-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TPWfR9YTkmOUdLN5MsemdtbVSCyjqb+6GlHFEnvFBroKGYGkkNmBJrJY/fyQLJyA fGYhYVPOPbWBKRxbDl5Mbw== 0001042134-08-000007.txt : 20080207 0001042134-08-000007.hdr.sgml : 20080207 20080207161708 ACCESSION NUMBER: 0001042134-08-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080207 DATE AS OF CHANGE: 20080207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHORDIANT SOFTWARE INC CENTRAL INDEX KEY: 0001042134 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 931051328 STATE OF INCORPORATION: DE FISCAL YEAR END: 0906 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29357 FILM NUMBER: 08585422 BUSINESS ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4085176100 MAIL ADDRESS: STREET 1: 20400 STEVENS CREEK BLVD STREET 2: SUITE 400 CITY: CUPERTINO STATE: CA ZIP: 95014 10-Q 1 d10q.htm FORM 10-Q d10q.htm


 
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 quarterly period ended December 31, 2007
 
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
93-1051328
(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 such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of January 31, 2008, there were 33,212,666 shares of the registrant’s common stock outstanding.
 

CHORDIANT SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 2007
 
PART I. FINANCIAL INFORMATION
Page No.
 
 
  
Item 1.
3
 
 
  
 
3
 
 
  
 
4
 
 
  
 
5
 
 
  
 
6
 
 
  
Item 2.
26
 
 
  
Item 3.
41
 
 
  
Item 4.
42
 
    
PART II. OTHER INFORMATION
  
 
 
  
Item 1.
43
 
 
  
Item 1A.
43
 
 
  
Item 6.
52
 
 
  
 
52
     


PART I - FINANCIAL INFORMATION
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
 
 
 
 
December 31,
2007
      
September 30,
2007
 
 
 
 
 
    
 
  
 
ASSETS
 
 
      
 
  
 
Current assets:
 
 
      
 
    
Cash and cash equivalents
 
$
76,212
    
$
77,987
 
Marketable securities
    
10,885
      
12,159
  
Restricted cash
 
 
48
    
 
46
 
Accounts receivable, net
 
 
21,091
    
 
27,381
 
Prepaid expenses and other current assets
 
 
7,347
    
 
5,306
 
Total current assets
 
 
115,583
    
 
122,879
 
Restricted cash—long-term
 
 
267
    
 
265
 
Property and equipment, net
 
 
3,957
    
 
3,638
 
Goodwill
 
 
32,044
    
 
32,044
 
Intangible assets, net
 
 
2,423
    
 
2,725
 
Other assets
 
 
2,078
    
 
3,264
 
Total assets
 
$
156,352
    
$
164,815
 
 
 
 
      
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
      
 
  
 
Current liabilities:
 
 
      
 
  
 
Accounts payable
 
$
8,469
    
$
8,080
 
Accrued expenses
 
  
13,703
    
 
13,804
 
Deferred revenue, including related party balances of $52and $116at December31, 2007and September 30, 2007, respectively
 
 
38,002
    
 
44,548
 
Total current liabilities
 
 
60,174
    
 
66,432
 
Deferred revenue—long-term
 
 
19,109
    
 
23,434
 
Restructuring costs, net of current portion
 
 
837
    
 
942
 
Other long-term liabilities
 
 
870
    
 
646
 
Total liabilities
 
 
80,990
    
 
91,454
 
                 
Commitments and contingencies (Notes 8, 9 and 10)
 
 
      
 
 
 
 
 
 
      
 
  
 
Stockholders’ equity:
 
 
      
 
 
 
Preferred stock, $0.001 par value; 51,000 shares authorized; none issued and outstanding at December 31, 2007and September 30, 2007
 
 
—
    
 
—
 
Common stock, $0.001 par value; 120,000 shares authorized; 33,309 and 33,221shares issued and outstanding at December 31, 2007and September 30, 2007, respectively
 
 
33
    
 
33
 
Additional paid-in capital
 
 
297,412
    
 
295,650
 
Accumulated deficit
 
 
(226,710
)
  
 
(226,915
)
Accumulated other comprehensive income
 
 
4,627
    
 
4,593
 
Total stockholders’ equity
 
 
75,362
      
73,361
 
Total liabilities and stockholders’ equity
 
$
156,352
    
$
164,815
 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


CHORDIANT SOFTWARE, INC.
(In thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended December 31,
 
 
 
2007
    
 
2006
  
 
 
 
            
Revenues:
 
 
      
 
    
License
 
$
8,807
    
$
7,162
  
Service, including related party items aggregating $64 and $63 for the three months ended December 31, 2007and 2006, respectively.
 
 
20,327
    
 
15,777
  
Total revenue
 
 
29,134
    
 
22,939
  
Cost of revenues:
 
 
      
 
    
License
 
 
334
    
 
454
  
Service, including related party items aggregating $177 for the three months ended December 31, 2006
 
 
8,478
    
 
7,466
  
Amortization of intangible assets
 
 
303
    
 
303
  
Total cost of revenue
 
 
9,115
    
 
8,223
  
Gross profit
 
 
20,019
    
 
14,716
  
Operating expenses:
 
 
      
 
    
Sales and marketing
 
 
8,903
    
 
7,264
  
Research and development
 
 
6,725
    
 
6,296
  
General and administrative
    
5,003
      
5,611
  
Restructuring expense
 
 
—
    
 
6,472
  
Total operating expense
 
 
20,631
    
 
25,643
  
Loss from operations
 
 
(612
)
  
 
(10,927
)
Interest income, net
 
 
835
    
 
304
  
Other income (expense), net
 
 
134
    
 
(15
)
Income (loss)before income taxes
 
 
357
    
 
(10,638
)
Provision for income taxes
 
 
152
    
 
111
  
Net income (loss)
 
$
205
    
$
(10,749
)
                 
Net income (loss)per share:
                
Basic
  
$
0.01
    
$
(0.34
)
Diluted
  
$
0.01
    
$
(0.34
)
                 
Weighted average shares used in computing net income (loss) per share:
                
Basic
    
33,292
      
31,725
  
Diluted
    
33,864
      
31,725
  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


CHORDIANT SOFTWARE, INC.
(In thousands)
(Unaudited)
 
   
Three Months Ended December31,
 
 
 
2007
    
 
2006
 
 
 
 
      
 
    
Cash flows from operating activities:
 
 
      
 
    
Net income (loss)
 
$
205
    
$
(10,749
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
      
 
    
Depreciation and amortization
 
 
397
    
 
350
  
Amortization of intangibles and capitalized software
 
 
570
    
 
528
  
Non-cash stock-based compensation expense
 
 
1,175
    
 
976
  
Provision for doubtful accounts and sales returns
 
 
38
    
 
111
  
Loss on disposal of assets
 
 
—
    
 
489
  
Accretion of discounts on marketable securities
    
(32
)
    
—
  
Other non-cash charges
 
 
—
    
 
445
  
Changes in assets and liabilities:
 
 
      
 
    
Accounts receivable
 
 
6,255
    
 
(22,698
)
Prepaid expenses and other current assets
 
 
(2,013
)
  
 
(3,497
)
Other assets
 
 
999
    
 
(263
)
Accounts payable
 
 
396
    
 
(2,298
)
Accrued expenses, other long-term liabilities and restructuring
 
 
23
    
 
7,273
  
Deferred revenue
 
 
(10,664
)
  
 
31,727
  
Net cash provided by (used for) operating activities
 
 
(2,651
)
  
 
2,394
  
Cash flows from investing activities:
 
 
      
 
    
Property and equipment purchases
 
 
(723
)
  
 
(1,058
)
Capitalized product development costs
    
(66
)
    
—
  
Increase inrestricted cash
 
 
(2
)
  
 
(81
)
Purchases of marketable securities and short-term investments
    
(4,340
)
    
—
  
Proceeds from maturities of marketable securities and short-term investments
 
 
5,647
    
 
—
  
Net cash provided by (used for) investing activities
 
 
516
    
 
(1,139
)
Cash flows from financing activities:
 
 
      
 
    
Proceeds from exercise of stock options
 
 
569
    
 
221
  
Payment on capital leases
 
 
—
    
 
(56
)
Excess tax benefits from stock-based compensation
    
17
      
—
  
Net cash provided by financing activities
 
 
586
    
 
165
  
Effect of exchange rate changes
 
 
(226
)
  
 
688
  
Net increase (decrease) in cash and cash equivalents
 
 
(1,775
)
  
 
2,108
  
Cash and cash equivalents at beginning of period
 
 
77,987
    
 
45,278
  
Cash and cash equivalents at end of period
 
$
76,212
    
$
47,386
  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


CHORDIANT SOFTWARE, INC.
(UNAUDITED)
 
NOTE 1—THE COMPANY
 
Chordiant Software, Inc. or the Company, or Chordiant is an enterprise software vendor that offers software solutions for global business-to-consumer companies that seek to improve the quality of their customer interactions and to reduce costs through increased employee productivity and process efficiencies. The Company concentrates on serving global customers in banking, insurance, healthcare, communications, retail and other consumer direct industries.
 
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation

The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, orSEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United Stateshave been condensed or omitted pursuant to such rules and regulations. The September 30, 2007 Condensed Consolidated Balance Sheetswas derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related Notes included in the Company’sAnnual Report on Form 10-K for the year ended September 30, 2007, or 2007 Form 10-K, filed with the SEC.

All adjustments, consisting of only normal recurring adjustments, which in the opinion of management, are necessary to state fairly the financial position, results of operations and cash flows for the interim periods presented have been made. 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.

Reclassifications
 
Certain reclassifications have been made to prior period balances to conform to the current period’s presentation.
 
Principles of consolidation
 
The accompanying unaudited Condensed Consolidated Financial Statements include the accountsof the Companyand itswholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
 
Use of estimates
 
The preparation of Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.
 
On an on-going basis, the Company evaluates the estimates, including those related to the allowance for doubtful accounts, valuation of stock-based compensation, valuation of goodwill and intangible assets, valuation of deferred tax assets, restructuring expenses, contingencies, Vendor Specific Objective Evidence, or VSOE, of fair value in multiple element arrangements and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts. The Company bases these estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition
 
The Company derives revenue from licensing software and related services, which include assistance in implementation, customization and integration, post-contract customer support, or PCS, training and consulting. All revenue amounts are presented net of sales taxes in the Company’s Condensed Consolidated Statements of Operations. The amount and timing of revenue is difficult to predict and any shortfall in revenue or delay in recognizing revenue could cause operating results to vary significantly from period to period and could result in operating losses. The accounting rules related to revenue recognition are complex and are affected by the interpretation of the rules and an understanding of industry practices, both of which are subject to change. Consequently, the revenue recognition accounting rules require management to make significant estimates based on judgment.



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

Software license revenue is recognized in accordance with AICPA’s Statement of Position No. 97-2 “Software Revenue Recognition,” as amended by Statement of Position No. 98-9 “Software Revenue Recognition with Respect to Certain Arrangements” (collectively “SOP 97-2”).

For arrangements with multiple elements, the Company recognizes revenue for services and post-contract customer support based upon the fair value VSOE of the respective elements. The fair value VSOE of the services element is based upon the standard hourly rates charged for the services when such services are sold separately. The fair value VSOE for annual post-contract customer support is generally established with the contractual future renewal rates included in the contracts, when the renewal rate is substantive and consistent with the fees when support services are sold separately. When contracts contain multiple elements and fair value VSOE exists for all undelivered elements, the Company accounts for the delivered elements, principally the license portion, based upon the “residual method” as prescribed by SOP 97-2. In multiple element transactions where VSOE is not established for an undelivered element, revenue is recognized upon the establishment of VSOE for that element or when the element is delivered.

At the time a transaction is entered into, the Company assesses whether any services included within the arrangement relate to significant implementation or customization essential to the functionality of our products. For contracts for products that do not involve significant implementation or customization essential to the product functionality, the Company recognizes license revenue when there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred as prescribed by SOP 97-2. For contracts that involve significant implementation or customization services essential to the functionality of our products, the license and professional consulting services revenue is recognized using either the percentage-of-completion method or the completed contract method as prescribed by Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts”, or SOP 81-1.

The percentage-of-completion method is applied when the Company has the ability to make reasonably dependable estimates of the total effort required for completion using labor hours incurred as the measure of progress towards completion. The progress toward completion is measured based on the “go-live” date. The “go-live” date is defined as the date the essential product functionality has been delivered or the application enters into a production environment or the point at which no significant additional Chordiant supplied professional service resources are required. Estimates are subject to revisions as the contract progresses to completion and these changes are accounted for as changes in accounting estimates when the information becomes known. Information impacting estimates obtained after the balance sheet date but before the issuance of the financial statements is used to update the estimates. Provisions for estimated contract losses, if any, are recognized in the period in which the loss becomes probable and can be reasonably estimated. When additional licenses are sold related to the original licensing agreement, revenue is recognized upon delivery if the project has reached the go-live date, or if the project has not reached the go-live date, revenue is recognized under the percentage-of-completion method. Revenue from these arrangements is classified as license and service revenue based upon the estimated fair value of each element using the residual method.

The completed contract method is applied when the Company is unable to obtain reasonably dependable estimates of the total effort required for completion. Under the completed contract method, all revenue and related costs of revenue are deferred and recognized upon completion.

For product co-development arrangements relating to software products in development prior to the consummation of the individual arrangements, where the Company retains the intellectual property being developed, and intends to sell the resulting products to other customers, license revenue is deferred until the delivery of the final product, provided all other requirements of SOP 97-2 are met. Expenses associated with these co-development arrangements are accounted for under SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” and are normally expensed as incurred as they are considered to be research and development costs that do not qualify for capitalization or deferral.

Revenue from subscription or term license agreements, which include software and rights to unspecified future products or maintenance, is recognized ratably over the term of the subscription period. Revenue from subscription or term license agreements, which include software, but exclude rights to unspecified future products and maintenance, is recognized upon delivery of the software if all conditions of recognizing revenue have been met including that the related agreement is non-cancelable, non-refundable and provided on an unsupported basis.

For transactions involving extended payment terms, the Company deems these fees not to be fixed or determinable for revenue recognition purposes and revenue is recognized.

For arrangements with multiple elements accounted for under SOP 97-2 where the Company determines it can account for the elements separately and the fees are not fixed or determinable due to extended payment terms, revenue is recognized in the following manner. If the undelivered element is PCS, or other services, an amount equal to the estimated value of the services to be rendered prior to the next payment becoming due is allocated to the undelivered services. The residual of the payment is allocated to the delivered elements of the arrangement.


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

For arrangements with multiple elements accounted for under SOP 81-1 where the Company determines it can account for the elements separately and the fees are not fixed or determinable due to extended payment terms, revenue is recognized in the following manner. Amounts are first allocated to the undelivered elements included in the arrangement, as payments become due or are received, the residual is allocated to the delivered elements.

Revenue for PCSis recognized ratably over the support period which ranges from one to five years.

Training and consulting services revenue is recognized as such services are performed on an hourly or daily basis for time and material contracts. For consulting services arrangements with a fixed fee, revenue is recognized on a percentage-of-completion basis.

For all sales, either a signed license agreement or a binding purchase order with an underlying master license agreement is used as evidence of an arrangement. Sales through third party systems integrators are evidenced by a master agreement governing the relationship together with binding purchase orders or order forms on a transaction-by-transaction basis. Revenues from reseller arrangements are recognized on the “sell-through” method, when the reseller reports to the Company the sale of software products to end-users. The Company’s agreements with customers and resellers do not contain product return rights.

Collectibility is assessed based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Collateral is generally not requested from customers. If it is determined that the collection of a fee is not probable, the revenue is recognized at the time the collection becomes probable, which is generally upon the receipt of cash.

Restricted cash

At December 31, 2007 and September 30, 2007, restricted cash included interest-bearing certificates of deposit. These restricted cash balances serve as collateral for letters of credit securing certain lease obligations and PCS obligations.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, restricted cash, marketable securities and accounts receivable. To date, the Company has invested excess funds in money market accounts, commercial paper, corporate bonds, certificates-of-deposit, and marketable securities with maturities of less than one year. The Company hasdepositedcash and cash equivalents and marketable securities with various high quality institutions domestically and internationally. The Company’s marketable securities are composed of investment instruments that are highly rated.

The Company’s accounts receivable are derived from sales to customers located in North America, Europe, and elsewhere in the world. The Company performs ongoing credit evaluations of customers’ financial condition and, generally, requires no collateral from customers. The Company maintains an allowance for doubtful accounts when deemed necessary. The Company estimates its allowance for doubtful accounts by analyzing accounts receivable for specific risk accounts as well as providing for a general allowance amount based on historical bad debt and billing dispute percentages. The estimate considers historical bad debts, customer concentrations, customer credit-worthiness and current economic trends. To date, bad debts have not been material and have been within management expectations.

The following table summarizes the revenues from customers and resellers that accounted for 10% or more of total revenues:

     
Three Months Ended December 31,
  
     
2007
  
2006
  
 
Citicorp Credit Services, Inc.
  
 
22
%
  
 
13
%
  
 
International Business Machines (“IBM”)
  
 
11
%
  
 
11
%
  
 
Wellpoint, Inc.
    
11
%
    
*
    
 
Lloyds TSB Bank plc.
  
 
*
    
 
10
%
  
                     
*        Represents less than 10% of total revenues.

As previously announced, the Company has agreed to license certain of its software to IBM’s customers.



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

At December 31,2007, Wellpoint, Inc. and Citicorp Credit Services, Inc. accounted for 27% and 13%,of our accounts receivable, respectively. At September 30, 2007, Wellpoint,Inc., IBM and Citicorp Credit Services, Inc. accounted for approximately 28%,17% and 15% of our accounts receivable, respectively.

Research and Development

Costs incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred until the technological feasibility of the product or enhancement has been established. Technological feasibility of the product is determined after the completion of a detailed program design and a determination has been made that any uncertainties related to high-risk development issues have been resolved. If the process of developing the product does not include a detail program design, technological feasibility is determined only after completion of a working model. After establishing technological feasibility, additional development costs incurred through the date the product is available for general release to customers is capitalized and amortized over the estimated product life.

When technological feasibility is established through the completion of a working model the period of time between achieving technological feasibility and the general release of new product is generally short and software development costs qualifying for capitalization have historically been insignificant.

During the quarter ended September 30, 2006, technological feasibility to port an existing product to a new platform was established through the completion of a detailed program design. Costs aggregating$0.5 million associated with this producthave been capitalized and included in Other Assets as of September 30, 2007. This product was completed and became available for general release in July 2007,accordingly,the capitalized costsare being amortizedusing the straight-line method over the remaining estimated economic life of the product which is 36 months. For the three months ended December 31, 2007, amortization expense, included in cost of revenue for licenses, related to this product was less than $0.1 million. As of December 31, 2007, the unamortized expense was $0.4 million.

During the quarter ended September 30, 2004, technological feasibility for an acquired banking product was established through the completion of a detailed program design. Costs aggregating $2.7 million associated with this product have been capitalized and included in Other Assets as of September 30, 2005. During the quarter ended September 30, 2005, the product became available for general release and, accordingly, the costs capitalized commenced to be amortized. The capitalized costs are being amortized using the straight-line method over the remaining estimated economic life of the product which is 36 months. For the three months ended December 31, 2007 and 2006, amortization expense, included in cost of revenue for licenses, related to this product was $0.2 millionfor each of the quarter.As of December 31, 2007, the unamortized expense was $0.5 million.

Income Taxes
  
Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Effective October 1, 2007, the Company adopted Financial Accounting Standards Interpretation, No. 48 “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” or FIN 48. FIN 48 prescribes a recognition threshold and measurement guidance for the financial statement reporting of uncertain tax positions taken or expected to be taken in a company’s income tax return. The application of FIN 48 is explained in Note 11 to the Condensed Consolidated Financial Statements.

Net income (loss) per share
 
    The Company computes net income (loss) per share in accordance with Statement of Financial Accounting Standard, or SFAS,  No. 128, “Earnings per Share”, or SFAS 128. Under the provisions of SFAS 128, basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares, which consist of incremental shares issuable upon the exercise of stock options and unvested restricted stock (using the treasury stock method), are included in the calculation of diluted net income per share, in periods in which net income is reported, to the extent such shares are dilutive. In accordance with SFAS 123(R), unvested performance based restricted stock units are not included in the computation of earnings per share as they are considered contingently issuable shares. The calculation of diluted net loss per share excludes potential common shares as their effect is anti-dilutive for the three months ended December 31, 2006.


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

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

   
Three Months Ended December31,
  
     
2007
      
2006
 
  
   
 
  
 
  
 
  
 
  
 
Net income (loss) available to common stockholders
$
205
    
$
(10,749
)
  
 
Denominator:
                
 
Weighted average common stock outstanding
 
33,292
    
 
31,882
    
 
Common stock subject to repurchase
 
—
 
  
 
(157
) 
  
 
Denominator for basic calculations
 
33,292
    
 
31,725
    
                   
 
Effect of dilutive potential common shares
  
572
      
—
  
(*)
 
Denominator for diluted calculations
  
33,864
      
31,725
    
                   
 
Net income (loss)per share—basic
$
0.01
    
$
(0.34
)
  
 
Net income (loss) per share—diluted
$
0.01
    
$
(0.34
)
  
 
        (*) – Dilutive potential common shares are excluded from the calculation of diluted net loss per share.

The following table sets forth the potential total common shares that are excluded from the calculation of diluted net loss per share as their effect is anti-dilutive as of the dates indicated (in thousands):

     
December 31,
2006
            
                   
 
Employee stock options
 
3,544
            
 
Restricted stock
 
157
            
     
3,701
            

Recent Accounting Pronouncements

In November 2007, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin, orSAB, No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings”. SAB 109 provides guidance on written loan commitments that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The guidance is applicable for fiscal years beginning after December 15, 2007. The Company has evaluated the new standard and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In December 2007, the SEC issued SAB No. 110, “Share-Based Payment”. SAB 110 allows for the continued use of the “simplified method” allowed under SAB 107 in developing an estimate of expected term “plain vanilla” share options in accordance with SFAS 123(R). The guidance is applicable after December 31, 2007. The Company has evaluated the new standard and has determined that it will not have a significant impact on the determination or reporting of our financial results.

In December 2007, the Financial Accounting Standards Board, or FASB, issued  SFAS No.141(R), “Business Combinations”, or SFAS 141(R). SFAS 141(R) replaces SFAS No. 141. SFAS 141(R)establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R)is effective for fiscal years beginningafter December 15, 2008. The Company is currently evaluatingthe effects of implementing this new standard.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51”, or SFAS 160. SFAS 160 establishes accounting and reporting standards for


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

ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginningafter December 15, 2008. The Company is currently evaluatingthe effects of implementing this new standard.

NOTE 3—MARKETABLE SECURITIES

The Company has the following marketable securities (in thousands):

   
December  31, 2007
  
     
Amortized
cost
      
Gross
Unrealized
Gain
      
Gross
Unrealized
Loss
      
Fair
Value
    
 
Marketable securities:
                                
 
Commercial paper
$
1,636
    
$
—
    
$
—
    
$
1,636
    
 
Corporate bonds
  
9,246
      
5
      
(2
)
    
9,249
    
 
Total
$
10,882
    
$
5
    
$
(2
)
  
$
10,885
    
       
   
September 30, 2007
  
     
Amortized
cost
      
Gross
Unrealized
Gain
      
Gross
Unrealized
Loss
      
Fair
Value
    
 
Marketable securities:
                                
 
Commercial paper
$
3,008
    
$
—
    
$
(1
)
  
$
3,007
    
 
Corporate bonds
  
9,153
      
3
      
(4
)
    
9,152
    
 
Total
$
12,161
    
$
3
    
$
(5
)
  
$
12,159
    

As of December 31, 2007 and September 30, 2007, all marketable securities have maturity dates less than one year. For the three months ended December 31, 2007 and September 30, 2007, no gains or losses were realized on the sale of marketable securities.

NOTE 4—BALANCE SHEET COMPONENTS
 
Accounts receivable, net
 
Accounts receivable, net,consists of the following (in thousands):

     
December 31,
2007
      
September 30,
2007
 
  
 
Accounts receivable, net:
 
  
 
  
 
  
 
  
 
Accounts receivable
$
21,194
    
$
27,546
 
  
 
Less: allowance for doubtful accounts
 
(103
)
  
 
(165
)
  
 
  
$
21,091
    
$
27,381
 
  

Prepaid expenses and other current assets

Prepaid expense and other current assets consist of the following (in thousands):

     
December 31,
2007
      
September 30,
2007
 
  
 
Prepaid expense and other current assets:
 
  
 
  
 
  
 
  
 
Prepaid commissions and royalties
$
4,363
 
  
$
3,104
 
  
 
Other prepaid expenses and current assets
 
2,984
    
 
2,202
    
 
  
$
7,347
 
  
$
5,306
 
  



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

Property and equipment, net

Property and equipment, net,consists of the following (in thousands):

     
December 31,
2007
      
September 30,
2007
 
  
 
Property and equipment, net:
 
  
 
  
 
  
 
  
 
Computer hardware (useful lives of 3 years)
$
4,478
 
  
$
4,167
 
  
 
Purchased internal-use software (useful lives of 3 years)
 
3,017
 
  
 
2,685
    
 
Furniture and equipment (useful lives of 3 to 7 years)
 
745
 
  
 
739
    
 
Leasehold improvements (shorter of 7 years or the term of the lease)
 
2,903
 
  
 
2,883
    
     
11,143
 
  
 
10,474
 
  
 
Accumulated depreciation and amortization
  
(7,186
)
  
 
(6,836
)
  
 
  
$
3,957
 
  
$
3,638
 
  

Intangible assets, net

Intangible assets, net,consist of the following (in thousands):

   
December 31, 2007
  
September 30, 2007
 
    
Gross
Carrying
Amount
 
  
 
Accumulated
Amortization
      
Net
Carrying
Amount
      
Gross
Carrying
Amount
      
Accumulated
Amortization
      
Net
Carrying
Amount
 
Intangible assets:
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
Developed technologies
 
$
6,904
 
  
$
(5,092
)
  
$
1,812
 
  
$
6,904
 
  
$
(4,869
)
  
$
2,035
 
Customer list and trade-names
    
2,731
      
(2,120
)
    
611
      
2,731
      
(2,041
)
    
690
  
 
 
$
9,635
 
  
$
(7,212
)
  
$
2,423
 
  
$
9,635
 
  
$
(6,910
)
  
$
2,725
 

All of the Company’sacquired intangible assets are subject to amortization and are carried at cost less accumulated amortization. Amortization is computed on a straight line basis over the estimated useful lives which are as follows:  Developed technologies—one and one half to five years; trade-names—three to five years; customer list—three to five years. Aggregate amortization expense for intangible assets totaled $0.3 million for each of the three monthsended December 31, 2007 and 2006, respectively. The Company expects amortization expense on acquired intangible assets to be $0.9 million for the remainder of fiscal year 2008, $1.2 million in fiscal year 2009 and $0.3 million in fiscal year 2010.

Other assets

Other assets consist of the following (in thousands):

     
December 31,
2007
      
September 30,
2007
 
  
 
Other assets:
 
  
 
  
 
  
 
  
 
Long-term accounts receivable
$
—
 
  
$
984
 
  
 
Other assets
 
2,078
    
 
2,280
    
 
  
$
2,078
 
  
$
3,264
 
  

The long-term accounts receivable balance represents a receivable from a single customer related to a sale transaction that occurred during the quarter ended December 31, 2006. This amount represents the third and final payment which is due in the quarter ending December 2008. All revenue associated with this receivable hasbeen deferred and will not be recognized until the payment becomes due. As of December 31, 2007, the receivable has been recorded as a current accounts receivable.


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

Accrued expenses

Accrued expenses consist of the following (in thousands):  

     
December 31,
2007
      
September 30,
2007
 
  
 
Accrued expenses:
 
  
 
  
 
  
 
  
 
Accrued payroll, payroll taxes and related expenses
$
7,842
 
  
$
6,781
    
 
Accrued restructuring expenses, current portion (Note 5)
 
1,721
    
 
3,044
    
 
Accrued third party consulting fees
 
724
    
 
1,264
    
 
Accrued income, sales and other taxes
 
1,920
    
 
1,143
    
 
Other accrued liabilities
  
1,496
    
 
1,572
    
 
  
$
13,703
    
$
13,804
    

NOTE 5—RESTRUCTURING

Restructuring Costs

Through December 31, 2007,the Company implementedcertain restructuring plans to, among other things, reduce its workforce and consolidate facilities. Restructuring and asset impairment expenses have been recorded to align the Company’s cost structure with changing market conditions and to create a more efficient organization. The Company’s restructuring expenses have been comprised primarily of: (i) severance and termination benefit costs related to the reduction of our workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities. The Company accounted for each of these costs in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” or previous guidance under Emerging Issues Task Force 94-3 “Liabilities Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”, or EITF 94-3.
 
Retroactive application of SFAS 146 to periods prior to January 1, 2003, was prohibited; accordingly, the accrual relating to facilities vacated prior to the effective date of SFAS 146 continues to be accounted for in accordance with the guidance of EITF 94-3. Accruals for facilities that were restructured prior to 2003 do not reflect any adjustments relating to the estimated net present value of cash flows associated with the facilities.
 
For each ofthe periods presented herein, restructuring expenses consist solely of:

 
•
Severance and Termination Benefits—These costs represent severance and payroll taxes related to restructuring plans.

 
•
Excess Facilities—These costs represent future minimum lease payments related to excess and abandoned office space under leases, the disposal of property and equipment including facility leasehold improvements, and net of estimated sublease income.

As of December 31, 2007, the total restructuring accrual consisted of the following (in thousands):
 
 
 
Current
  
Non-Current
  
Total
 
 
Severance and termination benefits
$
97
 
$
—
 
$
97
 
 
Excess facilities
 
1,624
 
 
837
 
 
2,461
 
 
Total
$
1,721
 
$
837
 
$
2,558
 
 
As of December 31, 2007, and September 30, 2007, $1.7 million and $3.0 million related to the restructuring reserve are included in the Accrued Expenses line item on the Condensed Consolidated Balance Sheets, respectively. The allocation between current portion and long-term portion is based on the current lease agreements.

The Company expects the remaining severance and termination benefit accrual to be paid by September 30, 2008.



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

The excess facilities reserve relates to two facilities: one located in the United Kingdomand one in Boston, Massachusetts. The Company expects to pay the excess facilities amounts related to the restructured or vacated leased office space as follows (in thousands):

 
Fiscal Year Ended September 30, 
          
Total Future
Minimum Lease
Payments
            
 
2008 (remaining nine months)
        
$
1,519
            
 
2009
        
 
412
            
 
2010
        
 
405
            
 
2011
          
125
            
 
Total
        
$
2,461
            

Included in the future minimum lease payments schedule above is an offset of $0.8million of contractually committed sublease rental income for the Bostonfacility. In November 2007, the Company negotiated a break clause in the United Kingdomlease allowing for an early termination of the respective facility which will release the Company of any future rent liabilities subsequent to January 2008. The scheduled lease payments shown in the table above reflect apayment of $1.2million in the second quarter of fiscal year 2008 associated with the early termination of the United Kingdomlease. Subsequent to December 31, 2007 and as of the date of the filing of this Form 10-Q, the Company has paid its final lease payment for the United Kingdomlease and has been released from any future rent liabilities.

Fiscal Year 2007 Restructuring

In October 2006, the Company initiated a restructuring plan intended to align its resources and cost structure with expected future revenues. The restructuring plan included a balancing of service resources worldwide, elimination of duplicative functions internationally, and a shift in the U.S.field organization toward a focus on domain–based sales and pre-sales teams. As a result of the restructuring plan, management undertook a reduction of 33 positions or approximately 10% of the Company’s workforce and consolidation of the European headquarters in the United Kingdomand the closure of the Franceoffice, or 2007 Restructuring. As part of the 2007 Restructuring, the Company initially incurred a one-time restructuring expenseof $6.5million for severance and termination benefits, and excess facilities expensed to Restructuring Expense in the Condensed Consolidated Statements of Operations. The Company accrued lease costs pertaining to the consolidation of excess facilities relating to lease terminations and non-cancelable lease costs. The Company was able to terminate the Francefacility lease during the year-ended September 30, 2007. In the quarter ended December 31, 2007, the Company negotiated an early termination option for the United Kingdomlease which terminatedthe lease inJanuary 2008. Managementbelieves the current restructure reserve amount is sufficient to meet all payments required as a result of the anticipated early termination.

The following table summarizes the activity related to the 2007 Restructuring(in thousands):

 
 
 
Excess Facilities
 
  
 
Reserve balance as of September 30, 2007
$
2,526
 
  
 
Non-cash
 
(62
)
  
 
Cash paid
  
(1,282
)
  
 
Reserve balance as of December 31, 2007
$
1,182
 
  

Fiscal Year 2005 Restructuring

In May 2005, the Company appointed a task force to improve profitability and control expenses. The goal of the task force was to create a better alignment of functions within the Company, to make full utilization of the Company’s India development center, to develop a closer relationship between the Company’s field operations and customers, to review the sales and implementation models, as well adjust as the organization model to flatten management levels, to review the Company’s product line, and to enhance the Company’s business model for profitability and operating leverage. This work resulted in an approximate 10% reduction in the Company’s workforce, or 2005 Restructuring,and in July 2005 affected employees were notified. As part of the 2005 Restructuring, the Company incurred a one-time restructuring charge of $1.1 million in the fourth quarter ended September 30, 2005 for severance and termination benefits.


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

The following table summarizes the activity related to the 2005 Restructuring (in thousands):

 
 
 
Severance
and Termination
Benefits
 
  
 
Reserve balance as of September 30, 2007
$
100
    
 
Non-cash
 
(3
)
  
 
Cash paid
 
—
    
 
Reserve balance as of December 31, 2007
$
97
    

Prior Restructurings

During fiscal year 2002, based upon the Company’scontinued evaluation of economic conditions in the information technology industry and our expectations regarding revenue levels, the Company restructured several areas so as to reduce expenses and improve revenue per employee, or 2002 Restructuring. As part of 2002 Restructuring, the Companyrecorded a total workforce reduction expense relating to severance and termination benefits of approximately $2.0 million and $3.8 million for years ended December 31, 2003 and 2002, respectively. In addition to these costs, the Companyaccrued lease costs related to excess facilities of $0.2 million and $2.8 million during the years ended December 31, 2003 and 2002, respectively, pertaining to the consolidation of excess facilities relating to lease terminations and non-cancelable lease costs. This expense is net of estimated sublease income based on current comparable rates for leases in the respective markets.

During theyear ended September 30, 2007, the Company entered into a new sublease for the last remaining facility lease associated with the 2002 Restructuring. As a result of this sublease rental income being lower than previously estimated as part of the restructure facility reserve, the Company recorded an additional $0.4million of restructuring expense during the year ended September 30, 2007. The sublease term is through the entire remaining term of theCompany’s lease obligation for the facility.

The following table summarizes the activity related to the 2002 Restructuring (in thousands):
 
 
 
 
Excess Facilities
 
  
 
Reserve balance as of September 30, 2007
$
1,360
 
  
 
Non-cash
 
—
    
 
Cash paid
  
(81
)
  
 
Reserve balance as of December 31, 2007
$
1,279
 
  

NOTE 6—COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss) are as follows (in thousands):

   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
                   
 
Net income (loss)
$
205
    
$
(10,749
)
  
                   
 
Other comprehensive income (loss):
                
 
Change in foreign currency translation
  
29
      
452
    
 
Net change in unrealized gain from investments
  
5
      
—
    
 
Comprehensive income (loss)
$
239
    
$
(10,297
)
  



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

NOTE 7—RELATED PARTY TRANSACTIONS

In August 2005, the Company entered into a service provider agreement with Infogain Corporation, or Infogain. Samuel T. Spadafora, aformer director and executive officer of the Company, is a director of Infogain. Mr. Spadafora terminated his relationship with the Company in November 2006.

Charles E. Hoffman, a director of the Company, is the President and Chief Executive Officer of Covad Communications Group, Inc., or Covad, a customer of ours.

The following presents the related party transaction balances (in thousands):
 
   
Revenue
  
Cost of Revenues
  
Payments
  
   
Three Months Ended December 31,
     
2007
    
2006
    
2007
    
2006
    
2007
    
2006
  
 
Infogain
$
—
  
$
—
  
$
—
  
$
177
  
$
—
  
$
117
  
 
Covad
  
64
    
63
    
—
    
—
    
—
    
—
  
   
$
64
  
$
63
  
$
—
  
$
177
  
$
—
  
$
117
  
                                       
   
Deferred Revenue
          
     
As of
December 31,
2007
    
As of
September 30,
2007
                          
 
Infogain
$
—
  
$
—
                          
 
Covad
  
52
    
116
                          
   
$
52
  
$
116
                          

NOTE 8—BORROWINGS

Revolving line of credit

The Company’s revolving line of credit with Comerica Bank was amended and restated on March 8, 2006 and was extended to March 7, 2008. The terms of the agreement include a $5.0 million line of credit, available on a non-formula basis, and require the Company to maintain (i) at least a $5.0 million cash balance in Comerica Bank accounts, (ii) a minimum quick ratio of 2 to 1, (iii) a liquidity ratio of at least 1 to 1 at all times, and (iv) subordinate any debt issuances subsequent to the effective date of the agreement, and certain other covenants. All assets of the Company have been pledged as collateral on the credit facility.

The revolving line of credit contains a provision for a sub-limit of up to $5.0 million for issuances of standby commercial letters of credit. As of December 31, 2007, the Company had utilized $0.3 million of the standby commercial letters of credit limit of which $0.3 million serves as collateral for computer equipment leases for Ness (see Note 9). The revolving line of credit also contains a provision for a sub-limit of up to $3.0 million for issuances of foreign exchange forward contracts. As of December 31, 2007, the Company had not entered into any foreign exchange forward contracts. Pursuant to the amendment in March 2006, the Company is required to secure the standby commercial letters of credit and foreign exchange forward contracts through March 7, 2008. If these have not been secured to Comerica Bank’s satisfaction, the Company’s cash and cash equivalent balances held by Comerica Bank automatically secure such obligations to the extent of the then continuing or outstanding and undrawn letters of credit or foreign exchange contracts.

Borrowings under the revolving line of credit bear interest at the lending bank’s prime rate. Except for the standby commercial letters of credit, as of December 31, 2007, there were no outstanding balances on the revolving line of credit.


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

NOTE 9—COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases its facilities and certain equipment under non-cancelable operating leases that expire on various dates through 2013. Rent expense is recognized on a straight line basis over the lease term.

Future minimum lease payments as of December 31, 2007 are as follows (in thousands):

     
Operating
Leases
      
Operating
Sublease
Income
      
Net
Operating
Leases
 
  
 
Fiscal year ended September 30:
                        
 
2008 (remaining nine months)
$
3,619
 
  
$
(185
) 
  
$
3,434
    
 
2009
  
2,503
      
(283
)
    
2,220
    
 
2010
  
2,276
      
(293
)
    
1,983
    
 
2011
  
1,671
      
(86
)
    
1,585
    
 
2012
  
802
      
—
      
802
    
 
Thereafter
  
557
    
 
—
    
 
557
    
 
Total minimum payments
$
11,428
    
$
(847
) 
  
$
10,581
    

Operating lease payments in the table above include approximately $3.4 millionfor two facility operating lease commitments that are included in Restructuring Expense. One of the leases is located in Boston, Massachusettsand the other is located in the United Kingdom. As of December 31, 2007, the Company has $0.8 million insublease income contractually committed for future periods relating to the Boston, Massachusetts facility classified as an operating lease. See Note 5for further discussion. The scheduled lease payments shown in the table above includes$1.2 million that was paid in the second quarter of fiscal year 2008 associated with the early termination of the United Kingdomlease. Subsequent to December 31, 2007 and as of the date of the filing of this Form 10-Q, the Company haspaid its final lease payment for the United Kingdom lease and hasbeen released from any future rent liabilities.

Asset Retirement Obligations

As required by SFAS No.143 “Accounting for Asset Retirement Obligations”, or SFAS 143,and Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”, orFIN 47, the Company recorded an Asset Retirement Obligation (ARO) of approximately $0.3 million and a corresponding increase in leasehold improvementsin the fiscal year 2007. SFAS 143 and FIN 47 requires the recognition of a liability for the fair value of a legally required conditional asset retirement obligation when incurred, if the liability’s fair value can be reasonability estimated. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is amortized over the life of the asset.

The Company’s asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon lease termination. As of December 31, 2007, the Company estimated that gross expected cash flows of approximately $0.4 million will be required to fulfill these obligations.

Asset retirement obligation payments as of December 31, 2007 are estimated as follows (in thousands):

             
Payments
            
 
Fiscal year ended September 30:
                        
 
2008 (remaining nine months)
        
$
—
            
 
2009
          
—
            
 
2010
          
—
            
 
2011
          
149
            
 
2012
          
201
            
 
Total
        
$
350
 
          



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

Other Obligations

The Company entered into an agreement with Ness Technologies Inc.,Ness USA, Inc. (formerlyNess Global Services, Inc.)and Ness Technologies India, Ltd. (collectively, “Ness”), effective December 15, 2003, pursuant to which Ness provides the Company’scustomers with technical product support through a worldwide help desk facility, a sustaining engineering function that serves as the interface between technical product support and internal engineering organization, product testing services and product development services (collectively, the “Services”). The agreement had an initial term of three years and was extended for twoadditional year terms. Under the terms of the agreement, the Company pays for services rendered on a monthly fee basis, including the requirement to reimburse Nessfor approved out-of-pocket expenses. The agreement may be terminated for convenience by the Company, subject to the payment of a termination fee. In 2004, 2005, 2006 and 2007 the Company further expanded its agreement with Ness whereby Nessis providing certain additional technical and consulting services. The additional agreements can be cancelled at the option of the Company without the payment of a termination fee. The remaining minimum purchase commitment under these agreements, if Chordiant was to cancel the contracts, was approximately $0.7 million at December 31, 2007. In addition to service agreements, the Company has also guaranteed certain equipment lease obligations of Ness(see Note 8). Nessmay procure equipment to be used in performance of the Services, either through leasing arrangements or direct cash purchases, for which the Company is obligated under the agreement to reimburse them. In connection with the procurement of equipment, Ness has entered into a 36 month equipment lease agreement with IBM India and, in connection with the lease agreement the Company has an outstandingstandby letter of credit in the amount of $0.3 million in guarantee of Ness’ financial commitments under the lease. Over the term of the lease, the Company’sobligation to reimburse Ness is approximately equal to the amount of the guarantee.

Indemnification

As permitted under Delawarelaw, the Company has agreements whereby the Company has indemnifiedour officers, directors and certain employees for certain events or occurrences while the employee, officer or director is, or was serving, at the Company’srequest in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Companycould be required to make under these indemnification agreements is unlimited; however, the Companyhasa Director and Officer insurance policy that limits the Company’sexposure and may enable the Company to recover a portion of any future amounts paid. Future payments may be required to defend current and former directors in the derivative class action lawsuits described in Note 10.As a result of insurance policy coverage, the Companybelievesthe estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2007.

The Company entersinto standard indemnification agreements in our ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, defend, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’sbusiness partners or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’sproducts. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. The Company believes the estimated fair value of these agreements is minimal.  Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2007.

The Company enters into arrangements with our business partners, whereby the business partners agree to provide services as subcontractors for the Company’simplementations. The Company may, at itsdiscretion and in the ordinary course of business, subcontract the performance of any of theseservices. Accordingly, the Company enters into standard indemnification agreements with itscustomers, whereby the Company indemnifies them for other acts, such as personal property damage by itssubcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has general and umbrella insurance policies that may enable the Company to recover a portion of any amounts paid. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2007.

