10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

                   (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the period ended March 31, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-29357

Chordiant Software, Inc.

(Exact name of Registrant as specified in its Charter)

 

Delaware	93-105328
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

20400 Stevens Creek Boulevard, Suite 400
Cupertino, CA    95014
(Address of Principal Executive Offices including Zip Code)

(408) 517-6100
(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.   YES [X]    NO [  ]

The number of shares of the Registrant's Common Stock outstanding as of April 25, 2002 was 54,435,168.

CHORDIANT SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets-March 31, 2002 and December 31, 2001	3
	Condensed Consolidated Statements of Operations -Three months ended March 31, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows-Three months ended March 31, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
PART II.	OTHER INFORMATION	22
Item 1.	Legal Proceedings	22
Item 2.	Changes in Securities and Use of Proceeds	22
Item 3.	Defaults upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 5.	Other Information	22
Item 6.	Exhibits and Reports on Form 8-K	23
SIGNATURES		24

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

 CHORDIANT SOFTWARE,  INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

			March 31, 2002			December 31, 2001
ASSETS
Current assets:
	Cash and cash equivalents		$	33,295		$	27,068
	Short-term investments and restricted cash			13,272			24,072
	Accounts receivable, net			24,895			21,573
	Other current assets			5,471			5,267
		Total current assets		76,933			77,980
Property and equipment, net				6,386			7,083
Goodwill, net				20,688			17,922
Other intangible assets, net				6,357			9,870
Other assets				1,871			2,010
		Total assets	$	112,235		$	114,865
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Borrowings		$	519		$	75
	Accounts payable			5,385			5,575
	Accrued expenses			12,629			10,142
	Deferred revenue(1)			19,772			22,457
		Total current liabilities		38,305			38,249
Deferred revenue, long-term(1)				7,849			4,406
Other liabilities				212			910
				46,366			43,565
Stockholders' equity:
	Common stock			55			55
	Treasury stock			(332	)		(332	)
	Additional paid-in capital			220,272			217,395
	Notes receivable from stockholders			(1,457	)		(961	)
	Deferred stock-based compensation			(3,528	)		(4,045	)
	Accumulated other comprehensive loss			(750	)		(630	)
	Accumulated deficit			(148,391	)		(140,182	)
		Total stockholders' equity		65,869			71,300
		Total liabilities and stockholders' equity	$	112,235		$	114,865

(1) Total deferred revenue as of March 31, 2002 and December 31, 2001 was $27,621 and 26,863, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 CHORDIANT SOFTWARE,  INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

				Three Months Ended
				March 31, 2002			March 31, 2001
Revenues:
	License			$	11,085		$	6,786
	Service				11,723			6,599
			Total revenues		22,808			13,385
Cost of revenues:
	License				566			437
	Service				9,554			5,287
	Non-cash compensation expense				97			242
			Total cost of revenues		10,217			5,966
Gross profit					12,591			7,419
Operating expenses:
	Sales and marketing
		Non-cash compensation expense			136			408
		Other sales and marketing			9,114			8,352
	Research and development
		Non-cash compensation expense			197			217
		Other research and development			4,935			4,454
		Integration related expense			--			158
		Purchased in-process research and development			--			1,486
	General and administrative
		Non-cash compensation expense			86			93
		Other general and administrative			2,190			1,904
		Integration related expense			--			774
	Amortization of goodwill and purchased intangibles				825			540
	Restructuring expense				3,558			--
			Total operating expenses		21,041			18,386
Loss from operations					(8,450	)		(10,967	)
Interest expense					(4	)		(15	)
Interest and other income, net					245			1,289
Net loss				$	(8,209	)	$	(9,693	)
Net loss per share:
Basic and diluted				$	(0.15	)	$	(0.25)
Shares used in computing net loss per share					53,700			38,860

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 CHORDIANT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

				Three Months Ended
				March 31, 2002			March 31, 2001
Cash flows from operating activities:
	Net loss			$	(8,209	)	$	(9,693	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			943			602
		Purchased in-process research and development			--			1,486
		Amortization of intangibles			825			540
		Stock-based compensation expense			516			960
		Provision for doubtful accounts			174			--
		Changes in assets and liabilities:
			Accounts receivables		(3,496	)		4,207
			Other current assets		(204	)		1,088
			Other assets		139			480
			Accounts payable		(190	)		(2,796	)
			Accrued expenses		2,409			854
			Deferred revenue		758			(2,215	)
			Other liabilities		(698	)		565
Net cash used in operating activities					(7,027	)		(3,922	)
Cash flows from investing activities:
	Property and equipment purchases				(245	)		(635	)
	Cash acquired from acquisitions, net of cash used				--			13,431
	Purchases of short-term investments				--			(1,413	)
	Sales of short-term investments				10,800			--
Net cash provided by investing activities					10,555			11,383
Cash flows from financing activities:
	Exercise of stock options				1,408			48
	Proceeds from issuance of Common Stock for Employee Stock Purchase Plan				973			730
	Proceeds from borrowings				444			--
	Repayment of borrowings				--			(178	)
Net cash provided by financing activities					2,825			600
Effect of foreign currency exchange rates on cash and cash equivalents					(120	)		(326	)
Net increase in cash and cash equivalents					6,227			7,735
Cash and cash equivalents at beginning of period					27,068			41,465
Cash and cash equivalents at end of period				$	33,295		$	49,200
Supplemental cash flow information:
	Cash paid for interest			$	4		$	12
	Cash paid for taxes			$	--		$	18
Supplemental noncash activities:
	Common Stock issued for stockholder notes			$	496		$	96
	Issuance of Common Stock in connection with acquisitions			$	--		$	33,745
	Warrants and options assumed in connection with acquisitions			$	--		$	6,060

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CHORDIANT SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1--BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal and recurring items, which in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Certain prior period balances have been reclassified to conform to current period presentation.

We believe that the effects of our strategic actions implemented to improve revenue as well as control costs will be adequate to generate sufficient cash resources to fund our operations.  Failure to generate sufficient revenues or control spending could adversely affect our ability to achieve our business objectives.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Chordiant and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 periods. Such estimates include the allowance for doubtful accounts, valuation of deferred tax assets and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts.

Revenue recognition

We derive revenues from licenses of our 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 our product, license and service revenues are recognized under the percentage-of-completion method using labor hours incurred as the measure of progress towards completion as prescribed by Statement of Position ("SOP") No. 81-1, "Accounting for Performance of Construction-Type and Certain Product-Type Contracts." We consider a project completed at the go-live date. Provisions for estimated contract losses would be recognized in the period in which the loss becomes probable and can be reasonably estimated. When we sell additional licenses, revenue is recognized after the go-live date if the products or seats have been delivered and no remaining obligations exist. We classify revenues from these arrangements as license and services revenues based upon the estimated fair value of each element.

On contracts that do not involve significant implementation or customization essential to the functionality of our product, license fees are recognized when there is persuasive evidence of an arrangement for a fixed or determinable fee that is probable of collection and when delivery has occurred as prescribed by SOP No. 97-2, "Software Revenue Recognition." For arrangements with multiple elements, we recognize revenue for services and post-contract customer support based upon vendor specific objective evidence ("VSOE") of fair value of the respective elements. VSOE of fair value for the services element is based upon the standard hourly rates we charge for services when such services are sold separately. VSOE of fair value for annual post-contract customer support is established with the optional stated future renewal rates included in the contracts. When contracts contain multiple elements, and VSOE of fair value exists for all undelivered elements, we account for the delivered elements, principally the license portion, based upon the "residual method" as prescribed by SOP No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions."

In situations in which we are not responsible for implementation services but are obligated to provide unspecified additional software products in the future, we recognize revenue as a subscription ratably over the term of the commitment period.

Revenues from reseller arrangements are recognized on the "sell-through" method, when the reseller reports to us the sale of our software products to end-users. Our agreements with customers and resellers do not contain product return rights.

Other services 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.

Restricted Cash

At December 31, 2001 and March 31, 2002, we had a balance of $1.0 million in the form of short-term investments, which were restricted from withdrawal.  The balance serves as a security deposit in a revenue transaction. At December 31, 2001 and March 31, 2002, we also had a interest bearing letter-of-credit for $488,000 securing a leased facility.

6

Concentrations of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. To date, we have invested excess funds in money market accounts, commercial paper, municipal bonds and term notes. We deposit cash, cash equivalents and short-term investments with financial institutions that management believes are credit worthy. Our accounts receivables are derived from revenues earned from customers principally located in the Americas and Europe. We perform ongoing credit evaluations of our customers' financial condition and, generally, require no collateral from our customers. We maintain reserves for potential credit losses on customer accounts when deemed necessary. 

The following table summarizes the revenues from customers in excess of 10% of total revenues:

	Three Months Ended
	March 31,
	2002	2001
Company A	24%	--
Company B	22%	30%
Company C	--	25%
Company D	11%	16%

At March 31, 2002, Companies A and E accounted for 20% and 25%, respectively, of accounts receivable. At December 31, 2001 Companies D and F accounted for 10% and 17%, respectively, of accounts receivable.

Net loss per share

Basic and diluted net loss per share is computed by dividing the net loss for the period by weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share includes potential common stock unless their effect is antidilutive. Potential common stock consist of common shares issuable upon the exercise of stock options (using the treasury stock method) and common shares subject to repurchase by us.

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share data):

	Three Months Ended March 31,
	2002			2001
Net loss available to common stockholders	$	(8,209	)	$	(9,693	)
Weighted average Common Stock outstanding		53,711			39,044
Weighted average Common Stock subject to repurchase		(11	)		(184	)
Denominator for basic and diluted calculation		53,700			38,860
Net loss per share - basic and diluted	$	(0.15	)	$	(0.25	)

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 (in thousands):

	Three Months Ended March 31,
	2002		2001
Warrants outstanding		1,650		59
Employee stock options		8,752		6,657
Common stock subject to repurchase		11		184
		10,413		6,900

7

Segment information

Based on the information that our chief operating decision maker reviews for assessing performance and allocating resources, we have concluded that we have one reportable segment.

License revenues for enterprise solutions amounted to $9.8 million and $4.6 million for the three months ended March 31, 2002 and 2001, respectively. License revenues for application products was approximately $1.3 million and $2.2 million for the three months ended March 31, 2002 and 2001, respectively.

Service revenues consist of consulting assistance and implementation, customization and integration and post-contract customer support, training and certain reimbursable out-of-pocket expenses. Service revenues for enterprise solutions was approximately $8.8 million and $6.5 million for the three months ended March 31, 2002 and 2001, respectively. Service revenues for application products was approximately $2.9 million and $86,000 for the three months ended March 31, 2002 and 2001, respectively.

Foreign revenues are based on the country in which the customer is located. The following is a summary of total revenues by geographic area (in thousands):

	Three Months Ended March 31,
	2002		2001
Americas	$	2,865	$	1,920
Europe (principally United.Kingdom)		19,713		11,463
Other		230		2
	$	22,808	$	13,385

Property and equipment information is based on the physical location of the assets. The following is a summary of property and equipment, net by geographic area (in thousands):

	March 31, 2002		December 31, 2001
Americas	$	3,835	$	4,341
Europe (principally United Kingdom)		2,529		2,718
Other		22		24
	$	6,386	$	7,083

Recent Accounting Pronouncements

In November 2001, the Financial Accounting Standards Board ("FASB") issued Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred" ("EITF No. 01-14"). EITF No. 01-14 is to be applied for financial reporting periods beginning after December 15, 2001 and generally requires that a company recognize as revenue, travel expense and other reimbursable expenses billed to customers. As a result of the adoption of EITF No. 01-14 beginning January 1, 2002, our service revenues now include reimbursable out-of-pocket expenses and cost of service revenues include the costs associated with reimbursable out-of-pocket expenses. In the historical financial statements, these amounts were previously recorded as net amounts in cost of service revenues. Comparative financial information has been reclassified to conform with current period presentation.  Service revenue expenses of $534,000 and $338,000 have been classified as service revenue for the quarters ended March 31, 2002 and 2001, respectively.

8

On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets". SFAS No. 142  requires among other things, the discontinuance of amortization related to goodwill and indefinite lived intangible assets and measuring goodwill for impairment. A goodwill impairment analysis will be conducted during our second quarter 2002.  We currently operate as a single reporting unit and all of our goodwill is associated with the entire company. It is anticipated that under our new policy, goodwill will be tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. Goodwill will be tested for impairment using a two-step approach. The first step is to compare the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any. The second step of the impairment test is to compare the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price. The excess "purchase price" over the amounts assigned to assets and liabilities would be the implied fair value of goodwill. See Note 5 for adoption of SFAS No. 142.

We adopted Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also broadens the reporting requirements of discontinued operations to include all components of an entity that have operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The adoption of this statement did not have a significant impact on our results of operations or financial position.

NOTE 3 - BALANCE SHEET COMPONENTS

	March 31, 2002			December 31, 2001
(In thousands)
Accounts receivable	$	17,957		$	19,858
Unbilled receivables		7,320			1,923
Allowance for doubtful accounts		(382	)		(208	)
	$	24,895		$	21,573

Unbilled receivables relate to earned service revenues that have not yet been billed and maintenance services for future periods that have been purchased by our customers, but have not yet been billed.

NOTE 4 - RESTRUCTURING

During 2001, several areas of the company were restructured to prioritize our initiatives around areas of our business, reduce expenses, and improve efficiency due to our integration and absorption of our acquisitions and reflecting our desire to become cashflow and profitability breakeven in the near future. This restructuring program included a worldwide workforce reduction, consolidation of excess facilities, and restructuring of certain business functions.  During the quarter ended March 31, 2002, we took further actions in the areas of workforce reduction and consolidation of excess facilities.

Workforce reduction

The restructuring program initiated in the quarter ended March 31, 2002 resulted in the reduction of 20 regular employees.  As a result we recorded a workforce reduction charge of approximately $1.0 million relating primarily to severance and benefits.

Consolidation of excess facilities

We accrued for lease costs of $2.6 million in the first quarter of 2002 pertaining to the estimated future obligations for non-cancelable lease payments for additional excess facilities that were vacated due to reductions in workforce.

9

A summary of the restructuring cost and other special charges is outlined as follows (in thousands):

	Facilities	Severance and Benefits	Total
Reserve balance at December 31, 2001	$307	$--	$307
Total charge	2,602	956	3,558
Cash paid	--	(794)	(794)
Reserve balance at March 31, 2002	$2,909	$162	$3,071

Amounts related to net lease charges due to the consolidation of facilities will be paid over the lease terms through fiscal 2011.  The reserve balance at March 31, 2002 is currently being included on the balance sheet within accrued expenses.

NOTE 5 - INTANGIBLE ASSETS AND GOODWILL

On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires goodwill to be tested for impairment under certain circumstances, written down when impaired, and requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. We ceased amortizing goodwill totaling $20.7 million as of the beginning of fiscal 2002, including $2.7 million of acquired workforce intangibles previously classified as purchased intangible assets. Purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally one and one half to three years. We expect amortization expense, excluding the effect of our acquisition of OnDemand, which occurred in April 2002 (see Note 8 below), on purchased intangible assets to be $2.5 million for the remainder of fiscal 2002, $2.7 million in fiscal 2003, and $805,000 in fiscal 2004, at which time existing purchased intangible assets will be fully amortized.

A goodwill impairment analysis will be conducted during our second quarter 2002. We do not foresee any impairment charge as a result.  It is anticipated that under our new policy, goodwill will be tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value.

The following table presents the impact of SFAS No. 142 on net loss and net loss per share had the standard been in effect for the three months ended March 31, 2001 (in thousands, except per-share amounts):

	Three Months Ended March 31,
	2002			2001
Net loss as reported	$	(8,209	)	$	(9,693	)
Adjustments:
Amortization of goodwill		--			494
Amortization of acquired workforce intangibles previously classified as purchased intangible assets		--			27
Net adjustments		--			521
Net loss-adjusted	$	(8,209	)	$	(9,172	)
Basic and diluted net loss per share-as reported	$	(0.15	)	$	(0.25	)
Basic and diluted net loss per share-adjusted	$	(0.15	)	$	(0.24	)

10

NOTE 6 - RELATED PARTY TRANSACTIONS

During the quarter ended March 31, 2002, two of our executives exercised 285,000 stock options in exchange for notes receivables (the "Notes") of $496,000. The Notes are full-recourse secured by the underlying stock. These Notes are due in February and March of 2003 and accrue interest between 6.0% and 6.5% per annum.

NOTE 7 - COMMITMENTS

We have entered into a two-year agreement, beginning March 19, 2002, with Merit International pursuant to which Merit will provide exclusive training and certain consulting services for a fixed fee. Upon the effective date of this agreement, we transferred to Merit our training operations including selected employees. In addition, Merit will provide to our customers resource development services in exchange for an agreed-upon fee negotiated on a transaction-by-transaction basis. We feel this agreement will provide us with high quality training and consulting services. We will pay Merit minimum revenue targets as follows: January 1, 2002 to June 30, 2002: (British Pounds)500,000; July 1, 2002 to December 31, 2002: (British Pounds)900,000; January 1, 2003 to June 30, 2002: (British Pounds)900,000; July 1, 2003 to December 31, 2003: (British Pounds)1.0 million; and January 1, 2004 to June 30, 2004: (British Pounds)500,000. For a total of (British Pounds)3.8 million. The minimum revenue target above can be reduced for Merit's non-compliance with the terms of the agreement. If we exceed the minimum revenue target, Merit will raise a credit note to be applied against future minimums. After one year from the effective date, we may, at our option, terminate the agreement and pay an early termination fee that reduces from (British Pounds)555,000 to (British Pounds)0 over time. Payment of the early termination fee will release our obligation related to the minimum revenue target.

NOTE 8 - SUBSEQUENT EVENTS

On March 28, 2002, we signed an Agreement and Plan of Merger to acquire OnDemand, Inc., a Delaware corporation. The closing occurred on April 1, 2002. In connection with the merger, the stockholders of OnDemand, Inc. received approximately $11.5 million in the aggregate in cash, in exchange for their shares of OnDemand, Inc., subject to certain indemnities and escrow provisions. As of the closing of the OnDemand acquisition, OnDemand had working capital of approximately $5.4 million.

On April 1, 2002 we entered into an agreement with Canadian Imperial Holdings, Inc. ("CIBC") to sell shares of our common stock as a means to increase working capital in light of the cash payments made in connection with the OnDemand acquisition. Pursuant to this agreement we have agreed to sell 479,100 shares of our common stock at a purchase price of approximately $3.2 million. The purchases and sales of the shares will be made pursuant to an exemption from the registration requirements of the Securities Act of 1933 (the "1933 Act") afforded by Regulation D of the 1933 Act. Pursuant to the terms of the stock purchase agreements between us and CIBC we have agreed, following the closing of this transaction, to prepare and file with the SEC a registration on Form S-3covering the resale by CIBC of the shares to be purchased by CIBC. The registration rights set forth in the agreement are subject to certain limitations.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR  

In addition to historical information, the following discussion and analysis of management contains forward-looking statements. These forward-looking statements involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to, those discussed below and in the sections in this Form 10-Q entitled  "Overview," "Results of Operations," "Cost of revenues," "Operating Expenses," "Interest and other Income (Expense), and Interest Expense," "Restructuring Costs," "Provision for Income Taxes," "Liquidity and Capital Resources" and "Business Risks." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document as well as in other documents we file from time to time with the Securities and Exchange Commission.  

Overview  

We provide customer relationship management (CRM) software solutions for global business-to-consumer enterprise companies. Our target customers include companies with demanding customer relationships involving a large number of individual customers with complex customer relationships requiring high levels of personalized services. We began marketing our enterprise solutions in 1997. Through our acquisitions of Prime Response, certain technology from ActionPoint and ASP Outfitter, we have added to our product offerings. Our customers include global companies in the financial services, telecommunications, retail and travel services industries. Our solutions seek to fulfill the requirements these companies have for enterprise-wide CRM software infrastructure solutions capable of servicing millions of individual customers across multiple communication channels in real-time. Our solutions enable organizations to market, sell, and serve their customers across multiple channels, including call centers, branch representatives and self-serve channels such as automated telephony the web and e-mail. 

The quarter ended March 31, 2002, was the fourth full quarter with consolidated revenues and expenses from the Prime Response acquisition. Additionally, the revenues and expenses associated with the asset acquisitions from ActionPoint and ASP Outfitter have been included since May 2001. As a result of these acquisitions, comparison of prior period revenues and expenses may not be meaningful. 

Service revenues as a percentage of total revenues were 51% and 49% for the quarters ended March 31, 2002 and 2001, respectively. We expect that service revenue will continue to represent over 40% of total revenues. 

We sell our products through our direct sales force, and we augment our sales efforts through relationships with systems integrators, application service providers and technology vendors. 

For the quarters ended March 31, 2002 and 2001, revenues were principally derived from customer accounts in the Americas and Europe (principally The United Kingdom). For the quarters ended March 31, 2002 and 2001, international revenues were $19.9 million, $11.5 million, or approximately 87% and 86% of our total revenues, respectively. We believe international revenues will continue to represent a significant portion of our total revenues in future periods. 

Over the past two years our international revenue growth rate has rapidly outpaced our United States revenue growth rate. We feel this has occurred for several reasons. First, the U.S. economy has been weak compared to areas where we have an international presence. Second, our leadership has been very strong internationally as Stephen Kelly was personally responsible for promoting our strong growth in International Operations. Third, up until recently, the competition for sales personnel was very strong in the United States. And fourth, Prime Response, which we acquired in 2001, has a very strong international presence. Assuming the United States economy begins to recover and given our focus, which includes Stephen Kelly as our Chief Executive Officer and Jeremy Coote as our new Americas' President, we believe we will be able to increase our growth rate for our U.S. revenues more rapidly than our international revenues. 

