisions or other provisions relating to, applicable to, or required by such Governmental Customer or the proposed contract between EDS and such Governmental Customer. All Licensed Software and Services obtained pursuant to this Section shall be deemed for purposes of calculating accumulated purchases and any discounts set forth in this Agreement, to have been obtained pursuant to this Agreement, including purchases made by EDS in support of the United States 28 Federal Government under a separate contract with Chordiant. EDS shall not provide Product to the United States Federal Government or any agency thereof under this Agreement. 8.12 International Business. This Agreement shall apply to the acquisition ---------------------- of Licensed Software and Services for use in or in support of the performance or remarketing of Licensed Software and Services in countries outside the United States and its territories. Chordiant and EDS and/or their respective agents, distributors, or Affiliates authorized to conduct business in such countries may negotiate in good faith supplemental agreements incorporating further terms and conditions required by local law. All Licensed Software and Services obtained pursuant to this Section shall be deemed for purposes of calculating accumulated purchases and any discounts set forth in this Agreement, to have been obtained pursuant to this Agreement. 8.13 Compliance with Laws. In the performance of Services or the provision -------------------- of Licensed Software pursuant to this Agreement, Both parties shall comply with the requirements of all applicable laws, ordinances, and regulations of the United States or any state, country, or other governmental entity. In particular, the parties agree, as applicable, to comply with the United States Export Administration Act, Executive Order No. 11246, as amended by Executive Order No. 11375, the Vietnam Era Veterans Readjustment Assistance Act of 1974, the Rehabilitation Act of 1973, the Immigration Reform and Control Act of 1986, the Foreign Corrupt Practices Act, and the Americans With Disabilities Act. This Section incorporates by reference all provisions required by such laws, orders, rules, regulations, and ordinances. 8.14 Labor. Chordiant shall comply with any labor jurisdictions applicable ----- to Chordiant's performance pursuant to this Agreement and shall cooperate with EDS in resolving any disputes resulting from any jurisdictional or labor claims or stoppages. Upon request by Chordiant, EDS shall provide to Chordiant clarification and guidelines regarding relationships with labor and Chordiant's responsibilities with respect thereto. 8.15 Export. Neither party shall export any Licensed Software or information ------ protected hereunder by an obligation of confidentiality from the United States, either directly or indirectly, without first obtaining a license or clearance as required from the U.S. Department of Commerce or other agency or department of the United States Government. 8.16 Notices. Wherever one party is required or permitted to give notice to ------- the other pursuant to this Agreement, such notice shall be deemed given when delivered in hand, when mailed by registered or certified mail, return receipt requested, postage prepaid, or when sent by a third party courier service where receipt is verified by the receiving party's acknowledgment, and addressed as follows: In the case of EDS: Electronic Data Systems Corporation 5400 Legacy Drive Plano, Texas 75024 Attn: Manager, Contracts Administration In the case of Chordiant: CHORDIANT SOFTWARE, INC. 1810 Embarcadero Rd. 29 Palo Alto, CA 94303-3308 Attn: Contracts Administrator Either party may from time to time change its address for notification purposes by giving the other party written notice of the new address and the date upon which it will become effective; first class, postage prepaid, mail shall be acceptable for provision of change of address notices. 8.17 Force Majeure. The term "Force Majeure" shall be defined to include ------------- fires or other casualties or accidents, acts of God, severe weather conditions, strikes or labor disputes, war or other violence, or any law, order, proclamation, regulation, ordinance, demand, or requirement of any governmental agency. (a) A party whose performance is prevented, restricted, or interfered with by reason of a Force Majeure condition shall be excused from such performance to the extent of such Force Majeure condition so long as such party provides the other party with prompt written notice describing the Force Majeure condition and takes all reasonable steps to avoid or remove such causes of nonperformance and immediately continues performance whenever and to the extent such causes are removed. (b) If, due to a Force Majeure condition, the scheduled time of delivery or performance is or will be delayed for more than thirty (30) days after the scheduled date, the party not relying upon the Force Majeure condition may terminate, without liability to the other party, the Purchase Order or any portion thereof covering the delayed Products or Services. (c) If a Force Majeure condition or other delay by Chordiant causes EDS to terminate its business relationship with a third party for whom delayed Products were ordered and EDS has no alternative use for the Products after using reasonable efforts to relocate or otherwise utilize the Products, then EDS may terminate the applicable Purchase Order and Chordiant shall refund to EDS all amounts paid thereunder. 8.18 Severability. If, but only to the extent that, any provision of this ------------ Agreement is declared or found to be illegal, unenforceable, or void, then both parties shall be relieved of all obligations arising under such provision, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent. If that is not possible, another provision that is legal and enforceable and achieves the same objective shall be substituted. If the remainder of this Agreement is not affected by such declaration or finding and is capable of substantial performance, then the remainder shall be enforced to the extent permitted by law. 8.19 Waiver. Any waiver of this Agreement or of any covenant, condition, or ------ agreement to be performed by a party under this Agreement shall (i) only be valid if the waiver is in writing and signed by an authorized representative of the party against which such waiver is sought to be enforced, and (ii) apply only to the specific covenant, condition or agreement to be performed, the specific instance or specific breach thereof and not to any other instance or breach thereof or subsequent instance or breach. 8.20 Remedies. Except with respect to remedies that have been identified as -------- sole and exclusive remedies, all remedies set forth in this Agreement, or available by law or equity shall be cumulative and not alternative, and may be enforced concurrently or from time to time. 30 8.21 Survival of Terms. Termination or expiration of this Agreement for any ----------------- reason shall not release either party from any liabilities or obligations set forth in this Agreement which (i) the parties have expressly agreed shall survive any such termination or expiration, or (ii) remain to be performed or by their nature would be intended to be applicable following any such termination or expiration. 8.22 Nonexclusive Market and Purchase Rights. It is expressly understood and --------------------------------------- agreed that this Agreement does not grant to Chordiant an exclusive right to provide to EDS any or all of the Licensed Software and Services and shall not prevent EDS from developing or acquiring from other suppliers computer software programs or services similar to the Licensed Software and Services. Chordiant agrees that acquisitions by EDS pursuant to this Agreement shall neither restrict the right of EDS to cease acquiring nor require EDS to continue any level of such acquisitions. Estimates or forecasts furnished by EDS to Chordiant prior to or during the term of this Agreement shall not constitute commitments. 8.23 GOVERNING LAW. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS ------------- AGREEMENT SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980 UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS. RATHER THESE RIGHTS AND OBLIGATIONS SHALL BE GOVERNED BY THE LAWS, OTHER THAN CHOICE OF LAW RULES, OF THE STATE OF TEXAS. 8.24 Entire Agreement. This Agreement constitutes the entire and exclusive ---------------- statement of the agreement between the parties with respect to its subject matter and there are no oral or written representations, understandings or agreements relating to this Agreement which are not fully expressed in the Agreement. This Agreement shall not be amended except by a written agreement signed by both parties. All exhibits, documents, and schedules referenced in this Agreement or attached to this Agreement, and each Purchase Order are an integral part of this Agreement. In the event of any conflict between the terms and conditions of this Agreement and any such exhibits, documents, or schedules, the terms of this Agreement shall be controlling unless otherwise stated or agreed. In the event of a conflict between the terms and conditions of this Agreement and a Purchase Order issued in accordance with Article II, the Purchase Order shall be controlling with respect to those transactions covered by that Purchase Order. Any other terms or conditions included in any shrink-wrap license agreements, quotes, invoices, acknowledgments, bills of lading, or other forms utilized or exchanged by the parties shall not be incorporated in this Agreement or be binding upon the parties unless the parties expressly agree in writing or unless otherwise provided for in this Agreement. IN WITNESS WHEREOF, Chordiant and EDS acknowledge that each of the provisions of this Agreement were expressly agreed to and have each caused this Agreement to be signed and delivered by its duly authorized officer or representative as of the Effective Date. ELECTRONIC DATA SYSTEMS CORPORATION CHORDIANT SOFTWARE, INC. By: /s/ Joe B. Dorfmeister By: /s/ Steven R. Springsteel Printed Name: Joe B. Dorfmeister Printed Name: Steven R. Springsteel Title: Contract Manager Title: EVP/CFO Date: 7/23/98 Date: July 24, 1998 Fed. Tax ID #: 93-1051328 31 EXHIBIT A EDS BUSINESS PRACTICES ---------------------- EDS' suppliers have played a key role in our continuous growth and success. We sincerely appreciate your support. In order to avoid any conflict of interest between our suppliers and EDS employees and to keep business relationships on a professional basis, EDS has established and briefed its employees on the following business practices. Please review these business practices carefully and give a copy of this Exhibit to any of your associates who have a need to know. 1. EDS expects its suppliers to provide a quality product or service for which they will be fairly paid. 2. In selecting suppliers, EDS will test the market to assure quality of service and fairness of price. 