When, as part of an acquisition, the Company acquires all of the stock or all of the assets and liabilities of a company, the Company may assume the liability for certain events or occurrences that took place prior to the date of acquisition. The maximum potential amount of future payments, if any, the Company could be required to make for such obligations is undeterminable at this time. Accordingly, the Company has no amounts recorded for these contingent liabilities as of December 31, 2007.


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

The Company warrants that software products will perform in all material respects in accordance with standard published specifications and documentation in effect at the time of delivery of the licensed products to the customer for a specified period of time. Additionally, the Company warrants that maintenance and consulting services will be performed consistent with generally accepted industry standards. If necessary, the Company would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history, however, the Company has not incurred significant expense under product or services warranties to date. As a result, the Company believes the estimated fair value on these warranties is minimal. Accordingly, the Company has no amounts recorded for these contingent liabilities as of December 31, 2007.

NOTE 10—LITIGATION

IPO Laddering

Beginning in July 2001, the Company and certain of its officers and directors, or individuals, were named as defendants in a series of class action stockholder complaints filed in the United States District Court for the Southern District of New York, now consolidated under the caption, “In re ChordiantSoftware, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-6222”. In the amended complaint, filed in April 2002, the plaintiffs allege that the Company, the individuals, and the underwriters of the Company’s initial public offering, or IPO, violated section 11 of the Securities Act of 1933 and section 10(b) of the Exchange Act of 1934 based on allegations that the Company’s registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the Company’s IPO underwriters. The complaint also contains claims against the Individuals for control person liability under Securities Act section 15 and Exchange Act section 20. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same court against hundreds of other public companies, or Issuers, that conducted IPO’s of their common stock in the late 1990’s or in the year 2000 (collectively, the “IPO Lawsuits”).

In August 2001, all of the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. In July 2002, the Company joined in a global motion to dismiss the IPO Lawsuits filed by all of the Issuers (among others). In October 2002, the Court entered an order dismissing the individuals from the IPO Lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to the individuals. In February 2003, the court issued a decision denying the motion to dismiss against Chordiant and many of the other Issuers.

In June 2003, Issuers and plaintiffs reached a tentative settlement agreement that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and individuals in the IPO Lawsuits, and the assignment to plaintiffs of certain potential claims that the Issuers may have against the underwriters. The tentative settlement also provides that, in the event that plaintiffs ultimately recover less than a guaranteed sum of $1 billion from the IPO underwriters, plaintiffs would be entitled to payment by each participating Issuer’s insurer of a pro rata share of any shortfall in the plaintiffs’ guaranteed recovery. In September 2003, in connection with the possible settlement, those individuals who had entered tolling agreements with plaintiffs (described above) agreed to extend those agreements so that they would not expire prior to any settlement being finalized. In June 2004, Chordiant and almost all of the other Issuers entered into a formal settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes, and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. On August 31, 2005, the Court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order, and directed that Notice of the settlement be published and mailed to class members beginning November 15, 2005. On February 24, 2006, the Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the settlement. On April 24, 2006, the Court held a Final Fairness Hearing to determine whether to grant final approval of the settlement. On December 5, 2006, the Second Circuit Court of Appeals vacated the lower Court's earlier decision certifying as class actions the six IPO Lawsuits designated as "focus cases." Thereafter, the District Court ordered a stay of all proceedings in all of the IPO Cases pending the outcome of plaintiffs’ petition to the Second Circuit for rehearing en banc. On April 6, 2007, the Second Circuit denied plaintiffs’ rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the district court. Accordingly, the settlement will not be finally approved. Plaintiffs filed amended complaints in six “focus cases” on or about August 14, 2007. The Company is not a focus case. In September 2007, the Company's named officers and directors again extended the tolling agreement with plaintiffs. On or about September 27, 2007, plaintiffs moved to certify the classes alleged in the focus cases and to appoint class representatives and class counsel in those cases.  The focus case issuers filed motions to dismiss the claims against them on or about November 9, 2007 and an opposition to plaintiffs' motion for class certification on December 21, 2007.   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, results of operations, financial condition or cash flows.


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

Derivative Class Action

On August 1, 2006, a stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Jesse Brown under the caption Brown v. Kelly, et al. Case No. C06-04671 JW (N.D. Cal.). On September 13, 2006, a second stockholder derivative complaint was filed in the United States District Court for the Northern District of California by Louis Suba under the caption Suba v. Kelly et al., Case No. C06-05603 JW (N.D. Cal.). Both complaints were brought purportedly on behalf of the Company against certain current and former officers and directors. On November 27, 2006, the court entered an order consolidating these actions and requiring the plaintiffs to file a consolidated complaint. The consolidated complaint was filed on January 11, 2007. The consolidated complaint alleges, among other things, that the named officers and directors: (a) breached their fiduciary duties as they colluded with each other to backdate stock options, (b) violated section 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder through their alleged actions, and (c) were unjustly enriched by their receipt and retention of such stock options. On May 21, 2007, the Company filed a motion to dismiss the entire action on the grounds that the plaintiffs failed to take the steps necessary to bring a derivative action. Instead of opposing the motion to dismiss on November 14, 2007, the plaintiffs filed an Amended Complaint adding new allegations against five more current and former officer and directors. The substantive allegations in the Amended Complaint are similar to those in the previous complaint. On December 14, 2007, the Company again filed a motion to dismiss the entire action on the grounds that the plaintiffs failed to take the steps necessary to bring a derivative action. The individual defendants also filed a motion to dismiss. On January 22, 2008, the parties reached an agreement in principal on the settlement of this lawsuit. The parties are working to finalize and memorialize the terms of that settlement and will then seek court approval of the settlement.

Patent Claim

In September 2006, the Company received a letter from Acacia Technologies Group, a patent holding company, suggesting that the Company may be infringing on two patents, designated by United States Patent Numbers 5,537,590 and 5,701,400, which are held by one of their patent licensing and enforcement subsidiaries.  The Company is currently reviewing the validity of these patents and whether the Company’s products may infringe upon them.  The Company has not formed a view of whether the Company may have liability for infringement of these patents. Any related claims, whether or not they have merit, could be costly and time-consuming to defend, divert management’s attention or cause product delays. If any of the Company’s products were found to infringe such patents, the patent holder could seek an injunction to enjoin use of the infringing product. If the Company was required to settle such a claim, it could have a material impact on our business, results of operations, financial condition or cash flows.

Yue vs Chordiant Software, Inc.

On January 2, 2008, the Company and certain of our officers and one other employee were named in a complaint filed in the United States District Court for the Northern District of California by Dongxiao Yue under the caption Dongxiao Yue v. Chordiant Software, Inc. et al. Case No. CV 08-0019 BZ (N.D. Cal.). The complaint alleges that the Company’s Marketing Director software product infringed copyrights in certain software referred to as the “PowerRPC software,” copyrights in which had been owned by Netbula LLC and assigned to Dr. Yue, the sole employee and owner of Netbula. The alleged infringement includes (a) distributing more copies of the PowerRPC software than had originally been authorized in a run time license Netbula granted to Chordiant Software, Intl., (b) infringement of a software developer kit (“SDK”) by making copies of the SDK in excess of those that had been licensed by Netbula, (c) making unauthorized derivative works of the SDK, (d) unauthorized distribution of PowerRPC for products operating on the Windows Vista platform, (e) unauthorized distribution of PowerRPC for server based products.Plaintiff also claims that the license Netbula granted to Chordiant Software, Int’l Ltd. should not be construed to authorize uses by its parent company, Chordiant Software, Inc. The plaintiff seeks monetary damages, disgorgement of profits, and injunctive relief according to proof.  The Company and its officers and employee will serve their response to the complaint on or after February 13, 2008.

The Company, from time to time, is 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, results of operations or cash flows. However, litigation is subject to inherent uncertainties.

NOTE 11—INCOME TAXES

Effective October 1, 2007, the Company adopted FIN No. 48 “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”. FIN 48 prescribes a recognition threshold and measurement guidance for the financial statement reporting of uncertain tax positions taken or expected to be taken in a company’s income tax return. FIN 48 also provides guidance related to recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition matters related to uncertain tax positions. FIN 48 utilizes a two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS 109. Step one, recognition, requires a company to determine if the weight of available


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

evidence indicates that a tax position is more likely than not to be sustained upon audit, including the resolution of related appeals or litigation processes, if any. Step two, measurement, is based on the largest amount of benefit which is more likely than not to be realized on ultimate settlement. The cumulative effect of adopting FIN 48, if any, is recorded as an adjustment to the opening balance of retained earnings as of the adoption date.

The net income tax assets recognized under FIN 48 did not materially differ from the net assets recognized before adoption, and, therefore, the Company did not record an adjustment to retained earnings related to the adoption of FIN 48.  At the adoption date of October 1, 2007, the Company had $0.8 million of unrecognized tax benefits related to tax positions taken in prior periods, $0.2 million of which would affect the Company’s effective tax rate if recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the Provision for Income Taxes. The Company had less than $0.1 million accrued for interest and penalties as of December 31, 2007.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, all U.S. federal, state and United Kingdom tax years between 1995 and 2007 remain open to examination due to net operating loss carryforwards and credit carryforwards. Tax years 2003 and later remain open to examination in Canada and years 2004 and later remain open to examination in Germany.

Tax audits of the 2005 tax year are currently in process in the Netherlands and Canada. The Company does not expect resolution of these audits to have a material impact on our financial statements and the Company does not expect a significant increase or decrease in unrecognized tax benefits over the next 12 months.

The Company provides a valuation allowance for deferred tax assets when it is more likely than not that the net deferred tax assets will not be realized. Based on a number of factors, including the lack of a history of profitsprior to 2007 and the fact that the market in which we compete is intensely competitive and characterized by rapidly changing technology, the Company believes that there is sufficient uncertainty regarding the realization of deferred tax assets such that a full valuation allowance has been provided. At December 31, 2007, the Companyhad approximately $127.6 million and $18.9 million of net operating loss carryforwards for federal and state purposes, respectively, and net operating loss carryforwards of approximately $34.6 million in the United Kingdom. As a result of an IRC Section 382 study completed during fiscal 2008, it was determined that $19.6 million of net operating loss carryforwards resulting from the acquisition of Prime Response will expire unutilized. The $127.6 million in total federal net operating loss carryforwards is presented net of these Section 382 limitations. Upon being realized, the remaining $13.8 million of the Prime Response federal net operating loss carryforwards will reduce goodwill and intangibles recorded at the date of acquisition before reducing the tax provision. Approximately $3.5 million of additional net operating loss carryforwards are related to stock option deductions which, if utilized, will be accounted for as an addition to equity rather than as a reduction of the provision for income taxes. The net operating loss carryforwards are available to offset future federal and state taxable income and expire in years from 2008 through 2026. At December 31, 2007, there are approximately $3.5 million of federal research and development credits and alternative minimum tax credits that expire in years 2011 through 2027. At December 31, 2007, there were also California state credits of approximately $3.5 million that do not expire.

NOTE 12—EMPLOYEE BENEFIT PLANS

2005 Equity Incentive Plan

As of December 31, 2007, there were approximately 1.9 million shares available for future grant and approximately 3.4million options that areoutstanding under the 2005 Equity Incentive Plan or 2005 Plan. In December 2007, the Board amended the 2005 plan to increase the number of shares reserved for future issuance by 0.7 million shares. This amendment was approved by the stockholders at the2008 Annual Meeting of Stockholders’ held on February 1, 2008.

In October 2007,the Company granted 0.2 million performance-based restricted stock units or RSUs to selected executivesof the Companypursuant to the 2005 Plan. The performance-based restricted stock units cliff vest at the end of a two year requisite service period, constituting the Company’s fiscal years 2008 and 2009,upon achievement of specified performance criteria established by the Compensation Committee of our Board of Directors. The award agreements for RSUs generally provide that vesting will be accelerated in certain events related to changes in control of the Company. Total compensation cost for these awards isbased on the fair market value of the shares at the date of grant. The portion of the total compensation cost related to the performance-based awards is subject to adjustment each quarter based on management’s assessment of the likelihood of achieving the two year performance criteria.

2000 Nonstatutory Equity Incentive Plan

As of December 31, 2007, there were approximately 0.4 million options that areoutstanding under the 2000 Nonstatutory Equity Incentive Plan.


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

1999 Non-Employee Directors’ Option Plan

As of December 31, 2007, there were approximately 0.3million shares of common stock are available for future grant and 0.2millionoptions that are outstanding under the 1999 Non-Employee Directors’ Option Planor Directors’ Plan. In December 2007, the Board amended the Directors’ Plan to incorporate the following changes:

1.  
expand the type of awards that may be granted under the Directors’ Plan to allow restricted stock awards and restricted stock unit awards; and
2.  
for fiscal year 2008 and thereafter, directors will be awarded restricted stock awards instead of stock options for their annual and initial automatic Board service award.

This amendment was approved by the stockholders at the2008 Annual Meeting of Stockholders’ held on February 1, 2008.

Stock Option Activity
 
The following table summarizes stock option, restricted stock unitsand restricted stockawardsactivity under our stock option plans (in thousands, except per share data):

   
Shares
Available
for Grant
      
Shares
      
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Life (Years)
    
Aggregate
Intrinsic
Value
Closing
Price at
12/31/2007
of $8.55
  
Balance at September 30, 2007
 
3,058
 
  
 
3,178
 
  
$
7.96
 
          
Authorized
 
—
 
  
 
—
 
  
 
—
 
          
Options and awards granted
 
(919
)
  
 
919
 
    
9.70
 
          
Options exercised
 
—
 
  
 
(88
)
    
6.46
 
          
Cancellation of unvested restricted stock
 
—
 
  
 
—
 
  
 
—
 
          
Options and awards cancelled/forfeited
 
39
 
  
 
(39
)
  
 
11.30
 
          
Authorized reduction in shares from existing plans
  
(4
)
    
—
      
—
            
Balance at December 31, 2007
 
2,174
 
  
 
3,970
 
  
$
8.36
 
8.22
  
$
3,847
  
Vested and expected to vest at December 31, 2007
          
3,029
    
$
8.20
  
7.97
  
$
3,449
  
Exercisable at December 31, 2007
          
1,592
    
$
7.41
  
6.87
  
$
2,946
  

The following table summarizes information about stock options outstanding and exercisable at December 31, 2007 (in thousands, except exercise prices and contractual life data):

   
Options Outstanding
  
Options Exercisable
  
Range of
Exercise Prices
  
Number
Outstanding
  
Weighted
Average
Remaining
Contractual
Life (Years)
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
Closing
Price at
12/31/2007
of $8.55
  
Number
Exercisable
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
Closing
Price at
12/31/2007
of $8.55
  
$0.35 – 6.45
 
 
570
 
 
5.82
 
$
4.02
 
$
2,584
 
 
484
 
$
3.82
 
$
2,290
 
6.48 – 7.80
 
 
543
 
 
7.70
 
  
7.18
 
  
745
 
 
321
 
  
7.08
    
472
 
7.88 – 8.15
    
439
 
 
7.93
 
  
7.98
 
  
250
 
 
209
 
  
7.99
    
118
  
8.25 – 8.25
    
817
 
 
9.10
 
  
8.25
    
245
 
 
193
 
  
8.25
    
58
  
8.28 – 9.23
    
179
 
 
7.73
 
  
8.53
    
23
 
 
80
 
  
8.61
    
8
  
9.25 – 9.25
    
814
 
 
9.88
 
  
9.25
    
—
 
 
30
 
  
9.25
    
—
  
9.26 – 45.00
 
 
608
 
 
7.89
 
  
12.67
    
—
 
 
275
 
  
12.53
    
—
 
$0.35 – 45.00
 
 
3,970
 
 
8.22
 
$
8.36
 
$
3,847
 
 
1,592
 
$
7.41
 
$
2,946
 



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

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $8.55 as of December 31, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of December 31, 2007 was approximately 1.3 million. As of December 31, 2007, approximately 1.6 million outstanding options were vested and exercisable, and the weighted average exercise price was $7.41. The total intrinsic value of options exercised during the three months ended December 31, 2007and 2006was $0.7 million and $0.2 million respectively.The fair value of options vested for the three months ended December 31, 2007 and 2006 was $0.6 million for each period. As of December 31, 2007, total unrecognized compensation costs related to non-vested stock options was $7.0 million, which is expected to be recognized as expense over a weighted-average period of approximately 2.9 years. As of December 31, 2006, total unrecognized compensation costs related to non-vested stock options was $3.8 million, which wasexpected to be recognized as expense over a weighted-average period of approximately 1.3 years.

The Company had nounvested restricted stock awards as of December 31, 2007. The Company had 0.4 million unvested restricted stock awards as of December 31, 2006. The total fair value of the unvested restricted stock awards at grant date was $0.8 million. Aggregate intrinsic value of the unvested restricted stock awards at December 31, 2006 was $1.3million. During the three months ended December 31, 2006, approximately 0.3 million shares vested related to restricted stock awards. The weighted average fair value at grant date of the unvested restricted stock awards was $5.25 as of December 31, 2006. As of December 31, 2006, total unrecognized compensation costs related to unvested restricted stock awards was $0.1 million which wasto be recognized as expense over a weighted average period of approximately 1.0 year.

As of December 31, 2007, the total fair value and number of vested RSUs was zero. Based upon management’s assessment of the likelihood of achieving the two year performance criteria, the Company has 0.1 million of unvested RSUs with an average fair value of $15.38 per unit. During the three months ended December 31, 2007, $0.3 million of stock compensation expense related to the performance-based RSUs has been recognized.The total unrecognized compensation costs related to unvested RSUs was $1.9 million which is expected to be recognized as expense over a weighted average period of approximately 21 months. If the maximum target of RSUs outstanding were assumed to be earned, total unrecognized compensation costs would be approximately $3.0 million which would be expected to be recognized as expense over a weighted average period of approximately 21 months.

The Company settles stock option exercises, restricted stock units and restricted stock awards with newly issued common shares.

Valuation and Expense Information under SFAS 123(R)
 
On October 1, 2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors including employee stock options, restricted stock awards, restricted stock unitsand employee stock purchases related to the Employee Stock Purchase Planbased on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options,restricted stock awardsand RSUsfor the three months ended December 31, 2007and 2006, respectively, which was allocated as follows (in thousands):

   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
   
 
  
 
  
 
  
 
  
 
Stock-based compensation expense:
    
 
          
 
Cost of revenues
$
153
    
$
107
    
 
Sales and marketing
 
241
    
 
329
    
 
Research and development
 
199
    
 
93
    
 
General and administrative
 
582
    
 
447
    
 
Total stock-based compensation expense
$
1,175
    
$
976
    

The weighted-average estimated fair value of stock options granted during the three months ended December 31, 2007 and 2006 was $4.43 and $4.03 per share, respectively, using the Black-Scholes model with the following weighted-average assumptions:


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

   
Three Months Ended December31,
  
     
2007
      
2006
 
  
 
Expected lives in years
 
3.5
 
  
 
3.6
 
  
 
Risk free interest rates
  
3.4
%
  
 
4.6
%
  
 
Volatility
  
59
%
  
 
71
%
  
 
Dividend yield
  
0
%
  
 
0
%
  

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted-average assumptions for volatility, expected term, and risk free interest rate. With the adoption of SFAS 123(R) on October 1, 2005, the Company used the trinomial lattice valuation technique to determine the assumptions used in the Black-Scholes model. The trinomial lattice valuation technique was used to provide a better estimate of fair values and meet the fair value objectives of SFAS 123(R). The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility rate is based on the historical volatility of our stock price.
 
As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2007 and 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Our estimated forfeiture rate for the three months ended December 31, 2007 and 2006 was based on our historical forfeiture experience.

Accuracy of Fair Value Estimates

The Company uses third party analyses to assist in developing the assumptions based on a trinomial lattice valuation technique used in the Black-Scholes model. The Company is responsible for determining the assumptions used in estimating the fair value of share-based payment awards.

Thisdetermination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options and restricted stock awards. Although the fair value of employee stock options and restricted stock awards is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

NOTE 13—SEGMENT INFORMATION
 
Our chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by desegregated information about revenues by geographic regions for purposes of making operating decisions and assessing financial performance. Accordingly, the Company has concluded that the Company has one reportable segment.
 
The following table summarizes license revenue by product emphasis (in thousands):
 
   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
 
License revenue:
    
 
  
 
  
 
  
 
Enterprisesolutions
$
6,214
    
$
3,545
    
 
Marketing solutions
 
714
    
 
989
    
 
Decision management solutions
 
1,879
    
 
2,628
    
 
Total
$
8,807
    
$
7,162
    



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

The following table summarizes service revenue consisting of consulting implementationand integration, consulting customization, training,post-contract customer supportservices, or PCS and certainreimbursable out-of-pocket expenses by product emphasis (in thousands):

   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
 
Servicerevenue:
    
 
  
 
  
 
  
 
Enterprisesolutions
$
15,209
    
$
12,199
    
 
Marketing solutions
 
3,118
    
 
2,605
    
 
Decision management solutions
 
2,000
    
 
973
    
 
Total
$
20,327
    
$
15,777
    

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

   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
       
 
  
 
  
 
  
 
North America
$
15,591
    
$
13,221
    
 
Europe
 
13,543
    
 
9,718
    
 
Total
$
29,134
    
$
22,939
    

Included in foreign revenue results for Europe are revenue from the United Kingdomof $6.1 millionand $6.3 millionfor the three months ended December 31, 2007and 2006, respectively.

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

     
December 31
2007
      
September 30,
2007
 
  
       
 
  
 
  
 
  
 
North America
$
2,719
    
$
2,346
    
 
Europe
 
1,238
    
 
1,292
    
 
Total
$
3,957
    
$
3,638
    



 
This discussion and analysis should be read in conjunction with ourCondensed Consolidated Financial Statements and accompanying Notes included in this report and the 2007 Audited Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2007 filed with the SEC. Operating results are not necessarily indicative of results that may occur in future periods.
 
The following discussion and analysis contains forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievement to be materially different from any future results, levels of activity, performance or achievements expressed or implied in or contemplated by the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “guidance,” “potential,” “continue” or the negative of such terms or other similar expressions, identify forward-looking statements. Our actual results and the timing of events may differ significantly from those discussed in the forward-looking statements as a result of various factors, including but not limited to, those discussed under the subheading “Risk Factors” and those discussed elsewhere in this report, in our other SEC filings and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2007 Form 10-K. Chordiant undertakes no obligation to update any forward-looking statement to reflect events after the date of this report.
 
Overview
 
As an enterprise software vendor, we generate substantially all of our revenues from the banking, insurance, healthcare, telecommunications, and retail industries. Our customers typically fund purchases of our software and services out of their lines of business and information technology budgets. As a result, our revenues are heavily influenced by our customers’ long-term business outlook and willingness to invest in new enterprise information systems and business applications.

For the three months ended December 31, 2007, total revenues increased 27% and backlog increased 38% as compared to the same period of the prior year. For the three months ended December 31, 2007, backlog increased $20.6million or 27% compared to the previous three months ended September 30, 2007. This increase in backlog is primarily related to a large telecommunications customer commitment entered into during the quarter totaling $26.1 million for license and support services. Under the terms of the commitment, the customer is required to purchase $26.1 million of license and support services over a period of approximately 28 months ending April 1, 2010. We recognized $1.5 million of license and service revenue associated with this transaction during the quarter and expect to recognize the remainder of the backlog revenue over the commitment period according to scheduled minimum purchase amounts and dates. To the extent the customer places orders in advance of the commitment dates, the timing of the license and support revenue could be accelerated versus the scheduled purchase dates and amounts.

Software Industry Consolidation and Possible Increased Competition

The enterprise software industry continues to undergo consolidation in sectors of the software industry in which we operate. Within the last 12 months, IBM acquired Cognos, DataMirror and Watchfire Corporation, Oracle completed its acquisition of Hyperion and Moniforce and has entered into an agreement to purchase BEA Systems, Sun Microsystems has entered in an agreement  to purchase MySQL and SAP acquired BusinessObjects, YASU Technologies and Pilot Software. While we do not believe that Cognos, DataMirror, Watchfire Corporation, Hyperion, Moniforce, BEA Systems, MySQL, BusinessObjects, YASU Technologies, or Pilot Software have been significant competitors of Chordiant in the past, the acquisition of these companies by IBM, ,Oracle, Sun Microsystems and SAP may indicate that we will face increased competition from larger and more established entities in the future.

Financial Trends
 
Backlog. Our revenues havebeen derived from large customer transactions. For some of these transactions, the associated professional services provided to the customer can span over a period greater than one year. If the services delivery period is over a prolonged period of time, it will cause the associated backlog to be recognized as revenue over a similar period of time. As of December 31, 2007 and 2006, we had approximately $96.0 million and $69.8 million in backlog, respectively, which we define as contractual commitments by our customers through purchase orders or contracts. Backlog at December 31, 2007 includes approximately $25.2 million relating to a large telecommunications customer commitment. The increase in backlog is partially offset by a decline in deferred revenue recorded on our Condensed Consolidated Balance Sheets. For the period ended December 31, 2006 to December 31, 2007 aggregate deferred revenue balances decreased $4.4 million due to a decrease of $7.1 million in short-term deferred revenue and an increase of $2.7 million in long-term deferred revenue. Theincrease in long-term deferred revenue was primarily driven by entering into multi-year support and maintenance contracts with our customers. Backlog is comprised of:

 
•
software license orders which the delivered products have not been accepted by customers or have not otherwise met all of the required criteria for revenue recognition. This component includes billed amounts classified as deferred revenue;  



 
•
deferred revenue from customer support contracts;
 
 
•
consulting service orders representing the unbilled remaining balances of consulting contracts not yet completed or delivered, plus deferred consulting revenue where we have not otherwise met all of the required criteria for revenue recognition.

Backlog is not necessarily indicative of revenues to be recognized in a specified future period. There are many factors that would impact Chordiant’s conversion of backlog as recognizable revenue, such as Chordiant’s progress in completing projects for its customers, Chordiant’s customers’ meeting anticipated schedules for customer-dependent deliverables and customers increasing the scope or duration of a contract causing license revenue to be deferred for a longer period of time.

Chordiant provides no assurances that any portion of its backlog will be recognized as revenue during any fiscal year or at all, or that its backlog will be recognized as revenues in any given period. In addition, it is possible that customers from whom we expect to derive revenue from backlog will default and as a result we may not be able to recognize expected revenue from backlog.

Implementation by Third Parties.Over time, as our products mature and system integrators become more familiar with our products, our involvement with implementations has diminished on some projects. If this trend continues to evolve, certain agreements with customers may transition from a contract accounting model (SOP 81-1) to a more traditional revenue model whereby revenues are recorded upon delivery(SOP 97-2).

Service Revenues. Service revenues as a percentage of total revenues were 70% and 69% for the three months ended December 31, 2007 and 2006, respectively. While the composition of revenue will continue to fluctuate on a quarterly basis, we expect that service revenues will represent between 50% and 60% of our total annual revenues in the foreseeable future.
 
Revenues fromInternational Customers versus North America. For all periods presented, revenues were principally derived from customer accounts in North America and Europe. For the three months ended December 31, 2007 and 2006, international revenues were $13.5 million and $9.7 million, or approximately 46% and 42%, respectively,of our total revenues. We believe international revenues will continue to represent a significant portion of our total revenues in future periods. International revenues were favorably impacted for the three months ended December 31, 2007, as compared to the three months ended December 31, 2006, as both the British Pound and the Euro increased in average value by approximately 7% and 12%, respectively, as compared to the U.S. Dollar.
 
For the three months ended December 31, 2007 and 2006, North Americarevenues were $15.6 million and $13.2 million, or approximately 54% and 58%, respectivelyof our total revenues. As the U.S.economy has remained strong, we have seen an increase in North Americarevenues. Large customers have become more willing to invest in new enterprise infrastructure projects. We believe North Americarevenues will continue to represent 50% to 60% of our total revenues in the future.

Gross Margins. Management focuses on license and service gross margin in evaluating our financial condition and operating performance. Gross margins on license revenues were 96% and 94% for the three months ended December 31, 2007 and 2006, respectively. The 2% increaseis primarily a function of the fixed periodic amortization costs associated with capitalized software costs being divided by a largerlicense amount quarter-over-quarter. We expect license gross margin on current products to range from 95% to 97% in the foreseeable future. The margin will fluctuate with the mix of products sold. Historically, the enterprise solution products have higher associated third party royalty expense than the marketing solution products and decision management products.
 
Gross margins on service revenues were 58% and 53% for the three months ended December 31, 2007 and 2006, respectively. The increase in gross margins for the three months period ending December 31, 2007 is primarily due to improved consulting services utilization rates and increased support and maintenance revenue. We expect that gross margins on service revenues to range between 55% and 60% in the foreseeable future.

Costs Related to Stock Option Investigation. For the three months ending December 31, 2006, significant outside professional servicescostsare included in general and administrative costs associated with the Company’s stock option investigation which began in July 2006 and was completed during the quarter ended March 31, 2007. This issue is more fully described in the in Note 3, “Restatement of Previously Issued Consolidated Financial Statements” in Notes to Consolidated Financial Statements of the Annual Report on Form 10-K for the fiscal year ended September 30, 2006. For the quarter ended December 31, 2006, these costs were $1.0 million. We have not incurred any additional costs since the quarter ended March 31, 2007 and do not expect to incur such costs in future periods.

Cost to Amend Eligible Options. In July 2006, our Board of Directors (the “Board”) initiated a review of our historical stock option grant practices and appointed the Audit Committee to oversee the investigation. The Audit Committee determined that the correct measurement dates for a number of stock option grants made by us during the period 2000 to 2006, or Review Period, differ from the measurement dates previously used to account for such option grants. The Audit Committee identified


errors related to the determination of the measurement dates for grants of options where the price of our common stock on the selected grant date was lower than the price on the actual grant date which would permit recipients to exercise these options at a lower exercise price. As such, these affected stock options are deemed, for accounting purposes, to have been granted at a discount. Based on the determination made for accounting purposes, the discounted options (for accounting purposes) may now be deemed to have been granted at a discount for tax purposes, which may expose the holders of these impacted stock option grants to potentially adverse tax treatment under Section 409A of the Internal Revenue Code and state law equivalents. As more fully described on Form SC TO-I filed with the SEC on March 29, 2007, Chordiant offered certain optionees the opportunity to increase the exercise price of the discounted options to limit the potential adverse personal tax consequences that may apply to those stock options under Section 409A of the Internal Revenue Code and state law equivalents. On April 26, 2007, eligible optionees finalized their elections under the offer and were awarded a future cash payment equal to the price differential of the Amended Options. These payments will be treated as bonus payments. These cash payments were approximately $0.3 million and were paid out in January 2008. The cost of these bonus payments were fully accrued as of December 31, 2007.

Reduction in Workforce. In October 2006, the Company initiated a restructuring plan intended to align its resources and cost structure with expected future revenues. The restructuring plan included a balancing of services resources worldwide, an elimination of duplicative functions internationally, and a shift in the U.S.field organization toward a focus on domain-based sales and pre-sales teams.

The restructuring plan included an immediate reduction in positions of slightly more than ten percent of the Company's workforce, consolidation of our European facilities, and the closure of our Franceoffice. A majority of the positions eliminated were in Europe. The plan was committed to on October 24, 2006, and we began notifying employees on October 25, 2006.

We initially recorded a pre-tax cash restructuring expense of $6.5 million as calculated using the net present value of the related costs as required by SFAS 146. The expense was composed of costs for severance and exiting excess facilities. In November 2007, we negotiated a break clause in the lease allowing for an early termination of the United Kingdom facility which will release us of any future rent liabilities subsequent to January 2008. Subsequent to December 31, 2007 and as of the date of the filing of this Form 10-Q, we have paid the final lease payment for the United Kingdom lease and have been released from any future rent liabilities.

In July 2005, we undertook an approximate 10% reduction in our workforce. In connection with this action, we incurred a one-time cash expense of approximately $1.1 million in the fourth quarter ended September 30, 2005 for severance benefits. As of December 31, 2007, $0.1million of the cash charges remains outstanding.

During fiscal year 2002, we restructured several areas of the Company to reduce expenses and improve revenues. As part of this restructuring, we closed an office facility in Boston, Massachusettsand recorded an expense associated with the long-term lease which expires in January 2011. During the three months ended March 31, 2007, we completed a new sublease with a sub-lessee for the remaining term of our lease at a rate lower than that which was forecasted when the original restructuring expense was recorded in 2002. This change in estimate resulted in a $0.4 million restructuring expense for the year ended September 30, 2007.

Past Results may not be Indicative of Future Performance. 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. Moreover, we may not achieve or maintain profitability in the future.
 
Critical Accounting Estimates
 
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
 
On an on-going basis, we evaluate the estimates, including those related to our allowance for doubtful accounts, valuation of stock-based compensation, valuation of goodwill and intangible assets, valuation of deferred tax assets, restructuring expenses, contingencies, vendor specific objective evidence, or VSOE, of fair value in multiple element arrangements and the estimates associated with the percentage-of-completion method of accounting for certain of our revenue contracts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting judgments and estimates are used in the preparation of our Condensed Consolidated Financial Statements:



 
•
Revenue recognition, including estimating the total estimated time required to complete sales arrangements involving significant implementation or customization essential to the functionality of our products;

 
•
Estimating valuation allowances and accrued liabilities, specifically the allowance for doubtful accounts, and assessment of the probability of the outcome of our current litigation;

 
•
Stock-based compensation expense;

 
•
Accounting for income taxes;

 
•
Valuation of long-lived and intangible assets and goodwill;
 
 
•
Restructuring expenses; and
 
 
•
Determining functional currencies for the purposes of consolidating our international operations.

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. The amount and timing of our revenue is difficult to predict and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in operating losses. The accounting rules related to revenue recognition are complex and are affected by interpretation of the rules and an understanding of industry practices, both of which are subject to change. Consequently, the revenue recognition accounting rules require management to make significant estimates based on judgment.

Software license revenue is recognized in accordance with AICPA’s Statement of Position No. 97-2 “Software Revenue Recognition,” as amended by Statement of Position No. 98-9 “Software Revenue Recognition with Respect to Certain Arrangements”, or collectively SOP 97-2.

For arrangements with multiple elements, we recognize revenue for services and post-contract customer support based upon the fair value VSOE of the respective elements. The fair value VSOE of the services element is based upon the standard hourly rates we charge for the services when such services are sold separately. The fair value VSOE for annual post-contract customer support is generally established with the contractual future renewal rates included in the contracts, when the renewal rate is substantive and consistent with the fees when support services are sold separately. When contracts contain multiple elements and fair value VSOE exists for all undelivered elements, we account for the delivered elements, principally the license portion, based upon the “residual method” as prescribed by SOP 97-2. In multiple element transactions where VSOE is not established for an undelivered element, we recognize revenue upon the establishment of VSOE for that element or when the element is delivered.

At the time we enter into a transaction, we assess whether any services included within the arrangement related to significant implementation or customization essential to the functionality of our products. For contracts for products that do not involve significant implementation or customization essential to the product functionality, we recognize license revenues when there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred as prescribed by SOP 97-2. For contracts that involve significant implementation or customization essential to the functionality of our products, we recognize the license and professional consulting services revenue using either the percentage-of-completion method or the completed contract method as prescribed by Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts”, or SOP 81-1.

The percentage-of-completion method is applied when we have the ability to make reasonably dependable estimates of the total effort required for completion using labor hours incurred as the measure of progress towards completion. The progress toward completion is measured based on the “go-live” date. We define the “go-live” date as the date the essential product functionality has been delivered or the application enters into a production environment or the point at which no significant additional Chordiant supplied professional service resources are required. Estimates are subject to revisions as the contract progresses to completion. We account for the changes as changes in accounting estimates when the information becomes known. Information impacting estimates obtained after the balance sheet date but before the issuance of the financial statements is used to update the estimates. Provisions for estimated contract losses, if any, are recognized in the period in which the loss becomes probable and can be reasonably estimated. When we sell additional licenses related to the original licensing agreement, revenue is recognized upon delivery if the project has reached the go-live date, or if the project has not reached the go-live date, revenue is recognized under the percentage-of-completion method. We classify revenues from these arrangements as license and service revenue based upon the estimated fair value of each element using the residual method.
 
The completed contract method is applied when we are unable to obtain reasonably dependable estimates of the total effort required for completion. Under the completed contract method, all revenue and related costs of revenue are deferred and recognized upon completion.



For product co-development arrangements relating to software products in development prior to the consummation of the individual arrangements where we retain the intellectual property being developed and intend to sell the resulting products to other customers, license revenue is deferred until the delivery of the final product, provided all other requirements of SOP 97-2 are met. Expenses associated with these co-development arrangements are accounted for under SFAS 86 and are normally expensed as incurred as they are considered to be research and development costs that do not qualify for capitalization or deferral.

Revenue from subscription or term license agreements, which include software and rights to unspecified future products or maintenance, is recognized ratably over the term of the subscription period. Revenue from subscription or term license agreements, which include software, but exclude rights to unspecified future products and maintenance, is recognized upon delivery of the software if all conditions of recognizing revenue have been met including that the related agreement is non-cancelable, non-refundable and provided on an unsupported basis.

For transactions involving extended payment terms, we deem these fees not to be fixed or determinable for revenue recognition purposes and revenue is recognized.

For arrangements with multiple elements accounted for under SOP 97-2 where we determine we can account for the elements separately and the fees are not fixed or determinable due to extended payment terms, revenue is recognized in the following manner. If the undelivered element is PCS, or other services, an amount equal to the estimated value of the services to be rendered prior to the next payment becoming due is allocated to the undelivered services. The residual of the payment is allocated to the delivered elements of the arrangement.

For arrangements with multiple elements accounted for under SOP 81-1 where we determine we can account for the elements separately and the fees are not fixed or determinable due to extended payment terms, revenue is recognized in the following manner. Amounts are first allocated to the undelivered elements included in the arrangement, as payments become due or are received, the residual is allocated to the delivered elements.

We recognize revenue for post-contract customer support ratably over the support period which ranges from one to five years.

Our training and consulting services revenues are recognized as such services are performed on an hourly or daily basis for time and material contracts. For consulting services arrangements with a fixed fee, we recognize revenue on a percentage-of-completion method.

For all sales we use either a signed license agreement or a binding purchase order where we have a master license agreement as evidence of an arrangement. Sales through our third party systems integrators are evidenced by a master agreement governing the relationship together with binding purchase orders or order forms on a transaction-by-transaction basis. 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.

We assess collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We generally do not request collateral from our customers. If we determine that the collection of a fee is not probable, we recognize revenue at the time collection becomes probable, which is generally upon the receipt of cash.

Allowance for Doubtful Accounts. We must make estimates of the uncollectability of our accounts receivables. We specifically analyze accounts receivable and analyze historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Generally, we require no collateral from our customers. Our gross accounts receivable balance was $21.1 million with an allowance for doubtful accounts of  $0.1 million as of December 31, 2007. Our gross accounts receivable balance was $28.5 million (including long-term accounts receivable of $1.0 million)with an allowance for doubtful accounts of $0.2 million as of September 30, 2007. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required. To date, bad debts have not been material and have been within management’s expectations.

Stock-based Compensation Expense. Upon adoption of SFAS 123(R) on October 1, 2005, we began estimating the value of employee stock awardson the date of grant using the Black-Scholes model. Prior to the adoption of SFAS 123(R), the value of each employee stock awardwas estimated on the date of grant using the Black-Scholes model for the purpose of the pro forma financial disclosure in accordance with SFAS 123. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

With the adoption of SFAS 123(R) on October 1, 2005, we used the trinomial lattice valuation technique to determine the assumptions used in the Black-Scholes model. The trinomial lattice valuation technique was used to provide better estimates of


fair values and meet the fair value objectives of SFAS 123(R). The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The expected volatility is based on the historical volatility of our stock.

As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

If factors change and we employ different assumptions in the application of SFAS 123(R) in future periods, the compensation expense that we record under SFAS 123(R) may differ significantly from what we have recorded in the current period. The estimated value of a stock option is most sensitive to the volatility assumption. Based on the December 31, 2007 variables, it is estimated that a change of 10% in either the volatility, expected life or interest rate assumption would result in a corresponding 8%, 5% or 1% change, respectively,in the estimated value of the option being valued using the Black-Scholes model.

As stock-based compensation expense attributable to performance restricted stock units, or RSUs, is based on management’s assessment of the likelihood of achieving certain criteria, the amount of expense that is recorded in a period is dependent on the accuracy of management’s estimates. It is estimated that a 5% change in management’s achievement estimates would result in a corresponding 22% change in the stock compensation expense recorded for the period. The RSUs granted vest at the end of fiscal year 2009 if certain specified performance criteria are achieved. It is expected that estimates will become more accurate leading up to September 30, 2009.

Accounting for Income Taxes.As part of the process of preparing our Condensed Consolidated Financial Statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Condensed Consolidated Balance Sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

We have recorded a valuation allowance equal to 100% of the deferred tax assets as of December 31, 2007, due to uncertainties related to our ability to utilize our net deferred tax assets, primarily consisting of certain net operating loss carryforwards,research and development creditsand temporary differences relating to deferred revenue. Deferred tax assets have been fully reserved for in all periods presented.
 
Effective October 1, 2007, the Company adopted Financial Accounting Standards Interpretation, No. 48 “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” or FIN 48. FIN 48 prescribes a recognition threshold and measurement guidance for the financial statement reporting of uncertain tax positions taken or expected to be taken in a company’s income tax return. The application of FIN 48 is explained in Note 11 to the Condensed Consolidated Financial Statements.

Valuation of Long-lived and Intangible Assets and Goodwill.We assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Furthermore, we assess the impairment of goodwill annually. Factors we consider important which could trigger an impairment review include the following:

 
•
Significant underperformance relative to expected historical or projected future operating results;
 
 
•
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
 
 
•
Significant negative industry or economic trends;
 
 
•
Significant decline in our stock price for a sustained period;
 
 
•
Market capitalization declines relative to net book value; and
 
 
•
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

When one or more of the above indicators of impairment occurs we estimate the value of long-lived assets and intangible assets to determine whether there is impairment. We measure any impairment based on the projected discounted cash flow


method, which requires us to make several estimates including the estimated cash flows associated with the asset, the period over which these cash flows will be generated and a discount rate commensurate with the risk inherent in our current business model. These estimates are subjective and if we made different estimates, it could materially impact the estimated fair value of these assets and the conclusions we reached regarding impairment. To date, we have not identified any triggering events noted above.

We are required to perform an impairment review of our goodwill balance on at least an annual basis. This impairment review involves a two-step process as follows:

Step 1—We compare the fair value of our reporting units to the carrying value, including goodwill, of each of those units. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, we proceed on to Step 2. If a unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

Step 2—We perform an allocation of the fair value of the reporting unit to our identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied fair value for the reporting unit’s goodwill. We then compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment charge would be recognized for the excess.

We determined that we have one reporting unit. We completed a goodwill impairment review for the period ending September 30, 2007 and performed Step 1 of the goodwill impairment analysis required by SFAS 142, “Goodwill and Other Intangible Assets,” and concluded that goodwill was not impaired as of September 30, 2007 using the methodology described above. Accordingly, Step 2 was not performed. We will continue to test for impairment on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount.

Restructuring Expenses.In the past five years, we have implemented cost-reduction plans as part of our continued effort to streamline our operations to reduce ongoing operating expenses. These plans resulted in restructuring expenses related to, among others, the consolidation of excess facilities. These charges relate to facilities and portions of facilities we no longer utilize and either seek to terminate early or sublease. Lease termination costs and brokerage fees for the abandoned facilities were estimated for the remaining lease obligations and were offset by estimated sublease income. Estimates related to sublease costs and income are based on assumptions regarding the period required to locate and contract with suitable sub-lessees and sublease rates which can be achieved using market trend information analyses provided by a commercial real estate brokerage retained by us. Each reporting period we review these estimates and to the extent that these assumptions change due to new agreements with landlords, new subleases with tenants, or changes in the market, the ultimate restructuring expenses for these abandoned facilities could vary by material amounts.