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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 material impact on our revenues. We expect that revenues from a small number of customers will continue to account for a majority of our total revenues in the future as historical implementations are completed and replaced with new projects from new and existing customers. Customer concentration has reduced and we expect that trend to continue. 

Pricing pressure during the past year has intensified particularly with application products. Several of our competitors continue to aggressively price their products with large discounts in comparison to our prices. We believe this competitive pricing pressure will continue. Our strategy is to continue to offer products with functionality different and superior to our competitors. 

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 in order to build an infrastructure to support our long-term growth strategy. The number of our fulltime employees decreased from 436 at December 31, 2001, to 385 at March 31, 2002, representing a decrease of approximately 12%. The decrease was due primarily to reduction in force and the transfer of our training employees to Merit International that occurred during the quarter ended March 31, 2002. We anticipate that our operating expenses, in gross dollars, will continue to increase over the very long term as we expand our product development, sales and marketing and professional services organization.

We believe that period-to-period comparisons of our operating results 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.

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Results of Operations

The following table sets forth, as a percentage of total revenues, consolidated statements of operations data for the periods indicated:

CHORDIANT SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

				Three Months Ended
				March 31, 2002			March 31, 2001
Revenues:
	License				49	%		51	%
	Service				51			49
			Total revenues		100			100
Cost of revenues:
	License				2			3
	Service				42			39
	Non-cash compensation expense				--			2
			Total cost of revenues		44			44
Gross Profit					56			56
Operating expenses:
	Sales and marketing
		Non-cash compensation expense			1			3
		Other sales and marketing			40			62
	Research and development
		Non-cash compensation expense			1			2
		Other research and development			22			33
		Integration related expense			--			1
		Purchased in-process research and development			--			11
	General and administrative
		Non-cash compensation expense			--			1
		Other general and administrative			10			14
		Integration related expense			--			6
	Amortization of goodwill and purchased intangibles				4			4
	Restructuring expense				16			--
			Total operating expenses		94			137
Loss from operations					(38	)		(81	)
Interest expense					--			--
Interest and other income, net					1			10
Net loss					(37	)%		(71	)%

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Comparison of the Three Months Ended March 31, 2002 and 2001

Revenues

License. Total license revenues increased to approximately $11.1 million for the quarter ended March 31, 2002 from $6.8 million, or approximately 63%, for the quarter ended March 31, 2001. License revenues for enterprise solutions increased to approximately $9.8 million for the quarter ended March 31, 2002 from $4.6 million, or approximately 113%, for the quarter ended March 31, 2001. License revenues for application products decreased to approximately $1.3 million for the quarter ended March 31, 2002 from $2.2 million, or approximately (41)%, for the quarter ended March 31, 2001. The overall revenue increase was primarily due to the growth in the number of product implementations by new and existing customers for our enterprise solutions.  

Service. Total service revenues, including reimbursement of out-of-pocket expenses, increased to approximately $11.7 million for the quarter ended March 31, 2002, from $6.6 million, or approximately 78%, for the quarter ended March 31, 2001. Service revenues for enterprise solutions increased to approximately $8.8 million for the quarter ended March 31, 2002, from $6.5 million, or approximately 35%, for the quarter ended March 31, 2001. Service revenues for application products increased to approximately $2.9 million for the quarter ended March 31, 2002, from $86,000, for the quarter ended March 31, 2001. The revenue increase was primarily due to a continuation in large customer implementations as well as maintenance, support and consulting revenues associated with license agreements.

Reimbursement of out-of-pocket expenses increased to approximately $534,000 for the quarter ended March 31, 2002 from $338,000, or approximately 58%, for the quarter ended March 31, 2001.

Cost of revenues

License. Cost of license revenues increased to $566,000 for the quarter ended March 31, 2002, from $437,000, or approximately 30%, for the quarter ended March 31, 2001. These costs resulted in license gross margins of approximately 95% and 94% for the quarters ended March 31, 2002 and 2001, respectively. The cost of license revenues increase was primarily due to transaction growth in the number of product implementations by new and existing customers and a higher average transaction size. 

Service. Cost of service revenues, before the effect of non-cash compensation expense, increased to $9.6 million for the quarter ended March 31, 2002, from $5.3 million, or approximately 81%, for the quarter ended March 31, 2001. These costs resulted in service gross margins of 19% and 20% for the quarters ended March 31, 2002 and 2001, respectively. The increase is primarily due to increased staff to support a higher number of product-related engagements.

Reimbursement of out-of-pocket expenses increased to approximately $534,000 for the quarter ended March 31, 2002 from $338,000, or approximately 58%, for the quarter ended March 31, 2001.

Operating Expenses

Sales and marketing. Sales and marketing expenses, before the effect of non-cash compensation expense, increased to $9.1 million for the quarter ended March 31, 2002 from $8.4 million, or approximately 8%, for the quarter ended March 31, 2001. The increase in these expenses were mainly attributable to increases of $600,000 in personnel related expenses due to our increase in personnel from our acquisitions and $100,000 in marketing and advertising costs. 

Research and development. Research and development expenses before the effect of non-cash compensation expense and purchased in-process research development increased to $4.9 million for the quarter ended March 31, 2002 from $4.5 million, or approximately 9%, for the quarter ended March 31, 2001. The increase was mainly due to an increase of $400,000 in personnel related expenses due in large part to our acquisition of development personnel from Prime Response, Actionpoint and ASP Outfitters.

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Purchased in-process research and development. In-process research and development expense represents technology acquired that on the date of acquisition, the technology had not achieved technological feasibility and there was no alternative future use based on the state of development. Because the product under development may not achieve commercial viability, the amount of acquired in-process research and development was immediately expensed. The nature of the efforts required to develop the purchased in-process research and development into a commercially viable product principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its designed specifications, including functions, features and technical performance requirements. 

General and administrative. General and administrative expenses, before the effect of non-cash compensation expense, increased to $2.2 million for the quarter ended March 31, 2002, from $1.9 million, or 16%, for the quarter ended March 31, 2001. The increase in these expenses was mainly attributable to an increase of $300,000 in personnel related expenses. 

Non-cash compensation expense. In connection with the grant of certain employee stock options, we recorded aggregate unearned stock-based compensation expenses of $14.8 million. The balance represents the total difference between the exercise price of the option and the deemed fair market value of the underlying common stock at the date of issuance in relation to options granted prior to our initial public offering. We recorded for the quarter ended March 31,2002, amortization of stock-based compensation expense of $517,000 compared to $960,000 for the quarter ended March 31, 2001. At March 31, 2002, approximately $3.5 million of stock-based compensation remained to be amortized. 

Amortization of intangibles. Amortization of intangibles for the quarter ended March 31, 2002, was $825,000 of which $458,000 is attributable to the acquisition of Prime Response in March 2001. The remaining balance of $367,000 is related to the acquisitions of certain assets from ActionPoint, Inc. and ASP Outfitter, Inc. in May 2001 and technology from EDS in December 2001. 

Interest and other Income, net, and Interest Expense

Interest and other income, net consist primarily of interest income generated from our cash, cash equivalents, short-term investments, foreign currency gains and losses and other non-operating income and expenses. Interest expenses are incurred in connection with outstanding borrowings. Interest and other income (expense), net decreased to approximately $245,000 for the quarter ended March 31, 2002, from $1.3 million for the quarter ended March 31, 2001. The decrease in interest and other income is primarily attributable to declining interest rates and a lower amount of funds available for investment.

Provision for Income Taxes

We have not generated taxable income since inception and, as a result, no provision for income taxes was recorded during the periods presented. 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.

Liquidity and Capital Resources

Our cash, cash equivalents, and short-term investments consist principally of money market funds, municipal bonds, and marketable equity securities. All of our short-term investments are classified as available-for-sale under the provisions of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." The securities are carried at fair market value. Realized gains and losses are recognized when realized on the consolidated statements of income. 

During the quarter ended March 31, 2002, net cash used to fund operating activities was $7.0 million. We have incurred losses and negative cash flows since inception. Our cash balances may decline further although we believe that the effects of our strategic actions implemented to improve revenue as well as control costs will be adequate to generate sufficient cash resources to fund our operations. Failure to generate sufficient revenues or control spending could adversely affect our ability to achieve our business objectives.

Net cash provided by investing activities was $10.6 million, primarily related to our proceeds from short-term investments. Our cash and cash equivalents, short-term investments and restricted cash value on March 31, 2002, was $46.6 million, representing a decrease of approximately $4.5 million since December 31, 2001. 

Cash usage for the second quarter is expected to be in the range of $0 to $2 million.

At December 31, 2001 and March 31, 2002, we had a balance of $1.0 million in the form of short-term investments, which were restricted from withdrawal.  The balance serves as a security deposit in a revenue transaction. At December 31, 2001 and March 31, 2002, we also had a interest bearing letter-of-credit for $488,000 securing a leased facility.

On October 15, 2001, we renewed terms and conditions for a line of credit with Comerica Bank that is comprised of two elements, an accounts receivable line and an equipment line. 

Under the renewed terms and conditions of the accounts receivable line, the total amount of the line of credit is $11.5 million. At our option, borrowings under the accounts receivable line of credit will bear interest either at the lending bank's prime rate plus 1.5% or the LIBOR Option (1,2,3 or 6 month maturity) plus 500 basis points. The accounts receivable line is limited to 80% of eligible accounts receivable. There were no borrowings outstanding at March 31, 2002 under the line of credit. Borrowings under our $2.0 million equipment line bear interest at the lending bank's prime rate plus 2.0%.

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Our assets collateralize borrowings under both lines of credit. The lines of credit require us to maintain a minimum quick ratio of 2.00 to 1.00, a tangible net worth of at least $25.0 million plus 60% of the proceeds of any equity offerings and subordinated debt issuance subsequent to the effective date of this line of credit agreement, and certain other covenants. As of March 31, 2002 we were in compliance with all covenants of the agreement. 

Our existing cash, cash equivalents and investment balances may decline further during fiscal 2002, although we believe that our existing balances together with our anticipated cash flows from operations will be sufficient to meet our working capital and operating resource expenditure requirements for the next 12 months. If the global economy weakens further, the decline in cash, cash equivalents and investments balances may be greater than presently anticipated. We expect to continue to experience growth in our operating expenses. We anticipate that operating expenses will continue to be a material use of our cash resources. We may continue to utilize cash resources to fund acquisitions or investments in other businesses, technologies or product lines. 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.

In addition, while our cash projections contain assumptions about future revenues, we have significant commitments for cash payouts that will occur regardless of our revenues. Future payments due under debt and lease obligations as of March 31, 2002 are as follows (in thousands):

	Borrowings	Operating Leases	Total
Year Ended
2002	$519	$2,737	$3,256
2003	0	3,493	3,493
2004	0	2,744	2,744
2005	0	1,711	1,711
2006	0	1,900	1,900
Thereafter	0	6,412	6,412
Total	$519	$18,997	$19,516

We have entered into a two-year agreement, beginning March 19, 2002, with Merit International pursuant to which Merit will provide exclusive training and certain consulting services for a fixed fee. Upon the effective date of this agreement, we transferred to Merit our training operations including selected employees. In addition, Merit will provide to our customers resource development services in exchange for an agreed-upon fee negotiated on a transaction-by-transaction basis. We feel this agreement will provide us with high quality training and consulting services. We will pay Merit minimum revenue targets as follows: January 1, 2002 to June 30, 2002: (British Pounds)500,000; July 1, 2002 to December 31, 2002: (British Pounds)900,000; January 1, 2003 to June 30, 2002: (British Pounds)900,000; July 1, 2003 to December 31, 2003: (British Pounds)1.0 million; and January 1, 2004 to June 30, 2004: (British Pounds)500,000. For a total of (British Pounds)3.8 million. The minimum revenue target above can be reduced for Merit's non-compliance with the terms of the agreement. If we exceed the minimum revenue target, Merit will raise a credit note to be applied against future minimums. After one year from the effective date, we may, at our option, terminate the agreement and pay an early termination fee that reduces from (British Pounds)555,000 to (British Pounds)0 over time. Payment of the early termination fee will release our obligation related to the minimum revenue target.

BUSINESS RISKS

We expect to continue to incur losses and may not achieve or maintain profitability, which may cause our stock price to decline.

We incurred losses of $8.2 million for the quarter ended March 31, 2002. As of March 31, 2002, we had an accumulated deficit of $148.4 million. We expect to continue to incur losses into the first two quarters of the current fiscal year. Moreover, we expect to continue to incur significant sales and marketing and research and development expenses and expenses to establish additional sales offices domestically and internationally. 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, maintain our past growth rates or generate sufficient revenues to achieve profitability.

Our revenue as a percentage of deferred revenue is declining, which may reduce our forecasting accuracy resulting in investor disappointment and resulting stock price reductions.

Historically, a large amount of license revenue flowed through deferred revenue.  In 2000 nearly 100% of license revenues came through deferred revenue.  In 2001 approximately 70% of license revenue came through deferred revenue.  We believe this trend will continue.  Less reliance on deferred revenue requires the licensing of software that does not involve significant implementation or customization essential to its functionality.  If we fail to contract the additional non-deferred licenses, we may miss our revenue forecasts which may cause our stock price to decline.

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Our reliance on international operations may cause reduced revenues and increased operating expenses.

During the quarter ended March 31, 2002, international revenues were $19.9 million or approximately 87% of our total revenues. During the quarter ended March 31, 2001, international revenues were $11.5 million or approximately 86% of our total revenues. We expect international revenues will continue to represent a significant portion of our total 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;
• Expenses associated with products used in foreign markets;
• Currency fluctuation and hedging activities; and
• Economic downturns in international economies.

Any of these factors could have a significant impact on our ability to license products on a competitive and timely basis and adversely affect our operating expenses and net income. Our international sales are denominated in both the U.S. dollar and local currencies. As a result, increases in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets and could negatively affect our operating results and cash flows.

Competition in our markets is intense and could reduce our sales and prevent us from achieving profitability.

Increased competition could 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 products 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 products. 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 sales-force automation solution providers.

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 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. For the quarter ended March 31, 2002, revenues from companies A, B and D accounted for 24%, 22% and 11% of total revenues, respectively. For the quarter ended March 31, 2001, revenues from companies B, C and D accounted for 30%, 25% and 16% of total revenues, respectively. While our size has increased and customer concentration has reduced, we still 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, or if a contract is delayed or cancelled or we do not contract with new major customers, 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.

We may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business and the market price of our common stock.

Our revenues and operating results may fluctuate significantly because of a number of factors, many of which are outside of our control. Some of these factors include:

• Product and price competition;
• Size and timing of individual license transactions;
• Delay or deferral of customer implementations of our products;
• Length of our sales cycle;
• Success in expanding our global services organization, direct sales force and indirect distribution channels;
• Timing of new product introductions and product enhancements;
• Appropriate mix of products licensed and services sold;
• Levels of international transactions;
• Activities of and acquisitions by competitors;
• Further deterioration and changes in domestic and foreign markets and economies; and
• Our ability to develop and market new products and control costs.

17

One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our revenues and operating results to fluctuate significantly. Based upon the preceding factors, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business, financial condition, results of operations and the market price of our common stock.

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 products and we expect this practice to continue. Thus, delays in implementation by our customers and systems integration partners would reduce our quarterly revenue. Historically, a significant portion of new customer orders have been booked in the third month of the calendar quarter, with many of these bookings occurring 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 the investment community, our stock price is likely to decline.

Our failure to maintain and grow our relationships with systems integrators would harm our ability to market and implement our products and reduce future revenues.

Failure to establish or maintain relationships with systems integrators would significantly harm our ability to license our software products. Systems integrators install and deploy our products, in addition to those of our competitors, and perform custom integration of systems and applications. Some systems 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 products than we would have to otherwise. Our efforts may also not be as effective as those of the systems 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 systems integrators and, as a result, these systems integrators may be more likely to recommend competitors' products and services.

Failure to successfully customize or implement our products 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 products 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 us. We have, in the past, had disputes with customers concerning product performance. One dispute, from a 1997 product license, resulted in a settlement following litigation. One, from a product license and related service agreements, was resolved in February, 2000.

Our primary products have 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 products 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 products could cause reductions in our revenues. The licensing of our products 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 products. The implementation of our products involves significant commitment of technical and financial resources and is commonly associated with substantial implementation efforts that may be performed by us, by the customer or by third-party systems integrators. Customers generally consider a wide range of issues before committing to purchase our products, including product benefits, ability to operate with existing and future computer systems, vendor financial stability and longevity, ability to accommodate increased transaction volume and product reliability.

Our stock price is subject to significant fluctuations.

Since our initial public offering in February 2000, the price of our common stock has fluctuated widely. We believe that factors such as the risks described herein or other factors could cause the price of our common stock to fluctuate, perhaps substantially. In addition, recently, the stock market in general, and the market for high technology stocks in particular, has experienced extreme price fluctuations, which have often been unrelated to the operating performance of the affected companies. Such fluctuations could adversely affect the market price of our common stock.

We are the target of a securities class action complaint and are at risk of securities class action litigation, which may result in substantial costs and divert management attention and resources.

Beginning in July 2001, we and certain of our officers and directors, as well as certain of the underwriters from the our initial public offering, were named as defendants in several class action shareholder complaints filed in the United States District Court for the Southern District of New York and consolidated under the caption, Weiss v. Chordiant Software, Inc., et al., Case No. 01-CV-6222. In the complaint, the plaintiffs allege that we, certain of our officers and directors and our initial public offering underwriters violated the federal securities laws because our registration statement and prospectus for our initial public offering contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the underwriters. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same court against numerous public companies that conducted initial public offerings of their common stock since the mid-1990s. This action may divert the efforts and attention of our management and, if determined adversely to us, could have a material impact on our business.

18

Our products need to successfully operate in a company-wide environment; if they do not we may lose sales and suffer decreased revenues.

If existing customers have difficulty deploying our products or choose not to fully deploy the products, it could damage our reputation and reduce revenues. Our success requires that our products be highly scalable, and able to accommodate substantial increases in the number of users. Our products are 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 not have previously used application software systems or our products. These deployments present very significant technical challenges, which are difficult or impossible to predict. If these deployments do not succeed we may lose future sales opportunities and suffer decreased revenues.

Defects in our products could diminish demand for our products and result in decreased revenues, decreased market acceptance and injury to our reputation.

Errors may be found from time to time in our new, acquired or enhanced products, including the recently announced products within the J2EE architecture. Any significant software errors in our products may result in decreased revenues, decreased sales, and injury to our reputation and/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 as well as in third party products, and as a result have experienced delays in the shipment of our new products. The latest version of our primary product suite was introduced in January 2002.

To date, our sales have been concentrated in the financial services, travel and leisure 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 three large markets -- financial services, travel and leisure and telecommunications -- accounted for approximately 93% of our total revenues for the quarter ended March 31, 2002, and 96% of total revenues for the quarter ended March 31, 2001. We expect that revenues from these three markets will continue to account for a substantial portion of our total revenues in 2002. 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.

In addition, we cannot predict what effect the political terrorist attacks of September 11, 2001, and the related military conflict have had or are continuing to have on our existing and prospective customers' decision-making process with respect to licensing or implementing enterprise-level products such as ours. If these or other outside factors cause existing or prospective customers to cancel or delay deployment of products such as ours, our operating results would be adversely affected.

Low gross margin in services revenues could adversely impact our overall gross margin and income.

Our services revenues have had lower gross margins than our license revenues. As a result, an increase in the percentage of total 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 services revenues will continue to represent over 40% of total 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 services revenues.

Because competition for qualified personnel could again become intense, we may not be able to retain or recruit personnel, which could impact the development and sales of our products.

If we are unable to hire or retain qualified personnel, or if newly hired personnel fails to develop the necessary skills or fails to reach expected levels of productivity, our ability to develop and market our products 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 of the board of directors and Stephen Kelly, our president and chief executive officer. As part of a long planned management succession strategy, we announced the promotion of Stephen Kelly to chief executive officer effective January 1, 2002. Samuel T. Spadafora will continue in his role as chairman of the board of directors.

If we fail to introduce new versions and releases of functional and scalable products 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 products 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 primary product suite. Our future operating results will depend on the demand for the product suite by future customers, including new and enhanced releases that are subsequently introduced. If our competitors release new products that are superior to our products in performance or price, or if we fail to enhance our products or introduce new features and functionality in a timely manner, demand for our products may decline. We have in the past experienced delays in the planned release dates of new versions of our software products and upgrades. New versions of our products may not be released on schedule or may contain defects when released.

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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 products.

We license from several software providers technologies that are incorporated into our products. For example, we license Forte 4GL Runtime and related iPlanet products from iPlanet, a Sun Microsystems company. In addition, we license JRules software products from Ilog and other products from other vendors. Our license agreement with Sun Microsystems was renewed in October 2001. We anticipate that we will continue to license technology from iPlanet, Ilog 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 iPlanet or Ilog, Inc. technology or other technology licenses could result in delays in the license of our products until equivalent technology, if available, is developed or identified, licensed and integrated into our products. Even if substitute technologies are available, there can be no guarantee that we will be able to license these technologies on commercially reasonable terms, if at all.

Defects in third party products associated with our products could impair our 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 third-party products could prevent the implementation or impair the functionality of our products, 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 significant expenses fixing and investigating the cause of these errors.

Our customers and system integration partners have the ability to alter our source code and resulting inappropriate alterations could adversely affect the performance of our products, cause injury to our reputation and increase operating expenses.

Customers and system integration partners have access to the computer source code for certain of our products and may alter the source code. Alteration of our source code may lead to implementation, operation, technical support 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 our products do not operate with the hardware and software platforms used by our customers, customers may license competing products and our revenues will decline.