3. No EDS employee is to ask for anything of value from a supplier. Gifts from a supplier such as tickets to athletic events, concerts or the theater, personal travel, or any type of personal item are discouraged by our business practices. 4. If any EDS employee is offered or accepts an item of value from a supplier, the employee is to report it to the appropriate EDS management. 5. If any EDS employee engages in any type of unethical behavior such as requesting anything of value from a supplier, the supplier is requested to report the incident to the Director of Purchasing or the General Counsel of EDS. 6. Occasional meals during visits to a supplier's facilities or a customer's location during which a supplier incurs normal and reasonable marketing expenses are acceptable. The EDS employee is required to report such meal expenses to their management. EDS appreciates your cooperation in complying with these business practices. A-1 EXHIBIT B CHARGES, PRICES, AND FEES ------------------------- LICENSED SOFTWARE and Services: - ------------------------------ EDS shall be entitled to a forty percent (40%) discount off Chordiant's then current list price on all products for a period of one year from the Effective Date, except that such discount will not apply to licenses for Chordiant CCS Development Systems for Systems Integrators. The parties shall negotiate in good faith, EDS' discount commencing on the one (1) year anniversary of the Effective and thereafter, but in no event shall such negotiated discount be less than thirty percent (30%). During the period after the one (1) year anniversary but prior to such negotiated discount being agreed upon, EDS shall be entitled to purchase Products at a thirty five percent (35%) discount. The Services discount shall be twenty percent (20%) off Chordiant's then current list price; except EDS shall be entitled to a twenty five percent (25%) discount on educational Services. Chordiant's Product offering and North American list price for such Products, and Services price list, as of the Effective Date is attached. If Products are being purchased for international use, a fifteen percent (15%) uplift must be added to the discounted price. Notes: 1. An initial purchase to support an EDS customer must include one of the following two Product sets at a minimum: 1) Chordiant CCS Foundation with Chordiant CCS ChorApps, or 2) Chordiant CCS Development System for system integrators with Chordiant CCS Reference Applications. Additional purchases of such Products can be made individually. The two Product sets do not have to be installed at the same Site, for example, Chordiant CCS Foundation with Chordiant CCS ChorApps could be installed at Site A and Chordiant CCS Development System for system integrators with Chordiant CCS Reference Applications at Site B. 2. The Chordiant CCS Foundation License includes one copy of the Client Platform, Server Platform, Telephony Platform, Database Platform, and Electronic Gateways. If additional copies are required they may be purchased as per this Exhibit B. 3. The Chordiant CCS Development System for system integrators License includes one copy of the CCS support client, server, telephony, and database objects and one electronic services facility. The Forte Development System and tools are not included with the CCS Development System, they must be purchased from Forte. Notwithstanding any other provision of this Agreement to the contrary, a license for the Chordiant CCS Development System for Systems Integrators is for the exclusive use of EDS, for the sole purpose of performing development work. Any such development work to be provided to an EDS client who has not previously licensed Chordiant CCS shall be provided within a period not to exceed ninety (90) days without the prior written consent of Chordiant Software. 4. The training fees apply to CCS training conducted at Chordiant CCS University in Palo Alto, California. Students must pay their own travel and related expenses. Training at any other location will be upon terms mutually agreed to and signed by the parties. B-1 5. If requested by EDS, Chordiant shall provide to EDS one Chordiant CCS ------------------- Center of Excellence Demonstration System license at no charge except for an annual maintenance and support fee of $25,000 per Center of Excellence. With Chordiant's consent, additional Chordiant CCS Center of Excellence Demonstration System licenses will be provided to EDS at no charge except for an annual maintenance and support fee of $25,000 per Center of Excellence. Notwithstanding any other provision of this Agreement to the contrary, a license for a Chordiant CCS Center of Excellence Demonstration System is for the exclusive use of EDS, for the sole purpose of demonstrating Chordiant CCS. B-2 Chordiant CCS - Release 1.3 Price List
- ------------------------------------------------------------------------------------------------------ End-User License License Fees ------------------------- Product Description Required Optional - ------------------------------------------------------------------------------------------------------ Chordiant CCS Foundation/(Note 1)/ $ 750,000 . Chordiant CCS ChorServices (System Services) . Chordiant CCS ChorObjects (Business Services) Distributed Service Centers Deployment Option/(Note 2)/ --------------------------------------------- . First Additional Center $375,000 . Second & Subsequent Additional Centers $187,500 Additional Components --------------------- . Client Platform $ 25,000 . Server Platform $ 25,000 . Telephony Platform $ 50,000 . Database Platform $ 25,000 . Electronic Gateways $ 50,000 - ------------------------------------------------------------------------------------------------------ Chordiant CCS ChorApps (Applications) $ 600,000 - ------------------------------------------------------------------------------------------------------ Chordiant CCS Runtime Client Licenses 1 - 50 $ 950 51 - 100 $ 850 101 - 200 $ 750 201 - 500 $ 650 501 + Negotiated - ------------------------------------------------------------------------------------------------------
The Chordiant CCS Foundation allows for B-3 Chordiant CCS - Release 1.3 Price List
- --------------------------------------------------------------------------------------------------------------------- Global System Integrator License (GSI) License Fees --------------------------------------- Product Description Required Optional - --------------------------------------------------------------------------------------------------------------------- Chordiant CCS Development System for GSI Centers (Note 6) $400,000 . Chordiant CCS ChorServices (System Services) . Chordiant CCS ChorObjects (Business Services) . Chordiant CCS Developer Training Includes one developer training class for 10 developers GSI Distributed Service Centers Deployment Option (Note 7) ------------------------------------------------- . First Additional GSI Center . Second & Subsequent Additional GSI Centers $300,000 Includes one developer training class for each center $150,000 Additional Components ---------------------- . Client Platform . Server Platform . Telephony Platform $ 25,000 . Database Platform $ 25,000 . Electronic Gateways $ 50,000 $ 25,000 $ 50,000 - --------------------------------------------------------------------------------------------------------------------- Chordiant CCS Reference Applications $100,000 - --------------------------------------------------------------------------------------------------------------------- Chordiant CCS Development System Client Licenses 1 - 50 (per client license fee) 51 - 100 $ 2000 101 - 200 $ 1500 201 - 500 $ 1250 $ 1000 - ---------------------------------------------------------------------------------------------------------------------
B-4 Chordiant CCS - Release 1.3 Price List
- ----------------------------------------------------------------------------------------------------------------- Description of Services Service Fees - ----------------------------------------------------------------------------------------------------------------- Chordiant CCS Annual Maintenance and Support . End-User Support for Chordiant CCS Standard 20% of Chordiant CCS Product (12 Months) Product License Fee . Developer Support for Chordiant CCS Development $14,000. Per Client License System Support - 12 Months . Developer Support for Chordiant CCS Development $ 8,500. Per Client License System Support - 6 Months - ----------------------------------------------------------------------------------------------------------------- Chordiant Consulting Services . Engineer $1,640 per day . Project Manager $2,360 per day . Technical Architect $2,360 per day . Business Analyst $2,360 per day . Chief Technologist $2,800 per day - ----------------------------------------------------------------------------------------------------------------- Chordiant CCS Services . Systems Integration Quote . Installation and Deployment Quote . Expert Consulting Quote - ----------------------------------------------------------------------------------------------------------------- Chordiant CCS University (Note 8) . CCS Developer Enablement Training $ 500 Per Day, Per Student . CCS User Training $ 325 Per Day, Per Student - ----------------------------------------------------------------------------------------------------------------- Chordiant CCS Documentation . Additional Documentation Sets $ 1,000 Each - -----------------------------------------------------------------------------------------------------------------