Determining Functional Currencies for the Purpose of Consolidation.We have several foreign subsidiaries that together account for a significant portion of our revenues, expenses, assets and liabilities.

In preparing our Condensed Consolidated Financial Statements, we are required to translate the financial statements of the foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United Statesdollars. This process results in exchange gains and losses which, under the relevant accounting guidance are either included within theCondensed Consolidated Statement of Operations or as a separate part of our net equity under the caption “Accumulated Other Comprehensive Income.” Under the relevant accounting guidance, the treatment of these translation gains or losses is dependent upon our management’s determination of the functional currency of each subsidiary. The functional currency is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary conducts a majority of its transactions, including billings, financing, payroll and other expenditures would be considered the functional currency but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.

If any subsidiary’s functional currency were deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements would be included in cumulative translation adjustments. However, if the functional currency were deemed to be the United Statesdollar then any gain or loss associated with the translation of these financial statements would be included within our Condensed Consolidated Statement of Operations. If we dispose of any of our subsidiaries, any cumulative translation gains or losses would be recognized in our Condensed Consolidated Statement of Operations. If we determine that there has been a change in the functional currency of a subsidiary to the United Statesdollar, any translation gains or losses arising after the date of change would be included within our Condensed Consolidated Statement of Operations.

Based on our assessment of the factors discussed above, we consider the relevant subsidiary’s local currency to be the functional currency for each of our international subsidiaries. Accordingly, foreign currency translation gains and loses are included as part of Accumulated Other Comprehensive Income within our Condensed Consolidated Balance Sheetsfor all periods presented.



The magnitude of these gains or losses is dependent upon movements in the exchange rates of the foreign currencies in which we transact business against the United Statesdollar. These currencies include the United Kingdom Pound Sterling, the Euro and the Canadian Dollar. Any future translation gains or losses could be significantly higher than those reported in previous periods. At December 31, 2007, approximately $48.3 million of our cash and cash equivalents were held by our subsidiaries outside of the United States.

Recent Accounting Pronouncements

See Note 2 to the Condensed Consolidated Financial Statements under section “Recent Accounting Pronouncements” for detailed information regarding status of new accounting standards that are not yet effective for us.



Results of Operations

The following table sets forth, in dollars(in thousands)and as a percentage of total revenues, unaudited Condensed Consolidated Statements of Operations data for the periods indicated. This information has been derived from the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
 
   
Three Months Ended December 31,
    
   
2007
    
2006
    
Statements of Operations Data:
                        
Revenues:
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
License
 
$
8,807
      
30
%
  
$
7,162
      
31
%
  
Service
 
 
20,327
      
70
 
  
 
15,777
      
69
 
  
Total revenue
 
 
29,134
      
100
 
  
 
22,939
      
100
 
  
Cost of revenue:
 
 
          
 
  
 
          
 
  
License
 
 
334
      
1
 
  
 
454
      
2
 
  
Service
 
 
8,478
      
29
 
  
 
7,466
      
33
 
  
Amortization of intangible assets
 
 
303
      
1
 
  
 
303
      
1
 
  
Total cost of revenue
 
 
9,115
      
31
 
  
 
8,223
      
36
 
  
Gross profit
 
 
20,019
      
69
 
  
 
14,716
      
64
 
  
Operating expenses:
 
 
          
 
  
 
          
 
  
Sales and marketing
 
 
8,903
      
31
 
  
 
7,264
      
32
 
  
Research and development
 
 
6,725
      
23
 
  
 
6,296
      
27
 
  
General and administrative
    
5,003
      
17
      
5,611
      
25
    
Restructuring expense
 
 
—
      
—
 
  
 
6,472
      
28
 
  
Total operating expense
 
 
20,631
      
71
 
  
 
25,643
      
112
 
  
Loss from operations
 
 
(612
)
    
(2
)
  
 
(10,927
)
    
(48
)
  
Interest income, net
 
 
835
      
3
 
  
 
304
      
1
 
  
Other income (expense), net
 
 
134
      
—
    
 
(15
)
    
(—
)
  
Income (loss)before income taxes
 
 
357
      
1
    
 
(10,638
)
    
(47
)
  
Provision for income taxes
 
 
152
      
—
 
  
 
111
      
—
 
  
Net income (loss)
 
$
205
      
1
%
  
$
(10,749
)
    
(47
)%
  

Comparison of the Three Months Ended December 31, 2007and 2006(Unaudited)

Revenues

Total revenues increased $6.2 million, or 27%, to $29.1 million for the three months ended December 31, 2007 as compared to the same period of the prior year.This increase was primarily due to a 23%increase in license revenue and a 29% increase in servicerevenue.

The following summarizes the components of our total revenues:
 
License Revenue
 
The increase or decrease of license revenue occurring within the three different product groupsis dependent on the timing of when a sales transaction iscompleted and whether a license transaction was sold with essential consulting services. Products licensedwith essential consulting services are generally recognized as revenue under the percentage-of-completion method of accounting. The timing and amount of revenue for those transactions being recognized under the percentage-of-completion method is influenced by the progress of work performed relative to the project length of customer contracts and the dollar value of such contracts. The following table sets fourth our license revenue by product emphasis for the three months ended December 31, 2007and 2006 (in thousands, except percentages):



     
Three Months Ended December 31,
    
 
License Revenue:
 
2007
  
2006
  
Change
  
%
  
 
Enterprise solutions
 
$
6,214
 
$
3,545
 
$
2,669
    
75
%
  
 
Marketing solutions
 
 
714
 
 
989
 
 
(275
) 
  
(28
)
  
 
Decision management solutions
 
 
1,879
 
 
2,628
 
 
(749
) 
  
(29
)
  
 
Total license revenue
 
$
8,807
 
$
7,162
 
$
1,645
 
  
23
%
  

Total license revenue increased by $1.6 million or 23% for the three months ended December 31, 2007as compared to the same period of the prior year. The increase is attributed to the number of projects and the degree of progress associated with percentage-of-completion transactions.

Service Revenue

Service revenue isprimarily composed of consulting implementation and integration, consulting customization, training, post-contract customer support services, or PCS, and certain reimbursable out-of-pocket expenses. The increase or decrease of service revenue within the three different product emphases is primarily due to the timing of when license transactions are completed, whether or not the license was sold with essential consulting services, the sophistication of the customer’s application, and the expertise of the customer’s internal development team. For otherservice transactions, service revenue will lag in timing compared to the period of when the license revenue is recognized. The following table sets forth our service revenue by product emphasis for the three months ended December 31, 2007and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
    
 
Service Revenue:
 
2007
  
2006
  
Change
  
%
  
 
Enterprise solutions
 
$
15,209
 
$
12,199
 
$
3,010
    
25
%
  
 
Marketing solutions
 
 
3,118
 
 
2,605
 
 
513
 
  
20
 
  
 
Decision management solutions
 
 
2,000
 
 
973
 
 
1,027
 
  
106
 
  
 
Total service revenue
 
$
20,327
 
$
15,777
 
$
4,550
 
  
29
%
  

Total service revenue increased$4.6 million or 29% for the three months ended December 31, 2007, as compared to the same period of the prior year. The$4.6 million increase is primarily related to increases of $3.0million in PCSrevenue, $1.2 million in consulting revenue, $0.3 million in training revenue and $0.1 million in reimbursement of out-of-pocket expense revenue.The increase in PCSrevenueis a function of the growth in new license transactions sold with PCS agreements combined with the renewal of existing PCS customers at a rate in excess of existing customers declining PCS at some point in time after the first year. The increase in consulting revenue is a direct result of the growth in license revenue as the majority of our customers will use some form of our consulting services in connection with their project.
 
Cost of Revenue
 
License
 
Cost of license revenues includes third partysoftware royalties and amortization of capitalized software development costs. Royalty expenses can vary depending upon the mix of products sold within the period. The capitalized software development costsprimarilypertain to a banking product that was completed and available for general release in August 2005 and the third party costs associated with the porting of a product to a new platform. The porting project was completed in August 2007 and the aggregate costs capitalized were $0.5 million. Amortization expense for the banking product and porting project for the three months ended December 31, 2007 were$0.2 million and less than $0.1 million, respectively. Amortization costs for the banking product are expectedthrough 2008and amortization costs of the porting project are expected through 2010. The following table sets forth our cost of license revenues for the three months ended December 31, 2007and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Cost of license revenue
 
$
334
 
  
$
454
 
  
$
(120
) 
(26
)%
  
 
Percentage of total revenue
 
 
1
%
  
 
2
%
  
 
 
 
  
 
  

Cost of licenserevenue decreasedby $0.1 million or 26% from the three months ended December 31, 2006 as compared to the same period of the prior year. The decrease is primary due to the reduction in royalty expense associated with third party technology included in our products.



Service
 
Cost of service revenues consists primarily of personnel, third party consulting, facility and travel costs incurred to provide consulting implementation and integration, consulting customization, training, PCS support services. The following table sets forth our cost of service revenues for the three months ended December 31, 2007 and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Cost of  service revenue
 
$
8,478
 
  
$
7,466
 
  
$
1,012
 
14
%
  
 
Percentage of total revenue
 
 
29
%
  
 
33
%
  
 
 
 
  
 
  

Cost of service revenue increased $1.0 million or 14% for the three months ended December 31, 2007, as compared to the same period of the prior year.This change is primarily due to an increase in third party consulting costs of $1.2 million offset by adecreasein personnel and related costs of $0.2 million associated with a decrease in headcount. Service costs increased at a lower rate as compared to the increase in service revenue due to improved utilization of our internal consultant teams, replacing full time employees with third party consultants (converting a fixed cost to a variable cost) and increasing PCS revenue, which to a limited degree is not based on a variable cost model, so there is not a direct relationship of revenue to costs.
 
Amortization of Intangible Assets
 
Amortization of intangible assets cost consists primarily of the amortization of amounts paid for developed technologies, customer lists and trade-names resulting from business acquisitions. The following table sets forth our costs associated with amortization of intangible assets for the three months ended December 31, 2007 and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Amortization of intangible assets
 
$
303
 
  
$
303
 
  
$
—
 
—
%
  
 
Percentage of total revenues
 
 
1
%
  
 
1
%
  
 
 
 
  
 
  

We expect amortization expense forintangible assets to be $0.3 million for each of the three remaining quarters in fiscal year 2008, $1.2 million in fiscal year 2009 and $0.3 million in fiscalyear2010.

Operating Expenses

Sales and Marketing

Sales and marketing expense is attributed to activities associated with selling, promoting and advertising our products, product demonstrations and customer sales calls. These costs consist primarily of employee salaries, commissions and bonuses, benefits, facilities, travel expenses and promotional and advertising expenses. The following table sets forth our sales and marketing expenses for the three months ended December 31, 2007 and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Sales and marketing expense
 
$
8,903
 
  
$
7,264
 
  
$
1,639
 
23
%
  
 
Percentage of total revenues
 
 
31
%
  
 
32
%
  
 
 
 
  
 
  

Sales and marketing expense increased by $1.6 million or 23% forthe three months ended December31, 2007 as compared to the same period of the prior year. The increase is primarily due to increases of  $1.0 million in sales and marketing program costs, $0.4 million in personnel and related costs and $0.2 million in consultant costs. The increase in sales and marketing program costs was mainly attributed to two annual worldwide sales events: Sales Kick Off and Presidents Club. In the prior year, these events occurred in the March 2007 quarter.

Research and Development
 
Research and development expense results from the activities associated with the development of new products, enhancements of existing products and quality assurance activities. These costs consist primarily of employee compensation, benefits, facilities, the cost of software and development tools, equipment and consulting costs, including costs for offshore consultants. The following table sets forth our research and development expenses for the three months ended December 31, 2007 and 2006 (in thousands, except percentages):



     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Research and development expense
 
$
6,725
 
  
$
6,296
 
  
$
429
 
7
%
  
 
Percentage of total revenues
 
 
23
%
  
 
27
%
  
 
 
 
  
 
  

Research and development expense increased by $0.4 million or 7% for the three months ended December 31, 2007 as compared to the same period of the prior year. The increase is primarily related to increases of $0.3 million for personnel and related costs and $0.1 million in outsourced research and development expenses. The increase in personnel costs was driven by a 17% increase in average headcount for the comparative periods.

General and Administrative

General and administrative expense results from activities managed byour executive and administrative personnel (e.g. the CEO, legal, human resourcesand finance personnel). These costs consist primarily of employee compensation, bonuses, stock-based compensation expense, benefits, facilities, consulting, legal and auditcosts, including costs for Sarbanes-Oxley Act of 2002 (SOX) compliance. The following table sets forthour general and administrative expenses for the three months ended December 31, 2007and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
General and administrative expense
 
$
5,003
 
  
$
5,611
 
  
$
(608
) 
(11
)%
  
 
Percentage of total revenues
 
 
17
%
  
 
25
%
  
 
 
 
  
 
  

General and administrative expense decreased by $0.6 million or 11% for the three months ended December 31, 2007, as compared to the same period of the prior year. The decrease isprimarily due to a decrease of $0.7 million in professional services mainly associated with the stock option investigation that occurred in the prior year. The investigation and its associated costs were completed by March 2007. This decrease in costs was offset by an increase of $0.2 million in travel related costs.

Restructuring Expense

In October 2006, we initiated a restructuring plan that included an immediate reduction in positions of slightly more than ten percent of the Company's workforce, consolidation of our European facilities, and the closure of our French office. A majority of the positions eliminated were in Europe. For the three months ended December 31, 2006, we initially recorded a pre-tax cash restructuring expense of $6.5 million as calculated using the net present value of the related costs as required by SFAS 146. The expense was composed of $1.7 million for severance costs and $4.8 million for exiting excess facilities of which $1.0 million of the excess facility expense was associated with non-cash charges for the write-off of leasehold improvements and the reversal of a favorable purchase price adjustment related to the France office lease. Subsequent to December 31, 2007 and as of the date of the filing of this Form 10-Q, all liabilities associated with this restructuring expense has been paid.

Stock-based Compensation (included in Individual Operating Expense and Cost of Revenue categories)

The following table sets forthour stock-based compensation expense and functional breakdown for the three months ended December 31,2007 and 2006 (in thousands):

   
Three Months Ended December 31,
  
     
2007
      
2006
 
  
 
Cost of revenues- service
$
153
    
$
107
    
 
Operating expenses:
                
 
Sales and marketing
 
241
    
 
329
    
 
Research and development
 
199
    
 
93
    
 
General and administrative
 
582
    
 
447
    
 
Total operating expense
 
1,022
      
869
    
 
Total stock-based compensation expense
$
1,175
    
$
976
    

For the three months ended December 31, 2007, the aggregate stock-based compensation cost included in cost of revenues and in operating expenses was $1.2 million and primarily related to $0.9 million associated with employee stock options and $0.3 million associated with restricted stock units. For the three months ended December 31, 2006, the aggregate stock-based compensation cost included in cost of revenues and in operating expenses was $1.0 million and primarily related to $0.8 million associated with employee stock options and $0.2 million associated with restricted stock awards.



Interest Income, Net
 
Interest income, net, consists primarily of interest income generated from our cash, cash equivalents, restricted cash and marketable securities, offset by interest expense incurred in connection with our capital leases,letters of credit and imputed under SFAS 146 restructuring accruals. The following table sets forth our interest income, net for the three months ended December 31, 2007 and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Interest income, net
 
$
835
 
  
$
304
 
  
$
531
 
175
%
  
 
Percentage of total revenues
 
 
3
%
  
 
1
%
  
 
 
 
  
 
  

Interest income, net increased by $0.5 million or 175% forthe three months ended December 31, 2007, as compared to the same period of the prior year. This increase is primarilydue to the Company transferring a portion of its funds into marketable securities which earn a higher return of interest than other investments we utilized in the prior year.

Other Income (Expense), Net

Other income (expense), net isprimarily attributed toforeign currency transaction gains or losses and re-measurement of our short-term intercompany balances between the U.S.and our foreign denominated subsidiaries. The following table sets forthour other income (expense), net for the three months ended December 31, 2007and 2006 (in thousands, except percentages):

     
Three Months Ended December 31,
  
 
    
2007
  
2006
  
Change
  
%
  
 
Other income (expense), net
 
$
134
 
  
$
(15
) 
  
$
149
 
993
%
  
 
Percentage of total revenues
 
 
—
%
  
 
—
%
  
 
 
 
  
 
  

Other income (expense) increasedby $0.1 million or 993% forthe three months ended December 31,2007, as compared to the same period of the prior year. This increase was primarily related to the selling of a website domain name during the three months ended December 31, 2007. This was a non-recurring transaction and not considered part of our normal business operations.

Provision for Income Taxes

Our provision for income taxes was $0.2 million and $0.1 million for the three months ended December 31, 2007 and 2006, respectively. These provisions are primarily attributable to taxes on earnings from our foreign subsidiaries,certain foreign withholding taxes, minimum taxes at the state level, and the alternate minimum tax for federal purposes.

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

Prior to fiscal 2007,we have not been profitable and we have financed any shortfall from our operating activities through the issuance of our common stock. For the three months ended December 31, 2007, we used cash from operations, but generated cash from financing and investing activities. It is anticipated that we will generate cash from operations or financing activities in excess of the cash requirements for the next twelve months.

Operating Activities

Cash used by operating activities was $2.7 million during the three months ended December 31, 2007, which consisted primarily of our net income of $0.2 million adjusted for non-cash items (primarily depreciationandamortization, non-cash stock-based compensation expense, and the provision for doubtful accounts) aggregating approximately $2.1 million and the net cash outfloweffect from changes in assets and liabilities of approximately $5.0 million. This net cash outflow was primarilydueto the change in account balances in deferred revenue of $10.7 million, in prepaid expenses and other current assets of $2.0 million, offset by cash inflows from the change in account balances in accounts receivable of $6.3 million, in other assets of $1.0 million and in accrued expenses and accounts payable of $0.4 million.



Cash provided by operating activities was $2.4 million during the three months ended December 31, 2006, which consisted primarily of our net loss of $10.7 million adjusted for non-cash items (primarily depreciation and amortization, non-cash stock-based compensation expense,provision for doubtful accounts, loss on disposal of assets and other non-cash charges) aggregating approximately $2.9 million and the net cash inflow effect from changes in assets and liabilities of approximately $10.2 million. This net cash inflow was primarily related to the timing of payments for vendor invoices and other accrued liabilities and an increase in deferred revenues of $31.7 million. The increase in deferred revenues is the result of two large sales transactions totaling $34.0 million that were consummatedduring the period for which revenue was notrecognized until subsequent periods. This increase corresponds with an increase in accounts receivable of $22.7 million primarily related to sales transactions that closed at the end of the quarter not allowing sufficient time within the quarter to collect the cash.

Investing Activities
 
Cash provided byinvesting activities was $0.5 million during the three months ended December 31, 2007. The cash provided wasprimarily from $1.3 million of net proceeds from marketable securities offset by the use of cash for the purchase of $0.7 million of property and equipment,and the capitalization of less than $0.1 million of software development costs associated with the porting of an existing product to a new platform. The property and equipment purchases were primarily computer equipment and software used in day-to-day operations.

Cash used for investing activities was $1.1 million during the three months ended December 31, 2006. This use of cash was primarily for purchases of property and equipment associated with the closure of the previousEuropean headquarters office and the opening of the new smaller European headquarters office during the period.

Financing Activities

Cash provided by financing activities was $0.6 million during the three months ended December 31, 2007. The cash provided wasprimarily related to proceeds from stock option exercises of $0.6 million and less than $0.1 million from excess tax benefits from stock-based compensation.

Cash provided by financing activities was $0.2 million during the three months ended December 31, 2006.  The cash provided wasprimarily related to proceeds from stock option exercises of $0.2 million, offset by payments of $0.1 million on capital lease obligations.

Revolving Line of Credit

See Note 8 to the Condensed Consolidated Financial Statements for detailed information regarding our revolving line of credit.

Contractual Obligations

Ness

We entered into an agreement with Ness Technologies Inc., Ness Global Services, Inc. and Ness Technologies India, Ltd. (collectively, “Ness”), effective December 15, 2003, pursuant to which Ness provides our customers with technical product support through a worldwide help desk facility, a sustaining engineering function that serves as the interface between technical product support and our internal engineering organization, product testing services and product development services (collectively, the “Services”). The agreement had an initial term of three years and was extended for twoadditional year terms. Under the terms of the agreement, wepay for services rendered on a monthly fee basis, including the requirement to reimburse Nessfor approved out-of-pocket expenses. The agreement may be terminated for convenience by us, subject to the payment of a termination fee. In 2004, 2005, 2006 and 2007 wefurther expanded ouragreement with Ness whereby Nessis providing certain additional technical and consulting services. The additional agreements canbe cancelled at the option of uswithout the payment of a termination fee. The remaining minimum purchase commitment under these agreements, if Chordiant was to cancel the contracts, was approximately $0.7 million at December 31, 2007. In addition to service agreements, we also guaranteed certain equipment lease obligations of Ness (see Note 9 to the Condensed Consolidated Financial Statements). Nessmay procure equipment to be used in performance of the Services, either through leasing arrangements or direct cash purchases, for which we areobligated under the agreement to reimburse them. In connection with the procurement of equipment, Ness has entered into a 36 month equipment lease agreement with IBM India and, in connection with the lease agreement wehave an outstandingstandby letter of credit in the amount of $0.3 million in guarantee of Ness’ financial commitments under the lease. Over the term of the lease, our obligation to reimburse Nessis approximately equal to the amount of the guarantee.


Leases

Operating lease payments in the table belowinclude approximately $3.4 million for two facility operating lease commitments that are included in Restructuring expenses. One of the leases is located in Boston, Massachusetts and the other is located in the United Kingdom. As of  December 31, 2007, the Company has $0.8 million insublease income contractually committed for future periods relating to the Boston, Massachusetts facility classified as an operating lease. See Notes 5 and 9 to the Condensed Consolidated Financial Statements for further discussion.

In November 2007, we negotiated a break clause in the in the United Kingdom lease allowing for an early termination of the respective facility which will release the Company of any future rent liabilities subsequent to January 2008. The scheduled lease paymentsshown in the table below includes $1.2 million that was paid in the second quarter of fiscal year 2008 associated with the early termination of the United Kingdomlease. Subsequent to December 31, 2007 and as of the date of the filing of this Form 10-Q, the Company has paid its final lease payment for the United Kingdomlease and has been released from any future rent liabilities.

We haveasset retirement obligations,associated with commitments to return property subject to operating leases to original condition upon lease termination. Asof December 31, 2007, weestimate that gross expected cash flows of approximately $0.4 million will be required to fulfill these obligations

We have no material commitments for capital expenditures and do not anticipate capital expenditures to fluctuate significantly from historic levels.

The following table presents certain payments due under contractualobligations as of December 31, 2007 based on fiscal years (in thousands):

     
Payments Due By Period
  
     
Total
      
Due in
2008
      
Due in
2009-2010
      
Due in
2011-2012
      
Thereafter
  
 
Operating lease obligations
$
11,428
    
$
3,619
    
$
4,779
    
$
2,473
    
$
557
  
 
Asset retirement obligations
  
350
      
—
      
—
      
350
      
—
  
 
Total
$
11,778
    
$
3,619
    
$
4,779
    
$
2,823
    
$
557
  

Effective October 1, 2007, the Company adopted FIN No. 48 and reclassified $0.2 million of gross unrecognized tax benefits to Other Long-Term Liabilities in our Condensed Consolidated Balance Sheets. As of December 31, 2007, the Company cannot make a reasonably reliable estimate of the period in which these liabilities may be settled with the respective tax authorities. See Note 11 to the Condensed Consolidated Financial Statements for additional information.

We believe that the effects of our strategic actions implemented to improve revenue as well as to control costs will be adequate to generate sufficient cash flows from operations, which, when combined with existing cash balances, we anticipate will be sufficient to meet our working capital and operating resource expenditure requirements for the near term. If the global economy weakens, a decline could occur.

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. In the long-term, 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. Failure to generate sufficient revenues or to control spending could adversely affect our ability to achieve our business objectives.

Indemnification

See Note 9 to the Condensed Consolidated Financial Statements for detailed information regarding our indemnifications.

Off Balance Sheet Arrangements

None.


 
We are exposed to the impact of interest rate changes and foreign currency fluctuations.

The following table presents the amounts of restricted cashand marketable securitiesthat are subject to interest rate risk by year of expected maturity and average interest rates as of December 31, 2007 (in thousands):

     
December 31, 2007
    
Fair Value
 
Average
Interest Rates
    
                     
 
Restricted cash invested in short-term investments
$
315
  
$
315
  
2.8
%
  
 
Marketable securities
  
10,885
    
10,885
 
4.6
%
  
 
Total restricted cash and marketable securities
$
11,200
  
$
11,200
  
4.6
%
  

The following table presents the amounts of restricted cash that are subject to interest rate risk by year of expected maturity and average interest rates as of December 31, 2006(in thousands):

     
December 31, 2006
    
Fair Value
 
Average
Interest Rates
    
                     
 
Restricted cash invested in short-term investments
$
602
  
$
602
 
1.6
%
  

Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to money market accounts, commercial paper, short-term certificates of depositand marketable securities. We invest our excess cash in money market accounts, commercial paper, certificates-of-deposit, and marketable securitieswith maturities of less than one year.Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. 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 our fixed rate securities which have declined in market value due to changes in interest rates.

To provide a meaningful assessment of the interest rate risk associated with the Company’s total restricted cash and marketable securities, we performed a sensitivity analysis to determine the hypothetical impact of a decrease in interest rate of 100 basis points. Assuming consistent investment levels as of December 31, 2007, interest income would decline by less than $0.1 million. Assuming consistent investment levels as of December 31, 2006, interest income would have declined by less than $0.1 million.

Foreign Currency Risk. International revenues accounted for approximately 46% and 42% of total revenues for three months ended December 31, 2007 and 2006, respectively. International revenues increased $3.8 million or 39% compared to the same period of the prior year. The growth in our international operations has increased our exposure to foreign currency fluctuations.  Revenues and related expense generated from our international subsidiaries are generally denominated in the functional currencies of the local countries. Primary currencies include the United Kingdom Pound Sterling, the Euro and the Canadian Dollar. The Condensed Consolidated Statement of Operations is translated into United States Dollars at the average exchange rates in each applicable period. To the extent the United States Dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenues, operating expense, and net income for our international operations. Similarly, our revenues, operating expenses, and net income will increase for our international operations, if the United States Dollar weakens against foreign currencies. Using the average foreign currency exchange rates for the three months ended December 31, 2006, our international revenues for the three months ended December 31, 2007 would have been lower than we reported by approximately $1.1 million and our international income from operations would have been lower than we reported by $0.4 million.

We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries and our investments in equity interests into United Statesdollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into United Statesdollars will lead to a translation gain or loss which is recorded as a component of accumulated other comprehensive income which is a componentof Stockholders’ Equity. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. For the three months ended December 31, 2007 and 2006, we recorded net foreign currency transaction gains (losses), realized and unrealized, of less than $0.1 million which was recorded in Other income (expense), net, in the Condensed Consolidated Statements of Operations.


 
Under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act of 1934, as amended,  Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION
 

See Note 10 to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q for a description of our legal proceedings.

Item 1A.

The Company has marked with an asterisk  (*) those risk factors that reflect substantive changes from the risk factors included in the Company’s Form 10-K filed  with the Securities and Exchange Commission for the fiscal year ended September 30, 2007.

The matters relating to the Audit Committee of the Board’s review of our historical stock option granting practices and the restatement of our Consolidated Financial Statements have resulted in litigation, and may result in additional litigation.

On July 24, 2006, the Company announced that the Audit Committee of the Company’s Board of Directors, with the assistance of independent legal counsel, was conducting a review of our stock option practices covering the time from the Company’s initial public offering in 2000 through June 2006. As described in Note 3 “Restatement of Previously Issued Consolidated Financial Statements” in Notes to Consolidated Financial Statements in the 2006 Form 10-K, the Audit Committee reached a conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, the Company has recorded additional non-cash stock-based compensation expense, and related tax effects, related to certain stock option grants, and the Company has restated certain previously filed financial statements included in the 2006 Annual Report on Form 10-K.

This review of our historical stock option granting practices has required us to incur substantial expenses for legal, accounting, tax and other professional services, has diverted our management’s attention from our business, and any litigation or future government enforcement actions could in the future adversely affect our business, financial condition, results of operations and cash flows.

Our historical stock option granting practices and the restatement of our prior financial statements have exposed us to greater risks associated with litigation proceedings. Several derivative complaints have been filed pertaining to allegations relating to stock option grants. We cannot assure you that these or future similar complaints or any future litigation or regulatory action will result in the same conclusions reached by the Audit Committee. The conduct and resolution of these matters will be time consuming, expensive and distracting from the conduct of our business.

We contacted the SEC regarding the Audit Committee’s review and, in July 2006, the SEC commenced an investigation into our historical stock option grant practices. In November 2006, a representative of the Audit Committee and its informal advisors met with the enforcement staff of the SEC and provided them with a report of the Audit Committee’s investigation and findings. In January 2007, the enforcement staff of the SEC notified the Company that its investigation had been terminated and no enforcement action had been recommended to the Commission.

The findings of the Audit Committee’s review are more fully described in Note 3 to the Consolidated Financial Statements and in Item 9A of the Annual Report on Form 10-K for the year ended September 30, 2006.

*Prior to the three months ended March 31, 2007, we were not profitable and we may incur losses in the future, which may raise vendor viability concerns thereby making it more difficult to close license transactions with new and existing customers.

While the Company was profitable in the amount of $0.2 million for the three months ended December 31, 2007, we incurred a loss of $10.7 million for the three months ended December 31, 2006. As of December 31, 2007, we had an accumulated deficit of $226.7million. We may incur losses in future periods and cannot be certain that we can generate sufficient revenues to achieve profitability. Continued losses may leave many customers reluctant to enter into new large value license transactions without some assurance that we will operate profitably. If we fail to enter into new large value license transactions due to lack of vendor profitability and/or viability concerns, our revenues will decline, which could further adversely affect our operating results.

*Because a small number of customers account for a substantial portion of our revenues, the loss of a significant customer could cause a substantial decline in our revenues.
 
We derive a significant portion of our license and service revenues from a limited number of customers. The loss of a major customer could cause a decrease in revenues and net income. For the three months ended December 31, 2007, Citicorp Credit


Services, Inc.,IBM, and Wellpoint, Inc., accounted for 22%, 11% and 11% of our total revenue. While our customer concentration has fluctuated, we expect that a limited number of customers will continue to account for a substantial portion of our revenues. As a result, if we lose a major customer, or if a contract is delayed or cancelled or we do not contract with new major customers, our revenues and net incomewould 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.
 
*If we fail to adequately address the difficulties of managing our international operations, our revenues and operating expenses will be adversely affected.
 
For the quarter ended December 31, 2007, international revenues were $13.5 million or approximately 46% of our total revenues. While North American revenues continue to represent a majority ofour overall revenues, international revenues will continue to represent a significant portion of our total revenues in future periods. We have faced, and will continue to face, difficulties in managing international operations which include:

 
•
Difficulties in hiring qualified local personnel;

 
•
Seasonal fluctuations in customer orders;

 
•
Longer accounts receivable collection cycles;

 
•
Expenses associated with licensing products and servicing customers in foreign markets;

 
•
Economic downturns and political uncertainty in international economies;

 
•
Income tax withholding issues in countries in which we do not have a physical presence, resulting in non-recoverable tax payments;

 
•
Complex transfer pricing arrangements between legal entities;

 
•
Doing business and licensing our software to customers in countries with weaker intellectual property protection laws and enforcement capabilities;

 
•
Difficulties in commencing new operations in countries where the Company has not previously conducted business, including those associated with tax laws, employment laws, government regulation, product warranty laws and adopting to local customs and culture; and
 
Any of these factors could have a significant impact on our ability to license products on a competitive and timely basis and could adversely affect our operating expenses and net income. Additionally we closed our only French office in the first fiscal quarter of 2007.  The absence of a business office in Francemay harm our ability to attract and retain customers in that country.

Our known backlog of business may not result in revenue.
 
An increasingly material portion of our revenues has been derived from large orders, as major customers deployed our products. We define backlog as contractual commitments by our customers through purchase orders or contracts. Backlog is comprised of software license orders which have not been accepted by customers or have not otherwise met all of the required criteria for revenue recognition, deferred revenue from customer support contracts, and deferred consulting and education orders for services not yet completed or delivered. Backlog is not necessarily indicative of revenues to be recognized in a specified future period. There are many factors that would impact the Company’s filling of backlog, such as the Company’s progress in completing projects for its customers and Chordiant’s customers’ meeting anticipated schedules for customer-dependent deliverables. The Company provides no assurances that any portion of its backlog will be filled during any fiscal year or at all or that its backlog will be recognized as revenues in any given period. In addition, it is possible that customers from whom we expect to derive revenue from backlog will default and as a result we may not be able to recognize expected revenue from backlog.

*Fluctuations 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.

A significant portion of our sales and operating expenses result from transactions outside of the U.S., often in foreign currencies. These currencies include the United Kingdom Pound Sterling, the Euro and the Canadian Dollar. Our international sales comprised 46% of our total sales for the three months ended December 31, 2007. Our international sales comprised 42% of our total sales for the three months ended December 31, 2006. Our future operating results will continue to be subject to fluctuations in foreign currency rates, especially if international sales increase as a percentage of our total sales, and we may be negatively impacted by fluctuations in foreign currency rates in the future. For the three months ended December 31, 2007, we had an unrealized foreign currency transaction gain of less than $0.1 million. See Item 3 Quantitative and Qualitative Disclosures about Market Risk for further discussions.



Geopolitical concerns could make the closing of license transactions with new and existing customers difficult.
 
Our revenues will decrease in fiscal year 2008or beyond if we are unable to enter into new large-scale license transactions with new and existing customers. The current state of world affairs and geopolitical concerns have left many customers reluctant to enter into new large value license transactions without some assurance that the economy both in the customer’s home country and worldwide will have some economic and political stability. Geopolitical instability will continue to make closing large license transactions difficult. In addition, we cannot predict what effect the U.S. military presence overseas or potential or actual political or 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. Our ability to enter into new large license transactions also directly affects our ability to create additional consulting services and maintenance revenues, on which we also depend.
 
Competition in our markets is intense and could reduce our sales and prevent us from achieving profitability.
 
Increased competition in our markets could result in price reductions for our products and services, 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. Historically, our primary competition has been from internal development, custom systems integration projects and application software competitors. In particular, we compete with:
 
 
•
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.
 
 
•
Custom systems integration projects:we compete with large systems integrators who may develop custom solutions for specific companies which may reduce the likelihood that they would purchase our products and services.
 
 
•
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.

The enterprise software industry continues to undergo consolidation in sectors of the software industry in which we operate. Within the last 12 months, IBM acquired Cognos, DataMirror and Watchfire Corporation, Oracle completed its acquisition of Hyperion and Moniforce and has entered into an agreement to purchase BEA systems, Sun Microsystems has entered in an agreement to purchase MySQL and SAP acquired BusinessObjects, YASU Technologies and Pilot Software. While we do not believe that Cognos, DataMirror, Watchfire Corporation, Hyperion, Moniforce, BEA Systems, MySQL, BusinessObjects, YASU Technologies, or Pilot Software have been significant competitors of Chordiant in the past, the acquisition of these companies by IBM, Oracle, Sun Microsystems and SAP may indicate that we will face increased competition from larger and more established entities in the future.

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 to increase the ability of their products to address customer needs.

*The company's common stock price has historically been and may continue be volatile, which could result in substantial losses for stockholders. 

The market price of shares of the Company’s common stock has been and is likely to continue to be highly volatile and may be significantly affected by factors such as the following:

 
•
Actual or anticipated fluctuations in its operating results;

 
•
Changes in economic and political conditions in the United States and abroad;

 
•
Terrorist attacks, war or the threat of terrorist attacks and war;

 
•
The announcement of mergers or acquisitions by the Company or its competitors;

 
•
Developments in ongoing or threatened litigation;

 
•
Announcements of technological innovations;

 
•
Failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act;



 
•
New products or new contracts announced by it or its competitors;

 
•
Developments with respect to intellectual property laws;

 
•
Price and volume fluctuations in the stock market;

 
•
Changes in corporate purchasing of software by companies in the industry verticals supported by the Company;

 
•
Adoption of new accounting standards affecting the software industry; and

 
•
Changes in financial estimates by securities analysts.

In addition, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against such companies. If the Company is involved in such litigation, it could result in substantial costs and a diversion of management’s attention and resources and could materially harm the Company’s business, operating results and financial condition.

We may experience a shortfall in bookings, revenue, earnings, cash flow 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:

 
•
Size and timing of individual license transactions;
 
 
•
Delay or deferral of customer implementations of our products and subsequent impact on revenues;
 
 
•
Lengthening of our sales cycle;
 
 
•
Potential additional deterioration and changes in domestic and foreign markets and economiesincluding those impacted by the difficulties in the sub-prime lending markets;
 
 
•
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;

 
•
Product and price competition; and
 
 
•
Our ability to develop and market new products and control costs.
 
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 and 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 and cash flows fluctuate significantly and delays in delivery or implementation of our products or changes in the payment terms with customers may cause unanticipated declines in revenues or cash flow, which could disappoint investors and result in a decline in our stock price.
 
Our quarterly revenues depend primarily upon product implementation by our customers. We have historically recognized a significant portion of our license and services revenue through 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. The percentage of completion accounting method requires ongoing estimates of progress of complicated and frequently changing technology projects. Documenting the measure of progress towards completion of implementation is subject to potential errors and changes in estimates. As a result, even minor errors or minor changes in estimates may lead to significant changes in accounting results which may be revised in later quarters due to subsequent information and events. Thus, delays or changes in


customer business goals or direction when implementing our software may adverselyimpact our quarterly revenue. Additionally, we may increasingly enter into term, subscription or transaction based licensing transactions that would cause us to recognize license revenue for such transactions over a longer period of time than we have historically experienced for our perpetual licenses. In addition, a significant portion of new customer orders have been booked in the third month of each 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 revenue and cash flows. The terms and conditions of individual license agreements with customers vary from transaction to transaction. Historically, the Company has been able to obtain prepayments for product in some cases, but more recently we have entered into large transactions with payments from customers due over one or more years. Other transactions link payment to the delivery or acceptance of products. If we are unable to negotiate prepayments of fees our cash flows and financial ratios with respect to accounts receivable would be adverselyimpacted. If our revenues, operating margins or cash flows are below the expectations of the investment community, our stock price is likely to decline.

If we fail to maintain and expand our relationships with systems integrators and other business partners, our ability to develop, market, sell, and support our products may be adversely affected.
 
Our development, marketing and distribution strategies rely on our ability to form and maintain long-term strategic relationships with systems integrators, in particular, our existing business alliance partners, IBM, and Accenture. These business relationships often consist of joint marketing programs, technology partnerships and resale and distribution arrangements. Although most aspects of these relationships are contractual in nature, many important aspects of these relationships depend on the continued cooperation between the parties. Divergence in strategy, change in focus, competitive product offerings or potential contract defaults may interfere with our ability to develop, market, sell, or support our products, which in turn could harm our business. If either IBM or Accenture were to terminate their agreements with us or our relationship were to deteriorate, it could have a material adverse effect on our business, financial condition and results of operations. 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 IBM and Accenture and, as a result, these systems integrators may be more likely to recommend competitors’ products and services. Within the year IBM acquired Cognos, DataMirror and Watchfire Corporation. While we do not believe that either Cognos, DataMirror or Watchfire Corporation had been a direct competitor of Chordiant in the past, IBM’s acquisition of these companies may indicate that IBM will become a competitor of ours in the future. While the Company currently has good relationship with IBM, this relationship and the Company’s strategic relationship agreement with IBM may be harmed if the Company increasingly finds itself competing with IBM. Our relationships with systems integrators and their willingness to recommend our products to their customers could be harmed if the Company were to be subject to a take over attempt from a competitor of such systems integrators.

If systems integrators fail to properly implement our software, our business, reputation and financial results may be harmed.
 
We are increasingly relying on systems integrators to implement our products, and this trend may continue. As a result, we have less quality control over the implementation of our software with respect to these transactions and are more reliant on the ability of our systems integrators to correctly implement our software. If these systems integrators fail to properly implement our software, our business, reputation and financial results may be harmed.
 
Our primary products have a long sales and implementation cycle, which makes it difficult to predict our quarterly results and may cause our 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 from three to twenty-four months. Thus, revenue and cash receipts 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. If we underestimate the resources required to meet the expectations we have set with a customer when we set prices, then we may experience a net losson that customer engagement. If this happens with a large customer engagement, then this could have a material adverse effect on our financial results. 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.
 
If we do not maintain effectiveinternal controlsover financial reporting, investors could lose confidence in our financial reporting and customers may delay purchasing decisions, which would harm our business and the market price of our common stock.
 
Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business could be harmed. We are a complex company with complex accounting issues and thus subject to related


risks of errors in financial reporting which may cause problems in corporate governance, the costs of which may outweigh the costs of the underlying errors themselves. For example, the Audit Committee of the Company’s Board of Directors, with the assistance of outside legal counsel, conducted a review of our stock option practices covering the time from the Company’s initial public offering in 2000 through September 2006. The Audit Committee reached a conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, the Company recorded an additional non-cash stock-based compensation expense, and related tax effects, related to stock option grants and concluded that a material weakness surrounding the control activities relating to the stock option grants existed at September 30, 2006. To correct these accounting errors, we restated the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended September 30, 2006 and our Quarterly Report on Form 10-Q for the three months ended June 30, 2006. As a result of this need to restate financial statements, management and the Audit Committee determined that material weaknesses in our internal control over financial reporting existed as of September 30, 2006. These material weaknesses were remediated during fiscal year 2007 and management concluded internal controls over financial reporting were effective for the reporting period.

If we are not successful in maintainingeffective internal controls over financial reporting, customers may delay purchasing decisions or we may lose customers, create investor uncertainty, face litigation and the market price of our common stock may decline. For more information, please refer to the discussion under the heading “Item 9A. Controls and Procedures” in the 2006Annual Report on Form 10-K.

*If we are not able to successfully manage our partner operations in India, our operations and financial results may be adversely affected.
 
In 2003, we entered into an agreement with Ness Technologies Inc., Ness Global Services, Inc. and Ness Technologies India, Ltd. (collectively, “Ness”), an independent contracting company with global technical resources and an operations center in Bangalore, India and operations in other locations. The agreement provides for Ness, at our direction, to attract, train, assimilate and retain sufficient highly qualified personnel to perform staffing for consulting projects, technical support, product test and certain sustaining engineering functions. As of December 31, 2007, we use the services of approximately 148 consultants through Ness. In addition, as a result of the reduction in our workforce that took place in July 2005, and the reduction in our workforce that took place in October 2006, by approximately 10% in each instance, we continue to bedependent on Ness. This agreement is an important component of our strategy to address the business needs of our customers and manage our expenses. The success of this operation will depend on our ability and Ness’s ability to attract, train, assimilate and retain highly qualified personnel in the required periods. A disruption of our relationship with Nesscould adversely affect our operations. Failure to effectively manage the organization and operations will harm our business and financial results.

If our products do not operate effectively in a company-wide environment, we may lose sales and suffer decreased revenues.
 
If existing customers have difficulty deploying our products or choose not to fully deploy our 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 software and 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. If we underestimate the resources required to meet the expectations we have set with a customer when we set prices, then we may experience a net loss on that customer engagement. If this happens with a large customer engagement then this could have a material adverse effect on our financial results.
 
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. 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.