If our products fail to satisfy advancing technological requirements of our customers and potential customers, the market acceptance of these products 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 products depends on many factors such as:

• Our ability to integrate our products with multiple platforms and existing or legacy systems;
• Our ability to anticipate and support new standards, especially Internet and enterprise Java standards; and
• The integration of additional software modules and third party software applications with our existing products.

Our failure to successfully integrate acquired companies and technologies into our operations and technologies could prevent us from operating efficiently.

Our business strategy includes pursuing opportunities to grow our business, both internally and through selective acquisitions and technology and other asset purchases. To implement this strategy, we expect to be involved in additional technology and asset purchase transactions. Acquisition transactions are motivated by many factors, including, among others, our desire to acquire skilled personnel, obtain new technologies and expand and enhance our product offerings. Growth through acquisitions has several identifiable risks, including difficulties associated with successfully integrating the previously distinct businesses into our organization, the substantial management time devoted to integrating personnel, technology and entire companies, the possibility that we might not be successful in retaining the employees of the acquired companies, undisclosed liabilities, the failure to realize anticipated benefits (such as cost savings and synergies) and issues related to integrating acquired technology or content into our products (such as unanticipated expenses). Realization of any of these risks in connection with any technology acquisition and/or asset purchase we have entered into, or may enter into, could have a material adverse effect on our business, operating results and financial condition.

If we become subject to intellectual property infringement claims, these claims could be costly and time-consuming to defend, divert management's attention, cause product delays and have an adverse effect on our revenues and net income.

We expect that software product developers and providers of software in markets similar to our target markets 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 any of our products were 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 products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all.

Power system shortages and outages in California may result in harm to our operations due to a disruption of our development and administrative activities.

Over the past several years, California has experienced an energy crisis resulting in significant power shortages and outages. A sustained failure or frequent power failures could disrupt our operations and the operations of our third party service providers, which would limit our ability to provide our products and services to our customers, harming our customer relationships, and having an adverse effect on our operating results.

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the impact of interest rate changes, foreign currency fluctuations, and change in the market values of our investments. The following table presents the amounts of cash equivalents and short-term investments that are subject to interest rate risk by year of expected maturity and average interest rates as of March 31, 2002:

	March 31, 2002			Fair Value
Short-term investments and restricted cash	$	13,272		$	13,272
Average interest rates		1.93	%

Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments to hedge our investment portfolio. We invest excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carries a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities, which have declined in market value due to changes in interest rates.

Foreign Currency Risk. International revenues from our foreign subsidiaries accounted for approximately 87% of total revenues for the quarter ended March 31, 2002. International sales are made mostly from our foreign sales subsidiaries in their respective countries and are typically denominated in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. 

Our international business is subject to risks, including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility when compared to the United States. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. 

Our exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which costs incurred in the United States are charged to our foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary. We are also exposed to foreign exchange rate fluctuations as the financial statements of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The effect of foreign exchange rate fluctuations for the quarter ended March 31, 2002 was not material.

21

PART II - OTHER INFORMATION.

Item 1.  Legal Proceedings

Beginning July 10, 2001, a number of purported stockholder class action lawsuits were filed in the United States District Court for the Southern District of New York against us, several of our officers and directors, and certain underwriters of our initial public offering. These lawsuits are essentially identical and purport to bring suit on behalf of all purchasers of our common stock between February 14, 2000, the date of our initial public offering, and December 6, 2000. The plaintiffs allege that our prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially false and misleading because it failed to disclose, among other things, that certain underwriters required several investors who wanted large allocations of initial public offering securities to pay undisclosed and excessive underwriters' compensation in the form of increased brokerage commissions and required investors to agree to buy shares of our securities after the initial public offering was completed at predetermined prices as a precondition to obtaining initial public offering allocations.  As a result of the alleged omissions in our prospectus, the plaintiffs claim violations of Sections 11 and 15 of the Securities Act and Section 10 (b) of the Securities Exchange Act occurred. We anticipate these cases will be consolidated into a single class action. We believe that we have meritorious defenses against these allegations and intend to vigorously defend ourselves in this litigation.

We are also subject to various other claims and legal actions arising in the ordinary course of business. The ultimate disposition of these various other claims and legal actions is not expected to have a material effect on our business, financial condition or results of operations.

Item 2.  Changes in Securities

Changes in Securities

1. Modification of Constituent Instruments

   Not applicable.

2. Change in Rights

   Not applicable.

3. Changes in Securities

   Not applicable.

4. Use of Proceeds

   Not applicable.

Item 3.  Defaults Upon Senior Securities

          None.

Item 4.  Submission of Matters to a Vote of Security Holders

          None.

Item 5.  Other Information

          None.

22

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

2.1 Agreement and Plan of Merger and Reorganization, dated as of March 28, 2002, by and among Chordiant Software, Inc., OnDemand Acquisition Corp. and OnDemand, Inc. (filed as Exhibit 2.1 to Chordiant's Current Report on Form 8-K filed on April 12, 2002, and which Exhibit 2.1 is incorporated herein by reference).

3.1 Amended and Restated Certificate of Incorporation of Chordiant Software, Inc. (filed as Exhibit 3.1 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 3.1 is incorporated herein by reference).

3.2 Amended and Restated Bylaws of Chordiant Software, Inc. (filed as Exhibit 3.2 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 3.2 is incorporated herein by reference).

4.1 Specimen Common Stock Certificate (filed as Exhibit 4.2 with Amendment No. 2 to Chordiant's Registration Statement on Form S-1 (No. 333- 92187) filed on February 7, 2000 and which Exhibit 4.2 is incorporated herein by reference).

4.2 Amended and Restated Registration Rights Agreement, dated as of September 28, 1999 (filed as Exhibit 4.3 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 4.3 is incorporated herein by reference).

4.3 Subordinated Registration Rights Agreement, dated July 19, 2000, by and among Chordiant Software, Inc. and the Sellers of capital stock of White Spider Software, Inc. (filed as Exhibit 4.3 with Chordiant's Registration Statement on Form S-4 (No. 333-54856) filed on February 2, 2001 and which Exhibit 4.3 is incorporated herein by reference).

4.4 Registration Rights Agreement, dated May 17, 2001, by and between Chordiant and ActionPoint, Inc. (filed as Exhibit 4.4 to Chordiant's Annual Report on Form 10-K filed on March 29, 2002, which Exhibit 4.4 is incorporated herein by reference).

10.12* Form of Promissory Note in favor of Chordiant executed by certain officers and directors in connection with the exercise of options (filed as Exhibit 10.11 with Amendment No. 1 to Chordiant's Registration Statement on From S-1 (No. 333-92187) filed on January 19, 2000, and which Exhibit 10.11 is incorporated herein by reference).

10.13* Form of Stock Pledge Agreement by and between Chordiant and certain officers and directors in connection with the exercise of options (filed as Exhibit 10.12 with Amendment No. 1 to Chordiant's Registration Statement on From S-1 (No. 333-92187) filed on January 19, 2000, and which Exhibit 10.11 is incorporated herein by reference).

10.14 Amended and Restated Loan and Security Agreement, dated August 31, 2000, by and between Chordiant and Imperial Bank.

10.15 First Amendment to Amended and Restated Loan and Security Agreement, dated October 19, 2001, by and between Chordiant and Comerica Bank - California, successor in interest to Imperial Bank.

10.16* Change of Control Agreement, dated April 27, 2001, by and between Chordiant and Stephen Kelly.

10.17* Change of Control Agreement, dated September 10, 2001, by and between Chordiant and Sam Spadafora.

10.18* Change of Control Agreement, dated April 27, 2001, by and between Chordiant and Steve Vogel.

10.19* Change of Control Agreement, dated May 6, 2002, by and between Chordiant and Don Morrison.

10.20* Form of Indemnification Agreement by and between Chordiant and certain officers and directors of Chordiant.

10.21   Securities Purchase Agreement by and between Chordiant and Canadian Imperial Holdings, Inc.

24.1 Power of Attorney (set forth on signature page).

* Management contract or compensatory plan or arrangement.

(b) Reports on Form8-K

None.

23

Chordiant Software, Inc.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 15, 2002

Chordiant Software, Inc.

(Registrant)

/s/ Steve G. Vogel

Steve G. Vogel

Senior Vice President of Finance, Chief Financial Officer and Secretary

(Principal Financial and Accounting Officer)

24

 

EXHIBIT INDEX

2.1 Agreement and Plan of Merger and Reorganization, dated as of March 28, 2002, by and among Chordiant Software, Inc., OnDemand Acquisition Corp. and OnDemand, Inc. (filed as Exhibit 2.1 to Chordiant's Current Report on Form 8-K filed on April 12, 2002, and which Exhibit 2.1 is incorporated herein by reference).

3.1 Amended and Restated Certificate of Incorporation of Chordiant Software, Inc. (filed as Exhibit 3.1 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 3.1 is incorporated herein by reference).

3.2 Amended and Restated Bylaws of Chordiant Software, Inc. (filed as Exhibit 3.2 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 3.2 is incorporated herein by reference).

4.1 Specimen Common Stock Certificate (filed as Exhibit 4.2 with Amendment No. 2 to Chordiant's Registration Statement on Form S-1 (No. 333- 92187) filed on February 7, 2000 and which Exhibit 4.2 is incorporated herein by reference).

4.2 Amended and Restated Registration Rights Agreement, dated as of September 28, 1999 (filed as Exhibit 4.3 with Chordiant's Registration Statement on Form S-1 (No. 333-92187) filed on December 6, 1999 and which Exhibit 4.3 is incorporated herein by reference).

4.3 Subordinated Registration Rights Agreement, dated July 19, 2000, by and among Chordiant Software, Inc. and the Sellers of capital stock of White Spider Software, Inc. (filed as Exhibit 4.3 with Chordiant's Registration Statement on Form S-4 (No. 333-54856) filed on February 2, 2001 and which Exhibit 4.3 is incorporated herein by reference).

4.4 Registration Rights Agreement, dated May 17, 2001, by and between Chordiant and ActionPoint, Inc. (filed as Exhibit 4.4 to Chordiant's Annual Report on Form 10-K filed on March 29, 2002, which Exhibit 4.4 is incorporated herein by reference).

10.12* Form of Promissory Note in favor of Chordiant executed by certain officers and directors in connection with the exercise of options (filed as Exhibit 10.11 with Amendment No. 1 to Chordiant's Registration Statement on From S-1 (No. 333-92187) filed on January 19, 2000, and which Exhibit 10.11 is incorporated herein by reference).

10.13* Form of Stock Pledge Agreement by and between Chordiant and certain officers and directors in connection with the exercise of options (filed as Exhibit 10.12 with Amendment No. 1 to Chordiant's Registration Statement on From S-1 (No. 333-92187) filed on January 19, 2000, and which Exhibit 10.11 is incorporated herein by reference).

10.14 Amended and Restated Loan and Security Agreement, dated August 31, 2000, by and between Chordiant and Imperial Bank.

10.15 First Amendment to Amended and Restated Loan and Security Agreement, dated October 19, 2001, by and between Chordiant and Comerica Bank - California, successor in interest to Imperial Bank.

10.16* Change of Control Agreement, dated April 27, 2001, by and between Chordiant and Stephen Kelly.

10.17* Change of Control Agreement, dated September 10, 2001, by and between Chordiant and Sam Spadafora.

10.18* Change of Control Agreement, dated April 27, 2001, by and between Chordiant and Steve Vogel.

10.19* Change of Control Agreement, dated May 6, 2002, by and between Chordiant and Don Morrison.

10.20* Form of Indemnification Agreement by and between Chordiant and certain officers and directors of Chordiant.

10.21   Securities Purchase Agreement by and between Chordiant and Canadian Imperial Holdings, Inc.

24.1 Power of Attorney (set forth on signature page).

* Management contract or compensatory plan or arrangement.

25

EX-10.14

CHORDIANT SOFTWARE, INC.

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of August 16, 2000, by and between IMPERIAL BANK ("Bank") and CHORDIANT SOFTWARE, INC., formerly known as J. FRANK CONSULTING, INC. ("Borrower").

RECITALS

1. Bank and Borrower are parties to that certain Security and Loan Agreement (Accounts Receivable) dated September 10, 1996, as amended from time to time (the "Original Agreement").
2. Borrower and Bank wish to amend and restate the terms of the Original Agreement. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

AGREEMENT

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.
   1. Definitions. As used in this Agreement, the following terms shall have the following definitions:

      "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.

      "Advance" or "Advances" means a cash advance or cash advances under the Revolving Facility.

      "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners.

      "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.

      "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

      "Borrowing Base" means an amount equal to eighty percent (80%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower.

      "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.

      "Change in Control" shall mean a transaction in which any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such "person" or "group" to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.

      "Closing Date" means the date of this Agreement.

      "Code" means the California Uniform Commercial Code.

      "Collateral" means the property described on Exhibit A attached hereto.

      "Committed Revolving Line" means a credit extension of up to Eleven Million Five Hundred Thousand Dollars ($11,500,000).

      "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

      "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

      "Credit Extension" means each Advance, Equipment Advance, Term Advance, Letter of Credit or any other extension of credit by Bank for the benefit of Borrower hereunder.

      "Current Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date.

      "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendible at the option of Borrower or any Subsidiary to a date more than one year from the date of determination.

      "Daily Balance" means the amount of the Obligations owed at the end of a given day.

      "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4, including, but not limited to, maintenance revenue subject to a renewal rate of at least eighty-five percent (85%) and certified on a quarterly basis; provided, that standards of eligibility may be fixed and revised from time to time by Bank as a consequence of any Collateral audits done pursuant to Section 6.3 in Bank's reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:

      1. Accounts that the account debtor has failed to pay within ninety (90) days of invoice date;
      2. Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;
      3. Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower;
      4. Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional;
      5. Accounts with respect to which the account debtor is an Affiliate of Borrower;
      6. Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;
      7. Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States;
      8. Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;
      9. Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;
      10. Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and
      11. Accounts the collection of which Bank reasonably determines to be doubtful.

          "Eligible Foreign Accounts" means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that (i) are supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, or (ii) that Bank approves on a case-by-case basis.

          "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

          "Equipment Advance" has the meaning set forth in Section 2.1(b).

          "Equipment Line" means a credit extension of up to Two Million Dollars ($2,000,000).

          "Equipment Maturity Date" means June 30, 2003.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

          "Event of Default" has the meaning assigned in Article 8.

          "GAAP" means generally accepted accounting principles as in effect from time to time.

          "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.

          "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

          "Intellectual Property Collateral" means all of Borrower's right, title, and interest in and to the following:

      1. Copyrights, Trademarks and Patents;
      2. Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
      3. Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
      4. Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;
      5. All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;
      6. All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
      7. All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

         "Interest Period" means for each LIBOR Rate Advance, a period of approximately one, two, three or six months as Borrower may elect, provided that the last day of an Interest Period for a LIBOR Rate Advance shall be determined in accordance with the practices, of the LIBOR interbank market as from time to time in effect, provided, further, in all cases such period shall expire not later than the applicable Revolving Maturity Date.

         "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing.

         "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

         "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

         "LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Advance, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in United States Dollars are offered to Bank in the London interbank market in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) three (3) Business Days before the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Advance.

         "LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Advance, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the Reserve Requirement for such Interest Period.

         "LIBOR Rate Advances" means any Advances made or a portion thereof on which interest is payable based on the LIBOR Rate in accordance with the terms thereof.

         "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

         "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time.

         "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents.

         "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing.

         "New Equity" means the receipt by Borrower of cash proceeds from the sale or issuance of its equity securities to investors or Subordinated Debt.

         "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.

         "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

         "Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.

         "Permitted Indebtedness" means:

      1. Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
      2. Indebtedness existing on the Closing Date and disclosed in the Schedule;
      3. Indebtedness secured by a lien described in clause (c) of the defined term "Permitted Liens," provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness; and
      4. Subordinated Debt.

         "Permitted Investment" means:

      1. Investments existing on the Closing Date disclosed in the Schedule; and
      2. (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank's money market accounts.

         "Permitted Liens" means the following:

      1. Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
      2. Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security interests;
      3. Liens (i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
      4. Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.

      "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

      "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank.

      "Quick Assets" means, at any date as of which the amount thereof shall be determined, the unrestricted cash and cash-equivalents, accounts receivable and investments with maturities not to exceed 90 days, of Borrower determined in accordance with GAAP.

      "Reserve Requirement" means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D against "Eurocurrency liabilities" (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any regulatory change against (i) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of "LIBOR Base Rate" or (ii) any category of extensions of credit or other assets which include Advances.

      "Responsible Officer" means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.

      "Revolving Facility" means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1(a) hereof.

      "Revolving Maturity Date" means the day immediately preceding the first anniversary of the Closing Date.

      "Schedule" means the schedule of exceptions attached hereto, if any.

      "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).

      "Subsidiary" means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.

      "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of Borrower and its Subsidiaries minus Total Liabilities and intangible assets, plus Subordinated Debt, on a consolidated basis determined in accordance with GAAP.

      "Total Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness.

      "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

   2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
   1. Credit Extensions.

      Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

      1. Revolving Advances.
         1. Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base minus the aggregate face amount of all outstanding Letters of Credit and availability used under the Committed Revolving Line for FX Forward Contracts; provided, however, that Borrower may request Advances in an aggregate outstanding amount of Three Million Dollars ($3,000,000) without regard to the Borrowing Base; provided further that once outstanding Advances, including the face amount of all outstanding Letters of Credit and availability used under the Committed Revolving Line for FX Forward Contracts, exceed Three Million Dollars ($3,000,000), then all outstanding and future Credit Extensions under the Committed Revolving Line shall be subject to the Borrowing Base. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium.
         2. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(a) to Borrower's deposit account.
      2. Equipment Advances.
         1. Subject to and upon the terms and conditions of this Agreement, at any time from the date hereof through the Revolving Maturity Date, Bank agrees to make advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in an aggregate outstanding amount not to exceed the Equipment Line provided that the aggregate amount of all Equipment Advances for software shall not exceed the lesser of (A) thirty percent (30%) of the aggregate amount of the outstanding Equipment Advances, or (B) Five Hundred Thousand Dollars ($500,000). Each Equipment Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment, furniture, software license and corporate purposes approved by Bank from time to time (which Borrower shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Advance), excluding taxes, shipping, warranty charges, freight discounts, soft costs, and installation expense, provided that the initial Equipment Advance (which must be requested by Borrower on or before September 15, 2000) shall not exceed one hundred percent (100%) of the invoice amount of equipment, furniture, software license and corporate purposes approved by Bank from time to time (which Borrower shall, in any case, have purchased within 180 days of the date of the corresponding Equipment Advance), excluding taxes, shipping, warranty charges, freight discounts, soft costs, and installation expense.
         2. Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3(a), and shall be payable monthly on the fifteenth (15th) day of each month through August 15, 2003. Any Equipment Advances that are outstanding on September 15, 2000, shall be payable in thirty-five (35) equal monthly installments of principal, plus all accrued interest, beginning on September 15, 2000, and continuing on the same day of each month thereafter through August 15, 2003. Any Equipment Advances that are outstanding on December 31, 2000 (which are not outstanding on September 15, 2000) shall be payable in thirty (30) equal monthly installments of principal, plus all accrued interest, beginning on January 15, 2001, and continuing on the same day of each month thereafter through August 15, 2003. Any Equipment Advances that are outstanding on June 30, 2001 (which were not outstanding on September 15, 2000 or December 31, 2000) shall be payable in twenty-four (24) equal monthly installments of principal, plus all accrued interest, beginning on July 15, 2001, and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts due under this Section 2.1(b) and any other amounts due under this Agreement shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Notwithstanding the foregoing, all Equipment Advances used for software license purposes must be requested by Borrower on or prior to June 30, 2001 and shall each be payable in twenty-four (24) equal monthly installments of principal, plus all accrued interest, but in any event shall be immediately due and payable no later than the Equipment Maturity Date. Borrower may prepay any Equipment Advances without penalty or premium.
         3. When Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time one (1) Business Day before the day on which the Equipment Advance is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer or its designee and include a copy of the invoice for any Equipment to be financed.
      3. Letters of Credit
         1. Subject to the terms and conditions of this Agreement, Bank agrees to issue or cause to be issued letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, the "Letters of Credit") in an aggregate outstanding face amount not to exceed Four Million Dollars ($4,000,000). All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form of standard application and letter of credit agreement, including any then-applicable fee. On any drawn but unreimbursed Letter of Credit, the unreimbursed amount shall be deemed an Advance under Section 2.1(a).
         2. The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense or liability, including, without limitation, reasonable attorneys' fees, arising out of or in connection with any Letters of Credit, except for expenses caused by Bank's gross negligence or willful misconduct.
      4. Foreign Exchange Sublimit. If there is availability under the Committed Revolving Line, Borrower may enter in foreign exchange forward contracts with the Bank under which Borrower commits to purchase from or sell to Bank a set amount of foreign currency more than one business day after the contract date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX Forward Contract from the foreign exchange sublimit which is a maximum of $2,500,000 (the "FX Sublimit"). Such subtracted amount shall be deducted from availability under the Committed Revolving Line for other Credit Extensions. The total FX Forward Contracts at any one time may not exceed 10 times the amount of the FX Sublimit. Bank may terminate the FX Forward Contracts if an Event of Default occurs.
      5. Term Advances. "Equipment Advances" in the aggregate principal amount of $1,310,663 were made to Borrower under the Original Agreement (which shall be referred to hereunder as the "Term Advances"). Borrower shall not request or receive any further Term Advances. Interest shall accrue on such Term Advances at the rate set forth in Section 2.3(a). All Term Advances shall continue to be paid on the terms set forth in the Original Agreement. All Term Advances under this Section 2.1(e) shall be immediately due and payable on or before January 21, 2002. Term Advances once repaid, may not be reborrowed. Borrower may prepay all Term Advances without penalty or premium.
   2. Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Committed Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
   3. Interest Rates, Payments, and Calculations.
      1. Interest Rates.
         1. Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance thereof, at a rate equal to the Prime Rate; provided, however, upon Borrower's election, Advances shall bear interest on the outstanding daily balance thereof, as provided in Section 2.5 below.
         2. Equipment Advances. Except as set forth in Section  2.3(b), the Equipment Advances shall bear interest, on the outstanding daily balance thereof, at a rate equal to the Prime Rate.
         3. Term Advances. Except as set forth in Section  2.3(b), the Term Advances shall bear interest, on the outstanding daily balance thereof, at a rate equal to one-quarter of one percent (0.25%) above the Prime Rate.
      2. Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
      3. Payments. Interest hereunder shall be due and payable on the fifteenth (15th) calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Committed Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.
      4. Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
   4. Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
   5. Libor/Prime Rate Advances. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 11:00 a.m. Pacific time, on the Business Day that a Prime Advance is to be made, and noon Pacific time on the Business Day that is three (3) Business Days prior to the Business Day on which a LIBOR Rate Advance is made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B-2 hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer, or a designee of a Responsible Officer designated in writing and signed by such Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 to a Borrower's deposit account, as specified by such Borrower.