B-5 EXHIBIT C THIRD PARTY SYSTEM ACCESS AGREEMENT ----------------------------------- AMONG {CUSTOMER}, CHORDIANT SOFTWARE, INC. AND ELECTRONIC DATA SYSTEMS CORPORATION THIS Third Party System Access Agreement (the "Access Agreement") effective as of {Effective Date}, is by and among {CUSTOMER LEGAL NAME} ("Customer"), CHORDIANT SOFTWARE, INC. ("Chordiant") and ELECTRONIC DATA SYSTEMS CORPORATION ("EDS"). W I T N E S S E T H: WHEREAS, Chordiant owns certain software products (hereinafter referred to as "Software") more specifically described in the {Chordiant/Customer Agreement Name}, dated {Chordiant/Customer Agreement Date}, between Customer and Chordiant (the "License Agreement"); and WHEREAS, Chordiant and EDS have entered into a {EDS/Chordiant Agreement Name}, dated {EDS/Chordiant Agreement Date}, pursuant to which EDS may obtain certain software products and services from Chordiant (the "Master Agreement"); WHEREAS, Customer and EDS have entered into an information technology services agreement (the "ITS Agreement") pursuant to which EDS will provide data processing and other services ("Services") requiring that EDS have access to the Software; and WHEREAS, the parties desire that EDS undertake appropriate contractual commitments to assure that the Software will be used only in accordance with and subject to the terms and conditions of the Master Agreement and this Access Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Customer, Chordiant and EDS hereby agree as follows: 1. Chordiant hereby grants EDS the right to use, execute, store and display (collectively "Access") the Software set forth in Attachment 1 to this Access Agreement for the purpose of performing its obligations pursuant to the ITS Agreement. The parties agree that EDS' Access of such Software, and Chordiant's support and maintenance obligations with respect to the Software, shall be governed by the terms and conditions of the Master Agreement; provided, however, EDS may Access the Software for the sole and exclusive purpose of providing Services on behalf of Customer. C-1 2. Customer shall be entitled to all protections under the Master Agreement, including, but not limited to, proprietary rights indemnification as defined in the Master Agreement. 3. The parties agree that EDS shall be Customer's agent for payment of any fees due to Chordiant under the Master Agreement from the date of this Access Agreement until Chordiant is notified otherwise. In the event of a conflict between this Access Agreement and the License Agreement, this Access Agreement will prevail. 4. This Access Agreement shall commence as of the date first set forth above and shall continue in effect until the earlier of (i) the termination of the ITS Agreement, (ii) Chordiant's receipt of written notice from EDS that EDS' need to Access the Software has ceased, or (iii) the termination of the License Agreement. Upon termination of this Access Agreement, EDS shall discontinue all use of the Software and; provided that the License Agreement has not terminated, Customer's continued use of and Chordiant's support and maintenance obligations with respect to the Software shall be governed by the terms and conditions of the License Agreement. At such time, EDS shall have no further liability or responsibility with respect to such Software. IN WITNESS WHEREOF, the parties have caused this Access Agreement to be executed as of the dates indicated. CHORDIANT SOFTWARE, INC. {CUSTOMER} By:____________________________ By:_________________________________ Printed Name:________________ Printed Name:________________________ Title:_______________________ Title:_______________________________ Date:__________________________ Date:_______________________________ ELECTRONIC DATA SYSTEMS CORPORATION By:____________________________ Printed Name:________________ Title:_______________________ Date:__________________________ C-2 ATTACHMENT 1 SOFTWARE This Attachment 1 shall automatically be deemed to include any and all software products obtained by Customer from Chordiant after the effective date of the ITS Agreement. C-3 EXHIBIT D EDUCATION SERVICES ------------------ 1. Certain Definitions. The following definitions apply to this Exhibit: ------------------- (a) "EDS Students" means employees of EDS and employees of EDS' customers or suppliers who receive Education Services and participate as students. (b) "Education Services" includes, but is not limited to, student and instructor training, and time and material services provided or to be provided by Chordiant pursuant to the Agreement and this Exhibit. (c) "Location" means the place where Education Services are performed or are to be performed and/or where Documentation for Education Services is to be delivered. 2. Supplemental Chordiant Obligations. Chordiant will provide to EDS the ---------------------------------- Education Services specified in each Purchase Order in accordance with the terms and conditions set forth in this Agreement and this Exhibit and will: (a) Designate an individual who will be EDS' contact person at Chordiant during the term of this Agreement and who shall have the authority and power to make management decisions relating to Education Services on behalf of Chordiant. Such individual shall provide, at the request of EDS and within a reasonable period of time, any requested management decisions. Chordiant may change the contact person upon notice to EDS. (b) Provide sufficient class documentation for each EDS Student at no charge to EDS. EDS Students may retain all such class documentation after completion of the Educational Services to which such Documentation applies. (c) Provide necessary education aids, such as references, films, overheads, or other similar instructional aids for use with Education Services. (d) If Education Services are to occur at an EDS Location, request in writing in advance, any education or audiovisual materials or equipment which should be present at the EDS Location for use in teaching. Such materials or equipment may include, but shall not be limited to, overhead projectors, film projectors, flip charts, boards and markers, personal computers for EDS Students' use, etc. ("Training Aids"). (e) For Education Services which occur at an EDS Location, allow for the substitution or cancellation of EDS Students at no additional charge. (f) Provide to EDS, within thirty (30) days of the end of each calendar quarter, a written report for the previous quarter indicating the Location, the dates, the aggregated Charges paid by EDS, and the number of EDS Students in attendance for all Education Services provided by Chordiant during the previous quarter. (g) Provide sufficient Employees for each Education Service offering to maintain a maximum student-to-instructor ratio of twelve (12) students to one (1) instructor, unless otherwise agreed. In the provision of "train-the-trainer" Services, Chordiant will D-1 provide sufficient Employees to maintain a maximum student-to-instructor ratio of six (6) students to one (1) instructor. 3. Supplemental EDS Obligations. EDS will, at its own cost and expense, ---------------------------- provide classroom facilities and reasonable and necessary Training Aids, based on availability and discretion, for classes at an EDS Location. 4. Open and Closed Education Services. A Purchase Order shall indicate if a ---------------------------------- course is "open," which means that EDS Students and other commercial students may attend the course, or "closed," which means the course is only available to EDS Students. Public classes at Chordiant's Location shall always be considered open. 5. Charges. Where EDS is paying for Education Services on a flat fee per ------- class basis, EDS shall not be required to pay any additional sums in the event of student substitution or the student fails to attend the class without notice. Where EDS is paying for the Education Services on a flat fee per student basis, EDS may cancel a Student at no charge to EDS by providing Chordiant more than seven (7) days advance notice of such cancellation. EDS shall pay fifty percent (50%) of the student's class fees if cancellation occurs within seven (7) days of the class date. D-2 EXHIBIT E DEVELOPMENT SERVICES -------------------- 1. Developed Software. "Developed Software" means computer software programs, ------------------ including Development Documents (as later defined in this Agreement), developed or to be developed by Chordiant and/or Employees pursuant to this Agreement. The parties agree that the definition of Work Product(s) shall be modified to include Developed Software. 2. Provision of Development Services. Chordiant shall perform development --------------------------------- Services to the extent agreed upon by the parties for a particular EDS project (the "Project"). With respect to each Project, the parties shall agree in writing upon supplemental terms and conditions applicable to the performance of the Project including, for example and without limitation, (i) a price and milestone payment schedule, (ii) a Project performance schedule, including the appropriate work steps and phases, (iii) Applicable Specifications, (iv) functional and detailed design specifications, and (v) a schedule of those items or tasks to be performed by Chordiant which must be approved by EDS or performed to the satisfaction of EDS ("Deliverables"). The terms and conditions established for a Project shall be incorporated in this Agreement, and may be amended upon the mutual written agreement of the Project Managers (as later defined in this Agreement). The Section of this Agreement titled "Time and Materials Services" shall also apply to the Project if the development Services are performed on a time and materials basis. 