Because competition for qualified personnel is intense, we may not be able to retain or recruit personnel, which could impact the development and sales of our products.
 
If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or fail 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, finance, engineering, sales and marketing and professional services personnel. In particularin prior years, we have had significant turnover of our executives as well in our sales, marketing and finance organizations and many key positions are held by people who have less than two years of experience in their roles with one Company. If these people are not well suited to their new roles, then this could result in the Company having problems in


 executing its strategy or in reporting its financial results. Because of the dependency on a small number of large deals, we are uniquely dependent upon the talents and relationships of a few executives and have no guarantee of their retention. Changes in key sales management could affect our ability to maintain existing customer relationships or to close pending transactions. We have been targeted by recruitment agencies seeking to hire our key management, finance, engineering, sales and marketing and professional services personnel. In addition, in July 2005 and again in October of 2006, we reduced the size of our workforce by approximately 10% in each instance, which may have a negative effect on our ability to attract and retain qualified personnel.

*To date, our sales have been concentrated in the banking, insurance, healthcare, andtelecommunications markets, and if we are unable to continue sales in these markets or successfully penetrate new markets, or if these industries reduce their spending in reaction to the difficulties in the sub-prime lending market, our revenues may decline.

Sales of our products and services in fivelarge markets—banking, insurance, healthcare, telecommunications and retail markets accounted for approximately 97% and 99% of our total revenues for the three months ended December 31, 2007 and 2006, respectively. We expect that revenues from these five marketswill continue to account for a substantial portion of our total revenues for the foreseeable future. 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. Some of our current or prospective customers, especially those in the banking and insurance industries are in businesses that have or could have exposure, directly or indirectly, to the residential mortgage sector or homebuilder sector which has recently been facing financial difficulties.  If this causes our current or prospective customers to reduce their spending on technology, then this could have an adverse impact on our sales and revenues.

* Low gross margin in services revenues could adversely impact our overall gross margin and net income.
 
Our services revenues have had lower gross margins than our license revenues. Service revenues comprised 70% and 69% of our total revenues for the three months ended December 31, 2007 and 2006, respectively. Gross margin on service revenues was 58% and 53% for thethree months ended December 31, 2007 and 2006, respectively. License revenues comprised 30% and 31% of our total revenues for the three months ended December 31, 2007 and 2006, respectively. Gross margins on license revenues were 96% and 94% for the three months ended December 31, 2007and 2006, respectively.
 
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. To increase services revenues, we expect to expand our services organization, successfully recruit and train a sufficient number of qualified services personnel, enter into new implementation projects and obtain renewals of current maintenance contracts by our customers. This expansion could further reduce gross margins in our services revenues.

We may not have the workforce necessary to support our platform of products if demand for our products substantially increased, and, if we need to rebuild our workforce in the future, we may not be able to recruit personnel in a timely manner, which could negatively impact the development,salesand supportof our products.
 
In July 2005 and again in October of 2006, we reduced the size of our workforce by approximately 10% in each instance. In the event that demand for our products increases, we may need to rebuild our workforce or increase outsourced functions to companies based in foreign jurisdictions and we may be unable to hire, train or retain qualified personnel in a timely manner, which may weaken our ability to market our products in a timely manner, negatively impacting our operations. Our success depends largely on ensuring that we have adequate personnel to support our platform of products as well as the continued contributions of our key management, finance, engineering, sales and marketing and professional services personnel.
 
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. We have in the past, and expect in the future, to derive a significant portion of our total revenues 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.

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. We anticipate that we will continue to license technology from third parties in the future. This software may not continue to be available on commercially


reasonable terms, if at all. While currently we are not materially dependent on any single third party for such licenses, the loss of the technology licenses could result in delays in the license of our products until equivalent technology 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 defects 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 systems integration partners may 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 systems integration partners may have access to the computer source code for certain elements 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, our 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; and,
 
 
 
•
Our ability to anticipate and support new standards, especially Internet and enterprise Java standards.

*Our failure to successfully integrate with future acquired or merged companies and technologies could prevent us from operating efficiently.
 
Our business strategy includes pursuing opportunities to grow our business, both through internal growth and through merger, acquisition and technology and other asset transactions. To implement this strategy, we may be involved in merger and acquisition activity and additional technology and asset purchase transactions. Merger and acquisition transactions are motivated by many factors, including, among others, our desire to grow our business, acquire skilled personnel, obtain new technologies and expand and enhance our product offerings. Mergers and acquisitions of high-technology companies are inherently risky, and the Company cannot be certain that any acquisition will be successful and will not materially harm the Company’s business, operating results or financial condition. Generally, acquisitions involve numerous risks, including the following: (i) the benefits of the acquisition (such as cost savings and synergies) not materializing as planned or not materializing within the time periods or to the extent anticipated (ii) the Company’s ability to manage acquired entities’ people and processes that are headquartered in separate geographical locations from the Company’s headquarters, (iii) the possibility that the Company will pay more than the value it derives from the acquisition, (iv) difficulties in integration of the operations, technologies, content and products of the acquired companies, (v) the assumption of certain known and unknown liabilities of the acquired companies, (vi) difficulties in retaining key relationships with customers, partners and suppliers of the acquired company, (vi) the risk of diverting management’s attention from normal daily operations of the business, (vii) the Company’s ability to issue new releases of the acquired company’s products on existing or other platforms, (viii) negative impact to the Company’s financial condition and results of operations and the potential write down of impaired goodwill and intangible assets resulting from combining the acquired company’s financial condition and results of operations with its financial statements, (ix) risks of entering markets in which the Company has no or limited direct prior experience; and (x) the potential loss of key employees of the acquired company. Realization of any of these risks in connection with any technology transaction 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, including copyright or patent 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 overlap. Additionally, we are seeing copyright infringement claims being asserted by certain third party software developers. Any claims, with or without merit, could be costly and time-consuming to defend, divert our management’s attention or cause product delays. 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.

In particular, if we are sued for patent infringement by a patent holding company, one which has acquired large numbers of patents solely for the purpose of bringing suit against alleged infringers rather than practicing the patents, it may be costly to defend such suit. We have received a letter from one such patent holding company alleging that our products may infringe one or more of their patents. We are also the subject of a suit by a person claiming that certain of our products infringe his copyrights.  If any of our products were found to infringe such patentor copyrights, the patent or copyright holder could seek an injunction to enjoin our use of the infringing product. If we were not able to remove or replace the infringing portions of software with non-infringing software, and were no longer able to license some or all of our software products, such an injunction would have an extremely detrimental effect on our business. If we were required to settle such claim, it could be extremely costly. A patent or copyright infringement claim could have a material adverse effect on our business, operating results and financial condition.

The application of percentage-of-completion and completed contract accounting to our business is complex and may result in delays in the reporting of our financial results and revenue not being recognized as we expect.
 
Although we attempt to use standardized license agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly in multi-product transactions. At the time of entering into a transaction, we assess whether any services included within the arrangement require us to perform significant implementation or customization essential to the functionality of our products. For contracts involving significant implementation or customization essential to the functionality of our products, we recognize the license and professional consulting services revenues using the percentage-of-completion method using labor hours incurred as the measure of progress towards completion. The application of the percentage-of-completion method of accounting is complex and involves judgments and estimates, which may change significantly based on customer requirements. This complexity combined with changing customer requirements could result in delays in the proper determination of our percentage-of-completion estimates and revenue not being recognized as we expect.

We have also entered into co-development projects with our customers to jointly develop new vertical applications, often over the course of a year or longer. In such cases we may only be able to recognize revenue upon delivery of the new application. The accounting treatment for these co-development projects could result in delays in the recognition of revenue. The failure to successfully complete these projects to the satisfaction of the customer could have a material adverse effect on our business, operating results and financial condition.
 
Changes in our revenue recognition model could result in short term declines to revenue.

Historically, a high percentage of license revenues have been accounted for on the percentage-of-completion method of accounting or recognized as revenue upon the delivery of product. If we were to enter into new types of transactions accounted for on a subscription or term basis, revenues might be recognized over a longer period of time. The impact of this change would make revenue recognition more predictable over the long term, but it might also result in a short term reduction of revenue as the new transactions took effect.

We may encounter unexpected delays in maintainingthe requisiteinternal controlsover financial reporting and we expect to incur additional expenses and diversion of management’s time as a result of performing future system and process evaluation, testing and remediation required to comply with future management assessment and auditor attestation requirements.
 
In connection with the Company’s compliance with Section 404 under SOX for the fiscal years ended September 30, 2006 and 2005, we identified certain material weaknesses. In future periods, we will continue to document our internal controls to allow management to report on, and our independent registered public accounting firm to attest to, our internal control, over financial reporting as required by Section 404 of SOX, within the time frame required by Section 404. We may encounter unexpected delays in implementing those requirements, therefore, we cannot be certain about the timely completion of our evaluation, testing and remediation actions or the impact that these activities will have on our operations. We also expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required to comply with management’s assessment and auditor attestation requirements. If we are not able to timely comply with the requirements set forth in Section 404 in future periods, we might be subject to sanctions or investigation by the regulatory authorities. Any such action could adversely affect our business or financial results.



 
The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

Chordiant Software, Inc.
 
 
    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.
 

 
CHORDIANT SOFTWARE, INC.
 
 
 
 
 
 
By:
/s/  PETER S.NORMAN
 
 
 
Peter S. Norman
Chief Financial Officer and
Principal Accounting Officer
 

 
Dated: February 7, 2008
 



EXHIBIT INDEX

       
Incorporated by Reference
    
Exhibit
Number
  
Description of Document
  
Form
  
Date
  
Filed Herewith
                 
3.1
  
Amended and Restated Certificate of Incorporation of Chordiant Software, Inc..
  
Form S-1
(No. 333-92187)
  
2/6/1999
    
   
 
            
3.2
  
Amended and Restated Bylaws of Chordiant Software, Inc..
  
Form 8-K
  
2/2/2006
    
                 
31.1
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
          
X
                 
10.69
  
Global Framework Agreement, dated December 21, 2007, by and between Registrant and Vodafone Group Services Limited.
          
X
   
 
            
31.2
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
          
X
   
 
            
32.1#
  
Certification required by Rule 13a-14(a) or Rule 15d-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
          
X
                 

#
The certification attached as Exhibit 32.1 is not deemed filed with the Securities and Exchange Commission and is not incorporated by reference into any filing of Chordiant Software, Inc., whether made before or after the date of this Form 10-K irrespective of any general incorporation language contained in such filing.


53
 EX-10.69 2 ex1069.htm GLOBAL FRAMEWORK AGREEMENT WITH VODAFONE GROUP SERVICES LIMITED ex1069.htm
 
Exhibit 10.69
 
[ * ]= Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the Securities Exchange Act of 1934, as amended.


PRIVATE AND CONFIDENTIAL

DRAFT DATED:  14 September 2007




VODAFONE GROUP SERVICES LIMITED



AND

CHORDIANT SOFTWARE , INC.





GLOBAL FRAMEWORK AGREEMENT
FOR THE SUPPLY OF
SOFTWARE PRODUCTS AND SERVICES









 

 


[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
GLOBAL FRAMEWORK AGREEMENT
INDEX


 
Clause
Page Nos
 
  
 
1. 
DEFINITIONS
1
2. 
STRUCTURE AND PROCESS
3
3. 
DURATION
4
4.
GLOBAL PRICE BOOK
4
5.
PRODUCT AND SERVICES INFORMATION
5
6.
QUALITY ASSURANCE
5
7.
GLOBAL PRODUCT APPROVAL [OPTION]
ERROR! BOOKMARK NOT DEFINED
8.
WARRANTIES
7
9.
TERMINATION
7
10.
EFFECT OF TERMINATION
8
11.
NOTICES AND E-MAIL
8
12.
GOVERNING LAW AND JURISDICTION
9
13.
ENTIRE AGREEMENT
9
14.
VARIATION
10
15.
LIMITATION OF LIABILITY
10
16.
SURVIVAL
10
17.
INTERPRETATION
11
18.
COUNTERPARTS
13
ANNEX A
1
CONTRACT OF ADHERENCE (CoA)
1
SCHEDULE 1
4
CONTENTS OF SPECIAL CONDITIONS
4
SCHEDULE 2
5
GLOBAL TERMS AND CONDITIONS
5
1.
DEFINITIONS
1
2.
APPOINTMENT
7
3.
SPECIAL CONDITIONS
8
4.
PURCHASE ORDERS
8
5.
PRICE
9
6.
TAXES AND DUTIES
10
7.
INVOICING AND PAYMENT
12

Index
i
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.



8. 
PACKING
14
9. 
DELIVERY
14
10. 
PERFORMANCE OF SERVICES
14
11.
DELAY AND LIQUIDATED DAMAGES
ERROR! BOOKMARK NOT DEFINED.
12.
TITLE AND RISK
15
13.
RIGHT TO REJECT
ERROR! BOOKMARK NOT DEFINED.
14.
PROJECT MANAGEMENT AND PROGRESS REPORTS
16
15.
ERRORS AND OMISSIONS
ERROR! BOOKMARK NOT DEFINED.
16.
ACCEPTANCE OF PRODUCTS AND SERVICES
16
17.
INTERWORKING
17
18.
INTERFACES
17
19.
WARRANTIES
17
20.
ISSUED PROPERTY
20
21.
SOURCE CODE ESCROW
21
22.
DATA PROTECTION AND LAW ENFORCEMENT
21
23.
TERMINATION, CANCELLATION AND POSTPONEMENT
23
24.
EFFECT OF TERMINATION
25
25.
LICENCES FOR SOFTWARE AND DOCUMENTATION
27
26.
INTELLECTUAL PROPERTY RIGHTS
29
27.
INTELLECTUAL PROEPRTY RIGHTS IDEMNITY
29
28.
INDEMNIFICATION PROCEDURES
29
29.
FORCE MAJEURE
31
30.
CORPORATE SOCIAL RESPONSIBILITY
31
31.
CONFIDENTIALITY
31
32.
ASSIGNMENT AND SUBCONTRACTING
33
33.
CHANGE CONTROL PROCEDURE
33
34.
RIGHTS OF THIRD PARTIES
33
35.
PUBLICITY
34
36.
NOTICES AND E-MAIL
34
37.
ESCALATION
34
38.
GOVERNING LAW
35
39.
ENTIRE AGREEMENT
35
40.
WAIVER
35
41.
SEVERABILITY
36

Index
ii
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.



42.
VARIATION
36
43.
NO PARTNERSHIP/AGENCY
36
44.
HEALTH AND SAFETY
36
45.
SURVIVAL
36
46.
INSURANCE
37
47
FURTHER ASSURANCE
38
48.
AUDIT
38
49.
LIMITATION OF LIABILITY
39
50.
INADEQUACY OF DAMAGES
40
51.
INTERPRETATION
40
52.
ORDER OF PRECEDENCE
40
53.
COUNTERPARTS
41
SCHEDULE 3
  
42
GLOBAL PRODUCTS
  
42
SCHEDULE 4
  
45
GLOBAL SERVICES
  
45
SCHEDULE 5
  
55
GLOBAL PRICE BOOK
  
55
SCHEDULE 6
  
1
CORPORATE SOCIAL RESPONSIBILITY
  
1
SCHEDULE 7
  
9
CURRENCY CONVERSION PROCESS
  
9
SCHEDULE 8
  
14
DATA PROCESSING AGREEMENT
ERROR! BOOKMARK NOT DEFINED.
SCHEDULE 9
  
15
SOURCE ESCROW AGREMENT
  
15
SCHEDULE 10
  
36
LOCAL ATTACHEMENTS
  
36

Index
iii
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


THIS GLOBAL FRAMEWORK AGREEMENT is made on the            21st    day of December, 2007.

BETWEEN
 
(1)  
VODAFONE GROUP SERVICES LIMITED (company registered number 3802001) whose registered office is at Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, United Kingdom (“VGSL”); and
 
(2)  
CHORDIANT SOFTWARE INC. a corporation incorporated in the state of Delaware, USA whose registered office is at 20400 Stevens Creek Blvd., Suite 400, Cupertino, CA 95014, USA (“Supplier”)
 
together referred to as the “Parties” and each individually as a “Party”.

 
WHEREAS
 
(a)  
The Supplier is engaged in, amongst other activities, the development and supply of Products and Services (as defined below);
 
(b)  
VGSL and Supplier wish to establish an overall contractual framework for the supply of Products and Services to Vodafone Group Companies and Partner Networks; and
 
(c)  
The Parties have agreed to enter into this Global Framework Agreement upon the terms and subject to the conditions hereinafter contained.
 
 
NOW IT IS HEREBY AGREED AS FOLLOWS:
 
1.  
DEFINITIONS
 
1.1            In this Global Framework Agreement:
“Business Day”
means, with respect to VGSL, a normal working day in England;
“Contract of Adherence” or “CoA”
means a contract in the form set out in Annex A under which an SGC agrees to supply Products and Services to a VGC according to the terms and conditions set forth therein, including the Schedules attached thereto;
“Effective Date”
means with respect to this GFA,  .December 21, 2007, which is the day on which this GFA shall come into effect;
“Global Framework Agreement” or
means this global framework agreement (as amended from time to time) including the Annexes and Schedules hereto;
GFA for H/W & S/W Products
1
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

“GFA”

 
“Global Product Approval Procedure”
has the meaning given in Clause 7.1;
“Partner Network”
means:
 
(i) a person (including subsidiaries of that person) operating a mobile telecommunications business, who is not a Vodafone Group Company, with which:
 
 
(a) Vodafone Group Plc (or a subsidiary of Vodafone Group Plc) has in place a co-operation agreement in relation to, inter alia, the implementation of certain mobile telecommunications products and services; and/or
 
 
(b) Vodafone Group Plc (or a subsidiary of Vodafone Group Plc) has in place a brand licence agreement in relation to, inter alia, the branding of mobile telecommunications products and services; or
 
 
(ii) in respect of which Vodafone Group Plc owns (directly or indirectly) greater than zero (0)% but less than fifteen (15)% of the issued share capital;
 
“person”
includes any corporation, limited liability company, partnership, limited liability partnership, joint venture, joint stock company, trust, estate, company and association, whether organised for profit or otherwise;
“SGC”
means Supplier or a Supplier Group Company that enters into a CoA;
“Special Conditions”
has the meaning set forth in Clause 3.2 of Schedule 2 (GTCs);
“Global Terms and Conditions” or “GTCs”
means the global terms and conditions agreed by VGSL and Supplier for the supply of Products and Services by SGCs to VGCs as set out in Schedule 2 (GTCs) attached hereto;
“Supplier Group Company”
means Supplier or any company or corporation in respect of which Supplier’s ultimate holding company owns (directly or indirectly) more than fifty (50)% of the issued share capital;
“Term”
has the meaning set forth in Clause 3 (Duration) below; and
“VGC”
means each:
GFA for H/W & S/W Products
2
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
 
(i) Vodafone Group Company that enters into a CoA; and
 
 
(ii) Partner Network that enters into a CoA.
 
 
1.2  
All undefined terms appearing in this GFA shall have the meaning given to them elsewhere in the Annexes and Schedules thereto, and references to Schedules means Schedules to the CoA.
 
2.  
STRUCTURE AND PROCESS
 
2.1.  
This GFA establishes the contractual framework for the supply of Products and Services by Supplier and Supplier Group Companies to Vodafone Group Companies and Partner Networks.
 
2.2.  
VGSL appoints Supplier as a non-exclusive supplier of products and services to VGSL, Vodafone Group Companies and designated Partner Networks during the term of the CoA.
 
2.3.  
Any Vodafone Group Company may, but is not obliged to, purchase Products and Services that are offered by Supplier under this GFA, by completing and signing the attached CoA with Supplier or the Supplier Group Company designated by Supplier after the Effective Date of this GFA. The CoA will govern the purchase and sale of Products and Services between the purchasing VGC and the selling SGC.
 
2.4.  
In certain cases VGSL may elect to join as a party to a CoA in order to accept contractual responsibility for, inter alia, payment of invoices. In such cases the CoA shall be modified accordingly and by the agreement of VGSL, the Supplier, and the relevant VGC.
 
2.5.  
VGSL may, by written notice to Supplier, designate certain Partner Networks that are permitted to enjoy any or all of the rights granted to Vodafone Group Companies under this GFA. Once so designated, the Partner Network will follow the procedure described in this GFA that applies to Vodafone Group Companies unless VGSL’s written instructions to Supplier specify otherwise. Where the Partner Network enters into an agreement in a form similar to the CoA with an SGC after the Effective Date of this GFA, such Partner Network shall be treated as a VGC, and where the term “VGC” is used in this GFA it will be interchangeable with the term “Partner Network” (unless VGSL specifies otherwise). Where a VGC ceases to be a Partner Network or Vodafone Group Company (as applicable) then the Supplier shall, if required by VGSL, procure that the applicable SGC terminates that CoA in accordance with the terms of that CoA. For the avoidance of doubt nothing shall prevent Supplier or SGC from entering into a new and separate agreement with that former Partner Network or Vodafone Group Company (as applicable) after the termination of the said CoA.
 
2.6.  
VGSL may itself purchase Products and Services from Supplier under the terms and conditions set forth in the Schedules by issuing a
GFA for H/W & S/W Products
3
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
  
Purchase Order to Supplier which references this GFA. VGSL need not enter into a CoA. With respect to each Purchase Order placed by VGSL for Products, the Parties agree that the Schedules will be deemed to be incorporated into the Purchase Order and govern the purchase and supply of the Products ordered therein; accordingly, where the term “VGC” or “SGC” is used in the Schedules, they shall be deemed to refer to VGSL and Supplier respectively, and where the term “Contract of Adherence” or “CoA” is used in the Schedules, it shall mean VGSL’s Purchase Order. Any Special Conditions agreed between VGSL and Supplier shall be set forth or referenced to in VGSL’s Purchase Order.
 
2.7.  
Supplier shall procure that its Supplier Group Companies will not unreasonably delay or withhold signature to a CoA that conforms to the requirements of this GFA.
 
2.8.  
It is agreed by the Parties that, where a CoA is concluded by a Vodafone Group Company or a Partner Network and a Supplier Group Company, VGSL shall in no circumstances be liable in respect of the actions or omissions of any other Vodafone Group Company or any Partner Network under any CoA, any Purchase Order or under this GFA.
 
3.  
DURATION
 
This GFA shall come into effect on the Effective Date and unless earlier terminated in accordance with the provisions of this GFA shall continue in force and effect for five years (the “Initial Period”). This GFA shall automatically continue until terminated by either Party giving at least six (6) Months’ prior written notice of such termination to the other Party, such notice not to expire sooner than the end of the Initial Period, unless earlier terminated in accordance with the provisions of this GFA (“Term”).
 
4.  
GLOBAL PRICE BOOK
 
4.1.  
The Price of Products and Services shall be as set out in Attachment A to this GFA, the Global Price Book or as otherwise agreed in accordance with this Clause 4, Clause 5 (Product and Services Information) or any CoA.
 
4.2.  
All Price changes to the Global Price Book shall come into effect on the agreed effective date (as stated in a re-issue of the Global Price Book) and shall apply to all Products and Services that are invoiced to any VGC after such effective date.
 
4.3.  
With respect to Products and Services not included in the Global Price Book, but which a VGC wishes to have supplied pursuant to a CoA, Supplier shall procure that the relevant SGC negotiates the Prices with the requesting VGC and includes such Prices in the VGC’s Local Price Book.
 
4.4.  
VGSL has the right to request and procure that a local Price for Products set out in a Local Price Book is transferred to and becomes part of the
GFA for H/W & S/W Products
4
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
Global Price Book and upon such notification the provisions of Clause 4.2 shall take effect.
 
5.  
PRODUCT AND SERVICES INFORMATION
 
5.1.  
The Parties shall meet on a quarterly basis to discuss the future evolution of the Products. Supplier shall invite representatives of VGSL to its Executive Customer Advisory Board (“ECAB”) annual meetings. [ * ]
 
6.  
QUALITY ASSURANCE
 
6.1.  
The Supplier shall at all times be responsible for assuring the quality of all Products supplied to VGCs in accordance with the warranty provisions below.
 
6.2.  
To enable the VGSL Product Assurance Representative to be satisfied that the GFA requirements can be satisfied, the Supplier shall:
 
6.2.1.  
nominate a management representative responsible for quality assurance (“Supplier’s Quality Assurance Representative”), to liaise with VGSL Product Assurance Representative;
 
6.2.2.  
identify to VGSL all intended places of manufacture and permit, on thirty (30) days advance notice,  a capability and social audit of such facilities up to once per year. Supplier’s costs associated with such visits will be borne by the Supplier. In the event that such an audit finds Supplier’s demonstrated non-compliance with this GFA,  necessitating a revisit, the Supplier shall be liable for such costs;
 
6.2.3.  
identify to VGSL all major third party suppliers upon which the supply of Products and Services is dependent;
 
6.2.4.  
given reasonable notice, permit the VGSL Product Assurance Representative no more often than every six months, to conduct a quality review of relevant aspects of the Supplier’s operations and systems which may include design, development, manufacture, testing and servicing processes, regardless of whether these items are in-house or subcontracted;
 
6.2.5.  
during quality reviews or audits, make available relevant Supplier's quality assurance process information to facilitate VGSL’s review and assessment of supplier’s ongoing quality
GFA for H/W & S/W Products
5
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
processes. Recommended information includes, but is not limited to, release plans, test plans, functionality test coverage ratio, automated test coverage ratio, manual test coverage ratio, automated / manual test ratio, rated (critical / major / minor) open defects (bugs), rated (critical / major / minor) open support requests,  release quality metrics and approval records and criteria.
 
6.2.6.  
Costs for such reviews or audits shall be borne by VGSL unless such a visit is necessary as a result of Supplier’s demonstrated non-compliance with this GFA, in which case the Supplier shall pay such costs;
 
 
and
 
6.2.7.  
make the results of any regulatory and compliance testing available to VGSL for inspection and review; and certification relating to such regulatory compliance, if any, (e.g. CE/RTTE/SAR) shall be provided prior to Product shipment.
 
6.3.  
Periodic quality review meetings shall be held at the time and frequency as agreed by the Parties with a target to hold such meetings on the approximate frequency of Supplier’s major product releases, but in any case no more often then once every 6 months. These meetings shall be held either at a jointly agreed location or telephonically on a jointly agreed format, and time and shall be attended by the Supplier’s Quality Assurance Representative.
 
6.3.1.  
The focus of the quality review meetings shall be for Supplier to provide data and updates on its development and quality operations as jointly determined by the parties beforehand, but which is generally anticipated to include the information suggested at clause 6.2.5;
 
6.3.2.  
If VGSL is unsatisfied with the outcome of a periodic quality review, and VGSL’s concerns cannot reasonably be corrected within 30 days following such review, VGSL can request an on-site review at a relevant Supplier development site, which Supplier would agree to host, no more often than once per year.   Supplier shall be responsible for its own expenses in respect of such meetings.
GFA for H/W & S/W Products
6
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6.3.3.  
  
 
7.  
WHERE THE REVIEW MEETINGS DESCRIBED IN CLAUSE 6.2 ARE NOT REQUIRED, VGSL MAY SPECIFY OTHER REVIEW MEETINGS WHERE SUPPLIER SHALL BE REQUIRED TO REPORT THE INFORMATION SET FORTH IN CLAUSE 6.3. PRODUCTS AND PAYMENTS
 
Supplier will make available to VGSL and VGCs under CoAs those Products listed in Annex A hereto at the prices specified therein.  Provided always that the Supplier shall not execute a CoA nor accept a Purchase Order from a VGC without first obtaining the written approval of VGSL, VGSL will make payments to Supplier as provided in Annex A.  Clauses 5.2, 5.3, 6, 7.3, 7.4, 7.5, 7.6, 7.7, and 7.8 of the CoA will apply to the payments due from VGSL as set forth in Annex A.
 
8.  
WARRANTIES
 
Each Party warrants that it has the right, power and authority to enter into this GFA.
 
9.  
TERMINATION
 
9.1.  
Either Party (in this paragraph the "terminating Party") shall be entitled to terminate this GFA by giving written notice to the other Party (in this paragraph the "breaching Party") at any time if:
 
9.1.1.  
the breaching Party breaches any material provision of the GFA and (in the case of a breach capable of remedy) fails to remedy the breach within thirty (30) days after receiving written notice requiring it to do so; or
 
9.1.2.  
the breaching Party becomes subject to an Insolvency Event.
 
9.2.  
VGSL shall be entitled to terminate this GFA without liability to the Supplier at any time if:
 
9.2.1.  
there is a Change in Control of the Supplier as defined in Clause A (Change in Control) of Schedule 2 (GTCs); or
 
9.2.2.  
after being required by VGSL under Clause 2.4 to procure that an SGC terminates a CoA, that CoA has not been terminated within twenty (20) Business Days of being provided with such notice in accordance with Clause 2.4.
 
9.3.  
VGSL may terminate this GFA upon (12) Months’ notice in writing to Supplier at any time during the Term, such notice to take effect on or after the 1st anniversary of the Effective Date.
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10.  
EFFECT OF TERMINATION
 
10.1.  
On termination of this GFA:
 
10.1.1.  
all materials of either Party in the control or possession of the other Party that contain or bear the other Party’s IPR or Confidential Information shall be destroyed or at the request of such Party returned to that Party; and
 
10.1.2.  
all other rights and obligations of the Parties under this GFA shall automatically terminate save for VGSL’s obligations to make payments pursuant to Clause 7 of this GFA and such rights and obligations as shall have accrued prior to such termination and any rights or obligations that expressly or by implication are intended to come into or continue in force on or after such termination pursuant to Clause 16 (Survival).
 
10.2.  
Termination of this GFA shall be without prejudice to any CoAs or Purchase Orders that are in force at the date of such termination which shall continue in force and subject to the terms of the CoA.
 
11.  
NOTICES AND E-MAIL
 
11.1.  
All notices and other communications to be given under or in connection with this GFA shall be made in writing in English and shall be deemed to have been duly given: when delivered, if delivered by messenger during normal business hours of the recipient; when sent, if transmitted by facsimile transmission (receipt confirmed and with a confirmation copy sent by post) during normal business hours on a normal business day of the recipient; or on the fifth normal business day of the recipient following posting, if posted by international first class or recorded post postage pre-paid, in each case addressed as follows:
 
11.1.1.  
if to VGSL:
 
Vodafone Group Services Limited
Vodafone House
The Connection
Newbury
Berkshire
England RG14 2FN
fax no:  +44 1635 676700
tel no:  + 44.1635.33251
Marked for the attention of: Director of Global Supply Chain Management (currently Detlef Schultz)

Cc: General Counsel (currently Stephen Scott)
Vodafone Group Services Limited
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Vodafone House
The Connection
Newbury
Berkshire
RG14 2FN
United Kingdom
Phone: +44 1635 673915
Fax: +44 1635 580761

 
11.1.2.  
to the Supplier:
Chordiant Software Inc.
 
Marked for the attention of: Director of Finance
Facsimile Number: [                                                     ]
Copy to
Chordiant Software, Inc.
20400 Stevens Creek Blvd.
Cupertino, CA 95014
Attn.: General Counsel
 
 
or to such other addresses as the Parties may from time to time notify pursuant to this Clause.
 
11.2.  
Routine communications relating to the performance of this GFA may be conducted by electronic mail.  However, the Parties agree that any communication by electronic mail shall not amount to notice in writing for the purposes of Clause 11.1 or to a written instrument for the purposes of Clause 14 (Variation) and that any purported notice under, or variation of, this GFA by electronic mail shall have no effect.
 
12.  
GOVERNING LAW AND JURISDICTION
 
12.1.  
This GFA shall be governed by and construed in accordance with the laws of England and Wales.
 
12.2.  
Each Party irrevocably submits to the exclusive jurisdiction of the courts of England over any claim, dispute or difference arising under or in connection with the GFA.
 
13.  
ENTIRE AGREEMENT
 
13.1.  
This GFA represents the entire understanding between the Parties in relation to its subject matter and supersedes all agreements and representations made by either Party, whether oral or written, in relation to the subject matter of this GFA.  This Clause 13 shall not affect either Party’s liability for fraud.
 
13.2.  
This GFA shall apply to the exclusion of, and prevail over, any express terms contained in the standard documentation of either Party (including but not limited to any pre-printed standard terms and conditions
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appearing on the reverse of any Purchase Order issued by VGSL in connection with the GFA).
 
14.  
VARIATION
 
This GFA shall be capable of being varied only by a written instrument signed by hand in ink by a duly authorised officer or other authorised representative of each of the Parties.
 
15.  
LIMITATION OF LIABILITY
 
15.1.  
Except as set forth in Clause 15.3, the maximum liability of Supplier or VGSL to the other Party, excluding any liquidated damages paid or payable for Claims made under or in connection with this GFA whether based on contract, tort, negligence or otherwise shall be limited to £10 million in any period of twelve (12) Months, such period to commence in each case on the date of the incident, or the first of the series of incidents, giving rise to the Claim in question.
 
15.2.  
Except as set forth in Clauses 15.3, neither Supplier nor VGSL shall be liable for any indirect or consequential damages or losses, including loss of profits and loss of data where such damages or losses are determined to be an indirect or consequential damage or loss.
 
15.3.  
Nothing in the GFA excludes or limits the Parties’ respective liability for Claims with respect to the following:
 
15.3.1.  
Supplier’s liability under any relevant product liability legislation (e.g. General Product Safety Directive 2001/95/EC);
 
15.3.2.  
Supplier’s liability for death or personal injury resulting from the supply or use of the Products or Services;
 
15.3.3.  
a Party’s liability under Clauses 22 (Data Protection) and 25 (Licenses for Software and Documentation), [A] (Intellectual Property Rights Indemnity) and [A] (Confidentiality) of Schedule 2 (GTCs);.
 
15.3.4.  
a Party’s liability for fraudulent misrepresentation or for death or personal injury resulting from its negligence; and
 
15.3.5.  
any other liability to the extent that such liability may not be excluded or restricted by law.
 
16.  
SURVIVAL
 
Any termination of this GFA for any reason shall be without prejudice to any rights or remedies to which a Party may be entitled under the GFA or provided by law or in equity. Any such termination shall not affect any accrued rights or liabilities of either Party nor the coming into force or the continuance in force of
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 any provision of this GFA, which is expressly or by implication intended to come into or continue in force on or after such termination
 
17.  
INTERPRETATION
 
17.1.  
In this GFA (except where the context otherwise requires):
 
17.1.1.  
the Schedules, Annexes and other documents which are stated to be incorporated into this GFA (as amended from time to time) shall form part of this GFA and shall be construed and shall have the same force and effect as if they were expressly set out in the main body of this GFA, and any reference to this GFA includes the Schedules, Annexes and such other documents;
 
17.1.2.  
references in this GFA to a Schedule or Annex shall be deemed to be a reference to the current version of the relevant Schedule or Annex;
 
17.1.3.  
the index and headings in this GFA are for ease of reference only and shall not constitute a part of this GFA for any purpose or affect its interpretation;
 
17.1.4.  
use of the singular includes the plural and vice versa;
 
17.1.5.  
use of any gender includes the other genders;
 
17.1.6.  
any reference to a directive, statute, statutory provision or subordinate legislation ("legislation") shall (except where the context otherwise requires) be construed as referring to such legislation as amended and in force from time to time and to any legislation which re-enacts or consolidates (with or without modification) any such legislation; and
 
17.1.7.  
any phrase introduced by the terms "including", "include", "in particular" or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.
 
17.2.  
Clauses 1 (Definitions), A (Price), A (Intellectual Property Rights Indemnity), A (Corporate Social Responsibility), A (Confidentiality), A (Assignment and Subcontracting), A (Rights of Third Parties),A(Publicity), A (Escalation), A (Waiver),A (Severability), A (No Partnership/Agency), A (Survival), A (Insurance), A (Further Assurance), A(Audits), A (Inadequacy of Damages), A(Order of
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Precedence) of Schedule 2 (GTCs) shall apply (mutatis mutandis) to the body of this GFA.
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18.  
COUNTERPARTS
 
This GFA may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, and all the counterparts together shall constitute one and the same instrument.

AGREED by the Parties through their authorised signatories.
 

Signed/Date: /s/ Detlef S. Schultz
December 21,2007
Name:   Detlef S. Schultz
Title:  Global Supply Chain Management Director
For and on behalf of Vodafone Group Services Limited
Signed/Date
December 20, 2007
.By: ../s/ Steven R. Springsteel
Name:  Steven R. Springsteel
Title:    Chairman, CEO and President
By: /s/ Peter Norman
Name:  Peter Norman
Title:  Vice President and Chief Financial Officer
For and on behalf of Chordiant Software, Inc.


 
Attachments:

 
Annex A: Payments, Products and Pricing

 
Annex B: CoA

 
Annex C: Documentation

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ANNEX A

 
PAYMENTS, PRODUCTS AND PRICING



 
A.  STANDARD SOFTWARE
1.            Chordiant Decision Management Suite (by part and version number):
·  
Chordiant Predictive Analytics Director; 6100-6.0.2
·  
Chordiant Strategy Director; 6101-6.0.2
·  
Chordiant Decision Monitor; 6104-6.0.2
·  
Chordiant Real-Time Decisioning Services; 6102-6.0.2
·  
Chordiant Database Decisioning Services; 6103-6.0.2
·  
Chordiant Recommendation Advisor; 6108-6.0.3
·  
Chordiant Adaptive Decisioning Services; 6106-6.0.2
·  
Chordiant Data Preparation Director; 6105-6.0.2
·  
Chordiant Real-Time Proposition Monitoring; 6111-6.0.2
·  
Chordiant Interaction Services - 6107-6.0.2
·  
Chordiant Campaign Management Decisioning Service - 6109-6.0.2
1.  
Chordiant Marketing Director Suite:
·  
Chordiant Marketing Director: 6.2.0.3
·  
Chordiant Online Marketing Director; 6.2.0.3
·  
Chordiant Mobile Marketing Director; 6.2.0.3

The Standard Software listed above shall be deemed accepted upon delivery.
At VGSL’s request, Supplier will extend the license to the Standard Software to any other operating system supported by Supplier so long as VGSL is currently covered by Maintenance Services with respect to such Software and VGSL’s usage of the Standard Software does not exceed the scope of the license it acquired for use.
 

B.  LICENSE AND LICENSE FEES
Supplier will enter into CoAs for enterprise licenses of all the Standard Software specified above (except as provided below) with the VGC’s listed below (the “Listed VGCs”) for a license fee to be designated by VGSL.  The license fee so designated by VGSL shall be reasonable for the scope of the license provided.
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Supplier agrees that it will not license the Standard Software to the Listed VGCs at any price that has not been designated or approved by VGSL.

Listed VGCs:

[ * 1 Page of text omitted]

*  License will not include the Marketing Director Suite

Organic Growth
There will be no change in the price for the license for a VGC to the extent that the number of subscribers supported by that VCG increases through organic growth.

Growth through Merger or Acqusition
If through acquisition or merger, a VGC increases its subscriber base following such acquisition or merger such that it moves from one pricing bracket (after taking into account any organic growth that has taken place up to the time of such acquisition) to another (ie, small to medium; large to very large) described in the future pricing matrix listed below, the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the acquisition or merger and the license and support fee for the larger bracket applicable after giving effect to the acquisition or merger.

Effect of Transfer:
If there is a transfer of a CoA from one VGA to another VGA which has a subscriber base which would move that license to another pricing bracket after taking into account any organic growth up to the time of such transfer (ie, small to medium; large to very large) described in the future pricing matrix listed below, then the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the transfer and the license and support fee for the new bracket.
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C. SUPPORT AND USERS
VGCs that have licensed the Standard Software shall be entitled to install and operate the components of the Standard Software solely for the following number Users and shall be entitled to the following level of Support so long as it is receiving Maintenance Services.
CHORDIANT Decision Management Suite
Users
Support Level
Chordiant Predictive Analytics Director
Unlimited nr of client systems
Standard (9x5)
Chordiant Strategy Director
Unlimited nr of client systems
Standard (9x5)
Chordiant Decision Monitor
Unlimited nr of client systems
Standard (9x5)
Chordiant Database Decisioning Services
Unlimited nr of CPUs
Standard (9x5)
Chordiant Real-Time Decisioning Services
Unlimited nr of CPUs
Premium (24x7)
Chordiant Recommendation Advisor
Unlimited nr of seats
Premium (24x7)
Chordiant Interaction Services
Unlimited nr of CPUs
Premium (24x7)
Chordiant Campaign Management Decisioning Service
Unlimited nr of CPUs
Standard (9x5)
Chordiant Adaptive Decisioning Services
Unlimited nr of CPUs
Premium (24x7)
Chordiant Data Preparation Director
Unlimited nr of CPUs
Standard (9x5)
Chordiant Real-Time
Unlimited nr of CPUs
Premium
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Proposition Monitoring
  
(24x7)

CHORDIANT Marketing Director Suite
Unit
Support Level
Chordiant Marketing Director
Unlimited nr of URNs
Standard (9x5)
Chordiant OnLine Marketing Director
Unlimited nr of URNs
Standard (9x5)
Chordiant Mobile Marketing Director
Unlimited nr of URNs
Standard (9x5)

 
D. VGSL Payment Schedule:

Subject always to clause 7 (Products and Payments), VGSL will pay the following amounts (plus VAT and all other taxes payable) to Supplier on or before the dates set forth below:

1.            On or before Sept 1st 2008: €7,345,853 in licence fees, less such amounts that were payable to Supplier in license fees for the license of the Standard Software by Listed VGCs between the date of the GFA and September 1, 2008;

2.            On or before Sept 1st 2008: €1,000,000 in support and maintenance fees, less such amounts that were payable to Supplier in support and maintenance fees by Listed VGCs between the date of the GFA and September 1, 2008;

3. On or before Dec 1st 2008: €[*] in licence fees, less (a) the amount of the payment referred to in item 1 above and (b) such amounts that were payable to
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Supplier in license fees for the license of the Standard Software by Listed VGCs between the date of the GFA and December 1, 2008;
 
    4. On or before April 1st 2009: €[ * ] in licence fees, less (a) the aggregate amount of the payments referred to in items 1 and 3 above and (b) such amounts that were payable to Supplier in license fees for the license of the Standard Software by Listed VGCs between the date of the GFA and April 1, 2009;
    
    5. On or before April 1st 2009: €2,231,700 in support and maintenance fees covering all Listed VGCs.

Any such amounts paid by VGSL under items 1, 3 and 4 above may be applied by VGSL as a credit against the license fees payable for the licensing of the Listed VGCs.

Total License Fees payable by April 1, 2009: €14,877,997

Total Support and Maintenance Fee for the provision of support and maintenance through until April 1st 2010: €3,231,700

At VGSL’s option, after expiration of the initial Support period (ending April 1st 2010) and each subsequent Support period, VGSL may acquire on behalf of the Listed VGCs an additional one year of Maintenance Services for the Standard Software licensed, for an annual support fee of not less than the previous year’s Support Fee (€2,231,700 for the first renewal period) and shall not increase from the previous year’s Support Fee by more than the percentage increase in the United Kingdom Retail Price Index (National Statistics Office) for the previous year.  All fees due under Clause D (€18,109,700) shall be non-cancelable and the sum paid non-refundable.
Without prejudice to the non-cancelable nature of the obligation to pay for the initial Support period referred to above, payments stated or referred to in this paragraph shall be pro-rated according to the actual use of the Standard Software, and by which VGC.
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E.  FUTURE PRICING

VGSL may purchase additional licenses for the Standard Software products listed above at the respective quantities and license fees indicated below for majority owned subsidiaries of VGSL other than Listed VGCs. Furthermore VGSL may purchase additional licenses for the Standard Software products listed above at the respective quantities and license fees indicated below for minority owned subsidiaries of VGSL on a case by case basis, as agreed to by Supplier in its sole discretion.  All future pricing (table and discount levels below) only applies to VGCs in the following business areas:  Communications and is valid until Dec 15, 2009.