      Each such notice shall specify:

      1. the date such Advance is to be made, which shall be a Business Day;
      2. the amount of such Advance;
      3. whether such Advance is to be a Prime Rate Advance or a LIBOR Rate Advance; and
      4. if the Advance is to be a LIBOR Rate Advance, the Interest Period for such Advance;

      Each written request for an Advance, and each confirmation of a telephone request for such an Advance, shall be in substantially the form of Exhibit B-2 hereto executed by Borrower.

      1. Prime Rate Advances. Each Prime Rate Advance shall be in an amount of not less than Twenty-Five Thousand Dollars ($25,000). The outstanding principal balance of each Prime Rate Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed), at a rate per annum equal to the Prime Rate. Prime Rate Advances shall be payable as set forth in Section 2.3(c), with the entire outstanding principal amount of all Prime Rate Advances due and payable on the Revolving Maturity Date.
      2. LIBOR Rate Advances. Each LIBOR Rate Advance shall be in an amount of not less than Five Hundred Thousand Dollars ($500,000). The outstanding principal balance of each LIBOR Rate Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed) at a rate per annum equal to the LIBOR Rate plus 250 basis points for such LIBOR Rate Advance. The entire outstanding principal amount of each LIBOR Rate Advance shall be due and payable on the earlier of (i) the last day of the LIBOR Rate Interest Period for such LIBOR Rate Advance, and (ii) Revolving Maturity Date.
      3. Prepayment of the Advances. Borrower may at any time prepay any Prime Rate Advance or any LIBOR Rate Advance, in full or in part. Each partial prepayment for a LIBOR Rate Advance shall be in an amount not less than Twenty-Five Thousand Dollars ($25,000). Each prepayment shall be made upon the irrevocable written or telephone notice of Borrower received by Bank not later than 10:00 a.m. California time on the date of the prepayment of a Prime Rate Advance, and not less than three (3) Business Days prior to the date of the prepayment of a LIBOR Rate Advance. The notice of prepayment shall specify the date of the prepayment, the amount of the prepayment, and the Advance or Advances prepaid. Each prepayment of a LIBOR Rate Advance shall be accompanied by the payment of accrued interest on the amount prepaid and any amount required by Section 2.8.
   6. Fees. Borrower shall pay to Bank the following:
      1. Facility Fee.
         1. Committed Revolving Line. On the Closing Date, a Facility Fee equal to $15,000, which shall be non-refundable.
         2. Equipment Line. On the Closing Date, a Facility Fee equal to $4,000, which shall be non-refundable.
      2. Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys' fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due.
   7. Conversion/Continuation of Advances.
      1. A Borrower may from time to time submit in writing a request that Prime Rate Advances be converted to LIBOR Rate Advances or that any existing LIBOR Rate Advances continue for an additional Interest Period. Such request shall specify the amount of the Prime Rate Advances which will constitute LIBOR Rate Advances (subject to the limits set forth below) and the Interest Period to be applicable to such LIBOR Rate Advances. Each written request for a conversion to a LIBOR Rate Advance or a continuation of a LIBOR Rate Advance shall be substantially in the form of a Libor Rate Conversion/Continuation Certificate as set forth on Exhibit B-3, which shall be duly executed by a Responsible Officer. Subject to the terms and conditions contained herein, three (3) Business Days after Bank's receipt of such a request from Borrower, such Prime Rate Advances shall be converted to LIBOR Rate Advances or such LIBOR Rate Advances shall continue, as the case may be provided that:
         1. no Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists;
         2. no party hereto shall have sent any notice of termination of the Agreement;
         3. Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower's requests for LIBOR Rate Advances;
         4. the amount of a LIBOR Rate Advance shall be $500,000 or such greater amount which is an integral multiple of $50,000; and
         5. Bank shall have determined that the Interest Period or LIBOR Rate is available to Bank as of the date of the request for such LIBOR Rate Advance (no more than four Interest Periods may be in effect at any one time under the Revolving Line).

         Any request by Borrower to convert Prime Rate Advances to LIBOR Rate Advances or continue any existing LIBOR Rate Advances shall be irrevocable. Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Rate Advances.

      2. Any LIBOR Rate Advances shall automatically convert to Prime Rate Advances upon the last day of the applicable Interest Period, unless Bank has received and approved a complete and proper request to continue such LIBOR Rate Advance at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any LIBOR Rate Advances shall, at Bank's option, convert to Prime Rate Advances in the event that an Event of Default shall exist. Borrower shall pay to Bank, upon demand by Bank any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of LIBOR Rate Advances to Prime Rate Advances pursuant to any of the foregoing.
   8. Additional Requirements/Provisions Regarding LIBOR Rate Advances.
      1. If for any reason (including voluntary or mandatory prepayment or acceleration, other than under section 2.8(e), Bank receives all or part of the principal amount of a LIBOR Rate Advance prior to the last day of the Interest Period for such LIBOR Rate Advance, Borrower shall on demand by Bank, pay Bank the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period or term exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets or the offshore currency interbank markets or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period or term at the interest rate determined by Bank. Bank's determination as to such amount shall be presumptive evidence of such additional costs and binding for all purposes if made reasonably and in good faith.
      2. Borrower shall pay to Bank, upon demand by Bank, from time to time such amounts as Bank may reasonably determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Advances relating thereto (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any regulatory change that:
         1. changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any Advances (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office); or
         2. imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of Bank (including any Advances or any deposits referred to in the definition of "LIBOR Base Rate"); or
         3. imposes any other material condition affecting this Agreement (or any of such extensions of credit or liabilities).

         Bank will notify Borrower of any event occurring after the date of the Agreement which will entitle Bank to compensation pursuant to this section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 2.8. Determinations and allocations by Bank for purposes of this Section 2.8 of the effect of any regulatory change on its costs of maintaining its obligations to make Advances or of making or maintaining Advances or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.

      3. Borrower shall pay to Bank, upon the request of Bank, such amount or amounts as shall be sufficient (in the sole good faith opinion of Bank) to compensate it for any reasonable loss, costs or expense incurred by it as a result of any failure by Borrower to borrow a LIBOR Rate Advance on the date for such borrowing specified in the relevant notice of borrowing hereunder.
      4. If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any respect or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a "Parent") as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change or compliance (taking into consideration its policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within 15 days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.
      5. If at any time Bank, in its sole and absolute discretion, determines that: (i) the amount of the LIBOR Rate Advances for periods equal to the corresponding Interest Periods or any other period are not available to Bank in the offshore currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect the cost to Bank of lending the LIBOR Rate Advance, then Bank shall promptly give notice thereof to Borrower, and upon the giving of such notice Bank's obligation to make the LIBOR Rate Advances shall terminate, unless Bank and Borrower agree in writing to a different interest rate applicable to LIBOR Rate Advances. If it shall become unlawful for Bank to continue to fund or maintain any Advances, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder.
   9. Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for a term ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS.
   1. Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
      1. this Agreement;
      2. a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
      3. a financing statement (Form UCC-1);
      4. an intellectual property security agreement;
      5. agreement to provide insurance;
      6. payment of the fees and Bank Expenses then due specified in Section 2.6 hereof;
      7. an audit of the Collateral, the results of which shall be satisfactory to Bank; and
      8. such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
   2. Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
      1. timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and
      2. the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. CREATION OF SECURITY INTEREST.
   1. Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof.
   2. Delivery of Additional Documentation Required. Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents.
   3. Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours but no more than once a year (unless an Event of Default has occurred and is continuing), to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.

   Borrower represents and warrants as follows:

   1. Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified.
   2. Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect.
   3. No Prior Encumbrances. Borrower has good and marketable title to the Collateral, free and clear of Liens, except for Permitted Liens.
   4. Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing obligations. The property and services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or to the account debtor's agent for immediate and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account.
   5. Merchantable Inventory. All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.
   6. Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Borrower's rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, Borrower is not a party to, or bound by, any agreement that restricts the grant by Borrower of a security interest in Borrower's rights under such agreement.
   7. Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof.
   8. Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect, or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral.
   9. No Material Adverse Change in Financial Statements. All consolidated financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
   10. Solvency, Payment of Debts. Borrower is solvent and able to pay its debts (including trade debts) as they mature.
   11. Regulatory Compliance. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
   12. Environmental Condition. Except as disclosed in the Schedule, none of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
   13. Taxes. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.
   14. Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
   15. Government Consents. Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted, the failure to obtain which could have a Material Adverse Effect.
   16. Investment Accounts. None of Borrower's property is maintained or invested with a Person other than Bank.
   17. Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS.

   Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:

   1. Good Standing. Borrower shall maintain its and each of its Subsidiaries' corporate existence in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.
   2. Government Compliance. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral.
   3. Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower's fiscal year, an annual report and audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission within five (5) days of filing (or 95 days of calendar quarter end for the from 10-K or 50 days of calendar quarter end for the form 10-Q); (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time generally prepared by Borrower in the ordinary course of business; and (f) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower's intellectual property, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of the Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.

      If Advances under the Committed Revolving Line, including Letters of Credits and availability used under the Committed Revolving Line for FX Forward Contracts, exceed Three Million Dollars ($3,000,000), then within twenty (20) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable and accounts payable and a report of deferred revenue.

      Borrower shall deliver to Bank with the 10-Q reports a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto.

      Bank shall have a right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing; provided, however, that if Advances under the Committed Revolving Line, including Letters of Credit and availability used under the Committed Revolving Line for FX Forward Contracts, exceed Three Million Dollars ($3,000,000), then such audits may be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing.

   4. Inventory; Returns. Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).
   5. Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.
   6. Insurance.
      1. Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's business and ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's.
      2. All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
   7. Principal Depository. Borrower shall maintain its principal depository and operating accounts with Bank.
   8. Quick Ratio. Borrower shall maintain, as of the last day of each calendar quarter, a ratio of Quick Assets to Current Liabilities less deferred revenue of at least 2.50 to 1.00.
   9. Tangible Net Worth. Borrower shall maintain, as of the last day of each fiscal quarter, a Tangible Net Worth of not less than Twenty-Five Million Dollars ($25,000,000) plus sixty percent (60%) of any New Equity.
   10. Registration of Intellectual Property Rights.
       1. Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable: (i) those intellectual property rights listed on Exhibits A, B and C to the Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement, within thirty (30) days of the date of this Agreement, (ii) all registerable intellectual property rights Borrower has developed as of the date of this Agreement but heretofore failed to register, within thirty (30) days of the date of this Agreement, and (iii) those additional intellectual property rights developed or acquired by Borrower from time to time in connection with any product or service, prior to the sale or licensing of such product or the rendering of such service to any third party, and prior to Borrower's use of such product (including without limitation major revisions or additions to the intellectual property rights listed on such Exhibits A, B and C). Borrower shall give Bank notice of all such applications or registrations.
       2. Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect Bank's security interest in the Intellectual Property Collateral.
       3. Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.
       4. Bank may audit Borrower's Intellectual Property Collateral to confirm compliance with this Section, provided such audit may not occur more often than once per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower's sole expense, any actions that Borrower is required under this Section to take but which Borrower fails to take, after fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section.
   11. Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.

   Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following:

   1. Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of surplus, worn-out or obsolete Equipment.
   2. Change in Business; Change in Control or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto). Borrower will not suffer or permit a Change in Control or without thirty (30) days prior written notification to Bank, relocate its chief executive office. Borrower will not change the date on which its fiscal year ends without Bank's prior written consent.
   3. Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (collectively, "Merger and Acquisition Activities"). Notwithstanding the foregoing, Borrower may engage in Merger and Acquisition Activities in which (i) such Merger and Acquisition Activities are generally in Borrower's industry and do not exceed an aggregate consideration of Seventy-Five Million Dollars ($75,000,000) through the Revolving Maturity Date, (ii) Borrower is the surviving entity as a result of such transaction and there is no substantial change in Borrower's executive management and (iii) the consideration consists of its common stock or cash, provided that the aggregate amount of cash paid in connection with Merger and Acquisition Activity may not exceed Ten Million Dollars ($10,000,000) through the Revolving Maturity Date (and Twenty Million Dollars ($20,000,000) per calendar year during the term of this Agreement) and further provided that Borrower may not engage in any Merger and Acquisition Activity if an Event of Default has occurred and is continuing at the time of such a proposed transaction or if an Event of Default would exist after giving effect to such transaction.
   4. Indebtedness. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
   5. Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens.
   6. Distributions. Pay any dividends (other than dividends payable in stock) or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock (in excess of Five Hundred Thousand Dollars ($500,000) per fiscal year), or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.
   7. Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. Maintain or invest any of its property with a Person other than Bank unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank.
   8. Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person.
   9. Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent.
   10. Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or similar party unless Bank has received a pledge of the warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest.
   11. Compliance. Become an "investment company" or be controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
   12. Negative Pledge Agreements. Permit the inclusion in any contract to which it becomes a party of any provisions that could restrict or invalidate the creation of a security interest in Borrower's rights and interests in any Collateral.
8. EVENTS OF DEFAULT.

   Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

   1. Payment Default. If Borrower fails to pay, when due, any of the Obligations;
   2. Covenant Default. If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be made during such cure period);
   3. Material Adverse Change. If there occurs a material adverse change in Borrower's business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or a material impairment of the value or priority of Bank's security interests in the Collateral;
   4. Attachment. If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);
   5. Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
   6. Other Agreements. If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or that could have a Material Adverse Effect;
   7. Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;
   8. Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); or
   9. Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES.
   1. Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
      1. Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
      2. Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
      3. Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
      4. Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
      5. Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;
      6. Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit;
      7. Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
      8. Bank may credit bid and purchase at any public sale; and
      9. Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
   2. Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) to modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower's approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; (h) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; and (i) to transfer the Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the California Uniform Commercial Code; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions hereunder is terminated.
   3. Accounts Collection. At any time during the term of this Agreement, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
   4. Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a Facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
   5. Bank's Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
   6. Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
   7. Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.

    Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:

    If to Borrower: Chordiant Software, Inc.
    20400 Stevens Creek Boulevard, Suite 400
    Cupertino, CA 95014
    Attn: Chief Financial Officer/Chief Executive Officer
    FAX: (408) 517-0270

    If to Bank: Imperial Bank
    226 Airport Parkway
    San Jose, CA 95110-1024
    Attn: Corporate Banking Center
    FAX: (408) 451-8586

    with a copy to: Imperial Bank
    3000 El Camino Real, 8th Floor
    Palo Alto, CA 94301
    Attn: Robin W. Steinbach
    FAX: (650) 213-1710

    The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

    This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

12. GENERAL PROVISIONS.
    1. Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder.
    2. Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys' fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct.
    3. Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
    4. Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
    5. Amendments in Writing, Integration. This Agreement cannot be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents.
    6. Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
    7. Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
13. JUDICIAL REFERENCE.
    1. Other than (i) nonjudicial foreclosure and all matters in connection therewith regarding security interests in real or personal property; or (ii) the appointment of a receiver, or the exercise of other provisional remedies (any and all of which may be initiated pursuant to applicable law), each controversy, dispute or claim between the parties arising out of or relating to this document, which controversy, dispute or claim is not settled in writing within thirty (30) days after the "Claim Date" (defined as the date on which a party subject to this Agreement gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure, or their successor section ("CCP"), which shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding and except as set forth above, the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than Santa Clara County (the "Court"). The referee shall be a retired Judge of the Court selected by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Date, the referee shall be promptly selected by the Presiding Judge of the Court (or his representative). The referee shall be appointed to sit as a temporary judge, with all of the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of the Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP section 170.6. The referee shall (a) be requested to set the matter for hearing within sixty (60) days after the date of selection of the referee and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgment shall be entered pursuant to CCP section 644 in any court in the State of California having jurisdiction. Any party may apply for a reference proceeding at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim, by filing a petition for a hearing and/or trial. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and request for production or inspection of documents which cannot be resolved by the parties shall be submitted to the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate.
    2. Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. The costs of the court reporter at the trial shall be borne equally by the parties.
    3. The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties hereto expressly reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
    4. In the event that the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance with the California Arbitration Act, section 1280 through section 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery as set forth hereinabove shall apply to any such arbitration proceeding.

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

CHORDIANT SOFTWARE, INC.

By:

Title:

IMPERIAL BANK

By:

Title:

DEBTOR CHORDIANT SOFTWARE, INC.

SECURED PARTY: IMPERIAL BANK

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to:

(i) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all financial assets, all investment property, including securities and securities entitlements;

(ii) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Bank (herein referred to as "Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright;

(iii) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory);

(iv) all guarantees and other security therefor;

(v) all trademarks, service marks, trade names and service names and the goodwill associated therewith;

(vi) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (b) licenses pertaining to any patent whether Debtor is licensor or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); and

(vii) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing.

EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., PACIFIC TIME

TO: EMERGING GROWTH DIVISION DATE: _______________

FAX #: 650-846-6840 Attn: Compliance TIME: _______________

FROM: CHORDIANT SOFTWARE, INC.
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # ______________________ TO ACCOUNT #
REQUESTED TRANSACTION TYPE	REQUEST DOLLAR AMOUNT
	$
PRINCIPAL INCREASE (ADVANCE)	$
PRINCIPAL PAYMENT (ONLY)	$
INTEREST PAYMENT (ONLY)	$
PRINCIPAL AND INTEREST (PAYMENT)	$
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Amended and Restated Loan and Security Agreement are true, correct and complete in all material respects as of the date of the telephone request for an Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.
Authorized Requester		Phone #
Received By (Bank)		Phone #
_____________________________________________
Authorized Signature (Bank)

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower: Chordiant Software, Inc. Lender: Imperial Bank

Commitment Amount: $11,500,000 *borrowing base certificate not required if aggregate outstanding Advances are less than $3,000,000

ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___		$___________
2. Additions (please explain on reverse)		$___________
3. TOTAL ACCOUNTS RECEIVABLE		$___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due	$___________
5. Balance of 25% over 90 day accounts	$___________
6. Concentration Limits
7. Foreign Accounts	$___________
8. Governmental Accounts	$___________
9. Contra Accounts	$___________
10. Demo Accounts	$___________
11. Intercompany/Employee Accounts	$___________
12. Other (please explain on reverse)	$___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS		$___________
14. Eligible Accounts (#3 minus #13)		$___________
15. LOAN VALUE OF ACCOUNTS (80% of #14)		$___________
BALANCES
16. Maximum Loan Amount		$___________
17. Total Funds Available [Lesser of #16 or #15]		$___________
18. Present balance owing on Line of Credit		$___________
19. Outstanding under Sublimits (Letters of Credit)		$___________
20. Outstanding under Sublimits (Foreign Exchange)		$___________
21. RESERVE POSITION (#17 minus #18 and #19 and #20)

The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Amended and Restated Loan and Security Agreement between the undersigned and Imperial Bank.

CHORDIANT SOFTWARE, INC.

By:

Authorized Signer

EXHIBIT D
COMPLIANCE CERTIFICATE

TO: IMPERIAL BANK

FROM: CHORDIANT SOFTWARE, INC.

The undersigned authorized officer of CHORDIANT SOFTWARE, INC. hereby certifies that in accordance with the terms and conditions of the Amended and Restated Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.

Please indicate compliance status by circling Yes/No under "Complies" column.

Reporting Covenant	Required			Complies
Monthly financial statements	Monthly within 30 days			Yes		No
Annual (CPA Audited)	FYE within 120 days			Yes		No
10K and 10Q	within 5 days of SEC filing (or 95 days/50 days of quarter end)			Yes		No
A/R & A/P Agings, Borrowing Base Cert.	Monthly within 20 days*			Yes		No
A/R Audit	Annual or Semi-Annual*			Yes		No
IP Report	Quarterly within 30 days			Yes		No
*if Advances+LC+FX > $3,000,000
Financial Covenant	Required		Actual	Complies
Maintain on a Quarterly Basis:
Minimum Quick Ratio	2.50:1.00		_____:1.00	Yes		No
Minimum Tangible Net Worth	$25,000,000 + 60% New Equity		$________	Yes		No
Comments Regarding Exceptions: See Attached.		BANK USE ONLY
		Received by:
Sincerely,		AUTHORIZED SIGNER
		Date:
		Verified:
SIGNATURE		AUTHORIZED SIGNER
		Date:
TITLE
		Compliance Status			Yes		No
DATE

SCHEDULE OF EXCEPTIONS

Permitted Indebtedness (Section 1.1)

Permitted Investments (Section 1.1)

Permitted Liens (Section 1.1)

Prior Names (Section 5.7)

Litigation (Section 5.8)

CORPORATE RESOLUTIONS TO BORROW

Borrower: CHORDIANT SOFTWARE, INC.