3. Project Management. For each Project, Chordiant and EDS shall each ------------------ designate a project manager (the "Project Managers") who shall have the responsibilities set forth in this Exhibit and as otherwise agreed upon by the parties. Each Project Manager shall be responsible for providing timely management decisions as required or requested relating to the Project. From time to time at the request of the EDS Project Manager, the Chordiant Project Manager shall provide to the EDS Project Manager a written report of the status of the Project. 4. Approval of Deliverables. The supplemental Project terms and conditions ------------------------ shall establish time frames for the acceptance process of Deliverables; any reference to dates or time periods in this Section shall mean the dates mutually agreed upon by the parties in, or determined in accordance with, such terms and conditions. The Chordiant Project Manager shall submit each Deliverable to the EDS Project Manager on or before the specified delivery date. Within the established time frame, EDS shall approve or disapprove the Deliverable by providing written notice to Chordiant. EDS shall describe in any disapproval the ways in which the Deliverable fails to conform to the established requirements and/or the Applicable Specifications for the Project or portion thereof; EDS may also suggest corrections or improvements which may cause the Deliverable to meet such standard. Chordiant shall resubmit the Deliverable to EDS for approval as provided in this Section, within the established cure period. EDS may extend the period of time for resubmission of the Deliverable if Chordiant submits a written request outlining the specific reasons why Chordiant cannot comply with the requirements together with Chordiant's proposed alternative schedule for resubmission of the Deliverable. Chordiant may submit draft versions of a Deliverable prior to the required date for the informal comment of the EDS Project Manager. EDS' approval of a Deliverable only indicates that EDS has reviewed the Deliverable and detected no errors or omissions sufficient enough to warrant the withholding or denial of payment, if any, for such Deliverable. EDS' approval of a Deliverable does not discharge Chordiant's obligation to provide a completed Developed Software that as a whole conforms to the Applicable Specifications. 5. Acceptance Testing Procedures. In connection with each Project, the ----------------------------- parties shall mutually agree upon appropriate acceptance testing criteria and procedures for the Developed Software. The applicable acceptance testing criteria and procedures must be successfully satisfied and performed prior to EDS' acceptance of the Developed Software. If any defects or deficiencies are discovered during acceptance testing, EDS shall so notify Chordiant, and Chordiant shall have thirty (30) days from receipt of such notice to correct the deficiencies. If necessary, Chordiant and EDS may mutually agree upon an additional time period in order to continue acceptance testing of the corrected Developed Software. For purposes of an item of Developed Software, the term "Acceptance Date" shall mean the date when the Developed Software successfully satisfies the applicable acceptance testing criteria. Acceptance of an item of Developed Software does not waive any warranty rights provided in this Agreement for Developed Software. 6. Change Orders. By providing written notice to the Chordiant Project ------------- Manager, EDS may request Chordiant to perform additional work or changes within the general scope of the Project and Chordiant agrees to perform such work or changes. If a change causes an increase or decrease in the price or time required for performance as mutually determined by the Project Managers, a negotiated adjustment shall be made in the Project price and/or performance schedule. Changes outside the general scope of the Project shall be governed by the following Section. 7. Additional Work. By providing written notice to the Chordiant Project --------------- Manager, EDS may request Chordiant to perform additional Services outside the general scope of a Project. At its option, Chordiant may submit, at no charge to EDS, a written proposal for such Services including a price/cost proposal, expenses related to travel, lodging and meals, a delivery schedule, and any other information reasonably related to such request. Within a reasonable time period requested by Chordiant, EDS shall accept or reject such proposal. If Chordiant chooses not to provide a proposal in response to EDS' request, Chordiant shall promptly notify EDS. 8. Ownership of Developed Software. EDS shall have Ownership Rights in and to ------------------------------- all Developed Software, whether completed or partially completed, and all documents developed or exchanged during or in support of a Project, whether completed or partially completed (the "Development Documents") as set forth in the Section titled "Ownership of Intellectual Property Rights" elsewhere in this Agreement. To the extent that Existing Materials are required in order to use the Developed Software as contemplated in this Agreement, Chordiant shall grant to EDS, its subsidiaries and affiliates rights as set forth in the Section titled "Use of Existing Materials" elsewhere in this Agreement. 9. Remedies for Failure to Perform. If Chordiant defaults in the performance ------------------------------- of a Project EDS may, in its sole discretion, elect to (i) terminate the Project, return to Chordiant all Development Documents and receive a refund from Chordiant of all amounts paid to Chordiant with respect to the Project, (ii) enter into a joint development effort with Chordiant to complete the Project at no additional charge to EDS, (iii) extend the time for Chordiant performance at no additional charge to EDS, (iv) continue development itself or in connection with a third party, and/or (v) terminate the Project. The foregoing remedies do not constitute exclusive remedies. In the event EDS elects to continue development efforts itself, or to continue development efforts with the involvement of a third party, Chordiant shall provide to EDS all Chordiant proprietary or other information reasonably required to complete such development. EDS agrees that any third parties pursuing such development with EDS shall agree to comply with non-disclosure and confidentiality provisions to protect Chordiant's information. EDS may use the information as necessary in order to complete the Project. 10. Rights Upon Project Completion. Upon completion or termination of a ------------------------------ Project for any reason, Chordiant shall provide to EDS all copies of all Developed Software and Development Documents, whether completed or partially completed, (except if EDS elects (i) in the previous Section) and shall return to EDS any and all copies of all information provided by EDS to Chordiant in connection with the Project. EDS shall be entitled to obtain maintenance and support Services for Developed Software under the Sections governing support of Licensed Software. EXHIBIT F RESELLER ACCESS AUTHORIZATION ----------------------------- 1. Chordiant hereby grants EDS the right to use, execute, store and display (collectively "Access") the Licensed Software purchased for resale under Section 3.6 of this Agreement, for the purpose of performing its service obligations to the ITS Customer. 2. The ITS Customer shall be entitled to all protections under this Agreement, including, but not limited to, proprietary rights indemnification. 3. EDS shall Access the Licensed Software in accordance with the terms and restrictions of this Agreement. 4. Chordiant agrees that EDS shall be the ITS Customer's agent for payment of any fees due to Chordiant for the Licensed Software from the date the ITS Customer signs Chordiant End User License Agreement ("Resale Date"), until Chordiant is notified otherwise. 5. This Reseller Access Authorization shall commence as of the Resale Date and shall continue in effect until the earlier of (i) Chordiant's receipt of written notice from EDS that EDS' need to Access the Licensed Software has ceased, or (ii) the termination of the Chordiant End User License Agreement. Upon termination of Access, EDS shall discontinue all use of the Licensed Software. Provided that the End User License Agreement has not terminated, the ITS Customer's continued use of and Chordiant's support and maintenance obligations with respect to the Licensed Software shall be governed by the terms and conditions of the Chordiant End User License Agreement. At such time, EDS shall have no further liability or responsibility with respect to such Licensed Software. 