Majority Owned VGCs

As part of this agreement, Supplier offers the following pricing for any majority owned VGCs in which Vodafone acquires a majority stake.

 
Nr of Subscr
Licence Fee CDM & CMD
Annual Support and Maintenance
       
Small
<5 mill
[ * ]
[ * ]
Medium
5 – 10 mill
[ * ]
[ * ]
Large
10 – 30 mill
[ * ]
[ * ]
Very Large
30 – 50 mill
[ * ]
[ * ]
Mega
>50 mill
[ * ]
[ * ]

Notwithstanding the foregoing, for one of the (large or smaller) majority owned VCGs that are purchasing the Chordiant Decision Management suite only as part of this agreement, that VCG may purchase the Marketing Director suite for the license fee of [ * ] plus an annual 15% [ * ] support and maintenance.

Standard Software products offered as part of the CDM licence include the then current versions of the following:

·  
Chordiant Data Preparation Director: unlimited number of concurrent users
·  
Chordiant Predictive Analytics Director: unlimited number of concurrent users
·  
Chordiant Adaptive Decisioning Services: unlimited number of CPUs
·  
Chordiant Strategy Director: unlimited number of concurrent users
·  
Chordiant Database Decisioning Services: unlimited number of CPUs
·  
Chordiant Real-Time Decisioning Services: unlimited number of CPUs
·  
Chordiant Recommendation Advisor: unlimited number of seats
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·  
Chordiant Interaction Services: unlimited number of CPUs
·  
Chordiant Campaign Management Decisioning Service: unlimited number of CPUs
·  
Chordiant Decision Monitor: unlimited number of concurrent users
·  
Chordiant Real-Time Proposition Monitoring: unlimited number of CPUs

Standard Software products offered as part of the CMD licence include the then current versions of the following:

·  
Chordiant Marketing Director, core module: unlimited number of concurrent users
·  
Chordiant eMail Marketing Director: unlimited number of concurrent users
·  
Chordiant Mobile Marketing Director: unlimited number of concurrent users

The Standard Software listed above shall be deemed accepted upon delivery.

Minority Owned VGCs

For any mobile telecom organisation where VGSL has more than a 15% stake but less than 50% Supplier offers a fixed discount of [ * ]% against Supplier's standard list price for Chordiant Decision Management and Chordiant Marketing Director Standard Software products listed above.

Partner Organisation

For Partner Network organisations, Supplier offers a fixed discount of [ * ]% against Supplier's standard price list, for Chordiant Decision Management and Chordiant Marketing Director Standard Software products listed above, subject to approval from Supplier.

Organic Growth
There will be no change in the price for the license for a VGC to the extent that the number of subscribers supported by that VCG increases through organic growth.

Growth through Merger or Acqusition
If through acquisition or merger, a VGC increases its subscriber base following such acquisition or merger such that it moves from one pricing bracket (after taking into account any organic growth that has taken place up to the time of such acquisition) to another (ie, small to medium; large to very large) described in the future pricing matrix listed above, the VGC shall be required to pay the
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difference between the license and support fee amount for the bracket applicable immediately prior to the acquisition or merger and the license and support fee for the larger bracket applicable after giving effect to the acquisition or merger.

Effect of Transfer:
If there is a transfer of a CoA from one VGA to another VGA which has a subscriber base which would move that license to another pricing bracket after taking into account any organic growth up to the time of such transfer (ie, small to medium; large to very large) described in the future pricing matrix listed above, then the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the transfer and the license and support fee for the new bracket.
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ANNEX B
 
CONTRACT OF ADHERENCE (CoA)
 

DATE: [__________________]

PARTIES:
 
(1)  
[ AName of VGC] whose registered office is at [AAddress] (“VGC”); and
 
(2)  
CHORDIANT SOFTWARE INTERNATIONAL INC. a corporation incorporated in the state of Delaware, USA whose registered office is at 20400 Stevens Creek Blvd., Suite 400, Cupertino, CA 95014, USA  (“SGC”)
 
together referred to as the “Parties” and each individually as a “Party”.
 
WHEREAS
 
(a)  
SGC is engaged in, amongst other activities, the development, manufacture and sale of Products and Services (as defined below);
 
(b)  
VGSL and the Supplier have entered into a Global Framework Agreement dated [ADecember  21, 2007] in relation to such Products and Services;
 
(c)  
VGC and SGC wish to enter into this Contract of Adherence in accordance with the terms of such Global Framework Agreement.
 
1.  
DURATION
 
This Contract of Adherence (“CoA”) shall come into effect on  __________, 200[ ] (“Effective Date”) and unless earlier terminated in accordance with the provisions of this CoA shall continue in force and effect for five years (the “Initial Period”). This CoA shall automatically continue until terminated by either Party giving at least six (6) Months’ prior written notice of such termination to the other Party, such notice not to expire sooner than the end of the Initial Period, unless earlier terminated in accordance with the provisions of this CoA (“Term”).
 
The terms and conditions in this CoA will continue to apply to any Purchase Order accepted by SGC prior to the effective date of the termination of this CoA, but will not apply to any Purchase Order accepted by SGC after such effective date.
 
2.  
PURPOSE
 
Following the Effective Date, SGC shall supply Products and Services to VGC in accordance with this CoA, including the Schedules as modified by any Special Conditions permitted under Clause 3 of Schedule 2 (GTCs).
CoA
1
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3.  
NOTICES
 
For the purpose of giving notices under this CoA, the details of the Parties are as follows:if to VGC:
 
[            ]
 
to the Supplier:
Chordiant Software, Inc.
20400 Stevens Creek Blvd.
Cupertino, CA 95014
Marked for the attention of: Director of Finance
Facsimile Number: [    ]
Copy to
Attn.: General Counsel
 
or such other details as a Party may notify to the other Party from time to time.
 
4.  
ENTIRE AGREEMENT
 
This CoA represents the entire understanding between the Parties in relation to its subject matter and supersedes all prior agreements and representations made by either Party, whether written or oral, except as set forth in the Special Conditions.
 
5.  
DEFINITIONS
 
All undefined terms appearing in this CoA shall have the meaning given to them in the Schedules attached hereto and incorporated herein.
 
AGREED by the Parties through their authorised signatories.
 

Signed/Date: .........................................................
Name:   ……………………………….............
Title:      ........................................................
For and on behalf of  Ainsert name of relevant Vodafone company]
Signed/Date: ........................................................
Name:   ………………………………………..
Title:      ........................................................
For and on behalf of Chordiant Software Inc.

 
Attachments:
 
Schedule 1: Contents of Special Conditions
 
Schedule 2: Global Terms and Conditions
 
Schedule 3: Global Products
 
Schedule 4: Global Services
 
Schedule 5: Global Price Book
CoA
2
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Schedule 6: Corporate Social Responsibility
 
Schedule 7: Currency Conversion Process
 
Schedule 8: Data Processing Agreement [OPTION]
 
Schedule 9: Source Code Escrow Agreement
 
Schedule 10: Local Attachments (if any)

CoA
3
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SCHEDULE 1
 
CONTENTS OF SPECIAL CONDITIONS

SGC and VGC have agreed to the following Special Conditions, which are permitted modifications to the CoA body and/or Global Attachments as described in Clause 3.1 of the GTCs and set forth below:
 

Permitted Modifications
CoA Reference (§)
Special Conditions
Modifications required in order for the CoA to comply with the laws and regulations affecting VGC
  
[Ainsert details – if any]
Modifications required in order for the CoA to comply with VGC’s governance policies and procedures
  
[Ainsert details – if any]
Modifications that have been specifically designated in the Global Attachments as matters that are to be agreed locally by SGC and VGC in the CoA (e.g. currency for payment, performance bond etc.)
  
[Ainsert details – if any]
Any agreement in place between SGC and VGC that is not superseded by this CoA
GTC §43 (Entire Agreement); CoA § 4
[Ainsert details – if any]
Local Attachments added to the CoA (e.g. Local Price Book, Local Specifications and Project Plans)
  
[Ainsert details – if any]
Modifications to the Global Attachments required by VGC for the purchase and deployment of a System or the implementation of a specific Project Plan and set forth in a Work Order or Local Attachment that specifically relates to such System or Project Plan
    

Special Conditions (Schedule 1 to CoA)
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SCHEDULE 2

GLOBAL TERMS AND CONDITIONS

FOR THE SUPPLY OF PRODUCTS AND SERVICES

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


Global Terms and Conditions
for the Supply of Product and Services

 
1.  
DEFINITIONS
 
1.1.  
In the CoA, unless the context otherwise requires, the following terms and expressions shall have the following meaning:
 

“Acceptance”
means final acceptance of Products and Services by VGC in accordance with the Acceptance Test Procedure and “Accepted” refers to Products and Services for which an Acceptance Certificate has been signed by VGC;
“Acceptance Certificate”
means a document signed by VGC certifying Acceptance of Products and Services;
“Acceptance Test Procedure”
means the process of measurement, examination and other activities required to verify that the Products and Services supplied or performed by SGC have been supplied or completed in accordance with the Specifications, such acceptance test procedure to be defined by VGC and agreed in writing by SGC and conducted by SGC with VGC witnessing, unless otherwise agreed;
“Affected Deliverables”
has the meaning given in Clause 11.2;
“Business Day”
means a normal working day in the country of VGC for which Products and Services are to be supplied, provided however that where the relevant country comprises more than one state or geographical area in which different normal working days apply, then “Business Day” shall mean a normal working day in such state or geographical area in which the relevant Delivery Address is located;
"Change Control Procedure"
means the change control procedure agreed upon in writing by VGC and SGC and set forth in a Local Attachment;
“Claim”
means, as the context requires, any actions, claims, demands, proceedings, losses, damages, costs, expenses and other liabilities of whatever nature (whether foreseeable or not) suffered, incurred or sustained, including court and legal costs assessed on a solicitor–client basis and other professional costs and expenses;
“Confidential Information”
means all financial, business and technical or other data and all other information (whether written, oral or in electronic form or on magnetic or other media) concerning the business and affairs of
GTCs for HW, SW, and Services (Schedule 2 to CoA)
1
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Party that the other Party obtains, receives or has access to as a result of the discussions leading up to, or the entering into, or the performance of, the CoA;
“Contract of Adherence” or “CoA”
means the CoA entered into by VGC and SGC, to which this Schedule 2 is attached and into which it is incorporated;
“Delivery Address”
means the address, and as applicable, the specific location (for example, room or shelter) to which Products are to be delivered or Services are to be performed (as the case may be), as specified in the relevant Purchase Order, as applicable;
“Delivery Date”
means the date on which the Products are to be delivered to the Delivery Address, as specified in the CoA or Purchase Order, as applicable;
“Development Work”
means the Products produced by SGC in the performance of development Services in accordance with the CoA, any Work Order or Purchase Order, as the case may be, as may be further described in Schedule 4-[Axx], including, as applicable, Specific Software, tools, logic, formats, file specifications, structures, explanations, flow charts, diagrams, data, sounds assets and other content, iconography, design documentation, artwork, sample packaging and other documents or items provided by SGC in relation to the development Services, including without limitation the associated Specifications;
"Documentation"
means instructional and operating manuals and other printed or electronic materials to be supplied by SGC to VGC in connection with the Products and Services a copy of which are attached as Annex 3 to the GFA.  Documentation shall also include the table of RTDS performance included in Part 3 of Schedule 3 hereto.
“Effective Date”
means in relation to a CoA, the date on which the CoA comes into effect as set out in the CoA;
“Escrow Agreement”
means the source code escrow agreement set out in Schedule 9;
“Force Majeure”
means any cause preventing a Party from performing any or all of its obligations which arises from or is attributable to acts, events, omissions or accidents beyond the reasonable control of the Party so prevented and as further defined in ClauseA29 (Force Majeure);
“Global Approval”
means approval of Products by VGSL after having conducted the process of measurement, examination and other activities set out in the Global Product Approval Procedure;
“Global
means the Schedules attached to the body of the CoA or
 
GTCs for HW, SW, and Services (Schedule 2 to CoA)
2
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Attachments”
incorporated by reference therein, as may be updated from time to time, excluding any Local Attachments;
“Global Price Book”
means the global price book agreed between Supplier and VGSL relating to the supply of Products and Services, as updated and reissued from time to time;
“Global Product Approval Procedure”
means the testing procedures whereby the Products are verified by VGSL for compliance with the Requirement Specifications;
“Global SLA”
means the Global Service Level Agreement agreed as part of the Support and Maintenance Services being provided by SGC as set forth in Schedule 4-[Axx];
“Global Specification”
means the detailed specification document prepared by Supplier and approved by VGSL specifying the functions to be performed by a Product (including the equipment on which it is to operate) based on the Requirement Specification;
“Global Terms and Conditions” or “GTCs”
means these global terms and conditions agreed by VGSL and Supplier for the supply of Products and Services, which form part of the CoA;
“Indemnified Party”
shall have the meaning given in Clause A28.1;
“Insolvency Event”
means that the Party concerned has become subject to a voluntary arrangement with its creditors (within the meaning of the Insolvency Act 1986) or (being a company) has become subject to an administration order or has gone into liquidation (otherwise than for the purpose of amalgamation or reconstruction) or an encumbrance has taken possession of, or a receiver has been appointed to, any of the property or assets of the Party concerned, or that the relevant Party has ceased, or threatened to cease to carry on business, or any similar event has occurred in any relevant jurisdiction;
“Installation”
means the Service of setting up, connecting, adjusting, testing and commissioning any Product to the VGC Network and “Installed” shall be construed accordingly;
“Integration”
means the interface and connectivity measures planned and combined by SGC to link the Products with other products, including system and products architecture, gap analysis, interface planning and system implementation;
“Intellectual Property Rights"
means:
 
(i) rights in, and in relation to, any patents, registered designs, design rights, trade marks, trade and business
 
GTCs for HW, SW, and Services (Schedule 2 to CoA)
3
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names (including all goodwill associated with any trade marks or trade and business names), copyright and related rights, moral rights, databases, domain names, semi-conductor and other, topography rights and utility models, and including the benefit of all registrations of, applications to register and the right to apply for registration of any of the foregoing items and all rights in the nature of any of the foregoing items, each for their full term (including any extensions or renewals thereof) and wherever in the world enforceable;
 
(ii) rights in the nature of unfair competition rights and to sue for passing off and for past infringement; and
 
 
(iii) trade secrets, confidentiality and other proprietary rights, including rights to know how and other technical information;
 
“Issued Property”
means all property provided to SGC by or on behalf of VGC under the CoA;
“Key Milestone”
means an important milestone agreed by VGC and SGC with respect to the supply of Products and Services, including by way of example, the Delivery Date, Ready for Acceptance, Ready for Installation or Ready for Service or any other such date agreed by the Parties from time to time;
“Licence”
means a licence to use the Software and Documentation, as applicable, granted by SGC under Clause 25 (Licences for Software and Documentation);
“Local Attachments”
means the Local Price Book, Local Specifications, Project Plans and any other schedules agreed by VGC and SGC in the CoA relating to Products and Services not otherwise specified in the Global Price Book;
“Local Price Book”
means the Prices for Products and Services that are not included in the Global Price Book and are requested to be supplied by SGC to VGC;
“Local Specifications”
means the specifications agreed by VGC and SGC for Products and Services that are not included in the Global Price Book, including any Requirements Specifications for such Products and Services;
“Modification”
means any change or amendment to any Products, whether:
 
(i) as a result of Development Work;
 
 
(ii) as an update, upgrade, or new release in accordance with  Support and Maintenance Services;
 
 
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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                            (iii) as a new version of the Product; or
 
                                  (iv) otherw ise;
 
“Month”
means a calendar month;
“Outsourcer”
means the Person with which VGC has entered into an outsourcing or facilities management services agreement;
“Party” and “Parties”
has the meaning set forth in the CoA;
“person”
includes any corporation, limited liability company, partnership, limited liability partnership, joint venture, joint stock company, trust, estate, company and association, whether organised for profit or otherwise;
“Price”
means the price for the supply of the Products and Services as set out in the Global Price Book or a Local Price Book, as applicable;
“Products”
means the Software products described in Schedule 3 (Global Products) and/or in the Global Price Book or Local Price Book, which are supplied by SGC to VGC under a Purchase Order including any Modifications thereto,  tools, Development Work and associated Documentation;
“Project Plan”
means the detailed written document prepared by SGC and approved by VGC specifying the timescales for the supply of Products and Services as set forth in a Local Attachment, Purchase Order as may be updated by the Parties from time to time;
“Purchase Order”
means a purchase order and where applicable, any Work Order, placed with SGC by VGC for any Products and Services, which shall be subject to and incorporate  the terms of the CoA, and when accepted by SGC forms a part of this CoA;
“RFA” or “Ready for Acceptance”
means that Products and Services are ready for VGC’s Acceptance Test Procedure, with all SGC’s internal tests finalised;
“RFI” or “Ready for Installation”
means the date by which SGC shall deliver the Products to VGC’s site ready for Installation of such Products;
“RFS” or “Ready for Service”
means Products have been installed and Accepted and are ready for commercial service;
“Relevant Event”
means any act or omission by VGC the effect of which is materially to prejudice the ability of SGC to perform its obligations under the CoA;
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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“Requirements Specification”
means:
 
(i) with respect to Products and Services in the Global Price Book, the  Documentation
 
 
(ii) with respect to Products and Services in the Local Price Book, the Documentation
 
“SGC”
has the meaning set forth in the CoA;
“Services”
means any services (including development services, Installation services, Integration services, the services of consultant programmers, training, testing services, Support and Maintenance Services, disaster recovery or other services) set out in Schedule 4 (Global Services), the Global Price Book, Local Price or Purchase Order, as applicable, including any associated Documentation provided with the Services;
“Software”
means software programs and adaptations, new releases and enhancements of or additions thereto and sound assets and other content, in each case that has been developed or licensed by SGC and embedded or otherwise used in the Products, including Standard Software, Specific Software and the associated Documentation;
“Special Conditions”
has the meaning set forth in Clause 3.2;
“Specific Software”
means that part of the Software which is the result of Development Work, including any Modification thereto and associated Documentation;
“Specifications”
means collectively the Requirements Specifications, Global Specifications and, where applicable, the Local Specifications;
“Standard Software”
means Supplier’s standard Software and any Third Party Standard Software (including Modifications thereto and associated Documentation) that is or could be offered by SGC to customers generally;
“Supplier”
means Chordiant Software Inc;
“Support and Maintenance Services”
means the support and maintenance services for the Products, as described in Schedule 4-[Ax] hereto;
“Supplier Group Company”
means Supplier and any company or corporation in respect of which Supplier’s ultimate holding company owns (directly or indirectly) more than fifty (50)% of the issued share capital;
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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“System”
means a combination of Products and Services which are integrated and operate together in the VGC Network and which are subject to Acceptance as a “system” according to a Project Plan or Work Order;
“Term”
shall have the meaning set forth in Clause 1 of the CoA;
“Third Party Standard Software”
means that part of the Software being licensed to SGC by a third party and that is offered to customers generally and has not been customized to meet specific VGC requirements or otherwise created as part of Development Work;
“VAT”
means Value Added Tax or any analogous tax in any relevant jurisdiction including but not limited to use, sales and local sales taxes of any kind;
“Vodafone Group Company”
means Vodafone Group Plc, Vodafone Group Services Limited and each person in respect of which Vodafone Group Plc owns (directly or indirectly) more than fifteen (15)% of the issued share capital;
“Vodafone Code of Ethical Purchasing”
means the Vodafone Code of Ethical Purchasing and Business Principles, the current versions of which are set out in Schedule 6, as may be amended by VGC from time to time upon reasonable notice to SGC;
“Vodafone Marks”
means the trademarks, trade names, brand or other proprietary words or symbols used by any Vodafone Group Company from time to time;
“VGC”
has the meaning set forth in the CoA;
“VGC Network”
means the digital cellular radio telephone network, information technology network, business systems and ancillary systems operated by VGC; and
“Work Order” or “SOW”
means a work order or statement of work in such form as the Parties may agree from time to time that describes Development Work or other Services to be performed by SGC for VGC, and when completed and signed by the Parties forms a part of this CoA.
 
1.2.  
Any terms otherwise undefined in this Schedule 2 (GTCs) shall have the meaning given to them elsewhere in the CoA.
 
2.  
APPOINTMENT
 
2.1.  
VGC appoints SGC as a non-exclusive supplier to VGC of products and services for the Term of the CoA. SGC has agreed to undertake the supply of Products and Services to VGC for the Term of the CoA according to the terms and conditions in the CoA.
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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2.2.  
Unless the Parties agree otherwise, nothing in the CoA shall alter or affect the terms and conditions under which SGC supplies Products and Services ordered by VGC prior to the Effective Date of the CoA.
 
3.  
SPECIAL CONDITIONS
 
3.1.  
The Parties may modify the CoA body and the Global Attachments if requested by VGC but only with respect to the items specifically listed below:
 
3.1.1.  
modifications required in order for the CoA to comply with the laws and regulations affecting VGC but only to the extent required for compliance;
 
3.1.2.  
modifications required in order for the CoA to comply with VGC’s corporate governance policies and procedures but only to the extent required for compliance;
 
3.1.3.  
modifications that have been specifically designated in the Global Attachments as matters that are to be agreed locally by SGC and VGC in the CoA (e.g. currency for payment, performance bond);
 
3.1.4.  
any non-disclosure agreement in place between SGC and VGC that is not superseded by this CoA;
 
3.1.5.  
Local Attachments added to the CoA (e.g. Local Price Book, Local Specifications and Project Plans); and
 
3.1.6.  
modifications to the Global Attachments required by VGC for the purchase and deployment of a System or the implementation of a specific Project Plan and set forth in a Work Order or Local Attachment that specifically relates to such System or Project Plan.
 
3.2.  
If the Parties agree to make any of the modifications listed in Clause 3.1, the agreed changes will be set out in a written document signed by the Parties substantially in the form of Schedule 1 (Contents of Special Conditions) (the “Special Conditions”).
 
4.  
PURCHASE ORDERS
 
4.1.  
After the Effective Date of the CoA, VGC may issue Purchase Orders for Products and Services to be supplied by SGC under the terms of the CoA.
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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4.2.  
SGC shall accept all Purchase Orders issued in accordance with the CoA.
 
4.3.  
VGC shall be under no obligation to issue any Purchase Orders or to purchase any minimum volume of, or particular category of, Products or Services.
 
4.4.  
All Purchase Orders placed by any VGC shall be subject to the terms and conditions of the CoA.
 
4.5.  
The Parties agree that neither the pre-printed standard terms of supply of SGC nor the pre-printed standard terms of purchase of VGC shall apply to any Purchase Order.
 
4.6.  
Up toAfourteen (14) Business Days prior to the scheduled Delivery Date, VGC may vary the Products and Services specified in a Purchase Order at no additional cost to VGC.
 
4.7.  
Within theAfourteen (14) Business Days prior to the scheduled Delivery Date set out in the Purchase Order, VGC may vary the Products and Services set out in a Purchase Order at no additional cost to VGC except those additional direct costs incurred by SGC and agreed by VGC that are the direct result of VGC’s variation to the Purchase Order. In claiming any additional costs, SGC shall demonstrate to VGC’s reasonable satisfaction that the Products and Services cannot be used in fulfilling SGC’s obligations under other Purchase Orders issued by VGC or for such Purchase Orders as may be reasonably anticipated to be issued by VGC (considering the nature of the VGC Network).  For the purposes of this Clause, SGC shall be allowed to seek reimbursement from VGC for services actually performed at the rate previously agreed between VGC and SGC.  SGC agrees to take all reasonable steps in order to minimize the costs associated with any variation of a Purchase Order.
 

 
5.  
PRICE
 
5.1.  
The Prices of Products and Services shall be set forth in the Purchase Order and calculated in accordance with the Global Price Book, the Local Price Book or as otherwise agreed by the Parties (if not specified in either the Global Price Book or Local Price Book); no additional prices or charges shall be payable by VGC for Products and Services.
 
5.2.  
The Price shall be inclusive of:
 
5.2.1.  
delivery of the Products and Services DDP to the Delivery Address (in accordance with Incoterms 2000);
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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5.2.2.  
any costs relating to the transfer and delivery of the Products and Services (including any information) to VGC, including insurance in transit, commissions and any export or import licences;
 
5.2.3.  
any licence or other fees paid to third parties for products and services used by SGC in the development or supply of Products and Services for or to VGC, unless there has been prior written agreement on a separate charge for such fees;
 
5.2.4.  
any costs and expenses to supply the Products and Services and perform the Services, including charges for legal and regulatory compliance, performance bonds, telephone, utilities, testing, inspection and SGC resources, as applicable; and
 
5.2.5.  
any costs for SGC accommodation, travel and subsistence unless otherwise specified in the Purchase Order.
 
5.3.  
During the Term of the CoA, no increase in the Price may be made (whether on account of increased material, labour or transport costs, fluctuation in rates of exchange or otherwise). After a Purchase Order has been accepted, there shall be no increase in the Prices included in that Purchase Order.
 
5.4.  
  
 
[ * ]
 

 
6.  
TAXES AND DUTIES

VAT:
 
6.1.  
The Price shall be inclusive of all duties, levies or any similar charges.
 
6.2.  
If VAT is chargeable in respect of any amount payable hereunder, the Supplier shall provide VGC with a valid invoice that meets all requirements imposed by the relevant taxation authorities and which specifically states this tax and meets all further conditions necessary to allow VGC to obtain relief from such tax if a relief procedure is available (“Tax Invoice”).  Provided VGC is in receipt of a Tax Invoice, VGC will pay to the Supplier the VAT properly chargeable in respect of that payment, in accordance with the payment terms in Clause 7 (Invoicing and Payment).
GTCs for HW, SW, and Services (Schedule 2 to CoA)
10
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6.3.  
VGC reserves the right to withhold payment of any taxes to the Supplier until the Supplier has provided VGC with a Tax Invoice and such other further information as VGC may reasonably request.
 
6.4.  
Where any relevant taxation authority determines that VAT is chargeable in whole or in part in respect of any amount payable hereunder, notwithstanding the treatment by the Supplier of any supply to VGC to the contrary, the Supplier shall hold harmless and indemnify VGC against any and all costs, charges, VAT and penalties arising save to the extent that VGC is (acting reasonably) able to recover such amounts from the applicable authorities.
 
6.5.  
If the Supplier has incorrectly determined the amount of VAT chargeable to VGC, then the invoice shall be corrected and where VGC has:
 
6.5.1.  
overpaid any amount, the Supplier will repay this amount to VGC plus interest and any related costs and shall also provide VGC with a correcting invoice or credit note for an amount equal to the overpayment made by VGC; and
 
6.5.2.  
paid less than the correct amount, VGC shall pay the outstanding amount to the Supplier upon receipt of a valid Tax Invoice.
 
Both payments under Clauses 6.6.1 and 6.6.2 shall be made within thirty (30) days of being so notified. For the avoidance of doubt VGC shall not meet the cost of any penalties, interest or other charges arising from the incorrect VAT treatment by the Supplier of any supply made hereunder.
 
Withholding Tax:
 
6.6.  
The Price shall be paid without set-off, counterclaim or required withholding or deduction unless prohibited by any applicable law.  In the event that a withholding tax or deduction is required by applicable law to be paid by VGC in respect of the Price, VGC will pay the Price net of the required withholding or deduction to the Supplier.  VGC will supply to the Supplier evidence to the reasonable satisfaction of the Supplier that VGC has accounted to the relevant authority for the sum withheld or deducted and will provide all such assistance as may be requested by the Supplier in recovering the amount of the withholding.  In the event that a double taxation treaty applies which provides for a reduced withholding tax rate, VGC shall only withhold and pay the reduced tax on behalf and for the account of the Supplier if an appropriate exemption certificate is issued by the competent tax authority.
 
6.7.  
If VGC, in good faith, pays the Price to the Supplier without set-off, counterclaim, or required withholding or deduction and a subsequent audit identifies that a withholding or deduction should have been made from the Price, the Supplier shall be liable to pay this withholding or
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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deduction to the relevant authority together with any interest and penalties due thereon.
 
Warranty on Tax Residency:
 
6.8.  
The Supplier warrants and undertakes to VGC that it is tax resident in country of the Supplier and shall be deemed to remain tax resident in that territory unless it notifies VGC of a change of tax residency on thirty (30) days’ prior written notice.  In the event that the Supplier changes tax residency, the Supplier shall immediately provide any documentation required by VGC evidencing its tax residency in such territory.
 
6.9.  
In the event that VGC is not reasonably informed of a change in tax residence by the Supplier, the Supplier will indemnify VGC against any resulting costs, including but not limited to withholding tax, interest and penalties thereon.
 
7.  
INVOICING AND PAYMENT
 
7.1.  
Invoicing
 
7.1.1.  
SGC may invoice VGC for the Price of Products:
 
7.1.1.1.  
in the case of a Products subject to Acceptance, one hundred (100)% upon Acceptance of the Product; and
 
7.1.1.2.  
in the case of a Product not subject to Acceptance, one hundred (100)% upon actual delivery of the Product conforming to the relevant Purchase Order to the Delivery Address, as evidenced by VGC’s written notice of receipt.
 
7.1.2.  
SGC may invoice VGC for the Price of Services:
 
7.1.2.1.  
in the case of a Service not subject to Acceptance, one hundred (100)% for Services performed.  Services performed on a time and materials basis will be invoiced on a monthly basis;
 
7.1.2.2.  
in the case of a Service resulting in the production of Development Work, in accordance with the payment milestones set out in the Purchase Order or, if no payment milestones agreed, then 100% for Services performed. Services performed on a time and materials basis will be invoiced on a monthly basis; and
 
7.1.2.3.  
in the case of Support and Maintenance Services or other Services provided on an annual basis, 100
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(100)% of the annual Price of the Service at the commencement of the annual Support period.
 
7.2.  
Invoice Format
 
7.2.1.  
All invoices duly issued by SGC and sent to VGC at the address designated in the CoA or Purchase Order shall:
 
7.2.1.1.  
state the VGC Purchase Order number(s) to which the invoice relates; and
 
7.2.1.2.  
attach a copy of the corresponding Acceptance Certificate(s) as signed by VGC, if applicable.
 
7.2.2.  
Invoices shall be issued no more frequently than once per Month.
 
7.3.  
Payment Period
 
VGC shall pay all invoices issued in accordance with Clauses 7.1 and 7.2 not later than [ * ] calendar days after the date of receipt of the invoice by VGC, or such other date as may be agreed between the Parties and stated in the relevant Purchase Order.
 
7.4.  
Method of Payment
 
All payments shall be by BACS (Banking Automated Clearing System), electronic transfer of funds or such other means as SGC and VGC may agree.
 
7.5.  
Currency
 
All payments shall be made and all credits shall be given in Euros unless otherwise specified in the Special Conditions. If another currency is used for payment, the Parties agree to use the currency conversion process specified in Schedule 7 (Currency Conversion Process).
 
7.6.  
Late Payment
 
If any payment from a Party becomes properly due under the CoA and remains unpaid after its due date, such unpaid amount shall carry interest at the rate of EURIBOR + 0.5% from the day after the date on which the payment was due until the date payment is actually received in full, where “EURIBOR” shall mean the rate for borrowing in Euros from banks for periods of one (1) Month, compounding as necessary, for the relevant period which appears on Telerate, Page 248, or such page as may replace it from time to time.
 
7.7.  
Invoice Disputes
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VGC may withhold from payment that part of any invoice which it disputes until the dispute is resolved in SGC’s favour. If it is established to the reasonable satisfaction of the Parties that an invoice has been rendered improperly or at the incorrect time, SGC shall promptly issue a credit note and a corrected invoice.
 
7.8.  
Set Off
 
VGC may set off and withhold against invoiced amounts any debt or sum owing to VGC by SGC in connection with any Purchase Order.
 
8.  
PACKING
 
SGC shall ensure that the packing of any Product contains clearly identifiable and proper markings (consistent with VGC’s written instructions, applicable industry standards and relevant laws). SGC’s packing of any Product shall be secure and tamper proof so as ensure that such Product reaches the relevant Delivery Address in an undamaged condition.
 
9.  
DELIVERY
 
9.1.  
SGC shall deliver the Products and Services DDP (in accordance with the Incoterms 2000) on the relevant Delivery Date during normal working hours to the Delivery Address. At VGC’s option, Software Products shall be delivered electronically.
 
9.2.  
The Products shall be accompanied by a delivery schedule listing all Products contained in such delivery.
 
9.3.  
SGC shall obtain at its own expense any import and export licences required for the supply of Products and Services to VGC.
 
10.  
PERFORMANCE OF SERVICES
 
10.1.  
SGC shall perform the Services for VGC subject to the terms and conditions of the CoA and the relevant Purchase Order.
 
10.2.  
All Services shall be provided by SGC until completed except as follows:
 
10.2.1.  
Any Services in respect of which a fixed or limited period has been agreed shall be provided by SGC for the period specified in the relevant Purchase Order (subject at all times to any rights of prior termination).
 
10.2.2.  
Any continuing Services in respect of which an indefinite period has been agreed shall be performed by SGC until terminated in accordance with the relevant Purchase Order.
 
10.3.  
Support and Maintenance Services
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SGC shall provide support and maintenance Services for the Products according to the terms set forth in the Global SLA Schedule 4and the relevant Purchase Order.
 
10.4.  
Outsourcing
 
10.4.1.  
VGC shall be entitled to appoint an Outsourcer to run or host the Software for VGC’s benefit for the purpose of VGC’s internal business use upon prior written notice to SGC. The notice shall indicate the name and location of the Outsourcer. The Parties agree that:
 
10.4.1.1.  
nothing in the CoA shall prevent VGC from changing Outsourcer provided that the provisions of this Clause 4 are complied with;
 
10.4.1.2.  
VGC’s use of any Outsourcer will not alter VGC’s obligations under the CoA, and VGC will be liable for all acts or omissions of Outsourcer as if such acts or omissions were the acts or omissions of VGC, and a breach by Outsourcer of the terms of the CoA shall be deemed a breach by VGC of the terms of the CoA;
 
10.4.1.3.  
use of any Outsourcer shall not be construed as an assignment, sublicense or novation of the rights under the CoA to Outsourcer; and
 
10.4.2.  
VGC's use of any Outsourcer shall not release VGC from its obligations under the CoA.
 
11.  
 [INTENTIONALLY OMITTED]
 
11.1.  
  
 
12.  
TITLE AND RISK
 
12.1.  
Notwithstanding any trade terms (including Incoterms) to the contrary in Clauses 5 (Price) and 9 (Delivery), SGC shall bear all risk of loss or damage to the Products until Acceptance of the Products or, in the case of Products not subject to Acceptance, until delivery of the Products to VGC’s Delivery Address.
 
12.2.  
Title to Standard Software shall not pass to VGC but shall remain vested in SGC or the relevant third party licensor subject to the Licences granted pursuant to Clause A25 (Licences for Software and Documentation).
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13.  
 [INTENTIONALLY OMITTED]
 
14.  
PROJECT MANAGEMENT AND PROGRESS REPORTS
 
14.1.  
At no additional cost to VGC, SGC shall appoint at least one project manager to supervise the carrying out of SGC’s obligations in accordance with the CoA and each Project Plan, as applicable.
 
14.2.  
SGC shall not change its project manager without notifying VGC in writing in advance of the change. VGC shall be entitled to request, and SGC shall comply with such request, to remove and replace the project manager.
 
14.3.  
The details of project management, key members of the project team and progress reports shall be set out in a written document agreed by the Parties, such as the Project Plan.
 
15.  
 [INTENTIONALL OMITTED]
 
16.  
ACCEPTANCE OF PRODUCTS AND SERVICES
 
16.1.  
Except as may be otherwise specifically required by VGC, VGC’s Acceptance of Products and Services shall be subject to the Acceptance Test Procedures (ATP), if any, agreed in writing between SGC and VGC as described in the CoA and/or in a separate written document signed by both Parties.  In the absence of agreed ATPs for a Product or Service, Products and Services will be deemed accepted upon delivery.
 
16.2.  
The Acceptance Test Procedure for all Products and Services shall be at SGC’s cost, including equipment, preparations, demonstrations, testing and labour. Faults detected during such ATP shall be classified, prioritized and cleared by SGC in accordance with the ATP. VGC’s decision on fault priority classification is final.
 
16.3.  
SGC shall give to VGC at least ten (10) Business Days’ notice in writing of any ATP, and VGC shall be permitted at any time to witness and participate in ATPs.
 
16.4.  
SGC shall provide at no cost to VGC the complete test environment for the ATP and any SGC resources required for such testing at a location to be agreed by VGC.
 
16.5.  
Where requested by VGC, SGC shall perform technical demonstrations and/or trials, at no cost to VGC subject to a mutually agreed schedule of technical parameters. Where possible, such technical demonstrations and trials shall be performed as part of a joint activity with other VGCs, at a location agreed by VGC.
 
16.6.  
Notwithstanding the foregoing, SGC and VGC may agree that SGC may  deliver Products, Services, maintenance, and/or training to VGC that are not subject the Global Product Approval Procedure and the VGC
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Acceptance Test Procedure.  In such cases, the Products, Services, maintenance, and/or training will be deemed Accepted upon Delivery.
 
17.  
[INTENTIONALLY OMITTED]
 
18.  
INTERFACES
 
18.1.  
SGC shall provide to VGC without charge full details and a Licence to use all interfaces in the Products and changes thereto, including open and proprietary interfaces, for the purpose of enabling VGC and its third party suppliers to interface with the Products. SGC shall be responsible for the accuracy of any interface information supplied. SGC shall provide reasonable prior written notice of any change to any Product interfaces.
 
18.2  SGC shall ensure that there is no loss of functionality or performance of the Products due to any Modifications in the Products.
 
19.  
WARRANTIES
 
19.1.  
Each Party warrants and represents that it has the right, power and authority to enter into the CoA and carry out its obligations in relation to the supply of Products and Services hereunder.
 
19.2.  
SGC warrants and represents that it has obtained and will maintain all permissions, licences and consents necessary for SGC to supply the Products and Services in accordance with the CoA.
 
19.3.  
SGC warrants and represents that the use, possession, marketing or selling of the Products and Services do not and will not infringe the rights (including Intellectual Property Rights) of a third party.
 
19.4.  
SGC warrants and represents that the Products shall:
 
19.4.1.  
comply with all applicable Documentation;
 
19.4.2.  
be fit for any purpose held out by SGC in the Documentation or agreed in writing in an agreement or amendment signed by the Parties;
 
19.4.3.  
not be detrimentally affected by the processing of any data involving dates;
 
19.4.4.  
comply with all laws and regulations applicable to SGC and VGC.
 
19.4.5.  
comply with the requirements of the General Product Safety Directive 2001/95/EC, any applicable implementing legislation and any relevant applicable local standards or guidelines (as updated, reissued and implemented from time to time).
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19.5.  
SGC warrants and represents that the Software supplied hereunder shall be free from all viruses, disabling programs or devices (each a “Virus”). In the event of a Virus in the Software, then in addition to other rights and remedies available to VGC under this CoA, SGC shall eliminate the Virus and mitigate any loss of operational efficiency or loss or corruption of data caused by the Virus or its elimination.
 
19.6.  
SGC warrants and represents that the Services shall be:
 
19.6.1. performed by adequate numbers of appropriately qualified and trained personnel, with due care and diligence and to such high standard of quality as it is reasonable for VGC to expect in all the circumstances;
 
19.6.2. compliant with all laws and regulations applicable to SGC, the Services and SGC’s obligations under the CoA; and
 
19.6.3.  comply with all Specifications for the Services agreed between SGC and VGC.  
 
19.7.1  As part of Support and Maintenance Services, Supplier shall promptly make available to VGC all modifications, updates, enhancements, corrections and new versions of the Standard Software when and if made generally available in its sole discretion (collectively, “Updates”).  Supplier will support each current version or Update of the Software for a period of two years, beginning on the date the Update is made generally available (“GA”) to Supplier’s customers, in accordance with the provisions of Schedule 4.  For a period of one year thereafter, Supplier will continue to support such Update using commercially reasonably efforts without reference to the response times set forth in Schedule 4.  Notwithstanding its actual GA date, the initial version of the Standard Software that is initially delivered to VGC will be supported for a period of two years from the date of delivery and then one additional year thereafter.   Additionally, Supplier will support each current version or Update of the Software for a period of [ * ] after the date that the subsequent Update is made generally available (“GA”) to Supplier’s customers, in accordance with the provisions of Schedule 4

 
19.7.2  Update shall not include any release, option or future product that Supplier licenses separately; however, an Update shall include any subsequent release, version, update or upgrade of the Standard Software that repackages or re-brands the same functionality of the Standard Software as a separately licensed product. Regardless of the name that is used for the Standard Software.  Additionally, an Update shall not reduce the functionality existing within the licensed Standard Software.  Supplier will not seek to remove or materially reduce functionality from an Update by repacking such Updates as ‘new Products and Services’ such as to require VGC to acquire such Updates for additional license fees or cost beyond payment of the support fees in accordance with the terms of this CoA. 
 
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Supplier will provide Updates for the Standard Software as and when developed for general release in Supplier’s sole discretion. 
 
 

 
19.8  SGC warrants and represents that all Documentation provided and training given to VGC, its employees and designated third parties shall provide adequate instruction to enable VGC, its sub-contractors and distributors to make full and proper use of the Products. All Documentation and training shall be provided in English unless otherwise agreed in the CoA or otherwise as is required by the laws affecting VGC. In the event that VGC detects an error or omission in any Documentation or Training, SGC shall at no additional cost promptly correct the error or omission.
 
19.9Breach of Warranty for Products and Services
 19.9.1  Without prejudice to any other remedies available to VGC under the CoA or otherwise, SGC undertakes at its own cost and risk to correct any Software Products which fail to comply with any part of the warranty described in Section 19.4 above during a period of [ * ] from the Delivery Date or (where applicable) Acceptance (whichever is later).  SGC shall ensure that any corrected Software shall comply with the Specifications and match the original faulty Software in all respects except the fault itself.  Provided that VGC gives SGC written notice of a breach of the foregoing warranty during the warranty period, SGC shall, correct any reproducible errors that cause the breach of the warranty or if SGC is unable to make the Software operate as warranted within 90 days of notification, VGC shall be entitled to terminate its license for such Software Products and recover the fees paid to SGC for such license. 

 

 
19.9.2  SGC shall ensure that all corrections are carried out within the agreed response and resolution times set forth in the in Schedule 4.
 
19.9.3  Services. Without prejudice to any other remedies available to VGC under the CoA or otherwise, if in VGC’s discretion any Services are found to be in breach of Section 19.6 the first 90 days after performance or (where applicable) Acceptance, then VGC shall be entitled at its own option to require SGC within  5 Business Days, to:
 
19.9.4.1perform those Services again; or
 
19.9.4.2  
provide such additional Services as shall be necessary to make good the fault.
 
19.6.4.  
19.9.5 If Supplier is unable to make good the fault after notice and a reasonable opportunity to remedy the situation, then Supplier will pay VGC all costs incurred by VGC in obtaining such Services from a third party at the SGC’s cost Provided that VGC gives SGC written notice of a
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 breach of the foregoing warranty during the warranty period, SGC shall, correct any reproducible errors that cause the breach of the warranty or if SGC is unable to rectify the problem within 90 days of notification, VGC shall be entitled to terminate its right to use the Development Work associated with such Services and recover the fees paid to SGC for such Services. 
 
19.10Extension of Warranty
 
19.10.1The period of the warranties set out under Clause 19.10 shall be extended by a period equal to the period the Products, Services or that portion thereof in which a defect or failure to which this Clause 19 applies cannot be used by reason of that defect.
 