I, the undersigned Secretary or Assistant Secretary of CHORDIANT SOFTWARE, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of Delaware.

I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate of Incorporation, as amended, and the Restated Bylaws of the Corporation, each of which is in full force and effect on the date hereof.

I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly called and held, at which a quorum was present and voting (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted.

BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below:

NAMES POSITION ACTUAL SIGNATURES

acting for and on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered:

Borrow Money. To borrow from time to time from Imperial Bank ("Bank"), on such terms as may be agreed upon between the officers, employees, or agents of the Corporation and Bank, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Amended and Restated Loan and Security Agreement dated as of August 16, 2000 (the "Loan Agreement").

Execute Loan Documents. To execute and deliver to Bank the Loan Agreement and any other agreement entered into between Corporation and Bank in connection with the Loan Agreement, all as amended or extended from time to time (collectively, with the Loan Agreement, the "Loan Documents"), and also to execute and deliver to Bank one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for the Loan Documents, or any portion thereof.

Grant Security. To grant a security interest to Bank in the Collateral described in the Loan Documents, which security interest shall secure all of the Corporation's Obligations, as described in the Loan Documents.

Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable.

Letters of Credit; Foreign Exchange. To execute letters of credit applications, foreign exchange agreements and other related documents pertaining to Bank's issuance of letters of credit and foreign exchange contracts.

Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given.

I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand on August 16, 2000 and attest that the signatures set opposite the names listed above are their genuine signatures.

CERTIFIED AND ATTESTED BY:

X

IMPERIAL BANK

Member FDIC

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

(Revolver)

Name(s): CHORDIANT SOFTWARE, INC. Date: August 16, 2000
$	credited to deposit account No. ___________ when Advances are requested by Borrower
Amounts paid to others on your behalf:
$15,000	to Imperial Bank for Loan Fee
$	to Imperial Bank for Document Fee
$	to Imperial Bank for accounts receivable audit (estimate)
$	to Bank counsel fees and expenses
$	to _______________
$	to _______________
$	TOTAL (AMOUNT FINANCED)

Upon consummation of this transaction, this document will also serve as the authorization for Imperial Bank to disburse the loan proceeds as stated above.

Signature Signature

IMPERIAL BANK

Member FDIC

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

(Equipment Loan)

Name(s): CHORDIANT SOFTWARE, INC. Date: August 16, 2000
$	credited to deposit account No. ___________ when Advances are requested by Borrower
Amounts paid to others on your behalf:
$4,000	to Imperial Bank for Loan Fee
$	to Imperial Bank for Document Fee
$	to Imperial Bank for accounts receivable audit (estimate)
$	to Bank counsel fees and expenses
$	to _______________
$	to _______________
$	TOTAL (AMOUNT FINANCED)

Upon consummation of this transaction, this document will also serve as the authorization for Imperial Bank to disburse the loan proceeds as stated above.

Signature Signature

AGREEMENT TO PROVIDE INSURANCE

TO: IMPERIAL BANK Date: August 16, 2000

c/o Hibernia Mitchel Insurance Services

Post Office Box 8061

Walnut Creek, CA 94596-8061 Borrower: CHORDIANT SOFTWARE, INC.

In consideration of a loan in the amount of $14,810,663, secured by all tangible personal property including inventory and equipment.

I/We agree to obtain adequate insurance coverage to remain in force during the term of the loan.

I/We also agree to advise the below named agent to add Imperial Bank as lender's loss payable on the new or existing insurance policy, and to furnish Bank at above address with a copy of said policy/endorsements and any subsequent renewal policies.

I/We understand that the policy must contain:

1. Fire and extended coverage in an amount sufficient to cover:

(a) The amount of the loan, OR

(b) All existing encumbrances, whichever is greater,

But not in excess of the replacement value of the improvements on the real property.

2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Imperial Bank, or any other form acceptable to Bank.

INSURANCE INFORMATION

Insurance Co./Agent Telephone No.:

Agent's Address:

Signature of Obligor:

Signature of Obligor:

FOR BANK USE ONLY

INSURANCE VERIFICATION: Date:

Person Spoken to:

Policy Number:

Effective From: To:

Verified by:

IMPERIAL BANK
California's Business Banks	AUTOMATIC DEBIT AUTHORIZATION
Member FDIC
To: Imperial Bank
Re: Loan # ___________________________________
You are hereby authorized and instructed to charge account No. _________________________ in the name of CHORDIANT SOFTWARE, INC.
for principal and interest payments due on above referenced loan as set forth below and credit the loan referenced above.
_X_ Debit each interest payment as it becomes due according to the terms of the note and any renewals or amendments thereof.
____ Debit each principal payment as it becomes due according to the terms of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in writing.
Borrower Signature		Date: August 16, 2000

IMPERIAL BANK
California's Business Banks	AUTOMATIC DEBIT AUTHORIZATION
Member FDIC
To: Imperial Bank
Re: Loan # ___________________________________
You are hereby authorized and instructed to charge account No. _________________________ in the name of CHORDIANT SOFTWARE, INC.
for principal and interest payments due on above referenced loan as set forth below and credit the loan referenced above.
_X_ Debit each interest payment as it becomes due according to the terms of the note and any renewals or amendments thereof.
_X_ Debit each principal payment as it becomes due according to the terms of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in writing.
Borrower Signature		Date: August 16, 2000

DEBTOR: CHORDIANT SOFTWARE, INC.

SECURED PARTY: IMPERIAL BANK

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO UCC-1 FINANCING STATEMENT

All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to:

(i) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all financial assets, all investment property, including securities and securities entitlements;

(ii) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Bank (herein referred to as "Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright;

(iii) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory);

(iv) all guarantees and other security therefor;

(v) all trademarks, service marks, trade names and service names and the goodwill associated therewith;

(vi) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (b) licenses pertaining to any patent whether Debtor is licensor or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); and

(vii) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing.

EX-10.15

FIRST AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This First Amendment to Amended and Restated Loan and Security Agreement (this "Amendment") is entered into as of October 19, 2001, by and between COMERICA BANK-CALIFORNIA, SUCCESSOR IN INTEREST TO IMPERIAL BANK ("Bank") and CHORDIANT SOFTWARE, INC. ("Borrower").

RECITALS

Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of August 16, 2000 (the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1. The following defined terms in Section 1.1 of the Agreement are hereby amended to read as follows:

   "Equipment Maturity Date" October 18, 2004.

   "Quick Assets" means, at any date as of which the amount thereof shall be determined, the unrestricted cash and cash-equivalents, plus net, booked accounts receivable of Borrower, determined in accordance with GAAP.

   "Revolving Maturity Date" means October 18, 2002.

2. Subsections (i) and (ii) of Section 2.1(b) of the Agreement are amended in its entirety to read as follows:

   (b) Equipment Advances.

   (i) Subject to and upon the terms and conditions of this Agreement, at any time from the date hereof through the Revolving Maturity Date, Bank agrees to make advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in an aggregate outstanding amount not to exceed the Equipment Line. Each Equipment Advance shall not exceed one hundred percent (100%) of the invoice amount of equipment, furniture, software licenses and corporate purposes approved by Bank from time to time (which Borrower shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Advance), excluding taxes, shipping, warranty charges, freight discounts, soft costs, and installation expense. The foregoing notwithstanding, the aggregate amount of all Equipment Advances used to finance software shall not exceed the lesser of (A) twenty-five percent (25%) of the aggregate amount of the outstanding Equipment Advances, or (B) $500,000.

   (ii) Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3(a), and shall be payable monthly on the eighteenth (18^th) day of each month. Any Equipment Advances (except for Equipment Advances used to finance software) that are outstanding on April 18, 2002 (the "First Term Date") shall be payable in thirty (30) equal monthly installments of principal, plus all accrued interest, beginning on May 18, 2002, and continuing on the same day of each month thereafter through the Equipment Maturity Date. Any Equipment Advances used to finance software that are outstanding on the First Term Date shall be payable in twenty-four (24) equal monthly installments of principal, plus all accrued interest, beginning on May 18, 2002, and continuing on the same day of each month thereafter until paid. Any Equipment Advances (except for Equipment Advances used to finance software) drawn after the First Term Date that are outstanding on the Revolving Maturity Date shall be payable in twenty-four (24) equal monthly installments of principal, plus all accrued interest, beginning on November 18, 2002, and continuing on the same day of each month thereafter through the Equipment Maturity Date. Any Equipment Advances used to finance software drawn after the First Term Date that are outstanding on the Revolving Maturity Date shall be payable in eighteen (18) equal monthly installments of principal, plus all accrued interest, beginning on November 18, 2002, and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts due under this Section 2.1(b) and any other amounts due under this Agreement shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any Equipment Advances without penalty or premium.

3. A new Section 2.1(f) is added to the Agreement, which shall read as follows:

   (f) Cash Management Sublimit. Subject to the terms and conditions of this Agreement, Borrower may utilize up to One Million Two Hundred Thousand Dollars ($1,200,000) (the "Cash Management Sublimit") for ACH and direct deposit of payroll services provided by Bank. All agreements executed in connection with the Cash Management Sublimit shall be, in form and substance, acceptable to Bank, in its sole discretion. Any amounts actually paid by Bank in respect of the Cash Management Sublimit shall, when paid, constitute an Advance under the Committed Revolving Line.

4. Section 2.2 of the Agreement is amended to read as follows:

   2.2 Overadvances. If at any time or for any reason the aggregate amount of the outstanding Advances plus the aggregate face amount of all outstanding Letters of Credit plus the aggregate amount outstanding in respect of the FX Sublimit exceeds the lesser of (a) the Committed Revolving Line, or (b) the greater of (i) Three Million Dollars ($3,000,000) or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess.

5. Subsections (i) and (ii) of Section 2.3(a) of the Agreement are amended to read as follows:

   (a) Interest Rates.

   (i) Advances. Except as set forth in Section 2.3(b), Advances which are Prime Rate Advances (as such term is used herein) shall bear interest, on the outstanding daily balance thereof, at a rate equal to the Prime Rate plus one and one-half percent (1.50%). Except as set forth in Section 2.3(b), Advances which are LIBOR Rate Advances shall bear interest at the rate specified in Section 2.5(b).

   (ii) Equipment Advances. Except as set forth in Section 2.3(b), the Equipment Advances shall bear interest, on the outstanding daily balance thereof, at a rate equal to the Prime Rate plus two percent (2.0%).

6. The second sentence of Section 2.5(b) of the Agreement is amended to read as follows:

   The outstanding principal balance of each LIBOR Rate Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed) at a rate per annum equal to the LIBOR Rate plus 500 basis points for such LIBOR Rate Advance.

7. The last paragraph of Section 6.3 is amended to read as follows:

   Bank shall have a right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing.

8. Section 6.8 of the Agreement is amended to read as follows:

   6.8 Quick Ratio. Borrower shall maintain, as of the last day of each fiscal quarter of Borrower, a ratio of Quick Assets to Current Liabilities less deferred revenue of at least 2.00 to 1.00.

9. A new Section 6.12 is added to the Agreement, which shall read as follows:

   6.12 Total Liabilities-Tangible Net Worth. Borrower shall maintain, as of the last day of each fiscal quarter of Borrower, a ratio of Total Liabilities to Tangible Net Worth of not more than 2.00 to 1.00.

10. The Compliance Certificate to be delivered after the date of this Amendment shall be in the form of Exhibit D hereto.
11. As a condition precedent to the effectiveness of this Amendment, Borrower shall pay to Bank, on the date of this Amendment, a Facility Fee equal to $18,125. If, from the date of this Amendment through 90 days after the date of this Amendment, Borrower has transferred at least Twenty Million Dollars ($20,000,000) to one or more deposit accounts with Bank, Borrower shall not be liable for any additional Facility Fee. If, from the date of this Amendment through 90 days after the date of this Amendment, Borrower has transferred an amount equal to Zero Dollars ($0) or any amount less than Twenty Million Dollars ($20,000,000) to one or more deposit accounts with Bank, Borrower shall pay to Bank, within 90 days after the date of this Amendment, an additional Facility Fee equal to $18,125.
12. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement.
13. Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
14. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
15. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
    1. this Amendment, duly executed by Borrower;
    2. Corporate Resolutions to Borrow;
    3. payment of the fees then due specified in Section 10 hereof;
    4. all Bank Expenses incurred through the date of this Amendment;
    5. an audit of the Collateral, the results of which shall be satisfactory to Bank; and
    6. such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

CHORDIANT SOFTWARE, INC.

By:

Title:

COMERICA BANK-CALIFORNIA, SUCCESSOR IN INTEREST TO IMPERIAL BANK

By:

Title:

EXHIBIT D

COMPLIANCE CERTIFICATE

TO: COMERICA BANK-CALIFORNIA, SUCCESSOR IN INTEREST TO IMPERIAL BANK

FROM: CHORDIANT SOFTWARE, INC.

The undersigned authorized officer of CHORDIANT SOFTWARE, INC. hereby certifies that in accordance with the terms and conditions of the Amended and Restated Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.

Please indicate compliance status by circling Yes/No under "Complies" column.

Reporting Covenant	Required			Complies
Annual (CPA Audited)	FYE within 120 days			Yes	No
10K and 10Q	within 5 days of filing (or 95 days/50 days of quarter end)			Yes	No
A/R & A/P Agings, Borrowing Base Certificate, deferred revenue report	Monthly within 20 days (if Advances + LC + FX > $3,000,000)			Yes	No
A/R Audit	Annual			Yes	No
IP Report	Quarterly within 30 days			Yes	No
Financial Covenant	Required		Actual	Complies
Maintain on a Quarterly Basis:
Minimum Adjusted Quick Ratio	2.00:1.00		_____:1.00	Yes	No
Minimum Tangible Net Worth	$_________ *		$________	Yes	No
Maximum Debt-TNW	2.00:1.00		_____:1.00	Yes	No
* $25,000,000 plus 60% of New Equity proceeds
Comments Regarding Exceptions: See Attached.		BANK USE ONLY
		Received by:
Sincerely,		AUTHORIZED SIGNER
		Date:
		Verified:
SIGNATURE		AUTHORIZED SIGNER
		Date:
TITLE
		Compliance Status			Yes	No
DATE

CORPORATE RESOLUTIONS TO BORROW

Borrower: CHORDIANT SOFTWARE, INC.

I, the undersigned Secretary or Assistant Secretary of CHORDIANT SOFTWARE, INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of Delaware.

I FURTHER CERTIFY that at a meeting of the Directors of the Corporation duly called and held, at which a quorum was present and voting, (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted.

BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below:

NAMES POSITIONS ACTUAL SIGNATURES

acting for an on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered:

Borrow Money. To borrow from time to time from Comerica Bank-California, successor in interest to Imperial Bank ("Bank"), on such terms as may be agreed upon between the officers, employees, or agents of the Corporation and Bank, such sum or sums of money as in their judgment should be borrowed, without limitation.

Execute Amendment. To execute and deliver to Bank that certain First Amendment to Amended and Restated Loan and Security Agreement dated as of October 19, 2001 (the "Amendment") and any related documents, and also to execute and deliver to Bank one or more renewals, extensions, modifications, consolidations, or substitutions therefor.

Grant Security. To grant a security interest to Bank in the Collateral described in the Loan Documents, which security interest shall secure all of the Corporation's Obligations, as described in the Loan Documents.

Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable.

Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given.

I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever.

I FURTHER CERTIFY that attached hereto are true and correct copies of the Certificate of Incorporation and Bylaws of the Corporation.

IN WITNESS WHEREOF, I have hereunto set my hand on October 19, 2001 and attest that the signatures set opposite the names listed above are their genuine signatures.

CERTIFIED TO AND ATTESTED BY:

X

EX-10.16

CHANGE OF CONTROL AGREEMENT

This Change Of Control Agreement ("Agreement") is made by and between Chordiant Software, Inc. (the "Company") and Stephen Kelly ("Executive"). This Agreement will become effective upon its execution by both parties hereto (the "Effective Date").

RECITALS

Whereas Executive is employed by the Company pursuant to the terms of Executive's offer letter from the Company dated October 2, 2000 (the "Offer Letter");

Whereas Executive has been granted option(s) to purchase shares of the Company's Common Stock pursuant to the applicable stock option agreement(s) and stock option plan(s) ("Prior Grants");

Whereas in the future, Executive may be granted additional options to purchase the Company's Common Stock, subject to the Board's sole discretion (together with Prior Grants, "Options"); and

Whereas the Company believes it is imperative to provide Executive with accelerated vesting of the Options, as well as other severance benefits, in the event that Executive is terminated without Cause (as defined herein) or resigns for Good Reason (as defined herein) in connection with a Change of Control (as defined herein).

Now, Therefore, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Termination of Employment.
   1. At-Will Employment. Executive's employment is at-will, which means that the Company may terminate Executive's employment at any time, with or without advance notice, and with or without Cause. Similarly, Executive may resign his employment at any time, with or without advance notice or Good Reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits, following Executive's last day of employment with the Company (the "Termination Date"), except as expressly provided herein, as otherwise agreed in writing between Executive and the Chief Executive Officer of the Company, or as provided in any plan documents governing the Options. Executive shall devote all reasonable efforts to the performance of Executive's duties, and shall perform such duties in good faith.
   2. Termination Related to a Change of Control. If Executive's employment is terminated without Cause or Executive resigns for Good Reason within ninety (90) days prior to or twelve (12) months after a Change of Control, and Executive signs a release substantially in the form (whichever is applicable) attached hereto as Exhibit A (the "Release"), then the Company shall provide Executive with the severance benefits described below in subparagraphs (i) through (vi). The severance benefits described in subparagraphs (i) through (vi) are in lieu of the severance benefits provided for in paragraph 5 of Executive's Offer Letter if Executive is terminated without Cause within ninety (90) days prior to or twelve (12) months after a Change of Control. Executive shall only receive the severance benefits described in paragraph 5 of the Offer Letter if Executive is terminated without cause (as that term is defined in the Offer Letter) unrelated to a Change of Control.
      1. The Company shall make severance payments to Executive in the form of continuation of Executive's base salary in effect on the Termination Date for twelve (12) months following the Termination Date (the "Severance Period"). These payments will be made on the Company's ordinary payroll dates and will be subject to standard payroll deductions and withholdings.
      2. The Company will pay Executive an amount equal to Executive's annual bonus. The bonus will be calculated at one of the following rates, whichever is higher: (1) as if both Executive and the Company achieved one hundred (100) percent of their specified performance objectives; or (2) the actual performance of the Company and Executive as measured against the specified performance objectives. This amount will be paid over the entire Severance Period on the Company's ordinary payroll dates, in equal installments, and will be subject to standard payroll deductions and withholdings.
      3. The Company will pay the premiums necessary to continue Executive 's life and health insurance during the Severance Period.
      4. The time period in which Executive is required to repay any promissory note, loan or other indebtedness to the Company shall be extended by sixty (60) months.
      5. The Company will accelerate the vesting of the Options such that the greater of the following shall vest within ten (10) days after the date Executive signs the Release: (a) 50% of the unvested shares as of the Termination Date subject to the Options (after taking into account any additional acceleration of vesting Executive may be receiving under any plan document(s) governing the Options instituted prior to or after this Agreement is executed); or (b) all such shares that would have vested if Executive had worked for the Company for twelve (12) additional months beyond the Termination Date. This acceleration of vesting will be in addition to any acceleration of vesting that the Executive would otherwise receive under the Company's 2000 Nonstatutory Equity Incentive Plan, the Company's 1999 Equity Incentive Plan, or any other plan document(s) governing the Options. Executive shall have sixty (60) months to exercise any vested Options in addition to any time specified in the plan document(s) governing the Options. The Options shall continue to be governed by the terms of the applicable stock option agreements and stock option plan documents.
      6. With respect to any Prior Grant intended to be an incentive stock option, the acceleration of the vesting of the Prior Grant and the extension of the time that Executive shall have to exercise the Prior Grant as provided in Paragraph 1(b)(iv) of this Agreement are deemed to be a modification of the Prior Grant within the meaning of Section 424(h) of the Internal Revenue Code ("Code"). Such modification shall result in the granting of a new option as of the date of execution of this Agreement, including providing a new grant date for purposes of starting the holding period specified in Section 422(a)(1) of the Code and for purposes of the provision that the option price be not less than the fair market value of the stock at the time such option is granted as specified in Section 422(b)(4) of the Code. If Executive and the Company agree that the Prior Grant shall remain an incentive stock option and if the new option meets the requirements for incentive stock options specified in Section 422(b) of the Code, and the $100,000 per year limitation specified in Section 422(d) of the Code as of the date of execution of this Agreement, then the unexercised portion of the Prior Grant shall be appropriately modified as to the date of grant and the option price; provided, however, that the option price shall be the greater of the original option price of the Prior Grant or the fair market value of the stock on the date of execution of this Agreement. If Executive and the Company do not agree that such Prior Grant shall remain an incentive stock option, then the Prior Grant shall be deemed to be a nonstatutory stock option as of the date of execution of this Agreement, and the Prior Grant shall be appropriately modified to reflect such changed status.
   3. Termination For Cause Procedure. The Company may not terminate Executive's employment for Cause within ninety (90) days prior to or twelve (12) months after a Change of Control unless and until Executive receives a copy of a resolution duly adopted by the affirmative vote of at least a majority of the Board of Directors of the Company ("Board") finding that in the good faith opinion of the Board, Executive was guilty of the conduct constituting "Cause" and specifying the particulars thereof in detail. The Company shall provide Executive with reasonable notice of the Board vote and an opportunity for Executive, together with Executive's counsel, to be heard before the Board.