6. During the period of EDS' Access, in the event of any conflict between this Agreement and the Chordiant End User License Agreement with the ITS Customer, this Agreement will prevail. EXHIBIT G THIRD PARTY LETTER AGREEMENT ---------------------------- This letter agreement (the "Agreement") dated ____ is by and between ______("Third Party Provider"), Electronic Data Systems Corporation and its Affiliates ("EDS"), and Chordiant Software, Inc. and its Affiliates ("Chordiant"). For purposes of this Agreement, "Affiliates" of a party shall mean any corporation or other legal entity owning, directly or indirectly, ten percent (10%) or more of the voting capital shares of such party; any corporation or other legal entity ten percent (10%) or more of the voting capital shares (or equivalent control) of which is owned, directly or indirectly, by such party, as applicable; or any corporation or other legal entity ten percent (10%) or more of the voting capital shares (or equivalent control) of which is owned, directly or indirectly, by a corporation or other legal entity owning, directly or indirectly, ten percent (10%) or more of the voting capital shares (or equivalent control) of such party. Chordiant and Third Party Provider have entered into an agreement dated ___ ("Chordiant Agreement") pursuant to which Chordiant has obtained the right to use and distribute (description or name of software to be provided) ("Third Party Software") to licensees of Chordiant's products, provided that Chordiant includes in all license agreements with such licensees certain terms and conditions regarding the use of such Third Party Software ("Pass Thru Terms"). EDS and Third Party Provider have entered into an agreement dated ____ (the "EDS Agreement"), pursuant to which EDS has obtained the rights to use the Third Party Software. Third Party Provider hereby authorizes Chordiant to distribute to EDS the Third Party Software for use with Chordiant's products without a license agreement containing the Pass Thru Terms, and agrees that Chordiant shall remain obligated to pay to Third Party Provider any amounts that may be due to Third Party Provider as a result of such distribution pursuant to the Chordiant Agreement. EDS and Third Party Provider agree that EDS' use of the Third Party Software shall be pursuant to the EDS Agreement. Third Party Provider hereby forever generally and completely releases and discharges Chordiant, its servants, agents, directors, officers and employees, and all others, of and from any and all claims and demands of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, and in particular of and from all claims and demands of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed, for damages actual and consequential, past, present and future, arising out of or in any way related to the Chordiant's distribution of the Third Party Software to EDS. This release, notwithstanding Section 1542 of the California Civil Code which provides that "a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which if known by him must have materially affected his settlement with the debtor," shall be a full and final release. The parties by their duly authorized representatives have executed this Agreement as of the date above. Chordiant Software, Inc. Electronic Data Systems Corporation By: _____________________________ By:_____________________________ Name:____________________________ Name: __________________________ Title: __________________________ Title:____________________________ [Third Party Provider] By: _____________________________ Name:____________________________ Title: __________________________ EXHIBIT H END USER SOFTWARE LICENSE AGREEMENT ----------------------------------- Chordiant will provide EDS with a copy of the End User Software License Agreement whenever it is revised by Chordiant. EDS will have thirty (30) days to begin using such revised new End User Software License Agreement from receipt. SOFTWARE LICENSE AND SERVICES AGREEMENT THIS SOFTWARE LICENSE AND SERVICES AGREEMENT ("Agreement") is between ______________________ having a place of business at_________________________ ("Customer") and CHORDIANT SOFTWARE, Inc., a Delaware corporation, having a place of business at 20400 Stevens Creek Blvd. Suite 400, Cupertino, CA 95014 ("Chordiant"). The terms of this Agreement shall apply to each Software license granted by Chordiant under this Agreement, which will be identified on a Purchase Order or Order Form. The Effective Date of this Agreement shall be ___________________________. 1. Definitions. (a) "Commencement Date" means the date on which Chordiant delivers the Software to Customer, or if no delivery is necessary, the Effective Date set forth on the relevant Purchase Order or Order Form. (b) "Designated Center" means the computer hardware, operating system, customer-specific application and Customer Geographic Location designated on the relevant Purchase Order or Order Form. (c) "Designated Contact" shall mean the contact person or group designated by Customer and agreed to by Chordiant who will coordinate all Support requests to Chordiant. (d) "Documentation" means the user guides and manuals for installation and use of the Software. Documentation is provided in CD-ROM or bound form, whichever is generally available. (e) "Error" shall mean a reproducible defect in the Supported Program or Documentation when operated on a Supported Environment which causes the Supported Program not to operate substantially in accordance with the Documentation. (f) "Resolution" shall mean a modification or workaround to the Supported Program and/or Documentation and/or other information provided by Chordiant to Customer intended to resolve an Error. (g) "Order Form" means the document in hard copy form by which Customer orders Software licenses and services, and which is agreed to by the parties. The Order Form shall reference the Effective Date and be governed by the terms of this Agreement. (h) "Purchase Order" means the document in hard copy or electronic form by which Customer orders additional Software licenses and services, and which is agreed to by the parties. The Purchase Order shall reference the Effective Date and be governed by the terms of this Agreement. (i) "Software" means the software in object or source code form distributed by Chordiant for which Customer is granted a license pursuant to this Agreement, and the media, Documentation and any Updates thereto. (j) "Support" shall mean ongoing support provided by Chordiant pursuant to the terms of this Agreement and Chordiant's current support policies. "Supported Program" or "Supported Software" shall mean the then current version of the Software in use at the Designated Center for which the Customer has paid the then-current support fee ("Support Fee"). (k) "Support Hours" shall mean twenty-four (24) hours a day, Monday through Friday, for Standard Support; twenty-four (24) hours a day, seven (7) days a week, for Premier Support. (l) "Support Period" shall mean the period during which Customer is entitled to receive Support on a particular Supported Program, which shall be a period of twelve (12) months beginning from the Commencement Date, or if applicable, twelve (12) months from the expiration of the preceding Support Period. (m) "Supported Environment" shall mean any hardware and operating system platform which Chordiant provides Support for use with the Supported Program. (n) "Update" means a subsequent release of the Software that Chordiant generally makes available for Supported Software licensees at no additional license fee other than shipping and handling charges. Update shall not include any release, option or future product that Chordiant licenses separately. Chordiant will provide Updates for the Supported Programs as and when developed for general release in Chordiant's sole discretion. Chordiant will support the most current Update and the immediately preceding release for a period of twelve (12) months. 1. 2. Software License. (a) Rights Granted. (i) Chordiant grants to Customer a non-exclusive license to use the Software as specified on a Purchase Order/Order Form under this Agreement, as follows: (1) to use the Software solely for Customer's operations at the Designated Center consistent with the use limitations specified or referenced in this Agreement, the Documentation for such Software or any Order Form or Purchase Order accepted by Chordiant pursuant to this Agreement. Customer may not relicense, rent or lease the Software or use the Software for third party training, commercial timesharing or service bureau use; (2) to use the Documentation provided with the Software in support of Customer's authorized use of the Software; (3) to make a single copy for back-up or archival purposes and/or temporarily transfer the Software in the event of a computer malfunction. All titles, trademarks and copyright or other restricted rights notices shall be reproduced in any such copies; (4) to allow third parties to use the Software for Customer's operations, so long as Customer ensures that use of the Software is in accordance with the terms of this Agreement. (ii) Customer shall not copy or use the Software (including the Documentation) except as specified in this Agreement and applicable Purchase Order/Order Form. Customer shall have no right to use any Forte Software, Inc. software or other third party software that is included within the Software except in connection and within the scope of Customer's use of the Software. (iii) Customer agrees not to cause or permit the reverse engineering, disassembly, decompilation, or any other attempt to derive source code from the Software, except to the extent required to obtain interoperability with either independently created software or as specified by law. (iv) Chordiant and its suppliers shall retain all title, copyright and other proprietary rights in the Software. Customer does not acquire any rights, express or implied, in the Software, other than those specified in this Agreement. (v) Customer agrees that it will not publish any results of benchmark tests run on the Software. (b) Transfer. Customer may transfer a Software license within its organization upon notice to Chordiant; transfers are subject to the terms and fees specified in Chordiant's transfer policy in effect at the time of the transfer. (c) Verification. At Chordiant's written request, not more frequently than annually, Customer shall furnish Chordiant with a signed certification verifying that the Software is being used pursuant to the provisions of this Agreement and applicable Purchase Order/Order Form. Chordiant (or Chordiant's designee) may audit Customer's use of the Software. Any such audit shall be conducted during regular business hours at Customer's facilities and shall not unreasonably interfere with Customer's business activities. If an audit reveals that Customer has underpaid fees to Chordiant, Customer shall be invoiced directly for such underpaid fees based on the Chordiant Price List in effect at the time the audit is completed. If the underpaid fees are in excess of five percent (5%) of the aggregate license fees paid to Chordiant pursuant to this Agreement, the Customer shall pay Chordiant's reasonable costs of conducting the audit. Audits shall be conducted no more than once annually. (d) Customer Specific Objects. (i) The parties agree and acknowledge, subject to Chordiant's underlying proprietary rights, that Customer may create certain software objects applicable to Customer's internal business ("Customer Specific Objects"). Any Customer Specific Object developed solely by Customer shall be the property of Customer. To the extent that Customer desires to have Chordiant incorporate such Customer Specific Objects into Chordiant's Software (and Chordiant agrees, in its sole discretion, to incorporate such Customer Specific Objects), Customer will promptly deliver to Chordiant the source and object code versions (including documentation) of such Customer Specific Objects, and any updates or modifications thereto, and hereby grants Chordiant a perpetual, irrevocable, worldwide, fully-paid, royalty-free, exclusive, transferable license to reproduce, modify, use, perform, display, distribute and sublicense, directly and indirectly, through one or more tiers of sublicensees, such Customer Specific Objects. 