19.10.2  Replaced Products shall carry a warranty on the same terms as set out in Clause 19.10 equal to the unexpired period of the original warranty or 12 Months, whichever is longer.  Re-performed Services shall carry a warranty on the same terms as set out in Clause 19.10 equal to the unexpired period of the original warranty or 3 Months, whichever is longer.
 

 
[ * ]
 
19.11 The warranties and remedies set forth in this Clause 19 shall be without prejudice to VGC’s other rights and remedies under the CoA or provided by law or in equity.
 
20.  
ISSUED PROPERTY
 
20.1.  
Issued Property, if any, shall remain the property of VGC and shall be used only for the purposes of the CoA and for no other purpose whatsoever without the prior written consent of VGC. SGC shall at its own expense be responsible for the safe custody of Issued Property.
 
20.2.  
Issued Property shall be returned to VGC in good condition at SGC's expense on termination of the CoA, any relevant Purchase Order (however terminated) or on earlier written demand. Furthermore:
 
20.2.1.  
SGC shall comply with VGC's reasonable directions for the return of Issued Property and shall not claim any lien over Issued Property.
 
20.2.2.  
Carriage of Issued Property shall be at VGC's direction and shall not be subject to any handling charge by SGC.
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21.  
SOURCE CODE ESCROW
 
21.1.  
SGC undertakes to promptly enter into a source code escrow agreement for the Software with VGC or VGSL, as specified by VGC, substantially in the form of the Escrow Agreement. Unless otherwise agreed, SGC will enter into the Source Code Escrow Agreement no later than thirty (30) days after the Effective Date of the CoA.
 
21.2.  
SGC additionally undertakes to procure that the Escrow Agent (as defined in the Escrow Agreement) executes the Escrow Agreement.
 
22.  
DATA PROTECTION AND LAW ENFORCEMENT
 
 
22.1
SGC shall during the term of this CoA comply with all applicable laws, regulations, regulatory requirements and codes of practice in connection with its processing of personal information pursuant to this CoA, including without limitation, by complying with the Data Protection Directive (together, the "Data Protection Laws") applicable to a controller of that personal information and shall not do, or cause or permit to be done, anything which may cause or otherwise result in a breach by VGC of the same.
 
22.2  
SGC agrees that where the provision of any Services under a Purchase Order will result in the processing of any personal information by SGC on behalf of VGC, SGC shall:
 
 
24.2.1
enter into a data processing contract with VGC in the form of that attached as Schedule 8 (Data Processing Agreement) prior to the commencement of any processing of such personal data; and
 
 
24.2.2
process all VGC personal data only pursuant to and in accordance with such processing contact.
 
22.3  
SGC shall be liable for and shall indemnify VGC and hold VGC harmless against any and all claims, actions, liabilities, losses, damages and expenses (including legal expenses) incurred by VGC which arise directly or indirectly out of or in connection with SGC’s breach of its obligations pursuant to Clauses 22.1 and 22.2, including without limitation those arising out of any third party demand, claim or action, or any breach of contract, negligence, fraud, wilful misconduct, breach of statutory duty or non-compliance with any part of the Data Protection Laws by SGC or SGC’s personnel.
 
 
22.4
For the purposes of Clauses 22.1 to 22.3, the term “Data Protection Directive” shall mean Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (Official Journal L 281, 23/11/1995 P. 0031 – 0050), “controller”, “personal data” and “processing” shall have the meanings ascribed to these terms in the Data Protection Directive, and the term
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“personal information” shall mean personal data and any information identifying, directly or indirectly, a VGC’s customers, users or employees, including their mobile number, MSISDN or IMSI, and information that could reasonably be related to such identifying information.
 
 
22.5
SGC agrees and acknowledges that VGC may be legally required to provide assistance to Law Enforcement Authorities in respect of the detection, investigation, prosecution or prevention of crime, including the carrying out of lawful interception and complying with disclosure obligations. Accordingly, SGC agrees that it shall provide the following assistance to VGC and each relevant Vodafone Group Company:
 
 
22.5.1
implement and maintain such interception capability in accordance with VGC’s requirements where VGC is obliged by Applicable Law to ensure or procure that such capability is implemented and maintained;
 
 
22.5.2
implement and maintain such data retention capability in accordance with VGC’s requirements where VGC is obliged by Applicable Law, to ensure or procure that such capability is implemented and maintained;
 
 
22.5.3
retain such data on the use of the Services by VGC’s customers (including without limitation data referring to the routing, duration, time or volume of a communication, the protocol used, the location of the terminal equipment of the sender or recipient, the network on which a communication originates or terminates and the beginning, end or duration of a connection) as VGC may require in order to comply with Applicable Laws regarding the retention or preservation of data;
 
 
22.5.4
implement and maintain such customer identification procedures in accordance with VGC’s requirements where VGC is obliged by Applicable Law to ensure or procure that such procedures are implemented and maintained; and
 
 
22.5.5
provide such other assistance as is necessary to enable VGC to comply with requests for assistance from Law Enforcement Authorities, under Applicable Law, including (but not limited to) the carrying out of interception of communications and the performance of disclosure obligations.
 
 
22.6
In respect of any assistance provided by SGC pursuant to Clause 22.5.5, SGC agrees to ensure that any requests for assistance from Law Enforcement Authorities, and the details of any assistance provided and all information connected with such requests is treated with the highest level of confidentiality and secrecy. In particular, it shall procure that:
 
 
22.6.1
only nominated individuals who are permanent employees of SGC and who are notified and agreed in advance with VGC
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are made aware of such requests and information connected with such requests;
 
 
22.6.2
such nominated individuals are legally bound by, and notified of, confidentiality and secrecy obligations in respect of all information concerning law enforcement assistance, including (without limitation) surveillance targets, frequency of requests or the details of any information provided; and
 
 
22.6.3
any information acquired in the course of assisting with such requests shall be used solely upon VGC’s instructions and solely for the purpose of providing assistance under Clause 22.5.1.
 
 
22.7
In respect of any data retained in accordance with Clause 22.5.3, SGC agrees that such data is the confidential and proprietary information of VGC and shall be processed in accordance with Clauses 22.1 to 22.4.
 
 
22.8
In the event that SGC receives a request for assistance from a Law Enforcement Authority in respect of Services provided pursuant to this CoA, other than pursuant to Clause 22.5 in respect of which it is legally bound to provide such assistance, SGC shall, to the extent permitted by law, inform VGC of such request and provide such details as VGC may require.
 
 
22.9
In Clauses 22.5 to 22.8 the term “Applicable Law” means the relevant law applicable to VGC and/or each Vodafone Group Company and “Law Enforcement Authority” means any law enforcement authority, governmental agency or other authority responsible for safeguarding national security, defence, or the prevention, investigation, detection and prosecution of crime, which has jurisdiction in the relevant territory.
 
22.10
The VGC shall reimburse any reasonable costs of SGC where SGC can demonstrate that the requirements under Clause 22.5 require SGC to bear either capital or operating costs over and above those costs SGC would, but for the specific requirements of Clause 22.5, have been likely to incur.
 
23.  
TERMINATION, CANCELLATION AND POSTPONEMENT
 
23.1.  
Either Party (in this paragraph the "terminating Party") shall be entitled to terminate a CoA, a Purchase Order, in whole or in part, as applicable, with immediate effect by giving written notice to the other Party (in this paragraph the "breaching Party") at any time if:
 
23.1.1.  
the breaching Party breaches any other material provision of the CoA, Purchase Order and (in the case of a breach capable of remedy) fails to remedy the breach within thirty (30) days after receiving written notice from the terminating Party requiring it to do so; or
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23.1.2.  
the breaching Party becomes subject to an Insolvency Event; or
 
23.1.3.  
the breaching Party (in the case of SGC) ceases to be a Supplier Group Company or (in the case of VGC) or ceases to be a Vodafone Group Company or Partner Network (in the case of VGC); or
 
23.1.4.  
anevent detailed in Clause A29 (Force Majeure) gives rise to a right to terminate as described in Clause A29.
 
23.2.  
VGC shall be entitled to terminate the CoA, a Purchase Order, in whole or in part, as applicable, with immediate effect and without liability to SGC at any time if there is a Change in Control of SGC where “Control” means, in relation to a body corporate, the power of a person to secure that its affairs are conducted in accordance with the wishes of that person:
 
23.2.1.  
by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate; or
 
23.2.2.  
by virtue of any powers conferred by the articles of association or any other document regulating that or any other body corporate,
 
and a "Change in Control" shall occur if a person who controls any company or undertaking ceases to do so, or if another person acquires control of it.
 
23.3.  
VGC may terminate this CoA upon (12) Months’ notice in writing to SGC at any time during the Term, such notice to take effect on or after the 1st anniversary of the Effective Date.
 
23.4.  
VGC shall have the right, without additional cost, to cancel a part or all of the Products and Services in a Purchase Order by giving written notice to SGC at any time up to ten (10) Business Days before the Delivery Date or under the circumstances otherwise specified in the CoA.
 
23.5.  
SGC shall, within twenty (20) Business Days of receiving written notice from Vodafone Group Services Limited or Supplier (whichever is earlier) informing it that either
 
23.5.1.  
VGC is no longer a Vodafone Group Company; or
 
23.5.2.  
where VGC is a Partner Network, VGC has ceased to be a Partner Network
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terminate the CoA with immediate effect by giving written notice to VGC.  For the avoidance of doubt nothing in this Clause [23.5] shall preclude SGC from supplying the said former VGC in the future.
 
24.  
EFFECT OF TERMINATION
 
24.1.  
On termination of a CoA:
 
24.1.1.  
all materials of either a Party in the control of possession of the other Party that contain or bear the other Party’s Intellectual Property Rights or Confidential Information shall be destroyed or at the request of such Party returned to that Party; and
 
24.1.2.  
any Licenses granted to VGC pursuant to the CoA shall survive such termination, subject to payment in full for such Licenses; and
 
24.1.3.  
all other rights and obligations of the Parties under the CoA shall automatically terminate save for such rights and obligations as shall have accrued prior to such termination and any rights or obligations which expressly or by implication are intended to come into or continue in force on or after such termination pursuant to Clause A45 (Survival).
 
24.2.  
Cancellation or Termination of a Purchase Order
 
24.2.1.  
On the cancellation or termination, with or without cause, of a Purchase Order by VGC all rights and obligations of the Parties under such Purchase Order shall automatically terminate save for such rights and obligations as shall have accrued prior to such cancellation or termination and any rights or obligations which expressly or by implication are intended to come into or continue in force on or after such cancellation or termination pursuant to Clause A45 (Survival).
 
24.2.2.  
On receipt of a notice of cancellation or termination, in whole or part, of a Purchase Order SGC shall cease production and other preparations or work in relation to the subject matter of that notice. In full settlement and provided cancellation or termination is without cause, VGC shall pay the direct costs incurred by SGC and agreed by VGC that are the direct result of VGC’s cancellation or termination of the Purchase Order not to exceed the amount of the
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cancelled or terminated Products and Services in the Purchase Order cancelled or terminated. For the purposes of this Clause, SGC shall be allowed to seek reimbursement from VGC for Services actually performed at the rate previously agreed between VGC and SGC.  In claiming any costs, SGC shall demonstrate to VGC’s reasonable satisfaction that the Products and Services cannot be used in fulfilling SGC’s obligations under other Purchase Orders issued by VGC or reasonably anticipated to be issued by VGC . SGC agrees to take all reasonable steps in order to minimize the costs associated with any cancellation or termination of a Purchase Order.
 
24.2.3.  
Termination of any Purchase Order with cause under Clauses 23.1.1 or 23.1.2 [as set out in this Clause 24.2 shall entitle VGC
 
24.2.3.1  
 to seek  such damages as it shall be entitled under law.
 
24.2.3.2 to terminate any directly associated Purchase Order; and

 
24.3.  
24.2.3.2  Provided that VGC gives SGC written notice of a material breach of the agreement and SGC is unable to cure such breach within 90 days of notification, VGC shall be entitled to recover from SGC any losses it may suffer together with any additional expenditure incurred by VGC in obtaining work or products in replacement of the Services and Products to be provided by SGC hereunder. with cause under Clauses 23.1.1 or 23.1.2
 
24.4.  
Disengagement Services
 
24.4.1.  
In the event of a termination or cancellation of certain Services where VGC reasonably requires that there be a staged transition of the Services to a third party supplier, SGC shall continue to supply such Services as requested by VGC and in accordance with the following (hereinafter referred to as the “Disengagement Services”):
 
24.4.2.  
Disengagement Services will be provided for a period of twelve (12) Months unless a shorter period is requested by VGC;
 
24.4.3.  
Disengagement Services will be provided on the same terms and conditions as the Services which they replace unless VGC requests a modified
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scope of Services, in which case the Parties will agree on the Price and other terms and conditions; and
 
24.4.4.  
If requested by VGC, and at the cost of VGC, such cost to be agreed between the Parties, SGC shall prepare and VGC shall approve a disengagement plan, which shall include a detailed description of all Disengagement Services and handover of risk and responsibility.
 
25.  
LICENCES FOR SOFTWARE AND DOCUMENTATION
 
25.1.  
Upon delivery of Standard Software or Documentation to VGC, SGC shall grant (or procure the grant) to VGC of a license to use, copy and distribute Standard Software and any related Documentation in the course of its business and for purposes reasonably incidental thereto, on the following terms (the “Licence”):
 
25.1.1.  
non-exclusive and transferable to another VGC without additional charge or SGC consent;
 
25.1.2.  
royalty-free (except as otherwise set out in Schedule 4 (Global Price Book); and
 
25.1.3.  
irrevocable, subject to the termination provisions in Clause A23 (Termination, Cancellation and Postponement).
 
25.2.  
The right to use Standard Software shall include any act that is reasonably incidental to such use, including the maintenance of a reasonable number of back-up or test copies of such Software (including for disaster recovery purposes).
 
25.3.  
VGC shall be entitled to release and sub-license Standard Software to any of VGC’s sub-contractors, Outsourcers, suppliers, distributors, subscribers or other persons in the course of VGC’s business and for purposes reasonably incidental thereto, provided that such sub-contractors, Outsourcers, suppliers, distributors, subscribers or other persons shall be obligated to comply with the terms of this Agreement as if they were the VGC and that VGC shall be responsible for such compliance.
 
25.4.  
At no additional charge, VGC may transfer Standard Software to a new platform and may transfer Standard Software to any other Vodafone Group Company or Partner Network that has entered into a CoA.
 
25.5.  
The use of Standard Software shall be restricted to the use of such Software in object code form (and after the occurrence of a “Release Event”, as such term is defined in the Source Code Escrow Agreement, in source code form).
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25.6.  
VGC shall not have the right to adapt, reverse engineer, decompile, disassemble or modify Standard Software in whole or in part except:
 
25.6.1.  
as permitted by applicable law;
 
25.6.2.  
in the event of the occurrence of a “Release Event”; or
 
25.6.3.  
to the extent that such action is legitimately required for the purposes of integrating the operation of Standard Software with the operation of other software or systems used by VGC, in circumstances where SGC is not able or prepared to carry out such action at a reasonable commercial fee.
 
25.7.  
Licences for Non-Production Systems
 
25.7.1.  
SGC shall grant to VGC a Licence for any development and testing in non-production systems including test and reference systems (“Licences for Non-Production Systems”) at no additional charge.
 
25.7.2.  
The Licence for Non-Production Systems shall be a non-exclusive, non-transferable licence to use Standard Software.
 
25.7.3.  
Any Licence for Non-Production Systems is granted only for purposes of developing, prototyping and testing VGC applications that operate with Standard Software, and not for any other purpose.
 
25.7.4.  
Upon termination of the License for Non-Production Systems, VGC shall promptly return to SGC (or destroy at VGC’s option) all existing copies of Standard Software used for Non-Production Systems.
 
25.8.  
SGC shall provide to VGC Third Party Standard Software on the same terms as other Standard Software unless VGC requires otherwise.
 
25.9.  
SGC and its suppliers shall retain all title, copyright and other proprietary rights in the Standard Software. VGC does not acquire any rights, express or implied, in the Standard Software, other than those specified in this Agreement. VGC agrees that it will not publish externally any results of benchmark tests run on the Standard Software.
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26.  
INTELLECTUAL PROPERTY RIGHTS
 
26.1.  
Subject to Clause 26.2, all Intellectual Property Rights in the Standard Software shall remain vested in SGC or its licensors and nothing in the CoA shall operate to assign any rights, title or interest in such Intellectual Property Rights to VGC (save as otherwise provided in the CoA).
 
26.2.  
All Intellectual Property Rights in any Requirement Specifications and any other material, documents and information provided by or on behalf of VGC to SGC under the CoA shall remain vested in VGC and nothing in the CoA, any Purchase Order or Work Order shall operate to assign any rights, title or interest in such Intellectual Property Rights to SGC.
 
27.  
INTELLECTUAL PROPERTY RIGHTS INDEMNITY
 
27.1.  
SGC shall fully indemnify and hold harmless each Indemnified Party against any Claims incurred or sustained by any or all of the Indemnified Parties as a result of or in connection with any claim or action made or brought by any person alleging that the supply, use, disposal, importation or possession of any Product, Service or any part of them infringes the rights (including Intellectual Property Rights) of any person.
 
27.2.  
Without limiting Clause 27.1, where any Claim causes VGC’s quiet enjoyment of any Product, Service or any part thereof to be disrupted or impaired, SGC shall at its own cost and expense and at its option:
 
27.2.1.  
procure for the benefit of VGC the right to continue to use and exploit the Product and Service in accordance with the CoA without disruption or impairment; or
 
27.2.2.  
modify the infringing Product or Service so that it becomes non-infringing provided that whenever practicable such modifications are in accordance with the specifications agreed between SGC and VGC and are made within a reasonable time; or
 
27.2.3.  
if the foregoing alternatives are not available on commercially reasonable terms, cancel all outstanding Purchase Orders for such Product or Service that is subject to the Claim and have any infringing Products in VGC’s inventory returned to SGC at SGC’s expense; SGC shall repay to VGC the full Price paid by VGC for any affected Product or Service, plus VAT, that is returned or is, in VGC’s opinion, not useable by VGC.
 
28.  
INDEMNIFICATION PROCEDURES
 
28.1.  
If a Claim is brought by a third party against VGC, its officers, directors, employees, agents, contractors, successors or assigns (each an
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“Indemnified Party”) in respect of which indemnification is provided by SGC hereunder (each, an “Indemnified Third Party Claim”), VGC shall:
 
28.1.1.  
promptly notify SGC thereof and subject to VGC being reasonably satisfied at all times with SGC’s conduct of the defence to such Claim, VGC shall:
 
28.1.1.1.  
allow SGC to control the defence of such Claim; and
 
28.1.1.2.  
at the request and expense of SGC, provide SGC with reasonable assistance for the purpose of SGC defending any such Claim, provided always that SGC shall not admit or settle any such Claim without the prior written consent of each of the Indemnified Parties.
 
28.2.  
If  SGC  assumes the defence of an Indemnified Third Party Claim, SGC shall:
 
28.2.1.  
promptly and in any event within a period of 10 Business Days from VGC’s notification as set out in Clause 28.1, notify each of the Indemnified Parties that it has assumed such defence;
 
28.2.2.  
at all times have regard for the interests and reputation of VGC and each of the Indemnified Parties;
 
28.2.3.  
consult and keep each Indemnified Party informed, in relation to any negotiations, settlement or litigation; and
 
28.2.4.  
not, without the prior written consent of VGC and each Indemnified Party, enter into any settlement or compromise of the Indemnified Third Party Claim that involves a remedy other than the payment of money by SGC.
 
28.3.  
If SGC does not assume the defence of an Indemnified Third Party Claim in accordance with Clause 28.2.1, VGC may defend the Indemnified Third Party Claim in such manner as it may deem appropriate, and SGC shall indemnify VGC in relation to such Claim.
 
28.4.  
Failure by VGC to comply with the indemnification procedures in this Clause 28 does not relieve SGC of any obligation to indemnify an Indemnified Party in respect of any Indemnified Third Party Claim.
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29.  
FORCE MAJEURE
 
29.1.  
Neither SGC nor VGC shall be liable for any delay in performing any of its obligations under the CoA, Purchase Order if such delay is caused by a Force Majeure. The Party affected by the Force Majeure shall be entitled (subject to giving the other Party full written particulars of the circumstances in question and to using reasonable endeavours to resume full performance without avoidable delay) to a reasonable extension of time for the performance of such obligations.
 
29.2.  
Notwithstanding the foregoing, neither Party shall be entitled to claim Force Majeure in the following cases:
 
29.2.1.  
any actions or circumstances caused by the respective Party's fault or negligence;
 
29.2.2.  
shortage or price increase of labour, materials or utilities;
 
29.2.3.  
delays by a Party’s sub-contractor unless the subcontractor’s delay is in itself caused by a Force Majeure;
 
29.2.4.  
the failure of SGC or third parties to develop technology that is necessary to supply, test or use the Products.
 
29.3.  
VGC may terminate the CoA or may terminate, in whole or in part, a Purchase Order affected by the Force Majeure by notice to SGC if the Force Majeure affecting SGC continues for thirty (30) consecutive days. SGC may terminate the CoA or may terminate, in whole or in part, a Purchase Order affected by the Force Majeure by notice to VGC if any Force Majeure affecting VGC continues for three (3) Months.
 
30.  
CORPORATE SOCIAL RESPONSIBILITY
 
SGC shall comply and shall procure that its third party suppliers comply with the Vodafone Code of Ethical Purchasing as set out in Schedule 6 (Corporate Social Responsibility) as may be amended by VGC and notified to SGC from time to time.
 
31.  
CONFIDENTIALITY
 
31.1.  
In respect of any Confidential Information disclosed, furnished or made accessible by either Party (in this Clause 31, the "disclosing Party") to the other Party (in this Clause 31, the "receiving Party"), the receiving Party undertakes to the disclosing Party:
 
31.1.1.  
to keep confidential all Confidential Information disclosed by the disclosing Party;
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31.1.2.  
to keep Confidential Information disclosed by the disclosing Party in a safe and secure place using reasonable technical and organisational security measures to prevent unauthorised access, destruction or loss;
 
31.1.3.  
not, without the prior written consent of the disclosing Party, to disclose Confidential Information disclosed by the disclosing Party in whole or in part to any other person save those of its employees, agents, advisers or sub-contractors who are involved in performing its obligations under the CoA and who need to know the Confidential Information in question for that purpose; and
 
31.1.4.  
to use the Confidential Information disclosed by the disclosing Party solely in connection with performing its obligations under the CoA and not for its own benefit or the benefit of any third party.
 
31.2.  
Each Party hereby undertakes to the other to make all relevant employees, agents, advisers and sub-contractors aware of the confidential nature of the Confidential Information disclosed by the disclosing Party and the provisions of this Clause 31 and, without limitation to this Clause 31, to take all such steps as shall from time to time be necessary to ensure compliance by its employees, agents, advisers and sub-contractors with the provisions of this Clause 31.
 
31.3.  
The provisions of Clauses 31.1 and 31.2 shall not apply to any information which:
 
31.3.1.  
is or becomes public knowledge other than by breach of this Clause 31;
 
31.3.2.  
is in the possession of the receiving Party without restriction in relation to disclosure before the date of receipt from the disclosing Party;
 
31.3.3.  
 is received from a third party who lawfully acquired it and who is under no obligation restricting its disclosure; or
 
31.3.4.  
is independently developed without access to any Confidential Information disclosed by the disclosing Party.
 
31.4.  
The provisions of Clauses 31.1 and 31.2 shall not apply so as to prevent disclosure of Confidential Information by the receiving Party where and to the extent that such disclosure is required to be made:
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31.4.1.  
by virtue of the regulations of the London Stock Exchange or New York Stock Exchange;
 
31.4.2.  
by any court or governmental or administrative authority competent to require the same; or
 
31.4.3.  
by any applicable law, legislation or regulation.
 
31.5.  
Nothing in this Clause 31 shall be deemed or construed to prevent VGC from disclosing any Confidential Information obtained from Supplier to Vodafone Group Plc, any other Vodafone Group Company or any Partner Network designated by VGSL, provided that VGC shall ensure that the relevant Vodafone Group Company observe confidentiality undertakings on substantially the same terms contained as in this Clause 31.
 
32.  
ASSIGNMENT AND SUBCONTRACTING
 
32.1.  
SGC shall not sub-contract any of its obligations under this CoA, any Purchase Order or any part of any of them without the previous consent in writing of VGC (such consent not to be unreasonably withheld or delayed). Notwithstanding the foregoing, SGC shall be liable for the acts and omissions of any sub-contractor or third party supplier and shall remain solely liable to VGC for the performance of SGC’s obligations under this CoA.
 
32.2.  
SGC shall not assign, novate, transfer or otherwise dispose of or deal with this CoA, any Purchase Order, as applicable, or any part of any of them without the previous consent in writing of VGC, which may be withheld at VGC's sole discretion.
 
32.3.  
VGC shall be entitled to assign, novate, transfer, sub-contract or otherwise dispose of or deal with any or all of its rights or obligations under the CoA or any Purchase Order to any Vodafone Group Company.
 
33.  
CHANGE CONTROL PROCEDURE
 
33.1.  
Any proposed change to the terms of any Purchase Order or Work Order (each, a “Change”) shall be subject to the Change Control Procedure.
 
33.2.  
Neither VGC nor SGC shall be bound by any Change unless and until it is agreed in writing and signed by both Parties.
 
34.  
RIGHTS OF THIRD PARTIES
 
Except in the case of any permitted assignment pursuant to this CoA, this CoA and any Purchase Order are made solely and specifically between and for the benefit of the Parties and are not intended to be for the benefit of and shall not be enforceable by any person who is not named at the date of this CoA as a Party to it, and neither Party may declare itself a trustee of the rights under it for the benefit of any third party.
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35.  
PUBLICITY
 
35.1.  
Subject to Clause 31 (Confidentiality), SGC shall not, and shall procure that its employees, agents, advisers and sub-contractors shall not, make any announcement, or comment upon, or originate any publicity or press release or otherwise provide any information to any third party concerning this CoA and any Purchase Order or the matters contained in either of them without the prior written consent of VGC's duly authorised representative.
 
35.2.  
SGC shall not identify VGC or any other Vodafone Group Company or any of its or their affiliated persons in any promotional, advertising or other materials to be disseminated to the public or any third party or use any of the Vodafone Marks therein without the prior written consent of VGC.
 
36.  
NOTICES AND E-MAIL
 
36.1.  
All notices and other communications to be given under or in connection with this CoA and any Purchase Order shall be made in writing in English and shall be deemed to have been duly given: when delivered, if delivered by messenger during normal business hours on a normal business day of the recipient; when sent, if transmitted by facsimile transmission (receipt confirmed and with a confirmation copy sent by post) during normal business hours on a normal business day of the recipient; or on the fifth Business Day following posting, if posted by international first class or recorded post postage pre-paid, in each case addressed at such address as set forth in the CoA or to such other addresses as the Parties may from time to time notify pursuant to this Clause.
 
36.2.  
Routine communications relating to the performance of this CoA may be conducted by electronic mail.  However, the Parties agree that any communication by electronic mail shall not amount to notice in writing for the purposes of Clause 36.1 or to a written instrument for the purposes of Clause A42 (Variation) and that any purported notice under, or variation of, this CoA by electronic mail shall have no effect.
 
37.  
ESCALATION
 
37.1.  
In the event of a dispute or difference between VGC and SGC arising out of or in connection with this CoA, either Party may call an extraordinary meeting of the Parties for the purpose of resolving such dispute or difference by service of not less than five (5) Business Days' written notice and each Party agrees to procure that its designated representative(s) from its management team shall attend all extraordinary meetings called in accordance with this Clause 37.
 
37.2.  
The members of the relevant meeting in Clause 37.1 above shall endeavour in good faith to resolve disputes arising out of this CoA. If any dispute referred to a meeting is not resolved at that meeting then either
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Party, by notice in writing to the other, may refer the dispute to designated senior officers who shall co-operate in good faith to resolve the dispute as amicably as possible within fourteen (14) Business Days of service of such notice. If such senior officers fail to resolve the dispute in the allotted time, then this dispute resolution procedure shall be deemed exhausted.
 
37.3.  
The above provisions shall be without prejudice to either Party’s other rights and remedies under the CoA or provided by law or in equity, including the right to seek injunctive relief or otherwise commence legal proceedings at any time.
 
37.4.  
VGC or SGC may request that an issue escalated under the CoA is also escalated to VGSL and Supplier if the issue affects more than one Vodafone Group Company or Supplier Group Company.
 
38.  
GOVERNING LAW
 
38.1.  
This CoA (including for the avoidance of doubt each Purchase Order and Work Order) shall be governed by and construed in accordance with the laws of England and Wales.
 
38.2.  
Each Party irrevocably submits to the exclusive jurisdiction of the courts of England and Wales over any claim, dispute or difference arising under or in connection with this CoA.
 
39.  
ENTIRE AGREEMENT
 
The CoA (including for the avoidance of doubt each Purchase Order and Work Order) represent the entire understanding between the Parties in relation to its subject matter and supersedes all agreements and representations made by either Party, whether oral or written, in relation to the subject matter of the CoA.  This Clause 39 shall not affect either Party’s liability for fraud.
 
40.  
WAIVER
 
40.1.  
A waiver by a Party of a breach or a default under this CoA does not constitute a waiver of any other breach or default and shall not affect any other terms and conditions.
 
40.2.  
The rights and remedies provided by these terms and conditions are cumulative and (except as otherwise provided in the CoA) are not exclusive of any rights or remedies provided by law.
 
40.3.  
The failure to exercise or delay in exercising a right or remedy provided by this CoA or by law does not constitute a waiver of such right or remedy or a waiver of other rights or remedies.
 
40.4.  
A waiver of a breach of any of these terms and conditions or of a default under this CoA will not prevent a Party from subsequently requiring compliance with the waived obligation at a later time.
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41.  
SEVERABILITY
 
If any part of this CoA, any Purchase Order is held to be void, voidable, illegal or unenforceable, the validity or enforceability of the remainder of this CoA, Purchase Order shall not be affected. In such a case, the Parties shall endeavour to negotiate a substitute provision together with other relevant provisions that best reflects the economic intentions of the Parties whilst being enforceable, and shall execute all agreements and documents required in this connection.
 
42.  
VARIATION
 
This CoA, any Purchase Order shall be capable of being varied only by a written instrument signed by hand in ink by a duly authorised officer or other authorised representative of each of the Parties.
 
43.  
NO PARTNERSHIP/AGENCY
 
Nothing in this CoA nor in any Purchase Order is intended to or shall operate to create a partnership or joint venture of any kind between the Parties, or to authorise either Party to act as agent for the other, and neither Party shall have authority to act in the name or on behalf of or otherwise to bind the other in any way (including but not limited to the making of any representation or warranty, the assumption of any obligation or liability and the exercise of any right or power).
 
44.  
HEALTH AND SAFETY
 
44.1.  
SGC agrees to observe, and procure that all its employees and agents or those of any its sub-contractors given access to any relevant premises of VGC comply with, the provisions of any applicable laws and regulations, including health and safety legislation, and with VGC’s health and safety policies as notified by VGC to SGC.
 
44.2.  
SGC shall indemnify and hold harmless VGC, its officers, employees, agents, successors and assigns in respect of any Claims made or brought against it by any person for death or personal injury arising from any act or omission by SGC.
 
45.  
SURVIVAL
 
45.1.  
Any termination of this CoA, any Purchase Order for any reason shall be without prejudice to VGC’s other rights and remedies under the CoA or provided by law or in equity. Any such termination shall not affect any accrued rights or liabilities of either Party nor the coming into force or the continuance in force of any provision of this CoA, or of a Purchase Order which is expressly or by implication intended to come into or continue in force on or after such termination including  AClauses [ ] (Definitions), [  ] (Special Conditions), [  ] (Warranties), [  ] (Intellectual Property Rights), [  ] (Intellectual Property Rights Indemnity), [  ] Indemnification Procedures, [  ] (Confidentiality), [  ] (Rights of Third Parties), [  ] (Publicity), [  ] (Governing Law), [  ] (Entire Agreement), [  ] (Waiver), [  ]
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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(Severability), [  ] (Survival), [  ] (Insurance), [  ] (Further Assurance), [  ] (Audits), [  ] (Limitation of Liability), [  ] (Inadequacy of Damages), [  ] (Interpretation) and [  ] (Order of Precedence).
 
46.  
INSURANCE
 
46.1.  
SGC shall insure against all risks and liabilities to which SGC is subject under this CoA and as is prudent in the circumstances, including loss or damage whether caused by negligence, insolvency, fraud or otherwise by any of SGC, its agents, employees or sub-contractors. SGC shall notify its insurers in writing of all insurance claims as soon as reasonably practicable after the relevant loss or damage.
 
46.2.  
Without prejudice to Clause 46.1 above, SGC agrees that it shall effect and maintain in force with a reputable insurance company at least the following insurance policies in the following amounts:
 
46.2.1.  
Public and Product Liability Insurance Policy in respect of loss or injury to persons or damage to tangible property  with a limit of not less than five million pounds sterling (£5,000,000) per claim;
 
46.2.2.  
Professional Indemnity (errors and omissions) Insurance Policy in respect of its undertakings and obligations under this CoA with a limit of not less than five million pounds sterling (£5,000,000) per claim; and
 
46.2.3.  
such other insurances required by law (including, without limitation, Motor and Employers Liability) with a limit in each case of not less than five million pounds sterling (£5,000,000) per claim or such other greater amounts as required by law.
 
46.3.  
SGC shall ensure that the appropriate noting of VGC’s interests have been recorded on the policies or a generic interest clause has been included together with a waiver of subrogation and any right of contribution in favour of VGC and shall on the written request of VGC from time to time provide a certificate signed by SGC’s insurer or such insurer’s appointed agents confirming that SGC is insured in accordance with this Clause 46 in a form satisfactory to VGC. On the renewal of each policy, SGC shall promptly send a copy of the premium receipt to VGC.
 
46.4.  
SGC shall, during the Term, and for a period of six (6) years thereafter:
 
46.4.1.  
administer the insurance policies and SGC's relationship with its insurers in accordance with good industry practice and at all times to preserve the benefits for VGC set out in this CoA;
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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46.4.2.  
do nothing to invalidate any such insurance policy or to prejudice VGC’s entitlement thereunder; and
 
46.4.3.  
procure that the terms of such policies shall not be altered in such a way as to diminish the benefit to VGC of the policies as provided at the date of this CoA without VGC’s prior written consent.
 
46.5.  
SGC shall give immediate notice to VGC and any other insured parties in the event of a cancellation or variation in the terms of cover or any material adverse change in SGC’s insurance arrangements that may affect VGC or any other insured party’s interest.
 
47.  
FURTHER ASSURANCE
 
SGC shall use all reasonable endeavours to do or procure to be done all such further acts and things and execute or procure the execution of all such other documents as VGC may from time to time reasonably require for the purpose of giving VGC the full benefit of the provisions of this CoA.
 
48.  
AUDIT
 
48.1.  
SGC shall keep or cause to be kept full and accurate records (in this Clause, the "Records") of all processes, personnel, equipment and premises used in performing its obligations in connection with this CoA and each Purchase Order for a period of six (6) years, except where the retention of such records would be in breach of any applicable legal or regulatory restrictions.
 
48.2.  
SGC shall grant to VGC, any auditors of VGC and their respective authorised agents the right of reasonable access to the records (including a right to make copies thereof at cost), any equipment or premises and shall provide all reasonable assistance at all times during the currency of this CoA for the purposes of carrying out an audit of SGC’s compliance with the CoA as well as an audit of all activities, performance, security and integrity in connection therewith. SGC shall be repaid any reasonable expenses incurred in giving any such reasonable assistance pursuant to this Clause.
 
48.3.  
SGC may request that VGC’s independent, external auditors conduct an audit and that an officer of said firm provide a signed certificate verifying that the Software Products and Services are being used pursuant to the provisions of this Agreement.  In the event that said firm does not provide such a certification, then SGC may conduct the audit itself, observing a reasonable notice period to VGC.  Any such audit shall be conducted during regular business hours at VGC's facilities and shall not unreasonably interfere with VGC's business activities.  SGC agrees that its personnel will comply with VGC's reasonable security and confidentiality requirements during the audit.  If an audit reveals that VGC has underpaid fees to SGC, VGC shall be invoiced directly for such
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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underpaid fees.  If the underpaid fees are in excess of five percent (5%) of the aggregate license fees paid to SGC, then VGC shall pay SGC’s reasonable costs of conducting the audit.
 

 
49.  
LIMITATION OF LIABILITY
 
49.1.  
Except as set forth in Clause 49.3, the maximum liability of either Party to the other excluding any liquidated damages paid or payable under or in connection with the CoA , whether based on contract, tort, negligence or otherwise shall be limited to:
 
49.1.1.  
£10 million in any period of twelve (12) Months, such period to commence in each case on the date of the incident, or the first or the series of incidents, giving rise to the Claim in question; or
 
49.1.2.  
the aggregate face value of all Purchase Orders placed by VGC during the twelve (12) Months preceding the incident or first in a series of incidents, giving rise to the Claim in question.
 
whichever is the greater.
 
49.2.  
Except as set forth in Clauses 49.3, neither Party shall be liable for any indirect or consequential damages or losses, including loss of profits and loss of data where such damages or losses are determined to be an indirect or consequential damage or loss.
 
49.3.  
Nothing in the CoA excludes or limits liability for Claims with respect to the following:
 
49.3.1.  
SGC’s liability under any relevant product liability legislation (e.g. General Product Safety Directive 2001/95/EC);
 
49.3.2.  
SGC’s liability for death or personal injury resulting from the supply or use of the Products or Services;
 
49.3.3.  
a Party’s liability under Clauses [A] (Data Protection and Law Enforcement), 25 (Licenses for Software and Documentation), [A] (Intellectual Property Rights Indemnity) and [A] (Confidentiality);
 
49.3.4.  
SGC’s liability for physical damage to VGC’s property;
 
49.3.5.  
a Party’s liability for fraudulent misrepresentation or for death or personal injury resulting from its negligence; and
 
49.3.6.  
any other liability to the extent that such liability may not be excluded or restricted by law.
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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50.  
INADEQUACY OF DAMAGES
 
Without prejudice to Clause 31 (Confidentiality) or to any other rights or remedies that VGC may have, SGC acknowledges and agrees that damages alone would not be an adequate remedy for breach by SGC of the provisions of this CoA, a Purchase Order and that accordingly VGC shall be entitled, without proof of special damages, to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the provisions of this CoA, a Purchase Order.
 
51.  
INTERPRETATION
 
In this CoA (except where the context otherwise requires):
 
51.1.  
the Schedules (as amended from time to time) shall form part of this CoA and shall be construed and shall have the same force and effect as if they were expressly set out in the main body of this CoA and any reference to this CoA includes the Schedules;
 
51.2.  
references in this CoA to a Schedule shall be deemed to be a reference to the current version of the relevant Schedule to this CoA;
 
51.3.  
the index and headings in this CoA are for ease of reference only and shall not constitute a part of this CoA for any purpose or affect its interpretation;
 
51.4.  
use of the singular includes the plural and vice versa;
 
51.5.  
use of any gender includes the other genders;
 
51.6.  
any reference to a directive, statute, statutory provision or subordinate legislation ("legislation") shall (except where the context otherwise requires) be construed as referring to such legislation as amended and in force from time to time and to any legislation which re-enacts or consolidates (with or without modification) any such legislation; and
 
51.7.  
any phrase introduced by the terms "including", "include", "in particular" or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.
 
52.  
ORDER OF PRECEDENCE
 
In the event of any inconsistency between the CoA, its Schedules and any Purchase Order, the documents shall prevail in the following order of precedence (highest level of precedence first, lowest last):
 
52.1.  
Body of the CoA;
 
52.2.  
Schedule 1 (Special Conditions);
 
52.3.  
Schedule 2 (GTCs);
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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52.4.  
All other Global Attachments;
 
52.5.  
Local Attachments; and
 
52.6.  
Purchase Orders.
 
53.  
COUNTERPARTS
 
This CoA may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, and all the counterparts together shall constitute one and the same instrument.
GTCs for HW, SW, and Services (Schedule 2 to CoA)
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SCHEDULE 3
 
GLOBAL PRODUCTS AND SERVICES
 
[Note: To be used to describe Product requirements, such as Specifications, Acceptance Testing etc.]
 
AExample
 
Part 1                       - -            Brief description of the Products and Services
Chordiant Decision Management Suite (by part and version number):
·  
Chordiant Predictive Analytics Director; 6100-6.0.2
·  
Chordiant Strategy Director; 6101-6.0.2
·  
Chordiant Decision Monitor; 6104-6.0.2
·  
Chordiant Real-Time Decisioning Services; 6102-6.0.2
·  
Chordiant Database Decisioning Services; 6103-6.0.2
·  
Chordiant Recommendation Advisor; 6108-6.0.3
·  
Chordiant Adaptive Decisioning Services; 6106-6.0.2
·  
Chordiant Data Preparation Director; 6105-6.0.2
·  
Chordiant Real-Time Proposition Monitoring; 6111-6.0.2
·  
Chordiant Interaction Services - 6107-6.0.2
·  
Chordiant Campaign Management Decisioning Service - 6109-6.0.2
2.  
Chordiant Marketing Director Suite:
·  
Chordiant Marketing Director: 6.2.0.3
·  
Chordiant Online Marketing Director; 6.2.0.3
·  
Chordiant Mobile Marketing Director; 6.2.0.3

The Standard Software listed above shall be deemed accepted upon delivery.
At VGSL’s request, Supplier will extend the license to the Standard Software to any other operating system supported by Supplier so long as VGSL is currently covered by Maintenance Services with respect to such Software and VGSL’s usage of the Standard Software does not exceed the scope of the license it acquired for use.
 
 

 
Part 2                       - -            Specification for the Products and Services
CHRD SLSA
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Documentation as annexed to the GFA at Annex 3.
CHRD SLSA
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[ * 2 pages of text omitted ]
CHRD SLSA
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SCHEDULE 4
 
GLOBAL SERVICES
 

 
[Note: To be used to describe any services, including support and maintenance, development or consultancy services to be provided by SGC.]


4-xx            Global Support and Maintenance Services
1.  Support and Maintenance Services
SGC shall provide Support and Maintenance Services as specified in Exhibit A below. Upon expiration of the initial support period (which ends on April 1st 2010), and upon expiration of each subsequent support period, a new support period shall automatically begin for a consecutive twelve (12) month term (“Renewal Period”) so long as (i) VGC pays the Support Fee within thirty (60) days of invoice by SGC; and (ii) SGC is still offering Support on such Standard Software.  The initial annual Support Fee shall be stated in Schedule 5.  The annual Support Fee for any Renewal Period shall not be less than the initial annual Support Fee and shall not increase from the previous year’s Support Fee by more than the percentage increase in the United Kingdom Retail Price Index (National Statistics Office) for the previous year.  Once Support and Maintenance has been terminated by VGC or SGC, it can be reinstated only if SGC is still offering Support for such Standard Software and VGC pays a fee equal to the support fees that would have been payable for the period of time during which Support and Maintenance was terminated for such Standard Software.

10 2.                                      Definitions.
(a) “Designated Contact” mean the contact person or group designated by VGC and agreed to by SGC who will coordinate all Support requests to SGC.
 
(b)  “Error” means a reproducible defect in the Standard Software or Documentation when operated on a Supported Environment which causes the Standard Software not to operate substantially in accordance with the Documentation.
 

(d) “Support Hours” means the support hours specified on Schedule A for either the Standard Support period or the Premier Support period, as specified on the particular Order Form.
 
(e)  “Supported Environment” for any SGC Marketing product(s) Software means the configurations of hardware and RDBMS (relational database) platforms and releases of the Software on which the Documentation states the Standard Software can run and for which SGC provides Support.  Supported Environment for any other SGC product Software means the hardware and operating system platform which SGC provides Support for its VGC base.
 