      Termination Unrelated to a Change of Control. In the event that, at any time other than within ninety (90) days prior to or twelve (12) months after a Change of Control, Executive's employment with the Company is terminated, then the only severance benefits provided to Executive by the Company will be as set forth in Executive's Offer Letter.

   4. Change of Control Benefits in Executive's Offer Letter. The severance benefits described above in subparagraphs (i) through (vi) are in addition to any benefits Executive may receive pursuant to paragraph 2 of Executive's Offer Letter upon a change of control (as that term is defined in Executive's Offer Letter).
2. Definitions.
   1. Definition of Cause. For purposes of this Agreement, "Cause" shall mean that Executive has committed, or there has occurred, one or more of the following events: (1) conviction of any felony or misdemeanor involving moral turpitude, fraud or act of dishonesty against the Company; (2) a finding by the Board, after a good faith and reasonable factual investigation, that Executive has engaged in gross misconduct; or (3) material violation or material breach of any Company policy or statutory, fiduciary, or contractual duty of Executive to the Company; provided, however, that in the event that any of the foregoing events occurs, the Company shall provide notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) days to cure such event if such event is capable of being cured.
   2. Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean that any one of the following events occurs during the Executive's employment with the Company without Executive's consent: (i) any reduction of Executive's annual base salary (including bonus) as of the time period immediately preceding the Change of Control, except to the extent that the annual base salary (including bonus) of all other officers of the Company is similarly reduced; (ii) any material reduction in the package of benefits and incentives provided to the Executive, or any action by the Company which would materially and adversely affect the Executive's participation or reduce the Executive's benefits under any such plans, except to the extent that such benefits and incentives of all other officers of the Company are similarly reduced; (iii) any material change in Executive's position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive's position or responsibilities as in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied by the Company promptly after notice thereof is given by Executive; (iv) the Company's requiring Executive to relocate to any place outside of a twenty-five (25) mile driving distance of Executive's current work site, except for reasonably required travel on the business of the Company or its affiliates that is not materially greater than such travel requirements prior to the Change in Control or unless Executive accepts such relocation opportunity; or (v) any failure to pay Executive any compensation or benefits to which Executive is entitled within fifteen (15) days of the date due. Executive may terminate his employment for Good Reason so long as Executive tenders his resignation to the Company within thirty (30) days after the occurrence of the event which forms the basis for his resignation for Good Reason. Executive shall provide written notice to the Company describing the nature of the event which forms the basis for Executive's resignation for Good Reason, and the Company shall thereafter have ten (10) days to cure such event.
   3. Definition of Change of Control. For purposes of this Agreement, a "Change of Control" means: (i) a dissolution, liquidation or sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iv) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (v) an acquisition by the Company of an unaffiliated company, for cash or stock of the Company, in which some or all of the members of senior management of the acquired company are retained by the Company for employment by the acquired company or the Company.
3. Gross Up Provision.
   1. In the event that any payment and the value of any benefit (collectively, "Payments"), or any portion thereof, received or to be received by Executive under this Agreement would otherwise be subject to excise tax under Section 4999 of the Code, then the Company or the acquiring or successor entity to the Company shall pay to Executive within ninety (90) days of the date Executive becomes subject to the Excise Tax, an additional amount (the "Excise Tax Gross-Up Payment") such that the net amount retained by the Executive, after deduction of (i) any Excise Tax on the Payments and (ii) any federal, state and local income or employment tax and Excise Tax upon the payment provided for by this section 3, shall be equal to the Payments, reduced by the amount of any United States federal, state and local income or employment tax liability of the Executive if the Payments were not subject to the Excise Tax.
   2. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax:
      1. Any other payments or benefits received or to be received by Executive in connection with transactions contemplated by a Change in Control or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company), shall be treated as "parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision, and all "excess parachute payments" within the meaning of Section 280G or any similar or successor provision shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G (or any similar or successor provision of the Code) in excess of the base amount within the meaning of Section 280G (or any similar or successor provision of the Code), or are otherwise not subject to the Excise Tax.
      2. The amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Payments or (ii) the amount of the excess parachute payments within the meaning of Section 280G.
      3. The value of any non-cash benefits or any deferred payment or benefit shall be determined by the accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Executive (the "Accounting Firm") in accordance with the principles of Section 280G of the Code.
   3. For purposes of determining the amount of the Excise Tax Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date the Excise Tax Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
   4. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account under this section 3, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Excise Tax Gross-Up Payment attributable to such reduction (plus the portion of the Excise Tax Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Excise Tax Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
   5. In the event that the Excise Tax is determined to exceed the amount taken into account under this section 3 (including by reason of any payment the existence or amount of which cannot be determined at the time of the Excise Tax Gross-Up Payment), the Company shall make an additional Excise Tax Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined in accordance with the principles set forth in this section 3.
   6. All determinations required to be made under this section 3 shall be made by the Accounting Firm. The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Executive. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Executive to any Payments under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code).
4. Other Employment Terms and Conditions. The employment relationship between the parties shall be governed by the general employment policies and procedures of the Company, including those relating to the protection of confidential information and assignment of inventions; provided, however, that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or procedures, this Agreement shall control.
5. General Provisions.
   1. This Agreement, including all exhibits hereto, constitutes the complete, final and exclusive embodiment of the entire agreement between the parties with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. Notwithstanding the foregoing, nothing in this Agreement shall affect the parties' obligations under the Stock Agreements or the Executive's Employee Proprietary Information and Inventions Agreement. Furthermore, as set forth in paragraphs 1(d) and 1(e) of this Agreement, Executive's Offer Letter is not superseded by this Agreement except to the extent described in paragraph 1(b) of the Agreement. This Agreement cannot be modified except in a writing signed by Executive and a duly-authorized member of the Board.
   2. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
   3. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
   4. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
   5. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company.
   6. If either party hereto bring any action to enforce such party's rights hereunder, the prevailing party in any such action shall be entitled to recover such party's reasonable attorneys' fees and costs incurred in connection with such action.
   7. For purposes of construction, this Agreement shall be deemed to have been drafted by the Company, and the rule of construction of contracts that ambiguities are construed against the drafting party shall be applied against the Company.
   8. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Executive shall be in writing and addressed to Executive at the address indicated herein or to the last known address provided by Executive to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile.

In Witness Whereof, the parties have executed this Agreement as of the day and year written below.

                                                                                                                                                    Date:4/27/01

                                                                                                                                                     /s/ Stephen Kelly

Stephen Kelly

Address:

________________________________

Chordiant software, inc.

                                                                                                                                                        Date:4/27/01

                                                                                                                                                    /s/ Sam Spadafora

                            Name: Sam Spadafora
                            Title: Chairman and Chief Executive Officer

Exhibit A - Release Agreements

Exhibit A

RELEASE AGREEMENT FOR EMPLOYEES UNDER 40 YEARS OF AGE

In exchange for the severance benefits I am receiving to which I would not otherwise be entitled, I hereby release, acquit and forever discharge the Company, and its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Release Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

Dated: Agreed:

Stephen Kelly

RELEASE AGREEMENT FOR EMPLOYEES 40 YEARS OF AGE OR OLDER

In exchange for the severance benefits I am receiving to which I would not otherwise be entitled, I hereby release, acquit and forever discharge the Company, and its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Release Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, as amended. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Release; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following my execution of this Release to revoke my agreement to it; and (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Release is executed by me.

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

Dated: Agreed:

Stephen Kelly

EX-10.17

CHANGE OF CONTROL AGREEMENT

This Change Of Control Agreement ("Agreement") is made by and between Chordiant Software, Inc. (the "Company") and Sam Spadafora ("Executive"). This Agreement will become effective upon its execution by both parties hereto (the "Effective Date").

RECITALS

Whereas Executive is employed by the Company pursuant to the terms of Executive's offer letter from the Company dated April 24, 1998 (the "Offer Letter");

Whereas Executive has been granted option(s) to purchase shares of the Company's Common Stock pursuant to the applicable stock option agreement(s) and stock option plan(s) ("Prior Grants");

Whereas in the future, Executive may be granted additional options to purchase the Company's Common Stock, subject to the Board's sole discretion (together with Prior Grants, "Options"); and

Whereas the Company believes it is imperative to provide Executive with accelerated vesting of the Options, as well as other severance benefits, in the event that Executive is terminated without Cause (as defined herein) or resigns for Good Reason (as defined herein) in connection with a Change of Control (as defined herein).

Now, Therefore, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Termination of Employment.
   1. At-Will Employment. Executive's employment is at-will, which means that the Company may terminate Executive's employment at any time, with or without advance notice, and with or without Cause. Similarly, Executive may resign his employment at any time, with or without advance notice or Good Reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits, following Executive's last day of employment with the Company (the "Termination Date"), except as expressly provided herein, as otherwise agreed in writing between Executive and the Chief Executive Officer of the Company, or as provided in any plan documents governing the Options. Executive shall devote all reasonable efforts to the performance of Executive's duties, and shall perform such duties in good faith.
   2. Termination Related to a Change of Control. If Executive's employment is terminated without Cause or Executive resigns for Good Reason within ninety (90) days prior to or twelve (12) months after a Change of Control, and Executive signs a release substantially in the form attached hereto as Exhibit A (the "Release"), then the Company shall provide Executive with the severance benefits described below in subparagraphs (i) through (vi). The severance benefits described below in subparagraphs (i) through (vi) are in lieu of the severance benefits provided for in paragraph 6 of Executive's Offer Letter if Executive is terminated without Cause within ninety (90) days prior to or twelve (12) months after a Change of Control. Executive shall only receive the severance benefits described in paragraph 6 of the Offer Letter if Executive is terminated without cause (as that term is defined in the Offer Letter) unrelated to a Change of Control.
      1. The Company shall make severance payments to Executive in the form of continuation of Executive's base salary in effect on the Termination Date for twelve (12) months following the Termination Date (the "Severance Period"). These payments will be made on the Company's ordinary payroll dates and will be subject to standard payroll deductions and withholdings.
      2. The Company will pay Executive an amount equal to Executive's annual bonus. The bonus will be calculated at one of the following rates, whichever is higher: (1) as if both Executive and the Company achieved one hundred (100) percent of their specified performance objectives; or (2) the actual performance of the Company and Executive as measured against the specified performance objectives. This amount will be paid over the entire Severance Period on the Company's ordinary payroll dates, in equal installments, and will be subject to standard payroll deductions and withholdings.
      3. The Company will pay the premiums necessary to continue Executive 's life and health insurance during the Severance Period.
      4. The time period in which Executive is required to repay any promissory note, loan or other indebtedness to the Company shall be extended by sixty (60) months.
      5. The Company will accelerate the vesting of the Options such that the greater of the following shall vest within ten (10) days after the date Executive signs the Release: (a) 50% of the unvested shares as of the Termination Date subject to the Options (after taking into account any additional acceleration of vesting Executive may be receiving under any plan document(s) governing the Options instituted prior to or after this Agreement is executed); or (b) all such shares that would have vested if Executive had worked for the Company for twelve (12) additional months beyond the Termination Date. This acceleration of vesting will be in addition to any acceleration of vesting that the Executive would otherwise receive under the Company's 2000 Nonstatutory Equity Incentive Plan, the Company's 1999 Equity Incentive Plan, or any other plan document(s) governing the Options. Executive shall have sixty (60) months to exercise any vested Options in addition to any time specified in the plan document(s) governing the Options. The Options shall continue to be governed by the terms of the applicable stock option agreements and stock option plan documents.
      6. With respect to any Prior Grant intended to be an incentive stock option, the acceleration of the vesting of the Prior Grant and the extension of the time that Executive shall have to exercise the Prior Grant as provided in Paragraph 1(b)(iv) of this Agreement are deemed to be a modification of the Prior Grant within the meaning of Section 424(h) of the Internal Revenue Code ("Code"). Such modification shall result in the granting of a new option as of the date of execution of this Agreement, including providing a new grant date for purposes of starting the holding period specified in Section 422(a)(1) of the Code and for purposes of the provision that the option price be not less than the fair market value of the stock at the time such option is granted as specified in Section 422(b)(4) of the Code. If Executive and the Company agree that the Prior Grant shall remain an incentive stock option and if the new option meets the requirements for incentive stock options specified in Section 422(b) of the Code, and the $100,000 per year limitation specified in Section 422(d) of the Code as of the date of execution of this Agreement, then the unexercised portion of the Prior Grant shall be appropriately modified as to the date of grant and the option price; provided, however, that the option price shall be the greater of the original option price of the Prior Grant or the fair market value of the stock on the date of execution of this Agreement. If Executive and the Company do not agree that such Prior Grant shall remain an incentive stock option, then the Prior Grant shall be deemed to be a nonstatutory stock option as of the date of execution of this Agreement, and the Prior Grant shall be appropriately modified to reflect such changed status.
   3. Termination For Cause Procedure. The Company may not terminate Executive's employment for Cause within ninety (90) days prior to or twelve (12) months after a Change of Control unless and until Executive receives a copy of a resolution duly adopted by the affirmative vote of at least a majority of the Board of Directors of the Company ("Board") finding that in the good faith opinion of the Board, Executive was guilty of the conduct constituting "Cause" and specifying the particulars thereof in detail. The Company shall provide Executive with reasonable notice of the Board vote and an opportunity for Executive, together with Executive's counsel, to be heard before the Board.

      Termination Unrelated to a Change of Control. In the event that, at any time other than within ninety (90) days prior to or twelve (12) months after a Change of Control, Executive's employment with the Company is terminated, then the only severance benefits provided to Executive by the Company will be as set forth in Executive's Offer Letter.

   4. Change of Control Benefits in Executive's Offer Letter. The severance benefits described above in subparagraphs (i) through (vi) are in addition to any benefits Executive may receive pursuant to paragraph 3 of Executive's Offer Letter upon a change of control (as that term is defined in Executive's Offer Letter).
2. Definitions.
   1. Definition of Cause. For purposes of this Agreement, "Cause" shall mean that Executive has committed, or there has occurred, one or more of the following events: (1) conviction of any felony or misdemeanor involving moral turpitude, fraud or act of dishonesty against the Company; (2) a finding by the Board, after a good faith and reasonable factual investigation, that Executive has engaged in gross misconduct; or (3) material violation or material breach of any Company policy or statutory, fiduciary, or contractual duty of Executive to the Company; provided, however, that in the event that any of the foregoing events occurs, the Company shall provide notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) days to cure such event if such event is capable of being cured.
   2. Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean that any one of the following events occurs during the Executive's employment with the Company without Executive's consent: (i) any reduction of Executive's annual base salary (including bonus) as of the time period immediately preceding the Change of Control, except to the extent that the annual base salary (including bonus) of all other officers of the Company is similarly reduced; (ii) any material reduction in the package of benefits and incentives provided to the Executive, or any action by the Company which would materially and adversely affect the Executive's participation or reduce the Executive's benefits under any such plans, except to the extent that such benefits and incentives of all other officers of the Company are similarly reduced; (iii) any material change in Executive's position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive's position or responsibilities as in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied by the Company promptly after notice thereof is given by Executive; (iv) the Company's requiring Executive to relocate to any place outside of a twenty-five (25) mile driving distance of Executive's current work site, except for reasonably required travel on the business of the Company or its affiliates that is not materially greater than such travel requirements prior to the Change in Control or unless Executive accepts such relocation opportunity; or (v) any failure to pay Executive any compensation or benefits to which Executive is entitled within fifteen (15) days of the date due. Executive may terminate his employment for Good Reason so long as Executive tenders his resignation to the Company within thirty (30) days after the occurrence of the event which forms the basis for his resignation for Good Reason. Executive shall provide written notice to the Company describing the nature of the event which forms the basis for Executive's resignation for Good Reason, and the Company shall thereafter have ten (10) days to cure such event.
   3. Definition of Change of Control. For purposes of this Agreement, a "Change of Control" means: (i) a dissolution, liquidation or sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iv) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (v) an acquisition by the Company of an unaffiliated company, for cash or stock of the Company, in which some or all of the members of senior management of the acquired company are retained by the Company for employment by the acquired company or the Company.
3. Gross Up Provision.
   1. In the event that any payment and the value of any benefit (collectively, "Payments"), or any portion thereof, received or to be received by Executive under this Agreement would otherwise be subject to excise tax under Section 4999 of the Code, then the Company or the acquiring or successor entity to the Company shall pay to Executive within ninety (90) days of the date Executive becomes subject to the Excise Tax, an additional amount (the "Excise Tax Gross-Up Payment") such that the net amount retained by the Executive, after deduction of (i) any Excise Tax on the Payments and (ii) any federal, state and local income or employment tax and Excise Tax upon the payment provided for by this section 3, shall be equal to the Payments, reduced by the amount of any United States federal, state and local income or employment tax liability of the Executive if the Payments were not subject to the Excise Tax.
   2. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax:
      1. Any other payments or benefits received or to be received by Executive in connection with transactions contemplated by a Change in Control or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company), shall be treated as "parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision, and all "excess parachute payments" within the meaning of Section 280G or any similar or successor provision shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G (or any similar or successor provision of the Code) in excess of the base amount within the meaning of Section 280G (or any similar or successor provision of the Code), or are otherwise not subject to the Excise Tax.
      2. The amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Payments or (ii) the amount of the excess parachute payments within the meaning of Section 280G.
      3. The value of any non-cash benefits or any deferred payment or benefit shall be determined by the accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Executive (the "Accounting Firm") in accordance with the principles of Section 280G of the Code.
   3. For purposes of determining the amount of the Excise Tax Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date the Excise Tax Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
   4. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account under this section 3, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Excise Tax Gross-Up Payment attributable to such reduction (plus the portion of the Excise Tax Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Excise Tax Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
   5. In the event that the Excise Tax is determined to exceed the amount taken into account under this section 3 (including by reason of any payment the existence or amount of which cannot be determined at the time of the Excise Tax Gross-Up Payment), the Company shall make an additional Excise Tax Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined in accordance with the principles set forth in this section 3.
   6. All determinations required to be made under this section 3 shall be made by the Accounting Firm. The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Executive. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Executive to any Payments under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code).
4. Other Employment Terms and Conditions. The employment relationship between the parties shall be governed by the general employment policies and procedures of the Company, including those relating to the protection of confidential information and assignment of inventions; provided, however, that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or procedures, this Agreement shall control.
5. General Provisions.
   1. This Agreement, including all exhibits hereto, constitutes the complete, final and exclusive embodiment of the entire agreement between the parties with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. Notwithstanding the foregoing, nothing in this Agreement shall affect the parties' obligations under the Stock Agreements or the Executive's Employee Proprietary Information and Inventions Agreement. Furthermore, as set forth in paragraphs 1(d) and 1(e) of this Agreement, Executive's Offer Letter is not superseded by this Agreement except to the extent described in paragraph 1(b) of this Agreement. This Agreement cannot be modified except in a writing signed by Executive and a duly-authorized member of the Board.
   2. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
   3. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
   4. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
   5. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company.
   6. If either party hereto bring any action to enforce such party's rights hereunder, the prevailing party in any such action shall be entitled to recover such party's reasonable attorneys' fees and costs incurred in connection with such action.
   7. For purposes of construction, this Agreement shall be deemed to have been drafted by the Company, and the rule of construction of contracts that ambiguities are construed against the drafting party shall be applied against the Company.
   8. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Executive shall be in writing and addressed to Executive at the address indicated herein or to the last known address provided by Executive to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile.

In Witness Whereof, the parties have executed this Agreement as of the day and year written below.

Date:9/10/01                                                                                                                                 /s/ Sam Spadafora

Sam Spadafora

Address:

________________________________

Chordiant software, inc.

Date:9/10/01                                                                                                                                  /s/ Kathryn Gould

Name: Kathryn Gould
Title: Director; Compensation Committee Member

Exhibit A - Release Agreement

Exhibit A

RELEASE AGREEMENT

In exchange for the severance benefits I am receiving to which I would not otherwise be entitled, I hereby release, acquit and forever discharge the Company, and its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Release Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, as amended. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Release; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following my execution of this Release to revoke my agreement to it; and (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Release is executed by me.

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

Dated: Agreed:

Sam Spadafora

EX-10.18

CHANGE OF CONTROL AGREEMENT

This Change Of Control Agreement ("Agreement") is made by and between Chordiant Software, Inc. (the "Company") and Steve Vogel ("Executive"). This Agreement will become effective upon its execution by both parties hereto (the "Effective Date").

RECITALS

Whereas Executive is employed by the Company pursuant to the terms of Executive's offer letter from the Company;

Whereas Executive has been granted option(s) to purchase shares of the Company's Common Stock pursuant to the applicable stock option agreement(s) and stock option plan(s) ("Prior Grants");

Whereas in the future, Executive may be granted additional options to purchase the Company's Common Stock, subject to the Board's sole discretion (together with Prior Grants, "Options"); and

Whereas the Company believes it is imperative to provide Executive with accelerated vesting of the Options, as well as other severance benefits, in the event that Executive is terminated without Cause (as defined herein) or resigns for Good Reason (as defined herein) in connection with a Change of Control (as defined herein).