2. (ii) Any objects, including without limitation Customer Specific Objects, developed solely by Chordiant shall be the property of Chordiant. (e) Additional Restrictions on Use of Source Code. Customer acknowledges that the Software, its structure, organization and Source Code constitute valuable trade secrets that belong to Chordiant and its suppliers. Customer agrees not to translate the Software into another computer language, in whole or in part. (i) Customer agrees that it will not disclose all or any portion of the Software's Source Code to any third parties, with the exception of authorized employees ("Authorized Employees") and authorized contractors ("Authorized Contractors") of Customer who (i) require access thereto for a purpose authorized by this Agreement, and (ii) have signed an employee or contractor agreement in which such employee or contractor agrees to protect third party confidential information. Customer agrees that any breach by any Authorized Employees or Authorized Contractors of their obligations under such confidentiality agreements shall also constitute a breach by Customer hereunder. (ii) Customer shall ensure that the same degree of care is used to prevent the unauthorized use, dissemination, or publication of the Software's Source Code as Customer uses to protect its own confidential information of a like nature, but in no event shall the safeguards for protecting such Source Code be less than a reasonably prudent business would exercise under similar circumstances. Customer shall take prompt and appropriate action to prevent unauthorized use or disclosure of such Source Code, including, without limitation, storing such Source Code only on secure central processing units or networks and requiring passwords and other reasonable physical controls on access to such Source Code. (iii) Customer shall instruct Authorized Employees and Authorized Contractors not to copy the Software's Source Code on their own, and not to disclose such Source Code to anyone not authorized to receive it. (iv) Customer shall handle, use and store the Software's Source Code solely at the Customer Designated Center. 3. Technical Services. (a) Maintenance and Support Services. Maintenance and Support services will be provided under the terms of this Agreement and Chordiant's support policies in effect on the date Support is ordered by Customer. Chordiant's support terms as of the Effective Date are attached as Exhibit A. Support services shall be provided from Chordiant's principal place of business or at the Designated Center, as determined in Chordiant's sole discretion. If Chordiant sends personnel to the Designated Center to resolve any Error in the Supported Program, Customer shall pay Chordiant's reasonable travel, meals and lodging expenses. (b) Consulting and Training Services. Chordiant will provide consulting and training services agreed to by the parties pursuant to the terms of this Agreement or Chordiant's standard consulting agreement. All consulting services shall be billed on a time and materials basis unless the parties expressly agree otherwise in writing. (c) Incidental Expenses. For any on-site services requested by Customer, Customer shall reimburse Chordiant for actual, reasonable travel and out-of- pocket expenses incurred (separate from then current Support Fees). (d) Reinstatement. Once Support has been terminated by Customer or Chordiant for a particular Supported Program, it can be reinstated only if Chordiant is still offering Support for such Supported Program and Customer pays a fee equal to the Support Fees that would have been payable for the period of time during which Support was terminated for such Supported Program. (e) Supervision and Management. Customer is responsible for undertaking the proper supervision, control and management of its use of the Supported Programs, including, but not limited to: (i) assuring proper Supported Environment configuration, Supported Programs installation and operating methods; and (ii) following industry standard procedures for the security of data, accuracy of input and output, and back-up plans, including restart and recovery in the event of hardware or software error or malfunction. Chordiant does not warrant (i) the performance of, or combination of, Software with any third party software, (ii) any implementation of the Software that does not follow Chordiant's delivery 3. methodology, or (iii) any components not supplied by Chordiant. (f) Training. Customer is responsible for proper training of all appropriate personnel in the operation and use of the Supported Programs and associated equipment. (g) Access to Personnel and Equipment. Customer shall provide Chordiant with access to Customer's personnel and its equipment during Support Hours. This access must include the ability to dial-in from Chordiant facilities to the equipment on which the Supported Programs are operating and to obtain the same access to the equipment as those of Customer's employees having the highest privilege or clearance level. Chordiant will inform Customer of the specifications of the modem equipment and associated software needed, and Customer will be responsible for the costs and use of said equipment. (h) Support Term. Upon expiration of an existing Support Period for a particular Supported Program, a new Support Period shall automatically begin for a consecutive twelve (12) month term ("Renewal Period") so long as (i) Customer pays the Support Fee within thirty (30) days of invoice by Chordiant; and (ii) Chordiant is still offering Support on such Supported Program. (i) Annual Support Fees. Annual Support Fees shall be at Chordiant's then- current rates. 4. Term and Termination. (a) Term. This Agreement and each Software license granted under this Agreement shall continue perpetually unless terminated under this Section 4 ("Term and Termination"). (b) Termination by Customer. Customer may terminate any Software license at any time; however, termination shall not relieve Customer's obligations specified in Section 4(d) ("Effect of Termination"). (c) Termination by Chordiant. Chordiant may terminate this Agreement or any license upon written notice if Customer materially breaches this Agreement and fails to correct the breach within thirty (30) days following written notice specifying the breach. (d) Effect of Termination. Termination of this Agreement or any license shall not limit either party from pursuing other remedies available to it, including injunctive relief, nor shall such termination relieve Customer's obligation to pay all fees that have accrued or are otherwise owed by Customer under any Purchase Order/Order Form. The parties' rights and obligations under Sections 2 (a)(iii), 2(a)(iv) ("Rights Granted"), 2(d) ("Customer Specific Objects"), 4 ("Term and Termination"), 5 ("Indemnity, Warranties, Remedies"), 6 ("Limitation of Liability"), 7 ("Payment Provisions"), 8 ("Confidentiality") and 9 ("Miscellaneous") shall survive termination. Upon termination, Customer shall cease using, and shall return or destroy, all copies of the applicable Software and Documentation. 5. Indemnity, Warranties, Remedies. (a) Infringement Indemnity. Chordiant will defend and indemnify Customer against a claim that the Software infringes a U.S. copyright or patent provided that: (i) Customer notifies Chordiant in writing within ten (10) days of the claim; (ii) Chordiant has sole control of the defense and all related settlement negotiations; and (iii) Customer provides Chordiant with the assistance, information and authority necessary to perform Chordiant's obligations under this Section 5 ("Indemnities, Warranties, Remedies"). Chordiant shall have no liability for any claim of infringement based on use of a superseded or altered release of Software if the infringement would have been avoided by the use of a current unaltered release of the Software which Chordiant provides to Customer. If the Software is held or claimed to infringe, Chordiant shall have the option, at its expense, to (i) modify the Software to be noninfringing or (ii) obtain for Customer a license to continue using the Software. If it is not commercially reasonable to perform either of the above options, then Chordiant may terminate the license for the infringing Software and refund the license fees paid for the applicable Software license. This Section 5(a) ("Infringement Indemnity") states Chordiant's entire liability and Customer's exclusive remedy for infringement. (b) Warranties and Disclaimers. (i) Software Warranty. For each Supported Software license which Customer acquires hereunder, Chordiant warrants for a period of thirty (30) days from the Commencement Date that the Software, as