(f) “Update” means a subsequent release of the Software that SGC generally makes available for Standard Software licensees at no additional license fee.  Update shall not include any release, option or future product that SGC licenses separately.  SGC will provide Updates for the Standard Software as and when developed for general release in SGC’s sole discretion.
 
CHRD SLSA
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(g) “URN” means a “unique reference number” which uniquely identifies (is the key of) the primary entity in a particular VGC database, whether that primary entity represents a VGC, prospect, or any other data.
 
3.  Support Levels.

VGCs that have licensed the Standard Software shall be entitled to install and operate the components of the Standard Software solely for the following number Users and shall be entitled to the following level of Support so long as it is receiving Maintenance Services.
SGC Decision Management Suite
Users
Support Level
SGC Predictive Analytics Director
Unlimited nr of client systems
Standard (9x5)
SGC Strategy Director
Unlimited nr of client systems
Standard (9x5)
SGC Decision Monitor
Unlimited nr of client systems
Standard (9x5)
SGC Database Decisioning Services
Unlimited nr of CPUs
Standard (9x5)
SGC Real-Time Decisioning Services
Unlimited nr of CPUs
Premium (24x7)
SGC Recommendation Advisor
Unlimited nr of seats
Premium (24x7)
SGC Interaction Services
Unlimited nr of CPUs
Premium (24x7)
SGC Campaign Management Decisioning Service
Unlimited nr of CPUs
Standard (9x5)
SGC Adaptive Decisioning Services
Unlimited nr of CPUs
Premium (24x7)
SGC Data Preparation Director
Unlimited nr of CPUs
Standard (9x5)
SGC Real-Time Proposition Monitoring
Unlimited nr of CPUs
Premium (24x7)
CHRD SLSA
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SGC Marketing Director Suite
Unit
Support Level
SGC Marketing Director
Unlimited nr of URNs
Standard (9x5)
SGC OnLine Marketing Director
Unlimited nr of URNs
Standard (9x5)
SGC Mobile Marketing Director
Unlimited nr of URNs
Standard (9x5)
CHRD SLSA
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Exhibit A - General Support Terms:

1. Technical Support

SGC shall make available to VGC Support and Maintenance services in the form of access via e-mail, web and telephone (telephone access during the Support Hours only) in English to the Designated Contacts and/or via the support website for technical information, technical advice and technical consultation regarding VGC’s use of the Standard Software.

Scope of Support.  The primary objective of SGC Product Support is to assist VGC in maintaining and/or regaining an operational state by commercially reasonable efforts.  The secondary objective of Support and Maintenance is to provide in due course the correction of any underlying Errors.

 Product Support will include the following:

(a) Problem Prevention
1.  
Notification of availability of generally available patches and releases.

(b) Problem Identification
1.  
Clarification of SGC error messages,
2.  
Assistance in identifying and verifying the causes of suspected Errors, and;
3.  
Advice on bypassing identified Errors (providing workarounds) in the Standard Software.

(c) Problem Resolution
1.  
Reporting and tracking product defects and enhancement requests,
2.  
Resolution of defects via workaround, maintenance release or in exceptional circumstances emergency patches, and
3.  
Notification of status on issues, including escalation when required.

Resolution of Errors.  SGC will endeavor to provide an initial response acknowledging Errors reported by VGC in accordance with the priority levels and response times set out in Schedule A.  SGC will acknowledge each VGC report of a case by written acknowledgment setting forth a Case Problem Number for use by VGC and SGC in all correspondence relating to such case.  Thereafter, SGC shall use commercially reasonable efforts to provide a Resolution.

Exceptions. SGC shall have no responsibility to fix any Errors arising out of or related to the following causes:
a.  
any modifications or enhancements made by VGC to the Software or the application specific environment, unless such modifications or enhancements are specifically approved in writing by SGC Product Support; this includes but is not limited to;
 
- location of binaries
 
- scripts provided by SGC
 
- any application specific object (e.g., table, view, index, trigger)
 
- any application specific operating system permissions or role privileges
Services (Schedule 4 to CoA)
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b.  
Any modification or combination of the Software (in whole or in part), including without limitation any portions of the Software code or Source Code customized by VGC that is not part of the unmodified Software delivered by SGC or for which SGC has not received and acknowledged receipt of the source code and agreed to Support.
c.  
Use of the Software in an environment other than a Supported Environment.
d.  
Accident; electrical or electromagnetic stress; neglect; misuse; failure or fluctuation of electric power, failure of media not furnished by SGC; operation of the Software with other media and hardware, software or telecommunication equipment or software; or causes other than ordinary use.

 
Extended Support Policy.  Supplier will support each agrees endeavor to adequately train and obtain “SGC certification” for, and forward to SGC the names and contact details of the Designated Support Contacts.

VGC agrees to maintain procedures to facilitate reconstruction of any lost or altered files, data or programs and VGC agrees that SGC will not be responsible under any circumstances for any consequences arising from lost or corrupted data, files or programs.  VGC is solely responsible for carrying out all necessary backup procedures for its own benefit, to ensure that data integrity can be maintained in the event of loss of data for any reason and that VGC programs can be restored.

VGC agrees to be solely responsible for the security of its confidential and proprietary information, and shall not disclose such information to SGC except on a ‘need to know’ basis for the purposes of SGC’s performance Support.

VGC agrees to notify SGC Product Support promptly of any malfunction of the Standard Software.
current version or Update of the Software for a period of two years, beginning on the date the Update is made generally available (“GA”) to Supplier’s customers.  For a period of one year thereafter, Supplier will continue to support such Update using commercially reasonably efforts without reference to the response times set forth in Schedule A.  Notwithstanding its actual GA date, the initial version of the Standard Software that is initially delivered to VGC will be supported for a period of two years from the date of delivery and then one additional year thereafter.   Additionally, Supplier will support each current version or Update of the Software for a period of [ * ] after the date that the subsequent Update is made generally available (“GA”) to Supplier’s customers, in accordance with the provisions of Schedule 4.
 
Notwithstanding the foregoing, Chordiant will exercise reasonable efforts to provide diagnostic information to assist Customer in identifying the cause of any such Errors.


2. VGC Responsibilities

VGC agrees to:
(i) Provide SGC with remote access to VGC’s Standard Software during the term of this Agreement via an electronic link; and
(ii) Provide any reasonable assistance that SGC may require from the Designated Contacts and other appropriate VGC representatives (e.g. network administrator, as the case may be) to enable SGC to provide VGC with Support; and
(iii) Establish and maintain the conditions of the Supported Environment in compliance with SGC Certified Matrix and Technical Stack developed for the installed release or any environmental operating ranges specified by the manufacturers of the components of the Designated Center. Any deviation from this Support Environment voids all Resolutions within the timeframe set forth in Exhibit A.
In the event that VGC fails to comply with the above and this necessitates on-site attendance and/or the provision of additional SGC Services, VGC agrees to pay SGC for any time and expenses associated with such services at SGC’s then-current time and materials services rates.

VGC agrees to designate appropriately qualified and trained personnel to be the Designated Contacts, and only those individuals shall request Support services.  VGC
Services (Schedule 4 to CoA)
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agrees endeavor to adequately train and obtain “SGC certification” for, and forward to SGC the names and contact details of the Designated Support Contacts.
 
VGC agrees to maintain procedures to facilitate reconstruction of any lost or altered files, data or programs and VGC agrees that SGC will not be responsible under any circumstances for any consequences arising from lost or corrupted data, files or programs.  VGC is solely responsible for carrying out all necessary backup procedures for its own benefit, to ensure that data integrity can be maintained in the event of loss of data for any reason and that VGC programs can be restored.
 
VGC agrees to be solely responsible for the security of its confidential and proprietary information, and shall not disclose such information to SGC except on a ‘need to know’ basis for the purposes of SGC’s performance Support.
 
VGC agrees to notify SGC Product Support promptly of any malfunction of the Standard Software.
 
VGC agrees to provide SGC with access to and use of such of VGC’s information and facilities reasonably necessary to service the Standard Software including, but not limited to, an accurate description of the Designated Center and the current Supported Environment, the problem being reported, the transactions and any error messages, along with screenshots and log files.
 
VGC agrees to install the Current Release as soon as reasonably practicable, and in any event within the timeframe set out in SGC’s release policy in effect on the date Support is ordered.
 

Services (Schedule 4 to CoA)
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SCHEDULE A
 
 
1. PRIORITY LEVELS AND RESPONSE TIMES:
 
Priority Level
Definition
Response Time to Designated Support Contact
PRIO-1
“Production down” Problem
Business impact is immediate and major, i.e. no material benefit from the Standard Software.
The Standard Software in a mission critical “live production” environment is inoperative, renders the system on which it is installed inoperable or suffers a major performance degradation.  No workaround is available.
1 business hour
PRIO-2
Mission critical
Problem
Business impact is immediate and significant.
The Standard Software in a production or a mission critical development environment is inoperative or fails to satisfy critical functional, operational or performance specifications.
4 business hours
PRIO-3
Serious
Problem
Business impact is high but not widespread.
An aspect of the software is inoperative, causes or results in substandard or erratic performance, but nonetheless the software operates substantially in accordance with specifications.
1 business day
PRIO-4
Problem
Business impact is moderate or small.
No aspect of the software is inoperative.  The software operates in accordance with specifications.
5 business days

  

NORMAL SUPPORT HOURS
VGC shall report all problems to the closest support center.  SGC reserves the right to alter the location(s) of its support centers, and shall inform VGC in writing should this occur.  SGC provides Product Support from the following support centers during their respective normal business hours as set out below:
 
EMEA
08:30 – 17:30 UK Time {Greenwich Mean Time (GMT) or British Summer Time (BST), as applicable}
Services (Schedule 4 to CoA)
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Americas
08:30 – 17:30 Pacific Std Time (i.e. 16:30 – 01:30 UK Time, subject to time changes)
Asia/Pacific
08:30 – 17:30 Melbourne, Australia (i.e.23:30 – 08:30 UK Time, subject to time changes)

 
“Standard Support” means calls from any priority level which are supported from Monday to Friday during the normal business hours for VGC’s closest support center as set out above.
“Premier Support” means, in addition to Standard Support, VGC will receive extended 24 Hour support in respect of PRIO-1 CALLS FOR SGC’S PLATFORM AND FOUNDATION SOFTWARE ONLY from Monday to Sunday inclusive as noted below (not available for Application Products).

Notes:
(a)  
PRIO-1 and PRIO – 2 calls are to be placed by phone andfollowed up with a detailed explanation of the problem via e-mail to the respective regional support center.
(b)  
VGC may categorize the priority level in accordance with the above definitions when reporting the problem.


EXTENDED 24-HOUR SUPPORT
 
(Applicable to ‘PRIO-1’ Calls on SGC’s Platform and Foundation software only)

In respect of “Standard Support” and “Premier Support” for Platform and Foundation software products only, SGC extends support hours for the applicable days to 24 hours per applicable day for PRIO-1 calls only.  Outside the normal regional support hours, SGC will decide if the Prio-1 Case continues to be handled by the EMEA support center, or if the PRIO -1 call will “follow the sun” to another support center and will, if required, initiate a page to 24-hour on-call Product Support engineers.
Please note that the extended 24 hour support in respect of ‘PRIO-1’ calls set forth above is only available and applicable to VGCs licensing SGC’s platform or foundation software, and does not apply to any other SGC application software, including but not limited to SGC’s Marketing Director or Selling Director product suites.


 
4-xx

    4-xx
Services (Schedule 4 to CoA)
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SCHEDULE 4-XX

WORKER REGULATIONS

 
Worker Regulations
 
1.1  
It is the Parties’ intention that SGC Employees shall not transfer to VGC or a Successor Operator on termination of the CoA, and that all SGC Employees shall remain employed by SGC.
 
1.2  
If any contract of employment or collective agreement shall have effect as if originally made between VGC or a Successor Operator and any SGC Employee or a trade union or other body that represents employees as a result of the Employment Regulations and the CoA (without prejudice to any other rights or remedies which may be available to VGC or the Successor Operator, VGC may, within 1 month after becoming aware of the application of the Employment Regulations or the CoA to any such contract of employment or collective agreement, terminate such contract or agreement by serving the minimum period of notice required under the contract of employment of such employee or, where contractually permitted, by serving notice with immediate effect and making payment in lieu of notice.
 
1.3  
SGC shall indemnify VGC or the Successor Operator and keep it indemnified against any Employment Losses:
 
1.3.1  
relating to or arising out of a termination under Clause 1.1 and reimburse it for all costs and expenses (including, without limitation, any tax) incurred in employing such SGC Employee in respect of his employment on or after the Transfer Date and in respect of the employment of the SGC Employees prior to the Transfer Date;
 
1.3.2  
which relate to, arise out of or are connected with any act or omission by the SGC having its origin prior to the Transfer Date and which VGC or the Successor Operator incurs in relation to any employment relationship or collective agreement of one or more of the Relevant Employees or any other person pursuant to the Employment Regulations and/or in respect of the CoA; and
 
1.3.3  
which relate to, arise out of or are connected with any term or condition of employment in respect of early retirement arrangements and/or enhanced severance benefits (including but not limited to enhanced redundancy benefits).
 
1.4  
As used in this Schedule, the following terms shall be defined as follows:
 
1.5  
 “contract of employment”, “collective agreement”, “relevant transfer” and “trade union” shall have the same meanings as in the Employment Regulations;
 
1.6  
 “Employment Losses” means any and all losses, liabilities, costs (including but not limited to, the costs of reasonable legal and other expert advice), charges and
Services (Schedule 4 to CoA)
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expenses arising out of or connected with employment or the employment relationship (or the termination thereof) of SGC Employee, including those arising out of any actions, proceedings, claims, and demands;
 
1.7  
 “Successor Operator” means any third party that assumes any of VGC’s obligations under the CoA;
 
1.8  
 “SGC Employee” means those individuals who perform Services including (where the context permits) the service delivery manager.
 
1.9  
 “Transfer Date” means the date on which the SGC ceases providing the Services or any such date that any court or other tribunal of competent jurisdiction shall determine to be the “time of transfer” under the Transfer Regulations;
 
1.10  
 “Employment Regulations” means:
 
1.10.1  
For VGCs subject to the laws of England and Wales - the Transfer of Undertakings (Protection of Employment) Regulations 1981;
 
1.10.2  
For VGCs in the European Union but not subject to the laws of England and Wales, Directive 2001/23/EC of the European Parliament and the Council as implemented in the laws of the country of establishment of VGC; or
 
1.10.3  
For all other VGCs, all local and applicable international laws regulating the transfer of undertakings.
Services (Schedule 4 to CoA)
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SCHEDULE 5
 

GLOBAL PRICE BOOK
 

A.  LICENSE AND LICENSE FEES
Supplier will enter into CoAs for enterprise licenses of all the Standard Software specified above (except as provided below) with the VGC’s listed below (the “Listed VGCs”) for a license fee to be designated by VGSL.

Listed VGCs:

[ * 1 page of text omitted ]

*  License will not include the Marketing Director Suite
Organic Growth
There will be no change in the price for the license for a VGC to the extent that the number of subscribers supported by that VCG increases through organic growth.

Growth through Merger or Acqusition
If through acquisition or merger, a VGC increases its subscriber base following such acquisition or merger such that it moves from one pricing bracket (after taking into account any organic growth that has taken place up to the time of such acquisition) to another (ie, small to medium; large to very large) described in the future pricing matrix listed below, the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the acquisition or merger and the license and support fee for the larger bracket applicable after giving effect to the acquisition or merger.

Effect of Transfer:
If there is a transfer of a CoA from one VGA to another VGA which has a subscriber base which would move that license to another pricing bracket after taking into account any organic growth up to the time of such transfer (ie, small to medium; large to very large) described in the future pricing matrix listed below,
Prices (Schedule 5 to CoA)
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then the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the transfer and the license and support fee for the new bracket.

B.  FUTURE PRICING

VGSL may purchase additional licenses for the Standard Software products listed above at the respective quantities and license fees indicated below for majority owned subsidiaries of VGSL other than Listed VGCs. Furthermore VGSL may purchase additional licenses for the Standard Software products listed above at the respective quantities and license fees indicated below for minority owned subsidiaries of VGSL on a case by case basis, as agreed to by Supplier in its sole discretion.  All future pricing (table and discount levels below) only applies to VGCs in the following business areas: Communications and is valid until Dec 15, 2009.

Majority Owned VGCs


As part of this agreement, Supplier offers the following pricing for any majority owned VGCs in which Vodafone acquires a majority stake.

 
Nr of Subscr
Licence Fee CDM & CMD
Annual Support and Maintenance
       
Small
<5 mill
[ * ]
[ * ]
Medium
5 – 10 mill
[ * ]
[ * ]
Large
10 – 30 mill
[ * ]
[ * ]
Very Large
30 – 50 mill
[ * ]
[ * ]
Mega
>50 mill
[ * ]
[ * ]

Notwithstanding the foregoing, for one of the (large or smaller) majority owned VCGs that are purchasing the Chordiant Decision Management suite only as part of this agreement, that VCG may purchase the Marketing Director suite for the license fee of [ * ] plus an annual 15% [ * ] support and maintenance.

Standard Software products offered as part of the CDM licence include the then current versions of the following:

·  
Chordiant Data Preparation Director: unlimited number of concurrent users
Prices (Schedule 5 to CoA)
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·  
Chordiant Predictive Analytics Director: unlimited number of concurrent users
·  
Chordiant Adaptive Decisioning Services: unlimited number of CPUs
·  
Chordiant Strategy Director: unlimited number of concurrent users
·  
Chordiant Database Decisioning Services: unlimited number of CPUs
·  
Chordiant Real-Time Decisioning Services: unlimited number of CPUs
·  
Chordiant Recommendation Advisor: unlimited number of seats
·  
Chordiant Interaction Services: unlimited number of CPUs
·  
Chordiant Campaign Management Decisioning Service: unlimited number of CPUs
·  
Chordiant Decision Monitor: unlimited number of concurrent users
·  
Chordiant Real-Time Proposition Monitoring: unlimited number of CPUs

Standard Software products offered as part of the CMD licence include the then current versions of the following:

·  
Chordiant Marketing Director, core module: unlimited number of concurrent users
·  
Chordiant eMail Marketing Director: unlimited number of concurrent users
·  
Chordiant Mobile Marketing Director: unlimited number of concurrent users

The Standard Software listed above shall be deemed accepted upon delivery.

Minority Owned VGCs

For any mobile telecom organisation where VGSL has more than a 15% stake but less than 50% Supplier offers a fixed discount of [ * ]% against Supplier's standard list price for Chordiant Decision Management and Chordiant Marketing Director Standard Software products listed above.

Partner Organisation

For Partner Network organisations, Supplier offers a fixed discount of [ * ]% against Supplier's standard price list, for Chordiant Decision Management and Chordiant Marketing Director Standard Software products listed above, subject to approval from Supplier.

Organic Growth
There will be no change in the price for the license for a VGC to the extent that the number of subscribers supported by that VCG increases through organic growth.
 
Growth through Merger or Acqusition
Prices (Schedule 5 to CoA)
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If through acquisition or merger, a VGC increases its subscriber base following such acquisition or merger such that it moves from one pricing bracket (after taking into account any organic growth that has taken place up to the time of such acquisition) to another (ie, small to medium; large to very large) described in the future pricing matrix listed above, the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the acquisition or merger and the license and support fee for the larger bracket applicable after giving effect to the acquisition or merger.

Effect of Transfer:
If there is a transfer of a CoA from one VGA to another VGA which has a subscriber base which would move that license to another pricing bracket after taking into account any organic growth up to the time of such transfer (ie, small to medium; large to very large) described in the future pricing matrix listed above, then the VGC shall be required to pay the difference between the license and support fee amount for the bracket applicable immediately prior to the transfer and the license and support fee for the new bracket.
Prices (Schedule 5 to CoA)
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SCHEDULE 6
 
CORPORATE SOCIAL RESPONSIBILITY

 
Each Party places great importance on the principle that business should be conducted responsibly. Vodafone Group Companies have established the Vodafone Business Principles, which they wish to promote with their third party suppliers. In addition, Vodafone Group Companies have established the Vodafone Code of Ethical Purchasing, which is consistent with the basic principles of the SA 8000 and ISO 14001 standards.
 
Supplier and SGCs agree to implement the principles set out in the Vodafone Code of Ethical Purchasing across each of their businesses and within each of their own supply chains.
 
In the event that the Vodafone Code of Ethical Purchasing or Vodafone Business Principles are amended, Supplier and SGCs shall be informed.


Vodafone Code of Ethical Purchasing

 
 
VODAFONE CODE OF ETHICAL PURCHASING
As one of the world’s largest mobile telecommunications network companies, Vodafone has a significant role to play in enriching people’s lives.
We also understand that we have a significant role to play in managing our business carefully and responsibly, which is why we have adopted a set of core Values and Business Principles to govern our activities and interactions with all our stakeholders across the world, including our suppliers.
Our Business Principles declare a commitment “to promote the application of our Business Principles by our business partners and suppliers.”
The following Code of Ethical Purchasing is to be read in conjunction with our Business Principles, and is designed to promote safe and fair working conditions, and the responsible management of environmental and social issues in Vodafone’s supply chain.
The Code has been developed in consultation with employees, suppliers, investors and Non-Governmental Organisations.  It sets out the standards we wish to see achieved by Vodafone and our suppliers over time.
The principle of continuous improvement applies to all aspects of the Code.
In accordance with the implementation provisions of the Code, Vodafone will require first level suppliers to acknowledge their understanding and acceptance of our Code and to confirm that they will comply.
Vodafone will work collaboratively with our suppliers on the implementation of the Code, which may include joint audits and site visits to assess performance.
Vodafone will publicly report on the implementation of and compliance with the Code.
Vodafone will encourage all suppliers to implement our Code across their whole business and within their own supply chains.
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IMPLEMENTATION OF THE CODE
Ownership
·  
The Vodafone Director of Global Supply Chain Management is the owner of the Vodafone Code of Ethical Purchasing, and reports to the Integrations and Operations Committee on the implementation of the Code.
 
·  
The Director of Global Supply Chain Management and the Heads of Supply Chain Management in each of the Operating Companies have operational responsibility for the implementation of the Code.
 
Communication
·  
Vodafone will communicate and promote its Code of Ethical Purchasing internally and externally to relevant stakeholders.
 
·  
Suppliers are encouraged to take all reasonable endeavours to promote the Code to their suppliers and subcontractors.
 
Training and Awareness
·  
Vodafone and its suppliers will ensure that all relevant people are provided with appropriate training and guidelines to support the Code.
 
Application
·  
Suppliers applying this code are expected to comply with all relevant laws, regulations and standards in all of the countries in which they operate.
 
·  
The Code is applied for the purposes of promoting safe and fair working conditions and the responsible management of environmental and social issues in Vodafone’s supply chain.
 
·  
Suppliers will be asked to confirm (in writing) that they are implementing the Code, or similar purchasing standard such as the Ethical Trading Initiative (ETI) Base Code, Social Accountability International’s SA 8000, or the Chartered Institute of Purchasing and Supply Ethical Business Practices in Purchasing and Supply.
 
·  
Vodafone will work collaboratively with its suppliers on the implementation of the Code, which may include joint audits1 and site visits to assess performance against the Code.
 
·  
Suppliers will be asked to provide Vodafone with reasonable access to all relevant information and premises for the purposes of assessing performance against the Code, and use reasonable endeavours to ensure that sub-contractors do the same.
 

 
1
Audits would ideally be conducted jointly between Vodafone and the supplier, and may also include the assistance of an industry representative, or relevant Non-Governmental Organisation.
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Corrective Action
 
·  
Suppliers are expected to identify and correct any activities that fall below the standard of the Code.
 
·  
Suppliers shall immediately report to Vodafone any serious breaches of the Code, together with an agreed schedule for corrective action.
 
·  
Where serious breaches of the Code persist, Vodafone will consider termination of the business relationship with the supplier concerned.
 
Monitoring and Reporting
·  
Vodafone’s Corporate Responsibility and Purchasing teams will use a risk-based approach2 to monitor implementation of and adherence to the Code in our supply chain, and will report progress in the annual Vodafone Corporate Social Responsibility Report.
 
·  
Vodafone and its suppliers will use reasonable endeavours to provide employees and other stakeholders with a confidential means to report any actual or potential breach of the Code.
 

 
1
Vodafone will focus on those parts of the supply chain where the risk of not meeting the Code is highest and where the maximum difference can be made with resources available.
Corporate Social Responsbility (Schedule 6 to CoA)
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CODE OF ETHICAL PURCHASING
1.       Child Labour
·  
No person is employed who is below the minimum legal age for employment.3
 
·  
Children (persons under 18 years) are not employed for any hazardous work, or work that is inconsistent with the child’s personal development.4
 
·  
Where a child is employed, the best interests of the child shall be the primary consideration.
 
·  
Policies and programmes that assist any child found to be performing child labour are contributed to, supported, or developed.
 
2.       Forced Labour
·  
Forced, bonded or compulsory labour is not used and employees are free to leave their employment after reasonable notice.  Employees are not required to lodge deposits of money or identity papers with their employer.
 
3.       Health & Safety
·  
A healthy and safe working environment is provided for employees, in accordance with international standards and national laws.  This includes access to clean toilet facilities, drinkable water and, if applicable, sanitary facilities for food storage.
 
·  
Where an employer provides accommodation, it shall be clean, safe and meet the basic needs of employees.
 
·  
Appropriate health and safety information and training is provided to employees.
 
4.       Freedom of Association
·  
As far as any relevant laws allow, all employees are free to join or not to join trade unions or similar external representative organisations.
 
5.       Discrimination
·  
Negative discrimination5 including racial or sexual discrimination is prohibited.
 
6.       Disciplinary Practices
·  
Employees are treated with respect and dignity.  Physical or verbal abuse or other harassment and any threats or other forms of intimidation are prohibited.
 
7.       Working Hours
·  
Working hours of employees comply with national laws and are not excessive6.
 
8.       Payment
·  
Employees understand their employment conditions and fair and reasonable pay7 and terms are provided.
 

 
2
Minimum age is the age of completion of compulsory schooling, or not less than 15 years (or not less than 14 years, in countries where educational facilities are insufficiently developed).
 
3
Personal development includes a child’s health or physical, mental, spiritual, moral or social development.
 
4
Forms of discrimination may include race, colour, sex, sexual orientation, religion, political opinion, nationality, social origin, social status, indigenous status, disability, age and union membership.
 
5
Consideration should be given to the type of work performed and the acceptable working hours for the role and the country concerned.
 
6
Consideration should be given to the type of work performed and the market wage for the work as well as any statutory minimum wage for the country concerned.
Corporate Social Responsbility (Schedule 6 to CoA)
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9.  Individual Conduct
·  
No form of bribery, including improper offers for payments to or from employees, or organisations, is tolerated.
 
10.            Environment
·  
Processes are in place to actively improve the efficiency with which finite resources (such as energy, water, raw materials) are used.
 
·  
Appropriate management, operational and technical controls are in place to minimise the release of harmful emissions to the environment.
 
·  
Appropriate measures are in place to improve the environmental performance of products and services when in use by the end user.
 
·  
Innovative developments in products and services that offer environmental and social benefits are supported.
 
REFERENCES
Vodafone’s Code of Ethical Purchasing is based on the following international standards:
·  
The United Nations Universal Declaration of Human Rights.
·  
The Conventions of the International Labour Organisation.
·  
The United Nations Convention on the Rights of the Child.
 
Reference has also been made to:
·  
Social Accountability International’s SA 8000 Standard
·  
The Ethical Trading Initiative (ETI) Base Code, and
·  
The UN Draft Norms of Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (2003)
 
With respect to the International Labour Organisation Conventions on Labour Standards, the following provisions have been referenced in the development of this Code:
·  
Convention 1 (Acceptable working hours)
·  
Conventions 29 (Forced and bonded Labour)
·  
Convention 87, 98, and 135 (Freedom of Association)
·  
Convention 111 (Discrimination)
·  
Convention 138 (Minimum Age)
·  
Convention 135& Recommendation 143 (Workers’ Representatives Convention)
·  
Convention 155 Article 19 (Health and safety training)
 
DEFINITIONS
A child means a person below the age of 18 years, as defined in Article 1 of the United Nations Convention on the Rights of the Child.
Personal development is described in the Article 32 of the United Nations Convention on the Rights of the Child.


Vodafone Business Principles

Corporate Social Responsbility (Schedule 6 to CoA)
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Vodafone’s Business Principles
Vodafone’s success flows from our commitment to sound business conduct and the way we interact with our stakeholders – shareholders, employees, customers, business partners and suppliers - government and regulators, communities and society, and the environment.
As a global business, Vodafone operates within a wide range of legal jurisdictions.  We respect the rule of law within these jurisdictions and support appropriate internationally accepted standards including those on human rights.  Our Business Principles represent the additional commitments we make to our stakeholders.
Our Business Principles apply to all Vodafone companies in which we have a majority equity interest and to all Vodafone employees.  Where Vodafone operates in conjunction with business partners, third parties or in joint venture arrangements where we do not have a majority equity interest, we will seek to promote the application of our Business Principles.
We understand that we will be judged on whether we live up to our Business Principles.  We will share good practice across Vodafone as we strive for continuous performance improvement.  We will measure, review and report openly on our performance against our Business Principles.
Corporate Social Responsbility (Schedule 6 to CoA)
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1.       Value Creation
We believe that competition in a market economy, pursued in an ethical way, is the best way of delivering benefits to our stakeholders.
·  
We are committed to providing the best possible return for our shareholders.  The criteria for our investment decisions, acquisitions and business relationships will be primarily economic but they will also include social and environmental considerations.
 
2.       Public Policy
We will voice our opinions on government proposals and other matters that may affect our stake-holders but we will not make gifts or donations to political parties or intervene in party political matters.
 
3.       Communications
We will communicate openly and transparently with all of our stakeholders within the bounds of commercial confidentiality.
 
4.       Customers
We are committed to providing our customers with safe, reliable products and services that represent good value for money.
·  
We will work to understand, anticipate and respond to the needs of our customers and to provide them with innovative products and services.
·  
We value the trust our customers place in us and will safeguard the information provided to us in accordance with relevant laws.
 
5.       Employees
Relationships with and between employees are based upon respect for individuals and their human rights.
·  
We will pursue equality of opportunity and diversity through our employment policies.
·  
We will encourage our employees to reach their full potential through training and development.
·  
We will promote employee participation in share incentive plans.
 
6.       Individual Conduct
We expect all our employees to act with honesty, integrity and fairness.
·  
No form of bribery, including improper offers or payments to or from employees will be tolerated.
·  
All employees are expected to avoid any contacts that might lead to, or suggest, a conflict of interest between their personal activities and the business of Vodafone.
·  
All employees are expected to avoid accepting hospitality or gifts that might appear to place them under an obligation.
 
7.       Environment
We are committed to sustainable business practices and environmental protection.
·  
We will use finite resources carefully.
·  
We will promote the use of operational practices that reduce the environmental burden associated with our activities.
·  
We will support innovative developments in products and services that can offer environmental and social benefits.
 
8.       Communities and Society
We accept our responsibility to engage with communities and we will invest in society in a way that makes effective use of our resources, including support for charitable organisations.
9.       Health and Safety
We are committed to the health and safety of our customers, employees and the communities in which we operate.
·  
We will disclose any information that comes to our knowledge, which clearly demonstrates that any of our products or services breach internationally accepted safety standards or guidelines.
 
Corporate Social Responsbility (Schedule 6 to CoA)
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10.            Business Partners and Suppliers
We will pursue mutually beneficial relationships with our business partners and suppliers.
·  
We will seek to promote the application of our Business Principles by our business partners and suppliers.
 
Corporate Social Responsbility (Schedule 6 to CoA)
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SCHEDULE 7
 
CURRENCY CONVERSION PROCESS


If Supplier’s Prices are stated in €:

 
CURRENCY CONVERSION PROCESS
 
[Note: only to be used if VGC payments are not in Euros]
 
 
On and from the Effective Date of the Contract of Adherence, the price of the Products fixed in Euros shall be translated for payment from the Euro to a Relevant Currency (as defined below) if required by VGC using the foreign exchange rate formula as set out below.
 
 
The foreign exchange rate used shall be determined by using an average of the previous 5 days (immediately prior to the date funds are transferred to Supplier) mid price foreign exchange rates quoted on the Reuters “WMRSPOT” pages (such as the WMRSPOT29 for Euro GBP or WMRSPOT31 for Euro/USD).
 
 
The calculated foreign exchange rate will be used to translate any new prices, fees or charges agreed in relation to Purchase Orders issued by VGC prior to the Calculation Date following the Effective Date of the Contract of Adherence.
 
 
In the event that on any particular day the WRMSPOT pages required are not available then an average spot rate will be determined using quotes from Barclays Bank Plc, London and Citibank N.A.; London at 11.00 am on the same day. In the event that the required day is not a Business Day then the nearest preceding Business Day should be used.
 
6.  
On the Calculation Date (as defined below) following the Effective Date8 of the relevant Contract of Adherence and on each Calculation Date thereafter, the price of the Products fixed in euros shall be translated for payment from the Euro to a “Relevant Currency” as defined below and required by VGC for the following financial year using the Exchange Rate Formula as set out below. VGC will provide Supplier with copies of detailed calculations with supporting documentation.
 
 
In the event that VGC chooses to pay in a Relevant Currency for any financial year (April 1 to March 31) during the term of the Contract of Adherence, the selected currency shall apply in relation to all Purchase Orders issued by VGC during the financial year selected.
 
 
The selected currency shall continue to apply, unless and until VGC elects to revert to payment in Euros as set out in paragraph g) below.
 
 
On the Calculation Date in each year, Vodafone Group Plc shall determine the Average Forward rate for each Relevant Currency. The Average Forward Rate for each Relevant Currency shall be the average of the five Forward Rates for such Relevant Currency for each of the Calculation Periods. The

Currency Conversion Process (Schedule 7 to CoA)
9
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
“Forward Rate” means, in respect of each Relevant Currency and each Calculation Period, the rate determined by applying the following formula:
 
FR=Spot Rate x (1+(RC x M/12)
 
            (1+(RE x M/12)

 
Where:
 
“FR” is the Forward Rate;
 
“M” is the number of months in the relevant Calculation Period;
 
“RC” is the yield derived from the zero coupon yield curve in the Relevant Currency for a period equal to the relevant Calculation Period as quoted on the page of Reuters Money Markets Service Index page ZERO/1 at approximately 12 noon (London time) on the Calculation Date;
 
“RE” is the yield derived from the zero coupon yield curve in Euros for a period equal to the relevant Calculation Period as quoted on the relevant page of Reuters Money Markets Service Index page ZERO/1 Page 0#EURZ=R) at approximately 12 noon on the Calculation Date.
 
 
VGC may elect prior to the first Valuation Date by written and confirmed notice to the Supplier in respect of the financial year commencing on 1 April next following the Calculation Date to make payment in respect of Purchase Orders issued during such financial year in Euros instead of its Relevant Currency, in which event no such determination will be necessary.
 
7.  
Definitions in this Schedule 7:
 
“Business Day” means a day (other than a Saturday or Sunday) on which WMRSPOT is published on the Reuters Money Markets Service and banks are open for business in London;
 
“Calculation Date” means the first Thursday in January or if that is not a Business Day the immediately succeeding (Tuesday or Thursday) which is a Business Day;
 
“Calculation Period” means the First Calculation Period, Second Calculation Period, Third Calculation Period, Fourth Calculation Period and Fifth Calculation Period or any of them as the context may require;
 
“First Calculation Period” means the period from the Calculation Date to the day falling three calendar months after such Calculation Date;
 
“Second Calculation Period” means the period from the Calculation Date to the day falling six calendar months after such Calculation Date;
 
“Third Calculation Period” means the period from the Calculation Date to the day falling nine calendar months after such Calculation Date;
 
“Fourth Calculation Period” means the period from the Calculation Date to the day falling twelve calendar months after such Calculation Date;
Currency Conversion Process (Schedule 7 to CoA)
10
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
“Fifth Calculation Period” means the period from the Calculation Date to the day falling fifteen calendar months after such Calculation Date;
 
“Relevant Currency” means each of Japanese Yen; United States Dollar; British Pound Sterling, Australian Dollar, New Zealand Dollar, Polish Zloty, Hungarian Forint and Swedish Krone;
 
“Spot Quotations” means in respect of each Valuation Date and each Relevant Currency the mid-rate of exchange for the purchase of (euros) in the London foreign exchange market with such Relevant Currency at or about 4 pm (London time) on such Valuation Date as shown on page WMRSPOT of the Reuters Money Markets Service;
 
“Spot Rate” means the average of the Spot Quotations for each of the Valuation Dates;
 
“Valuation Date” means each Tuesday and Thursday falling in each of the four calendar weeks immediately preceding the Calculation Date or if any such day is not a Business Day the immediately preceding Business Day.
 






If Supplier’s Prices are stated in USD$:
 

 
CURRENCY CONVERSION PROCESS
 
[Note: only to be used if VGC payments are not in US Dollars]
 
 
On and from the Effective Date of the Contract of Adherence, the price of the Products fixed in US Dollars shall be translated for payment from the US Dollar to a Relevant Currency (as defined below) if required by VGC using the foreign exchange rate formula as set out below.
 
 
The foreign exchange rate used shall be determined by using an average of the previous 5 days (immediately prior to the date funds are transferred to Supplier) mid price foreign exchange rates quoted on the Reuters “WMRSPOT” pages (such as the WMRSPOT07 for GBP/USD or WMRSPOT05 for Euro/USD).
 
 
The calculated foreign exchange rate will be used to translate any new prices, fees or charges agreed in relation to Purchase Orders issued by VGC prior to the Calculation Date following the Effective Date of the Contract of Adherence.
 
 
In the event that on any particular day the WRMSPOT pages required are not available then an average spot rate will be determined using quotes from Barclays Bank Plc, London and Citibank N.A.; London at 11.00 am on the same day. In the event that the required day is not a Business Day then the nearest preceding Business Day should be used.
Currency Conversion Process (Schedule 7 to CoA)
11
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
8.  
On the Calculation Date (as defined below) following the Effective Date of the relevant Contract of Adherence and on each Calculation Date thereafter, the price of the Products fixed in US Dollars shall be translated for payment from the US Dollar to a “Relevant Currency” as defined below and required by VGC for the following financial year using the Exchange Rate Formula as set out below. VGC will provide Supplier with copies of detailed calculations with supporting documentation.
 
 
In the event that VGC chooses to pay in a Relevant Currency for any financial year (April 1 to March 31) during the term of the Contract of Adherence, the selected currency shall apply in relation to all Purchase Orders issued by VGC during the financial year selected.
 
 
The selected currency shall continue to apply, unless and until VGC elects to revert to payment in US Dollars as set out in paragraph g) below.
 
 
On the Calculation Date in each year, Vodafone Group Plc shall determine the Average Forward rate for each Relevant Currency. The Average Forward Rate for each Relevant Currency shall be the average of the five Forward Rates for such Relevant Currency for each of the Calculation Periods. The “Forward Rate” means, in respect of each Relevant Currency and each Calculation Period, the rate determined by applying the following formula:
 
FR=Spot Rate x (1+(RC x M/12)
 
            (1+(RE x M/12)
 
Where:
 
“FR” is the Forward Rate;
 
“M” is the number of months in the relevant Calculation Period;
 
“RC” is the yield derived from the zero coupon yield curve in the Relevant Currency for a period equal to the relevant Calculation Period as quoted on the page of Reuters Money Markets Service Index page ZERO/1 at approximately 12 noon (London time) on the Calculation Date;
 
“RE” is the yield derived from the zero coupon yield curve in US Dollars for a period equal to the relevant Calculation Period as quoted on the relevant page of Reuters Money Markets Service Index page ZERO/1 Page 0#USDZ=R) at approximately 12 noon on the Calculation Date.
 
 
VGC may elect prior to the first Valuation Date by written and confirmed notice to the Supplier in respect of the financial year commencing on 1 April next following the Calculation Date to make payment in respect of Purchase Orders issued during such financial year in US Dollars instead of its Relevant Currency, in which event no such determination will be necessary.
 
9.  
Definitions in this Schedule 7:
 
“Business Day” means a day (other than a Saturday or Sunday) on which WMRSPOT is published on the Reuters Money Markets Service and banks are open for business in London;
Currency Conversion Process (Schedule 7 to CoA)
12
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
“Calculation Date” means the first Thursday in January or if that is not a Business Day the immediately succeeding (Tuesday or Thursday) which is a Business Day;
 
“Calculation Period” means the First Calculation Period, Second Calculation Period, Third Calculation Period, Fourth Calculation Period and Fifth Calculation Period or any of them as the context may require;
 
“First Calculation Period” means the period from the Calculation Date to the day falling three calendar months after such Calculation Date;
 
“Second Calculation Period” means the period from the Calculation Date to the day falling six calendar months after such Calculation Date;
 
“Third Calculation Period” means the period from the Calculation Date to the day falling nine calendar months after such Calculation Date;
 
“Fourth Calculation Period” means the period from the Calculation Date to the day falling twelve calendar months after such Calculation Date;
 
“Fifth Calculation Period” means the period from the Calculation Date to the day falling fifteen calendar months after such Calculation Date;
 
“Relevant Currency” means each of Japanese Yen; Euro; British Pound Sterling, Australian Dollar, New Zealand Dollar, Polish Zloty, Hungarian Forint and Swedish Krone;
 
“Spot Quotations” means in respect of each Valuation Date and each Relevant Currency the mid-rate of exchange for the purchase of (US Dollars) in the London foreign exchange market with such Relevant Currency at or about 4 pm (London time) on such Valuation Date as shown on page WMRSPOT of the Reuters Money Markets Service;
 
“Spot Rate” means the average of the Spot Quotations for each of the Valuation Dates;
 
“Valuation Date” means each Tuesday and Thursday falling in each of the four calendar weeks immediately preceding the Calculation Date or if any such day is not a Business Day the immediately preceding Business Day.
Currency Conversion Process (Schedule 7 to CoA)
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SCHEDULE 8
 



Data Protection (Schedule 8 to CoA)
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SCHEDULE 9
 
SOURCE CODE ESCROW AGREEMENT
(TEMPLATE)





Source Code Escrow (Template) (Schedule 9 to CoA)
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Single Licensee
 

Escrow Agreement No:
  
Dated:
  
 
 
 
 
 Escrow Agreement Between:
 
(1)  
[                                  ]  whose registered office is at                                              (CRN: [number]) ("the Owner");
 
(2)  
Vodafone Group Services Limited whose registered office is at Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England (CRN: ) ("the Licensee") and
 
(3)  
NCC ESCROW INTERNATIONAL LIMITED whose registered office is at Manchester Technology Centre, Oxford Road, Manchester M1 7EF, ENGLAND (CRN: 3081952) ("NCC Escrow").
 
 
1. Preliminary:
 
(A)  
The Licensee has been granted a licence to use a software package comprising computer programs.
 
Alternative Clause for Development Agreement
 
(A)
The Owner has granted or has agreed to grant a licence to the Licensee to use a software package that the Owner is developing to the Licensee’s specification pursuant to the [Development ] Agreement.
 
(B)  
Certain technical information and documentation relating to the software package is the confidential property of the Owner.
 
(C)  
The Owner acknowledges that upon the occurrence of any of the Release Events of this Agreement, the Licensee may require possession of and a right to use the technical information and documentation to be deposited with and held by NCC Escrow under this Agreement.
 
(D)  
Each of the Parties acknowledges that the consideration for their respective undertakings under this Agreement are the undertakings and obligations agreed to by each of the Parties hereunder.
 