Now, Therefore, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Termination of Employment.
   1. At-Will Employment. Executive's employment is at-will, which means that the Company may terminate Executive's employment at any time, with or without advance notice, and with or without Cause. Similarly, Executive may resign his/her employment at any time, with or without advance notice or Good Reason. Executive shall not receive any compensation of any kind, including, without limitation, severance benefits, following Executive's last day of employment with the Company (the "Termination Date"), except as expressly provided herein, as otherwise agreed in writing between Executive and the Chief Executive Officer of the Company, or as provided in any plan documents governing the Options. Executive shall devote all reasonable efforts to the performance of Executive's duties, and shall perform such duties in good faith.
   2. Termination Related to a Change of Control. If Executive's employment is terminated without Cause or Executive resigns for Good Reason within ninety (90) days prior to or twelve (12) months after a Change of Control, and Executive signs a release substantially in the form (whichever is applicable) attached hereto as Exhibit A (the "Release"), then the Company shall provide Executive with the following severance benefits:
      1. The Company shall make severance payments to Executive in the form of continuation of Executive's base salary in effect on the Termination Date for six (6) months following the Termination Date (the "Severance Period"). These payments will be made on the Company's ordinary payroll dates and will be subject to standard payroll deductions and withholdings.
      2. The Company will pay Executive an amount equal to one-half (1/2) of Executive's annual bonus. The bonus will be calculated at one of the following rates, whichever is higher: (1) as if both Executive and the Company achieved one hundred (100) percent of their specified performance objectives; or (2) the actual performance of the Company and Executive as measured against the specified performance objectives. This amount will be paid over the entire Severance Period on the Company's ordinary payroll dates, in equal installments, and will be subject to standard payroll deductions and withholdings.
      3. The Company will pay the premiums necessary to continue Executive 's life and health insurance during the Severance Period.
      4. The time period in which Executive is required to repay any promissory note, loan or other indebtedness to the Company shall be extended by sixty (60) months.
      5. The Company will accelerate the vesting of the Options such that the greater of the following shall vest within ten (10) days after the date Executive signs the Release: (a) 50% of the unvested shares as of the Termination Date subject to the Options (after taking into account any additional acceleration of vesting Executive may be receiving under any plan document(s) governing the Options instituted prior to or after this Agreement is executed); or (b) all such shares that would have vested if Executive had worked for the Company for twelve (12) additional months beyond the Termination Date. This acceleration of vesting will be in addition to any acceleration of vesting that the Executive would otherwise receive under the Company's 2000 Nonstatutory Equity Incentive Plan, the Company's 1999 Equity Incentive Plan, or any other plan document(s) governing the Options. Executive shall have sixty (60) months to exercise any vested Options in addition to any time specified in the plan document(s) governing the Options. The Options shall continue to be governed by the terms of the applicable stock option agreements and stock option plan documents.
      6. With respect to any Prior Grant intended to be an incentive stock option, the acceleration of the vesting of the Prior Grant and the extension of the time that Executive shall have to exercise the Prior Grant as provided in Paragraph 1(b)(iv) of this Agreement are deemed to be a modification of the Prior Grant within the meaning of Section 424(h) of the Internal Revenue Code ("Code"). Such modification shall result in the granting of a new option as of the date of execution of this Agreement, including providing a new grant date for purposes of starting the holding period specified in Section 422(a)(1) of the Code and for purposes of the provision that the option price be not less than the fair market value of the stock at the time such option is granted as specified in Section 422(b)(4) of the Code. If Executive and the Company agree that the Prior Grant shall remain an incentive stock option and if the new option meets the requirements for incentive stock options specified in Section 422(b) of the Code, and the $100,000 per year limitation specified in Section 422(d) of the Code as of the date of execution of this Agreement, then the unexercised portion of the Prior Grant shall be appropriately modified as to the date of grant and the option price; provided, however, that the option price shall be the greater of the original option price of the Prior Grant or the fair market value of the stock on the date of execution of this Agreement. If Executive and the Company do not agree that such Prior Grant shall remain an incentive stock option, then the Prior Grant shall be deemed to be a nonstatutory stock option as of the date of execution of this Agreement, and the Prior Grant shall be appropriately modified to reflect such changed status.
   3. Termination For Cause Procedure. The Company may not terminate Executive's employment for Cause unless and until Executive receives a copy of a resolution duly adopted by the affirmative vote of at least a majority of the Board of Directors of the Company ("Board") finding that in the good faith opinion of the Board, Executive was guilty of the conduct constituting "Cause" and specifying the particulars thereof in detail. The Company shall provide Executive with reasonable notice of the Board vote and an opportunity for Executive, together with Executive's counsel, to be heard before the Board.
2. Definitions.
   1. Definition of Cause. For purposes of this Agreement, "Cause" shall mean that Executive has committed, or there has occurred, one or more of the following events: (1) conviction of any felony or misdemeanor involving moral turpitude, fraud or act of dishonesty against the Company; (2) a finding by the Board, after a good faith and reasonable factual investigation, that Executive has engaged in gross misconduct; or (3) material violation or material breach of any Company policy or statutory, fiduciary, or contractual duty of Executive to the Company; provided, however, that in the event that any of the foregoing events occurs, the Company shall provide notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) days to cure such event if such event is capable of being cured.
   2. Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean that any one of the following events occurs during the Executive's employment with the Company without Executive's consent: (i) any reduction of Executive's annual base salary (including bonus) as of the time period immediately preceding the Change of Control, except to the extent that the annual base salary (including bonus) of all other officers of the Company is similarly reduced; (ii) any material reduction in the package of benefits and incentives provided to the Executive, or any action by the Company which would materially and adversely affect the Executive's participation or reduce the Executive's benefits under any such plans, except to the extent that such benefits and incentives of all other officers of the Company are similarly reduced; (iii) any material change in Executive's position or responsibilities (including the person or persons to whom Executive has reporting responsibilities) that represents an adverse change from Executive's position or responsibilities as in effect at any time within ninety (90) days preceding the date of the Change of Control or at any time thereafter, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied by the Company promptly after notice thereof is given by Executive; (iv) the Company's requiring Executive to relocate to any place outside of a twenty-five (25) mile driving distance of Executive's current work site, except for reasonably required travel on the business of the Company or its affiliates that is not materially greater than such travel requirements prior to the Change in Control or unless Executive accepts such relocation opportunity; or (v) any failure to pay Executive any compensation or benefits to which Executive is entitled within fifteen (15) days of the date due. Executive may terminate his or her employment for Good Reason so long as Executive tenders his resignation to the Company within thirty (30) days after the occurrence of the event which forms the basis for his resignation for Good Reason. Executive shall provide written notice to the Company describing the nature of the event which forms the basis for Executive's resignation for Good Reason, and the Company shall thereafter have ten (10) days to cure such event.
   3. Definition of Change of Control. For purposes of this Agreement, a "Change of Control" means: (i) a dissolution, liquidation or sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iv) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors; or (v) an acquisition by the Company of an unaffiliated company, for cash or stock of the Company, in which some or all of the members of senior management of the acquired company are retained by the Company for employment by the acquired company or the Company.
3. Gross Up Provision.
   1. In the event that any payment and the value of any benefit (collectively, "Payments"), or any portion thereof, received or to be received by Executive would otherwise be subject to excise tax under Section 4999 of the Code, then the Company or the acquiring or successor entity to the Company shall pay to Executive within ninety (90) days of the date Executive becomes subject to the Excise Tax, an additional amount (the "Excise Tax Gross-Up Payment") such that the net amount retained by the Executive, after deduction of (i) any Excise Tax on the Payments and (ii) any federal, state and local income or employment tax and Excise Tax upon the payment provided for by this section 3, shall be equal to the Payments, reduced by the amount of any United States federal, state and local income or employment tax liability of the Executive if the Payments were not subject to the Excise Tax.
   2. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax:
      1. Any other payments or benefits received or to be received by Executive in connection with transactions contemplated by a Change in Control or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company), shall be treated as "parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision, and all "excess parachute payments" within the meaning of Section 280G or any similar or successor provision shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G (or any similar or successor provision of the Code) in excess of the base amount within the meaning of Section 280G (or any similar or successor provision of the Code), or are otherwise not subject to the Excise Tax.
      2. The amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Payments or (ii) the amount of the excess parachute payments within the meaning of Section 280G.
      3. The value of any non-cash benefits or any deferred payment or benefit shall be determined by the accounting firm that is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to Executive (the "Accounting Firm") in accordance with the principles of Section 280G of the Code.
   3. For purposes of determining the amount of the Excise Tax Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date the Excise Tax Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
   4. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account under this section 3, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Excise Tax Gross-Up Payment attributable to such reduction (plus the portion of the Excise Tax Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Excise Tax Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
   5. In the event that the Excise Tax is determined to exceed the amount taken into account under this section 3 (including by reason of any payment the existence or amount of which cannot be determined at the time of the Excise Tax Gross-Up Payment), the Company shall make an additional Excise Tax Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined in accordance with the principles set forth in this section 3.
   6. All determinations required to be made under this section 3 shall be made by the Accounting Firm. The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Executive. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Executive to any Payments under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Code).
4. Other Employment Terms and Conditions. The employment relationship between the parties shall be governed by the general employment policies and procedures of the Company, including those relating to the protection of confidential information and assignment of inventions; provided, however, that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or procedures, this Agreement shall control.
5. General Provisions.
   1. This Agreement, including all exhibits hereto, constitutes the complete, final and exclusive embodiment of the entire agreement between the parties with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations. Notwithstanding the foregoing, nothing in this Agreement shall affect the parties' obligations under the Stock Agreements or the Executive's Employee Proprietary Information and Inventions Agreement. This Agreement cannot be modified except in a writing signed by Executive and a duly-authorized member of the Board.
   2. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective under applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any invalid or unenforceable provision shall be modified so as to be rendered valid and enforceable in a manner consistent with the intent of the parties insofar as possible.
   3. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
   4. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile signatures shall be deemed as effective as originals.
   5. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executives and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company.
   6. If either party hereto bring any action to enforce such party's rights hereunder, the prevailing party in any such action shall be entitled to recover such party's reasonable attorneys' fees and costs incurred in connection with such action.
   7. For purposes of construction, this Agreement shall be deemed to have been drafted by the Company, and the rule of construction of contracts that ambiguities are construed against the drafting party shall be applied against the Company.
   8. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Executive shall be in writing and addressed to Executive at the address indicated herein or to the last known address provided by Executive to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile.

In Witness Whereof, the parties have executed this Agreement as of the day and year written below.

/s/ Steve Vogel

Steve Vogel

Address:

Date: 4/27/01

Chordiant software, Inc.

/s/ Sam Spadafora

Name: Sam Spadafora
Title: Chairman and Chief Executive Officer

Date: 4/27/01

Exhibit A - Release Agreements

Exhibit A

RELEASE AGREEMENT FOR EMPLOYEES UNDER 40 YEARS OF AGE

In exchange for the severance benefits I am receiving to which I would not otherwise be entitled, I hereby release, acquit and forever discharge the Company, and its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Release Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

Dated: Agreed:

[Employee's Name]

RELEASE AGREEMENT FOR EMPLOYEES 40 YEARS OF AGE OR OLDER

In exchange for the severance benefits I am receiving to which I would not otherwise be entitled, I hereby release, acquit and forever discharge the Company, and its officers, directors, agents, servants, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date of this Release Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law, statute, or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, as amended. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Release; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following my execution of this Release to revoke my agreement to it; and (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Release is executed by me.

I UNDERSTAND THAT THIS RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. In giving this release, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

Dated: Agreed:

[Employee's Name]

EX-10.19

CHANGE OF CONTROL AGREEMENT

EX-10.20

INDEMNIFICATION AGREEMENT

This Agreement is made and entered into between Chordiant Software, Inc., a Delaware corporation (the "Corporation"), and ______________________ ("Agent"). This Agreement terminates any and all previous indemnification agreements entered into by and between the Corporation and Agent.

Recitals

Whereas, Agent performs a valuable service to the Corporation in the capacity as _________ of the Corporation;

Whereas, the stockholders of the Corporation have adopted bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the "Code");

Whereas, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and

Whereas, in order to induce Agent to continue to serve as director of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent;

Now, Therefore, in consideration of Agent's continued service, the parties hereto agree as follows:

Agreement

1. Services to the Corporation. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as director of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Bylaws or the Code permitted prior to adoption of such amendment).
3. Additional Indemnity. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent:
   1. against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and
   2. otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation:
   1. on account of any claim against Agent solely for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law;
   2. on account of Agent's conduct that is established by a final judgment as knowingly fraudulent or deliberately dishonest or that constituted willful misconduct;
   3. on account of Agent's conduct that is established by a final judgment as constituting a breach of Agent's duty of loyalty to the Corporation or resulting in any personal profit or advantage to which Agent was not legally entitled;
   4. for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement;
   5. if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or
   6. in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof:
   1. the Corporation will be entitled to participate therein at its own expense;
   2. except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded, and so notified the Corporation, that there is an actual conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and
   3. the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 8 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.
12. Survival of Rights.
    1. The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators.
    2. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
13. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Bylaws, the Code or any other applicable law.
14. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement.
17. Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid:
    1. If to Agent, at the address indicated on the signature page hereof.
    2. If to the Corporation, to:

Chordiant Software, Inc.

20400 Stevens Creek Blvd., Suite #400

Cupertino, CA. 95014

or to such other address as may have been furnished to Agent by the Corporation.

19. This Agreement supercedes and terminates any previous agreement between Agent and the Corporation regarding the subject matter hereof.

In Witness Whereof, the parties hereto have executed this Agreement.

CHORDIANT SOFTWARE, Inc.

By:

Samuel T. Spadafora

Chairman

Agent

By:

Name: ____________________________________

Address:___________________________________

EX-10.21

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this "Agreement"), is made and entered into as of April 1, 2002, by and among CHORDIANT SOFTWARE, INC., a Delaware corporation (the "Company"), and CANADIAN IMPERIAL HOLDINGS INC., a Delaware corporation (the "Purchaser").

1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Agreement, the Company has authorized the sale of up to 1,500,000 shares (the "Shares") of common stock, par value $0.001 per share (the "Common Stock"), of the Company.

2. Agreement to Sell and Purchase the Shares.

2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase, and the Company agrees to sell and issue to the Purchaser, at the Closing (as defined below) up to that number of the Shares determined in accordance with Section 2.2. The number of Shares to be sold by the Company and purchased by the Purchaser shall be evidenced by the completion, execution and delivery of the Share and Price Determination Agreement(s) in substantially in the form of Schedule A attached hereto.

2.2 Purchase Price. The purchase price of each Share shall be the weighted average of the prices per share of the Shares that the Company agrees to sell and issue to the Purchaser and Purchaser agrees to purchase from the Company (including an agreed upon discount) as determined from time to time and set forth on Schedules A delivered by the parties. The aggregate purchase price for all of the Shares shall be hereinafter referred to as the "Total Purchase Price."

3. Delivery of the Shares at the Closings.

(a) The closing of the purchase and sale of the Shares shall occur at the offices of the Company, at 20400 Stevens Creek Blvd., Suite 400, Cupertino, CA 95014 or such other place, and at such time and date as the Company the Purchaser mutually agree (which time and place are designated as the "Closing"). At the Closing the Company shall authorize its transfer agent to issue to the Purchaser one or more stock certificates registered in the name of such Purchaser, or in such nominee name(s) as designated by such Purchaser in writing, representing the number of Shares to purchased at that Closing and bearing an appropriate legend referring to the fact that the Shares were sold in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 under the Securities Act. The Company will deliver certificates in such denominations as requested by the Purchaser (the "Certificates&quo t;) against delivery of payment for the Shares by the Purchaser.

(b) The Purchaser's obligations to accept delivery of such stock certificates and to pay for the Shares evidenced by the certificates shall be subject to the following condition, which may be waived by the Purchaser, that the representations and warranties made by the Company in this Agreement shall be accurate in all material respects and the undertakings of the Company shall have been fulfilled in all material respects on or before the Closing.

4. Representations, Warranties and Covenants of the Company. As of the date of this Agreement and each date that a Schedule A is delivered by the Company, the Company hereby represents and warrants to the Purchaser as follows:

4.1 Organization and Qualification. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as currently conducted and to enter into and perform its obligations under this Agreement. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings, assets, business affairs or business prospects of the Company.

4.2 Capitalization. The authorized capital stock of the Company consists of 300,000,000 shares of Common Stock and 51,000,000 shares of Preferred Stock, of which 54,176,548 shares and no shares, respectively, were outstanding at March 25, 2002. The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of or are not otherwise subject to any preemptive or other similar rights.

4.3 Issuance, Sale and Delivery of the Shares.

(a) The Shares have been duly authorized for issuance and sale to the Purchaser pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in this Agreement, will be validly issued and fully paid and nonassessable and free and clear of all pledges, liens and encumbrances. The Certificates evidencing the Shares are in due and proper form under Delaware law.

(b) The issuance of the Shares is not subject to preemptive or other similar rights. No further approval or authority of the stockholders or the Board of Directors of the Company will be required for the issuance and sale of the Shares to be sold by the Company as contemplated in this Agreement.

(c) Subject to the accuracy of the Purchaser's representations and warranties in Section 5 of this Agreement, the offer, sale, and issuance of the Shares in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and from the registration or qualification requirements of the laws of any applicable state or United States jurisdiction.

4.4 Financial Statements. The financial statements included (as exhibits or otherwise) in the Company Documents (as defined below) present fairly the financial position of the Company as of the dates indicated and the results of their operations for the periods specified. Except as otherwise stated in such Company Documents, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis.

4.5 No Material Change. Since September 30, 2001, the Company has not incurred any material liabilities, direct or contingent, except in the ordinary course of business or as disclosed in Company Documents, and

(a) there has been no material adverse change in the financial condition or in the earnings, assets or business affairs of the Company, whether or not arising in the ordinary course of business (it being understood that term "material adverse change" does not include a change in the market price or trading volume of the Common Stock, changes in general economic conditions or changes affecting the industry in which the Company operates generally);

(b) except as otherwise publicly disclosed by the Company, there have been no transactions entered into by the Company other than those in the ordinary course of business, which are material with respect to the Company; and

(c) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.

4.6 Environmental. Except as would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the financial condition or in the earnings, assets or business affairs of the Company,

(a) the Company is in compliance with all applicable Environmental Laws (as defined below);

(b) the Company has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with the requirements of such permits authorizations and approvals;

(c) there are no pending or, to the knowledge of the Company, threatened Environmental Claims (as defined below) against the Company; and

(d) under applicable law, there are no circumstances with respect to any property or operations of the Company that are reasonably likely to form the basis of an Environmental Claim against the Company.

For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any United States (or other applicable jurisdiction's) Federal, state, local or municipal statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or any chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law.

4.7 No Defaults. The Company is not in violation of its certificate of incorporation or bylaws or in material default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, deed, trust, note, lease, sublease, voting agreement, voting trust, or other instrument or material agreement to which the Company is a party or by which it may be bound, or to which any of the property or assets of the Company is subject and that has been filed as an exhibit to the Company Documents.

4.8 Labor Matters. No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent.

4.9 No Actions. Except as publicly disclosed by the Company, there is no action, suit, arbitration or legal, administrative or other proceeding, or ongoing investigation, before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company, including without limitation, any such matter that involves Proprietary Rights (as defined below) which are material to the Company, which, singly or in the aggregate, might result in a material adverse change in the condition, financial or otherwise, or in the earnings, or business affairs of the Company, or which, singly or in the aggregate, might materially and adversely affect the properties or assets thereof or which might materially and adversely affect the consummation of this Agreement. The Company is not in default with respect to any judgment, order or decree of any court or governmental agency or instrumentality which, singly or in the aggregate, would have a material adverse effect on the assets, properties or business of the Company.

4.10 Intellectual Property.

(a) The Company, to its knowledge owns or has sufficient rights to use all patents, patent applications, inventions, trademarks, trade names, applications for registration of trademarks, service marks, service mark applications, copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses and rights in any thereof and any other intangible property and assets that are material to the business of the Company as now conducted (in this Agreement called the "Proprietary Rights"), or is seeking, or will seek, to obtain rights to use such Proprietary Rights that are material to the business of the Company.

(b) Except as otherwise publicly disclosed by the Company, the Company does not have any knowledge of, and the Company has not given or received any notice of, any pending conflicts with or infringement of the rights of others with respect to any Proprietary Rights or with respect to any license of Proprietary Rights which are material to the business of the Company or which would reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company.

(c) #9; (d) The Company is not subject to any judgment, order, writ, injunction or decree of any court or any Federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator which would reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company, and has not entered into or is not a party to any contract which restricts or impairs the use of any such Proprietary Rights in a manner which would have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company.

(e) The Company has not entered into any consent, indemnification, forbearance to sue or settlement agreement with respect to Proprietary Rights other those entered intoin the ordinary course of business or those which would not reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company. No claims have been asserted by any person with respect to the validity of the Company's ownership or right to use the Proprietary Rights and, to the knowledge of the Company, there is no reasonable basis for any such claim to be successful.

(f) The Company has complied, in all material respects, with its obligations relating to the protection of the Proprietary Rights which are material to the business of the Company used pursuant to licenses.

(g) To the knowledge of the Company, no person is infringing on or violating the Proprietary Rights.

4.11 Permits. The Company possesses and is operating in compliance with all material licenses, certificates, consents, authorities, approvals and permits from all state, federal, foreign and other regulatory agencies or bodies necessary to conduct the businesses now operated by it, and the Company has not received any notice of proceedings relating to the revocation or modification of any such permit or any circumstance which would lead it to believe that such proceedings are reasonably likely which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a materially adversel effect on the condition, financial or otherwise, or the earnings, assets, or business prospects of the Company.

4.12 Due Execution, Delivery and Performance. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement and the fulfillment of the terms of this Agreement have been duly authorized by all necessary corporate action and will not conflict with or constitute a material breach of, or material default under, or result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Company pursuant to, any contract, indenture, mortgage, loan agreement, deed, trust, note, lease, sublease, voting agreement, voting trust or other agreement to which the Company is a party or by which it may be bound, or to which any of the property or assets of the Company is subject, and will not trigger anti-dilution rights or other rights to acquire additional equity securities of the Company, nor will such action result in any violation of the provisions of the articles of incorporation or bylaws of the Company or any applicable statute, law, rule, regulation, ordinance, decision, directive or order.