delivered by Chordiant to Customer, will substantially perform the functions described in the associated Documentation in all material respects when operated on a system which meets the 4. requirements specified by Chordiant in the Documentation. Chordiant will undertake to correct any Error condition which is reported to it by Customer during the above warranty period in accordance with Chordiant's technical support policies. Provided that Customer gives Chordiant written notice of a breach of the foregoing warranty during the warranty period, Chordiant shall, as Customer's sole and exclusive remedy, correct any reproducible Errors that cause the breach of the warranty in accordance with its technical support policies, or if Chordiant is unable to make the Software operate as warranted, Customer shall be entitled to terminate the Software license and recover the fees paid to Chordiant for the Software license. If Customer does not obtain a Supported Software license, the Software is provided "AS IS." (ii) Media Warranty. Chordiant warrants the tapes, diskettes or other media to be free of defects in materials and workmanship under normal use for thirty (30) days from the Commencement Date. Customer's sole and exclusive remedy for breach of the media warranty shall be to require Chordiant to replace defective media returned within thirty (30) days of the Commencement Date. (iii) Services Warranty. Chordiant warrants any services provided hereunder shall be performed in a professional and workmanlike manner in accordance with generally accepted industry practices. This warranty shall be valid for a period of ninety (90) days from performance. Chordiant's sole and exclusive obligation pursuant to this warranty and Customer's sole and exclusive remedy for services shall be re-performance of any work not in compliance with this warranty which is brought to Chordiant's attention by written notice within thirty (30) days after such services are performed. (iv) Disclaimer of Warranties. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, CHORDIANT DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. Chordiant does not warrant that the Software will operate in combinations other than as specified in the Documentation or that the operation of the Software will be uninterrupted or error-free. Pre-production releases of Software are distributed "AS IS." 6. Limitation Of Liability. CHORDIANT'S AGGREGATE CUMULATIVE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER ARISING FROM CONTRACT, TORT OR OTHERWISE) FOR DAMAGES SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY CUSTOMER UNDER THIS AGREEMENT, AND IF SUCH DAMAGES RESULT FROM CUSTOMER'S USE OF THE SOFTWARE OR SERVICES, SUCH LIABILITY SHALL BE LIMITED TO FEES PAID FOR THE RELEVANT SOFTWARE OR SERVICES GIVING RISE TO THE LIABILITY. CHORDIANT AND ITS SUPPLIERS SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON CONTRACT, TORT OR ANY OTHER LEGAL THEORY, ARISING OUT OF OR RELATED TO THIS AGREEMENT. The provisions of this Agreement allocate the risks between Chordiant and Customer. Chordiant's pricing reflects this allocation of risk and the limitation of liability specified herein. 7. Payment Provisions. (a) Invoicing. All fees shall be due and payable thirty (30) days from receipt of an invoice and shall be made without deductions based on any taxes or withholdings. Any amounts not paid within thirty (30) days will be subject to interest of the lower of the legal interest rate or one percent (1%) per month, which interest will be immediately due and payable. (b) Payments. All payments made by Customer shall be in United States Dollars and directed to: Chordiant Software, Inc. 20400 Stevens Creek Blvd. Suite 400, Cupertino, CA 95014 Attn: Accounts Receivable. (c) Taxes. The fees listed in this Agreement or the applicable Purchase Order/Order Form do not include Taxes. In addition to any other payments due under this Agreement, Customer agrees to pay, indemnify and hold Chordiant harmless from, any sales, use, excise, import or export, value added or similar tax or duty, and any other tax not based on Chordiant's net income, including penalties and interest and all government permit fees, license fees, customs fees and similar fees levied upon the delivery of the Software or other deliverables which Chordiant 5. may incur in respect of this Agreement, and any costs associated with the collection or withholding of any of the foregoing items (the "Taxes"). 8. Confidentiality. During the term of this Agreement, Customer may be exposed to certain information, including know-how and trade secrets, relating to or contained or embodied in Chordiant's Software (including object and source code), Chordiant Software services, proposed new products and services, the terms of this Agreement and/or information identified as confidential or proprietary information of Chordiant and not generally known to the public (herein "Confidential Information"). Customer agrees that during and after the term of this Agreement, it will not use or disclose any Confidential Information of Chordiant to any third party without the prior written consent of Chordiant. Chordiant hereby consents to the disclosure of its Confidential Information to the employees, contractors or consultants of Customer as is reasonably necessary in order to allow Customer to perform its obligations under this Agreement and to obtain the benefits hereof; provided that each such employee, contractor or consultant who will have access to any Confidential Information has executed a nondisclosure agreement which prohibits the unauthorized use or disclosure of any such Confidential Information. This section shall not apply, or shall cease to apply, to data and information supplied by Chordiant if Customer can establish that such data or information: (a) were already known Customer, (b) have come into the public domain without a breach of confidence by Customer, (c) were received by Customer from a third party without restrictions on their use in favor of Chordiant, or (d) is independently developed. Notwithstanding the foregoing, Customer shall have the right to disclose Chordiant's Confidential Information to the extent that it is required to be disclosed pursuant to any statutory or regulatory provision or court order, provided that Customer provides notice thereof to Chordiant, together with the statutory or regulatory provision, or court order, on which such disclosure is based, as soon as practicable prior to such disclosure so that Chordiant has the opportunity to obtain a protective order or take other protective measures as it may deem necessary with respect to such information. 9. Miscellaneous. (a) Export Administration. Customer agrees to comply fully with all relevant export laws and regulations of the United States ("Export Laws") to assure that neither the Software nor any direct product thereof are (i) exported, directly or indirectly, in violation of Export Laws; or (ii) are intended to be used for any purposes prohibited by the Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation. (b) U.S. Government Customers. The Software is "commercial items," as that term is defined at 48 C.F.R. 2.101 (OCT 1995), consisting of "commercial computer software" and "commercial computer software documentation" as such terms are used in 48 C.F.R. 12.212 (SEPT 1995). Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (JUNE 1995), all U.S. Government Customers acquire the Software with only those rights set forth herein. (c) Notices. All notices under this Agreement shall be in writing and shall be deemed to have been given when mailed by first class mail five (5) days after deposit in the mail. Notices shall be sent to the addresses set forth at the beginning of this Agreement or such other address as either party may specify in writing. If notice is sent to Chordiant, it shall be sent to the person bearing the title set forth below Chordiant's signature to this Agreement, with a copy also sent to Chordiant's Chief Financial Officer. (d) Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, material shortages or any other cause which is beyond the reasonable control of such party. (e) Assignment. Neither this Agreement nor any rights or obligations of Customer hereunder may be assigned by Customer in whole or in part without the prior written approval of Chordiant. Chordiant's rights and obligations, in whole or in part, under this Agreement may be assigned by Chordiant. (f) Waiver. The failure of either party to require performance by the other party of any provision hereof shall not affect the right to require such performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself. (g) Severability. In the event that any provision of this Agreement shall be unenforceable or invalid 6. under any applicable law or court decision, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole and, in such event, any such provision shall be changed and interpreted so as to best accomplish the objectives of such unenforceable or intended provision within the limits of applicable law or applicable court decisions. (h) Injunctive Relief. Notwithstanding any other provisions of this Agreement, a breach by Customer of the provisions of this Agreement regarding proprietary rights will cause Chordiant irreparable damage for which recovery of money damages would be inadequate, and that, in addition to any and all remedies available at law, Chordiant shall be entitled to seek timely injunctive relief to protect Chordiant's rights under this Agreement. (i) Controlling Law and Jurisdiction. This Agreement shall be governed in all respects by the laws of the United States of America and the State of California as such laws are applied to agreements entered into and to be performed entirely within California between California residents. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement. All disputes arising under this Agreement may be brought in Superior Court of the State of California in Santa Clara County or the United States District Court for the Northern District of California as permitted by law. The Superior Court of Santa Clara County and the United States District Court for the Northern District of California shall together have non-exclusive jurisdiction over disputes under this Agreement. Customer consents to personal jurisdiction of the above courts. (j) No Agency. Nothing contained herein shall be construed as creating any agency, partnership or other form of joint enterprise between the parties. (k) Headings. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section. (l) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument. (m) Disclaimer. The Software is not specifically developed or licensed for use in any nuclear, aviation, mass transit or medical application or in any other inherently dangerous applications. Customer agrees that Chordiant and its suppliers shall not be liable for any claims or damages arising from Customer's use of the Software for such applications. Customer agrees to indemnify and hold Chordiant harmless from any claims for losses, costs, damages or liability arising out of or in connection with the use of the Software in such applications. (n) Customer Reference. Chordiant may refer to Customer as a customer in sales presentations, marketing vehicles and activities. Such activities may include, but are not limited to; a press release issued within sixty (60) days of the Effective Date of the Agreement, a Customer user story completed by Chordiant upon implementation of the Software, and a reasonable number of technical or executive level Customer reference calls for Chordiant. (o) Entire Agreement. This Agreement, Purchase Order/Order Form together with any exhibits, completely and exclusively states the agreement of the parties. In the event of any conflict between the terms of this Agreement and any exhibit hereto, the terms of this Agreement shall control. In the event of any conflict between the terms of this Agreement and any Purchase Order or Order Form, the individualized terms of such Purchase Order or Order Form will control, but any pre-printed terms on Customer's Purchase Order will be of no effect. This Agreement supersedes, and its terms govern, all prior proposals, agreements or other communications between the parties, oral or written, regarding the subject matter of this Agreement. This Agreement shall not be modified except by a subsequently dated written amendment signed by the parties, and any "pre- printed" terms on a Customer Purchase Order or other document purporting to supplement the provisions hereof shall be void. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. CHORDIANT SOFTWARE, INC.: CUSTOMER: 7. - ---------------------------------- --------------------------------- Signature Signature - ---------------------------------- --------------------------------- Print Name Print Name - ---------------------------------- --------------------------------- Title Title - ---------------------------------- --------------------------------- Date Date 8. Order Form Chordiant Contract Information Customer Name: Purchase Order Number: Customer Location: Customer Telephone Number: Designated Contact: Contact's E-Mail Address: - -------------------------------------------------------------------------------- Agreement Name and Date: Software License and Services Agreement dated __________________ This Order Form ("Order Form") is placed in accordance with and shall be governed by the terms of the Agreement ("Agreement") specified above. Customer hereby orders the Software licenses for use as follows: - -------------------------------------------------------------------------------- A: SOFTWARE LICENSE Designated Center: Hardware: Operating System: Customer Application: Geographic Location:
Quantity List Price Discount Net License Fee Chordiant CCS Foundation {fill in applicable programs} Chordiant Named User Licenses Java Client Application Total License Fees: $ - --------------------------------------------------------------------------------- B: ANNUAL SUPPORT FEE(S) Support Fees are based on the then current License Fee of the Supported Program. 1. Extended Support: 20% of the License Fee 2. Premier Support: 25% of the License Fee Total initial Annual Support Fee: $ - --------------------------------------------------------------------------------
Miscellaneous. As specified on this Order Form, Chordiant shall deliver to the - -------------- customer location, the number of copies specified above of the Software media and Documentation (CD-ROM or bound, whichever is generally available) ("Master Copy") for each Software license for use at the Designated Center. Customer shall have the right to make up to one copy of the Software, including Documentation, for each Named User license of the Software and Customer shall be responsible for installation of the Software. All fees due under this Order Form shall be due and 9. payable net 30 days from receipt of invoice, and shall be noncancelable and the sum paid nonrefundable. Customer agrees to pay applicable sales/use tax, media and shipping charges. CHORDIANT SOFTWARE, INC.: CUSTOMER: - ---------------------------------- ---------------------------------- Signature Signature - ---------------------------------- ---------------------------------- Print Name Print Name - ---------------------------------- ---------------------------------- Title Title - ---------------------------------- ---------------------------------- Date Date 10. Subject to Change EXHIBIT A - GENERAL SUPPORT TERMS: 1. Definitions: ------------ "Named User" or "Client" means an individual who is authorized by Customer to use the Software, regardless of whether the individual is actively using Software at any given time. 2. Technical Support. Annual Support services ordered by Customer will be ------------------ provided under Chordiant's Support policies and pricing in effect on the date Support is ordered and shall be effective upon shipment (or upon Order Form Effective Date for products not requiring shipment); first year Support is quoted above. Fees for Support are due and payable annually in advance. (a) Telephone Support. Chordiant will provide telephone support to the Designated Contact during the Support Hours. Telephone support will include the following: (i) Clarification of functions and features of the Supported Program; (ii) Clarification of the Documentation; (iii) Guidance in operation of the Supported Program; (iv) Assistance in identifying and verifying the causes of suspected Errors in the Supported Program; and (v) Advice on bypassing identified Errors in the Supported Program, if reasonably possible. (b) Resolution of Errors. Chordiant will provide an initial response acknowledging Errors reported by Customer in accordance with the severity levels and response times identified below ("Error Correction Severity Levels and Response Times"). Thereafter, Chordiant shall use commercially reasonable efforts to provide a Resolution to the Supported Program. Chordiant will acknowledge each Customer report of an Error by written acknowledgment setting forth a Software Problem Report number (SPR#) for use by Customer and Chordiant in all correspondence relating to such Error. (c) Exceptions. Chordiant shall have no responsibility to fix any Errors arising out of or related to the following causes: (a) Customer's modification or combination of the Supported Program (in whole or in part), including without limitation any Customer Specific Objects (as defined in the Agreement) for which Chordiant has not received the source code, (b) use of the Supported Program in an environment other than a Supported Environment; or (c) accident; electrical or electromagnetic stress; neglect; misuse; failure or fluctuation of electric power, failure of media not furnished by Chordiant; operation of the Supported Program with other media and hardware, software or telecommunication interfaces not meeting or not maintained in accordance with the manufacturer's specifications; or causes other than ordinary use. Any corrections performed by Chordiant for such Errors shall be made, in Chordiant's reasonable discretion, at Chordiant's then current time and material charges. 3. Error Correction Severity Levels And Response Times --------------------------------------------------- (a) Level 1 Severity. Level 1 is the classification used when there is an Error that causes the Software to fail to function and/or crash the system on which the Software is installed. Chordiant shall respond within two (2) hours and shall use commercially reasonable efforts to provide a Resolution within one (1) business day. (b) Level 2 Severity. Level 2 is the classification used when there is an Error that causes the Software to fail to operate in a material manner but does not render the system on which the Software is installed inoperable. Chordiant shall respond within eight (8) hours and shall use commercially reasonable efforts to provide a Resolution within two (2) business days. (c) Level 3 Severity. Level 3 is the classification used when there is an Error that produces an inconvenient situation in which the Software operates substantially in accordance with the Specifications but nevertheless causes or results in substandard or erratic performance. Chordiant shall respond within five (5) business days and shall use commercially reasonable efforts to provide a Resolution within fifteen (15) business days. (d) Level 4 Severity. Level 4 is the classification used when there is an Error that is minor or that is cosmetic in nature and does not result in reduced performance. Level 4 Errors shall be corrected at the next Update, if not otherwise previously corrected. 11. EX-23.1 4 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated January 18, 2000, except for Note 14 which is as of February 10, 2000, relating to the consolidated financial statements of Chordiant Software, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California February 11, 2000 -----END PRIVACY-ENHANCED MESSAGE-----