 
2. It is agreed that:
 
 
2.1  Definitions
 
In this Agreement the following terms shall have the following meanings:
 
15.5.1  
"Agreement" means the terms and conditions of this escrow agreement set out below, the schedules and Appendix A hereto.
 
15.5.2  
"Full Verification" means the tests and processes constituting NCC Escrow’s Full Verification service as described in schedule 3 hereto and/or such other tests and processes as may be agreed between the parties for the verification of the Material.
 
15.5.3  
“Group Company” means in relation to the Licensee, Vodafone Group Plc and any company or corporation in respect of which Vodafone Group Plc owns (directly or indirectly) more than 15% of the issued share capital.
 
15.5.4  
"Independent Expert" means a suitably qualified solicitor or barrister.
 
15.5.5  
"Integrity Testing" means those tests and processes forming NCC Escrow’s integrity testing service  as described in schedule 3 hereto in so far as they are applicable to the Material.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
16
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


15.5.6  
"Intellectual Property Rights" mean any copyright, patent, design patent, registered designs, design rights, utility models, trademarks, service marks, an application for any of these or the right to apply for the same, trade secrets, know how, database rights, moral rights, confidential information, trade or business names, domain names, and any other rights of a similar nature including industrial and proprietary rights and other similar protected rights in any country and any licences under or in respect of such rights.
 
15.5.7  
"Licence Agreement" means the agreement under which the Licensee was granted rights to the Package and which is part of the [              ] Agreement for the supply of Software and Services entered into by the Owner and the Licensee dated [                ].
 
Alternative clause 1.7 for use with Development Agreement
 
1.7            “Development Agreement” means the development agreement between the Owner and the Licensee relating to the development of the Package entered into by the Owner and the Licensee dated [                        ]
15.5.8  
“Maintenance Agreement” means the agreement for the support and maintenance of the Software which is part of the [           ] Agreement for the supply of Software and Services entered into by the Owner and the Licensee dated [                       ]
 
15.5.9  
"Material" means the Source Code of the Package and such other materials (including specifically but without limitation, firmware) and documentation (including updates and upgrades thereto and new versions thereof) as are necessary to comply with clause 2 hereof.
 
15.5.10  
"Package" or “Software” means the software package as more particularly described in Schedule 1 and any updates, upgrades or new versions thereof licensed to the Licensee under the Licence [Development] Agreement, any maintenance agreement, any other agreement between the Owner and the Licensee or this Agreement.
 

15.5.11  
“Release Events” means the events set out in clause 6.1.
 
15.5.12  
"Source Code" means the computer programming code of the Package in human readable form that  would enable a skilled third party on behalf of the Licensee to support, maintain and modify the Software .
 
15.5.13  
“Working Day” means a day other than a Saturday, Sunday, or public holiday in England.
 
 
2.2  
Owner's Duties and Warranties
 
15.5.1  
The Owner shall:
 
15.5.1.1  
deliver at its cost two copies of the Material to NCC Escrow within 15 days of the date of this Agreement or the date of acceptance of the Software, whichever is later;
 
15.5.1.1  
deliver at its cost to NCC Escrow two replacement copies of the Material each time that the Package is updated or amended or changed pursuant to the Licence Agreement, the Maintenance Agreement or any other agreement between the Owner and the Licensee or this Agreement within 30 days of such update, amendment or change;
 
15.5.1.1  
at all times ensure that the Material as delivered to NCC Escrow
 
Source Code Escrow (Template) (Schedule 9 to CoA)
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is capable of being used to generate the latest version of the Package issued to the Licensee and is capable of being used to understand, maintain, modify, correct and develop the latest version of the Package issued to the Licensee;
 
15.5.1.1  
shall notify NCC Escrow immediately of any circumstances under Clause 2.1.2 which necessitates a replacement deposit of the Material;
 
15.5.1.1  
deliver to NCC Escrow two replacement copies of the Material within 12 months of the last delivery to ensure the integrity of the Material media;
 
[Alternative clauses 2.1.2 – 2.1.5 for use with Development Agreements
15.5.1.1  
deliver at its cost within 7 days two copies of each part of the Material that has passed acceptance tests in accordance with the terms of the [Development Agreement] and two complete copies of the Material within 7 days of acceptance of the Package by the Licensee in accordance with the terms of the Development Agreement;
 
15.5.1.1  
at all times ensure that the Material as delivered to NCC Escrow is capable of being used to generate the latest version of the Package issued to the Licensee and shall deliver to NCC Escrow further copies of the Material as and when necessary;
 
15.5.1.1  
during the development of the Material under the [Development Agreement], deliver to NCC Escrow two replacement copies of the Material within 3 months of the last delivery;
 
15.5.1.1  
upon completion of all development work on the Material under the [Development Agreement], deliver to NCC Escrow two replacement copies of the Material within 12 months of the last delivery to ensure the integrity of the Material media;]
 

15.5.1.1  
deliver two replacement copies of the Material to NCC Escrow within 14 days of receipt of a notice served upon it by NCC Escrow under the provisions of clause 4.1.5.  In such a case the Owner may recover from NCC Escrow its reasonable costs for the preparation of two copies of the Material;
 
15.5.1.1  
deliver with each deposit of the Material the following information:
 
(1)  
details of the deposit including full name (original name as set out under Schedule 1 together with any new names given to the Package by the Owner) and version details, media type, backup command/software used, compression used, archive hardware and operating system details; and
 
(2)  
password/encryption details required to access the Material;
 
15.5.1.1  
deliver with each deposit of the Material any of the following technical information (where applicable) which must be sufficient to allow a reasonably skilled software programmer or engineer to understand, maintain, modify and correct the Material:
 
(1)  
documentation describing the procedures for building, compiling and installing the software, including names and versions of the development tools;
 
(2)  
software design information (e.g. module names and functionality); and
 
(3)  
name and contact details of employees with knowledge of how to
 
oSource Code Escrow (Template) (Schedule 9 to CoA)
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[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 maintain and support the Material; and
 
15.5.1.1  
deposit  a backup copy of the object code of any third party software package required to access, install, build or compile or otherwise use the Material.
 
15.5.2  
The Owner warrants:
 
15.5.1.1  
on its own behalf and on behalf of each and every director of the Owner, to NCC Escrow, that it is the sole legal and beneficial owner of  the Intellectual Property Rights in the Material (other than any third party object code referred to in clause 2.1.9) or in respect of any Source Code  forming part of the Material that it does not own, it has been granted valid and ongoing rights under licence by the third party owner(s) thereof to deal with such Source Code in the manner anticipated under this Agreement and that the Owner has the express authority of such third party owner(s) to deposit the same under this Agreement as evidenced by signed letter(s) of authorisation in the form set out in Appendix A, to be provided to NCC Escrow prior to or no later than at the time of such deposits;
 
15.5.1.1  
that in entering into this Agreement, it is not in breach of any of its ongoing express or implied obligations to any third party(s);
 
15.5.1.1  
that the Material lodged under clause 2.1 shall contain all information in human-readable form (except for any third party object codes) and on suitable media to enable a reasonably skilled programmer or analyst to  ( develop the package if and to the extent permitted in the [Development/Licence Agreement] and to understand, maintain, modify and correct  the Package; and
 

15.5.1.1  
that in respect of any third party object code that the Owner  deposits with NCC Escrow under this Agreement in conjunction with the Material, that it has full right and authority to do so.
 
 
2.3  
Licensee’s Undertaking
 
15.5.1  
In the event that the Material is released under clause 6, the Licensee shall subject to the provisions of this clause keep the Material confidential and shall use the Material only for the purpose of [developing], understanding, maintaining, modifying and correcting the Package exclusively on behalf of the Licensee or to such greater extent as is permitted under the Licence [Development] Agreement  and/or clause 6 hereof.
 
15.5.2  
3.2 The Licensee may disclose the Material to  and/or permit useage by Group Companies/third parties to the extent  permitted in the [Development]/Licence Agreement and where such disclosure or useage occurs shall ensure that such Group Companies/third parties are subject to the same obligations of confidence as are contained herein.
 

 
2.4  
 NCC Escrow's Duties and Warranties
 
15.5.1  
NCC Escrow warrants that it shall:
 
15.5.1.1  
hold the Material in a safe and secure environment;
 
15.5.1.1  
upon receipt of any deposit of the Material, apply the Integrity Testing to the Material in accordance with clause 9;
 
15.5.1.1  
inform the Owner and the Licensee of the receipt of any deposit
 
Source Code Escrow (Template) (Schedule 9 to CoA)
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of the Material by way of a copy of the Integrity Testing report or Full Verification report (as the case may be) generated from the testing carried out under clause 9;
 
15.5.1.1  
at all times retain at each of two (2) different locations one (1) copy of the latest verified deposit of the Material and one (1) copy of the previous deposit of the material and notify the Owner and the Licensee in writing of each such location; and
 
15.5.1.1  
notify the Owner and the Licensee if it becomes aware at any time during the term of this Agreement that the copy of the Material held by it has been lost, damaged or destroyed.
 
15.5.2  
NCC Escrow shall not be responsible for procuring the delivery of the Material in the event of failure by the Owner to do so, but NCC Escrow must as soon as practicable  notify the Licensee of the Owner's failure to deposit any Material under this Agreement of which it is aware.
 
15.5.3  
NCC Escrow may with the Licensee’s prior written consent such consent not to be unreasonably withheld or delayed, appoint agents, contractors or sub-contractors to carry out the Integrity Testing and the Full Verification and NCC Escrow shall ensure that such agents, contractors or sub-contractors are bound by the same confidentiality obligations as are contained in clause 7.
 
15.5.4  
NCC Escrow shall have the right to make such copies of the Material as may be necessary solely for the purposes of this Agreement and following termination of this Agreement all such copies shall be destroyed  or returned to the Owner at its request.
 
 
4.5
NCC Escrow shall obtain and maintain with a reputable insurance company for the duration of its obligations under this Agreement and for a period of twelve months thereafter the following insurances; public and product liability insurance with a limit of not less than £10 million per occurrence and professional indemnity (errors and omissions) insurance with a limit of not less than £5 million per occurrence together with such other insurances required by law with a limit in each of not less than £5 million in relation to any one claim (or such greater amounts as required by law).    NCC Escrow shall administer its insurances in accordance with good industry practice at all times. If required by the Licensee NCC Escrow shall provide evidence of its insurances and payment of any premium (in a form satisfactory to the Licensee) and shall not subsequently reduce the level of such insurance.
 
 
4.6
In addition to all warranties and conditions implied by statute or otherwise , NCC Escrow warrants and represents to each of the Owner and Licensee that each of its obligations under this Agreement, including without limitation its obligations under this Clause 4, shall be performed promptly in a timely, professional and workmanlike manner in accordance with best industry practice.

 
2.5  
Payment
 
15.5.1  
The Owner and the Licensee shall pay NCC Escrow’s standard fees and charges as published from time to time or as otherwise agreed in accordance with this Agreement and in the proportions set out in Schedule 2. NCC Escrow’s fees as published are exclusive of value added tax and inclusive of all other taxes.
 
15.5.2  
NCC Escrow and the Licensee shall meet once a year to discuss in good faith the
 
Source Code Escrow (Template) (Schedule 9 to CoA)
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level of NCC Escrow’s standard fees and charges for its services applicable under this Agreement. In the absence of agreement, NCC Escrow shall be entitled to increase its fee and charges once a year upon 45 days notice to the parties, provided that any increase may not  exceed the lesser of 10% or the rate provided by the Retail Prices Index plus 5%.
 
15.5.3  
All invoices are payable within 30 days from the end of the month in which the invoice is received. NCC Escrow reserves the right to charge interest in respect of the late payment of any sum due under this Agreement (as well after as before judgement) at the rate of 2% per annum over the prevailing base rate of the HSBC Bank Plc accruing on a daily basis from the due date therefore until full payment.
 



 
2.6  
Release Events
 
15.5.1  
Subject to the provisions of clauses 6.2 and 6.3 and upon receipt of its release fee and any other fees outstanding under this Agreement, NCC Escrow will release the Material to a duly authorised officer of the Licensee if any of the following events (“Release Event(s)”) occur:-
 
15.5.1.1  
the Owner enters into any company voluntary arrangement or individual voluntary arrangement or (being a company) enters into liquidation whether compulsory or voluntary (other than for the purposes of solvent reconstruction or amalgamation) or has a receiver or administrative receiver appointed over all or any part of its assets or undertaking or an Administration Order is made or (being an individual or partnership) becomes or is adjudicated bankrupt, or an event occurs within the jurisdiction of the country in which the Owner is situated which has a similar effect to any of the above events in the United Kingdom; or
 
15.5.1.1  
the Owner ceases or threatens to cease to carry on business; or
 
15.5.1.1  
the Owner assigns its rights in the Intellectual Property Rights in the Material and the assignee fails within 60 days of such assignment to offer the Licensee substantially similar protection to that provided by this Agreement without significantly increasing the cost to the Licensee; or
 
15.5.1.1  
the Owner is in  breach of its obligations as to [development], support, maintenance or modification of the Package under the Licence Agreement [Development Agreement] or any maintenance agreement entered into in connection with the Package and has failed to remedy such default notified by the Licensee to the Owner within a reasonable period.
 

6.1.5 The Owner fails to make a deposit of new, corrected or revised Material within 5 days of receipt of the notice of test failure pursuant to clause 9.4 hereof.
15.5.2  
The Licensee must notify NCC Escrow of the Release Event(s) specified in clause 6.1 by delivering within one month of the date of actual knowledge of the Release Event to NCC Escrow a statutory or notarised declaration ("the Declaration") made by an officer of the Licensee declaring that such Release Event has occurred, setting out the facts and circumstances of the Release Event.
 
15.5.3  
Upon receipt of a Declaration from the Licensee claiming a Release Event under clause 6.1:
 
Source Code Escrow (Template) (Schedule 9 to CoA)
21
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15.5.1.1  
NCC Escrow shall immediately submit a copy of the Declaration to the Owner by courier or equivalent type of post; and
 
15.5.1.1  
unless within 5  days after the date of despatch the Owner delivers to NCC Escrow a counter-notice signed by a duly authorised officer of the Owner stating that no such Release Event has occurred, or that the breach giving rise to the Release Event has been rectified as shown by documentation in support thereof
 
NCC Escrow will immediately release the Material to the Licensee upon the expiry of such 5 day period.
 
15.5.4  
Upon receipt of the counter-notice from the Owner under clause 6.3.2, NCC Escrow shall to the extent that it is reasonably possible, the same day, or as soon as practicable thereafter send a copy of the counter-notice and any supporting evidence to the Licensee.
 
15.5.5  
In the event of any dispute as to the occurrence of any of the Release Events , NCC Escrow shall promptly notify the Owner and the Licensee of the dispute and such dispute will then be referred as soon as possible having regard to the urgency of the dispute by NCC Escrow to the Managing Director for the time being of NCC Escrow to appoint an Independent Expert or if either the Owner or the Licensee so requests within 5 Working Days of notification of a dispute as to the occurrence of any of the Release Events NCC shall forthwith apply to The Law Society or The Bar Council (or successor bodies) for the appointment of an Independent Expert on behalf of the Owner and the Licensee.
 
15.5.6  
Within 5 Working Days of the appointment of the Independent Expert, the Owner and the Licensee shall each provide full written submissions to the Independent Expert together with all relevant documentary evidence in their possession in support of their claim, whereupon the Independent Expert shall give a decision on the matter within 14 Working Days of the date of referral  and shall send that decision to the parties and NCC Escrow. The Independent Expert's decision shall be final and binding on all parties to this Agreement and shall not be subject to appeal to a court in legal proceedings except in the case of manifest error.
 
15.5.7  
If the Independent Expert's decision is in favour of the Licensee, NCC Escrow is hereby authorised to release and deliver the Material to the Licensee within 2 Working Days of the decision being declared by the Independent Expert to the parties.
 
15.5.8  
The parties hereby agree that the reasonable costs and expenses of the Independent Expert shall be borne by the Owner (or its agent or any party acting on its behalf) where the Independent Expert decides that the relevant Release Event(s) has occurred, or the Licensee where the Independent Expert decides that the relevant Release Event(s) has not occurred.
 
15.5.9  
Subject to clause 6.2 above for the avoidance of doubt, where clause  6.1.1 or 6.1.2 Release Events have been triggered, a subsequent remedy by the Owner will not invalidate the Licensee’s right to apply to NCC Escrow for release of the Material unless the Licensee waives its right in writing within one month from the date of knowledge of a Release Event.
 
 
6.10
In the event a Release Event occurs, the Licensee shall be entitled to deliver the Material to its Group Companies (as required) for use [in accordance with clause of the [Development] Licence Agreement].
 
2.7  
Confidentiality
 
15.5.1  
The Material shall remain the confidential property of the Owner.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
22
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
15.5.2  
Subject to clause 7.3 NCC Escrow agrees to keep all information relating to the Material and/or the Package that comes into its possession or to its knowledge under this Agreement in strictest confidence and secrecy.  NCC Escrow further agrees not to make use of such information and/or documentation other than for the purposes of this Agreement and will not disclose or release it other than in accordance with the terms of this Agreement, unless the parties should expressly agree otherwise in writing signed by the authorised signatories of all parties to this Agreement.
 
15.5.3  
This clause shall not apply to any information relating to the Material which:
 
§  
Is already in the public domain or which enters into the public domain other than by breach of this Agreement;
 
§  
Is received by NCC Escrow from a third party free to disclose the same or which NCC Escrow can prove was already in its possession free from restriction.
 

 
2.8  
Intellectual Property Rights
 
15.5.1  
The release of the Material to the Licensee will not act as an assignment of any Intellectual Property Rights that the Owner or any third party possesses in the Material.
 
15.5.2  
The Intellectual Property Rights in the Integrity Testing report and any Full Verification report shall remain vested in NCC Escrow. The Owner and the Licensee shall each be granted a non-exclusive non-transferable right and licence to use such report to [develop,] improve, modify or correct the Material and to give full effect to this Agreement and the [Development] [Licence] Agreement.Group Companies and other third parties shall be given a licence to use the Integrity Testing report and any Full Verification report to an equivalent extent that the [Development] [Licence] Agreement gives them the right to use the Material.
 
 
2.9  
Integrity Testing and Full Verification
 
15.5.1  
Subject to Clauses 9.2 and 9.3 below, NCC Escrow shall bear no obligation or responsibility to any party to this Agreement or person, firm, company or entity whatsoever to determine the existence, relevance, completeness, accuracy, operation, effectiveness, functionality or any other aspect of the Material received by NCC Escrow under this Agreement.
 
15.5.2  
Upon each lodging of the Material with NCC Escrow, NCC Escrow shall apply its Integrity Testing to the Material.
 
15.5.3  
Any party to this Agreement shall be entitled to require NCC Escrow to carry out a Full Verification. NCC Escrow’s prevailing fees and charges for the provision of the Full Verification, as set out in Schedule 2, shall be  split equally between the Owner and the Licensee, save that if in the reasonable opinion of the Managing Director of NCC Escrow based on the relevant test report(s), the Material is defective or incomplete in content, NCC Escrow's fees charges and expenses in relation to the Full Verification shall be paid by the Owner.
 
15.5.4  
Should the Material deposited fail to satisfy NCC Escrow's Integrity Testing or Full Verification tests under clauses 9.2 or 9.3, the Owner shall within 5 days of the receipt of the notice of test failure from NCC Escrow, deposit such new, corrected or revised Material as shall be necessary to ensure its compliance with its warranties and obligations in clause 2. If the Owner fails to make such deposit
 
Source Code Escrow (Template) (Schedule 9 to CoA)
23
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

of the new, corrected or revised Material, NCC Escrow will issue a report to the Licensee detailing the problem with the Material as revealed by the relevant tests and the Licensee shall be entitled to apply for release of the Material pursuant to clause 6.1.5 hereof
 
 
2.10  
NCC Escrow's Liability
 
15.5.1  
Nothing in this clause 10 excludes or limits the liability of NCC Escrow for fraudulent misrepresentation or for death or personal injury caused by NCC Escrow's negligence. Save as aforesaid the following provisions set out the entire financial liability of NCC Escrow (including any liability for the acts or omissions of its employees, agents and sub-contractors) to the other parties:
 
15.5.1.1  
NCC Escrow shall not be liable for any loss or damage caused to either the Owner or the Licensee either jointly or severally except to the extent that such loss or damage is caused by the negligent acts or omissions of or a breach of any contractual duty by NCC Escrow, its employees, agents or sub-contractors and in such event NCC Escrow's total liability in respect of any claim or series of connected claims arising under or by virtue of this Agreement or in connection with the performance or contemplated performance of this Agreement, shall not exceed the  sum of £1,000,000.
 
15.5.1.1  
NCC Escrow shall not be liable to the Owner and/or the Licensee for any indirect or consequential loss or damage whether for loss of profit, loss of business, depletion of goodwill or otherwise whatsoever or howsoever caused which arise out of or in connection with this Agreement even if such loss was reasonably foreseeable or NCC Escrow had been advised of the possibility of incurring the same by the Owner, the Licensee or any third party.
 
15.5.2  
NCC Escrow shall be protected in acting upon any written request, waiver, consent, receipt, statutory declaration or any other document furnished to it pursuant to and in accordance with this Agreement, not only in assuming the authority of the person furnishing such document, its authenticity, due execution and validity and effectiveness of its provisions but also as to the truth of any information contained in it which NCC Escrow in good faith believes to be genuine and what it purports to be.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
24
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
 
2.11  
Indemnity
 
Save for any claim falling within the provisions of clause 10.1:
 
15.5.1  
The Owner  agrees to reimburse NCC Escrow on an indemnity basis all of its legal and all related costs incurred directly or indirectly as a result of being brought into or otherwise becoming involved in any form of dispute resolution proceedings or any litigation of any kind between the Owner and the Licensee in relation to this Agreement to the extent that this Agreement does not otherwise provide for reimbursement of such costs.
 
15.5.2  
The Owner shall assume all liability and shall indemnify and keep indemnified both NCC Escrow and the Licensee and their officers, agents, sub-contractors and employees from and against any and all liability, loss, damages, costs, legal costs, professional and other expenses and any other liabilities of whatever nature, awarded against or agreed to be paid or otherwise suffered, incurred or sustained by NCC Escrow and the Licensee, whether direct, indirect or consequential as a result of or in connection with any claim by any third party(s) for alleged or actual infringement of Intellectual Property Rights arising out of or in connection with all and any dealings by NCC Escrow and the Licensee in respect of the Material as contemplated under this Agreement.
 
 
2.12  
Termination
 
15.5.1  
NCC Escrow may terminate this Agreement by notice in writing to the Owner and the Licensee after failure by the Owner or the Licensee to comply with a 30 day written notice from NCC Escrow to pay any outstanding fee set out in Schedule 2.  If the failure to pay is on the part of the Owner, the Licensee shall be given formal notice pursuant to clause 13.4 hereof offering it the option of paying such fee itself which option shall expire 30  days after it is notified to the Licensee.  Such amount will be recoverable by the Licensee direct from the Owner.
 
15.5.2  
NCC Escrow may terminate this Agreement by giving 60 days written notice to the Owner and the Licensee. In that event the Owner and the Licensee shall appoint a mutually acceptable new custodian on similar terms and conditions to those contained herein. If a new custodian is not appointed within 60 days of delivery of such notice, the Licensee shall be entitled to request the President for the time being of the British Computer Society (or such other body replacing the same) to appoint a suitable new custodian upon terms and conditions which contain the same protections and benefits for the Licensee as set out in this Agreement.  Such appointment shall be final and binding on all parties. NCC Escrow will forthwith deliver the Material to the new custodian.
 
15.5.3  
The Licensee may terminate this Agreement at any time by giving written notice to NCC Escrow.  Provided such notice is not given in the first year of the Agreement, NCC Escrow shall give a pro-rata refund of the annual fee paid in advance by the Owner and the Licensee in the proportions in which they paid the fee.
 
15.5.4  
 The Owner may only terminate this Agreement with the written consent of the Licensee.
 
15.5.5  
This Agreement shall terminate upon release of the Material to the Licensee in accordance with clause 6.
 
15.5.6  
Upon termination under the provisions of clauses 12.3 or 12.4, for 30 days from the date of termination NCC Escrow will make the Material available for
 
Source Code Escrow (Template) (Schedule 9 to CoA)
25
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

collection by the Owner from the premises of NCC Escrow during office hours.  After such 30 day period NCC Escrow will destroy the Material.
 
15.5.7  
For the avoidance of doubt, this Agreement may be terminated forthwith by mutual agreement of all parties hereto and upon such termination, unless otherwise agreed, NCC Escrow will return the Material to the Owner.  Provided such termination does not take place in the first year of the Agreement, NCC Escrow shall give a pro-rata refund  of the annual fee paid in advance by the Owner and the Licensee in the proportions in which they paid the fee.
 
15.5.8  
The provisions of clauses 7 to 13  shall continue in full force after termination of this Agreement.
 
15.5.9  
On termination of this Agreement the Owner and/or the Licensee (as appropriate) shall remain liable to NCC Escrow for payment in full of any fee which has become due but which has not been paid as at the date of termination.
 
15.5.10  
The termination of this Agreement, however arising, shall be without prejudice to the rights accrued to the parties prior to termination.
 
 
2.13  
General
 
15.5.1  
The parties shall notify the other parties within 30 days of any change of names or any other material changes that may affect the validity or operation of this Agreement.
 
15.5.2  
The formation, existence, construction, performance, validity and all aspects of this Agreement shall be governed by and construed in accordance with the laws of England and subject to clauses 6.5 to 6.8  the parties submit to the exclusive jurisdiction of the English courts.
 
15.5.3  
This Agreement, the Schedules and the Appendix hereto, together with the [Development] [Licence] Agreement and any maintenance agreement (in respect of the Owner and Licensee only) represents the whole agreement relating to the escrow arrangements between the parties for the Package and shall supersede all prior agreements, discussions, arrangements, representations, negotiations and undertakings. In the event of any conflict between any of these documents, the terms of the [Development] [Licence] Agreement shall prevail as between the Owner and the Licensee
 
15.5.4  
Any notice or other communication required or permitted to be given or made hereunder shall be validly given or made if delivered by hand or courier or if despatched by pre-paid, registered letter post addressed to the address specified on page 1 of this Agreement (or such other address as may be notified to the parties from time to time) or if sent by facsimile message to such facsimile number as has been notified to the parties from time to time and shall be deemed to be given or made:
 

(i)            if delivered by hand or courier, at the time of delivery;
(ii)            if sent by registered first class post, 2 business days after the same shall have been posted;
(iii)  
if sent by facsimile, at the time of transmission of the facsimile transmission with facsimile machine confirmation of transmission to the correct facsimile number of all pages of the notice.


15.5.5  
NCC Escrow shall  be entitled to transfer or assign this Agreement  on giving 60 days notice in writing to the Owner and the Licensee.  Such notice shall specify the name of the proposed Transferee or Assignee.  Should NCC Escrow’s Assignee or Transferee not be acceptable to either the Licensee or the Owner, a new escrow agent shall be appointed in accordance with the terms of clause 12.2
 
Source Code Escrow (Template) (Schedule 9 to CoA)
26
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hereof.
 
15.5.6  
Within 14 days of any assignment or transfer by the Owner of any part of its Intellectual Property Rights in the Material, the Owner shall notify NCC Escrow of such assignment or transfer and include within the notice the date on which the assignment or transfer took effect.
 
15.5.7  
This Agreement shall be binding upon the successors and assigns of the parties provided always that nothing shall permit any assignment by any party  except as expressly provided herein.
 
15.5.8  
If any provision of this Agreement is declared illegal, invalid or unenforceable, or is too broad in any respect to permit enforcement to its full extent, the parties agree that such provision shall be enforced to the maximum extent permitted by law and that such provision shall be deemed to be varied accordingly. If any provision of this Agreement is found by any court, tribunal or administrative body of competent jurisdiction to be wholly or partly illegal, invalid, void, voidable, unenforceable or unreasonable, it shall, to the extent of such illegality, invalidity, voidability, unenforceability or unreasonableness, be deemed severable to that extent and the remaining part of the provision and the rest of the provisions of this Agreement shall continue in full force and effect.
 
15.5.9  
Save as expressly provided in this Agreement, no amendment or variation of this Agreement shall be effective unless in writing and signed by a duly authorised representative of each of the parties to it.
 
15.5.10  
In relation to assignment, transfer or sub-contracting of this Agreement by the Owner and/or the Licensee the provisions of [clause    of the [                 ] Agreement for the supply of Software and Services dated [            ] entered into between the Owner and Licensee shall apply].
 
15.5.11  
Save for Group Companies (whose rights are set out in clause 6.10 hereof) this Agreement is not intended to create any right under the Contracts (Rights of Third Parties) Act 1999 which is enforceable by any person who is not a party to this Agreement and save for  and Group Companies the rights of any third party under the said Act are hereby expressly excluded. Notwithstanding the foregoing, the parties may rescind or vary this Agreement without the consent of those  Group Companies given the right of enforcement in this Clause 13.11.
 
15.5.12  
No failure or delay by the Licensee in exercising any of its rights under this Agreement shall be deemed to be a waiver of that right save where this Agreement provides for express time limits to be met.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
27
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 


 
Signed for and on behalf of
 

 
Name:            ……………………………………………………………………                                   ¦ …………………………………………………………………………………………
 

 
Position:                       ……………………………………………………………………                               ¦     (Authorised Signatory)
 

 

 
Signed for and on behalf of VODAFONE GROUP
 
 SERVICES LIMITED
 

 
Name:            ……………………………………………………………………                                    ¦ …………………………………………………………………………………………
 

 
Position:                       ……………………………………………………………………                                 ¦     (Authorised Signatory)
 

 

 
Signed for and on behalf of NCC ESCROW INTERNATIONAL LIMITED
 

 
Name:            ……………………………………………………………………                                      ¦ …………………………………………………………………………………………
 

 
Position:                       ……………………………………………………………………                                   ¦  (Authorised Signatory)
 
Source Code Escrow (Template) (Schedule 9 to CoA)
28
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 
3. Schedule 1
 
 
4. The Package
 
The software package known as [name] or any other name(s) as may be given to it by the Owner from time to time.



 
Schedule 2
 
 
5. NCC Escrow's Fees
 
 
DESCRIPTION
FEES
OWNER     
LICENSE
 1
Annual Fee (payable on completion of this Agreement and on each anniversary thereafter)
      
 2
Scheduled Update Fee (2nd and subsequent scheduled deposits in any one year, payable on completion of this Agreement and on each anniversary thereafter)
For development agreements
Please note a minimum of 3 are required during the development of the Material in accordance with clause 2.1.4
      
 3
Unscheduled Update Fee (per unscheduled deposit)
      
 4
Release Fee (plus NCC Escrow's reasonable expenses)
  
100%
  
 5
Integrity Testing Fee
  
100%
  
 6
Full Verification Fee
  
100%
  

 

 

 
Additional fees will be payable to NCC Escrow by the Licensee (unless otherwise agreed between the parties) for the following where applicable:
 

 
·  
Storage Fee for deposits in excess of 1 cubic foot;
 
·  
Any novation of this Agreement at the request of the Owner or the Licensee;
 
·  
Integrity Testing Fee for deposits consisting of more than 5 media items.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
29
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
Schedule 3
 

The NCC Group
 
Verification Services
 



 

 



 
6. Integrity Testing
 

This service is included as part of the standard escrow package. The aim of Integrity testing is to ensure the integrity of the media deposit. This is achieved by carrying out the following checks on each media item received:

·  
A Virus check is carried out on each media item where applicable.
·  
The media is read to ensure that all data can be retrieved successfully
·  
Any compressed files retrieved are checked to ensure that they can be decompressed successfully. If the compressed files are protected by passwords, the passwords shall be obtained if not already supplied. *
·  
A check shall be made for any encrypted files that may have been retrieved. Any encrypted files located shall be deencrypted and the methods to deencrypt shall be noted (passwords etc)*.
·  
A check shall be made to ensure that source code files have been retrieved. A number of source code files shall be viewed to ensure that they can be viewed in human readable form.
·  
A check shall be made on the existence of features in the source code that aid readability (and thus understandability). Features searched for are modification histories, indentation, comments, meaningful variable and procedure names and meaningful filenames.

This final check is not a pass or fail issue, the check ascertains whether each feature is present.

If any of the first five checks fail then the software owner shall be asked to provide a replacement deposit which in turn shall be integrity tested.

On successful completion of the Integrity Test exercise, a brief report (average 4 pages) shall be produced which details the results of the above checks alongside an inventory of media items / documents received. The cover of the report details the escrow agreement number, software
owner, date of deposit and name and version of source code (as stated on the accompanying source code deposit form, completed by the software owner).

This level of verification does not include any building or testing of deposited material.
Source Code Escrow (Template) (Schedule 9 to CoA)
30
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


* The fact that passwords form part of the escrow deposit are noted but the passwords themselves are not revealed in the Integrity testing report.
 
7. Integrity Plus
 

The following is a schedule for a typical Integrity Plus exercise.

The software owner may prepare the source code deposit media prior to the Integrity Plus exercise taking place, although it is recommended that the exercise is completed before the media is prepared.  Standard Integrity testing of the created media item is usually the final stage of the process.  This ensures that all required materials (source code, batch files, documents, CAD drawings etc.,) are included on the deposit media.  The following schedule assumes that all of the files required for placing on the escrow media are in place on appropriate hardware in a location that can be examined by the verification consultant.

The goal is to successfully complete the Integrity Plus exercise and for The NCC Group representative to retain the materials for lodgement in the Escrow Secure Deposit facility.

This schedule assumes that the exercise will be carried out with the full co-operation of a technical representative of the software owner to provide guidance in gathering the data required for the most complete escrow lodgement.

The proposed schedule is as follows:

·  
Arrival at the verification site and introduction of participants
·  
Opening Meeting
·  
Explanation of Integrity Plus process
·  
Brief Explanation of deposit to be lodged (source code, support files and documentation)
 
·  
Agreement on the intended inventory of items to be handed over to NCC at the end of the process (i.e. the escrow deposit)
 
 
·  
Questions and Answers Session (if necessary)
 
·  
Explanation of Integrity Plus environment architecture (hardware & Operating Systems)
·  
Explanation of the third party utilities and any batch files that would be required to build the application
·  
Explanation of directories and contents to be placed on the escrow deposit media.
·  
NCC will confirm the existence of source files on the verification hardware.  Sample source files will be viewed using the most appropriate viewer / editor
·  
NCC will ascertain the level of clarity of the source code (i.e. modification histories, comments, indentation, meaningful variable/procedure names and meaningful filenames)
·  
NCC will ascertain that a sample source file can be edited to ensure they are not write-protected in any way
·  
If a database is used by the application under test, and is being placed in Escrow, a plan / entity diagram or list of tables shall be supplied to NCC
·  
NCC shall ascertain that a number of chosen tables exist as stated in the information provided and that the tables contain the fields as expected.
·  
If applicable, any CAD drawings or similar design lodgment items will be viewed and details taken of the drawing names, drawing numbers and filenames.  The amount of drawings checked will be determined by the total number of drawings lodged.
Source Code Escrow (Template) (Schedule 9 to CoA)
31
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·  
If available, the Software Owner shall provide NCC with documentation to be included with the deposit that would assist the future maintenance of the source code being placed into Escrow.  Details of the documentation (Titles, versions, dates and authors) will be noted.
·  
The source code and all associated files shall be written to media for handing over to NCC for lodgment in Escrow
·  
If applicable, and if available, a virus check shall be carried out on the media deposit
·  
The contents of the media shall be read onto the verification hardware, ensuring that the media can be completely read without error
·  
Check for passwords / encryption.
·  
If passwords / encryption have been utilised in producing the escrow deposit, then the affected data /  files shall be accessed using the password or decryption key provided by the licensor.  The password or encryption key shall then be held as part of the Escrow deposit.
·  
Check for compression.  If compression has been utilised then the files / data shall be decompressed
·  
A Source Code Deposit form will be completed by the software owner representative.
·  
The media item shall be retained by NCC for placing in Escrow along with completed source code deposit form
·  
Closing Meeting including summary of Integrity Plus exercise.
·  
Transfer the deposit to secure escrow location.

On successful completion of the exercise, an Integrity Plus Test Report shall be produced recording the checks made, result of those checks and any findings or recommendations.


 
8. Full Verification
 

This service is for those who wish to ensure that the deposit in escrow is as complete as possible and contains source code that is correct and complete and can be built into the application as expected by the client.  The Full Verification exercise requires the assistance of the software owner and is carried out at their site. The main aims of the Full Verification exercise are:

·  
to ensure that the source code can be built into a testable version of the application expected by the client;
·  
that an escrow deposit is created containing all source code and associated files required during the Full Verification exercise as well as any other information required by a licensee should a release event ever occur; This deposit is Integrity Tested at the software owner’s site.
·  
that a detailed report is produced of the steps carried out to build the application.  The report is provided to all parties involved in the verification process and is also placed in escrow as part of the Fully Verified deposit;

The Full Verification exercise is made up of the following checks:

·  
Opening Meeting in which the Full Verification process is explained, an explanation of software to be verified (functionality, modularity and technical issues) is given and agreement on the intended inventory of items to be handed over to NCC at the end of the process.
·  
Explanation of verification architecture (hardware & Operating Systems)
Source Code Escrow (Template) (Schedule 9 to CoA)
32
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·  
Explanation of the third party utilities and any batch files that are to be used for the build process
·  
Confirmation of the existence of source files on the verification hardware.  Sample source files will be viewed using the most appropriate viewer / editor
·  
Ascertain the level of clarity of the source code (i.e. modification histories, comments, indentation, meaningful variable/procedure names and meaningful filenames)
·  
Ascertain that sample source files can be edited to ensure they are not write-protected or encrypted in any way
·  
If a database is used by the application under test, and is being placed in Escrow, a plan / entity diagram or list of tables (if available) should be supplied.   NCC shall then ascertain that a number of chosen tables exist as stated in the information provided and that the tables contain the fields as expected.
·  
All relevant source programs will be compiled / built / linked in order to create an executable version of the software.
·  
The executable version of the software generated during the Full Verification exercise will be installed on the relevant hardware
·  
The software Owner will test the built executable prior to Licensee testing and shall verify that the working system is as expected.
·  
The licensee representative shall carry out whatever tests are required in order to ascertain that the system behaves in a manner as is expected and is correct
·  
If available, the software owner shall provide documentation that would assist the future maintenance of the source code being placed into Escrow.  This will ideally be supplied in softcopy form and should be placed in a source directory to be written to the escrow media deposit
·  
The source code and all associated files (i.e documentation) shall be written to media for handing over for deposit in Escrow
·  
The media items handed shall be Integrity Tested.
·  
The verified code shall be retained by NCC for placing in Escrow along with completed source code deposit form

On successful completion of the exercise, a Full Verification Test Report shall be produced recording the checks made, result of those checks and any findings or recommendations.

 
9. Escrow Complete
 

·  
Escrow Complete is the most comprehensive level of testing that the NCC Group can offer and bases itself on the Full Verification. Escrow Complete essentially begins with a standard Full Verification which is undertaken at the Software Owner’s offices. This exercise is used to create a new Escrow deposit, also obtaining detailed environment and build instructions throughout the compilation and deployment procedures for the application in question.

·  
Escrow Complete extends the level of assurance offered by the Full Verification as it incorporates a repeat of the initial exercise, this time at the client’s offices. This exercise would make use of the Escrow deposit and build procedures recorded during the initial Full Verification and serves to ensure that the client then has the means to rebuild the system from scratch.

·  
A representative from the Software Owner is required to carry out the verification procedures at both sites which will be documented by the NCC Group Consultant. As the
Source Code Escrow (Template) (Schedule 9 to CoA)
33
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

  
source code constitutes the IPR’s of the software owner, the repeat exercise must be suitably supervised in order to ensure the security of the code.


The NCC Group, Manchester Technology Centre, Oxford Road, Manchester M1 7EF
 

Tel: +44 (0) 161 209 5256, Fax +44 161 209 5394
 

 e-mail: fullverifs@nccglobal.com  http://www.nccglobal.com





 
Source Code Escrow (Template) (Schedule 9 to CoA)
34
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Appendix A to Escrow Agreement No. [      ]
 

 
 [DRAFT]
 
 LETTER OF AUTHORISATION
 


 
(This document MUST be signed and returned to NCC Escrow on ["A"s] letterhead at the time of execution of the Escrow Agreement or no later than at time of deposit of the Source Code material owned by [A])


In consideration of £1.00 (one sterling pound) paid by ["B"] receipt of which is hereby acknowledged by ["A"]
The undersigned, [name of authorised signatory] of _["A"]_______________________ hereby grants to, and confirms that _____["B"_]____________________ has the authority, with regard to [name of "A"s software] software which is software licensed to     ["B"]___________ under [the Licence Agreement] entered into by and between ["A"] and ["B"] dated _____________, to enter into the Escrow Agreement by and between/among __["B"]_______, ["C"]  ____ and NCC Escrow International Limited, a copy of which is attached to this letter and initialled by the undersigned authorised signatory of ["A"] set forth below for and on behalf of ["A"].

The undersigned confirms that ___["A"]______ is the owner of the intellectual property rights which form part of the Material described in Schedule 1 of the Escrow Agreement.

I, the undersigned _______________ [name of Authorised Signatory] have read the Escrow Agreement and confirm that I am fully aware of its terms and conditions, in particular but not limited to the release events which will enable ["C"] to have certain rights to the Source Code material of [A’s software].





Signed for and on behalf of ["A"]________________________________________
 
(Authorised Signatory)

Name            : _______________________
 
Position                       : _______________________
 
Date            : ________________________
 




Please note the following when completing this document:
 

·  
"A" = Intellectual Property Rights owner
 
·  
"B" = The party authorised by "A" to enter into the Escrow Agreement
 
·  
"C" = The Licensee under the Escrow Agreement
 
·  
The IPR owner "A" should initial the first page of the attached Agreement.
 
Source Code Escrow (Template) (Schedule 9 to CoA)
35
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 
 
SCHEDULE 10
 
LOCAL ATTACHMENTS

(as updated from time to time)

 
[Ainsert details of Local Attachments, if any]

Local Attachements (Schedule 10 to CoA)
36
 [* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.



ANNEX C

DOCUMENTATION

[ * ]

Local Attachements (Schedule 10 to CoA)                                                             

37


 EX-31.1 3 ex311.htm EX-31.1 ex311.htm

Exhibit 31.1
 
CERTIFICATION
 
I, Steven R. Springsteel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Chordiant Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s)and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
By:
/s/ STEVEN R. SPRINGSTEEL
 
 
 
Steven R. Springsteel
Chairman, President and Chief Executive Officer
 

 
 
Date: February 7, 2008
 

 EX-31.2 4 ex312.htm EX-31.2 ex312.htm

Exhibit 31.2
 
CERTIFICATION
 
I, Peter S. Norman, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Chordiant Software, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s)and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
By:
/s/ PETER S.NORMAN
 
 
 
Peter S. Norman
Chief Financial Officer and
Principal Accounting Officer
 

 
 
Date: February 7, 2008

EX-32.1 5 ex321.htm EX-32.1 ex321.htm

Exhibit 32.1
 
CERTIFICATION
 
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), Steven R. Springsteel, Chief Executive Officer of Chordiant Software, Inc. (the “Company”),and Peter S. Norman, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
 
1. The Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2007, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
 
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
In Witness Whereof, the undersigned have set their hands hereto as of the 7th day of February, 2008.
 
 
/s/ STEVEN R. SPRINGSTEEL
 
 
Steven R. Springsteel, Chairman, President and
Chief Executive Officer
 
 
 
 
 
/s/ PETER S.NORMAN
 
 
Peter S. Norman, Chief Financial Officer and
Principal Accounting Officer
 

 
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Chordiant Software, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.


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