4.13 Properties. The Company has good and marketable title to the tangible personal property owned by it which is material to the Conducd of its business as currently conducted.. The tangible personal property of the Company material to the conduct of its business are, in the aggregate, in good repair (reasonable wear and tear excepted), and suitable for their respective uses. To the Company's knowledge, any real property held under lease by the Company is held under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the conduct of the business of the Company. The Company owns or leases all such properties as are necessary to its business or operations as now conducted.

4.14 Compliance. The Company has conducted and is conducting its business in compliance with all applicable Federal, state, local and foreign statutes, laws, rules, regulations, ordinances, codes, decisions, decrees, directives and orders, except where the failure to do so would not, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or on the earnings, assets, business affairs or business prospects of the Company.

4.15 No Violations. To the Company's knowledge, neither the Company nor any employee or agent of the Company has made any payment of funds of the Company or received or retained any funds in violation of any law, rule or regulation that would reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company.

4.16 Use of Proceeds. The Company intends to use the proceeds from the sale of the Shares for working capital and other general corporate purposes.

4.17 Taxes. The Company has filed all material tax returns required to be filed, which returns are true and correct in all material respects, and the Company is not in default in the payment of any taxes, including penalties and interest, assessments, fees and other charges, shown thereon due or otherwise assessed, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without interest which were payable pursuant to said returns or any assessments with respect thereto or to the extent such default would not reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company.

4.18 Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) that are required to be paid in connection with the sale and transfer of the Shares to be sold to the Purchaser under this Agreement will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.

4.19 Insurance. The Company maintains insurance of the type and in the amount that the Company reasonably believes is adequate for its business, including, but not limited to, insurance covering all real and tangible personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect; except where the failure to maintain such insurance would not reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or in the earnings, or business affairs of the Company.

4.20 Governmental Consents. No registration, authorization, approval, qualification or consent of any court or governmental authority or agency is necessary in connection with the execution and delivery of this Agreement or the offering, issuance or sale of the Shares under this Agreement.

4.21 Securities and Exchange Commission Filings. The Company has timely filed filed with the Securities and Exchange Commission (the "Commission") all documents required to be filed by the Company under the Exchange Act of 1934, as amended (the "Exchange Act") or has filed an appropriate notice extending the time of such filing.

4.22 Additional Information. The Company represents and warrants that none of the following documents (the "Company Documents"), when filed with the Commission contained any untrue statement of material fact or ommitted to state a material fact necessary in order to make the statements therein, in light of the circomstances under which they were made, not misleading:

(a) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001;

(b) the Company's Proxy Statement for its 2001 Annual Meeting of Stockholders; and

(c) all other documents, if any, filed by the Company with the Commission since December 31, 2001 pursuant to the reporting requirements of the Securities Exchange Act.

4.23 Contracts. The contracts described in the Company Documents or incorporated by reference therein are in full force and effect on the date hereof, except for contracts the termination or expiration of which would not, singly or in the aggregate, have a material adverse effect on the business, properties or assets of the Company. Neither the Company nor, to the knowledge of the Company, any other party is in material breach of or default under any such contracts.

4.24 No Integrated Offering. The Company has not directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Shares to the Purchaser.

4.25 Form S-3 Eligibility. The Company is currently eligible to register the resale of its Common Stock on a registration statement on Form S-3 under the Securities Act.

4.26 Material Non-public Information. The Company will not provide any material non-public information to employees of Purchaser without its consent. In the event, the Company does provide any material non-public information to employees of Purchaser, Purchaser shall notify the Company in writing thereof and give the Company an opportunity to disclose such information publicly within two (2) trading days of the Company's receipt of Purchaser's notice. In the event the Company does not disclose such information within such time period, Purchaser will have the right to disclose any information provided in violation of this provision. The Company shall not be deemed to have provided Purchaser or its employees any information which is provided to Purchaser or its employees by an affiliate of Purchaser or such affiliate's employees without the expressed written consent of the Company to provide such information.

5. Representations, Warranties and Covenants of the Purchaser.

5.1 Securities Law Representations and Warranties. The Purchaser represents, warrants and covenants to the Company as follows:

(a) The Purchaser is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares representing an investment decision like that involved in the purchase of the Shares, including investments in securities issued by the Company, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Shares. Further, the Purchaser has had such opportunity to obtain additional information and to ask questions of, and receive answers from, the Company, concerning the terms and conditions of the investment and the business and affairs of the Company, as the Purchaser considers necessary in order to form an investment decision.

(b) The Purchaser is acquiring the number of Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment only, and has no present intention of distributing any of the Shares nor any arrangement or understanding with any other persons regarding the distribution of such Shares within the meaning of Section 2(11) of the Securities Act, other than as contemplated in Section 7 of this Agreement.

(c) The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act and the Rules and Regulations.

(d) The Purchaser has completed or caused to be completed the Stock Certificate Questionnaire and the Registration Statement Questionnaire, attached to this Agreement as Appendices I and II, for use in preparation of the Registration Statement (as defined in Section 7.3 below), and the answers to the Questionnaires are true and correct as of the date of this Agreement and will be true and correct as of the effective date of the Registration Statement; provided that the Purchaser shall be entitled to update such information by providing notice thereof to the Company before the effective date of such Registration Statement.

(e) The Purchaser has, in connection with its decision to purchase the number of Shares set forth in Section 2 above, relied solely upon the Company Documents and the representations and warranties of the Company contained in this Agreement.

(f) The Purchaser is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act and has completed and returned the Investor Questionnaire previously provided by the Company.

(g) The Purchaser is an entity organized under the laws of the State of Delaware, and its principal place of operations is in the State of New York.

5.2 Resales of Shares.

(a) The Purchaser hereby covenants with the Company not to make any sale of the Shares without satisfying the requirements of the Securities Act and the Rules and Regulations, including, in the event of any resale under the Registration Statement, the prospectus delivery requirements under the Securities Act.

(b) The Purchaser understands that (i) the Shares have not been registered under the Securities Act; (ii) the Shares are being offered and sold pursuant to an exemption from registration, based in part upon the Company's reliance upon the statements and representations made by the Purchaser in this Agreement, (iii) that the Shares must be held by the Purchaser indefinitely, and that the Purchaser must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration; (iv) each Certificate will be endorsed with the following legend:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

and (v) the Company will instruct any transfer agent not to register the transfer of the Shares (or any portion thereof) unless the conditions specified in the foregoing legends are satisfied or, if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act or this Agreement, or other satisfactory assurances of such nature are given to the Company.

(b) The Purchaser acknowledges that there may occasionally be times when the Company determines the use of the prospectus forming a part of the Registration Statement (the "Prospectus," as further defined in Section 7.3.1 below) should be suspended until such time as an amendment or supplement to the Registration Statement or the Prospectus has been filed by the Company and any such amendment to the Registration Statement is declared effective by the Commission, or until such time as the Company has filed an appropriate report with the Commission pursuant to the Exchange Act. The Purchaser hereby covenants that it will not sell any Shares pursuant to the Prospectus during the period commencing at the time at which the Company gives the Purchaser written notice of the suspension of the use of the Prospectus and ending at the time the Company gives the Purchaser written notice that the Purchaser may thereafter effect sales pursuant to the Prospectus. The Co mpany may, upon written notice to the Purchaser, suspend the use of the Prospectus for up to forty-five (45) days in any 365-day period based on the reasonable determination of the Company's Board of Directors that there is a significant business purpose for such determination, including, without limitation, any pending corporate developments, public filings with the SEC or similar events. The Company shall in no event be required to disclose the business purpose for which it has suspended the use of the Prospectus if the Company determines in its good faith judgment that the business purpose should remain confidential. In addition, the Company shall notify the Purchaser (i) of any request by the SEC for an amendment or any supplement to such Registration Statement or any related prospectus, or any other information request by any other governmental agency directly relating to the offering, and (ii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or of any order preventing or suspending the use of any related prospectus or the initiation or threat of any proceeding for that purpose.

(c) The Purchaser further covenants to notify the Company promptly of the sale of any of its Shares, other than sales pursuant to a Registration Statement contemplated in Section 7 of this Agreement or sales upon termination of the transfer restrictions set forth in this section 5.2 of this Agreement.

(d) Purchaser understands and agrees that Purchaser and its affiliates are not authorized to make any representations or warranties on behalf of or with respect to the Company in connection with any resale of the Shares or the sale of any other securities of the Company and that the Company shall have no liability to the Purchaser or any other Indemnified Party (as defined below), including pursuant to the provisions of Section 7.3, with respect to any representations or warranties made by Purchaser on behalf of or with respect to the Company without Company's expressed written consent.

5.3 Due Execution, Delivery and Performance.

(a) This Agreement has been duly executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms.

(b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement and the fulfillment of the terms of this Agreement have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Purchaser pursuant to, any contract, indenture, mortgage, loan agreement, deed, trust, note, lease, sublease, voting agreement, voting trust or other instrument or agreement to which the Purchaser is a party or by which it or any of them may be bound, or to which any of the property or assets of the Purchaser is subject, nor will such action result in any violation of the provisions of the charter or bylaws of the Purchaser or any applicable statute, law, rule, regulation, ordinance, decision, directive or order.

(c) The Purchaser has the requisite authority to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement. All action on the Purchaser's part required for the lawful execution and delivery of this Agreement have been taken prior.

6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Purchaser in this Agreement and in the certificates for the Shares delivered pursuant to this Agreement shall survive the execution of this Agreement, the delivery to the Purchaser of the Shares being purchased and the payment therefor.

7. Form D Filing; Registration; Compliance with the Securities Act; Covenants.

7.1 Form D Filing; Registration of Shares. The Company shall:

(a) file in a timely manner a Form D relating to the sale of the Shares under this Agreement, pursuant to Securities and Exchange Commission Regulation D.

(b) as soon as practicable after the Closing Date, but in no event later than the 30th day following the Closing, prepare and file with the Commission a Registration Statement on Form S-3 relating to the sale of the Shares by the Purchaser from time to time on the Nasdaq National Market (or the facilities of any national securities exchange on which the Company's Common Stock is then traded) or in privately negotiated transactions (the "Registration Statement");

(c) use its best efforts to cause the Commission to declare the Registration Statement effective at the soonest practical date, which in any event shall be no later than the 120^th day following the Closing;

(d) if the Company fails to file the Registration Statement by the 30^th day following the Closing or fails to have the Registration Statement declared effective by the 120^th day following the Closing then:

&#(i) the Purchaser shall have, in addition to and without limiting any other rights it may have at law, in equity or under this Agreement, the right to receive, as liquidated damages, the payments as provided in subparagraph (ii) of this section; and

(ii) the Company shall pay to the Purchaser an amount equal to 0.5% of the Total Purchase Price per month (on a pro-rated basis).

(e) notify Purchaser promptly upon the Registration Statement, or any post-effective amendment thereto, being declared effective by the Commission;

(f) prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus (as defined in Section 7.3below) and take such other action, if any, as may be necessary to keep the Registration Statement effective until the earlier of (i) two years after the effective date of the Registration Statement, (ii) the date on which the Shares may be resold by the Purchaser, in any 90 day period, without registration or without regard to any volume limitations by reason of Rule 144under the Securities Act or any other rule of similar effect or (iii) all of the Shares have been sold or otherwise disposed of pursuant to the Registration Statement Rule 144under the Securities Act or otherwise;

(g) promptly furnish to the Purchaser with respect to the Shares registered under the Registration Statement such reasonable number of copies of the Prospectus, including any supplements to or amendments of the Prospectus, in order to facilitate the public sale or other disposition of all or any of the Shares by the Purchaser;

(h) during the period when copies of the Prospectus are required to be delivered under the Securities Act or the Exchange Act, will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time periods required by the Exchange Act and the rules and regulations promulgated thereunder;

(i) file documents required of the Company for customary Blue Sky clearance in all states requiring Blue Sky clearance; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and

(j) bear all expenses in connection with the procedures in paragraphs (a) through (j) of this Section 7.1.1 and the registration of the Shares pursuant to the Registration Statement, but not including any fees and expenses of any attorneys or other advisers to the Purchaser or brokerage fees and commissions incurred by the Purchaser.

7.2 Transfer of Shares After Registration. The Purchaser agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act, except as contemplated in the Registration Statement referred to in Section 7.1 or as otherwise permitted by law and the terms of this Agreement, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution.

7.3 Indemnification. For the purpose of this Section 7.3, the term "Registration Statement" shall include any preliminary or final prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1.

(a) Indemnification by the Company. The Company agrees to indemnify and hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the Purchaser or such controlling person may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the Prospectus, financial statements and schedules, and all other documents fi led as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required (the "Prospectus"), or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them, in light of the circumstances under which they were made, not misleading, or, except as limited pursuant to this Agreement, arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company contained in this Agreement, or any failure of the Company to perform its obligations under this Agreement or under law, and will reimburse the Purchaser and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by such Purchaser or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus or any amendment or supplement of the Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Purchaser expressly for use in the Registration Statement or the Prospectus, or (ii) the failure of such Purchaser t o comply with the covenants and agreements contained in Sections 5.2 or 7.2 of this Agreement respecting resale of the Shares, or (iii) any untrue statement or omission of a material fact required to make such statement not misleading in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Purchaser before the pertinent sale or sales by the Purchaser.

(b) Indemnification by the Purchaser. The Purchaser will indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses to which the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Purchaser, which consent shall not be unreasonably withheld) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon (i) any failure on the part of such Purchaser to comply with t he covenants and agreements contained in Sections 5.2 or 7.2 of this Agreement respecting the sale of the Shares or (ii) any untrue or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement to the Registration Statement or Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Purchaser expressly for use therein; provided, however, that the Purchaser shall not be liable for any such untrue or alleged untrue statement or omission or alleged omission of which the Purchaser has delivered to the Company in writing a correction and provided a reasonable period of time for the Company to amend or supplement the Registration Statement, including the Prospectus, as necessary before the occurrence of the transaction from which such loss was incurred. Anything to the contrary notwithstanding, under no circumstances shall the Purchaser be liable to the Company, each of its directors, officers or controlling persons for any losses, claims, damages, liabilities or expenses in excess of the Total Purchase Price.

(c) Indemnification Procedure.

(i) Promptly after receipt by an indemnified party under this Section 7.3 of notice of the threat or commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7.3, promptly notify the indemnifying party in writing of the claim; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise under the indemnity agreement contained in this Section 7.3 or to the extent it is not prejudiced as a result of such failure.

(ii) In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7.3 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless:

(A) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by such indemnifying party representing all of the indemnified parties who are parties to such action) or

(B) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party.

(d) Contribution. If the indemnification provided for in this Section 7.3 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under this Section 7.3 in respect to any losses, claims, damages, liabilities or expenses referred to in this Agreement, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to in this Agreement

(a) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Purchaser from the placement of Common Stock or

(b) if the allocation provided by clause (a) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (a) above but the relative fault of the Company and the Purchaser in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.

The respective relative benefits received by the Company on the one hand and the Purchaser on the other shall be deemed to be in the same proportion as the amount paid by such Purchaser to the Company pursuant to this Agreement for the Shares purchased by such Purchaser that were sold pursuant to the Registration Statement bears to the difference (the "Difference") between the amount such Purchaser paid for the Shares that were sold pursuant to the Registration Statement and the amount received by such Purchaser from such sale. The relative fault of the Company and the Purchaser shall be determined by reference to, among other things, whether the untrue or alleged statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation or warranty relates to information supplied by the Company or by such Purchaser and the parties' relative intent, knowledge, access to information and opportunity to corre ct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7.3.3, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 7.3.3 with respect to the notice of the threat or commencement of any threat or action shall apply if a claim for contribution is to be made under this Section 7.3.4; provided, however, that no additional notice shall be required with respect to any threat or action for which notice has been given under Section 7.3 for purposes of indemnification. The Company and each the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7.3 were determined by any other method of allocation which does not take account of the equitable co nsiderations referred to in this paragraph. Notwithstanding the provisions of this Section 7.3, Purchaser shall not be required to contribute any amount in excess of the Total Purchase Price by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

7.4 Removal of Legends and Termination of Restrictions. Unless otherwise required by applicable securities laws, the Company shall be obligated, at the request of the Purchaser, to cause the transfer agent to reissue unlegended certificates, and the restrictions on transfer described in this Agreement shall terminate with respect to the Shares if (i) the Purchaser shall have obtained an opinion of counsel reasonably acceptable to the Company to the effect that the Shares with respect to which unlegended certificates are to be issued may lawfully be disposed of without registration, qualification or legend; or (ii) the Shares can be sold without restriction as to the number of securities sold under Rule 144(k). Further, the Company will instruct the transfer agent to remove the legend on Shares (i) upon the sale of such Shares pursuant to an effective registration statement, provided the transfer agent and Company have received evidence or assurances of such s ale in a form satisfactory to the transfer agent and the Company or (ii) upon the sale of such Shares pursuant to Rule 144 under the Securities Act, provided the transfer agent and the Company have received evidence or assurances from the Purchaser of compliance with Rule 144 in a form satisfactory to the transfer agent and the Company.

7.5 Information Available. So long as the Registration Statement is effective covering the resale of Shares owned by any Purchaser, the Company will furnish to such Purchaser:

(a) as soon as practicable after available (but in the case of the Company's Annual Report on Form 10-K, within 90 days after the end of each fiscal year of the Company), one copy of

(i) its Annual Report on Form 10-K its Annual Report to Stockholders (if different than (i) above);

(ii) \ its quarterly reports on Form 10-Q; and

(iii) a full copy of the particular Registration Statement covering the Shares

(the foregoing, in each case, excluding exhibits);

(b) upon the request of the Purchaser, a reasonable number of copies of the Prospectus to supply to any other party requiring the Prospectus.

7.6 Rule 144 Information. For two years after the date of this Agreement, the Company shall file all reports required to be filed by it under the Securities Act, the Rules and Regulations and the Exchange Act and shalltake such further action to the extent required to enable the Purchaser to sell the Shares pursuant to Rule 144 under the Securities Act (as such rule may be amended from time to time).

8. Notices. All notices, requests, consents and other communications under this Agreement shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be delivered as addressed as follows:

(a) if to the Company, to:

Chordiant Software, Inc.

20400 Stevens Creek Blvd.

Suite 400

Cupertino, CA 95014

Attn: General Counsel

or to such other person at such other place as the Company shall designate to the Purchaser in writing; and

1. if to the Purchaser to:

Canadian Imperial Holdings Inc.

425 Lexington Avenue

New York, NY 10017

Attn: Paul Flynn or Jeff Haas

Such notice shall be deemed effectively given upon confirmation of receipt by facsimile, one business day after deposit with such overnight courier or three days after deposit of such registered or certified airmail with the U.S. Postal Service, as applicable.

9. Modification; Amendment. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Purchaser.

10. [Reserved].

11. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

12. Severability. If any provision contained in this Agreement should be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired thereby.

13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of New York and the federal law of the United States of America.

14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party to this Agreement and delivered to the other parties.

[Signature pages follow]

In Witness Whereof, the parties to this Agreement have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.

Chordiant Software, Inc.

By: /s/ Steve Vogel

Name: Steve Vogel

Its: Chief Financial Officer

Canadian Imperial Holdings Inc.

By: /s/ Jeffrey M. Haas

Name: Jeffrey M. Haas

Its: Executive Director

Schedule A

SHARE AND PRICE DETERMINATION AGREEMENT FOR CLOSING

Reference is made to that certain Stock Purchase Agreement (the "Purchase Agreement") dated April __, 2002, by and between CHORDIANT SOFTWARE, INC. (the "Company") and CANADIAN IMPERIAL HOLDINGS INC. (the "Purchaser"). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. In accordance with Section 2 of the Purchase Agreement, the Company and Purchaser have agreed as follows:

1. The number of Shares to be purchased and sold at the Closing shall be up to 1,500,000 Shares, such exact number to be confirmed by the Purchaser immediately prior to the Closing, but in no event to exceed the number of Shares set forth on all executed Schedules A delivered by the Purchaser and Company. As of the date hereof, the Company desires to sell up to ________ of the Shares in accordance with the terms of the Agreement and this Schedule. Any such Shares sold shall be in addition to any Shares pursuant to any previously executed Schedules A.

1. The Price Per Share of the Shares to be sold pursuant to this Schedule A will be determined in accordance with established market practices and will be ninety-four percent (94%) of the Share purchase price of not less than $_________ (unless such lesser amount is authorized by the Company). The Company is not responsible for any other transaction fees.
2. The Company and Purchaser acknowledge and agree that this purchase and sale are being made pursuant to, and in accordance with the terms, conditions, representations and warranties of the respective parties, in the Purchase Agreement.

In Witness Whereof, the parties have caused this Schedule to be executed by their duly authorized representatives as of _______ __, 2002.

chordiant software, Inc.

By:

Name:

Its:

Canadian Imperial Holdings Inc.

By:

Name:

Its:

Appendix I

CHORDIANT SOFTWARE, INC.

STOCK CERTIFICATE QUESTIONNAIRE

Pursuant to Section 3 of the Agreement, please provide us with the following information:

1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate:

__________________________________

2. The relationship between the Purchaser of the Shares and the Registered Holder listed in response to item 1 above: __________________________________
3. The mailing address of the Registered Holder listed in response to item 1 above:

___________________________________

___________________________________

___________________________________

___________________________________

4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above:

___________________________________

Appendix II

CHORDIANT SOFTWARE, INC.

REGISTRATION STATEMENT QUESTIONNAIRE

In connection with the preparation of the Registration Statement, please provide us with the following information:

1. Pursuant to the "Selling Stockholder" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement:

_______________________________________________________

2. Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions:

_____________________________________________

3. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates?

_____ Yes _____ No

If yes, please indicate the nature of any such relationships below:

_________________________________________________________
_________________________________________________________
_________________________________________________________
________________________________________________________

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